Mining fears for 2016 fail to faze McAleese
Financial covenant at risk and much depends on syndicate negotiations at month’s end
With fears of a drawn out downturn in iron ore prices, mining-exposed trucking firm McAleese is refusing to buckle.
Media reports have been emphasising the down-side, with ABC reporting today an academic’s pessimistic view for the coming year view, though less so after that, and recently quoting a China-based economist expecting some miners, including big ones, to go to the wall as Chinese demand stays cool.
Helping deflect the blows are an innovative contract-extension deal with Elgas and news that major mining partner Atlas Iron has gained four months grace from its bond-holders.
However, with its base haulage rate and profit share agreement with Atlas failing to provide income due to ore price below profit threshold and with its specialised transport division struggling against weak volumes, McAleese admits one of its own financing agreements with lenders is under pressure.
"As a result of these challenging conditions it is likely that McAleese Group will breach a financial undertaking in its Syndicated Facility Agreement when the Company reports to the banking syndicate at the end of January 2016," the company advises.
"However, the Company has continued to have frequent and constructive discussions with the syndicate, with particular regard to the strategic process.
"The syndicate are aware of the progress that has been made and are supportive of the process.
"McAleese Group expects to maintain its constructive dialogue with the syndicate and this may lead to a waiver of any breaches of financial undertakings before or after they are reported."
It notes that its banking syndicate is "strongly supportive" of the ongoing strategic review process.
The Elgas deal is expected to furnish liquidity and debt reduction, though it will continue to invest in vehicles.
"The Oil and Gas division is a long-standing supplier to Elgas, with the new contract extending this relationship for a further five years from 1 January 2016," McAleese says.
"Increased volumes are expected to deliver total revenues of approximately $50 million per annum and improved EBITDA, with returns meeting the division’s internal hurdle rates.
"As part of the arrangement, McAleese Group will sell approximately $9 million of LPG tankers to Elgas with the proceeds to be applied to debt reduction.
"The sales will occur above book value and are expected to complete by the end of January 2016.
"Consistent with the Company’s commitment to safety, quality and low average fleet age, approximately $4 million of capital expenditure over the next six months will reduce the Oil and Gas division’s average prime mover age to 3.2 years."