(Recasts, adds analyst comment, updates shares)
By James Regan
SYDNEY, June 24 (Reuters) - Australian Magnesium Corp's plan to mine and process the light metal for Ford Motor Co and others was thrown into doubt on Tuesday as it warned of write-downs of up to A$800 million ($536 million) after cost overruns crippled the project.
Australian Magnesium (AusMag) shares crashed as much as 74 percent after a three-week trading halt was lifted and analysts said the A$1.5 billion proposal to build a 90,000 tonnes-a-year magnesium plant in eastern Australia could be endangered.
The project had been scheduled to start churning out magnesium in the fourth quarter of 2004, with Ford agreeing to take half the yearly output for 10 years. That contract, worth about A$2 billion and a key component of the overall project, was set to be renegotiated, AusMag said.
"AusMag needs a huge cash injection or a new partner or both, but it's hard to see where that is going to come from," Intersuisse analyst Gavin Wendt said. "There is little sentiment to buy AusMag right now."
AusMag set off the stampede out of its stock by telling the Australian Stock Exchange late on Monday that it would review the future of its Stanwell magnesium smelting project, where construction has been idled because of cost overruns.
AusMag said it would report a significant loss for the year to June 30. "It is possible the entire carrying value of the project and associated expenditure could be written off."
The project, billed by AusMag as the largest and most efficient of its kind in the world and timed to capture growing demand from automakers for the lightweight metal, is on its books at A$494 million. Nor has the company ruled out writing off a further A$300 million in expenditures.
AusMag said it expected to post a second-half operating loss similar to that of the first half, a figure of A$8.63 million on revenue of A$36 million.
AusMag shares fell to just five cents when trading resumed, but found some support to close down 50 percent at 9.6 cents. Including the value of about A$64 million in Queensland government-backed dividend entitlement shares , the company has a market capitalisation of about A$100 million.
Trading in AusMag was suspended on June 2 as the company hunted around for fresh capital to pay its construction bills.
CAPITAL RAISING STRUGGLE
However, AusMag said this month efforts to raise up to A$250 million, which engineering firm Fluor Corp says is needed to address cost overruns, were mostly unsuccessful.
Government lenders owed around A$400 million turned down requests to provide additional loans. Major shareholder Newmont Mining Corp , has indicated it was not a long-term investor in magnesium.
AusMag estimated it held about A$100 million in cash as of June 13, A$70 million of which will be used over the next 12 months, with A$30 million held in escrow.
Newmont, which owns 27.8 percent of AusMag and provided A$100 million in January, must repay a US$30 million loan to Ford if the shipments do not begin in 2005.
Newmont, known better as the world's biggest gold mining house, has previously agreed to inject up to A$10 million more into AusMag, but has said any further investment in the magnesium business was not in the best interests of shareholders. ($1=A$1.49)