Financial doldrums deja vu at Boseto Mine
Brian Benza | Wednesday May 14, 2014 14:35
American investors, Montsant Partners last month announced their intention to rescue the troubled mining company, the promoters of Boseto Mine near Maun, with a $105 million(P920 million) war chest subject to fulfillment of certain conditions and due diligence.
But in a statement released this week Discovery Metals say that the recapitalisation will no longer proceed.
“The company announces that Montsant has not advised the directors of its intention to proceed with the recapitalisation proposal. Therefore, the conditions to the recapitalisation proposal have not been satisfied and as a result, the conditional, non-binding term sheet between the Company and Montsant is now at an end,” said Discovery.
The Montsant lifeline would have been a huge boost for the copper mine, which announced last month that in the absence of the debt repayment reprofiling and fresh capital, it would be unable to operate as a going concern.
This is the second time in the space of a year that a recapitalisation deal has fallen through with the Singaporean firm. In 2013, Blumont pulled out of a $100 million capital injection deal with Discovery Metals.
The collapse of last year’s recapitalisation deal led to mounting debts and financial difficulties for Discovery resulting in a retrenchment of 85 workers.
Directors of Discovery would have been optimistic the Montsant recapitalisation deal will turnaround the fortunes of the troubled copper producer as a larger portion of the funds were earmarked for taking mining operations underground to access better ore grades and tonnage.
At the announcement of the deal last month, Discovery Metals country manager Mokwena Morulane told Mmegi Business that $65 million of the funding would be used to discharge obligations under existing debt facilities, while a further $40 million would be for working capital.
The lifeline would have also seen the Botswana Stock Exchange (BSE) listed company reduce its net debt position by US$91 million from US$158 million to US$65 million.
Morulane said that part of the reason the company has not been doing so well is that “we have not been able to recover good copper grades. Going underground means we immediately access the sulphide zone, which has good grades. With copper prices still depressed, the re-capitalisation will also enable us to increase production to reach a certain level of revenues that covers our costs”.
Discovery Metals reported a loss of US$18.9 million for the December 2013 half year, up from the US$14.6 million for the corresponding period in 2012 as the company struggled to find fresh capital injections to counter mounting debts.
Low international copper prices coupled with low ore grades recovered at Boseto has also exacerbated the company’s difficulties. Copper prices have slumped to about $3.20 per pound from about $4.30 at the time the Bankable Feasibility Study (BFS) was compiled. Since commissioning in June 2012, the project has faced numerous challenges including inability to produce the quantities initially planned.