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What really went down at Albidon and the Munali nickel mine?

Unlike a number of stricken nickel miners and developers, Albidon has been unable to convince a Chinese partner of a recapitalized future.

Author: Barry Sergeant
Posted: Thursday , 23 Apr 2009

JOHANNESBURG -

The 27 February request for a trading halt by Australia-listed Albidon, which has as its key project the Munali nickel mine in Zambia, gave a strong flavour to the building disaster unveiled to investors on Thursday. John Shaw and Paul Chapman have resigned as directors of Albidon, apparently with immediate effect, and Albidon itself, but none of its subsidiaries, has entered voluntary administration.

The Albidon board has "concluded" that this action is the only available means for the company to continue operating in order to complete the financing transaction with China's Jinchuan Group. Albidon announced on 3 March a proposed funding from Jinchuan, in three tranches, that would allow Munali to be placed on care and maintenance until nickel prices improved and the mine could be restarted.

Tranche 1 (USD 1.8m) funding was received and Munali was placed on care and maintenance. Tranche 2 (USD 7m) has yet to be received as, according to Albidon "some of the conditions have yet to be completed. Jinchuan has concluded its due diligence on Munali and has entered into a heads of agreement with Barclays Capital and European Investment Bank".

As a result, says Albidon, "Tranche 2 funding has been delayed and there are no arrangements in place for Albidon to secure further funding to meet ongoing costs while an agreement is being negotiated between Jinchuan and Barclays Zambia".

Albidon may have a number of questions to answer. Chinese miners have become the "buyers of last resort" of a number of stricken miners around the world, not least in the nickel arena. Liberty Mines, out of Edmonton, recently announced a CAD 30m financing from Jien Nickel, which will take 51% equity control of Liberty Mines.

In another instance, European Nickel recently announced a USD 350m guaranteed debt facility, backed by an offtake agreement from the Çaldağ mine in Turkey with Jiangxi Rare Earth and Rare Metals Tungsten Group and China Tianchen Engineering Corporation.

There have been broader transactions; China's Minmetals has agreed to take over most of the assets of OZ Minerals, a substantial Australia-based base metals miner, for more than USD 1bn.

On 30 January, Albidon announced that it had reached agreement in principle for up to USD 26m in funding from Pacific Road Resources Funds, a large private investment fund specialising in investing in mining projects worldwide. That never materialised.

Nickel prices started coming off the boil in 2007, but have risen by 30% from lows seen late in 2008 to current levels around USD 5.23/lb. The world leaders in nickel production, after Russia's Norilsk, rank as Vale, BHP Billiton, and Xstrata, all diversified producers, followed by PT Aneka Tambang. Some heavy premiums were paid for nickel assets and companies during the co-called commodities supercycle from 2002 to 2008; huge amounts were spent developing assets over the cycle. Nickel miners generally continue to cut production, and take associated measures, to more evenly balance supply with demand.

On 21 January 2009, BHP Billiton announced the indefinite suspension of the Ravensthorpe nickel operations in Australia, and the halting of processing of mixed nickel cobalt hydroxide product at Yabulu. As a result, an impairment charge and increased provisions for rehabilitation of USD 3.4bn were recognised by BHP Billiton for the half-year ended December 2008.