Just in the Nick(el) of Time
Covid-19 has had a devastating impact on many industries around the globe, but the Australian mining sector has, to-date, fared relatively well.
Some commodities, such as iron ore and gold, have in fact seen strong price rises since the beginning of 2020, and only a few Australian mines have been forced to shut-down or reduce production rates either for health and safety concerns or for economic reasons directly related to COVID-19.
Against this backdrop, many ASX-listed miners have taken the opportunity to raise equity to reinforce their balance sheets and fund further growth.
Since 1 February 2020, AUD 2.6 billion in equity has been raised on the ASX by mining and minerals exploration companies, and there appears to be no let-up in appetite for this sort of issuance by investors.
To some degree, this trend has been facilitated by temporary COVID-19 relief offered by the ASX on some raisings, including key rules governing capital raisings, including increasing the threshold for an equity placement above which shareholder approval is required from 15% to 25% of issued capital.
The Azure Capital mining team recently advised Panoramic Resources Limited (“Panoramic”) on its A$90 million equity recapitalisation, which took advantage of the ASX COVID-19 relief.
Panoramic owns the Savannah Nickel Mine in the far north of Western Australia (“WA”), near the small town of Halls Creek. Savannah is an underground nickel sulphide mine producing a nickel-copper-cobalt concentrate that is shipped to smelters in China.
Azure’s engagement started in November 2019 when Panoramic was the subject of an unsolicited takeover bid by another WA-based nickel miner, IGO Limited (“IGO”). IGO had shown its hand by making claims over much of the exploration tenure surrounding Savannah over the previous 18 months. The Panoramic Board granted IGO, as well as some other potential bidders, due diligence access. However, following completion of its due diligence, IGO elected to let its offer lapse early in 2020, and no other offers emerged at that time.
After the outbreak of COVID-19, Savannah was one of the very few mines in the country that was forced to shut-down. The Kimberley region (where the mine is located) is sparsely populated and as with many other operations in WA, the work force is flown in from Perth, over 2,000kms to the south.
The main population in the Kimberley region is comprised of indigenous settlements and the Government was concerned about the possibility of an outbreak of COVID-19 amongst these vulnerable communities. As a result, onerous restrictions were placed the movement of people and goods to and from Savannah, which along with a fall in the nickel price and some other operating challenges experienced at the mine site, forced the Panoramic Board to put the mine on “care and maintenance” in April 2020.
This led to a breach of Panoramic’s debt facility, and its secured lender Macquarie Bank plus multiple other unsecured creditors, requested repayment of their debts. It was clear that Panoramic had little choice but to raise equity or face insolvency.
Ultimately, the decision was made to bring in a new investor to cornerstone the raising. The Azure team ran a competitive process amongst interested parties. The successful proponent was Western Areas Limited, another ASX-listed WA-based nickel miner, who invested A$29 million and now holds 19.9% of Panoramic. The rest of the capital was raised via an underwritten rights issue (at close to 1-for-1), with existing shareholders providing strong support to the Company.
The capital raising represented a very positive outcome for Panoramic, avoiding insolvency and strengthening the balance sheet to enable the Company to prepare to restart the mine when conditions are conducive.
The Azure team is leveraging its experience with Panoramic and is currently working with two other Australian mining companies facing similar challenges, who anticipate undertaking significant equity recapitalisations in the second half of the year.
The role of an independent adviser in these situations, working closely with the Board and management team to assess options, structure the capital raising, lead negotiations with strategic and cornerstone investors and brokers, and assist with the documentation workload, is an important one.
We are seeing enquiries from other potential clients along similar lines and in this current environment, regard this service as an essential tool in our “toolkit”