FAQs: Debt facilities announced in Dec 2019
What were Kenmare’s reasons for refinancing the debt?
As we noted in our Capital Markets Day presentation in October 2018, we had been considering for some time how best to optimise our debt facilities. By refinancing the debt now, Kenmare has additional flexibility during the current, short-term period of increased capital expenditure, as a result of the Wet Concentrator Plant (WCP) C construction and the relocation of WCP B.
Under the terms of the old debt, we would have been required to make US$19 million of repayments during 2020, plus potentially additional cash sweep repayments. The new debt facilities remove the requirement to make any repayments in 2020 and remove the cash sweep, in addition to providing a two-year repayment holiday as downside protection. The new debt facilities also provide headroom in the case of any events that may affect cash flows, such as falls in product prices.
We remain well-positioned to deliver strong cash flows and the new debt facilities are more suited to our position as an established mineral sands producer.
Why has Kenmare replaced US$64 million of old debt with US$150 million of new corporate facilities?
On 18 December Kenmare drew down part of the new term loan facility to repay the old debt outstanding of US$64 million and meet related transaction costs. The remainder of the US$110 million term loan facility will be available to draw for 24 months to the extent required, and the US$40 million Revolving Credit Facility will be available for 35 months.
Are the interest rates on the new debt more favourable than on the old debt?
Yes. The old project loan facilities have a slightly lower interest rate for the eight weeks from 18 December 2019, when the new debt facilities were finalised, to 1 February 2020. However, from 1 February 2020 onwards the new debt facilities have lower interest rates. The interest rates are summarised below:
Old debt facility
- Amount: US$64 million
- Interest rate until 1 February 2020: 4.75% + LIBOR
- Interest rate from 2 February 2020 until 1 February 2022: 5.50% + LIBOR
New debt facilities
- Term loan facility amount: US$110 million
- Term loan interest rate: 5.40% + LIBOR
- Revolving credit facility amount: US$40 million
- Revolving credit facility interest rate: 5.00% + LIBOR
Importantly, the new debt facilities are corporate-style facilities, rather than project finance facilities, which were mainly funded by development finance institutions. The new facilities therefore provide additional financial flexibility and are more appropriate for Kenmare’s position as an established producer. The relatively low interest rates reflect Kenmare’s strong financial position and the high quality of the Moma asset.
Kenmare has previously said that it will finance its expansion from its existing cash resources and cash flow. Has this changed?
No, Kenmare still expects to finance its two development projects (WCP C and the WCP B move) from its existing cash resources and cash flow. A key objective of the new debt facilities is to provide downside protection for our shareholders, should there be a fall in commodity prices or any other issues that affect cashflows. It is a prudent and responsible measure.
What is the Mine Closure Guarantee? Is it necessary given that Moma’s life of mine is over 100 years?
The Government of Mozambique requires companies to have an external guarantee on their mine closure costs, no matter the length of the life of mine. Companies do not have to make any payments until the point of closure, but it is compulsory under Mozambican law that comfort is provided to the Government that closure costs are funded. This type of guarantee requirement is common in the mining industry.
FAQs as at 18 December 2019.