RETAIL investors will be hoping their judgements are proved commercially sound after institutions showed little interest in Kagaras spin out of Mungana Goldmines.
The Mungana IPO, which was targeting $A76 million, closed after raising $A56.5 million, only $A3.5 million of which came from institutions. That followed the earlier closure of the retail component of the IPO upon the minimum subscription level of $A53 million being reached.
Guangdong Foreign Trade Group (GFTG) and Prosperity Steel United Singapore were big backers of the IPO, becoming 16% and 8.3% shareholders respectively when the retail offer closed.
Southern Cross was the sole lead manager to the IPO with Macquarie Private Wealth a broker to the IPO.
An uncertain political/tax climate in Australia plus significant headwinds from global macro concerns were clearly unhelpful factors in the IPO.
Whether concerns expressed by the likes of UBS and others about the spin-out transaction details and assets Kagara described as potential world-class played a role is unknown, but managing director Pat Scott will undoubtedly be very keen to show the companys merits in the months ahead after the stock lists this week.
Meanwhile, Kagara has taken a loan out from GFTG of $A20 million for developing the Vomacka polymetallic deposit at Thalanga near Charters Towers.
Should the Mungana IPO have got the $A76 million that was sought, $A23 million was earmarked to head Kagaras way as payment for cost incurred in the development of the new companys gold project. Instead Kagara got the $A3.5 million of funds exceeding the minimum $A53 million sought, plus Mungana shares. Hence the loan for Vomacka from GFTG.
Kagara said in April that at the metal prices and exchange rates being recorded at that time, Vomacka was expected to generate about $A60 million free cash flow.
Goldman Sachs JBWere was keen on the emergence of Vomacka.
This is a positive story for Kagara as it adds incremental volume to its processing stream from an alternative source, the investment banker said. This additional mining will diversify some risk of ore feed and provides and overall increase in metal production, with only incremental cost increases for the treatment and mining of extra material.
There is small risk (in our view) of introducing this additional material into the feed stream given the different metallurgy; however, we believe this should have been considered by Kagara.
UBS was a little more measured.
In our view, under current prices, the Kagara zinc producing assets are likely to be making very little free cash as evidenced by Kagara announcing it will require a $A20 million advance for the proposed Vomacka development from its major shareholder (GFTG), the firm said.
KZL Price at posting:
51.5¢ Sentiment: None Disclosure: Not Held
