Crikey today asks why Mac Bank pulled the pin on Western Desert:
Western Desert was backed by Macquarie, its major lender with an $80 million facility, and had only just opened its Roper Bar mine, south of Darwin, in December and was ramping up production after some difficult teething problems — not unusual for a new mine.
Western Desert told the stock exchange it had appointed Korda Mentha after refinancing negotiations with Macquarie suddenly broke down last Tuesday.
Macquarie needs to explain its dramatic change of heart, given that only eight months earlier when their equities analysts initiated coverage Macquarie reckoned Western Desert could produce iron ore at a cost as low as $60 a tonne and slapped an “outperform” recommendation and a price target of $1.05 on the stock.
…Even more interesting, Macquarie analysts noted that Western Desert’s major loan facility with the bank hedged two-thirds of its first-year production at $120 a tonne, largely protecting against precipitous falls in the iron ore price, as well as currency fluctuation.
…For a company with an operating cash outflow of roughly $12 million a month — trying to ride out an adverse iron ore market — that cash would have been critical. Why would Macquarie, as secured creditor, prefer to tip the company into administration and appoint Ferrier Hodgson as receivers, rather than help it trade out of trouble?
Maybe because they quite rightly see the writing on the wall for lower iron ore prices, far lower than Western Desert can handle, an they don’t want to throw good money after bad.
