eXtract to restructure amid slump in contract mining sector

JOHANNESBURG (miningweekly.com) – Despite the recent improvement in commodity prices, the long-term outlook for the contract mining sector remains poor. 

In a joint statement by enX and eXtract on Tuesday, the parties said there was an oversupply of contract mining services in the market.

The board of eXtract, formerly known as Eqstra Holdings, does not believe the pricing power of contractors will improve sufficiently in the medium term to provide an acceptable return on capital.

It pointed out that a significant contract in Botswana had been terminated with effect from June 30, while its contract at Tharisa would end soon, as that company moves to an owner-operator model. Heavy rains had, meanwhile, hampered production at some of its contracts, resulting in lost revenue.

The current and future capital expenditure required by eXtract to maintain its fleet on key contracts exceeded the cash being generated from those contracts, resulting in net cash outflows.

Fewer mining contracts, together with reduced profitability and cash flows, could also no longer support the eXtract engineering and group support infrastructure.

The eXtract board has, therefore, decided to reposition the company and plans to exit its suboptimal mining contracts over time, reduce its overhead costs and restructure and repay, within 18 months, a R665-million lending facility.

eXtract was established late last year after enX acquired Eqstra’s industrial equipment and fleet management and logistics divisions for 52.7-million shares. eXtract, in which enX holds a 20.9% stake, retained Eqstra’s contract mining and plant rental businesses.

enX is also a financier to eXtract. This included a R700-million advanced mezzanine loan to eXtract subsidiary MCC, as well as subscribing for R600-million in MCC preference shares. It also assumed some R900-million of senior debt owed by MCC to eXtract – a second mezzanine loan.

eXtract now plans to convert its debt, comprising the mezzanine loans and the MCC preference shares, into equity, with enX to unbundle its shares in eXtract.

The restructure of eXtract’s banking facilities and the conversion of the eXtract debt to equity will enable eXtract to attract credible and experienced management talent to oversee the repositioning, align eXtract’s long-term capital structure with the new strategy and create the necessary time for management to execute their repositioning plan and to unlock value for shareholders.

To ensure the sustainability of eXtract, it plans to bring on board new, experienced mining executives and establish a new funding model for future resource investments through the creation of a black-owned investment company.