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Dawn Farrell, president and CEO of TransAlta. (TODD KOROL/REUTERS)
Dawn Farrell, president and CEO of TransAlta. (TODD KOROL/REUTERS)

equities

TransAlta shares fall to 12-year low Add to ...

The already battered shares of TransAlta Corp. sank to a 12-year low on Wednesday, a day after the company said it will issue up to $317-million of shares to finance the purchase of a power station in Australia.

Calgary-based TransAlta said it entered into an agreement with a syndicate of underwriters, led by CIBC World Markets and RBC Capital Markets, to sell 19.25 million common shares at $14.30 each for gross proceeds of about $275-million.

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If an over-allotment option for an additional 2.89 million shares is exercised in full, the total proceeds would be $317-million.

TransAlta said it will use the cash to finance the $318-million (U.S.) purchase of the 125-megawatt Solomon power station in Western Australia from Fortescue Metals Group Ltd.

The plant, which is under construction and expected to be commissioned in the fourth quarter, is under contract to sell power to Fortescue under a 16-year agreement.

Following the news, TransAlta’s stock skidded 57 cents or 3.9 per cent to $14.11 (Canadian) on the Toronto Stock Exchange – the lowest closing price since March, 2000.

TransAlta’s dividend yield is now 8.2 per cent – a level some analysts view as unsustainable without an uptick in power prices.

“Some of the metrics they disclosed around the acquisition don’t appear to make it overly accretive to equity value.

“It’s not a real needle mover,” said Darryl McCoubrey, an analyst with Veritas Investment Research.

What’s more, “there’s not a lot of appetite for new equity in the company, and maybe that adds a little bit of pressure to the dividend … because they have that many more shares to pay the $1.16 dividend to every year,” he said.

The acquisition, which is expected to close by the end of September and is subject to regulatory approvals, “represents a significant expansion of our energy business in Western Australia and provides TransAlta with a new valued customer … and a broader platform for future growth,” TransAlta president and chief executive officer Dawn Farrell said in a statement.

The deal will increase TransAlta’s net generating capacity in Western Australia by more than 40 per cent to 425 MW.

The company is aiming to own and operate 600 MW of capacity in the region.

 

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