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Rio backs ERA's A$369m raising

4th April 2023

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

     

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PERTH (miningweekly.com) – ASX-listed Energy Resources of Australia (ERA) on Tuesday announced a A$369-million renounceable entitlement offer to fund the rehabilitation of its Ranger project, in the Northern Territory, and to repay a credit facility from shareholder Rio Tinto.

ERA will undertake a five-for-one non-underwritten pro rata renounceable entitlement offer, priced at 2c each, representing a 90.2% discount to the company’s five-day volume weighted average price.

Rio on Tuesday said that the company, which owns an 86.3% interest in ERA, has pre-committed to subscribe for its full entitlement under the terms of the offer, at a cost of A$319-million.

“We are committed to ensuring the critical rehabilitation of Ranger is completed to a standard that will establish an environment similar to the adjacent Kakadu National Park,” Rio Australian CEO Kellie Parker said.

Rio Tinto’s voting power could increase to up to 89.1% in ERA following completion of the interim entitlement offer taking into account the binding pre-commitments and assuming no other shareholders, other than those who have pre-committed, participate and shortfall shares are not taken up.

In the event that Rio beneficially owns 90% or more of the shares in ERA, the major would have the option to compulsorily acquire the remaining ERA shares.

ERA last year revealed that it would require an additional A$1.06-billion to A$1.65-billion in capital to complete rehabilitation of the Ranger uranium project, in the Northern Territory, after an independent review of the rehabilitation estimated a cost of between A$1.6-billion and A$2.2-billion for the project, compared with the 2019 cost estimates of A$973-million, while pushing back the completion of rehabilitation work to between the fourth quarter of 2027 and the fourth quarter of 2028.

Production at the Ranger mine ceased in January 2021, in accordance with the Ranger Authority, and ERA has been undertaking rehabilitation efforts since that time. Since the completion of the 2019 rehabilitation feasibility study, ERA has spent approximately A$524-million on rehabilitation.

The government last year passed legislation allowing the company to extend its existing authority of the Ranger mine beyond the current 2026 deadline allowing the company to continue rehabilitation work at the mine, until complete.

The company in 2022 entered into an amended A$100-million loan agreement with Rio, after the major trashing of an independent valuation of ERA, saying it failed to recognise opposition to the development of the Jabiluka uranium deposit, and calling on the resignation of senior ERA management.

The independent valuation, which was done on the behalf of ERA’s Independent Board Committee (IBC), was based on the development of the Jabiluka deposit, which is located on the Jabiluka mineral lease, and contains 302-million pounds of uranium oxide at an average grade of 0.55%. A move which has been highly contested by local communities.

Rio on Tuesday said that the entitlement offer documentation had recognised the Mirarr People’s opposition to further uranium mining on their land, with Parker saying that this was a relevant factor in Rio’s recent decision to no longer report the Jabiluka deposit as a mineral resource.

Rio also recognised that the Mirarr People’s continued involvement in and support of the Ranger rehabilitation project was critical for its timely completion and success.

ERA said on Tuesday that funds from the capital raise were not expected to generate any financial return and would be dedicated strictly to the Ranger rehabilitation project and repayment of the credit facility.

Furthermore, ERA will use existing cash at bank and relevant net interest received to fund its planned Ranger Project Area rehabilitation expenditure to the end of the second quarter of 2024, fund corporate costs, working capital, funding costs, and other costs and fund holding costs and the intended renewal of the Jabiluka Mineral Lease, including upholding obligations under the Jabiluka long-term care-and-maintenance agreement.

ERA told shareholders that the total expenditure expected to be incurred for planned Ranger project area rehabilitation activities from January 2023 to the end of the second quarter of 2024 was currently estimated at A$404-million.

In the absence of the interim entitlement offer and after taking into account the drawdown of the Rio credit facility, ERA’s cash at bank is expected to be exhausted in the third quarter of 2023 at the planned expenditure rate, and accordingly the interim entitlement offer is being undertaken as an interim funding solution.

The company said that the IBC had determined that the interim entitlement offer was the only feasible funding option available for ERA. Moreover, it was determined that the most equitable form of the interim entitlement offer was a traditional, pro-rata, renounceable offer with a rights trading period and shortfall bookbuild.

ERA told shareholders that on completion of the interim entitlement offer, and subject to the finalisation of the 2022 feasibility study, which may well result in these estimated costs of rehabilitation increasing and ERA’s internal cost review, the company would require at least an additional A$210-million to A$756-million to fund the balance of the cost of the Ranger project area rehabilitation, based on the estimated 2021 major reforecast range of between A$1.6-billion and A$2.2-billionn. ERA will consider available funding options for the additional amounts at the relevant time, which may include a further equity raise in 2024, the company said.

The company’s near-term priorities will include securing a suitable funding option to meet the future rehabilitation obligations, progressing negotiations to extend the existing Ranger authority beyond the current January 2026 deadline, continuing the rehabilitation of the project area, and finalising the implementation of a number of initiatives to strengthen the project execution capability.

 

Edited by Creamer Media Reporter

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