Hulamin says R750m rights offer aligned to growth aspirations

South African aluminium semifabricator Hulamin has confirmed plans to raise R750-million through a rights offer to its shareholders to pay off its debt and further expand its production capacity.

Outgoing CEO Alan Fourie announced in February that the company was reassessing its capital structure, including potentially undertaking an equity capital raising – Fourie will be replaced on July 1, 2010, by Richard Jacob.

Fourie explained in a conference call on Monday that the increase in its production capacity in recent years, the need to expand its rolling slab production capacity and the volatility of aluminium pricing in the past few years, had increased its working capital requirements.

The JSE-listed company’s current funding structure was, thus, not well aligned with its growth and operational objectives and that it planned to use the proceeds of the offer to reduce its current short-term debt and to repay long term debt that would be due in the coming two years.

About one-third of the proceeds would be applied towards the early payment of long-term debt, with the balance to go towards creating the required short-term funding capacity.

The capital raising would ease the liquidity risk for the business and provide Hulamin with headroom to move forward with its growth objectives, said Fourie.

VOLUME KICKER

The company’s sales volumes had reduced sharply during the global recession in 2008 and 2009, but have since recovered “strongly”.

It had already increased its rolled-products capacity to enable it to increase sales volumes to 250 000 t/y, particularly of higher margin products.

The increased capacity was expected to result in growth in sales between 2010 to 2014, which would require higher investment in working capital, stated Hulamin.

“We are quite confident this will enable the business to achieve its growth objectives. It will comfortably get us through to our 250 000 t/y objective,” said Fourie.

He added that at that level, the business’ returns would become “quite attractive” and that the cash generation would become stronger.

Further, Hulamin was planning to expand its rolling slab casting facilities to offset the product that BHP Billiton would no longer supply.

Hulamin produced the majority of its own rolling slab, but did source some product from BHP Billiton, who announced last year that it would stop supplying rolling slab from its Bayside operation to Hulamin by the end of this year.

The manufacturer has improved the investment of an initial R75-million on boosting its own rolling slab production capacity to replace the 90 000 t of slab it currently sourced from BHP Billiton.

This capacity would come on stream by the end of this year and would fulfil its requirements for 2011, said Fourie.

However, there were a number of other options, which were still at a conceptual stage, that the company was considering to further expand its rolling slab capacity.

Fourie added that, while talks with BHP Billiton to continue supplying rolling slab to Hulamin were continuing, the manufacturer was planning on the basis that it would produce most of its future rolling slab internally.

However, the company still had a “significant” relationship with BHP Billiton and Hulamin would, in order to produce its own rolling slab, continue to source melting ingots from the resources giant’s Southern African smelters.

Hulamin would announce the terms of the placing to shareholders in due course.

Standard Bank and Rand Merchant Bank had been appointed as joint advisers.

source:http://www.engineeringnews.co.za/article