LONDON (Alliance News) - Paragon Diamonds Ltd on Wednesday said it has secured an extension from Lucara Diamond Corp to enable the miner to secure a funding package in order to complete the acquisition of the Mothae kimberlite resource in Lesotho.
In early August, Paragon struck a deal with Lucara to acquire a 75% stake in the Mothae resource, which is only five kilometres from the "world class" Letseng diamond mine and is close to Paragon's existing Lemphane site. In return, Paragon agreed to pay a total cash consideration of USD8.5 million.
Prior to the deal to acquire Mothae, Paragon was aiming to begin production from Lemphane in the second quarter of 2015. Once the deal was struck, Paragon said it would develop Lemphane and Mothae together with the aim of starting production from the enlarged project in the third quarter of 2015.
However, the acquisition has taken longer to complete than anticipated as Paragon had to secure the necessary funding and get approval from the government of Lesotho, meaning Paragon did not begin production on schedule.
On Wednesday, Paragon said it expects production from both Mothae and Lemphane to begin sometime in 2016. Paragon is targeting combined revenue from the projects of around USD36 million in the first full year of production at both mines.
"The board believes that Paragon is now in an exceptionally strong position, looking forward to production in 2016 at both assets. I believe we have made a large amount of progress over the last 12 months and that significant value has been added to the company over this time," said Finance Director Simon Retter.
On Wednesday, Paragon said Lucara has agreed to extend the deadline for the deal in order to allow the company to complete its USD15.0 million funding package with South Africa-based Acrux Resources Pty Ltd.
Last Friday, Paragon said the USD15.0 million funding package from Acrux would take the form of a combined convertible debt and revenue-sharing facility. Paragon will get a USD8.0 million payment in return for giving Acrux a 7.0% revenue-sharing stake for Mothae and Lemphane for the first three years, falling to 4.0% for Mothae and no share for Lemphane thereafter.
In addition, Acrux will provide Paragon with a USD7.0 million loan convertible into Paragon shares at 5.5 pence per share.
When that funding package deal with Acrux was struck, Paragon extended its USD500,000 short term loan facility to October 14 from September 30 in order to allow the funding package deal to be executed.
On Wednesday, Paragon said it has extended the short-term loan facility once again until November 18 to allow further time for the deal to be finalised with Acrux.
If Paragon cannot secure the Acrux funding to repay that loan before October 14, then Paragon will issue the provider with a further 3.6 million detachable call warrants with a strike price of 7.0 pence per share, it said.
Paragon secured that USD500,000 short terms loan back in June with an unnamed investment company. Under those terms agreed in June, the loan carries a fixed monthly interest rate of 1.25%, a 3% arrangement fee and 3.57 million detachable call warrants with an issue price of 7 pence.
"These extensions place the company in a good position to execute its strategy and complete the acquisition of Mothae on the terms previously announced. The company will make further announcements regarding the Acrux funding package and the acquisition of Mothae as soon as practicable," the miner said.
Paragon shares were trading up 1.4% to 4.43 pence per share on Wednesday morning.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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