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June 2015 VOLUME 1. ISSUE 228 $11.95

• Scandinavia • New South Wales • Copper focus

• International Services Directory

Back into the light:Embattled miners re-emerge

PAGE 18 JUNE 2015 AUSTRALIA’S PAYDIRT

Bouncing back from the brink

Faced with administration, Mirabela Nickel Ltd was seemingly at the end of the road

not so long ago.However, a groundbreaking balance sheet

restructure in 2014 saw the Brazilian nickel miner remedy its debt burdens through the Supreme Court of New South Wales.

The Court granted leave for a deed ad-ministrator to transfer 98.2% of each share-holder’s interest in Mirabela to unsecured creditors without shareholder approval.

In return, US holders of the unsecured notes totalling $US395 million (plus interest) waived the debt for control of Mirabela, while the remaining 1.8% was kept by shareholders.

This particular “loan-to-own” scenario, pursuant to section 444GA of the Corporations Act 2011, whereby debt was essen-tially purchased for ownership, was a first for an Australian-listed company.

In its State of the Nation report in Decem-ber, Gilbert+Tobin, advisors to the US-based noteholders of Mirabela, said: “The Mirab-ela transaction paves the way for creditors of a listed company to pursue debt for equity transactions without shareholder approval through entry into a DOCA [Deed of Company Arrangement].”

As the commodities downturn drags on,

others are beginning to experience similar problems to Mirabela’s plight. Head of re-structuring and insolvency at Gilbert+Tobin, Dominic Emmett, says the route taken by Mirabela should be one considered by other distressed resources companies.

“I think one thing that it has shown is that while people traditionally have been wary of the perception around it, one of the things Mi-rabela has demonstrated is that people don’t

necessarily need to worry about the stigma of administration,” Emmett said.

“The underlying business was unharmed, all the vendors and suppliers were kept whole and the business operated normally. All the administration process did was fix the bal-ance sheet. The administration itself shouldn’t been seen as a death knell or the end of the road. It was used by Mirabela as a mecha-

nism to fix the balance sheet.”Stooping to 1c/share – due to operational

issues at Santa Rita, poor nickel prices and the loss of a major customer – forced Mirab-ela into voluntary administration.

The company returned to trading on the ASX in June 2014 and closed Q1 2015 with a cash balance of $US25.3 million, which is set to improve this year upon greater nickel production and increased sales.

“Mirabela has probably been the biggest development in the restructuring market in the last 5-10 years, so that [restructur-ing] market does understand it but whether or not mining company directors do I’m not sure. Perhaps they probably don’t understand it until they meet with their advisors,” Em-mett said.

“At times a restructure will allow boards and lender groups to fix a company’s bal-ance sheet in a way that they

can become comfortable with, without affect-ing any underlying businesses and without putting companies through formal receiver-ship-type processes.

“It will be a very handy restructuring and re-suscitation tool. Most of these businesses are perfectly viable, they just have too big a debt load and it is a very efficient way to try and reduce that debt load,” Emmett said.

Mirabela is looking for sustained operational success to capitalise on new beginnings at Santa Rita

“I think one thing that it has shown is that while people

traditionally have been wary of the perception around it, one of the things

Mirabela has demonstrated is that people don’t necessarily need to worry

about the stigma of administration.

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AUSTRALIA’S PAYDIRT JUNE 2015 PAGE 19

Having the Mirabela case as an example, Emmett said he expected smoother transac-tions for other companies seeking a similar business-saving restructure.

“We need to change the perception of our restructuring culture here,” Emmett said.

“In the US, the Chapter 11 isn’t seen as a bad thing, it is a way, and part, of doing busi-ness. Here if you mention the word restruc-ture or administration people run a mile. It is

not remiss of something going wrong, there’s nothing wrong with admitting to an overlever-aged balance sheet, it is just something that exists and needs to be fixed. The focus should be on saving the business as opposed to nec-essarily saving the corporate structure that exists around it,” Emmett said.

Saving the business is at the forefront of many Australian executives at the moment. In early May, a total of 197 ASX-listed com-

panies were in suspension – 79 of which be-longed to the metals and mining sector.

Of the metals and mining companies cur-rently suspended from trading, many were in administration, restructuring or recapitalising their businesses as dark clouds continued to linger over the resources sector.

The most high profile of the companies fac-ing uncertain futures is West Australian iron ore miner, Atlas Iron Ltd.

“Mirabela has probably been the biggest development in the restructuring market in the last 5-10 years, so that [restructuring] market does

understand it but whether or not mining company directors do I’m not sure. Perhaps, they probably don’t understand it until they meet with their advisors.

The recapitalisation of Mirabela was a first for a listed company in Australia

A recapitalisation restructure has saved Mirabela from extinctionMirabela hit a snag on its road to redemption, with the Santa Rita

operations temporarily shut down by the Brazilian Government in May

PAGE 20 JUNE 2015 AUSTRALIA’S PAYDIRT

Once a shining example of the buoyancy in WA’s junior resources sector, Atlas has endured a horrific 2015. Plum-meting iron ore prices had a dramatic effect on profitability and the company’s share price, leading the company to the brink of default on its debt re-payments.

