Metall’s German parent struggling as financial problems

The financial woes at German mining giant Metallgesellschaft (MG) continue to mount and, with its mounting difficulties, speculation is rife over the future of MG’s 50.1%-owned Canadian subsidiary, Metall Mining (TSE).

MG recently reported it lost $1 billion in fiscal 1992. It might lose as much as $2.5 billion in fiscal 1993. With such dire results, MG is looking for ways to generate cash to stave off possible bankruptcy.

One such avenue is the possible liquidation of the Metall holding. But that may be somewhat more difficult than it might, at first glance, appear. When MG announced it would sell a 17.9% interest in Metall late last year, MG filed a short-form prospectus with the Canadian stock exchanges. The prospectus shows that the underwriters stipulated MG could not sell any additional Metall shares for 180 days following the close of the offering. In addition, both companies are barred from commenting or announcing publicly any intention of MG to sell additional shares in Metall for the same period of time. If this provision stands, MG’s hands seem tied with regard to a possible sale of Metall until early June.

The prospectus also shows that Metall had made a 1-month, short-term loan to MG of $50 million last December — which may be a sign of MG’s cash difficulties at the time.

Terrence Ortslan, mining analyst for BBN James Capel, said a sale of MG’s Metall holding, though unlikely, remains a possibility.

“Metall is a long-term strategic asset for MG,” Ortslan told The Northern Miner. “If the price was right, MG would sell, although I don’t think you’ll see it go at a fire-sale price.”

MG’s losses resulted from several events, including much-lower-than-expected prices for zinc, lead and copper. Less explicable are the suspected losses, to the tune of hundreds of millions of dollars, from oil futures contracts in the U.S.

According to news reports, the Frankfurt Prosecutor’s office has launched an investigation of two key MG executives — former CEO Heinz Schimmelbusch and a financial officer. Both were fired, as were four directors. The investigation will focus on suspicion of fraud and failure to inform the supervisory board of developments.

Currently, MG is devising a restructuring to restore confidence with its largest shareholders and creditors, the Dresden Bank and Deutsche Bank. The restructuring was to have been approved or rejected on Jan. 12, immediately after this issue went to press.

However, the situation has become so serious that Germany’s economics minister has backed a restructuring plan urging MG’s shareholders and creditors to increase financial aid to the beleaguered metals group, which has $22 billion in assets.

Previous efforts to raise cash included selling half of MG’s holdings in Methanex Corp. of Canada; and early last December, MG sold a 17.9% stake in Metall. With both transactions, the parent grossed $194.7 million. Metall and its parent also sold their combined 19.3% interest in Australian base metal producer MIM Holdings. Metall sold 100 million shares of MIM for an after-tax gain of $14 million. In addition, Metall sold call options on 75 million MIM shares for another $14.6 million.

Commenting earlier this month, MG Chairman Kajo Neukirchen said the company would sell a “globally operating mining company with headquarters in Toronto.” Shortly thereafter, a joint statement was issued by Neukirchen and Klaus Zeitler, Metall’s president and chief executive officer, to the effect that the proposed restructuring did not include the sale of Metall and that no such decision would be taken in the short term.

MG’s woes have sparked speculation on related fronts. For example, a news report mentioned that MIM, a former MG-held company, is also looking to cut costs. Some analysts have speculated that MIM could sell its 22.5% interest in Cominco (TSE) to Teck (TSE).

Metall is a diversified mining and smelting company which produces copper, zinc, gold, lead and industrial minerals from several mines around the world. It also has interests in properties at advanced stages of development and operation, the most important being an 87.3% stake in the Copper Range mine in Michigan (in operation and currently being expanded) and 20% ownership of the common shares and 17.4% of the preference shares in the Ok Tedi Mining Co. of Papua New Guinea.

Metall is also working on several advanced projects around the globe. These include the Cayeli Bakir copper-zinc and Dikili gold projects in Turkey and the Bougrine zinc-lead property in Tunisia. All three are expected to come on-stream within the next two years.

In addition to these assets, Metall has a stake in several Canadian majors, including 33.5% in Teck which, in turn holds a 22.5% interest in Cominco. As well, Metall recently took over Minnova.

Although trading in Metall’s stock has been heavy, the value has remained stable, around $11. Since November, MG’s shares have lost more than half their value. Metall recently closed at $11.50. At this price, MG’s 50.1% interest in Metall is worth about $466 million. If MG were interested in selling the remaining interest in Metall, analysts speculate only large, multi-national mining companies, such as Minorco, would be interested. Others have suggested Teck might take a serious look at Metall.