Gold revival boosts deal flow

08/10/2018 - 14:42

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SPECIAL REPORT: WA companies participated in 175 corporate finance transactions worth $7.6 billion in the September quarter, with one of the most complex and innovative being the recapitalisation of Eastern Goldfields.

Gold revival boosts deal flow
Rob Hamilton’s Ashanti Capital completed three capital raisings during the quarter. Photo: Attila Csaszar

SPECIAL REPORT: WA companies participated in 175 corporate finance transactions worth $7.6 billion in the September quarter.

Every corporate finance transaction has interesting twists and unique challenges, but one deal that has surpassed most for complexity and ingenuity was the $75 million recapitalisation of Eastern Goldfields.

Announced in late September, the deal looks like being a company saver for the struggling gold miner, which has endured multiple operational and financial setbacks.

The deal brings together a new board and management, a refined strategy and fresh money.

(CLICK TO READ A PDF VERSION OF THIS TWO-ARTICLE SPECIAL REPORT)

If it all works as planned, Eastern Goldfields will join the ranks of successful mid-tier miners under the new name of Eris Gold.

It would join the likes of Dacian Gold, Gascoyne Resources and Metals X, which were among many other mining stocks to complete capital raisings during the quarter.

The Eastern Goldfields recapitalisation had its genesis when the company’s current underground mining contractor, Pit N Portal, approached mining services firm Adaman Resources to discuss a potential deal.

Adaman was established last year by three existing mining services firms – Mitchell Group, SMS Mining Services and Rivet Group – all of which are expected to have a role in the revival of Eastern Goldfields.

Adaman managing director Craig Bradshaw, who played a key role in the revival of ASX-listed Saracen Mineral Holdings, then brought in experienced corporate adviser Darren Martin from Longreach Capital.

After doing some initial work, Mr Martin widened the advisory team.

He approached Rob Hamilton at Ashanti Capital, which early this year had recruited Tom Betlehem from Morgans Financial.

As Western Australian research analyst at Morgans, Mr Betlehem had been involved in capital raisings for Eastern Goldfields and built a deep knowledge of the company.

Over a period of about six weeks, this group of advisers pulled together multiple strands of the recapitalisation.

Mr Hamilton said there was clear value in Eastern Goldfields’ assets, including its refurbished Davyhurst mill, but a successful deal needed a lot more.

“If we were going to do this, we knew they needed to have good new people, a new strategy and most importantly a balance sheet to execute the strategy,” Mr Hamilton told Business News.

The new people included Mr Bradshaw coming on as managing director of Eastern Goldfields, replacing former boss Michael Fotios.

The company also has new directors with experience and credibility.

Joining chairman Peter Mansell around the boardroom table will be Silver Lake Resources chairman David Quinlivan, former Deloitte boss Keith Jones, and GR Engineering executive Tony Patrizi.

Ironically, GR has recently been in the courts fighting Eastern Goldfields over a contract dispute.

Mr Martin said the deal involved extensive discussions with multiple creditors and shareholders.

“There were some pretty challenging decisions,” he said.

“There were lots of moving parts and managing expectations.”

The recapitalisation includes a placement and entitlement offer pitched at 5 cents a share, which have attracted support from both existing and new investors.

“From our point of view, we had to get institutions, not just to get the deal done but to support the company going forward,” Mr Hamilton told Business News.

M&A deals

The Eastern Goldfields recapitalisation is one of 175 September quarter corporate finance transactions added to the BNiQ Search Engine.

The largest transaction for the quarter was the $2.99 billion takeover of Perth-based oil and gas producer Quadrant Energy.

The deal will make Adelaide-based Santos, which had several joint ventures with Quadrant, a much bigger player in the WA gas market.

It was the kind of deal that delivered a tidy boost for multiple corporate advisers and lawyers across the country.

Advisers to work on the deal included Goldman Sachs, Citi and Macquarie Capital (which was also an investor in Quadrant), while UBS advised Santos.

Law firm Clayton Utz was the lead legal adviser to Quadrant shareholders Brookfield and Macquarie, while Herbert Smith Freehills advised Santos.

