02/04/2013 - 23:04

Miners throw debt funding into the mix

02/04/2013 - 23:04

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Miners throw debt funding into the mix

SOUTH Africa’s RMB Resources is not a new player in the Australian market, but it’s the kind of financier that is likely to become more prominent as local companies seek alternative funding solutions.

With the equity market proving very challenging, many companies are exploring alternatives such as convertible notes and other, more exotic instruments.

It’s the kind of market environment that suits a player like RMB, which is prepared to take share options as part payment for its funding deals.

There has also been a growing number of companies announcing funding packages that include a mix of straight equity and convertible notes.

While this kind of funding mix is well established for cash-generating businesses, companies are using it more often at an earlier stage of their development.

Consider these examples.

Cove Resources this week announced a $5 million term loan from RMB, to partly fund the bankable feasibility study for its titanium project in Finland.

The first $3 million will be available immediately, with the balance available only after Cove completes a $2 million equity raising.

RMB, which has operated in Australia since 1996, will be issued with 26.7 million Cove options, expiring in three years.

It completed a similar deal last year with Southern Cross Goldfields.

Southern Cross used 100 per cent debt funding to purchase Troy Resources’ Sandstone gold plant, which will be transferred to its Marda gold project, currently under development.

The key to completing this deal was securing a $7 million loan facility from RMB, with a term of 12 months.

In this case, RMB was issued 34 million Southern Cross options with a two-year term. The strike price is 40 per cent above the prevailing share price, or 5.2 cents, whichever is lower.

Managing director Glenn Jardine said the ability to obtain 100 per cent debt funding was testament to the robustness of the Marda gold project.

The company’s next step is to obtain longer-term funding from lenders for the Marda development.

Mutiny Gold is another company utilising debt funding, for the planned development of its Deflector gold-copper project in the Mid West.

The key deal for Mutiny was a $US43 million metals purchase agreement with Canadian institution Sandstorm Gold.

It comprises $US38 million in upfront payments, $US5 million in equity and a possible additional $US4 million in performance-based payments.

Mutiny says the Sandstorm deal is intended to complement the more traditional bank-provided project finance it is currently negotiating with Credit Suisse and other banks.

It is also looking to negotiate an $11 million leasing deal to fund the Deflector project’s accommodation village.

Noble Mineral Resources, Blackham Resources and Celsius Coal are Perth-based companies that have struck funding deals that combine new equity issues with convertible note issues.

Noble and Blackham have issued convertible notes with an 8 per cent interest rate, while Celsius will pay 12.5 per cent on its notes.

Oil and gas company Aleator Energy turned to international finance company Gres Holdings to secure $US20 million to fund drilling of its gas prospect in Ukraine.

The five-year loan comes with a 10 per cent arrangement fee, payable upon each drawdown, and an interest rate of 5 per cent.

All up, this makes the loan notably more expensive than traditional bank debt, which of course wouldn’t be available for a purpose such as this.

Alcyone Resources is another company negotiating an innovative funding package, for its Queensland silver mine.

It has signed a term sheet with a “global resources investment fund” for a rolling $10 million debt facility, with repayments to be made by way of 100 per cent of its offtake from its silver mine.

It is also putting together a number of bridging finance options, including a $2.5 million issue of what it called “promissory convertible notes”.

 

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