Dynatec Gets Financing From Korea for Nickel Project
Dynatec Corp., a Canadian mining company, said it sold stakes in a $2.5 billion Madagascar nickel project to Korea Resources Corp. and Sumitomo Corp. to raise $852 million in funding. The shares rose the most in 15 months.
Sumitomo and Korea Resources will each own 27.5 percent stakes in the Ambatovy venture, Richmond Hill, Ontario-based Dynatec said today in a statement. Dynatec will remain the project operator, retaining a 40 percent share, and SNC-Lavalin Group Inc. will hold 5 percent.
Dynatec is seeking partners as nickel prices hover near 18- year highs and demand for the metal grows from makers of stainless steel. The project may produce as much as 60,000 tons a year for more than 27 years, the company said. Korea Resources will have the right to buy at least half the project’s quarterly production during the first 15 years.
“The biggest benefit now is that Dynatec won’t need to raise equity or sell assets,” said Cliff Hale-Sanders, an analyst at CIBC World Markets in Toronto who has a “sector outperform” rating on Dynatec shares. “The project is also back on a critical timeline as there had been some stagnation after Impala pulled out.”
Impala Platinum Holdings Ltd., the world’s second-largest platinum producer, said in December it was withdrawing from the project after the estimated cost of developing a mine and expanding a smelter rose. The new funding also means Dynatec won’t have to sell its 25 percent stake in FNX Mining Co., CIBC’s Hale-Sanders said.
Shares Rally
Shares of Dynatec rose 18 cents, or almost 11 percent, to C$1.89 at the 4 p.m. close of trading on the Toronto Stock Exchange, giving the company a market value of about C$578 million ($513 million). The gain was the biggest May 26, 2005. Prices earlier reached C$1.92, the highest since Feb. 17, 2004. The stock has jumped 56 percent this year.
Dynatec will issue 13.3 million of its own shares over the next four years to partners in the project, Chief Executive Bruce Walter said by phone from Toronto. He declined to say how the shares would be distributed among the partners.
Nickel on Oct. 20 reached the highest since at least 1987 as mine output lagged behind demand. Inventories monitored by the London Metal Exchange plunged 86 percent this year. Mine output fell short of demand by 70,000 metric tons in the eight months ended August, the World Bureau of Metal Statistics said.
Sumitomo Agrees to Buy
Construction at Ambatovy, located about 80 kilometers (50 miles) away from Madagascar’s capital, Antananarivo, will likely start in the middle of next year, Dynatec said. Madagascar is an island in the Indian Ocean off the southeastern coast of Africa, near Mozambique.
Tokyo-based Sumitomo, Japan’s third-largest trading company, has agreed to buy as much as half of the project’s production, or 30,000 tons a year for the first 15 years, if a buyer can’t be found.
Korea Resources is a state-owned entity that has received a mandate from the country’s government to secure the mineral resources needed to fuel Korea’s economic expansion. Exports, which make up 40 percent of the economy, have stoked 14 consecutive quarters of expansion in the country, the longest stretch of growth since before the 1997 Asian financial crisis.
Dynatec and its partners have already received a letter of intent from the Export-Import Bank of Korea for $650 million of project debt. They are also negotiating with lenders such as the Japan Bank for International Co-operation to secure as much as 60 percent of Ambatovy’s total project funding, Dynatec said.
The company wants to have the funding in place by the beginning of next year, it said.
