Clarion Partners - Owner's Engineer

RTB Bor Set to Ride Out Copper Slump, Keeps Output, Upgrade Plan

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RTB Bor, Serbia’s state-owned copper producer, sees copper prices rebounding in the fourth quarter on a “fundamental” need for the metal in developing economies, Chief Executive officer Blagoje Spaskovski said.

The Balkan country’s only copper producer is sticking to its 2011 output target of 30,000 tons of copper, along with almost 1 ton of gold and 5.2 tons of silver, even as this month’s drop in commodities prices threatens to wipe out its profit margin, Spaskovski said in an interview at the company’s headquarters in Bor, eastern Serbia.

“We may not get back soon to the highs we’ve seen this year, but I’m sure there is strong fundamental demand in the emerging economies that still have plenty of infrastructure plans, especially in energy and for new power lines” that require copper, he said today.

The 10,000 hectare (24,710 acre) copper complex, whose ore deposits are estimated at 1.5 billion tons, remains state-owned after three failed attempts to sell it to private investors. The company broke even in 2010 after two decades of losses, on rising commodity prices and improved productivity.

Upgrades include a 175 million-euro ($237.5 million) investment in a new smelter and sulphuric acid plant, supported by a 135 million-euro credit from Export Development Canada and carried out by Canada’s SNC-Lavalin Group Inc. (SNC) with Finland’s Outotec Oyj. (OTE1V)

Loan Needs

A protracted or deeper decline in the commodity would force RTB Bor to reach for new loans and go deeper into debt, which is now “at around 500 million euros,” Spaskovski said.

“For us, anything above $7,000 per ton is acceptable,” even before ongoing upgrades are completed by 2014 to cut costs and enhance extraction of the metals from the ore, he said. “Right now, the margin is thin, very thin.”

Under a government-supported restructuring plan, made before the recent drop in metal prices, some creditors may be offered to convert their claims into minority stakes in RTB Bor, Spaskovski said.

Creditors include Greece’s Mytilineos Holdings SA (MYTIL) and Standard Bank, which bought 134 million euros of RTB Bor’s debt earlier this year.

“I think Standard would prefer actual repayment to equity,” Spaskovski said without elaborating.

RTB Bor is also investing its own funds in new mining equipment and froth flotation facilities that all together should increase its processing capacity to 400,000 tons of copper concentrate a year, or as much as 80,000 tons of copper catodes and 350,000 tons of sulphuric acid.

Output Burden

It produced 14,000 tons of copper in the first six months, 34 percent more than a year ago.

The biggest production burden at present is removing waste rock from open pits that was not properly disposed during “the chaotic 1990s,” when the country was led by Slobodan Milosevic and suffered from crippling international sanctions, Spaskovski said.

“Once that problem is resolved in a few years, we could do nicely with any price above $4,000,” per ton of copper, he said.

RTB Bor, which employs 4,750, may also reopen its Coka Marin gold mine next year, where a ton of ore contains between 7 grams and 14 grams of gold.

Switzerland’s Glencore International AG, Trafigura AG and Canadian Reservoir Minerals Inc. have shown interest in processing the ore from Coka Marin, which RTB Bor itself cannot handle without causing cadmium and mercury pollution, Spaskovski said.

“Gold is our byproduct” and its price volatility has less impact on operations, he added.



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