Ambatovy in danger of closing in less than a week, as Sherritt seeks to rejig project input

TORONTO (miningweekly.com) – The shipment-starved Ambatovy nickel/cobalt-producing joint venture (JV) in Madagascar might be forced to shutter operations in less than a week. Incoming and outgoing shipments have been stranded at an east-coast port since early this month after government imposed a new shipment levy.

Toronto-based Sherritt International, the operator and 40% stakeholder in the $8-billion Ambatovy mine, on Friday provided no update to a statement released on Tuesday by Ambatovy management on the critical situation at the operation.

In a statement issued on Tuesday, Ambatovy sustainability VP Louis Roland-Gosselin said Ambatovy’s customers had already expressed concern about the operation’s ability to supply them with nickel and cobalt as a result of the situation and that these customers were considering other options for alternative supply from other countries.

"We have requested an urgent meeting with the President of the Republic because we believe that, as soon as he is informed of the situation, he will ensure that the law is enforced as it should be,” said Roland-Gosselin.

Ambatovy advised that unless directives were given by the competent authorities to shipping companies, expressly and unequivocally ordering them to accept Ambatovy’s cargo without requiring the new $100 Advanced Cargo Declaration levy placed on every container shipped through the country’s ports, it would be forced to take “drastic measures before the end of next week”.

Ambatovy could also not receive imported cargo and would soon run out of commodities and spare parts for the maintenance of its mine and plant.

Sherritt believed Ambatovy was exempt from the new shipping tax under the country’s preceding Large Mining Investment Act, which it believed was still governing the Ambatovy operations. The company was under the impression that government had signed agreements as recently as December, and that Ambatovy was exempt from the new shipping levy.

Ambatovy said it was deeply concerned that certain actors were not implementing and complying with the country’s legal provisions, but nevertheless reiterated that the company had great respect for the laws in force in Madagascar.

FUNDING DOUBTS
Sherritt had recently stated that its future involvement as operator and equity partner in the Ambatovy JV would be significantly impacted on by the outcome of ongoing discussions between the company and its partners, the Ambatovy senior lenders regarding future funding of Ambatovy JV and modifications to the terms of the Ambatovy JV financing.

Sherritt opted to not participate in cash calls of $50-million that were due in January and did not fund its 40% prorata share of $20-million. Sherritt relied on an agreement between the partners, to not be considered a defaulting shareholder, as Sherritt’s unfunded amounts accrued interest at the London interbank lending rate plus 3%.

The company was in discussions with its partners as it did not see a worthwhile business case for its involvement with the project at current nickel prices. Sherritt booked a $1.6-billion impairment charge on a 40%-basis on the Ambatovy project during the fourth quarter ended December 31. The company’s average realised price per pound of nickel dropped 30% year-on-year to only $5.54/lb.

The Ambatovy JV still had an amount of $1.6-billion in debt outstanding under its $2.1-billion Ambatovy construction credit facility.

Sherritt said it had determined not to fund further cash calls at this time to preserve liquidity and owing to the current structure of the Ambatovy partner loans, which, at current nickel prices, effectively reduced Sherritt’s 40% interest in Ambatovy to a 12% economic interest. Sherritt explained that 70% of its distributable cash flow from Ambatovy (after operational expenditure, capital expenditure and project debt service) went to a partner loan repayment, leaving Sherritt with 30%, which, when viewed in relation to its 40% ownership, resulted in the lower ownership.

At this time, Sherritt continued to serve as operator and discussions were ongoing between partners and senior lenders regarding future funding of Ambatovy and modifications to the existing senior principal amortisation.

Ambatovy’s other partners comprised 32.5% Sumitomo Holding and 27.5% Korea Resources.