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First Quantum Minerals Ltd. has struck a much-needed deal to sell a nickel mine and bring relief to its 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 wants to cut its debt by US$1 billion within the first quarter of 2016, which sale gets the company most of the method to its goal. Analysts cheered the offer, as Kevitsa fetched a greater price than many of them expected in 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 in a note.
Like many other large mining companies, First Quantum has leverage problems because it borrowed and spent too much money throughout the commodity boom and was vulnerable when metal prices plummeted. In 2013, the bottom metals miner acquired Inmet Mining Corp. for $4.9 billion of cash and stock. The Inmet deal gave First Quantum the Cobre Panama copper project, and the company has been plowing borrowed money into the US$5.5-billion mine ever 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 problem is that First Quantum is in danger of tripping covenants on its debt this season. It must conserve a net debt-to-EBITDA ratio of less than 5.5 times to avoid a breach in first half of 2016, and fewer than 4.5 times in the other half. Last month, the company needed to issue a warning that there’s “significant doubt” it may continue as a going concern due to 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 in the past.
First Quantum also ran sales process because of its Ravensthorpe mine in 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 boost money in addition to outright asset sales.
First Quantum was fortunate that the nickel price rallied over the last few 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 to get a US$712 million capital infusion “without having to resort to fire-sale prices and/or sacrifice growth.”
Shareholders liked the deal. The stock jumped a lot more than 13 per cent on Thursday to shut at $7.09 in Toronto.
pkoven@nationalpost.com
Twitter.com/peterkoven
