[miningmx.com] – NORTHAM Platinum launched a R1bn overhaul of its balance sheet including a R600m rights offer after misfortune in the last financial year smacked the company’s short-term cash flows.
“This is not a question of survival, it’s a proactive step in order to address our short term cash flow issues,” said Northam Platinum’s Rene Rautenbach. “You must remember we’ve funded most of a R4bn project (Booysendal) from internal cash.”
In terms of the refinance, Northam Platinum will issue R600m worth of new shares – equal to 4% of current shares in issue – to Coronation Asset Managers at R40/share, a 2% discount to the 30-day share price in a claw-back offer to shareholders.
The beauty of this structure is that Northam gets its cash up-front from Coronation which also underwrites the offer. Northam shareholders then buy the shares from the asset manager at the same price.
The downside to issuing new shares in order to provide working capital and capital expenditure is the dilutionary effect on earnings. Applied to Northam Platinum’s last financial year, shareholders would have received 3.79% less in earnings per share.
Northam Platinum said in an announcement this morning that it was necessary to shore up the balance sheet following a smelter blow out which not only delayed cash flow, but also involved a costly toll-treating agreement with a third party.
The rebuild of the smelter would also cost R55m as well as fund the balance of the capital required for completion of its Booysendal project, equal to R530m. Capital and stay in business capital of R350m was also required for its Zondereinde mine.
A three week strike at Zondereinde in the last financial year also cost Northam some R192m.
Rautenbach added that the failure of a transaction in the previous financial year in which Northam was to sell its shares in Booysendal South to Aquarius Platinum also contributed to the cash flow crunch.
The pressure of financing Booysendal – which is expected to contribute 160,000 ounces a year in platinum group metals – is clearly making its presence felt, exacerbated by difficult market conditions.
Northam booked R194m in additional cash in the last financial year, ended-June, taking total cash on hand to R298m. Tellingly, however, Northam decided to pass on the dividend. It had already raised R1.25bn in a corporate bond during that year to which it added a further R120m from the domestic market.
The two other components of the refinancing are a new revolving credit facility (RCF) for R400m and a ‘covenant holiday’ on Northam’s existing and new RCF.
In terms of bank convenants, lenders establish comfort over loan agreements by making sure borrowers are able to cover the debt several times in pretax earnings. If this ratio falls below an agreed level, the borrower is in breach of its covenant.
However, Northam Platinum has secured a ‘holiday’ over the next three measuring periods which means its new and existing RCF is not tested for the next 18 months, the company said.
“The board and management are confident that the funding programme will adequately address the company’s specific short to medium term capital and funding requirements,” Northam said in a statement.
