Like OZ Minerals, cash-short copper and zinc miner Kagara has found a Chinese group ready to be a big brother in a fund raising designed to keep banks at bay.
The cornerstone shareholder role for the Chinese company is different though to the role than China Minmetals is taking in OZ, but the similarity is that Kagara is yet another Australian company bailed out in whole, or in part, by Chinese cash.
Kagara yesterday announced a capital raising of up to $262 million, with the Chinese firm set to take a 19.9% stake (Source).
Kagara said it is looking for a minimum of $150 million and a maximum of $262 million through the issue of new shares to existing and new shareholders.
The offer includes a placement of 38 million new shares to sophisticated investors for 60c per share, raising about $23 million, a non-renounceable entitlement offer to institutional shareholders of about $85 million, and a non-renounceable entitlement offer to retail shareholders to raise up to a maximum of about $92 million.
The entitlement offer will be underwritten to the first $127 million by Macquarie Capital Advisers and Southern Cross Equities.
The issue is at a huge discount to the last traded price of $1.185: it’s around 45% in fact, a sign of the desperate state the company finds itself in with cashflow crunched and profits down because of the global recession and slump in demand for its metal.
The Chinese firm, Guangdong Foreign Trade Group, through its wholly owned subsidiary, Goldsland Holdings Company, has agreed to invest $62.5 million or 15% of the company post the offer by purchasing shares at the offer price of 60c.
And it may subscribe after the offer for additional shares to increase its holding up to 19.9% at a price of 80c per share, which may raise up to an additional $34 million.
Guangdong has agreed to provide Kagara with a short term funding loan of $10 million, subject to the approval of Kagara’s banks.
Kagara chairman Kim Robinson said the equity raising would enable Kagara to significantly reduce its existing debt, strengthen its financial position, and provide a solid foundation on which to take advantage of the company’s assets.
"The Entitlement Offer is being undertaken to strengthen Kagara’s financial position and provide a solid foundation on which to develop Kagara’s unique assets.
"For the past year Kagara has been operating in adverse market conditions, including significant falls in the market price of its key products (zinc, copper and lead), and unfavourable weather conditions resulting in restricted road access for ore and concentrate movements at its Queensland operations.
"In light of this challenging environment the Board has determined that it is prudent to raise additional equity to:
- Strengthen Kagara’s balance sheet by repaying bank debt and provisional pricing liabilities;
- Fund Kagara’s agreement with Western Areas NL for the development of its Lounge Lizard nickel project; (in Western Australia) and
- Provide working capital going forward.
"Kagara’s major shareholder Transamine SA (with 9.7%) has shown its continuing support for the Company by participating in the institutional component of the Entitlement Offer, and it is the current intention of all Directors who own shares in the Company to take up their Entitlements, either in whole or in part.
"We look forward to delivering value to all Kagara shareholders by further developing Kagara’s existing assets and pursuing future opportunities," Mr Robinson said.
"The creation of this strategic alliance with Guangdong is expected to deliver a range of mutually attractive opportunities and provide Kagara with strong potential to access development capital from offshore."
Kagara also said it had received approval from its bankers, Westpac and NAB, to extend the maturity of the remaining $60 million of outstanding loans from October 2009 to July 2010, subject to successful completion of the Offer, and the repayment of $90 million of its bank loans, in addition to standard bank terms and final documentation.
If Kagara raises more than $170 million in the offer, half of the extra funds must be used to retire bank debt.
Any investment by Guangdong is subject to the approval of the Australian Foreign Investment Review Board and the Chinese National Development and Reform Commission.
The Chinese group applied on June 4 to get FIRB approval to go to 19.9%.
Kagara said that subject to the approval of its banks, Guangdong has agreed to provide the company with a short term funding loan of $A10 million and will be entitled to nominate one member to the Kagara Board.
