ERA shares tank on heavily discounted Rio Tinto-led capital raise
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The news: Shares in Energy Resources of Australia tanked on the ASX after the uranium miner said it will proceed with a heavily discounted entitlement offer to raise around $880 million, which could see its majority shareholder Rio Tinto increase its stake in the company to 99.2%.
The numbers: ERA shares plunged 55% to $0.007 by 2:10pm AEST, having tumbled more than 80% over the last year. Rio Tinto shares were trading 1.4% lower at $110.37.
The uranium producer said it will seek an $880 million capital raise at an offer price of $0.002 per share, with Rio Tinto committed to a total of $760 million.
ERA said Rio Tinto's voting power could increase to up to 99.2% in the company following completion of the entitlement offer. Rio Tinto is currently the group's largest shareholder with a 86.33% stake.
Prior to the announcement, ERA undertook an investor sounding process to determine interest in an equity raise to fund rehabilitation activities, seeking a minimum of $210 million. The company said without a capital raise, it would likely breach its minimum cash reserve of around $50 million in the fourth quarter and is expected to deplete its cash resources by the end of 2024 or early 2025.
The context: ERA said it sought to engage with all of its major shareholders as well as third party investors to determine their support for a potential equity raise, with a total of 90 investors contacted during the process.
However, Rio Tinto was the only investor willing to provide ERA with a pre-commitment to support an equity raise.
ERA noted that careful consideration was given to the overall timing of the entitlement offer, particularly given uncertainty related to ongoing court proceedings over the lease renewal of its Jabiluka development in the Northern Territory.
The Darwin-based company ultimately determined that it was necessary to proceed with the entitlement offer to ensure it remains solvent and able to meet its ongoing obligations.
The source: ASX announcement
