See today's announcement in terms of context. Looks pretty cheap to me now at uder a $. I now see little risk but no doubt she will fluctuate.
Yesterday, Straits Resources Ltd (ASX:SRL) reported to the ASX that it reached agreement with its bankers to extend the maturity of its existing $50 million debt facility until March 31. Recently it announced the financial close of a $US300 million debt facility by its Singapore-listed subsidiary, Straits Asia Resources, with the Standard Bank of London. Straits Resources is in the process of reviewing its long-term debt requirements. A Euroz research report points to a sharp fall in the company's value which is now trading at about $150 million below the value of its 47 per cent stake in Straits Asia Resources. Euroz's Greg Chessell says he is "staggered" by such a huge arbitrage. The terms of the arrangement with Standard Bank of London (SCB) provide for a $US250 million term loan facility, repayable in two equal instalments by May 2010, as well as a revolving working capital facility of $US50 million. In addition, Straits Asia will issue SCB with 35 million warrants that may be converted to ordinary shares at any time prior to May 2010. The debt facility has allowed the Indonesian thermal coal producer to immediately retire the $US230 million debt owing as a result of the acquisition of the 5Mtpa Jembayan coal operation and Sebuku Northern leases settled in December 2007. The debt was due for repayment by December 17, 2008. Straits Asia's CEO, Richard Ong said, "This completion places our balance sheet in an extremely strong and enviable position with over $US100 million in cash or near cash and with a further $US50 million still available under the revolving loan. "The completion of the debt re-financing comes on the back of expansion plans to increase production capacity to 11Mtpa by mid-2009, as well as an 82 per cent increase in coal resources to 254Mt that was announced to the market yesterday. "We are targeting production in the range of 7-8 million tonnes from Jembayan in 2009," Mr Ong added. But investors should heed these remarks sent to the ASX on November 20 from chief executive Milan Jerkovic, who said Straits was reviewing whether to keep mining its Tritton copper mine in NSW amid a dramatic drop in the world copper price. He added that the mine is marginal due to a halving of copper prices this year and said he was prepared to take tough decisions on the mines future if conditions didn't improve. "Nothing is imminent, but you've got to look at the costs of these things and be prepared to make hard decisions," he said. "We're not prepared to operate at a loss."
SHARE PRICE MOVEMENTS *********************
Shares of Straits Resources yesterday rose 5c to 82c. Rolling high for the year is $8.55 and low 62c. Dividend is 2c to yield 2.44 per cent. Earnings per share is a negative 8.4c and p/e ratio minus 9.76. The company has 232.9 million shares with a market cap of $190.9 million. A day after Mr Jerkovic's statement, chairman Alan Good told shareholders it was a period where the external economic environment has deteriorated significantly due to the global credit crisis. "While Straits Resources's business is fundamentally sound, no resource company has been immune. "Growth in both developed and developing countries is slowing quickly and commodity prices are falling in line with decreasing demand. "At Straits, the major focus of the group between April and September this year was the proposed re-structuring of the company which involved separating Straits coal assets from the remaining metals and mining assets. "This transaction had to be cancelled in late September due to the credit crisis." During 2008 Straits Asia Resources bedded down the Jembayan coal mine in Indonesia which was purchased late in 2007, and in January Straits purchased 35 per cent of a company which owns an 80 per cent interest in a number of coal leases in Madagascar. In addition Straits has also invested in a company with coal opportunities in Brunei. In Australia, Straits is completing the expansion to 35,000 tonnes of copper in concentrate at the Tritton mine, and in NSW the Hillgrove antimony/gold mine is currently ramping up to full production. Sebuku produced 1.96 million tonnes in the 6 months to June 2008, a record for this period. Infrastructure is being put in place to expand the operation by 2009, however Mr Good said the mine will only ramp up to this production rate once approvals have been received to move the production forest boundary. The Hillgrove antimony, gold and tungsten project was officially opened in September and is currently ramping up to a production rate of 10,000 tonnes of antimony metal, 20,000 oz of gold and 30 tonnes of tungsten in concentrate. "While it is difficult to predict what will happen in the future it is clear that the mining industry must, and is adjusting to the changing economic conditions," Mr Good said. "Straits has moved quickly to cut non-essential costs and will continue to look at ways of improving margins moving forward. "While base metal prices have fallen significantly in $US terms, the weakening $A has been of substantial benefit, and we are now experiencing some relief in operating cost pressures through a reduction in consumable costs. "Of the range of commodities that Straits produces, thermal coal and copper are considered to be two of the best commodities to be in for the future and Straits is in an exceptional position to benefit from any opportunities which may arise," he said. In coal, Straits Asia has contracted to sell nine million tonnes in calendar 2008 of which approximately 7.5 million has been shipped. "Straits will continue to advance its exciting coal projects in Madagascar and Brunei and will continue to explore both around its mine sites as well as focusing on key exploration targets in South Australia and the Lachlan fold belt of NSW through subsidiary Goldminco Corporation," the chairman declared.
BACKGROUND **********
Straits Resources Ltd listed on the Australian Stock Exchange on July 8, 1994. It is a diversified resources company focused on generating strong and sustainable earnings from a balanced portfolio of resource projects. Based in Perth, the company has a management team with an impressive track record of advancing resource projects through to full production. Straits controls and operates the Whim Creek copper operation in WA, the Tritton copper operation and Hillgrove antimony/gold mines in NSW, the Mt Muro gold mine in Indonesia and the Sebuku and Jembayan coal mines in Indonesia owned by Straits Asia Resources. In addition Straits holds an outstanding portfolio of mining investments, development projects and exploration ground throughout Australia, Indonesia, Madagascar and Brunei. Straits also owns Gfe/Magontec, a European based speciality metals business.
SRL Price at posting:
99.0¢ Sentiment: Buy Disclosure: Held