TORONTO (miningweekly.com) – TSX-listed Yellowhead Mining has entered into an investment agreement with Calgary-based private investment firm Matco Investments under which Yellowhead had issued to Matco an $8-million secured convertible debenture on a private placement basis.

The convertible debt financing bore a conversion price of $0.225 a share, representing a 32% premium to the closing share price on the TSX on Tuesday.

The $8-million convertible debenture has a maturity date of January 31, 2014 and a coupon rate of 9% a year. Yellowhead said the debenture was convertible into 35.6-million common shares of the company at an exercise price of $0.225 a share. Matco was also given the right to designate one individual to the Yellowhead board.

The full conversion of the debenture into common shares of the company would be subject to shareholder approval at a special meeting of shareholders to be held on December 30.

The proceeds of the Matco financing would mainly be used to complete the environmental assessment process for Yellowhead's Harper Creek copper/gold/silver project, located in the North Thompson region of British Columbia, and for general corporate purposes.

“Yellowhead is extremely pleased to have reached agreement with Matco to provide the Matco financing, as this will allow Yellowhead to move forward with the environmental assessment process for the Harper Creek project. Completing [this] process will represent the next significant milestone in the development of the project,” Yellowhead CEO Frank Wheatley said in a statement on Tuesday.

The Harper Creek project’s feasibility study was released in March 2012, outlining a capital expenditure of $840-million.

Using a cutoff grade of 0.20% copper, the feasibility study was based on a measured and indicated resource of 815-million tons grading 0.29% copper, 0.03 g/t gold and 1.3 g/t silver. Mine life is estimated at 28 years, with a milling rate of 70 000 t/d. Total life-of-mine production is estimated at 3.63-billion pounds of copper, just over 372 000 oz of gold and 14.73-million ounces of silver.

Laurentian Bank Securities metals and mining analyst Christopher Chang said he believed the convertible debt financing, which has an exercise price well above the current share price, was the least dilutive available source of capital as investment appetite for junior mining development projects remained poor.

“Based on Yellowhead’s current share price and last reported Q3/13 cash balance of only $3-million, we expect the company to exercise the ‘force conversion option’ and automatically convert the debenture into equity upon shareholder approval.

“Post the conversion, Matco will emerge as the single-largest shareholder of Yellowhead with a 35.91% ownership stake. We estimate Taseko Mines’ ownership interest to be diluted down to 10.4% from 16.2%,” he said in a note to clients.

Chang maintained a ‘speculative buy’ recommendation and C$0.75 target price for the stock.

Yellowhead’s stock had lost 73% of its value since the start of the year, and was trading at C$0.145 apiece on Wednesday, down 14.71%.