Vietnam business and finance news - Intellasia News Services

The dramatic decline of the Melbourne-based company, touted as a new mining major at the time of its creation in a merger of Oxiana and Zinifex in June, highlights the speed and severity that the global economic slowdown is having on the resources sector.

OZ Minerals went into a trading halt today, saying it is awaiting an answer from lenders on a request for an extension of its debt facilities.

The miner said it had agreed with lenders that it would refinance two facilities, one of USUS$420 million and one of USUS$140 million, by November 30. But it is now requesting more time -until January 31 -to negotiate a proposed new syndicated facility.

"We have requested a response to this request from the lenders during the course of today," OZ Minerals said in a statement.

OZ Minerals said the repayment of the USUS$140 million facility is due January 31, while the USUS$460 million facility is due for repayment in periodic instalments, with the first instalment due December 31.

Analysts said the fact that OZ Minerals has so far been unable to refinance the debt is ringing alarm bells and raising questions about management of the company, but at this stage they believe it is unlikely banks would force the company into administration.

Credit Suisse analysts said, until now, no timeline had been given for refinancing and they were shocked at the revelation of the Sunday deadline.

"This is extraordinary in our view and obviously raises suspicion about what else of a material nature management might be keeping from the market," the analysts said in a client note.

"With new management already under market scrutiny, a large black mark has now been recorded."

OZ Minerals this week announced deep cuts to spending on growth projects and cut annual production at its flagship Century zinc mine by 20,000 tonnes.

One analyst who did not want to be named said questions now have to be asked about why chief executive Andrew Michelmore did not cut spending earlier to arrest the company's cash burn and why production at Century was not cut earlier and harder in response to falling zinc prices.

Goldman Sachs analysts estimate OZ Minerals' US$300 million net cash position at June 30 has now deteriorated to a net debt position of about US$400 million, consisting of US$900 million of debt and US$500 million of cash.

They said that if the company is not able to refinance its project debt facilities into a corporate debt facility it may be forced to carry out an equity raising, an unappealing prospect given the weakness of OZ Mineral's share price and the turmoil on equity markets.

At the time of the merger the combined market capitalisations of Oxiana and Zinifex were about US$12 billion, but the merged group's shares have since sunk to 55cs, giving it a market capitalisation of just US$1.7 billion.

"If OZL's banks play hard ball, the company is in no position to repay or re-negotiate its debt today," Credit Suisse analysts said.

While this rings alarm bells about possible insolvency, Credit Suisse said a more likely outcome is refinancing that results in materially higher debt costs.