BDI_2.14WE Holdings sees opportunity in iron ore trading, helped by the volatility in charter rates for sea transportation vessels. The Baltic Dry Index, which measures timecharter rates for dry bulk carriers of commodities such as coal, iron ore and grain, has fallen by about 50% to 1160 on Thursday (20 Feb) since the beginning of the year. Data from Bloomberg

Has WE Holdings finally landed a good deal?

On Wednesday, the company announced a MOU to open up a new mineral resource channel to satisfy China's thirst for steel production.

China imports most of its iron ore from Australia, Brazil and India but WE Holdings has landed a deal for the shipment of iron ore from Malaysia to China.

Demand for this new service provided by WE Holdings' trading arm, WE Resources, is supported by China's resilient demand for iron ore imports.

Iron ore is feedstock for steel production and crude steel output in China, the world’s biggest producer of the material, rose by 7.5% in 2013 to a record high of 779 million tons.

On Wednesday, WE Holdings announced a MOU to procure at least 40,000 WMT of iron ore per month from a Malaysian mine and on-sell it at market prices to two PRC trading companies with effect from 1 April.

Based on a minimum Fe (iron) content of 53% required of the iron ore by the MOU and prices quoted on Alibaba, the contract value works out to at least US$33.6 million per annum for 480,000 WMT of iron ore a year.

350_92.5k_bulkcarrierA supply glut of bulk carriers is giving WE Resources the opportunity to charter its transportation vessel at relatively lower rates.WE Resources shall charter a vessel to ship iron ore lumps and iron ore fines to the designated discharge ports in China.

The ore will be purchased from ATR Natural Resources Sdn Bhd (which owns a mining concession to 5,000 acres of iron ore mine site in Johor).

The iron ore buyers are Shanghai-based trading company Pacific Treasure International and China-Base Ningbo Foreign Trade Co, which is based in Ningbo.

The contract value handled by WE Resources could potentially increase to 720,000 WMT a year as more excavators are procured at the mine.

What's more, this increase in iron ore volume handled can happen as fast as within one year.

WE Holdings also terminated (on Monday) its proposed acquisition of Hong Kong components distributor, Everbest Industrial.

Is its latest deal on iron ore trading so sweet that it has decided to forego less promising ventures?

Executive chairman Terence Tea has given this latest deal his vote of confidence by purchasing 4.967 million of his company's shares for S$158,944 from the open market, increasing his total interest to 6.94%.

His purchases averaged 3.2 cents apiece, and caused an intra-day spike on Wednesday in the company's stock price, which has been closing at 3 cents or less for the past month.

WTE_stk_px_2.14WE Holdings closed at 2.8 cents on Thursday, 15% above the stock's closing price before trading was halted on Tuesday for announcements. Bloomberg data

Rights issue to fund other business forays

In a separate development also announced on Wednesday, five shareholders are pumping around S$5 million into WE Holdings.

The shareholders, which include Mr Tea, have given an irrevocable undertaking to subscribe for all their rights and entitlements pursuant to its rights cum warrants issue.

At an issue price of 1.5 cents per rights share, the rights issue is priced to be fully taken up, being at a steep discount of 65% to its closing price on 10 January 2014, the market day before the rights issue was announced.

This translates into a discount of 52% to the theoretical ex-rights share price.

The company expects to raise net proceeds of up to S$39.4 million from the rights cum warrants issue, of which S$15 million is for the funding of the acquisition of Dragon Cement and S$10 million for the expansion of its coal businesses.

Recent story: WE HOLDINGS: M&A Boost To Business, OTTO MARINE: Management Changes

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#1 Felix C 2014-02-21 09:15
Regarding the current right issue, why is it that no adjustment will be made to the exercise price of the existing warrants (just issued last year) which is also 3 ct? There will be massive dilution once this right shares start trading.

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