The deal is being arranged and underwritten by Goldman Sachs JBWere and Macquarie Equities as Lihir Gold moves to close out its hedge book, repay its gold loan and other secured debt facilities, and provide funding for project development.
A total of A$1.2 million will be raised with A$856 million coming from the institutional rights issue, A$214 million from a retail rights issue and A$120 million from an institutional placement to new and existing shareholders.
The one-for-three accelerated rights issue has been priced at A$2.30 per share (or K5.40 for shareholders resident in Papua New Guinea where the company has a listing) which represents a discount of 32% on the closing price of LihirÆs stock when it went into a trading halt on Monday.
There hasnÆt been a steady flow of large-scale rights issues in Australia and there are few comparables in the mining sector. Two of the more recent rights offerings were issued by mining services company Orica and ANZ Bank, both of which priced at around a 20% to 25% discount.
The accelerated nature of LihirÆs deal means that institutional investors are given just two days to sign up to the deal. Under the renounceable terms, entitlements that are not taken up will then be offered for subscription to selected institutional investors with the price set via bookbuild. The price difference between this auction and the rights issue price will be paid to the shareholders who didnÆt participate in the deal. The same rules apply for the retail portion of the deal, but in this case, the offering is open for three weeks and covered by a prospectus, which is expected to be lodged with authorities next Monday (April 23).
The A$120 million placement that forms the third component of the deal has been described by market watchers as small in size. ôAfter this issue, Lihir will have a market cap of around A$6 billion which makes the placement seem insignificant,ö says one. ôBut the ability to offer some shares to new investors was obviously important to the issuer. They reckon that with a new capital structure in place, they will be able to attract investors looking for exposure to unhedged, unleveraged gold stocks.ö The placement will be priced on Friday morning (April 20) following a two-day global bookbuild.
Sources close to the deal say that while an indicative price range on the placement is unlikely to be issued, the market is expecting the bookbuild to produce an ex-rights issue price of A$3.10. ôWith the last trading price at A$3.36 and the one-for-three rights issue priced at A$2.30, we would expect the placement to price at A$3.10,ö says a source. ôThe only thing that would impact this is if the gold price suddenly shoots up in the next few days.ö
Bankers close to the deal expect a reasonably solid interest in the rights issue from existing investors, of which about 40% hail from North America. ôThe bulk of the companyÆs register is held offshore, and so far investors have responded positively to the deal,ö says a source. ôThey are comfortable with the discount.ö
About A$800 million of the proceeds will be used to pay off the companyÆs gold loan and close-out its hedge book which, when marked to market, is currently trading at a loss. Another A$120 million will go towards paying off existing secured debt, including some money borrowed when Lihir bought Ballarat Goldfields in the state of Victoria for about A$350 million late last year.
Sources say the accelerated structure for the rights issue, known in the market as a ôrapidsö transaction, was chosen so that Lihir could close-out its hedge book quickly. ôUsually these rapids are used in acquisitions when an issuer needs money up front to pay for a target company. In this case, Lihir wants to be able to buy its way out of its derivatives contracts in the same market that it is raising capital. Any time lapse between the two activities could expose the company to market risks.ö
Lihir Gold has its main operation in Papua New Guinea and has listings in Australia, PNG and on Nasdaq. On Tuesday, the company posted its second highest quarter production ever, turning out 193,000 ounces of gold in the first quarter of 2007. Lihir expects full-year production will reach 830,000 ounces, which will be a 27% increase on 2006 output. Revenues are up too, with the spot gold price rising from $620 an ounce at the end of last year to $653 now.
Once the restructuring is complete, Lihir will be operating unhedged and virtually debt free, placing it in line with the international trend for gold companies to leverage fully to movements in the price of gold. ôInvestors use gold stocks as a natural hedge to the stock market and to the gold price itself, so they donÆt want their companies to be fully hedged,ö says a source. ôUnhedged gold companies are certainly more appealing to investors in the US at the moment.ö
The restructuring is also likely to make Lihir a more appealing takeover target for large offshore gold miners. There has been speculation that AngloGold might buy the business. ôWith an increased market cap, Lihir will be a bigger bite for an acquirer, which might make it less attractive to some buyers. But others that can afford such a large acquisition would certainly be attracted to its unhedged, unleveraged position. Lihir will have great flexibility in terms of its gearing.ö
LihirÆs corporate advisor is Caliburn Partnership. Shares in the company are due to resume trading on Friday.