In dire Straits: $120m exit plan
STRAITS Resources is writing a $US120 million ($A118 million) cheque to extricate itself from a costly copper concentrate supply deal from its Tritton copper mine near Nyngan in New South Wales with the metals trading arm of JPMorgan.
STRAITS Resources is writing a $US120 million ($A118 million) cheque to extricate itself from a costly copper concentrate supply deal from its Tritton copper mine near Nyngan in New South Wales with the metals trading arm of JPMorgan.The terms of the supply deal were entered into by the previous owners ahead of Tritton's float on the ASX in 2002 and have become horribly "out of the money" in that Straits is handing over about one-third of the copper price in treatment and refining charges compared with the industry average of about 5 per cent.While copper prices have weakened in recent weeks to 11-month lows, the current price of $US3.80 a pound remains at a price well above historical highs, and well above Tritton's current cash cost of production of $US2.13 a pound.To rid itself of the cash drain, Straits will pay JPMorgan the $US120 million in return for the agreement being terminated and replaced by one more in line with prevailing industry treatment and refining charges. Straits said that the end result was that Tritton finally became a "clean" asset. The mine currently has a mine life of seven years. Annual production is about 25,000 tonnes of (contained) copper. Because of the unfavourable offtake agreement the mine has struggled to make a profit despite bumper copper prices. In the five months to June 30, Tritton posted a net loss of $4.8 million.Finance for the cost of terminating the offtake arrangement is to be covered by a five-year debt facility with Standard Chartered Bank. In addition, Credit Suisse is providing a $US50 million silver loan facility on the strength of Straits' Mt Muro mine in Indonesia. Straits' managing director Milan Jerkovic said that the market had been aware what a drag the legacy offtake agreement had been on the company.He said the restructure would "allow Straits to provide a cleaner and more transparent investment opportunity to the market"Straits shares closed 1? higher at 81?.