With so much gloom around, let's start the week with what is looming as a good news story. As the last American troops leave Iraq, Australia looks set to become a player in the Asian/Middle Eastern satellite communications industry – including providing satellite services to the new Iraq.
This new industry is being driven with old-fashioned Australian entrepreneurship by one of the few surviving companies from the 2000 dotcom boom, NewSat.
NewSat has a market capitalisation of just $120 million but for some years has been operating satellite teleports out of Adelaide and Perth.
NewSat’s teleports have been so successful in coordinating the US Afghanistan land forces and providing communication to Australian miners that the US supported NewSat in launching its own satellites instead of just using satellites owned by others.
To get into the satellite-owning business, you have to negotiate take or pay contracts totalling about $US400 million. So far NewSat has secured contracts totalling $US346 million for its proposed Jabiru-1, Ka-band, next generation satellite. The customers include Iraq, the US military and other Asian and Middle Eastern communication groups. (Unlike the Americans, the Australian military in Afghanistan use the Chinese rather than Australians to coordinate our land forces).
NewSat is in an advanced stage of negotiation for two new big contracts totalling nearly $US380 million. If those negotiations are successful, NewSat will almost be in a position to launch a second satellite.
Once you have $US400 million in contracts in the satellite game, you go to a satellite maker who will construct a satellite funded on that locked-in cash flow. NewSat has chosen Lockheed Martin and 80 per cent of the cost of the satellite will be provided by the US export/import bank.
(The choice of Lockheed Martin sent a chill down my spine given what is happening with the Joint Strike Fighter but hopefully Lockheed’s satellite business is totally different to the JSF). (Third strike in a defence debacle, December 16)
NewSat must also secure a satellite launch group and has chosen the French group Arianespace. Once again 80 per cent of the funding will come from an export/import bank – this time from the French bank.
So of the $US400 million NewSat must raise, some $320 million will come from the two export/import banks secured on the contracted cash flow.
Nevertheless, for a $120 million capitalised company, the required equity raising of about $80 million is a large amount, although only part of the money is immediately required. NewSat is currently making a capital raising and on Friday its shares were suspended to facilitate this. NewSat hopes to raise additional money in a year or so, perhaps when the share price is higher.
NewSat believes that satellite communication is set to explode but satellite spots are not easy to obtain. NewSat has bought seven of them and is negotiating for additional capacity. It clearly believes that its first satellite, scheduled to be in operation in 2014, is merely the first of many.
My previous comment on NewSat was part of a management insights video (The sky's no limit for NewSat, September 6).