LONDON (Alliance News) - Obtala Resources Ltd Wednesday said it has entered into an agreement to sell its GBP2.0 million loan notes held in African diamond development and production company, Paragon Diamonds Ltd, to Titanium Capital Investments Ltd for GBP998,000.
Obtala Resources, an agri-processing, farming and timber company, also said it has agreed to grant a call option for 60 million of its shares its currently holds in fellow AIM-listed company Paragon Diamonds. Obtala currently holds a 27.33% stake in Paragon Diamonds, with a holding of just under 90.5 million shares.
Prior to the new agreement with Titanium, the loan notes in Paragon Diamonds were not convertible. However it said it entered a new agreement with Paragon to enable the loan notes to become convertible and transferable.
Obtala said it agreed to sell its outstanding loan notes of GBP2.0 million to Titanium at a 50% discount to realise GBP998,00 in cash, which it said it receivable immediately.
Under the new agreement, Titanium, or any future holder of the loan note, may convert the notes into Paragon shares at a price of 2.75 pence. The loan note now have a five-year term.
Paragon Diamonds shares were quoted at 3.60p Wednesday morning, down 2.7%, while Obtala shares were down 4.7% at 9.05p.
In a separate statement Wednesday, Paragon Diamonds said it also has undertaken to Obtala that any future funding through the issue of new shares will be carried out a placing price of not less than 4 pence per share, until the call option granted by Obtala to Titanium Capital is exercised.
Obtala said it has granted Titanium Capital a call option to purchase 60 million shares from its holding in Paragon Diamonds at a price of 3.25 pence at any time up to December 1, 2014.
If Titanium exercises the call option in full, Obtala will realise a further GBP1.95 million of gross proceeds in cash, and its shareholding in Paragon Diamonds will be reduced to just under 30.5 million shares, representing a 9.2% stake.
Under the agreement, Titanium has agreed to take responsibility for funding the Phase 1 mine development at the Lemphane Diamond Mine in Lesotho.
"As part of the negotiations Titanium and Paragon will establish a separate sales and marketing company of which Paragon will hold a minimum 25% interest, rising to a maximum of 50% once fully established. This entity will seek to buy and sell diamonds globally and is conditional upon the call option granted by Obtala being exercised in full by Titanium," said Obtala Resources in a statement.
By Rowena Harris-Doughty; rowenaharrisdoughty@alliancenews.com; @rharrisdoughty
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