Shareholders at last week’s King-stream Steel meeting had little choice but to approve a reconstruction and recapitalisation plan.
The proposal from Koolanooka Pellets was the best option for the company to go forward, joint administrator Bryan Hughes told those who came to listen and vote.
This way, the shareholders could keep up to 70 per cent of the company, by participating in a new 35 million-share offer.
Norgard Clohessy partners Mr Hughes and Vincent Smith had determined it was unlikely any unsecured creditors would receive more than fifty cents in the dollar, and shareholders would miss out altogether should the company be liquidated.
There was little of commercial value in the company’s mining plant equipment and there had been no offers for many of the company’s tenements.
And, if approved, the 1-for-100 consolidation of the current 500 million shares on issue would not matter in terms of percentage ownership, but would make the number of shares manageable.
After listing in 1989, Kingstream had failed to raise the required capital and debt funding for its sole focus, the Mid West Iron and Steel Project, and in the year to December 31 2001, recorded operating losses (after income tax) of $65.9 million.
Nevertheless, after Kingstream went into voluntary administration in late November 2001, "many interested parties" responded to the opportunity to make a go of progressing the dream, Mr Hughes reported.
An associated company of Mount Gibson Iron, a major Kingstream share-holder, was one of these.
However, it withdrew its proposal in July 2002, and following a review of half a dozen other serious proposals, the Koolanooka bid had come out a clear winner, Mr Hughes said.
This was accepted in November, and directors of Midwest Corporation - the newly merged Koolanooka and Kingstream – have not denied potential ore, rail and shipping arrangements with Mount Gibson.
Mount Gibson, which purchased the Tallering Peak tenements from King-stream in April last year, recently signed a deal for Mullewa to Geraldton rail transport for Tallering Peak ore.
The company is yet to ask for the Tallering Peak tenements to be transferred from Kingstream, Mr Hughes said.
However, it has paid $4.53 million - $1 million of this in shares and another million in a convertible note.
In putting up its proposal, Koolanooka told Kingstream shareholders that partnership opportunities – with previous or new suppliers or contractors – "could have a major bearing on the selection and definition of the preferred project", and hence its timing and capital raising requirements.
Midwest Corporation will not complete bankable feasibility on its planned A$540 million direct reduction iron ore pellet project before mid next year.
The company also plans to simultaneously investigate an early cash-flow opportunity from the export of haematite Koolanooka and Blue Hills ore for the Asian blast furnace market, and a possible direct reduced iron/hot briquetted iron project.
However, in material sent to Kingstream shareholders prior to last week’s meeting, Midwest said these considerations would "receive less attention" than the pellet project.
Another focus in the first year of recapitalisation, would be to form a partnership for the company’s more remote Weld Range land holdings, with a view to development.
But all plans and considerations ultimately rely on the initial recapitalisation of the newly merged company.
Mr Hughes was candid.
It would be difficult to raise up to $6 million in the current market, he readily admitted to shareholders.
Nonetheless, on talking with a potential underwriter and sub-underwriters, the minimum subscription was looking good, he said.
Yes, there was still the matter of legal action against St Barbara Mines, over a $4.2 million tenement package deal.
St Barbara had been paid in shares, but before all transfers could go through, had surrendered some significant parcels of territory.
And yes, Kingstream shareholders would be paying $1.8 million to Kool-anooka for the merger, but they would be backing the right team to move forward.
That team – proposed Midwest chair-man Jesse Taylor, managing director Stephen de Belle and executive director Robert Duffin – came at a price, but had the right capital raising capabilities and networks, Mr Hughes said.
But despite strong demand from China, and a comparatively optimistic outlook for iron, the shareholders seemed only too well aware of where they were - between a rock and a hard place.
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