Monday, 22 July 2013

PolyMet Mining wraps up $60 million raise, sets sights on completing permitting

It's been a long and winding road for PolyMet Mining (TSE:POM) (NYSEMKT:PLM), but with its rights issue now tucked away the company appears to be on solid footing to wrap up permitting and move ahead with developing its NorthMet Copper-Nickel-PGM (Platinum Group Metals) project in the Duluth Mining Complex in Minnesota.   
Rights offerings are not all that common in North America, but are frequently used by Australian companies as a way to tap current shareholders for additional capital. PolyMet brought one additional advantage to the table when it announced its rights offering: Glencore (LON:GLEN). 
PolyMet Mining has a long relationship with Glencore, which has an off take agreement for all of NorthMet's production, and had already invested about $118 million into PolyMet since 2008. Glencore showed its confidence again last month, offering to take up any rights not exercised by other shareholders. But because demand was so high, the offering was oversubscribed and Glencore did not purchase any additional shares under that commitment. The rights offering gave investors the ability to purchase one share for every two rights held at 66 US cents.
Glencore now owns a third of PolyMet’s common shares on a fully-diluted basis.
"Glencore provided a backstop on the deal, so we knew we were going to get the money," chief financial offer Douglas Newby said in a recent interview with Proactiveinvestors.
With the US$60.5 million capital injection, PolyMet now has sufficient funds to finish its environmental review process, obtain permits and fund long lead orders for NorthMet. 
Newby told Proactiveinvestors that of the proceeds raised, US$20 million will pay a bridge loan from Glencore, US$17million will go toward the environmental review and permitting, US$10 million will be spent on detailed engineering studies, $5 million will be allotted to maintain infrastructure, and the balance will be set aside for any long lead items required for the construction of the mine as well as working capital and contingencies.
PolyMet now has $51 million on its balance sheet.
Considering the advanced stage of the project, PolyMet hasn't received much love from analysts on Bay Street, but is slowly starting to garner some attention.
Stifel Nicolaus analyst George Topping, who has a buy recommendation and $1.75 price target, is one of them, recently commenting that Glencore may eventually buy PolyMet once all permits are in place - a plausibility given Glencore's off-take agreement.
M&A speculation aside, PolyMet is focused on its next major hurdle -- approval of the environmental impact statement, or EIS. A draft EIS is expected to be released this summer, after which it must go through a 90-day public review period with comments incorporated into a Final EIS, the legal basis for issuance of permits.
"We're hopeful that, after eight years working on the environmental review and the degree of engagement with the regulatory agencies, the public review process will be a relatively straightforward," said Newby. 
Newby believes PolyMet will have all the required permits by this time next year. After that point, the company expects it will take around 15 months before production can begin, putting an approximate target date of late 2015/early 2016.
PolyMet acquired the Erie Plant indirectly out of the LTV Steel bankruptcy.  The plant gives PolyMet a huge advantage in terms of existing infrastructure, reduced capital costs and faster construction time.  PolyMet plans to use just one third of the plant's 90,000 tonne per day capacity, although both the mine and the plant have capacity for further expansion.
What strengthens PolyMet’s conviction of a favorable outcome is the expertise of the board of directors, as well as ongoing financial and engineering support from Glencore, and CEO Jon Cherry's experience at Eagle Nickel in Michigan, which he led through the U.S. permitting process. 
"Because we're in mining country, we've got very strong community and political support, which is absolutely critical to be able to get over the finish line," said Newby.
Topping also makes a strong argument for PolyMet based on the jurisdiction of its project, noting the difficulties in South Africa's mining sector are shifting investor attention to safer jurisdictions like Minnesota, where PolyMet's discovery is comparable to North American Palladium’s (TSE:PAL) Lac des Iles operations in northwestern Ontario.
Newby also confirmed to Proactive Investors that Polymet is witnessing increasing interest from North American analysts and investors who want more exposure to PGMs "in their own backyard".
When production begins using one third of the plant's capacity, PolyMet expects NorthMet will produce about 72 million pounds of copper, 15 million pounds of Nickel and 106,000 ounces of precious metals a year for at least 20 years.  Filling the plant could triple those numbers, which presumably explains Glencore's interest in the project.

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