TORONTO – Has billionaire Murray Edwards stepped in to prop up a troubled Canadian copper miner once more?
That’s what investors and analysts are wondering after Imperial Metals won a second reprieve on its loans until October 13, while bankers review a new financial rescue plan. Edwards, the company’s largest shareholder who has been involved since 1994, has previously helped bail out Imperial Metals by injecting capital, making a loan and guaranteeing a credit line.
Imperial’s shares and bonds have slumped amid uncertainty as to whether Edwards, and money manager Bruce Berkowitz’s Fairholme Capital Management, the largest bondholder, would step in with additional financing. The Vancouver-based company fed those concerns last month when it disclosed lenders had to grant a waiver to avert default, and warned there’s doubt Imperial can survive without more financing or a debt extension.
“We’re encouraged that things are going to go successfully; we’ve been working productively with the banks,” Steve Robertson, vice president corporate affairs at Imperial Metals, said by phone. “We fully expect that we’ll have a final plan that’s approved by that time.”
The financing plan will help the company stave off a full-blown restructuring, which looks likely without the additional support, according to ratings firms.
“When you get to that point when you see no option at all, that’s probably when they would file to restructure,” said Jamie Koutsoukis, an analyst at Moody’s Investors Service.
Multiple requests for comment to Berkowitz and Edwards weren’t returned.
COPPER SHINES
President Brian Kynoch hasn’t been able to pull Imperial out of its tailspin even with copper prices close to a three-year high.
Production at the Red Chris and Mount Polley mines has missed targets, Koutsoukis said by phone from Toronto, and Mount Polley had to be temporarily shuttered in July due to forest fires in British Columbia, where Imperial’s copper and gold mines are located. The last time Imperial posted an annual profit was in 2013.
“When we came into 2017, demand and all the indicators seemed fairly strong,” Koutsoukis said. “They’ve missed out on a recovery.”
Edwards’ Edco Capital Corp and a fund advised by Berkowitz’s Fairholme Capital Management gave Imperial a C$20-million bridge loan in July that matures on the earlier of October 15 or when the company secures more financing.
Edwards, elder statesman of the Canadian oil industry and chairman of Canadian Natural Resources, owns an equity stake of about 35.5%, according to data compiled by Bloomberg. Berkowitz’s firm controls the biggest stake in Imperial’s bonds and second-biggest in equities, the data show. He’s known for his bet on Sears Holdings and a legal battle with the US government over the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation.
MARKET REACTION
Imperial’s stock closed up 0.3% to C$3.20 after news of the credit waiver, still down more than 80% from a record in February 2014. The bonds due 2019 traded on September 29 at 91.25 cents on the dollar, giving them a yield of 13.85%, according to the Trace bond-price reporting system.
Among those still looking for a last-minute boost is Tim Logie, a Vancouver-based portfolio manager at Vertex One Asset Management.
“It’s a negotiation, and I have to think these two large players are playing a little tougher than in the past,” Logie said. “Ultimately though, restructurings are disruptive and certainly aren’t biased to equity holders, not to mention expensive – so what would these two investors gain?”
They’ll need to figure it out soon. Abid Maredia, an analyst at S&P Global Ratings, downgraded the company to CCC- in July on the expectation that the company will need to restructure within the next six months. It had about C$850-million of debt at the end of the second quarter.
“The capital structure we view as highly unsustainable, they do not have liquidity, we are expecting negative free cash flow and they might not have enough cash to fund their interest obligation,” Maredia said. "That could weigh on their decision to pursue strategic options, and that could include debt restructuring.”