Bonds of St Barbara Ltd., the gold miner with less than 13 months to replenish its cash before it runs out of money, are signaling financial distress.
The Melbourne-based company’s $250 million of 8.875 percent notes due 2018 were trading at 81 cents on the dollar yesterday, having lost 8.3 percent since they were sold to investors in March last year, according to data compiled by Bloomberg. Spreads widened to 1,443 basis points, or 14.43 percentage points, from 821 at issue.
The Australian miner faces significant liquidity pressure to meet its capital expenditure as well as a loan repayment in March 2015, Moody’s Investors Service analyst Saranga Ranasinghe said in a statement yesterday. The ratings company lowered its score by one step to Caa1 with a negative outlook, a level that implies very high credit risk.
“It could be a slow and painful death for St Barbara unless things start to improve and the gold price picks up markedly,” Luke Smith, a Melbourne-based analyst at Canaccord Genuity Australia Ltd., said by phone today.
St Barbara follows other miners in Australia into financial stress amid weak commodity prices and business disruptions. Midwest Vanadium Pty defaulted on its $335 million of bonds in March while Sydney-based Lynas Corp., which spent about A$1 billion ($924 million) on a rare earths processing plant in Malaysia, plans to defer some debt repayments and sell as much as A$40 million in shares.
The ratings downgrade reflects St Barbara’s troubles in raising output at its Simberi mine in Papua New Guinea, where cash costs exceed gold prices, Moody’s said. The company in April announced the suspension of its other Pacific mining operation, the Gold Ridge mine in the Solomon Islands, after a cyclone cut off access to the site. That should at least help temper cash drain given that mine’s high-cost nature, according to Moody’s.
St Barbara’s cash reserves fell to A$58 million as of March 31 from A$117.5 million at the end of June last year, according to company financial reports. Even including $22 million of undrawn credit lines, St Barbara may not have enough money to pay for an estimated A$90 million of capital and exploration expenditures, and loan repayments, over the next 12 months unless it can generate more cash from operations, Moody’s said.
The company will burn through its cash in 12.6 months if operations don’t improve or more financing isn’t agreed, data compiled by Bloomberg showed.
There isn’t any change to “existing debt arrangements as a consequence of Moody’s announcement,” St Barbara Company Secretary Rowan Cole said in a four-line announcement to the Australian Stock Exchange today.
St Barbara in February restructured some of its debt, managing to improve terms, flexibility and get access to additional liquidity if needed, according to a Feb. 25 exchange statement. It entered into a new $75 million 33-month facility with RK Mine Finance, or Red Kite, with an initial interest rate of 8.5 percent per annum. No principal has to be paid for the first 12 months after which there will be eight equal quarterly principal repayments ending November 2016, according to the statement.
Stock in St Barbara is trading at A$0.195. The shares closed at A$0.93 on Aug. 26, the highest since April that year.