The squeeze is on at Kenmare
THE £171m Kenmare Resources share placing will leave a bitter taste in the mouths of existing shareholders. Having stuck with the company through thick and thin, they now face the prospect of seeing their holdings diluted by up to two-thirds.
On Friday, the Irish-listed mining company Kenmare announced plans to raise a gross £179.6m from a share placing. After shelling out professional fees of £8.8m, almost 5 per cent of the gross proceeds, this will leave Kenmare with a net £170.8m.
The share placing will almost treble the number of Kenmare shares from the current 878 million to 2.375 billion.
The placing consists of two parts.
Half of the new shares are being placed with new shareholders, while existing shareholders have the opportunity to purchase the other half at a price of 12p each on the basis of 19 new shares for every existing 23 shares.
What this means is that shareholders who don't take up their rights will see their stakes diluted by over 63 per cent, while those who do will see their shareholdings diluted by 31.5 per cent. Not a very appetising range of options.
The Kenmare share price has been slip sliding away for the past six months.
After peaking at over 32¢ in mid-September last, it had slumped to 25¢ before the announcement of the cash call. It then fell as low as 16¢ after the announcement, before eventually recovering to 18¢.
So why is Kenmare raising cash now in such apparently unfavourable circumstances for existing shareholders? After all, hasn't the group got its ilminite, the substance which is used to produce titanium, mine in Mozambique up and running at last?
Why, after all the blood, sweat and tears endured by the existing shareholders to bring the project to the production stage, would you subject them to such a savage haircut now?
The truth would appear to be that Kenmare had little choice in the matter.
Reading between the lines of the placing announcement, it would appear that Kenmare Resource's banks, to whom the company owes a net $333m (Kenmare reports its results in dollars), were unwilling to fund the expansion of the Mozambiquen mine and were anxious to see the company raise fresh equity.