PERTH (miningweekly.com) – Diversified mining and materials company Arrium on Monday announced plans to raise around A$754-million through a renounceable entitlement offer and a placement to institutional investors.

The one-for-one pro-rata accelerated entitlement offer would raise about A$656-million, with the shares to be priced at 48c each. The asking price for the institutional offer would be priced through a bookbuild, with an underwritten floor of 48c a share.

The 48c-a-share offer price represented a 26% discount to the company’s closing price on September 12, and a 15% discount to the theoretical ex-rights price.

Arrium said on Monday that the net proceeds from the capital raising would be used to repay debt, while strengthening the company’s balance sheet and providing it with a more appropriate capital structure for the current environment.

“This positions the company for current markets. Debt reduction is a key priority for the company and the capital raising reduces our debt significantly in a single step,” said chairperson Peter Smedley.

He pointed out that while the company had reported significant progress in its debt reduction of late, iron-ore prices had fallen significantly in the last month, to a five-year low, and there was increased uncertainty over the extent and timing of the recovery.

“We are taking this action to position Arrium with a more appropriate capital structure in the current environment,” Smedley said.

He added that the offer also provided shareholders with an opportunity to increase their investment in the company, on attractive terms.

“The company will have a strengthened balance sheet with significant leverage to improved iron-ore prices, a sustained lower Australian dollar, increased steel volumes including from stronger investment in infrastructure and recovery in steel margins.”

The company was spun out from mining giant BHP Billiton in 2000 as OneSteel, when it was almost entirely a domestically focused steel manufacturer and distributor.

Arrium currently exports about 12-million tonne a year of hematite ore from its operations in South Australia, and supplies ore to the integrated steelworks at Whyalla. Furthermore, Arrium also has a significant mining and mining consumables business, in addition to the Arrium steel arm.