Yesterday’s funding raising announcement from Macarthur Coal was a bit odd, even by some of the capital raisings we have seen in the past nine months.
On Wednesday it tickled the market’s fancy by hinting at an improvement in demand for its coal, the share price fell 10 cents.
Then on Thursday it completed the one-two combination with a profit upgrade as it put its hand out for nearly $200 million in new capital.
Why it didn’t announce the capital raising and the update on Wednesday is strange to say the least.
The update had good news of a strong return to profits by the company, which is the world’s largest seaborne shipper of pulverised coal for the steel industry (PCI coal).
Soft coking coal is crushed to a fine consistency and used in blast furnaces to increase the temperature and extend the smelt; it improves the productivity of the blast furnace.
Oil and natural has have been used in the past and gas is still used in some blast furnaces. The company is controlled by Posco, the big South Korean steel maker (Number 4 in the world) and ArcelorMittal , the world’s biggest steel maker (both with around 20% each), CITIC, the Chinese Government controlled group with 23% and Gordon Talbot, who helped found the company.
On Wednesday the Queensland-based Macarthur presented at a UBS sponsored resources presentation on Wednesday where this comment was made in a slide.
"World steel production across most regions is starting to show signs of recovery with even non-Chinese production improving. A significant amount of spare capacity exists around the world so it will be some time before capacity utilisation rates recover to previous levels.
"While the data is inconsistent the anecdotal evidence is very strong as sales of metallurgical coal to China have increased significantly over the calendar year. Macarthur Coal has shipped a number of cargoes of both LV PCI and thermal coal to China for the first time in the company’s history.
"Early indications are that exports of met coal from Australia to China in May were about 4.1Mt. Chinese domestic met coal production has fallen in response to a concerted effort by the authorities to improve safety in the small mine sector."
That saw the shares lose 10 cents to $6.62.
Then yesterday Macarthur asked for its shares to be halted while it started a $190 million-plus capital raising at $6 a share in which the following comments were made about current trading conditions:
"Full year 2009 EBITDA is expected to be $270 million to $290 million ?? Full year 2009 NPAT guidance in the range of $155 million to $170 million," the company said.
That’s a doubling in profit from 2008, even though conditions in the market are poor and prices are down. 2008 was a rotten year for the company with infrastructure bottlenecks and shipping delays, plus bad weather hitting mining, exports and profits.
That compares with $72.7profit million last year.
Macarthur said its $6 issue price is 9.3% less than Wednesday’s close.
The company says it is looking to help fund a doubling of output from its mines in Australia within five years.
“We are seeing early signs of recovery in steel demand and the raising will enhance our ability to meet growth milestones,” Chief Executive Officer Nicole Hollows said in the statement the ASX with the fund raising details.
“The raising will also place Macarthur Coal in a position of strength when negotiating the refinancing of our corporate facility, due for expiry in June 2010.”
Citic Resources Holdings will be taking up its share of the sale. Macarthur made no mention of the other major holders.
Meanwhile the Australian Infrastructure Fund (AIF) has been forced to try and raise $211 million through an issue of securities at a deep discount the market price to pay off debt and fund growth in its Australian airport portfolio.
AIF said yesterday it will make a one-for-two fully underwritten non-renounceable pro-rata entitlement offer to raise $211 million.
Securities will be offered to institutional and retail investors at $1.10, a 52 cents or a steep 32% discount to the $1.62 closing price on Wednesday.
The group said the proceeds will primarily be used to pay down and cancel a multi-option facility currently drawn to $159.9 million.
AIF said it had also secured a credit committee approval from its current financiers for a two-year facility for $30 million.
"Following the equity raising, (AIF) will have no drawn fund level debt, will be in a position to fund all anticipated asset level capital requirements and will have greater financial flexibility," the fund told the ASX in a statement.
It said the remaining proceeds from the offer will be used to fund "organic growth initiatives in the existing Australian airport portfolio."
AIF has been holding low key discussions on the potential sale of AIF’s 10.1% stake in Australia Pacific Airports Corporation, which owns Melbourne and Launceston Airports.
The talks are being held on the basis AIF will not sell below an independent valuation of the assets.
AIF also said Queensland Airports Ltd, in which it holds a 49.1% share, is considering the potential acquis
