THE BOURSE WHISPERER: Straits Resources has signed a non-binding Memorandum Of Understanding with J.P. Morgan outlining terms for a binding agreement to allow it to restructure an existing offtake agreement between the two parties from January 2012.
Straits said it had been working for some time to restructure its existing Tritton Copper Mine copper offtake agreement with J.P. Morgan Metals & Concentrates.
Under the agreement, in exchange for an upfront cash payment of approximately US$120 million, J.P. Morgan will agree to terminate the current offtake agreement.
J.P. Morgan will now enter into a new offtake agreement with Tritton Copper Mine for all copper concentrates it produces until the end of 2013.
These offtakes will be priced in line with the significantly lower prevailing market offtake terms for copper concentrate.
Tritton will have the option, within six months of signing of the agreement, to terminate the new agreement effective from July 2012.
Straits will pay US$9 million to J.P. Morgan should it exercise this option.
Straits said the agreement restructuring will present the Tritton Copper Mine as a ‘clean’ asset.
It will also provide a number of benefits for the Group, including positioning Straits as an independent copper producer by optimising the Group capital structure and allowing an improved exposure to a strong copper market.
The restructuring and working capital for the Group is being financed by Straits subsidiary Tritton Resources, which has signed a credit approved term sheet for a five year debt facility with Standard Chartered Bank for US$120 million.
Credit Suisse has also provided a separate credit approved term sheet for a US$50 million silver loan facility (pre-paid silver forward transaction) for Mt Muro.
“The market is aware that Straits and its Tritton Copper Mine suffer from the legacy of significantly ‘out of the money’ offtake terms entered into by the previous owners prior to the original Trittonc company’s Initial Public Offering in 2002,” Straits Resources chief executive officer Milan Jerkivic said in the company’s announcement to the Australian Securities Exchange.
“This has stopped the equity markets attributing the valuations of our copper producing peer group to Straits.
“With the support of J.P. Morgan, the opportunity now provided to restructure the offtake agreement to market terms will allow Straits to provide a cleaner and more transparent investment opportunity to the market.
“Following two years of hard work recapitalising the Tritton Copper Mine and our success in expanding the copper reserves and resources, a successful conclusion to this restructure will better allow us to highlight the potential of the Tritton mine and its undervaluation relative to its copper peer group.”