First Quantum Minerals Ltd. has struck a much-needed deal to market a nickel mine and bring relief to the debt-laden balance sheet.
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The Toronto-based company said on Thursday that it will sell its Kevitsa mine in Finland to Boliden AB for US$712 million in cash. The transaction using the Swedish firm should near the coast May.
First Quantum really wants to cut its debt by US$1 billion in the first quarter of 2016, and this sale has got the company the majority of the way to its goal. Analysts cheered the offer, as Kevitsa fetched a higher price than most of them expected inside a weak nickel market.
“We believe this can be a a lot more than fair transaction for (First Quantum),” Dundee Capital Markets analyst Joseph Gallucci said inside a note.
Like many other large mining companies, First Quantum has leverage problems because it borrowed and spent money during the commodity boom and was vulnerable when metal prices plummeted. In 2013, the base metals miner acquired Inmet Mining Corp. for $4.9 billion of money and stock. The Inmet deal gave First Quantum the Cobre Panama copper project, and also the company has been plowing borrowed money in to the US$5.5-billion mine since.
First Quantum exited 2015 with US$4.6 billion of debt against just US$365 million of money. The organization has very large debt repayments coming due in a few years, including about US$1.1 billion in 2020, US$1.1 billion in 2021, and US$839 million in 2022.
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A more immediate issue is that First Quantum is within danger of tripping covenants on its debt this season. It needs to conserve a net debt-to-EBITDA ratio of under 5.Five times to prevent a breach in first half of 2016, and less than 4.Five times within the other half. Last month, the organization had to issue an alert that there is “significant doubt” it can continue like a going concern because of its debt.
However, analysts and investors are confident that First Quantum will overcome these challenges. The Kevitsa sale provides crucial liquidity, and the miner has good relations with lenders and it has had the opportunity to renegotiate debt terms together previously.
First Quantum also ran a sale process for its Ravensthorpe mine around australia. However, it didn’t attract any bidders, according to The Australian newspaper.
The company still needs to raise almost US$300 million to meet its debt reduction target for that first quarter. President Clive Newall has said the company will consider metal stream sales to raise money in addition to outright asset sales.
First Quantum was fortunate that the nickel price rallied over the last couple weeks because it was trying to sell Kevitsa. Nickel bottomed out below US$3.50 a pound in mid-February before jumping above US$4.20 within the first week of March.
Shane Nagle, an analyst at National Bank, credited First Quantum for getting a US$712 million capital infusion “without resorting to fire-sale prices and/or sacrifice growth.”
Shareholders liked the offer. The stock jumped more than 13 per cent on Thursday to close at $7.09 in Toronto.
pkoven@nationalpost.com
Twitter.com/peterkoven
