Tuesday 13 October 2015 by Alen Golubovic Company updates

Company update – New DirectBond Barminco Finance

THIS CONTENT IS SUITABLE FOR WHOLESALE INVESTORS ONLY

New US dollar bond Barminco Finance has been added to our DirectBond list. Barminco is a leading Australian underground hard-rock mining contractor providing a number of specific services. The bond is available to wholesale investors only with a minimum face value of USD10,000

Underground mining operations

We have added the Barminco Finance Pty Limited 9% senior unsecured bond maturing on 1 June 2018 to the DirectBonds list. The issuer has a B- rating from S&P and a B2 rating from Moody’s. S&P revised its outlook from negative to stable on 1 October 2015.

Currently offered at an indicative yield to maturity of 17.60%*, the bond is a 2.6 year high yield investment. As always, with high yield comes associated higher risk so please make sure to review the supporting documents on this bond and the issuer before considering investment.

Barminco Ltd is a leading Australian underground hard-rock mining contractor providing the following mining services; underground contract mining, diamond drilling, crushing and screening. The complexity of underground mining and organisational ‘know-how’ required to operate in this industry serve as a natural barrier to entry.

Barminco runs a state of the art fleet with over 300 mobile equipment units - the largest single company owned fleet of underground mechanised equipment in the world.

The business was established in 1989 by founder, current shareholder and Non-Executive Director, Peter Bartlett. In August 2007, Gresham Private Equity and certain members of Barminco’s management acquired a majority interest in Barminco (60.1%), with founder Peter Bartlett retaining a significant interest.

Financial and strategic highlights:

  • ~99% of Barminco’s revenue is tied to production and development activities rather than exploration
  • More than 50% of revenue is linked to gold with the balance in nickel, copper, zinc and tin
  • Strong liquidity, with a cash balance of $104.8m as at 30 June 2015
  • Market leader in a niche but technically complex industry (underground mining)
  • Positive free cash flow of $9.0m in FY15 (after interest costs and capex)
  • Revolving credit facility of $50m effectively undrawn
  • While FY15 EBIT was down 11.3% due to challenging market conditions, the company is guiding a single digit increase in earnings for FY16

View Barminco Finance’s annual reportExternal link - opens in a new window for the fiscal year ended 30 June 2015.

In May 2013, Barminco raised USD485m in debt to repay existing debt. The company has since been able to repurchase USD99m of the bond in FY15, with an additional USD25m repurchased in July. The current amount of bonds outstanding is USD361m.

The debt is fully hedged for interest rate and currency risk under a cross-currency swap arrangement. See the 2015 full year business updateExternal link - opens in a new window for more details.

This bond offers a high yield USD investment opportunity for investors comfortable with the risk profile of the B-/B2 rated (S&P / Moody’s) bond and a position in the mining services industry. 

Please note Barminco’s ability to refinance the debt will be challenging under current market conditions, however, high levels of liquidity and improving market conditions mitigate this risk.

Barminco 9% 1 June 2018 USD bond
Issuer Barminco Finance Pty Ltd
Maturity date 1 June 2018
Bond type Fixed
Coupon 9.00%
Indicative yield to maturity 17.60%*
Income (running yield) 10.91%*
Face value USD10,000
Capital value USD8,250

 
For a summary on the bond view the Barminco Finance USD fixed rate bond factsheet.

*It is important to note that the indicative rates are accurate as at 13 October 2015 but subject to change.

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