Twiggy puts his cash behind Poseidon Nickel to fund nickel restart

Andrew Forrest Twiggy Poseidon Nickel ASX POS capital raising Black Mountain Metals
Andrew Forrest has backed Poseidon Nickel's $5.8 million placement via his entity Squadron Resources.

Poseidon Nickel’s (ASX: POS) major shareholder Andrew Forrest, commonly known as Twiggy, has backed the company’s A$5.8 million placement, just a week after Black Mountain Metals made an informal takeover proposal.

Mr Forrest’s faith in an imminent nickel revival was evident when his entity Squadron Resources boosted its Poseidon stake to 221.6 million shares – equating to about 18% of the company post-placement.

Additionally, Squadron Resources will sub-underwrite 100% of the $68.8 million entitlement offer which was launched today.

Under the entitlement offer, eligible share holders will be able to scoop up 11 new shares for every 10 existing shares held at $0.05 each.

Poseidon anticipates the entitlement offer will comprise the issue of 1,375 million new shares.

Meanwhile, Petra Capital, which was the lead manager to the placement, will underwrite the entitlement offer.

Each Poseidon director has also agreed to take up a “significant portion” of their individual entitlements with the board planning to swallow about $2.2 million-worth of shares under the offer.

Combined, the placement and entitlement offer are expected to bring in about $74.6 million, before costs, to fund the restart.

“We are delighted by the response to the capital raising and welcome Squadron Resources’ support,” Poseidon chairman Chris Indermaur said.

“Funds raised from the placement and entitlement offer will enable the company to bring the Black Swan and Silver Swan mines and processing plant back into production,” Mr Indermaur added.

Meanwhile, Poseidon’s recently appointed managing director Rob Dennis said the company has always been positively leveraged to the nickel market, but the fully underwritten capital raising will provide the company all the funding required to restart its operations.

“Investors have the opportunity to retain exposure and the company positioned to take advantage of the strong nickel market dynamics with certainty of funding.”

The capital raising follows Black Mountain’s informal takeover bid for Poseidon late last week, which left many investors feeling it undervalued Poseidon with its offer price of $0.06 per share.

However, earlier this week, Black Mountain withdrew its proposal. Although its proposal was withdrawn, Black Mountain recently locked-in a stake in Poseidon, by securing 7.5% of the company and purchasing about US$17.5 million of its debt.

Nickel sulphide assets

Poseidon published the results of a feasibility study last month that estimated i would need about A$56.7 million to dust off its Silver Swan and Black Swan nickel sulphide operations and resume production.

As part of Poseidon’s strategy to take advantage of an eventual nickel upturn, during the slump the company built up more than 400,000t in contain nickel resources.

The company also secured the Black Swan plant which previously produced 15,000t a year of nickel and the Lake Johnston facility which produced about 12,000tpa.

In addition to Poseidon and Mr Forrest’s confidence in a nickel market turnaround, Panoramic Resources (ASX: PAN), Western Areas (ASX: WSA), Rox Resources (ASX: RXL), Independence Group (ASX: IGO) and other nickel plays have all reported a similar belief and surge in investor interest.

The commodity’s revival was the overarching theme at this year’s renowned Diggers & Dealers conference that was held in early August.

Deutsche Bank has predicted the nickel price will finish the year at US$7.02 per pound, before climbing to US$8.42/lb in 2019 and increasing to around US$9.45/lb in 2020.

Meanwhile, UBS anticipates electric vehicle penetration and a shift in higher nickel consumption within the battery’s cathode will push demand higher.

UBS has also labelled nickel as its “preferred play” over the coming 12 months.

Lorna has more than 10 years' experience as a finance journalist and editor. She has written for numerous industry publications reporting on various sectors, including: resources, energy, construction, biotech, pharma, science and technology, agriculture, and chemicals. Specialising in resources, Lorna has also covered a myriad of small and large cap ASX and dual-listed stocks.