The announcement late last Wednesday that Glencore had agreed to loan PolyMet another $11 million to pay for an update to its definitive feasibility study, was greeted by some as a piece of good news— that suggests the giant Swiss-based commodities broker still sees potential in the company’s NorthMet copper-nickel mine despite the recent collapse in metals prices.
Yet the terms of the loan, and the likely results of the feasibility update, point to a project that’s teetering on life support. While PolyMet saw a bump in its stock price in November with the release of the Final Environmental Impact Statement, investors have grown increasingly pessimistic ever since. As of this week, the company’s stock price had recovered slightly, to 89 cents, but is still down 20-percent since its post-FEIS peak.
Savvy investors can’t be unaware that major copper mines around the world are being shuttered by companies like Glencore, Rio Tinto, and others, in a desperate attempt to stem the financial bleeding and the production oversupply that has cut copper prices in half from their peaks in the late 2000s.
The nickel market has been even more brutal, as prices for the metal have fallen by nearly 75 percent from the levels that PolyMet had assumed in its 2008 update of its feasibility study.
The whopping 16-percent interest rate that Glencore is charging PolyMet for its $11 million lifeline further points to a market that has little confidence in the project. You don’t pay loan shark interest rates in the current low interest rate environment unless every other option for funding is off-the-table. PolyMet is, at this point, completely dependent on Glencore to survive, and that rarely works out well for any company in the long run. Just ask Duluth Metals.
What’s worse, the updated feasibility study that $11 million is supposed to generate is unlikely to inspire any newfound optimism in the project. I’ve been tracking the effect of metal prices on PolyMet’s economic outlook for months and the picture is bleak, at least at current metal prices.
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