Tri-Star shares plunge amid concern over future of SPMP

(Sharecast News) - Minerals processing company Tri-Star Resources updated the market on its investment in Oman antimony and gold production facility Strategic & Precious Metals Processing (SPMP) on Friday, in which it holds a 40% equity interest.
The AIM-traded firm said the other joint venture partners are the Oman Investment Fund at 40%, and DNR Industries - part of the Dubai-based Dutco Group - at a 20% equity interest.

As it had previously announced, SPMP was in the process of seeking further financing to ramp up operations at its facility, targeting 100% capacity by the end of 2020 and securing its long- term operation.

The board of SPMP had determined that in order to reach 100% capacity and sustainable positive cash flow, it would eventually require up to $160m (£122.5m) of additional finance, including a working capital facility of $60m to fund a build-up in inventories, a normal creditor and debtor cycle, the continued investment in the plant and to meet current debt obligations.

SPMP had reportedly considered "several different combinations and types" of finance including debt, mezzanine and equity funding, and although negotiations with a number of potential providers of finance were continuing, the terms offered to date were, in the view of the board of Tri-Star, "unacceptable".

Tri-Star also said it believed that any such provider of further finance to SPMP would require comfort that the total funding required of up to $160m was available prior to confirming its individual commitment to the funding package.

"Accordingly, whilst negotiations are ongoing, there is uncertainty as to whether SPMP will be able to achieve the financing it requires on a timely basis and, if it is able to secure such financing, the terms on which it would be made available," Tri-Star's board said in its statement.

"As a result, the long term future of SPMP will remain uncertain until any such financing is secured."

Negotiations between the shareholders of SPMP were ongoing as to how to provide short term financing in order for it to continue its operations.

No agreement had yet been reached, Tri-Star confirmed.

However, it said the various outcomes could include the dilution of its holding in SPMP as a result of the financial contributions of other shareholders, and the temporary suspension of operations at SPMP.

The board said it would update the market as negotiations progressed.

It also noted that SPMP was currently in technical default of its current banking facility arrangements with Bank Nizwa and Al Aziz Bank, as the most recent repayment obligation had not yet been met.

The short term funding arrangements being negotiated were intended to remedy that default.

"As part of the current SPMP facility arrangements, on 15 March 2018 each shareholder in SPMP entered into a conditional completion guarantee in favour of Bank Nizwa and Al Aziz Bank," Tri-Star explained.

"Tri-Star's obligation under the guarantee amounts to 40% of SPMP's liabilities outstanding to these two banks, which currently stands at approximately $30m out of a total owed of approximately $75m.

"Tri-Star's obligations under the guarantee fall away once commercial production of SPMP's facility in Oman has been achieved."

The Tri-Star board said it believed that to be the case, as it had been informed by SPMP that commercial grade antimony had been produced, with commercial grade gold dore also produced and sold.

"The guarantee will be formally discharged once an independent consultant certifies to the banks that commercial production has been successfully started."

At 1121 GMT, shares in Tri-Star Resources were down 59.1% at 14.11p.