Grange in chase for mine backers

Yesterday Grange announced it had appointed Deutsche Bank to advise it on the sale of at least a 30 per cent interest in Southdown, which is forecast to cost $2.88 billion to develop. Grange owns a 70 per cent stake in the project, with Japanese pair Sojitz and Kobe Steel holding the remaining 30 per cent between them.

Grange managing director Russell Clarke, in Hong Kong yesterday for a series of investor briefings, told The Australian the sale of up to half of its Southdown stake could leave it in a position to fund its equity commitments in the project entirely out of its cash reserves.

Despite weak stockmarkets worldwide and concerns about the outlook for the steel industry, Mr Clarke said he believed international steel makers would still see value in partnering Grange at Southdown. “They are quite strategic thinkers,” he said.

“They have got a large amount of money invested in their projects and there’s a pipeline that needs to be filled.”

He said he expected a number of Middle Eastern steelmakers to be interested in the project, given the high-grade, low-impurity iron concentrate that will come out of Southdown will be well suited to the gas-fired electric arc furnace steel mills found there.

Grange and Deutsche are also set to talk to Chinese, Japanese and Korean steel mills about potential deals given their interest in Southdown’s end product.

While no price tag has been set publicly for the Grange stake, earlier this year Kobe Steel bought a 10 per cent interest in Southdown from Sojitz. That deal was widely reported to be worth $50m to $80m, which would suggest the 30 per cent interest put up for sale by Grange could fetch $150m to $240m.

Investment bank Standard Chartered is already pulling together around $1.7bn in debt funding for the development of Southdown, which would leave the partners needing to contribute $1.1bn in cash between them for the project’s construction.

Under the existing ownership scenario, Grange’s 70 per cent stake would require it to contribute almost $800m in cash, well in excess of the company’s current market capitalisation of around $590m.

Cash from the sale combined with its cash holdings of $274m would cover its reduced share of the Southdown capital commitments, eliminating the need for a dilutive equity raising.

Mr Clarke said a perception in the market that a large equity raising was necessary had hurt the company’s share price.

Grange and its partners plan to develop Southdown into a mine producing 10 million tonnes of iron ore pellets. The company already owns the Savage River magnetite mine in Tasmania, which is set to produce around 2.4 million tonnes of iron ore concentrate this year.

Yesterday Grange announced it had appointed Deutsche Bank to advise it on the sale of at least a 30 per cent interest in Southdown, which is forecast to cost $2.88 billion to develop. Grange owns a 70 per cent stake in the project, with Japanese pair Sojitz and Kobe Steel holding the remaining 30 per cent between them.

Grange managing director Russell Clarke, in Hong Kong yesterday for a series of investor briefings, told The Australian the sale of up to half of its Southdown stake could leave it in a position to fund its equity commitments in the project entirely out of its cash reserves.

Despite weak stockmarkets worldwide and concerns about the outlook for the steel industry, Mr Clarke said he believed international steel makers would still see value in partnering Grange at Southdown. “They are quite strategic thinkers,” he said.

“They have got a large amount of money invested in their projects and there’s a pipeline that needs to be filled.”

He said he expected a number of Middle Eastern steelmakers to be interested in the project, given the high-grade, low-impurity iron concentrate that will come out of Southdown will be well suited to the gas-fired electric arc furnace steel mills found there.

Grange and Deutsche are also set to talk to Chinese, Japanese and Korean steel mills about potential deals given their interest in Southdown’s end product.

While no price tag has been set publicly for the Grange stake, earlier this year Kobe Steel bought a 10 per cent interest in Southdown from Sojitz. That deal was widely reported to be worth $50m to $80m, which would suggest the 30 per cent interest put up for sale by Grange could fetch $150m to $240m.

Investment bank Standard Chartered is already pulling together around $1.7bn in debt funding for the development of Southdown, which would leave the partners needing to contribute $1.1bn in cash between them for the project’s construction.

Under the existing ownership scenario, Grange’s 70 per cent stake would require it to contribute almost $800m in cash, well in excess of the company’s current market capitalisation of around $590m.

Cash from the sale combined with its cash holdings of $274m would cover its reduced share of the Southdown capital commitments, eliminating the need for a dilutive equity raising.

Mr Clarke said a perception in the market that a large equity raising was necessary had hurt the company’s share price.

Grange and its partners plan to develop Southdown into a mine producing 10 million tonnes of iron ore pellets. The company already owns the Savage River magnetite mine in Tasmania, which is set to produce around 2.4 million tonnes of iron ore concentrate this year.

 

Source: TheAustralian.com