TORONTO (miningweekly.com) – Diversified miner Metorex Resources has entered into agreements for debt and equity financing amounting to R922-million, to finance the completion and production ramp-up of its now overdue Ruashi copper/cobalt project, in the Democratic Republic of Congo.

The company will also restructure its medium-term debt to provide a longer-term debt profile.

The fundraising was necessary to cover cost overruns at Ruashi, and because a longer-than-expected construction time at the project meant that the firm was not generating the cashflow it had planned for by this point.

However, the global financial crisis, combined with lower commodity prices, is making it increasingly difficult and expensive for mining companies to raise capital.

Metorex plans to raise R744-million by selling 372-million shares at R2 apiece, and has also arranged for a R178-million bridging finance loan from Standard Bank.

The shares will be placed with Allan Gray, Coronation Asset Management, the Industrial Development Corporation of South Africa, Minerales Y Productos Derivados SA, the Public Investment Corporation, Beankin Investments , Standard Bank and Stanlib Asset Management.

Metorex conceded that the terms of the fundraisings may be viewed as "onerous" - the firm's shares closed at R3,81 a share on Thursday before the announcement - but insisted that, without the extra cash, the Ruashi mine could not be completed, which would have "serious consequences" for the company.

The issue price, which represents a discount of 48% to the weighted average traded price of Metorex shares for the trading day ended on November 20, was determined by the board after a book-building excercise.

Metorex said on Thursday that it still needs R700-million to finance the cash flows required to complete the project and ramp up to full production.

The final estimated cost of the mine has been increased to $320-million, partly thanks to increases in the scope, but also as a result of inflation-related cost escalations for materials like steel, cement and diesel.

The bridge loan accrues interest at the Johannesburg interbank agreed rate plus 7,5%/y and is available until 30 November 2009, Metorex said.

It will be repaid "through internal cash generation or potentially the disposal of non-core assets, as appropriate".

The firm pointed out that the funds that will be available after the transactions will more than cover the R700-million still to be spent at Ruashi, ensuring a supply of working capital going forward.

"This financing has been a major challenge in what is effectively a closed credit market," commented CEO Charles Needham.

"It is regretted that the additional finance was not raised before market conditions deteriorated and before project delays materialised on our Ruashi project," he added.

Metorex owns operations in South Africa, Zambia, the Democratic Republic of Congo, and explores in Mozambique, the Central African Republic and Ghana.

The company's shareholders will meet on December 23 to vote on issuing new shares for the proposed equity financing.

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