Arcon, the loss-making owner of the Galmoy zinc mine, has been refinanced by its largest shareholder Sir Anthony O'Reilly.
The cost to the businessman of restructuring the firm is unclear. Companies associated with Sir Anthony have forgiven debts owed to them by Arcon of $71 million (€74.3 million), but sources close to Sir Anthony said the real cost was significantly less.
In addition, Sir Anthony - who owns 43.1 per cent of Arcon - has agreed to underwrite a €28.75 million rights issue. The minimum cost to Sir Anthony of the rights issue will be €12.39 million, assuming the other shareholders take up their full entitlements.
The deal's key element is the purchase by Fairfield Holdings - controlled by Sir Anthony - of most of the company's bank debts of $85 million. Fairfield has forgiven all but $20 million of the debt and agreed new terms with Arcon for the repayment of the balance. Sources said last night that Fairfield paid only $20 million for the debt and that, in reality, the writedown was absorbed by the banking syndicate. The price paid by Fairfield was not disclosed, but the banks have been given a 9.9 per cent stake in the company as part of the deal.
Another company controlled by Sir Anthony - Indexia Holdings - has forgiven €9.55 million of the €16.4 million in working capital and other short-term loans it advanced the company over the past two years. The balance will be repaid by the company out of the rights issue and cash flow.
The net effect of the restructuring will leave Arcon in a position where it can repay its debts and invest to take advantage of an expected upswing in the price of zinc, according to Mr Kevin Ross, Arcon chief executive. The company planned to increase the capacity of its processing plant to bring down the unit cost of production, he said
The company has also released its results for the year to last December. Losses before tax rose to €15.6 million from €10.5 million, while turnover fell from €27 million to €19 million reflecting the fall in the price of zinc to a 60-year low, according to Mr Ross.
The figures include an exceptional gain of €77 million in respect of the debt restructuring announced yesterday, However, this was almost entirely cancelled out by an exceptional writedown of €69 million on the value of the mine's reserves. This is a result of "amended forecasts of zinc prices over the life of the Galmoy mine and revision of reserve estimates as at 31st December", according to the company.
Arcon also warned yesterday that if the rights issue that forms part of the restructuring is not successful, "Arcon will have insufficient working capital to continue trading for any period of time". Sir Anthony's decision to underwrite the one-for-four issue makes this scenario unlikely.
Trading in Arcon shares was suspended at the start of last month while the restructuring was negotiated. The shares are due to be relisted today and are expected to fall below the three cent level they were at before suspension in order to reflect the restructuring. The new shares being issued as part of the rights issue will be issued at 2.5 cent.
Mr Tony O'Reilly jnr, Arcon's chairman, paid tribute yesterday to his father's commitment to the company. He thanked him for "his unique level of support to the company over this difficult period. Few individuals have shown such support to and faith in a company". Mr O'Reilly was chief executive of Arcon until February of this year.
Arcon is the descendant of Atlantic Resources, the unsuccessful oil exploration company founded by Sir Anthony in the 1980s. In 1992 he merged it with Conroy Petroleum, the owner of the Galmoy deposit.
