Chemeq calls trading halt, appeals for more capital

Chemeq (ASX: CMQ) has called a trading halt while it considers a proposal to raise equity funds to use as working capital and to expand its current production facility from 20 tonnes annual production capacity to 50 tonnes.

If it goes ahead, the capital raising will be Chemeq's fourth appeal to the market for additional funding since June 2003, when Chemeq raised $25 million in a private placement at a share price of $5.35. Subsequently, the company raised $20 million in a share purchase plan at a similar price in December last year. In June this year it completed a further $10 million placement to private investors, this time at a price of $4.55. As of 30 June, 2004, the company had $6.4 million in the bank, and recently confirmed a $5 million borrowing facility with a major bank.

Chemeq has not released details of the amount of cash the upgrade would require, although it has said it expects to complete the upgrade by mid-2005.

While the company has finally got its initial manufacturing plant commissioned six months late, a low bank balance and lack of shareholder confidence in the company have shaken the share price down from AUD$4.72 at the end of July to Friday's closing price of $3.42.

The company still has a number of hurdles to get over before it can begin selling its polymeric antimicrobial product, including regulatory approval from the Australian Pesticides and Veterinary Medicines Authority, which should follow an audit by the agency in October. And sales orders worth $1 million from South Africa have lapsed due to the production delays, although the company says it has MOUs for distribution agreements in South Africa, New Zealand and Thailand, and a conditional sales order in Australia worth between $1.7 million and $4.4 million, subject to regulatory approval and commercial trials.

The company also informed shareholders in a recent update that the cost of the manufacturing facility had blown out from $35 million to $52 million, due to "unexpected complications" that have since been resolved.

The company expects to remain in voluntary suspension past the expiry of the trading halt on Wednesday morning while it finalises details of the equity raising, which is being handled by Ord Minnett.