AUSTRALIAN MINING SERVICES COMPANY
Raising Capital
SITUATION
When the commodity boom ended in 2013 many mining companies, and those that had served them, found they had expanded too aggressively. With the sudden end of the good times, they struggled to shed unprofitable business and de-lever stretched balance sheets. Company X (a mine drilling company) was no exception. In 2013 the company began a long process to rationalize businesses, increase cash-flow and reduce debt. By 2016 the company had stemmed losses but was still struggling with low profitability and needed new capital.
SOLUTION
With traditional lenders not available, the company hired KBA to do a Private Placement. The timing was critical for reentry into the debt market. The focus was on high return Funds who were willing to lend given the new contracts and positive outlook on profitability and cash-flow. The other key was to do a facility that had a Greenshoe which allowed it to increase borrowings by 80% , as long as the company met certain defined hurdles.
APPROACH
Investor knowledge is key as few parties will lend to a company with low profitability following such a large industry collapse. KBA identified several candidates and focused on their critical due diligence needs to win IC approval. KBA's marketing of investors focused on:
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1. Strong Company fundamentals including market position (in a badly beaten up industry)
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2. The critical need by miners for the company's services
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3. The macro case for a rebound in the underlying commodity (Met Coal)
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4. Work to date by the company to clean up its balance sheet and win equity sponsor support
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5. Highlighting the positive outlook to win contracts that would generate significant margins
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6. The intrinsic value of the company and a key asset
OUTCOMES
KBA was able to help the company raise US$45 Million, which would fund in two tranches (the latter being conditional). Company then was able to show its ability to win profitable contracts and drew down the whole facility within six months of closing. This resulted in increased stability and the ability to win additional business. The stock market rewarded the Company with its share pricing doubling within one year.
