One way or another, Weatherly International PLC (LON:WTI) has been a key player in the Namibian base metals sector for many years now.
Some years ago, Weatherly was the owner of the locally famous Tsumeb smelter, until it sold out to raise cash for the development of other projects.
These days the central plank in Weatherly’s offering is the Tschudi copper mine, now establishing itself as a producer after achieving nameplate production rates of 17,000 tonnes per annum during December of 2015.
That followed the announcement of commercial production in September 2015 and represented something of a baptism of fire for newly appointed chief executive Craig Thomas, who’d only been in post since July.
But if he was new to the top job, Thomas wasn’t exactly new to Weatherly.
He’d been in post in Namibia as chief operating officer for the previous five years, and was thus well able to step up and provide a steady and experienced hand at midwifing the birth of Tschudi, which has since enjoyed a largely glitch-free ramp up.
Prior to his stint with Weatherly in Namibia, Thomas enjoyed roles at Lihir, Iamgold (TSE:IMG), Placer Dome, Western Metals and Mt Isa Mines, working in his capacity as a trained mining engineer.
So, if anyone can make a success of Tschudi and the other Weatherly assets in Namibia, it’s Thomas.
He’s had his work cut out a little bit though, given that the copper pricing environment hasn’t exactly been favourable in recent months.
Weatherly reported an operating loss during the six months to December 2015 of US$6.7 mln, although the bulk of that loss was incurred as a result of the mothballing of what it calls the Central Operations, the Matchless and Otjihase mines earlier in the year.
In fact, in spite of the weakening copper price, margins at Tschudi at the operating level look secure. The company produced its copper cathode at a cash cost of US$4,080 per tonne in the quarter to end December 2015, which was well below the original guidance of between US$4,250 and US$4,350 per tonne.
The copper price, it’s true, dropped from over US$5,700 per tonne in the summer of 2015 to under US$4,700 per tonne at the end of last year before bouncing to around US$4,900 at the beginning of March. Even allowing for the recent strength, margins are under pressure.
The company plans though, as production rises, to use the resulting economies of scale to push costs down further, ultimately to around US$3,865 per tonne, or even to US$3,785 per tonne if output of 20,000 tonnes per year can be reached.
The real issue in the meantime will be whether Weatherly can service its short and longer-term debt.
“We continue to see the overarching issues as balance sheet related,” broker RFC Ambrian opined in a note released late in January, although some pressure has been removed by the relinquishing of an option on tailings at Tsumeb which will translate as a US$40 per tonne credit on acid bought from Dundee, the current owner of Tsumeb.
More significantly looking further out, Weatherly is lucky in that its main lender, Orion, is also one of its key shareholders, with a 24.6% stake. As a lender and a shareholder both, Orion is unlikely to be of a mind to foreclose if any squeeze on Tschudi’s margins does get in the way of debt repayments.
Still, that there is a risk was highlighted in commentary to Weatherly’s most recent financial statements.
“If copper prices remain at current levels it is unlikely that the group will generate sufficient surplus cash to meet all loan repayments,” the company said.
But recent momentum in copper pricing has been up, Orion have to date been supportive, and the drive to push costs down at Tschudi continues. All told, the company looks in decent enough shape in a tough market.
But what happens to the copper price next will be crucial.