Investors welcomed today’s news with the Perth-based company’s share price soaring as much as $1.17 (19%) in morning trade to hit an intraday high of $7.38 with over 1.6 million shares changing hands by 11am EST.
Under the restructure, the Perth-based company’s coal assets will now be held by Singapore-listed subsidiary Straits Asia Resources, while the remaining metal assets will remain with Straits.
Straits, which holds a 51% stake in Straits Asia, is planning to distribute its shares in Straits Asia to its own shareholders on a proportionate basis.
As part of the transaction it is expected that Straits Asia will seek to dual list with a secondary listing on the Australian Securities Exchange.
Straits chief executive Milan Jerkovic said in a Corporatefile interview that the demerger would deliver greater value for Straits shareholders.
“The current structure does not provide the most efficient means for the pursuit of attractive acquisition opportunities,” he said.
“We believe the new corporate structure will underpin the future growth and outlook for both Straits Resources and Straits Asia.”
He said that under the demerger, Straits shareholders would not be selling their coal assets as the demerger was simply a reorganisation of how the coal assets were held by shareholders.
“Prior to the demerger, the coal assets were held through an investment in Straits shares whilst post-demerger they will be held through a direct shareholding in Straits Asia,” he said.
“Shareholders will therefore continue to derive income and growth from the coal assets through a shareholding in Straits Asia, which will have a more focused, transparent growth profile in line with the international global coal market.”
Jerkovic said the company had considered a number of other options including auctioning off its 51% interest in Straits Asia, remerging the two companies or divesting some of its other assets.
“In our view those other options would not have been in the best interests of shareholders,” he said.
“The decision was influenced by the fact that our shareholders have backed the company’s current coal and metals strategy to this point with strong capital and equity commitments and our feedback is that they want to see us grow and develop those businesses.
“By demerging the businesses we will give each company a more efficient capital structure, whilst at the same time providing shareholders with the option of dealing with their investments in Straits’ metals and coal businesses separately.”
Jerkovic said that the significant growth in the value of its coal assets had overshadowed the valuation of Straits remaining assets.
“In recent times, Straits has been considered more of a ‘holding company’ for Straits Asia than a true diversified mining company,” he said.
“In short, the restructure should reposition both vehicles for growth, creating value for all shareholders in the process.”
In terms of Straits’ non-coal assets, Jerkovic said the company was currently reviewing its entire portfolio.
“Mount Munro [gold mine] is up for review at the moment, along with our broader precious metals portfolio to see what the best fit is for Straits longer-term.”
Jerkovic also said the company was in the process of reorganising the copper/metal trading book for its Varomet metals distribution business.
Depending on various board, shareholder and regulatory approvals, Jerkovic expects the demerger process will take around three to four months to complete.
The news comes during a time of soaring coking coal prices, with BHP Billiton last week confirming it had secured price rises of between 206% and 240% for its BMA Queensland coking coal in negotiations with overseas customers.
Shares in Straits have since cooled to $7.02 in late morning trade.
