ANM 0.00% 5.5¢ advanced magnesium limited

newmont could drop a$100m on amc

  1. 635 Posts.
    The attached article is well worth a read and a 'must' for ANM & ANMNA holders in order to get a better handle on the situations behind the scene.
    In my view - based on statements by the Qld. Premier Qld. Gov. is not likely to throw more money down this dark pit.
    Nor would Newmount be likely to commit further funding in addition to current commitments - 'good money after bad money' kind of thinking.
    They - AMC and Newmount will have to find an external partner quickly and we all know what a 'fire sale' will bring. Someone is going to get a slice of the action at a price well below ground level.
    The upside is that the project will get back on the life support system. Still a long way from being discharged from intensive care (many problems ahead)
    The down side for current holders will be the significant dilution of their holdings. It will be a long road before the original DES holders will see their 80c recovered.
    All IMHO -
    Any informed comments ?
    Newmont could drop A$100m on AMC

    By: Peter Gonnella
    Posted: 2003/05/27 Tue 12:00 EDT | © Mineweb 1997-2003

    PERTH -- Newmont Mining [NEM] could lose all its A$100 million investment in the potential disaster waiting to happen, Australian Magnesium Corporation [ASX:ANM].
    The struggling Aussie-based magnesium pretender is shaping up as a post-Normandy Mining acquisition pain in the rear for Newmont after AMC announced this week that its partly constructed A$1.3 billion Stanwell project in Queensland had ground to a halt, suffering development cost overruns, and could be in jeopardy of not being completed if new investors can’t be found. It is understood Stanwell needs a further A$150-$200 million as well as some “balance sheet support”, which has put Newmont’s sizeable investment in a compromising situation.

    In January this year the US-based gold giant sunk A$100 million cash into AMC to honour Stanwell funding pledges made by Normandy to Australian governments and financiers, therefore maintaining the principal position (27.8 percent) on the AMC share register. Unfortunately for Newmont, that stock was bought at A$0.60 a share, which didn’t seem too bad on 3 January when the shares were A$0.48. But AMC shares have tanked since then. Based on their closing price today (Tuesday) of A$0.13, Newmont is currently sitting on a paper loss of just under A$80 million.

    Newmont has certainly made its intentions clear in relation to shoring up AMC going forward: there’s no more money for you lot; we’re a gold company! But if Newmont wants to extricate itself from this mess, then – courtesy of Normandy – it has to help AMC find another investor. That won’t be a straightforward assignment given the big upfront capital requirements involved. “Newmont is working closely with AMC to expedite the introduction of a new partner,” said embattled AMC chief executive, Rod Sharp.

    So, the gold miner is faced with two possible ugly outcomes. It either secures new investors, which ultimately will likely heavily dilute its AMC stake, or lose the whole investment if AMC/Stanwell collapses.

    The A$100 million equity commitment isn’t necessarily the end of it for Newmont. Normandy had a contingent liability for A$75 million to be pumped into the project post-construction completion in the event there were technical problems. Technical difficulties with new technology conjures nightmares for many investors who were caned by BHP Billiton (HBI plant) and Anaconda Nickel (Murrin Murrin plant), and AMC shareholders are heading down the same path. In addition, Newmont could be up for US$30 million in obligations to Ford (cornerstone customer) if the Stanwell magnesium smelter doesn’t achieve capacity by November 2005.

    For Newmont, the dilemma comes in the sense that the project will die, and its investment along with it, if someone doesn’t provide short-term aid. The Queensland State and Australian Federal Governments have basically already told AMC to take a hike. That leaves pretty much Newmont and financiers, and the latter aren’t known for their charity. “AMC will need to secure reasonable assurance of interim financial support from its key stakeholders to carry it and the project through to the finalisation of any agreement with a new partner, which could take a number of months,” Sharp explained. “Should a new partner not be secured, or interim financial support not become available in the timeframe required, AMC would need to review the basis for proceeding with Stanwell.” Doesn’t sound promising.

    If Stanwell goes under, then Newmont like many fellow AMC shareholders will have been taken to the cleaners by another Aussie pioneering processing technology flop and perhaps the underestimation of risk by AMC’s directors and Aussie governments.
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