Weatherley International Transforms Its Potential With A Series Of Deals In The Last Days Of 2008
By Charles Wyatt
minesite.com
During the last few days of each year Minews keeps a sharp eye out to see if any companies land a bit of bad news on the market in the hope that no one will notice. This year Weatherley International came out with a press release on December 30th, but close reading of it showed that chief executive Rod Webster has played a blinder and that the company is now well set to meet the rigours of 2009. What he has done is enter into loan facility agreements with Dundee Precious Metals and commodities trading company Louis Dreyfus to provide Weatherley with US$11.3 million of new funding. These negotiations took place at a difficult time as somebody, so far unnamed, had come up with a claim against the company in mid-November. Rod, on a well deserved holiday in Australia, dismissed it as a little local difficulty with Barclays Bank, but as it has the potential to be material in the context of currently available cash resources he had the shares suspended all the same.
That is still the current position, but the fact that Dundee and Louis Dreyfus have carried on with this funding shows what they think of the claim. In fact Rod Webster sees no rush to get the suspension lifted until Weatherly announces its results for the year to end June 2008. That ought to be in February. As if suspension and the negotiation of new funding was not enough, Rod Webster also had to oversee the closure of the company’s Tsumeb West and the Matchless copper mines in Namibia, as well as the second tier Otjihase and Tschudi projects. All together these mines had produced 2,643 tonnes of copper in the September quarter, but the price of copper was falling fast and the hedges for all mine production at US$5,000 per tonne ran out at the end of 2008.
As a result the timing of the opening of the new ‘Ausmelt’ furnace at Tsumeb was spot on. A commissioning run was carried out in September and October and then followed by a short shutdown for re-bricking and cooling modifications. But now, fully commissioned, the smelter is able to treat 150,000 tonnes of concentrate per year and this capacity will increase by a further 60 per cent when the oxygen plant is commissioned later this year.
The difference between mining and smelting is that revenue is earned from the custom treatment of concentrates, most of which are imported. This is the key to why Dundee and Louis Dreyfus were so keen to get involved with the smelter. The Chelopech mine in Bulgaria owned by Dundee Precious Metals has significant arsenic content in the concentrate and the Tsumeb smelter is one of the few which can produce an arsenic compound out of such concentrate for use in timber treatment. Louis Dreyfus for its part has a mine in Peru which produces a complex concentrate also, so it suited both to have unfettered access to the Tsumeb smelter for the next three years. That is the initial period for which Weatherley agreed to treat 100,000 tonnes of concentrate from both of them.
Those deals will be enough to allow the smelter to wash its face, but Rod will be looking round for more customers. Always at the back of his mind, however, will be the possibility that Weatherley’s mines can be brought back into production as soon as the copper price reaches a sensible level. Rod Webster won’t commit himself at the moment, but he did make the dry comment that it is not often a company is lent money to close down its operations. The point is that these mines have been placed on care and maintenance, will be maintained in good standing, and can be brought back into production quickly and easily when the decision is made.
Back to the money side of the operation. Dundee is providing a US$7 million facility for the Tsumeb smelter and US$1 million has already been advanced. The agreement with Louis Dreyfus is a separate arrangement and amounts to US$4.3 million, of which US$2 million is a prepayment for the concentrate tolling agreement and the balance is a 12 month extension to a US$2.3 million debt owed by Weatherly to Dreyfus. One of the Rothschilds is supposed to have said that the best deals suit all parties and this seems just such a case. The three year treatment contract has now been extended to five years and Louis Dreyfus has an offtake agreement for all copper blister produced by the smelter.
Just as a final reminder of how difficult conditions were last year when these various negotiations were taking place, Weatherley also renegotiated the terms of a US$12 million convertible loan note which had been agreed back in May 2008. The original conversion price has now been reduced from 23.5p to 8p. This is a reflection of the pragmatic way in which Rod Webster operates. How many other company directors saw deals in the second half of last year go up in smoke simply because they could not accept that the present is the present is the present? Deals based on history do not make sense and shareholders of Weatherley should be delighted that Rod saw it that way as they now have a viable company with a future. |
