AFR: Rio Rehab Challenge

Extract from article by by Matthew Stevens

...Right now, ERA’s only access to income is through processing uranium from stockpiled ore. That production will end in 2021 and ERA has a legal obligation to safely close the operation by 2026. The cost of the remediation project that will make safe retreat possible is put at $925 million.

ERA has cash resources of $425 million and reckons future sales will generate $26 million in cash flow. So there is a substantial funding gap for a recovery program that sits central to Rio’s credibility in Australia and elsewhere. This job has to be done right.

In the past Rio, which owns 68.39 per cent of the business, would have filled that hole by lending ERA more cash. But you can’t lend money to a business that has no obvious way of ever repaying its debt.

So Friday brought the announcement of ERA’s 6.13 renounceable rights issue. The issue is to raise $476 million and that will require the release of 3.17 billion shares....

...As we have noted before, in normal circumstances we might wonder whether this represented a level of minority oppression. But this is an exception to any rule. Rio wants to make Ranger the gold standard of mining rehab. And the best way to make that happen is for Rio to fully own the issue...