Also during the quarter, Perth-based Wesfarmers continued to sell assets, with its Bengalla coal joint venture and its Kmart Tyre and Auto Service both changing hands.

In addition, Wesfarmers is continuing to work on the sale of its Coles business.

Gresham Advisory Partners, which is part-owned by Wesfarmers, advised on the Bengalla sale.

It also advised on the largest WA-focused transaction for the quarter – Ausdrill’s $271 million takeover of mining contractor Barminco.

This was considered a logical in-market merger, especially with both companies having an African joint venture and common shareholders in Ron Sayers and Peter Bartlett.

Ausdrill was advised by Deutsche Bank, which is led in Perth by experienced dealmaker Wayne Zekulich.

 

Deutsche was also joint lead manager (with UBS) on a $250 million entitlement offer launched at the same time as the takeover.

Law firm Johnson Winter & Slattery worked on both Ausdrill transactions, substantially boosting its deal flow.

JWS partner Paul Vinci has a long relationship with Ausdrill and its recently retired chief executive Ron Sayers, and in addition worked with current Ausdrill chairman Ian Cochrane at law firm Clifford Chance.

The BNiQ database includes announced M&A deals, including some that failed to complete.

Notable examples include Black Mountain Minerals’ proposed takeover of Poseidon Nickel, which was trumped when Poseidon pursued its own $74 million capital raising to reopen its Black Swan nickel project.

Another example was Regis Resources’ indicative takeover proposal for Capricorn Metals, which was abandoned when Capricorn’s largest shareholder failed to support the deal.

That shareholder is US investment group Hawke’s Point, which is also a major backer of Eastern Goldfields.

The most active adviser on M&A deals was law firm Gilbert + Tobin, which worked on nine transactions.

Its clients included Ausdrill, APM, and BCI Minerals (BCI is seeking to sell its Pilbara iron ore assets).

Capital raisings

Ausdrill’s $250 million entitlement offer was the largest capital raising announced during the quarter, followed by a $175 million placement by Northern Star Resources to support its acquisition of the Pogo gold mine in Alaska.

Macquarie Capital was lead manager on the Northern Star deal, and joint lead manager with Citi on a $50 million Metals X raising.

Those two deals were enough to put Macquarie atop the league table for lead managers.

Next up was Hartleys, which was lead manager on 12 transactions for the likes of Decmil Group, Gascoyne Resources, Goldfields Money and recently listed Stealth Global Holdings.

Its 12 deals were collectively worth $129 million, putting it just ahead of Euroz, which was lead manager on four transactions worth $123 million.

Among the law firms, Johnson Winter & Slattery was number one with four deals worth $265 million.

The most active law firms continued to be Steinepreis Paganin, which worked on 15 capital raisings, and West Perth-based Bellanhouse Lawyers, which worked on nine deals.

Brokers’ profits

There were also revenue and profit increases for the major Perth-based broking firms during the past financial year.

Euroz achieved a 27 per cent increase in revenue to $78 million, putting it ahead of competitors Patersons Securities and Hartleys.

More notably, Euroz continued to be far more profitable than its rivals, with its net profit for the year jumping by 63 per cent to $29.3 million.

Patersons lifted revenue a modest 3.5 per cent to $76 million, while its net profit was $3.2 million.

Hartleys increased revenue by 21 per cent to $65.4 million, with a big driver being fees from deal making, while its net profit was up 31 per cent to $12.8 million.

All three firms have moved to diversify their income streams and build recurring revenues from funds management activities.

At Euroz, for instance, income from brokerage was little changed at $16.4 million while underwriting and placement fees, which are transaction driven, almost halved to $10.7 million.

The big growth areas were performance and management fees from its listed investment companies, which nearly quadrupled to $20.3 million, and corporate retainers, which nearly tripled to $9.3 million.

Euroz’s group funds under management totalled $1.46 billion at the end of June.

Most of these funds are in Westoz Investment Company and Ozgrowth, which reported investment performance of 39.1 per cent and 30.7 per cent respectively.

These results triggered substantial end-of-year performance fees.


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