Photo by: Mercator Minerals
TORONTO (miningweekly.com) – North American base metals miner Mercator Minerals has restarted its process to consider strategic alternatives, after an agreement to be bought by diversified Russian mineral resources company Intergeo was terminated at the start of the month.
The closing of the deal was delayed after the Russian Federal Anti-Monopoly Services requested more information, which caused delays that stretched beyond the deal cutoff date.
With the termination of the Intergeo transaction, Mercator's lenders agreed to exercise forbearance in exercising their various rights and remedies under the Mineral Park credit facility until Monday.
The TSX-listed miner operates the Mineral Park mine, in Arizona, US, and owns two development projects in Sonora, Mexico – the copper heap leach El Pilar project and the molybdenum/copper El Creston project.
During the second quarter ended June 30, Mercator posted a net loss of $3-million, or $0.01 a share, compared with earnings of $8.8-million, or $0.03 a share, a year earlier. Excluding special items, the adjusted earnings rose to $5.2-million, or $0.02 a share, up from an adjusted loss of $10.7-million, or $0.03 a share, a year earlier.
Analysts had, on average, expected adjusted earnings of nil a share on revenue of about $57-million.
Revenues were, however, 9% higher year-on-year at $69.8-million, mainly owing to the prices realised for copper being 7% higher at 3.27/lb and for molybdenum being 50% higher at $16/lb, which more than offset the 18% lower copper sales of 8.9-million pounds and 11% lower molybdenum sales at 2.5-million pounds.
The increase in the company’s realised copper prices was mainly owing to market-to-market adjustments on the company's unsettled copper concentrate sales. The 50% increase in realised molybdenum prices was mainly owing to a 30% increase in the average spot price of molybdenum with the balance of the increase a result of market-to-market adjustments on the company's unsettled molybdenum concentrate sales.
Cash costs of production on a coproduct accounting basis were 12% lower for copper at $2.43/lb and 21% higher for molybdenum at $12.66/lb.
On-site operating costs of $11.62/t milled were 8% higher year-on-year, mainly owing to mining in harder ore sections of the Mineral Park pit, resulting in lower throughput rates and higher operating costs.
“The favourable earnings result remains overshadowed by the company’s distressed balance sheet,” Laurentian Bank Securities metals and mining analyst Christopher Chang said in a note to clients.
He explained that as at the end of the second quarter, Mercator had total cash (including unrestricted) of only $11.8-million and total debt of $153.4-million, including a bridge loan by Intergeo’s controlling shareholder, Daselina Investments, a part of ONEXIM Group, which is controlled by Russian billionaire Mikhail Prokhorov.
Following the Intergeo transaction’s cancellation, the lenders advised the company that they planned to close out all Mercator’s copper hedge positions to partially offset the outstanding amounts under the termination claim facility of $20-million. “Based on the current spot price of $3.19/lb of copper, we estimate a market value of roughly $4.8-million on the sale of the copper hedges – 47.5-million pounds of copper hedged at $3.29/lb,” Chang said.
Mercator had in September last year announced that it had started a strategic review that would consider an outright sale of the company, a business combination, or a sale of all or a portion of its assets.
Mercator’s Mineral Park mine has proven and probable reserves of 948-million pounds of copper and 1.6-billion pounds of copper in the measured and indicated categories. In 2012, it produced copper at $2.51/lb. The mine has a remaining life of about 20 years.
The El Pilar project currently has a compliant proven and probable reserve of 1.73-billion pounds of copper and 2.23-billion pounds in the measured and indicated categories. It is expected to produce copper at $1.34/lb over its 13-year life.
As a result of the ongoing strategic process, management did not provide production guidance for the second half of the year.