Embattled drilling group Boart Longyear (BLY) has bought itself another couple of years’ survival after shareholders yesterday approved the final step of $US342 million recapitalisation plan from a big US financial group.
Boart shareholders voted at an extraordinary meeting in Melbourne to support a $US84 million equity component of the bailout plan that will see the debt burden hanging over the company pushed out four years.
That will give Boart the freedom to try and ride out the intensive recession in the exploration and development sectors in mining, and now in oil and gas. Around 60% of its business is in the gold and copper industries, but the slide in oil prices and oil activities will impact the entire drilling sector.
Yesterday’s approval will further dilute existing shareholders, which explains why Boart shares dipped more than 11% to 16c after the meeting.
BLY YTD – Boart shareholders approve bailout
Shareholders approved the issue as a last resort with the meeting being told a recovery in demand for its drilling services could be more than a year away.
“This provides the company with the capability to make it through what will continue to be a challenging market for 2015, maybe into 2016,” chief executive Richard O’Brien told AAP after the meeting.
The company may experience a further fall in the use of its drilling rigs as gold and copper exploration continues to dry up, he said.
"There’s a possibility that we could, if we see gold prices fall significantly," Mr O’Brien said.
A global recovery could come as late as 2016, with copper, nickel and other infrastructure-related metals suffering amid reduced demand in China, Mr O’Brien said.
The recapitalisation plan from Centerbridge Partners will cut the company’s net debt to $US450 million.
Boart plans to make its first debt repayment of $US300 million in 2018, followed by a $US120 million payment in 2020 and a $US285 million payment in 2021.
The company’s shares were more than 30c a year ago and $1.45 in December 2012 and more than $22 in 2007 – of so long ago!
A week ago the company updated the market on its trading performance (which no doubt helped win support at the EGM yesterday).
"With a mean analyst revenue estimate of US$837 million (range of US$819 million to US$852 million), the Company expects to be at the high end of the range of revenue estimates for full-year 2014,” the company told the ASX on December 12.
"Due to continued erosion in pricing and higher than anticipated rig maintenance and mobilization/demobilization costs within its Drilling Services division, the Company expects to be below the range of analyst normalised EBITDA estimates (range of US$34 million to US$48 million), with its estimate at closer to US$30 million.
"The unfavourable impact of currency movements, primarily related to working capital monetary balances denominated in non-US currencies including the Russian ruble, has also contributed to the reduced EBITDA expectation.
"Analyst net debt estimates at year-end show a mean of US$515 million (range of US$424 million to US$561 million).
"The Company expects net debt to be at the high end of the range of analyst estimates, which, assuming shareholder approval of the recapitalisation transactions, includes US$21 million of cash received prior to year-end from the second placement of shares to Centerbridge but excludes the impact of the rights offer and proposed equitisation of US$16 million of unsecured notes held by Centerbridge, both of which would occur in January 2015," Boart said in the statement.
Since that statement, oil prices have drifted lower and the Russian rouble has collapsed, falling more than 20% in the past week.