Dynatec Gains Key Partners for Madagascar Nickel Project
By Romina Maurino
30 Oct 2006 at 09:09 AM EST
resourceinvestor.com
TORONTO (CP) -- Dynatec Corp. [TSX:DY] has secured the partners it needs to move ahead with the Ambatovy nickel project in Madagascar, getting US$852 million in financial support and keeping a 40% stake in one of the world's biggest nickel finds.
The news sent Dynatec stock up 10.5% in massive trading, closing with a gain of 18 cents at C$1.89 on TSX volume of 62.7 million shares.
''This is without question the biggest transaction in the history of the company,'' CEO Bruce Walter said in an interview. ''If you apply current market prices, the project is adding over C$13 a share to the net asset value of the company.''
Under the deal, Japan's Sumitomo Corp., a longtime partner of the Richmond Hill, Ont.-based miner, will increase its stake to 27.5% from 25%, while the Korea Resources Corp. consortium, which includes Daewoo International Corp., Keangnam Enterprises Ltd. and STX Corp., will take up 27.5%.
Montreal-based engineering and construction firm SNC-Lavalin Inc. [TSX:SNC] will get a five% interest in Ambatovy and has been awarded a contract to manage construction. SNC-Lavalin had been the co-ordinator of the feasibility study for the project.
Walter called the deal a ''win-win,'' saying it gave its partners coming in a very low cash-cost of entry to the project.
''It allows them to use their balance sheet strength by giving Dynatec financial support, which in turn allows us to retain a much larger interest than we would otherwise.''
Dynatec will retains a 40% ownership interest in the project and be its operator.
The company would not have been able to retain a stake ''anywhere close to 40%'' without the support for the completion guarantees the partners are providing, he added, saying Dynatec viewed retaining the largest stake as a ''far greater generator of value'' for Dynatec shareholders than selling it for cash or lesser amounts as an early-stage project.
The US$2.5-billion project will begin construction by mid-2007 and is expected to begin production by early 2010.
It should produce 60,000 tonnes of nickel and 5,600 tonnes of cobalt per year and annual cash flows are expected to exceed half a billion dollars, based on 25-year average nickel and cobalt prices. It will be roughly the same size as Inco Ltd.'s [TSX:N; NYSE:N] Goro project in New Caledonia.
Walter conceded that the building of a project of its size and scale in a developing country is ''always a challenging undertaking'' but said Dynatec has a solid team and is well aware of what it takes to build a big project.
''To the greatest extent we can, I think we've prepared ourselves for what's necessary,'' he said.
As part of the agreement, Dynatec will also receive C$598 million in cross-guarantees on its share of guarantees related to the project's debt financing, as well as limited-recourse subordinated loans from Sumitomo, Korea Resources and SNC-Lavalin totalling C$236 million.
Korea Resources has agreed to buy half of the project's quarterly nickel production up to 7,500 tonnes in the first 15 years of production, while Sumitomo has agreed to buy any production not sold to end-consumers, up to a maximum of 30,000 tonnes a year for the first 15 years.
Dynatec will also receive about C$17.6 million in cash to reimburse it for 35% of Ambatovy's costs from June 1, 2005, to Oct. 18, 2006, as well as a C$2-million annual fee for its role as operator of the project.
Dynatec and Sumitomo had been searching for a third partner after South African-based Impala Platinum Holdings Ltd. pulled out of the project in January.
Walter would not say which other companies had been interested in partnering up on the project, only saying ''there has been interest from a large number of parties.''
''This is a fairly unique asset, in that it's a very major nickel project at a well-advanced stage at a time when there are very few such projects available,'' he said.
Dynatec, which apart from it stake in the Ambatovy project owns a stake in FNX Mining Co. [TSX:FNX], will issue 13.3 million shares to its partners, in four annual installments of approximately 3.3 million shares each.
© The Canadian Press 2006 |
