20/05/2013 - 15:42

Galaxy slashes price for $47m capital raising

20/05/2013 - 15:42


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Galaxy slashes price for $47m capital raising

Embattled lithium producer Galaxy Resources has announced a deeply discounted $47 million rights issue to give the company a much needed cash injection.

The company has priced the rights issue at 8 cents a share, with three free attaching options also priced at 8 cents, and will use the capital to reduce debt levels and restructure the business.

The pricing represents a 65 per cent discount on the closing price of Galaxy’s stock on April 24, the last day the company’s shares traded prior to a trading halt and suspension.

Galaxy announced today it expected its shares to remain suspended until July 1 as it seeks to complete the rights issue.

In a letter to shareholders, chairman Craig Readhead said the company understood “the frustration shareholders are likely to have experienced in recent times and that in order to consider a further investment, will want to know, we have taken significant action”.

He said that, due to difficulties in raising capital, the company would look to existing shareholders for support.

“Given the difficult equity raising environment and therefore the discount rate being offered, we consider that the appropriate course of action is to offer the equity raising to our shareholder base, in order to provide the company with the necessary working capital,” Mr Readhead said.

Patersons Securities has been appointed lead manager for the stock issue while Deutsche Bank will take on debt re-arrangement and non-core asset sales initiatives as the company’s corporate adviser.

In the past year Galaxy has cut operational costs and overheads including suspending operations at its Mt Cattlin mine near Ravensthorpe, in favour of an off-take agreement from Talison Lithium.

It has also reduced the number of directors from 10 to six.

The company said it would cut corporate costs from $17.6 million to $7.9 million over the next two years.

Managing director Iggy Tan has taken a 20 per cent salary cut and executives will take a salary cut of 10-15 per cent.

Galaxy’s problems began after a pipeline rupture at its Jinagsu lithium plant in China late last year, which resulted in lost revenue, higher costs and the withdrawal of $66 million of investment from the East China Mineral Exploration and Development Bureau.

“The event at the Jiangsu plant has placed a significant burden on our working capital position, and we now require an injection of new equity during this production ramp-up phase,” Mr Readhead said.

The company currently has $117 million of short-term debt with Chinese banks, China Construction Bank, Industrial and Commercial Bank of China and Shanghai Pudong Development Bank, and $62 million of convertible bonds.

Mr Readhead said the company was working to extend the term of its debt facilities and restructure the convertible bonds.







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