The Downer EDI Limited (ASX: DOW) share price is on the rise today after the company announced the divestment of its Western Australian open cut mine business. During mid-morning trade, the Downer share price has inched 0.76% higher to $5.32.
What’s driving the Downer share price?
Investors appear to be mildly pleased by the company’s latest market update, gradually driving the Downer share price higher.
According to its release, Downer has entered into an agreement to sell its mining services business, Open Cut Mining West, to Maca Ltd (ASX: MLD).
This follows Downer’s announcement earlier this month it was selling 70% of its laundry business to Adamantem Capital for $155 million. In addition, Downer announced at the same time it had refinanced its debt obligations through a $1.4 billion loan facility.
The sale of the Western Australian asset will include fleet and inventory, current liabilities, and the swapping over of existing contracts.
Downer is set to receive over $200 million in cash for the sale of the open cut mine. This will consist of $175 million for the asset itself, and around $30 million to provide flexibility within working capital. A deferred amount of $66 million will be paid in 12 equal-monthly instalments to Downer once the transaction is completed.
Pending customary conditions being met, Downer expects completion of the sale to happen early next year.
Downer CEO remarks
The CEO of Downer, Mr Grant Fenn, spoke about the company’s direction in trimming down its mining operations.
An important part of our Urban Services strategy is to exit our capital-intensive Mining business. The sale of Open Cut Mining West follows the sale of Downer Blasting Services, the Snowden consulting business and our share in the RTL Mining and Earthworks joint venture. The proceeds received from these four transactions is in line with the carrying value of these businesses.
We remain in active discussions with a number of interested parties in relation to the other parts of the Mining portfolio namely Open Cut Mining East, Underground, and the Otraco tyre management business.
How has the Downer share price performed in 2020?
The Downer share price is still a long way from reaching its pre-COVID highs, at which time it was tracking at around $8 to $9.
Since reaching a multi-year low of $2.59 in March, however, Downer shares have recovered 105%. The company currently has a market capitalisation of $3.7 billion.
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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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