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Metorex caned for R922m funding plans
Allan Seccombe
Posted: Fri, 28 Nov 2008
[miningmx.com] -- THE bottom dropped out of the Metorex share price on Friday, after a statement late on Thursday detailing how the diversified miner is going to raise R922m to complete its over-budget and delayed copper-cobalt Ruashi project in the Democratic Republic of Congo (DRC).
Part of the capital-raising exercise is an issue of shares at R2 each. Metorex shares plunged on Friday morning, falling nearly 40% to R2.35. By midday, the shares had pulled back to R2.56 on heavy volumes.
“Shareholders will be diluted out of sight at a bad price,” said Vestact’s Sasha Naryshkine, pointing out shareholders must still vote on the extra shares on December 23.
“Metorex does have a good track record to back them up, but is this a bridge too far?” he asked.
Metorex hit a high of R24.80 in the past year.
On the positive side, Metorex has made a plan to raise the R922m it needs towards the R700m required to complete the Ruashi project, which has fallen six months behind and seen the price tag bulge to $320m. The balance of the cash will be kept within the company.
The reason for the share price fall is the low price set for the equity issue, which after the rights issue, including a specific issue and a claw back offer, will mean the number of Metorex
shares in issue will rise to 741 million from 369 million.
“It’s the rights issue that’s weighing on the share price. Why pay more for Metorex when you can buy them for two bucks?” said Peter Major from Cadiz Corporate Solutions.
He argued that Metorex had priced the issue at R2 to almost force shareholders into taking up the heavily discounted shares or lose out if they don’t follow their rights.
“There are a number of reasons they priced it at R2, but mostly so that the existing guys can make some money. When they put it at these really abnormal levels, you’ve got to follow and you will in this case,” he said.
“They’ve made it so attractive that you almost have to knock a bank over to steal money to get all you can,” he said.
For Metorex, however, it is last prize raising the money it needs via equity, Major said. He pointed out it was one of the most expensive ways to generate finance, but conceded that banks have generally clammed
up when extending loans.
“If they’d had debt, they could have paid it back in a number of years, but from now, for the rest of their lives, they’re going to have double the number of shares,” said an analyst who declined to be named.
Metorex has R2.9bn of debt on its books and has restructured the medium-term portion of it.
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