ALLAN SECCOMBE

Resources Editor

METOREX, the JSE-listed copper miner, is applying the tough lessons learnt at Ruashi, its first venture in Democratic Republic of Congo, to a pipeline of new projects in Congo.

Metorex had the Kinsenda, Lubembe and Dilala East prospects in Congo and it was moving cautiously on exploration and development plans, CE Terence Goodlace said on Friday.

“We are taking extreme care we don’t over extend ourselves and grow too quickly,” he said, and management was close to taking a plan to the board to grow copper and cobalt production in Congo from these three projects.

Metorex ran into financial difficulties at its Ruashi project, which was slated to produce 45000 tons of copper a year but a lower grade of the deposit feeding the plant meant this was scaled back to a more sustainable 36000 tons a year.

Metorex raised R922m in 2008 in a dilutive rights issue that sent its share price tumbling.

The reason for the fundraising was in the main to pay back debt incurred for Ruashi and to finance cost overruns at the project. It held a second capital-raising earlier this year, generating R900m in another rights issue.

“There were some serious lessons learnt so we’re being very careful this time round,” Maritz Smith, Metorex’s financial director, said.

The first project to be brought into production will be funded via a combination of debt and equity. The debt portion is regarded as high-risk and Metorex wants to ensure its asset base generates enough cash to repay that debt, something that did not happen with Ruashi, which was larger than the rest of the group.

“Should we do more than one project we cannot look at debt beyond the first project. It will be just too heavy for this company, so we’ll probably go the equity route for the second project,” Mr Maritz said.

“We’d have to assess how strong Ruashi is in relation to its current debt.” At last count, Ruashi had debt of about $100m, but a series of forward sales contracts are in place to ensure Metorex can service it.

At the end of last month Metorex finished an unfavourable copper hedge position, or a forward sales contract, that lost it $5m a month in opportunity cost. Ruashi is now in a new hedging contract to sell 40% of output at a price of $6000 a ton, about 10% below the spot price.

The remainder of Ruashi’s output is sold at spot prices. A second hedge kicks in for a third of production once that is completed.

The Kinsenda project, which is a defunct mine, is most likely to be brought into production first, possibly in 2013. It has existing shafts that will give Metorex quick access to the ore body.

At Chibuluma mine in Zambia, Metorex is placing an order for a 2,5MW generator to complement the one it already has. The national power group is pushing for price increases, but this will have limited effect on Metorex because power makes up 5% of Chibuluma’s costs.

At Ruashi, Metorex has an approved $13,5m project to complete an acid-making plant by the middle of next year.

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Source: Business Day