Atlas’ response to iron ore crash ($US105/t May 1 2014 to below $US50/t at times this year) was to flag intentions to cut back operations at its Pil-bara mines – Abydos, Wodgina and Mt Webber.

While Atlas has culled staff in its Perth office already, scaling down mining operations will obviously impact people on site, and also the contractors it em-ploys.

McAleese Group Ltd’s resource division is highly leveraged to Atlas contracts and Atlas’s decision to suspend operations prompted McAleese to pursue a path similar to Mirabela and engage corporate advisory experts 333 Capital.

With 333 Capital on board, McAleese de-vised a strategy to help Atlas avoid adminis-tration, while providing the iron ore miner’s other major service providers with a lifeline amid poor commodity prices.

Led by McAleese, Atlas and its other con-tractors have banded together and struck an innovative solution which will see Abydos, Wodgina and Mt Webber remain in produc-tion.

The collaboration agreement will see Atlas

delivered a breakeven price of about $US50/dmt compared to the benchmark at the time of print of $US60/dmt.

KordaMentha restructuring partner Scott Langdon said services companies had en-joyed the fruits of the mining boom and now also needed to adapt to a different environ-ment.

“Mining services companies have had the wind at their back for a long time, with increas-ing commodity prices and favourable market conditions. With the recent challenging condi-tions, successful senior management need to get dirt under their nails and put wind into their own sails. They are strongly focused on inter-nal cost management and micro-controlling all elements of their operation,” Langdon said.

Langdon said it was best practice to quickly and proactively react to external forces and internally focus on cost management as op-

posed to top line revenue main-tenance.

“The best practice is only possible with experienced CEOs and CFOs, comple-mented with specialised and relevant external expertise. Businesses that have excellent roads and rail are the business-es surviving and thriving in the market,” he said.

Inevitably, a strong board presence and focused senior management will ensure con-sidered contingency plans are in place to ride the mining cy-cles.

At board level, Atlas has ap-pointed former West Austral-

ian Attorney General Cheryl Edwardes as a non-executive director. It is hoped Edwardes’ expertise will help Atlas create and implement strategies to ensure it remains a viable iron ore entity in the long term.

Mirabela’s rebuild started in 2014 while nickel was trading at near five-year lows, however, this failed to deter Maryse Belanger from pursuing the chief executive position at Mirabela.

In her first media interview as Mirabela chief executive, Belanger told Paydirt that having the right systems, people and direction in place were ingredients needed for success, particularly in lean times.

“In March this year nickel had gone down to $US5.60/lb and what made it even more challenging is the fact that most people in the industry have had the benefit of lower fuel prices; we don’t in Brazil,” Belanger said.

COVER

With the business restructured, Mirabela has shaken off volatile nickel prices to restart operations at Santa Rita

“Administration” may be considered a dirty word by some resources companies but if it means saving the business it should be embraced

AUSTRALIA’S PAYDIRT JUNE 2015 PAGE 21

“In fact, fuel prices, which are controlled by Petrobas, have been going up. Our prices here in Brazil are going up while they are go-ing down everywhere else. We had a combi-nation of low nickel prices and high fuel costs and we still man-aged, so absolutely it [company turnarounds] can be done in challenging times.”

Prior to taking the helm at Mirabela, Belanger was senior vice president, technical ser-vices, at Canadian major Gold-Corp Inc.

Belanger said the challenge of moving from a multibillion dollar company to one that was in administration was an attrac-tion rather than concern. In her opinion Mirabela had a lot going for it, specifi-cally a mine supported by infrastructure.

Despite impressive new beginnings in Bra-zil, it has not been all smooth sailing for Mirab-ela, with the Brazilian Government issuing a stop work order at Santa Rita and associated port operations at Ilheus in May.

Santa Rita plant and crusher operations were not shut for long – one day in fact – how-ever work remained to be done in addressing operational issues at the port at the time of print.

Belanger, though, appears to thrive on such challenges.

“I believe in fixing things, I don’t manage around issues. I focus on fixing what is not working properly. Mirabela has had an inter-esting journey and after going through admin-istration there was absolutely no money to be spent on anything. It is about doing the right work, rebuilding the team and getting employ-ees engaged again. I really believe in going back to the basics in this industry,” she said.

“There is a concept that many operators tend to manage around the problems instead of fixing them. There was so much money in the past flowing into the industry that people became accustomed to just spending more

[on equipment for example]. I believe in going to the root of the problem and

fixing it. It is a back-to-basics philosophy. I believe in the laws of chemistry and physics. I believe in engineering. Companies have to work their assets harder.”

With Belanger at the helm, Mirabela ap-pears to be making the most of its second life.

