Rio Tinto's $83m Helping Hand
Sydney Morning Herald
Friday March 28, 2003
Rio Tinto has been forced to prop up its 49.2 per cent-owned South African copper producer, Palabora Mining, through the provision of a $US50 million ($83.1 million) short-term loan.
Palabora needs the funds until it raises $US90 million in debt markets, with the need for the injection coming as it makes the switch from open-cut operations to underground operations at a cost of $US409 million.
The transition is proving to be less than smooth. Rock-breaking issues are the main problem and have meant that the daily production target of 30,000 tonnes of ore is hopelessly under budget at 12,000 tonnes.
Palabora said that ore drawpoints in the underground mine have been clogged up by big rocks. Secondary breaking equipment brought in to overcome the problem has not lived up to expectations, leaving Palabora with little more than the hope that rock fragmentation will improve as the underground ``cave" gets bigger.
Palabora's cash flows are also being squeezed by the rise in the rand and low copper prices. The company said it expected to compete its refinancing in the second half of the year. Rio will get commercial rates on its short-term advance to the company.
Palabora's mine is near the town of Phalaborwa in the Northern Province where it shares a boundary with the Kruger game reserve. First copper was produced in 1964.
Mining in the open-cut stopped in April 2002 although scavenging and imported concentrates allowed the group to maintain production of refined copper at more than 80,000 tonnes in 2002.
Because the operation is less than world class, analysts have long wondered why Rio has maintained its interest. Palabora's woes add to the copper headache Rio has been having at its US operations.
Rio took a $US480 million write-down on the value of the US copper business in its 2002 annual result.
© 2003 Sydney Morning Herald
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