Western Areas Announces $60 Million Capital Raising
Nickel prices have contracted 50% in a chronically oversupplied market
Australian nickel miner Western Areas Limited (ASX:WSA) announced a $60million capital raising in the form of a fully underwritten placement. Western Areas will issue up to 30.8 million new ordinary shares with a floor price of $1.95.
The final issue price of the new shares will be determined by a bookbuild, however the floor price of $1.95 is 9.7% below yesterday’s closing price of $2.16.
Capital Used to Conclude Cosmos Acquisition and Provide “Financial Flexibility”
The board announced the capital raising “to strengthen its balance sheet and provide greater financial flexibility to fund certain growth initiatives”. The funds will be used to conclude one of its acquisitions, invest in exploration projects and for general working capital.
The company recently deferred some of its capital projects due to low commodity prices and states that the funds will assist to re-start these projects if the nickel market allows it. Western Areas announced revised capital expenditure plans on 7 October 2015 as a result of the challenging operating environment and temporarily deferred operations at Spotted Quoll and the Mill Recovery Enhancement Project.
A portion of the capital will also be used to conclude the acquisition of the Cosmos Nickel Complex from Glencore with a discounted payment of $12.6million. The $26million acquisition was announced on 19 June 2015 and $13million were still payable to Glencore’s subsidiary Xstrata Nickel Australasia Operations.
Currently the company has net cash of $15m and following the placement Western Areas will remain debt free with a net cash balance of $61million. Management arrives at that metric after accounting for the Cosmos acquisition and full repayment of $25million drawn from the company’s corporate debt facility.
Nickel Environment Remains Challenging for Western Areas
After the repayment, Western Area will have access to the full $50million corporate facility from ANZ. However management states that they do not expect to utilise the facility “based on current nickel prices”. Management targets to remain debt free for the foreseeable future, consistent with the previously announced strategy.
Below is a 15 month chart of historical nickel prices on the London Metal Exchange. Nickel prices have contracted 50% in a chronically oversupplied market. However various research firms expect prices to rise in 2016. Reuters believes that the market will swing into a deficit this year and Macquarie targets prices to rise to $10,000 to $12,000 per tonne.
Source and Credit: London Metal Exchange (LME) - (http://www.lme.com)
Author: Simon Herrmann
Mar 31, 2016
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.