The company has reinvented itself; it was once a high cost producer but now sits in

the second quartile of nickel producers with $US4.50-5/lb C1 cash costs at Santa Rita.

“Effectively we have redefined the future for Mirabela,” Belanger said.

Mirabela’s Q1 2015 performance at Santa Rita, in Brazil’s Bahia State, suggests Bel-

anger has the company on the right path.

The company produced 3,855t @ 0.44% nickel pro-cessed grade at $US4.88/lb, with $US25 million cash on hand at the end of the quarter.

Comparatively, the compa-ny’s 2014 financial year figures included 12,047t @ 0.42% at C1 cash costs of $US7.16/lb.

While the company has sub-stantially improved its position at Santa Rita, sustained opera-tional improvements and finan-

cial discipline will be behind better days for Mirabela in 2015, Belanger said.

“I think nominally we are showing that we can get back to the days of being a very solid producer and our guidance for this year is 16,500t-18,000t nickel at cash costs of $US4.50-5/lb. I think in everybody’s mind the question is: are the changes we made sus-tainable? Obviously they are, it is the nature of this industry, at the end of the day it is just science,” Belanger said.

The last few months have seen record amounts of material moved and concentrate shipments have left Santa Rita, which Bel-anger credits to good liaisons with its logistics partners and improved leadership within its Brazilian team.

With the innovative solutions to the corpo-rate question completed and a back-to-basics mentality beginning to bear fruit on the opera-tional front, Mirabela’s immediate future looks brighter than 12 months ago.

The same could be said for another miner that has experienced a torrid three years; Australian and Papua New Guinean gold pro-ducer St Barbara Ltd.

Led by chief executive Bob Vassie, who was appointed in July 2014, St Barbara has

“I believe in fixing things, I don’t manage around issues. I focus

on fixing what is not working properly. Mirabela has had an interesting journey and after going through

administration there was absolutely no money to be spent on anything.

KordaMentha partner Scott Langdon

Retaining good staff is still core to running a successful business

St Barbara chief executive Bob Vassie

PAGE 22 JUNE 2015 AUSTRALIA’S PAYDIRT

gone from the brink of collapse to flourishing gold miner.

St Barbara has shed the troublesome Gold Ridge project in the Solomon Islands and taken to its Leonora operations in WA and Simberi project in PNG with renewed vigour.

In December 2014, St Barbara shares were 7c/apiece, at the time of print the stock was worth 56c.

“I think the market factored that we were just going to run out of money, the cash drain was too much,” Vassie told Paydirt.

“We were able to pull back on spending and we built cash for the first quarter since the Allied [Gold Inc] acquisition a couple of years previous. The market rewarded that with a significant re-rating and not only was that December quarter cash building, the first quarter of this year was and was also a record production quarter. The following quarter in March was a record and we finally find our-selves having $10 million in the bank.”

St Barbara has made significant savings by chopping its corporate head count by half, placing greater emphasis on production from Leonora and Simberi (111,288oz @ $798/oz AISC) and cutting down ex-ploration solely to resource development.

Vassie said his 30-year career in international mining steeled him for the challenge of turning St Barbara around and with Tim Netscher as chairman, continued improvements can be expected from the company.

“I knew it would be chal-lenging because coming in you could see the com-pany was in trouble, that the Pacific [operations] were draining cash – it was a horrible situation in the Solomons,” he said.

“You could see that you could reduce costs quickly and that Leonora was producing good cash and could continue to produce a lot more, so that gave you a stepping stone. I am well versed in cutting costs and could handle that. I guess I knew the Solomons would be a challenge. It took a year to resolve that and it was perhaps more challenging than I had thought, but I am pleased with the outcome. I think Simberi was make-or-break. We were really facing having to close it because we couldn’t survive the cash drain and being able to turn it around in the nick of time with a new team there was very rewarding.”

St Barbara and Mirabela have turned their fortunes around despite continued tough market conditions but will other distressed companies be able to follow suit in some way, shape or form? Or have some missed the chance for resurrection?

Popular mining executive, Mark Connel-ly, who sits on the boards of B2 Gold Corp, Saracen Minerals Holdings Ltd and Ausdrill Ltd, believes some companies have been too slow to respond to a challenging environment

in which only the fittest will survive. “Some companies are taking too long to re-

act [to seek corporate advice]. They are prob-ably hedging their thinking that the commodity price will improve. However, the fundamentals suggest we are in a tough period for commod-ity prices and coming off a high, we are in for a big change. The reaction to that change has been not as fast as some companies should have reacted. An old saying is that good times make bad managers and bad times make good managers. If you can survive through this then I think looking forward the basis is going to be very different,” Connelly said.

Shareholders across the resources sector will be looking to their management teams and asking whether they have what it takes to be a good manager in these undoubtedly bad times.

– Mark Andrews

COVER

Mining executive Mark ConnellySt Barbara has one of the largest gold resources and reserves of any company listed on the ASX

St Barbara has streamlined its portfolio and is focused on greater returns from its Leonora operations