JOHANNESBURG (miningweekly.com) – Aim-listed Paragon Diamonds has signed a nonbinding term sheet to secure a $15-million funding package with private South Africa-based company Acrux Resources.
The funds would be used to acquire and bring the defined Lesotho-based Mothae kimberlite resource and the nearby Lemphane kimberlite pipe project into first production of potentially large high-value diamonds.
The company expected the operations to deliver combined revenues of $36-million in the first full year. Initial production was scheduled for the first quarter of 2016.
The first $8-million in funds would be provided to Paragon in return for a 7% share of the Mothae and Lemphane revenues for the first three years, reducing thereafter to 4% at Mothae and 0% at Lemphane.
The second portion of the funding package comprised a $7-million loan, convertible at 5.5p a share and carrying an interest rate of 10% a year.
The funding would be secured over Paragon’s shares in Mothae Diamonds and its 80%-owned Meso Diamonds.
Paragon aimed to bring Mothae and Lemphane into full capacity within two years, transforming the company into a five-million-ton-a-year producer, delivering in excess of 100 000 ct at average values exceeding $1 500/ct.
“The terms set out reduce equity dilution over the short term, as we have not even had to re-issue the former Lanstead-owned shares, which Paragon rebought and then cancelled earlier late last year,” Paragon Diamonds executive chairperson Philip Falzon Sant Manduca said.
He added that the board considered the proposed terms to be strong and in direct contradiction to the market consensus that indicated that the company would be unable to expand the business at this stage of Lemphane's development and would need to issue a sizeable quantity of new shares at a significant discount to the market price to raise new money.
“I believe this proposed new investment confirms that a diamond mining company with a strong resource potential in what I believe to be the optimal asset class, can attract significant investment without having to give the company away cheaply, whatever the stage of their development, and regardless of sentiment elsewhere both in the mining and diamond sectors,” he said.
Paragon replaced ITGT as its principal investors, but noted that discussions with ITGT were still ongoing, which could see that entity involved either in the acquisition of Paragon’s production or in second-stage financing as the operations move to full production in 2017.
Manduca highlighted that Paragon was also in extended discussions with an investment group to secure second-stage production funding, enabling production in about 24 months’ time.
“I am confident that we will not be exposed to any public market volatility in securing additional capital when the time comes to move to full stage production at that time,” he noted.