Rio Tinto
(ASX:RIO) says it will support Energy Resources of Australia Ltd’s (ERA) $369 million Interim Entitlement Offer (IEO) which will help fund the continuing rehabilitation of the Ranger uranium mine and associated facilities in the Northern Territory to the end of June, 2024.
But this issue – to be made at $0.02 per share, a massive discount to the current price, even after Tuesday’s 7% fall to $0.19 – will not fill the financial black hole that the ranger clean-up bill has become. $1.5 billion or more remains to be found to cover the final cost, estimated to be upwards of $2.2 billion.
ERA said that in addition to the $319 million from Rio Tinto, two other shareholders, Packer and Co and Zentree Investments Limited have committed to subscribe a total of $36 million which will take the total from the trio to $355 million in total.
But deep in the documents, it seems Zentree is not happy with the idea of the issue.
“Despite giving a pre commitment Zentree has indicated that it does not consider the Offer to be in the best interests of ERA and Zentree reserves its rights, “ERA revealed
This will take the total cost so far for the Ranger clean-up to well over $1.2 billion, substantially more than the $973 million estimated in the 2019 report from ERA.
A February 2022 report lifted that estimate to between $1.6 and $2.2 billion and added two years to the completion timetable.
The Ranger Rehabilitation Trust Fund last November approved a drawdown of $56.8 million by ERA, leaving $481 million in the Trust Fund, according to a statement that month from the federal government.
In the offer documents, ERA revealed that it is close to exhausting its cash reserves (hence the $100 million drawdown from Rio earlier this year) and the need for the issue.
“The total expenditure expected to be incurred for planned Ranger Project Area rehabilitation activities from 1 January 2023 to the end of Q2 2024 is currently estimated at $404 million.
“In the absence of the Interim Entitlement Offer and after taking into account the drawdown of the Rio Tinto Credit Facility, ERA’s cash at bank is expected to be exhausted in Q3 2023 at the planned expenditure rate, and accordingly the Interim Entitlement Offer is being undertaken as an interim funding solution.”
If the top estimate of $2.2 billion is accurate, then even after this issue, around $770 million will have been spent on the cleanup and other work by June next year, leaving at least $1.5 billion to be found from other sources.
Rio Tinto, which owns 86.3% of ERA’s shares, has pre-committed to subscribe for its full entitlements under the terms of the Offer at a cost of $319 million. Its stake could rise to more than 89% at the end of the issue.
Rio said that funds raised from this IEO will be partly used to repay a $100 million credit facility provided by Rio Tinto to assist ERA with its management of immediate liquidity issues.
Rio Tinto CEO, Australia, Kellie Parker said “We are committed to ensuring the critical rehabilitation of Ranger is completed to a standard that will establish an environment similar to the adjacent Kakadu National Park.”
In its statement, Rio Tinto noted that ERA has, in its offer material, recognised the Mirarr People’s opposition to further uranium mining on their land.
“This was a relevant factor in Rio Tinto’s recent decision to no longer report the Jabiluka deposit as a mineral resource. Rio Tinto also recognises that the Mirarr People’s continued involvement in and support of the Ranger Rehabilitation Project is critical for its timely completion and success,” Rio said in its statement to the ASX.
ERA said the IEO “is an interim funding solution for the Company, with further funding expected to be required by ERA in 2024 for the balance of the required Ranger Project Area rehabilitation expenditure.”
“Furthermore, ERA will use existing cash at bank (net of overdrafts) and relevant net interest received to fund its planned Ranger Project Area rehabilitation expenditure to the end of Q2 2024, fund corporate costs, working capital, funding costs, and other costs and fund holding costs and the intended renewal of the Jabiluka Mineral Lease (including upholding obligations under the Jabiluka Long Term Care and Maintenance Agreement),” the miner said in its ASX statement on Tuesday.
If non-Rio shareholders don’t take up their entitlements they will be massively diluted by the issue.
