LONDON (Alliance News) - Paragon Diamonds Ltd Wednesday said it has signed a binding memorandum of understanding with International Triangle General Trading LLC over a USD12 million equity and debt financing package, funds it will use for stage 1 production at its Lemphane Kimberlite Pipe project in Lesotho.
Its new investor also intends to further increase its stake in the company by buying existing shares, and has said it could provide a further loan if Paragon finds any suitable opportunities to buy any other proven diamond resources. Paragon said it is currently evaluating strategic opportunities within Africa.
In a statement, Paragon said International Triangle General Trading is a privately-owned international investment group, with a focus on construction, automobiles, real estate and banking. It was established in 1991 and is based in Dubai, the wider Middle East and China.
Stage 1 production at Lemphane involves the extraction of about 1 million tonnes of kimberlite over two years, which Paragon expects to lead to the recovery of over 100 diamonds larger that 9 carats, including some stones of over 100 carats.
The financing deal comprises a mixture of new equity and a secured loan note that Paragon claims will lead to limited dilution for existing shareholders. International Triangle will subscribe for 98 million new Paragon shares at 5.5 pence, raising the company USD8.09 million. The price is a 4.8% discount to the company's closing share price on Tuesday.
Paragon said it will re-issue the 63 million shares it got back from Lanstead Capital LP last November, meaning net dilution for other shareholders is reduced.
International Triangle will also issue a USD4 million three-year secured loan note, secured by Paragon and its wholly-owned Meso Diamonds subsidiary. The loan note has a 10% a year coupon payable annually in arrears, and will be secured as senior debt with guarantees and debentures granted by Paragon and Meso, including security over the plant and machinery at Lemphane.
International Triangle will have the right to appoint up to two nominees to Paragon's board.
Paragon said its new investor also intends to increase its stake in the company by buying existing shares, including 9.09 million shares currently held by Titanium Capital at 5.5 pence a share, reducing Titanium's interest in Paragon below 30% on a fully diluted basis including conversion of loans to shares.
Obtala Resources Ltd and Grandinex International Corp have also collectively agreed to sell 40 million Paragon shares to International Triangle for 5.5 pence each. price of 5.5p per share.
Paragon said it now expects to start production at Lemphane in the second quarter of 2015, a date that was required to ensure it for the funding package on "appropriate terms for shareholders".
"We believe the trade-off between securing funding on the most appropriate terms for our
shareholders, and the pushing out of the commencement of Stage 1 production at our flagship Lemphane project into the second quarter of 2015 is an acceptable one," Paragon Chairman Philip Falzon Sant Manduca said.
"This USD12 million finance package demonstrates our ability to meet the goals we set ourselves,
specifically limiting net dilution for existing shareholders and securing a significant cornerstone investor that shares our vision of building Paragon into a major player in the diamond world," he added.
"We have secured debt financing on reasonable terms and, in my view, this finance package confirms that a well-run diamond company such as Paragon, with strong resource potential in the right asset class, can attract substantial funds without having to give the company away
cheaply, whatever the stage of development," the Chairman said.
Sant Manduca is also hoping the company's new investor will help it get better access to the growing diamond market in Dubai
Operationally, Paragon Diamonds said design work has been concluded on the planned 75 tonens per hour process plant for Stage 1 Production at Lemphane, metallurgical test work is being concluded,
and long-lead-time item procurement has been undertaken ahead of fabrication of the main plant components. Long lead-time items include scrubbers, crushers, x-ray transmission recovery machines and water recovery thickeners.
It said it has also finalized provisional tailings storage facilities designs with its civil engineers, and the terms for contract mining for Stage 1. Site clearance for the new plant has been undertaken, and civil construction activities are planned to start in coming weeks.
"Discussions are also well advanced with the national power company's main contractor, for access to the privately funded open-access power line (presently nearing completion) for electrical supply to the mine. Discussions have also been finalised with the providers of camp accommodation and services, and security," the company said.
"Separately, the company's geological consultants, MSA Group, have been instructed regarding ongoing work on the geological model, to be updated in light of recent, positive drilling results, and concerning updating of the present scoping study to a full feasibility study over the course of Stage 1
mining activity, which will be a work in progress," it added.
Paragon Diamonds shares were down 3.9% at 5.55 pence Wednesday morning.
By Steve McGrath; stevemcgrath@alliancenews.com; @stevemcgrath1
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