Shares of Bradken Limited (ASX: BKN) emerged from a trading halt this morning, only to be slammed by the market upon a fresh update into its well-documented struggles.
In a market sensitive announcement, Bradken, a mining services company, said that a consortium of Sigdo Koppers and CHAMP Private Equity has agreed to invest approximately $70 million into the struggling business. Bradken said that the funds raised from the investment will be used to pay down debt and increase operating flexibility.
Notably, the consortium also proposed a potential merger between Bradken and Magotteaux Group, which is a wholly owned subsidiary of Sigdo Koppers – a proposal which will be reviewed during a 60-day exclusivity period.
Merger proposal aside, the market is reacting negatively to a trading update that was also provided by Bradken during today's announcement.
As a mining services business, Bradken is facing strong headwinds as a result of tumbling commodity prices and a slowdown in mining activity.
The company said: "Operationally, miners have cut costs by deferring maintenance and are pursuing cost reductions from suppliers. Bradken has responded by restructuring its operations including foundry closures in high cost locations and reducing overheads to mitigate this effect and maintain its quality of earnings."
Despite these improvements, the company now expects full-year earnings before interest, tax, depreciation and amortisation (EBITDA) to be within $136 million and $138 million while its net debt is expected to be $420 million as at 30 June 2015 (before accounting for the investment made by the consortium). That is certainly not an ideal situation for Bradken to be in considering the company has a market capitalisation of less than $300 million.
At the same time, Bradken also expects to incur a non-cash impairment charge as at June 30 which will be in the range of $135 million and $145 million.
Bradken's shares plummeted by more than 15% just before noon, hitting their lowest price since early 2009. Investors would be wise to give this one a miss in favour of some of the market's safer, more promising prospects.
