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Weatherly looking to optimise Tschudi amid low copper prices

Published: 15:33 14 Oct 2016 BST

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Weatherly mines copper at the Tschudi open pit where it produced 15,884 tonnes of the red metal at cash costs of US$4,199 per tonne (US$1.91 per pound)

As pointed out in March, when it posted interims, the issue for copper miner Weatherly International plc (LON:WTI) was its ability to service its short and longer term debt amid low copper prices.

The answer was provided in the Namibia-focused firm's final results to end June, with the firm saying it would be unlikely to be able to meet its revised loan repayments schedule without the support of its main shareholder and lender Orion, which, the firm said, has continued to work with the miner to build a successful  business.

The firm is working hard to rationalise costs, optimise operations and get maximum value from its assets for when the copper price heads up again.

Following the results, house broker Ambrian repeated a 'speculative buy' on the shares targeting 1.2p, a hefty distance from the current price of 0.275p.

As it was, the period under review saw a fall in the copper price by over 30% to below US$4,700 for the second half.

The continued squeeze on margins at Weatherly's Tschudi open pit operation meant at the end of the financial year, cash stood at US$4.5mln and debt at US$105.4mln.

That debt consists of US$4.4mln due on December 9 this year with US$4.6mln due on February 28, 2017 and US$96mln of project debt due to be repaid over three years from February 28 next year.

House broker Ambrian noted that given current copper prices of US$4,755 per tonne (US$2.16/lb), it expects that the repayment schedule will have to be revisited.

"The value of Weatherly is very sensitive to changes in the underlying performance of the Tschudi operations, a factor that is magnified by its high levels of operational and financial gearing," it said.

Our target price reflects a long-term copper price of US$6,000/t (from 2018 onwards)," it added.

The broker puts the net present value of Tschudi at US$141mln, which Ambrian risks as a multiple of 0.9 times' to reflect ongoing uncertainty regarding the firm's debt payments.

What the company does

Weatherly mines copper at the Tschudi open pit where it produced 15,884 tonnes of the red metal at cash costs of US$4,199 per tonne (US$1.91 per pound).

The mine produced first copper in February 2015 but quickly faced operational issues during commissioning. It achieved commercial production from October 1 last year and achieved the nameplate production rate in December 2015.

Ambrian notes that having had water inflows affecting the final quarter to June this year, operations are planned to be back at full capacity of 17,000tpa (or more) by the end of the year.

Guidance is that production will be around 15% down in the September quarter, but that shortfalls will be made up in the first half of calendar 2017 allowing production guidance for the firm’s current year to be maintained at 17,000 tonnes.

The group also operated what it calls the Central Operations (the Matchless and Otjihase mines), where production was suspended in September 2015.

Losses here for the first half to end December last year were US$5.2mln, while for the second half were US$1.1mln made up of care-and-maintenance and depreciation costs.

Overall for the group, the net loss before for the year was US$10.6mln versus a loss of US$13.5mln the previous year on revenue, which was up to US$63.6mln against US$38mln.

The period also saw the firm relinquish an option on tailings at Tsumeb which will translate as a US$40 per tonne credit on acid bought from Dundee. The group recorded a profit on disposal of the rights of US$3.8mln.

Central Operations still a "significant opportunity"

Weatherly said plans were being prepared to support a future resumption of the Central Operations at higher production rates and lower unit costs than previously achieved, taking full advantage of the installed processing plant capacity and the geological resources available, when prices upturn.

On Tschudi, it added: "Optimising the strategic foundation that Tschudi provides while seizing all available opportunities to conserve cash are top priorities at this point in time."

Ambrian notes the firm repeated production guidance for full year 2017 for Tschudi at 17,000t at C1 costs in the range of US$4,100 to 4,200/t (US$1.86-1.91/lb).

"We also note that although nameplate capacity is 17,000tpa, the plant has demonstrated that it is capable of delivering up to 20,000tpa and that this rate could be sustained with limited capex and additional working capital," it said.

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