The boom conditions in Western Australia’s iron ore industry have underpinned a rapid increase in capital raisings by current and aspiring iron ore miners.
The boom conditions in Western Australia’s iron ore industry have underpinned a rapid increase in capital raisings by current and aspiring iron ore miners.
The iron ore sector was home to just three initial public offerings – in contrast to the equally hot uranium sector, which has had a flurry of new floats – but the amount of money raised by iron ore companies was much greater.
A dozen listed WA companies raised about $370 million last year to support their planned iron ore projects, up from almost nothing in the previous year.
The capital raisings have been accompanied by negotiations to try and secure international partners, to provide extra financial muscle as well as off-take agreements for marketing iron ore.
The amount of money raised in 2005 was modest relative to the ambitious plans of the iron ore companies, most of which plan to spend more than $1 billion developing their projects.
Fortescue Metals Group, run by managing director Andrew Forrest, announced the biggest capital raisings last year.
It turned to international institutions for its main capital raisings, in a re-run of the strategy Mr Forrest employed at Anaconda Nickel (now Minara Resources).
Fortescue issued $64 million of convertible notes in February, mostly to Harbert Management Corporation, which has $US5 billion under management.
This followed a $40 million convertible note issue in January to US investment management firm DKR Capital Inc, which has $US4 billion under management.
Fortescue, which plans a $2 billion-plus mining and infrastructure project in the Pilbara, said its aim was to raise capital in a manner that minimised the dilution of existing equity in the company.
The company also raised $7 million when directors exercised options.
Most of this money was contributed by Mr Forrest, who bought 63.8 million shares at eight cents per share for a total cost of $5.1 million.
One month later he was able to sell three million shares on-market at $4.50 per share, for total proceeds of $13.5 million.
The most outstanding capital raising in the sector was Iron Ore Holdings’ $6 million IPO, managed by Hogan & Partners.
Its shares were issued in May at 20 cents and finished the year at $2.66, after peaking at $3.15.
They were helped along by the announcement that Stan Perron’s Perron Investments had subscribed for 770,000 shares at $1.30 per share.
The company was also helped by the National Competition Council’s ruling that BHP Billiton’s Pilbara rail line should be “declared”, meaning other producers would have a right to negotiate access to the line.
The NCC case was brought by Fortescue but IOH said it was “excellent news” given the proximity of its tenements to BHP’s rail line.
Territory Iron’s $10 million IPO was not as spectacular as IOH’s, but was still very successful. Its shares were issued in March at 20 cents and fini-shed close to their year high at 38 cents.
The third IPO was Echelon Resources, which initially described itself as a diversified exploration company.
However, it has since focused its activities on Pilbara iron ore and has won strong support from investors, with its 20-cent shares ending the year at 71 cents.
Gindalbie Metals, like Iron Ore Holdings, is an aspiring iron ore miner that was helped by a small but high-profile placement.
The company raised $9.5 million in June but attracted more attention last month when Ralph Sarich’s Cape Bouvard Group subscribed for $1 million at nine cents per share,
With the shares currently trading around 31 cents, Mr Sarich is sitting on a quick profit.
Another positive for Gindalbie was the decision by former Portman managing director George Jones to join its board as chairman.
Gindalbie is one of several companies – along with Midwest, Mt Gibson and Murchison Metals – planning to develop big projects in the Mid-West region, inland from Geraldton.
Murchison has the rare distinction of having locked in an international partner and obtained hard cash.
Its partner is South Korean industrial giant POSCO, which has invested $3 million for a 4 per cent stake in Murchison.
Murchison completed several capital raisings during the year, with the biggest being a $28 million placement through Canada’s RBC Capital Markets to institutional investors from Australia, North America and Europe.
Murchison managing director Paul Kopejtka said the company had deliberately used an international broker so that it could establish links with investors able to fund its stage 2 project, expected to cost more than $1.3 billion.
While most capital raisings proceeded smoothly last year, an exception was Grange Resources, which is seeking to develop the Southdown project near Albany.
It announced in March that Patersons Securities would be underwriter of a rights issue, but one month later said “the recent material deterioration in market conditions has triggered a technical breach of the terms of the underwriting agreement”.
Grange said it decided to withdraw its prospectus “due to the uncertainty of completing the rights issue which is not fully underwritten”.
Instead, it completed a $5 million placement to the RAB Special Situations Master Fund, run by London based institution RAB Capital plc.
Grange had more success later in the year when it completed a $10.4 million placement at $1.35 per share through Sydney firms Shaw Corporate Finance and BBY.
The most recent capital raising in the sector, announced in December, was Aztec Resources’ $42.3 million rights issue, which will be used to progress the company’s plan to reopen BHP’s old Koolan Island mine off the Kimberley coast.
Aztec took no chances with the capital raising, which was fully underwritten by LCS Capital and Grange Securities and fully sub-underwritten by major Aztec shareholders and domestic and international institutions.
Aztec has also turned to interstate broking firms Cartesian Capital and Grange Securities to jointly manage the issue.
“We regard the Koolan Island iron ore project as a company starter, not a company maker, so I’m very pleased with the support for the company from international institutions for the entitlement issue,” Aztec executive chairman Ian Burston said.
