Mirabela Nickel's problems have taken a turn for the worse after one of its two customers flagged that it would seek to immediately exit a concentrate sales agreement on the basis of a force majeure, or unavoidable accident, at its nickel smelter.
Mirabela has received notice from Votorantim Metais Niquel that the main transformer at its Fortaleza smelter has malfunctioned, meaning the electric furnace is no longer able to operate.
Votorantim has claimed that this was an event of force majeure and that it is therefore no longer obligated to purchase nickel concentrate from Mirabela under an existing sales agreement between the two companies.
Mirabela is seeking legal advice on the matter.
Votorantim flagged in September that it intended to close its smelting facilities from this month due to weak nickel market conditions, terminating the concentrate sales agreement between the two companies at that time.
However Mirabela has subsequently told the market that Votorantim has conceded its proposed termination of the sales agreement is invalid and that it intends to comply with its purchase obligations until the end of 2014, despite the fact it still intends to close its smelting facilities this month.
The sales agreement with Votorantim is critical for Mirabela, which has warned shareholders over the past month it is at risk of defaulting on its obligations unless it can restructure its debt.
Mirabela holds a $US50 million debt facility with Banco Bradesco, which is secured by the sales agreement with Votorantim.
It said today it was assessing the impact of Votorantim's claimed force majeure on its short-term cash flow position and the staus of the Banco Bradesco debt facility.
Mirabela diclosed last week that its cash on hand had fallen to just $US53.7 million as of October 29, compared to $US108.1 million at the end of June.
Mirabela said that, given the weakness in the nickel sector and its current cash burn, it was vital any restructuring of its debt was paired with a capital injection.
