ASX-listed junior miner Mustang Resources has received formal commitments to raise about $3-million in a placement to professional and sophisticated investors through the issue of about 75.5-million new shares.

Mustang MD Christiaan Jordaan says the funds raised pursuant to the placement will principally be used to further develop the company’s Montepuez ruby project, in Mozambique, for general working capital and for other outstanding payables.

He points out that Australian financial services company Hartleys is the lead broker in respect of the placement.

“The placement has been made to professional and sophisticated investors and will be completed in two tranches, with about 38-million shares issued in the first tranche using two different prices to achieve a net issue price of $0.04 per share.”
Jordaan notes that about 23-million shares will be issued at $0.034 and 15.3-million shares at $0.049.

The remaining shares, about 37-million, will be issued in a second tranche at $0.04 per share, conditional on shareholder approval at a general meeting to be held in early June 2016.

Jordaan says that the settlement of the first tranche of shares is expected to occur on or around May 6.

In addition to the placement, Mustang will proceed with a share purchase plan (SPP) to raise up to $500 000 on a first come, firstserved basis to enable participation by all shareholders (excluding placement participants) for an amount up to $15 000 per shareholder at $0.04 per share.

Mustang states that it reserves the right to accept oversubscriptions in the SPP and the record date for the SPP was April 27.

“We are very pleased with the support that we have received for the placement from investors. The additional capital significantly strengthens our balance sheet and provides the capital required for the company to continue development of its Ruby assets in two distinct phases,” Jordaan enthuses.

He outlines that Phase 1 of the project will entail the exploration of Montepuez, including the purchase of remaining equipment, trenching and drilling, followed by Phase 2 exploration, which includes bulk sampling, further drilling and resource evaluation.

Mustang highlights that its directors have also agreed to accept scrip (a term for any substitute for legal tender) at a 25% premium to the placement participants ($0.05) in lieu of cash for a significant portion of the director and consulting fees, including $589 500 in remaining project acquisition costs, which are payable by the company.

These shares, about 11.7- million, will be issued subject to shareholder approval at the company’s upcoming general meeting.

“The issuance of shares to satisfy these fees, together with the use of a portion of the placement funds to pay off other outstanding payables, will have the effect of settling all outstanding debt of the company, thereby enabling Mustang to focus on the development of its existing assets,” Jordaan comments.

Shareholder Support

In addition to the placement, the company has also entered into a term sheet with its largest shareholder, investment firm Lanstead Capital, for a second equity funding facility, pursuant to which Lanstead will subscribe upfront for a total of 21.2-million ordinary shares to be issued at a price of $0.04 per share.

This equates to a nominal value of $850 000 at $0.04 per share and the parties will enter into a sharing agreement with funds made available to Mustang over an 18month period, along the lines of the previous arrangement entered into between the parties.

The conclusion of Lanstead’s investment is subject to the execution by the parties of binding agreements and the approval of shareholders at Mustang’s upcoming general meeting.

Under the terms of the proposed sharing agreement with Lanstead, Mustang will be able to secure much of the potential upside from any share price appreciation over the next 18 months, expected on delivery of key milestones on the Montepuez project and its near-term bulk sampling programme.

Further particulars are that Mustang would retain $127 500 of the $850 000 subscription paid by Lanstead, with the balance invested in the sharing agreement. The 15.9-million shares issued to Lanstead by the company would be subject to the sharing agreement, with subscription funds held in escrow.

Mustang would receive 18 monthly cash settlements whereby its economic interest would be determined by Mustang’s share price performance and payable in monthly settlements as measured against the benchmark price of A$0.0533 per share.

Jordaan notes that, if the share price were to fall below the benchmark price, then the monthly settlement payments would reduce pro rata.

“The proposed terms of the transaction are otherwise similar in nature to the original Lanstead investment announced on November 23, 2015,” he concludes.