[miningmx.com] — JSE-LISTED Hulamin will issue shares to raise R750m to cut debt and fund growth, the company said on Monday.
Part of the money will go towards expanding its slab casting facilities to feed its rolling products plant after BHP Billiton said it was no longer going to produce slabs at its South Africa aluminium smelters, which have been affected by reduced electricity consumption and rising power costs.
Given the volatility in aluminium prices, Hulamin needs a large amount of working capital to get to its target of 250,000 tonnes of rolled aluminium.
Speaking to Miningmx in February, outgoing CEO Alan Fourie said first prize would be some sort of deal with BHP Billiton, but it looks like that option has proved fruitless.
“There’s no advancement but we continue to engage with BHP Billiton. We are planning on the basis that we have to produce most of the rolling slab ourselves going forward,” Fourie said during a conference call on Monday.
Hulamin would buy all its melting ingot requirements from BHP Billiton. “It’s still a very significant relationship going forward,” Fourie said.
The capital raised would be adequate to get Hulamin to steady-state production of 250,000 tonnes.
“It will comfortably get us through to our 250,000 tonne objective. That’s really our main requirement. At that level the business’s returns become quite attractive and its cash generation will be quite a lot stronger,” Fourie said.
Hulamin has a R75m investment underway in producing rolling slab that will come on stream at the end of this year to meet requirements for 2011.
Shares in Hulamin, a R2.3bn company, were flat at R10.60 on very thin volumes. Tuesday is a public holiday and many people have taken Monday off for a four-day weekend.
As at end-December 2009, Hulamin had cash of R64m against debt repayments this year of R710m and other payments of R580m. It had longer-term borrowings of R763m. Of the current borrowings, R550m was a 360-day revolving credit facility and no notice had been given on it.
Roughly, one third of the R750m will go towards early payment of early loans and the balance towards short-term funding capacity, Fourie said.
Hulamin has about 180,000 tonnes of slab-casting capacity at its Camps Drift facility. That can be lifted to 200,000-210,000 tonnes. At Edendale it has a further 30,000 tonnes. The twin-roll casters don’t use rolling slab as starting stock, so if capacity there is raised from 15,000 tonnes up to 30,000 tonnes, it will lessen dependence on rolling slab, he said.
Nearly 80% of Hulamin’s shareholders have said they’d support the fund raising and a vote on the matter will be held at the annual general meeting on 19 May. The terms have yet to be revealed to the market. Its advisors are Standard Bank and Rand Merchant Bank.
“Hulamin’s current funding structure is not well aligned with its growth and
operational objectives, and the Company therefore proposes applying the proceeds
of the Rights Offer to reducing its current short-term debt and to repay long-term debt falling due in the next two years,” Hulamin said in a statement.
“This will enable the Company to fund the expected growth in sales volumes from the already installed capacity, cater for increased slab casting facilities, and reduce borrowing costs and liquidity risks.”
Rolled products, which are derived from rolling slab, made up nearly R4bn of Hulamin’s revenue in the 2009 financial year, while extruded products contributed R620m.
Hulamin would make an investment of R50-R70m this year to increase its slab-making capacity, re-commission unused slab casting facilities. It may have to import “limited quantities’ of slab, said outgoing CEO Alan Fourie.
Richard Jacob, who has been with the company for 20 years, will assume the position of Hulamin CEO with effect from July 2010.
