German scrap trader Scholz has invested almost $50 million in...

German scrap trader Scholz has invested almost $50 million in private placement with metal recycling group CMA Corporation, at a massive 63.8 per cent premium to CMA's closing price on February 12.

Subject to shareholder approval, the deal will make Scholz from Schwabenland the biggest single shareholder in CMA. It could reignite excitement in the scrap metal industry, which has been in hibernation since Sims Metal Management acquired computer recycler Global Investment Recovery in October last year.

The placement increases Scholz's stake to 42.18 per cent, with the firm buying 230 million shares at 21.3 cents each, adding to the 45 million shares it bought at 25 cents per share in November – an initial investment of $11.25 million.

Scholz has already obtained Foreign Investment Review Board permission, shareholders will vote on the move at an extraordinary general meeting in April.

CMA is pleased at the transaction, which it says will help fund operations and repay debt.

"We are delighted with the continued support we have received from Scholz," says managing director Doug Rowe.

"With the support of Scholz, we will have a significantly strengthened balance sheet and are better positioned for a rebound in growth and profitability in the second half of 2009."

CMA shares have skyrocketed on the news, but are still well below the 79 cent peak they were trading at back in December 2007.

A number of acquisitions throughout 2008 have added to CMA's debt. The company bought Bay Scrap Metals in April last year, Meretec in May and Universal Metals in June. Lower global scrap metal prices have also contributed to its share price decline.

In December CMA told the market it expected a net loss after tax of $35 million for the six months to December 31. The company estimated between $15 and $17 million in stock losses from the drop in commodity prices, between $7 and $9 million due to the dishonouring of letters of credit and between $5 and $6 million in doubtful debts.

Under the terms of the investment arrangement, Scholz will have a right to participate in any future placements on a pro rata basis, subject to it maintaining at least a 25 per cent shareholding in CMA. Scholz will also take up to three positions on CMA's board.