Iron ore miner and steelmaker Arrium (ARI) has completed the first stage of its $754 million capital raising as it looks to pay down its debt, sending the share price down 38% as the shares were re-listed yesterday.
The shares fell 25c to a new two year low of 40c.
The shares were offered at a discount of 26% to the last sale price of 65c a week ago.
The company said it had raised $465 million from institutional investors and has now launched a $289 million entitlement offer for retail investors.
Arrium raised about $367 million from the institutional portion of the one-for-one rights issue at 48c each, and $98 million through the institutional placement.
Existing eligible institutional shareholders took up about 79% of their entitlements, with the shortfall and the placement priced at 48c via a book build, equal to the underwritten floor price.
Arrium is raising money to pay down some of its $1.7 billion debt as it battles the slide in global iron ore prices.
The company was forced to heavily discount the shares to make the offer attractive to investors, given the negative sentiment surrounding high cost iron ore miners, at a time when prices have slid below $US85 a tonne this week.
Arrium’s chief executive Andrew Roberts said in yesterday’s statement the company was “pleased” with the support of investors.
But according to some media reports, investors are still cautious about the exposure to iron ore, while others are concerned that the capital raising to institutions dilute earnings at a time when the risks from the weak global iron ore price (and weak domestic demand for steel) are high and look like being so for some time.
ARI YTD – Arrium plummets after discounted raising
The retail phase of Arrium’s capital raising will open next Monday, September 22, and will try to raise $289 million.
After completion, the total offer will nearly double the number of Arrium shares on issue.
The company has also said the raising would strengthen the company’s balance sheet (by reducing debt and gearing).
Arrium said it produced 12.5 million tonnes of iron ore at an average loaded cash cost of $A48 a tonne.
The realised average price for 2013-14 was $US111 a dry metric tonne for its type of ore (91% of the average global price for the year).
The price was that high because it was around $US120 – $US130 a tonne for much of the December half year.
The price then fell for the June half year and is currently just under $US80 a tonne.
That has significantly narrowed the company’s gross profit margins in the iron or business this year, from around $US70 a tonne to around $US40 a tonne.
That will crimp cash flow which totalled $A679 million in 2013-14.
Arrium’s underlying after tax profit jumped 83% to $A296 million for the year to June because of that $US70 a tonne and more gross average profit per tonne from its iron ore exports.
