REG - Baker Steel Res Tst - Futura Financing

Baker Steel Resources TrustAnnouncement

11/09/2023 07:00

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RNS Number : 9096L  Baker Steel Resources Trust Ltd  11 September 2023

 

 

BAKER STEEL RESOURCES TRUST LIMITED

(Incorporated in Guernsey with registered number 51576 under the provisions of
The Companies (Guernsey) Law, 2008 as amended)

 

11 September 2023

 

LEI: 213800JUXEVF1QLKCC27

 

Futura Resources closes A$26.2 million financing

 

Baker Steel Resources Trust Limited ("the Company" or "BSRT") announces that
its second largest investment Futura Resources Ltd ("Futura") has completed a
A$26.2 million financing package to fund the commencement of production of
steel making coals at its Wilton Mine in Queensland, Australia.

 

The funding package comprises a A$21.2 million 3-year term unsecured
redeemable convertible note issue, accompanied by in-kind commitments from a
number of contractors and suppliers to the value of c. A$5 million.

 

BSRT has committed to invest its approximate pro-rata interest totalling A$4.7
million (£2.40 million), which will be satisfied through the rolling of its
existing outstanding A$0.7 million bridging loan as well as a further
investment of A$4 million in new funds. Together with the investment in the
convertible the transaction will, assuming full conversion by noteholders,
approximately maintain BSRT's 27% equity interest in Futura.

 

The new investment will increase the Company's overall investment exposure to
Futura (which includes a 1.5% Gross Revenue Royalty on Futura's mines), from
the current 25.3% NAV to 28.2% NAV on investment based on 31 August 2023
valuations, remaining below the 35% NAV limit approved by shareholders on 9
November 2022. The valuation of the various elements comprising the investment
in Futura will be reviewed at 31 December 2023, at which point the Wilton Mine
should be in or close to being in production.

 

It is currently expected that Futura's second mine, the Fairhill mine can be
brought into production utilising cash generated by Wilton but this might be
accelerated should Futura decide to raise further finance, likely to be debt,
once Wilton is up and running. A total of around A$50 million is required in
funding for development of both the Wilton and Fairhill mines. Several parties
have expressed interest in participating in the convertible note issue, but
are yet to complete the subscription agreement, and as such Futura will leave
the convertible offer open for a short period after this first closing to
allow for potential further subscriptions up to a maximum of A$30 million.

 

According to Futura management forecasts, the Wilton and Fairhill mines are
expected to produce around 2 million tonnes per annum of saleable product once
both mines are in full production in 2025 which based on forward price
expectations is forecast to generate an EBITDA of A$92m*. There remains
potential to increase production rates subject to additional licensing
approval and available processing capacity.

 

As these are open-pit operations with near surface coal and utilising existing
infrastructure, both projects benefit from low capital intensity and can be
brought into production within 3 months of the necessary funding being made
available. A key infrastructure cost saving is the right Futura has to process
its coal at the existing Gregory Crinum coal processing plant, which is
estimated to have a replacement cost of around A$300m.

 

Futura's economic model shows a net present value at a 10 percent discount
rate (NPV(10)) of A$339m over the 20 years of planned production based on
forward price expectations, or NPV(10) of A$642m if current prices were
maintained over the longer term*. In addition, the overall mineral resource is
extensive and could sustain a mine life well beyond the currently planned
term.

 

The convertible notes carry a 21% annual coupon with a pre-conversion equity
valuation of A$100 million, which equates to A$2.38 per Futura share
conversion price.  Upon an IPO by Futura, noteholders would have the right to
convert at the lower of A$2.38 per share or a 20% discount to the IPO price.
The high coupon reflects recent precedents for the cost of financing for coal
development companies in Australia.

 

Approximately A$100m has been spent historically on exploration, bulk sample
testing and permitting in today's money to bring these projects to the current
stage of development with both Wilton and Fairhill being granted Mining
Licenses in November 2022.

 

The projects are coming into a coal market where supply is tight for steel
making coals and demand is strong, particularly from developing countries like
India, Vietnam and Indonesia, which are all expanding steel production to meet
domestic demand.

 

The Queensland government has expressed strong support for the development of
these two mines with Resources Minister Scott Stewart saying,

 

"This investment is a strong vote of confidence in the Queensland resources
sector and our state's large deposits of high-quality steelmaking coal"

"These projects are in the heart of the Bowen Basin and will benefit from the
existing infrastructure in place from nearby mines".

"…regional communities will benefit from job opportunities and the economic
flow-on effects of these projects."

"Treasury forecasts show Queensland will likely remain the world's largest
seaborne exporter of steelmaking coal for many decades to come,"

 

*Source: Futura management projections and mine plan financial models

 

Further details of the Company and its investments are available on the
Company's website www.bakersteelresourcestrust.com
(http://www.bakersteelresourcestrust.com)

 

Enquiries:

Baker Steel Resources Trust Limited +44 20 7389 8237

Francis Johnstone

Trevor Steel

 

Numis Securities Limited                   +44 20 7260 1000

David Benda (corporate)

James Glass (sales)

 

The Net Asset Value ("NAV") figure stated is based on unaudited estimated
valuations of the underlying investments and not necessarily based on
observable inputs. Such estimates are not subject to any independent
verification or other due diligence and may not comply with generally accepted
accounting practices or other generally accepted valuation principles. In
addition, some estimated valuations are based on the latest available
information which may relate to some time before the date set out above.

 

Accordingly, no reliance should be placed on such estimated valuations and
they should only be taken as an indicative guide. Other risk factors which may
be relevant to the NAV figure are set out in the Company's Prospectus dated 26
January 2015.

 

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