Despite some solid performances Bounty Industries is hoping to break out of a period of debt, delay and dwindling share prices with a convertible note raising.
Hoping to re-energise the company, Bounty executive chairman Colin Knox said the funds would go towards meeting short-term working capital requirements, funding new opportunities and addressing debt.
With key contracts in New South Wales, Queensland and New Zealand, Bounty’s flagship operation is the Central Queensland Aquila Colliery at the Anglo Coal managed German Creek Mine. However, despite some solid production results at some of its operations, it has been a rough trot for the Sydney-based contractor.
Earlier this year Bounty announced a $2.7 million loss for the second half of 2006, blaming higher than forecast operational and maintenance costs, particularly at Aquila. Meanwhile at the company’s Lithgow project, changes to the mining regulatory process caused the start date to be pushed back further.
The problems at Aquila are said to be linked to rising mining costs, increased equipment maintenance costs and higher than anticipated employee costs as the company moved to a 24-hour operation. The rolling out of a planned continuous haulage system was delayed to next year because of supply and regulatory issues.
Following negotiations with operator Anglo Coal, Bounty said it hoped to minimise some of the cost blow-outs.
Bounty’s interests at Lithgow in NSW were also hampered with newly introduced regulations requiring the operation to obtain further mining permits. This led to a delay in operations and Bounty said production was not expected to kick off until early next year.
Shrugging off setbacks, Knox said his company’s involvement in thin seam mining placed it in a unique position in the underground mining sector. In addition, he said the company had demonstrated very high productivity as a bord and pillar mining contractor.
As for the fundraising, Knox told AMM there had been a “good response” from shareholders (existing Bounty shareholders have first rights to one-third of the 16c convertible notes).
“While the company has experienced adverse mining conditions at its German Creek contract and these have impacted on the profitability of the company, it has worked through these and together with new projects is able to project a very positive future,” he said.
Asked about Bounty’s plans for its new funds, Knox would not add anything further to previous market announcements; however, the company’s prospectus gives some indication of the company’s spending plans.
“The proceeds of the raising will fund the capital expenditure and working capital requirements for the first of these opportunities, anticipated to commence early in the 2008 financial year,” the prospectus says.
It says $2 million of the targeted $6 million will go towards working capital and a further $1.9 million was earmarked for equipment upgrade and purchase.
“These funds will enable Bounty to invest in the overhaul of critical mine equipment, and to complete the continuous haulage system,” the prospectus says. “Once completed, and in combination with other initiatives being implemented, Bounty anticipates this investment will contribute to improved productivity at its operations.”
The funds will also allow Bounty to further develop other opportunities, including its Tatu project in New Zealand.
Bounty lays claim to mining rights at the Tatu coal project on the North Island of New Zealand, which Knox – although hinting at obstacles – said was on track to begin production in the first quarter of calendar year 2008.
“There are a number of issues that need to be resolved when a new project like this commences, and we are pleased with the progress that has been made to date,” he said. “With recent increases in the international price for thermal coal we are detecting growing interest in this resource, but the domestic market will underpin the base economic justification for the project.”
Knox said the NZ project had a full-year forecast of 500,000 ROM tonnes per annum.
Things also seem to have turned around at Aquila. Knox said daily production was increasing “in accordance with our budget” and that changes to shift rosters and spares management had led to “significant savings”
In a bid to minimise risk and maximise revenue, Knox said diversification was an important element of the Bounty plan.
“One of the issues that has impacted on Bounty has been delays in the commencement of new projects – for example, the impact of legislation in NSW requiring new mine plans to address possible subsidence,” he said.
“We have addressed this by focusing on increasing the number of projects that are under assessment and able to be commenced within the next six to nine months.
“In addition, we have undertaken our first longwall gate road development project and have further projects of this nature in mind. A further diversification is in ‘own coal’ mining, where Bounty owns a licence to mine coal. The Tatu project is the first of this kind.”
For the long term, Knox said Bounty’s diversified approach would be centred on high productivity underground mining.
