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Volcan to address loan amortizations with non-core asset sales, offtake prepayment agreements

Volcan Compania Minera (B-/Caa1) is planning to address 2024 bank loan amortization payments next year through non-core asset sales and offtake prepayment agreements, after advisors have stepped in to review the liquidity situation, according to a source familiar with the matter and a corporate credit analyst.

The Peruvian silver miner last month hired Bank of America and Apoyo & Asociados as advisors as it seeks to strengthen its finances. It had USD 50m of available cash as of 30 June and USD 785m in total debt. Volcan’s USD 365m 4.375% bond is due in 2026, and there is a USD 400m syndicated loan maturity also that year, for which amortization payments start in 2024.

“[Volcan’s] short-term strategy to cover next year amortizations, of USD 103m in total – paid quarterly from April 2024 – is through prepays [offtake agreements for concentrate sales prepayments for USD 25m] and the sale of non-core assets,” the source familiar said.

Volcan recently closed a new sales prepayment agreement for USD 25m and is engaging in the sale of the two hydroelectric plants, the source familiar said.

“One [hydroelectric sale] is in due diligence and worth around USD 30m and the other is in a tender handled by Scotiabank for USD 50m-USD 55m,” the source familiar said. Regarding the loan amortization payments, Volcan already has the funds for the April 2024 amortization, and expects to have funds from the sale of the two hydroelectric plants to cover the July 2024 amortization, the source familiar said.

From 2025, if there has not been a recovery in Zinc prices, Volcan would aim to roll over the syndicated loan debt along with the bonds, market conditions permitting, the source familiar said. Volcan’s advisors have so far validated the company’s plans to engage in the non-core asset sales and the prepayments to address that debt, the source familiar said.

The hiring of advisors was viewed as a very positive development, especially as majority shareholder Glencore is seeking to exit its stake in the company, the corporate credit analyst said.

“It would have been better to have this done a few quarters ago, but it is super positive,” the corporate credit analyst said. While the expectation is that the company will be able to push out its debt maturities, that development will bring another risk of piling up all of the company’s debt until 2025 and 2026, the corporate credit analyst said.

“It is absolutely impossible for the company to be able to pay the USD 365m bond maturity,” Carlos Rojas, CEO at Peruvian asset management firm CAPIA SAFI, told Debtwire. “They have negative cash flow in 2023, 2024 and 2025 because of the capex they have planned. As a mining business, Volcan is a company that cannot service its debt at the moment. Any investor that buys its bond right now is assuming distress and restructuring from the get-go.”

The USD 365m 4.375% 2026 bond last traded today at 52, to yield 36%, according to MarketAxess.

Volcan’s objective is to restructure its debt, but the only thing it can do is to sell all of the assets it can to bring down the debt a little and try to improve the remaining business units, an investor added.

“They have to sell land, hydros [hydroelectric plants] and the Chancay Port to even have a chance to service debt,” the investor said.

As Volcan doesn’t have capital markets access, its best bet is to work with the bank lenders, a banker following the company said.

“The challenge is you have bonds [maturing] in 2026 and you’d presume the banks will move [extend] beyond the bond [maturity] – it’s a tight window,” the banker said.

Volcan will indeed seek to refinance next year, but any refinancing efforts would take place after the sale of the non-core assets and prepayments, the source familiar said.

“If everything goes well, the company should have additional income from the Romina project [in Peru] by then.”

A Volcan representative declined to comment.