25/05/2004 - 22:00

Costs force search for capital injection

25/05/2004 - 22:00

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CHEMEQ is expected to ask shareholders for another capital injection this year after being squeezed by rapidly rising costs and delayed sales.

Costs force search for capital injection

CHEMEQ is expected to ask shareholders for another capital injection this year after being squeezed by rapidly rising costs and delayed sales.

Executive chairman Graham Melrose acknowledges the company, which had cash reserves of $10.9 million at the end of March, will have to raise more capital.

“We will be needing more finance, full stop,” he said, declining to provide any details.

The next capital raising will be a real test of market support for the company, which raised $73 million from investors during 2002 and 2003. That was a time when Chemeq’s share price rose strongly, but it has been trending south for most of the past year.

Chemeq’s latest capital raising does not bode well.

It raised $20 million via a share purchase plan last December, but underwriter Tolhurst Noall and its sub-underwriters were left with more than half the stock.

Chemeq’s weak share price reflects the construction and commissioning delays at its manufacturing plant (see main article).

Despite the delays, Chemeq has recruited extra production, sales and marketing staff, and now has nearly 80 employees on its books.

As a result, in the three months to March 2004, Chemeq spent $3.3 million on staff and working capital expenses, double its spending in the same quarter of 2003.

In addition, it has had to fund the construction of its manufacturing operations.

Originally it planned to spend $25 million building a plant with capacity of 20 tonnes a year.

However, upgrades and expansion of the plant have resulted in the cost rising to a current estimate of $35 million.

The company also faces the cost of expanding its manufacturing by a tentatively designated capacity of 200 million tonnes.

Back in December 2002, when the outlook was much rosier, the company said: “This additional manufacturing capacity will be majorly [sic] funded by cash flows from the 20 tonnes per annum facility”.

Those cash flows have not yet started, and the company has acknowledged that its fund raising to date is sufficient only for “planning and then first stages of construction of [the] second manufacturing facility”.

Stockbrokers contacted by WA Business News expect Chemeq will need to successfully commission its manufacturing plant and build up a track record of commercial sales before going to the market for more capital.

Further progress obtaining regulatory approvals in major markets, especially the US, would also assist in winning investor support.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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