Heron to raise $91m in fight for survival

Copper and zinc producer Heron Resources has launched a $91 million funding package, as it is set to run out of cash this month, following delays in construction and ramp-up at its Woodlawn zinc-copper project in NSW.

The funding package comprises of a $35 million 0.7324-for-one rights issue, at a price of 20 cents per share, and $52 million of convertible notes will be issued to Greenstone, Orion and funds managed by Castlelake.

The issue price of the rights issue is a 47 per cent discount to its previous closing price of 38 cents each.

Additionally, $4 million will be raised from a royalty agreement with Orion for its zinc byproduct.

A portion of the funds raised will go towards a $15 million settlement agreement with Woodlawn engineering, procurement and construction contractor Sedgeman, following a long dispute between the two parties at the project.

In February, Heron said it received a claim from Sedgman, a CIMIC Group subsidiary, for $49.9 million in extra costs for works at Woodlawn.

In May 2017, Heron awarded Sedgman a $109 million, 18-month EPC contract to develop a 1.5 million tonnes per year processing plant for production from underground mining and tailings.

At the time of the February claim, plant construction was 95 per cent complete.

Heron indicated that most of the funds raised will go towards working capital and debt repayments to plug cost holes, as it is seven months behind schedule at Woodlawn.

It started processing at the mine in May.

Azure Capital acted as financial adviser to Heron, and Wright Legal and Allion Partners acted as legal advisers.

Patersons Securities and Nascent Capital Partners are the joint lead managers to facilitate any shortfall for the rights issue.

Heron is currently in a trading halt.