of wood and trees

  1. 3,816 Posts.

    You talk of forrests and trees, but I think 'The Sad Tale of The Gingerbread Man' a better analogy.

    The deal accepted by the bondholders is fantastic for ANL (idiotic for the bondholders imo), but I dare say Arhidas, you might remark that ANL is not out of the woods yet. At current prices and exchange rates, Murrin Murrin will need to to produce around 29,000 tpa of nickel for ANL to break even. If it tops 30,000 tpa it might even generate a positive cashflow for ANL of about 0.2 cps per annum on a post-dilutional basis.

    But ANL is still in debt to Glencore to the tune of around 100 MAUD and is in default of its repayment obligations according to its latest quarterly report. I dont know what the current status is regarding ANL's currency hedging contracts, though a figure of nearly 48 MAUD was mentioned in 'Current Liabilities' under 'Foreign Exchange Hedge Obligations' in the 2002 Report. These additional charges could increase the breakeven point for ANL to over 33,000 tpa nickel.

    ANL will have about 125 MAUD in working capital after the restructure. This could conceivably be reduced to around 50 MAUD by mid year unless production at Murrin Murrin improves or the nickel price increases further. It is my opinion that Glencore will maintain Murrin Murrin's production around current levels and so bleed ANL dry, perhaps within 18 months (maybe much sooner, depending upon what the foreign currency hedging obligations are). Glencore, as creditor of perhaps 95%+ of ANL's debt, can then make its move. Australia's bankruptcy laws were designed to benefit vultures and Glencore will take full advantage of this fact.

    Why should Glencore do this? A few years ago the production of nickel from laterite ores using PAL technology was tipped to boom and so greatly reduce the nickel price. The shortcomings of the current laterite operations has stalled the development of further laterite projects and has done wonders for the nickel price. Any company contemplating building a laterite plant now has to consider that the cost of nickel production may be greater than estimated. The economy of scale requirement for these plants also means that the extra nickel added to the world supply could depress the nickel price. This leaves Murrin Murrin at an advantage as it can expand production at a cost considerably less than that of building a new plant, and in quantities far less than would be required for a new plant.

    My 2c worth.

    (As an aside, if TIR or any other company manages to develop a viable extraction process for sulfide ores, then the reduced cost of nickel production will put further pressure on the laterites.)
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