Nickel Mines Raises Capital to Fund Expansion Plans | KOSEC

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Nickel Mines Raises Capital to Fund Expansion Plans

Caroline Wong

Caroline Wong is a Research Analyst at KOSEC - Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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Nickel Mines Limited (ASX: NIC) has recently completed their retail entitlement offer which saw AUD179 million raised, with AUD0.50 per new share as the offer price which was a 5.9 per cent discount of the last close. New shares are expected to be allotted on the 16th of June, with trading recommencing on the 17th of June. This capital raising will help buy back more ownership of two main Rotary Kiln Electric Furnaces (RKEF); the Hengjaya plant, and the Ranger RKEF plant, of which 40 per cent of both are owned by Shanghai Decent Investment Group.

Shanghai Decent Investment Group Co Ltd invested in NIC to fund the building of 2 RKEF plants worth $US200 million. In the period after completion of their IPO in 2018, NIC had the option to increase Hengjaya plant holdings up to 60 per cent from 17 per cent, which saw a payment of US70 million to Shanghai Decent. NIC is now looking to firm up this position with the new equity they have received.

In May, NIC announced plans of an equity raising with the intention to fund further ownership in both Ranger and Hengjaya RKEF plants from 60 to 80 per cent. NIC bought options to increase holdings in the Hengjaya plant that ends on the 30th of November 2020. When acquired, NIC’s nickel production in the Hengjaya RKEF will move up from 26,000 tonnes p.a. to 35,000 tonnes p.a.

The Ranger RKEF plant will also see the same option exercised at the same price; with a 60 per cent holding moving up to 80 per cent. The Ranger RKEF plant expansion will see 13,000 tonnes p.a. increasing up to 17,500 tonnes p.a. This operation will cost AUD120 million plus AUD30 million paid to Shanghai Decent as compensation for undistributed retained earnings of the interest in the RKEF plans. Based on these statistics and the growth trajectory that the company is on, Macquarie has changed their broker recommendations to Outperform with a 48.1 per cent upside.

Nevertheless, the financial position of the company was strong prior to the capital raising. This is evident as cash levels sat at US64 million and net debt at US1 million prior to the raising. Nickel pig iron is a key ingredient in the production of stainless steel and with the global economy opening up, the company’s future growth in production should be considered for potential upside. With a revenue of US472.1 million last year and a profit of US113 million, Nickel Mines has entered the raising and acquisition plan in good financial standing, with a strategic equity raising being used for growth purposes.

By Caroline Wong 

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