Perth company Arafura Pearls’ plans of becoming a profitable pearl producer have suffered a big setback, with the company forced to raise extra capital to help it recover from cyclone damage and to reduce its debts.
Perth company Arafura Pearls’ plans of becoming a profitable pearl producer have suffered a big setback, with the company forced to raise extra capital to help it recover from cyclone damage and to reduce its debts.
The latest capital raising continues the company’s long and expensive development path, which has lasted eight years and required $27 million of capital.
Executive chairman Andrew Hewitt said Cyclone Ingrid, which passed over its pearl farms 12 months ago, caused “significant” disruption to its operations and capital raising plans.
The latter had included placing the shortfall from an earlier rights issue and raising an extra $3 million through a public share issue.
Instead, the unlisted public company is now seeking to raise more capital through a $5.76 million rights issue and a $1 million public issue.
Most of the money will be used to repay $3.3 million in short term loans from shareholders and to meet projected operating costs of $1.7 million in the three months to June 2006.
After paying capital raising costs, the company will retain just $1.4 million for working capital.
Arafura’s operations are in the Northern Territory, where it is the major holder of pearl production quota. The other big quota holders in the Territory are the Kailis and Paspaley families, which dominate the much larger pearling industry in Western Australia.
Mr Hewitt said Arafura exploited its entire quota (40,000 shell at the time) in the 2005 financial year, which indicated its operational progress.
The company subsequently spent $3 million acquiring a further quota allocation of 40,000 shell, which it plans to use this year, and has “contractual arrangements” for up to six years over an additional 80,000 quota units.
The state of Arafura’s business is reflected in the increasingly low price of its capital raisings.
It initially raised capital at 75 cents per share and its latest capital raising is pitched at just 20 cents per share.
In order to improve its cash flow, the company is planning to offer a tax-effective managed investment scheme this year.
The company said it was unable to project revenue from this source, but if it were to sell 80,000 shell, the net revenue received in June 2006 would be $5.04 million.
If the company did not offer the MIS scheme, this revenue would not be derived until at least 2010 when its mature pearls would be sold.
Under the MIS scheme, Arafura plans to pay sales commissions of up to 10 per cent and retain 33.5 per cent of the total revenue from pearl sales.
