York Timbers informed shareholders that it plans to raise R250 million by way of a partially underwritten renounceable rights offer.
Shareholders can participate in the rights offer in the ratio of 43 rights offer shares for every 100 York shares at a price of R1.75 per share.
It is a significant discount over the current York Timbers share price of R2.55.
Small Talk Daily Research’s Anthony Clark, who specialises in small and medium-cap JSE shares, said there is a solid rationale to the plan, which is why he is following his rights.
Clark said the key reason for the rights offer and capital raise is lessons learned from the past harvest of logs produced.
York Timbers harvested logs too early to generate cash for the poorly performing company.
If you harvest logs early, you can generate cash, but it is not optimal to get the best performance from the crop.
Older logs are worth more, and York Timbers wants to raise capital to make it possible to increase the age at which trees are harvested – from 20 years to 23 years.
The R250 million cash raise will give York Timbers a cash buffer, adding 85,000 cubic metres of additional higher-value, larger logs.
Although this strategy will create medium-term cash flow issues, it is a good long-term strategy which will add value to the company and shareholders.
According to York, it will benefit shareholders as follows:
- Enhance shareholder returns in the medium to long term.
- Increase sustainable annual clearfell volumes in the escarpment by approximately 85,000 cubic metres per annum.
- Result in a reduction of approximately 3,000 hectares being harvested, replanted, and maintained over a 15-year period.
- Increase the overall net standing value of the plantation as trees mature.
- Result in the net standing value after eight years being approximately 30% higher.
- Result in the net standing value being approximately 10% higher after 15 years.
The capital raise will also provide York Timbers with capital to finalise outstanding maintenance and replace critical or outdated components and machinery.