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Shares of iron ore producer, African Minerals Limited (LSE:AMI), closed an eighth lower than their value on the London Stock Exchange today, after the mining firm admitted its current financial capacity is limited even as it released over half a billion dollars of fund and is in discussions with lenders to extend credit.
African Minerals, the largest employer of Sierra Leone where it currently builds Africa’s second largest iron ore mine, released about US$150 million from existing project level funds, as well as US$381 million of restricted cash, to provide working capital requirements and cover capital expenditure for the second half of the 2012 financial year.
The company is also “in advanced discussion” for a US$90-million equipment financing facility and is seeking to convert a US$100 million standby facility into a US$100 – US$150 million revolving credit facility to meet financial commitments.
Limited Funds
However, in a statement, African Minerals said the said funds – at least US$721 million – will only give the mining company little room to operate.
“Even with the above funding arrangements being successfully completed for the full amount before the end of 2012, financial headroom remains limited,” the FTSE-AIM 100 company stated.
Such limitation was due to the 75% drop in target production of its flagship Tonkolili iron ore project – from 20 million tonnes by the end of 2012 to just about five to six million tonnes – with the latest estimated total production to be on the lower end of that target.
African Minerals shares lost 32.25 pence, or 12.5%, at the close of trading in London today, to 225 pence, over a volume of over 11.6 million shares that were traded heavily after the announcement was released around 12:30 PM GMT.
Still Confident
The company further said that if the revised production target is not met, additional sources of funds will have to be sought, though the firm’s Chief Executive, Keith Calder, is still confident the company will be able to find the money it needs to keep the operations running.
“Whilst our financial headroom remains tight and depends on us achieving the expected level of sales, I am confident that other sources of funding will be available if required to enable us to achieve full production, together with an operating team capable of delivering the Company’s goals,” he said.
African Minerals is building Africa’s soon-to-be second largest iron ore mine with a resource of about 12.8 billion tonnes of ore extractable in 60 years. The project is integrated with a 200-kilometre railway transport system and power generation infrastructures.
Unfortunately for the miner, the wet season has delayed the 20 million tonne optimum capacity, first expected to be achieved during the fourth quarter of 2012 to the second quarter of 2013.
Lenders have already released a waiver to the company after the latter failed to comply with debt covenants.
