Ramelius stalks Spartan

Company News

by Glenn Dyer

Cashed-up Ramelius Resources (ASX:RMS) continues to raise eyebrows in the market as it stalks Spartan Resources, a smaller WA gold mining rival.

After taking an initial 8.9% stake in Spartan, then quickly building that to nearly 18% earlier this week, Ramelius revealed Wednesday that it had made a deal with a group of banks to expand a revolving credit arrangement by 75%.

That’s despite the present facility being undrawn and the company having more than half a billion in cash, gold, and shares.

Ramelius told the ASX that it had "executed a Syndicated Facility Agreement (SFA)" with ANZ Bank, Commonwealth Bank, NAB, Natixis CIB, and Westpac to provide a $175 million revolving corporate facility with a four-year term, with an optional extra year.

"The new facility is an upsized replacement for the previous A$100M facility that expired upon execution of this SFA,” the company said.

Ramelius CEO, Mark Zeptner, said: “We are very pleased to enter into this facility with our syndicate of lenders, who are also considered to be our business partners. While Ramelius has a strong balance sheet and generates significant operating cash flow, we feel it is important to have the added financial flexibility which this low-cost revolving debt facility provides us.”

He said the company had generated underlying free cash flow of $137 million in the three months to June 30 and had, as of July 2, $352.5 million in cash and gold on hand.

That’s after the company had built its Spartan stake by spending $180.4 million.

Mr. Zeptner said that gave Ramelius over half a billion dollars in liquidity.

The revolving credit would lift that figure to close to $700 million, but it seems to be more of a due diligence financing arrangement for Ramelius and its bankers.

Still, with $137 million in free cash flow generated in the latest quarter, good control of costs, high-grade ground being mined at the moment, and an Australian dollar gold price in excess of $A3,400 an ounce, an expanded revolving credit seems anomalous given the strength of Ramelius’ finances.

Spartan had a closing market value of just over $1 billion on Tuesday, a significantly bigger bite for the $2.14 billion Ramelius than it was a week ago.

But the cash for a bid for Spartan could easily come from its revolving credit funders because they know Ramelius and its finances intimately after the talks to expand the facility.

Instead of making a big share issue to raise cash for an all-cash bid (using its existing liquidity), Ramelius can easily make a share and cash offer while preserving some financial firepower via the expanded revolving credit to handle working capital needs.

Ramelius said on Wednesday that "the facility is currently undrawn, and the company remains debt-free.”

With all the cash on hand and the strong free cash flow because of solid production and high gold prices, the CEO did not explain why Ramelius had a need for ‘added financial flexibility.’

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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