Oz Wins Debt Extension, But Future Remains Uncertain

Sydney Morning Herald

Wednesday December 31, 2008

Clancy Yeates

OZ MINERALS has received a last-minute lifeline from its bankers, who have granted it a two-month extension on the refinancing of more than $800 million in debt.

The debt-crippled miner yesterday said it now had until February 27 to improve its balance sheet.

To reassure the banks, the metals producer will try to sell prime assets in coming months, and it has given the French lender Societe Generale security over some key operations.

OZ Minerals shares, which have been in a trading halt at 55c since late last month, will remain in suspension.

In a sign of the grim situation facing OZ, which was formed in the merger between Oxiana and Zinifex in July, the miner is also seeking bridging facilities to cover cash shortages at several mines in the next few weeks.

Prices of zinc, nickel and copper, all produced by OZ, have more than halved this year, and its cash balance has fallen from $279.4 million on December 8 to $169.2 million on December 23.

The Herald understands the banks agreed to the extension because they believed allowing more time could prevent a fire sale of OZ's assets.

They are also keen to avoid taking a more active role in managing the troubled business, such as stepping in as administrators.

"I don't think any of the banks want to run a mining company," one source in the syndicate said.

OZ managed to convince the group of banks that provided loans known as "facilities A and B" that there was interest in its assets. High on the list of potential sales is the flagship Prominent Hill gold and copper mine in South Australia. The company has received expressions of interest in the mine, which is set to begin production in the first quarter of next year, but market conditions for asset sales are poor.

OZ has given Societe Generale, which is behind a separate loan of $185 million known as facility C, security over all ofthe assets of the former Zinifex group.

The French financial group had previously alleged the loan was in default, a claim denied by the miner.

The chief executive of OZ, Andrew Michelmore, said the extension showed "considerable progress" in the refinancing process, but pointed to the challenges ahead.

"We still have a lot of work to do to achieve the refinancing."

Management would explore all options to cut costs, including operational improvements and asset sales, he said.

A spokesman for OZ, Matthew Foran, could not say whether this would include further mine closures, after last week's announcement it would close the Avebury nickel mine in western Tasmania, cutting 200 jobs.

"Every one of our operations is being reviewed at the moment, in terms of its capital expenditure and operational expenditure," he said.

© 2008 Sydney Morning Herald

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