It is going to be close....The issue is not repaying the $112 million note due in 2012 but first keeping current on the interest...December 2008's payment seems to have been made. Mid 2009 another 6.4 million will be due. If
EVEN MORE TO THE POINT OF ML SURVIVING it is important to note that the company's EBITA must exceed the interest expense. ML can not rely on retained cash or other bridge financing beginning in the second quarter to satisfy this critical point among their note convenants - Their EBITA has to be positive by the amount of the interest or 3 million a quarter, 6 million semi-annually.
Here's a link and the language...
https://www.sedar.com/CheckCode.do;jsessionid=0000dyvMlRXdPn_dosTO8Qu2Gir:-1
"In the event the earnings of the Corporation before interest, taxes, depreciation and amortization ("EBITDA") on a consolidated basis in any quarter beginning after March 31, 2009 does not exceed interest expenses under the Notes for that quarter, the Corporation will be obliged to repay to the holders of the Notesthe lesser of its Free Cash Balance and 25% of the outstanding principal of the Notes.
OK so the question becomes can ML be EBITA positive in the second quarter...Whether it is in the first quarter is less important....they must be by the 2nd quarter and then forward...(Real smart not to have hedged copper for 2009 and 2010.)
So what are the chances From the ML presentation I see that copper production costs were estimated to be $1.09 per poound and MOLY cost at $8.08. Dont' forget that ML's Moly revenues are at a discount to the cash market per their agreement with the purchaser...10-15% discount as I remember...Additionally to the cash metal costs there is overhead of about $3 million a quarter....
I roughly figure that by the second quarter prices RECIEVED must
exceed $1.25 copper and $10 for Moly
so as to generate $4.3 million gross metal production profit and 1.3 million EBITA (assuming $3 million in overhead.) This tabulation falls $2.7 million short of what is required...
I'd assume they are pushing foward with their second half of production expansion even if it nearly exhausts their cash as the extra production will reduce each pound's cost and thereby increase the chances that under depressed copper and moly prices that the company may remain cash flow (EBITA) positive in an amount that exceeds the interest expense...
That's my take and why the price of the shares are trading where they are...Until MOLY and Copper prices get above the minimum thresholds metioned above there has to some very legitamate concern that ML will not meet the EBITA loan covenants...
Now, I would very much like to hear from the bulls, here, just where my assumptions and math is wrong...hopefully it is somewhere in a meaningful way...