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AJ Lucas: Yet another capital raising

AJ Lucas Group Limited (ASX: AJL) has today released an operational update and profit guidance for its 2012 financial year. Thanks to wet weather in the past few weeks, the company’s drilling operations have been significantly impacted, with virtually the entire Queensland drilling rig fleet stood down at various times.

Drilling activities have also been impacted by various delays and other interruptions in the coal seam gas drilling business due to site access factors.

The company’s BCI division has been impacted by continuing resource restraints and delays in the award of projects and their progress. Capital constraints continue to impede progress on the tooling up for several projects.

No profit on the horizon

The company now expects a much stronger final quarter, assuming no resumption of wet weather, and expects full year underlying EBITDA to be in the range of $32-$37m. Given the company is likely to face significant finance costs, as well as depreciation and amortisation expenses, the 2012 net profit after tax is could well be another loss.

This comes on top of reported losses of $11.5m in 2011 and $7.1m in 2010.

Capital raisings

The company also announced that it was proceeding with a placement to raise approximately $15.5m which will cover the shortfall from the $51.3m rights issue conducted earlier this year. The placement is subject to shareholder approval, and the board have identified parties willing to subscribe to a placement. It is expected to be completed by the end of June 2012.

This comes on top of the 10m shares issued in October 2011, which were required to raise additional working capital.

The Foolish bottom line

This announcement shows how difficult it is for businesses to recover once they’ve hit the skids. With high levels of debt and thin profit margins, it only takes minor bumps to throw the company off the rails.

AJ Lucas is now struggling to raise capital, pay off its debts, keep its bankers onside and keep business on track. Mother Nature throwing curve balls at you at the same time doesn’t help either.

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More reading

Motley Fool contributor Mike King doesn’t own shares in AJ Lucas.The Motley Fool’s purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Click here to be enlightened by The Motley Fool’s disclosure policy.

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