Aim-listed BlueRock Diamonds has signed a loan note subscription agreement with Teichmann Company, T-Three-Drilling and three Teichmann employees, for an aggregate £1.6-million.
Under the subscription agreement, BlueRock will initially issue a £1-million simple loan note (SLN) to Teichmann alongside the provision of a debt funding facility of up to R30-million to its Kareevlei diamond mine in South Africa.
This is with the intention that, subject to independent shareholder approval, the SLN will be redeemed for equity in the company and be followed by the issue of a new convertible loan note (CLN) of £600 000 and an amendment to the existing CLN, subject to the conditions set out in the subscription agreement.
“The need for financing has arisen as a result of the excessive and extended rainy season this year, which has delayed the ramp-up of production and the development of our main pit, leading to significantly lower production levels and lower grades than expected,” executive chairperson Mike Houston says.
“As announced earlier, we have been exploring how to finance the financial hole left by the lower-than-expected revenue at a time when we are investing heavily in developing the mine.
“Having explored these options, the only source of funds available to BlueRock in the form and magnitude required was that offered by Teichmann, albeit on terms that dilute existing shareholders significantly.
“Teichmann has demonstrated a strong ongoing commitment to the company and their closer involvement in the management of Kareevlei is expected to assist the company during this critical phase of development,” Houston adds.
“We are fully committed to the success of BlueRock and Kareevlei for all shareholders and the fair treatment of all shareholders. Our further investment in BlueRock and Kareevlei demonstrates this.
“Going forward, we will be taking a more active role in the management of BlueRock and Kareevlei and I look forward to updating the market on progress,” notes nonexecutive director Gary Teichmann.
As announced on July 1, the company's cash resources have been depleted owing, in particular, to the impact of continued wet weather on production and mine development during the second quarter in what continues to be a period of heavy investment in mining development.
The Teichmann financing will provide funding to invest in continued mine development, to repay trade creditors, to repay an existing loan note maturing in October and to provide general working capital to the company.
BlueRock has also entered into a new extended credit facility with its mining contractor, Teichmann South Africa, for up to R30-million, which reduces to R20-million after the first 180 days.
Subject to South African regulatory approvals, where relevant, the facility will be secured over the plant, machinery, equipment and other moveable assets of Kareevlei Mining.
In addition to the financing agreements above, BlueRock and Teichmann have entered into a new relationship agreement reflecting the right of Teichmann to appoint up to three directors and to participate in future fundraisings to maintain its shareholding.
This agreement includes typical clauses on the ability of the company to operate independently of Teichmann.
BlueRock, Kareevlei Mining, Teichmann Company and Teichmann South Africa have also entered into a governance agreement which sets out a framework under which Teichmann and other material shareholders of BlueRock and Kareevlei can appoint directors at the Kareevlei level, subject to BlueRock retaining control of the operation of Kareevlei through a casting vote.
BlueRock and Teichmann are to agree terms of reference for a management committee of Kareevlei, with such committee to include an independent technical expert.
BlueRock’s board says it is conscious of the dilutive effect of the Teichmann financing and is exploring with Teichmann the possibility of offering a limited number of new ordinary shares to shareholders while allowing Teichmann to maintain its intended holdings.
BlueRock intends to convene a general meeting as soon as practicable to consider and, if thought fit, approve a Rule 9 waiver and the grant of the authorities necessary for the equity redemption of the SLN, the new CLN and the amendment of the existing CLN for which a circular is expected to be issued in due course.
BlueRock says the Kareevlei operation is experiencing steady progress as drier conditions have set in in June, following the impact of the extreme weather conditions through to May.
With development mining behind plan, the feed to the plant is still a mixture of pure kimberlite and lower-grade material through higher-than-planned dilution. It is anticipated that a material portion of the main pit will be opened up during the third quarter and, with that, a more composite feed and improved grade.
Despite the difficult weather conditions, the developed tonnes mined in the first half of the year was 1.17-million tonnes compared with 645 740 t in 2021, which the company says clearly demonstrates its commitment to the critical capital development in its mining operations that will ensure consistent throughput in the plant and allow better preparation for the 2023 wet season.
BlueRock expects to issue its second-quarter production update on July 11.