Ausdrill Shares Drop 8.6% Expectedly from New Acquisition

Ausdrill Limited [ASX:ASL] shares are down 8.6% today, trading at $1.56 apiece. But this doesn’t necessarily mean bad news.

This morning marked the completion of Ausdrill’s Business Acquisition plan with Barminco — an international leader in hard rock underground mining.

This venture makes Ausdrill the second largest Australian mining services company, and the leading pure-play mining services company on the ASX.

Details of the deal

Launched back in August, the acquisition involved Ausdrill obtaining all of Barminco’s equity and equity-like instruments, in exchange for just over 150 million shares and $25.4 million in cash. This is no doubt what has pulled today’s trading price down.

The deal is equivalent to an equity acquisition price of $271.5 million and an enterprise value of $697 million. Managing Director Mark Norwell has voiced his confidence in the deal:

Barminco is a complementary business to Ausdrill, with a leading market position in underground hard rock mining that establishes the company as a more diverse group with a broader service offering sought by our customers.

Not only is it a strategically and financially compelling deal, there is a good cultural fit with the two businesses having worked together in Africa through our African Underground Mining Services (AUMS) joint venture for over a decade now.

Barminco have recently secured a number of contract extensions worth over $1.2 billion in total.

The future of Ausdrill

It seems the acquisition shows nothing but potential for this metal mining company. As Norwell also point out:

Both companies are expecting earnings growth in FY19 and by bringing the businesses together, our future growth opportunities are enhanced globally.’

Ausdrill are still voicing their confidence in meeting their FY19 earnings guidance of up to 30% underlying profit growth. They’ve also confirmed they are still on target to reach the FY19 reported NPAT of $98 million.

Moreover, in the acquisition completion report released on the ASX this morning, Ausdrill announced an upsize in its revolving credit facility from $200 million to $300 million, which will ‘ensure Ausdrill retains a prudent level of undrawn liquidity’.

It can’t be said any better than Norwell’s final statement in the report:

The Ausdrill Group is now transformed and well positioned to grow into existing and new markets.’

Keep an eye on this space for the latest on this, and all other Aussie mining stocks.


Ryan Clarkson-Ledward,
For Money Morning

PS: Ausdrill are just one of our mining figures that you need to keep an eye on. Check out this free report on our ‘Expert Analysis: Australia’s Top 10 Mining Stocks’ to see what other beauties could lift your portfolio. Downloadable now.

Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks by dissecting the latest events affecting the world.

To find out more about the publications Ryan works on and how you can subscribe, please click on the corresponding link here:

Money Morning Australia