First Uranium (TSX: FIU) announced they closed a $52 million equity financing at $1/share. They had originally had $46 million subscribed with a $6M greenshoe embedded.
This is about a 22% dilution of equity interests in the company, but they need this money to bridge their future operations and implement their capital plan:
---------------------------------------------------------------------------- FIU CONSOLIDATED end end end end end (000's) Mar '11 June '11 Sept '11 Dec '11 Mar '12 ---------------------------------------------------------------------------- MWS: Cash generated from operations 12,032 16,295 7,444 8,619 13,873 MWS capital expenditures (17,816) (12,649) (7,093) (337) (143) Ezulwini: Cash (utilized in) generated from operations(1) (9,449) (3,823) (411) 4,964 10,098 Ezulwini capital expenditures (5,236) (6,580) (6,677) (5,938) (4,927) FIU corporate expenditures (2,875) (2,726) (3,726) (2,726) (2,726) Interest on convertible debentures (7,301) (3,156) (7,301) (3,156) (7,147) ---------------------------------------------------------------------------- Cash movement for the quarter (30,646) (12,639) (17,765) 1,427 9,027 Minimum proceeds from financing raise(2) 46,000 Less: estimated financing transaction costs (2,675) Opening balance 29,979 42,658 30,019 12,254 13,681 ---------------------------------------------------------------------------- Closing Balance 42,658 30,019 12,254 13,681 22,708 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- COMMODITY AND EXCHANGE RATE ASSUMPTIONS ---------------------------------------------------------------------------- Gold price US$/oz 1380 1390 1390 1390 1390 Uranium price US$/lb 65 65 65 65 65 Gold price ZAR/kg 301,703 303,889 303,889 303,889 303,889 ZAR/US$ exchange rate 6.80 6.80 6.80 6.80 6.80 ----------------------------------------------------------------------------
What this means is that if the company did not raise money by the end of the month, they would be out of cash – but they need about $42M in capital expenditures in order to buy themselves enough time to build the Ezulwini mine to the point where it can start generating free cash flow.
Assuming they have the operational side covered (which is never a given considering the sketchy history of the company), their next looming financial issue is how to pay off the subordinated convertible debentures, of which $150M is outstanding and due to mature on June 30, 2012. It is low cost debt (4.25% coupon), but if the company is generating free cash flow at this time, it is likely they will be able to rollover the debt at a higher coupon and extend the term out another five years. This will not happen until the first half of 2012.
If the company gets to this point of being free cash flow positive, the equity will be worth well more than a dollar a share. But this is a very risky play – if it works, investors will likely get a very handsome return on investment over a two year period. If it blows up, the common shares will go to zero.
The other embedded risk is commodity pricing – both currency and gold pricing.
The subordinated debt has traded at around 82-83 cents today, which is the highest it has been since early 2008. Disclosure: I do have a position in First Uranium’s notes.