CLN3 Oct 2019 10:57
Perhaps it is worth reviewing a few pertinent points in relation to the CLN.
This is based on the facts detailed in the RNS, before arms are thrown up in the air and there are yells of “rumour”.
This CLN is currently only conditional, and without the company being able to raise an equivalent $12.5 million from other sources of funding then this funding from the conditional CLN will not be available to them.
Even if the company does manage to raise an additional $12.5million the potential funds from the conditional CLN may still not be available to them, as it is contingent on “satisfaction of a number of other conditions”.
However, the details of these “other conditions” have not been made available, why would this be ?
What should be more important to shareholders however is a little condition hidden away within the conversion conditions, and on what the result of that condition may be to the overall dilution to their shareholding that they may suffer due to it, especially so if there is any form, be that partial or total, of equity issue utilised to secure the additional $12.5 million required to be raised.
The condition in question is the rate at which the conversion can be done.
At first glance it would appear that it would be at 6p per share, which would equate to about 170 million shares (utilising an exchange rate of $1.20 to £1.00).
However, as an example, were there indeed have been an equity raise at 1.2p, as was being rumoured, then the convertible number of shares would have been circa 680 million shares, due to the condition “convertible at a price of either 6p per share or a 25% premium to any hypothetical future equity issuance, whichever is the lower”, given that the convertible price at a equity fund raise of 1.2p equates to 1.5p per share, which is lower than even the current sp.
What would the dilution factor be to existing shareholders if 680 million conversion shares were issued ?
And before there are cries of “but there hasn’t, as yet, been a placing at 1.2p”, do not overlook the effect this conversion clause will have, irrelevant of what price any equity issue, which is inevitable, will be placed at.
The only group that this condition will benefit is the holder of the CLN, to the current shareholders detriment.
“The Conditional Convertible Loan is subject to completion of due diligence and contract and approval by Shareholders at the Annual General Meeting. Thereafter the £10.25 million of funding is subject to the Company also having secured funding for the balance of the initial exploration well program, and satisfaction of a number of other conditions.
Once advanced, the Conditional Convertible Loan would be for a term of 3 years, with a coupon of 12% per annum, convertible at a price of either 6p per share or a 25% premium to any hypothetical future equity issuance, whichever is lower.”
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