Copper miner convinces banks

Equinox, in which African copper and gold miner First Quantum holds close to 20%, has announced an effective cut of USD 45m in its 2009 debt repayments, from USD 183m to USD 138m, following a rescheduling agreed with lenders. Equinox also stated that it remains on target to produce at Lumwana in Zambia around 170,000 tonnes (about 375m pounds) of copper metal-in-concentrates during 2009 at a cash (so-called "C1") operating cost of USD 1.15/lb. Market prices for copper moved from multi year lows of USD 1.28/lb in December 2008 to more than USD 1.80/lb, but have retraced recently to around USD 1.74/lb. According to a number of analysts familiar with Equinox's metrics at Lumwana, Equinox should not need an equity top up so long as copper stays anywhere above USD 1.50/lb. Equinox has a hedge book worth some USD 137m as of 26 March 2009, based on a copper price of USD 1.78/lb. On 31 December 2008, Equinox had cash resources of USD 51.3m, an undrawn contingent funding facility of USD 45m and an undrawn Nederlandse Financierings-Maatskappij voor Ontwikkelingslanden N.V. financing facility of USD 25m. On the liabilities side, Equinox has project and fleet debt facilities outstanding of USD 639.7m, equal to close on two-thirds of its market value. Equinox, however, has agreed to pay an additional 50 basis points margin from 1 April 2009 on its outstanding senior debt facilities. Equinox is known to some specialist investors as the most levered copper equity, given the ratio between its net debt and market value. However, Equinox's market value iss substantial, at just shy of USD 1bn, providing it with the leeway to possibly raise funds by a rights issue, without excessive dilution to existing shareholders. On 26 March Equinox reached agreement with its debt financiers to restructure its debt repayment schedule. Given its growing production profile, Equinox would have found it a relative song to have dealt with its debt at higher copper prices, which hit all time records in mid-2008 around USD 4.08/lb. Unit production costs at Lumwana are anticipated by Equinox to be higher in the early part of 2009 until steady state production activities are reached, which is expected by mid-2009. According to Equinox, "considering the un-drawn facilities available, the company expects to generate positive cash flow in the next 12 months sufficient to fund ongoing operations, including discharging the company's current obligations in the normal course of business". First Quantum may, logically, at some point make a scrip offer for the 80% of Equinox its does not yet own; perhaps, as a London sales-trader speculates, "a more bullish copper price outlook could trigger that transaction". Just last week First Quantum announced a bought deal, where it is raising the equivalent of around USD 240m. First Quantum remains among the best performing established copper producers, though Asian names such as Jiangxi Copper and Yunnan Copper have performed remarkably well in the past while. For Equinox, also on the potential upside is that the Lumwana uranium feasibility study is out, with a finding that a treatment facility for the uranium ore stockpile that will result from the selective mining of the discrete, high grade uranium zones within the Lumwana copper orebodies could become a reality. The facility would cost about USD 200m and could recover around 2m pounds of uranium oxide and 12,800 tonnes of copper concentrate a year. The decision to proceed with development of the Lumwana uranium project will depend, subject to board approval, on a number of factors including improvements in the international project financing climate, as well as market prices for uranium oxide. Selected copper stocks