Namoi Cotton seals Ord deal, ends feud, seeks $14m share capital

In a remarkable turn of events, STAM has also stepped up to partly underwrite a $14.1 million capital raising which Namoi has just launched to help pay for the gin it will be building and running for Kimberley Cotton Company in West Australia's north.

Namoi will also allocate $2.8m to buy a 20 per cent stake in the Kununurra ginning business, which is expected to start processing at least 75,000 bales committed by 11 Ord River growers in 2025.

The NSW-based Namoi will also allocate $6.8m from the capital raising to prune back its net debt to $42m, cutting its gearing ratio to 25pc.

Just weeks after Namoi set the date for a showdown with STAM at an extraordinary general meeting in Toowoomba in October, the event has been cancelled.

The big stakeholder withdrew its requisition notice for a full shareholder vote on its demands to get a fifth director on the board, the executive chairman of the Kiland forestry and agribusiness, James Davies.

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STAM, which is a cornerstone investor in Kangaroo Island-based Kiland and holds a 20.5pc stake in Namoi, had previously declared its disappointment in the cotton company's business strategy.

It even advocated breaking up the 60-year-old ginning and grain handling company and selling it so shareholders could get better value for their investment.

However, Namoi chairman, Tim Watson, said the recent serious difference of opinions and tense relationship had been resolved during a series of discussions.

These concluded with STAM being "very supportive" of a capital raising and keen to be a sub-underwriter to stockbroker, Morgans.

"We've had a very good relationship with Samuel Terry Asset Management in the past and I can confirm it's back on track again," Mr Watson said.

"I see the developments as a great result and strong vote of confidence in Namoi Cotton's board and management."

While not admitting any special deal was done to mend their fractured association, he said the board had decided Mr Davies would be a useful addition to its directorship ranks.

His appointment in November would help ensure there was more continuity of experience left in the boardroom when half the current directors (he and Robert Green) reached maximum term limits in the next few years.

Mr Watson had previously insisted existing board members possessed the breadth of skills required to oversee the Namoi business, but he now conceded Mr Davies would bring additional, beneficial experience.

"We're not necessarily desperate for new talent, but we are a small board and he will bring some extra skills," he said.

"We are comfortable to have James join us."

Mr Davies' appointment will follow STAM gaining a further 5pc, or more, of Namoi's share register during the capital raising.

All shareholders will be invited to buy one new share for every 5.25 they currently own at 43 cents each, which represents a 12.2pc discount on the closing price of Namoi stock on the Australian Securities Exchange early this week.

STAM and Namoi's second biggest shareholder, Louis Dreyfus Company (which owns 11.4pc), will act as sub underwriters to complete the capital raising if existing shareholders do not take up all 32.8m shares on offer.

In a rapid succession of events during the past week, Namoi signed agreements to formalise its involvement in the KCC partnership and set wheels in motion to develop a 90,000-bale capacity, two stand gin, and procure ginning equipment and other infrastructure required at the Kununurra site.

That Top End agreement and the prospect of solid cotton harvests in eastern Australia for at least the next two seasons prompted Namoi's decision to put its capital raising plans in motion.

"We've had a capital raising on our agenda for some time, but didn't want to collect the funds and hold them in a bucket for another day - we wanted to demonstrate to shareholders they will get an adequate return on their money," Mr Watson said.

"The KCC plan has been on the negotiation table for about two years waiting for several elements to fall in place, and while we were keen to be involved we didn't want to spend money until it was going to be a good deal for Ord growers and for Namoi."

The Kimberly Cotton Company is a four-way partnership between Namoi; China's Shanghai Zhongfu Group's Kimberley Agricultural Investment venture; the grower-owned Ord River District Co-operative, and Indigenous landholder body MG Corp.

About $34m in loan backing has also just come from the federal government's Northern Australia Infrastructure Facility to cover infrastructure costs on the 79 hectare gin site, and the WA Government has committed $4m to electricity supply upgrades to the area.

Stage two and stage three gin expansion plans will eventually see it run four ginning stands, two pre-cleaning lines and four lint cleaning lines to handle up to 180,000 bales during a five month ginning period.

Namoi will establish a cottonseed shed, provide cotton classing services, maintain mobile ginning equipment and operate the gin under a continuous contract.

Cotton production in northern Australia's emerging Ord River, Katherine, Gilbert, Flinders, Burdekin and Mareeba areas is tipped to yield more than 300,000 bales in five years.

Back in eastern Australia, Namoi expected its existing network of 10 gins to process about 1.2m bales, or 21pc of the current season's total crop and between 1.1m and 1.3m from the 2023 season.

The company said ginning of this year's crop had been delayed about six weeks by wet weather during and after picking, but should finish next month.

However, operations were challenged by labour and supply chain constraints and increased payroll, fuel and consumable costs.

Namoi forecast 2022-23 trading year earnings before interest, tax depreciation and amortisation of $19m to 21m.

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