7th Jun 2016 07:11
LONDON (Alliance News) - Herencia Resources PLC Tuesday said there is potential that the company could be broke by the end of this month despite two of its major shareholders agreeing to provide the company with USD150,000 of funding.
Herencia shares were up 20% to 0.0330 pence per share on Tuesday morning.
Herencia has been trying to source cash whilst being prudent with its existing funds as it attempts to find a long term solution to its financing woes whilst also trying to complete the sale of its 70% interest in the Paguanta project in Chile.
Herencia previously warned it could only last until the end of May but managed to survive into June thanks to "prudent cash management", but despite securing new funds on Tuesday, the company could still be forced to shut up shop "after the middle of June" depending on the amount of support two of its major shareholders are willing to provide.
Existing shareholders Lind Partners, through the Australian Special Opportunity Fund, and Oriental Darius Co Ltd have agreed to provide Herencia with USD150,000 of funding to be issued in two tranches.
The first tranche, which will be drawn immediately, is for the first USD50,000 which will carry no interest rate over a 24 month term - however, Herencia will pay a total of USD60,000 back to the shareholders in return for that first tranche.
That will keep the company going until "the middle of June".
Lind and Oriental can convert the outstanding face value, which is the USD60,000 that is expected to be repaid, into shares. The price of those shares will depend on when or if they are issued.
Importantly, Herencia will also issue further options to Lind and Oriental to allow them to acquire shares in the company equal to "100% coverage at the time of funding." Herencia said those options could be exercised over a 36 month period at 0.05 pence.
The second, larger tranche of USD100,000 is discretionary and the two shareholders have the choice as to whether or not the company should receive it. Herencia will repay a total of USD120,000 for the tranche under the same terms as the first.
That means Herencia will again issue options covering the face value of USD120,000 to the shareholders, which would also be exercisable over 36 months at 0.05 pence.
However, even though the second tranche is not guaranteed - Herencia will still not be able to last much longer if it secures all USD150,000 of funding.
"The directors believe that the funds from tranche one will support the company's working capital position until approximately the middle of June 2016 and tranche two will support the company's working capital position until approximately mid-late June 2016. In the event tranche two funds are not received there can be no guarantee that the company will be able to continue trading after the middle of June 2016. The company is continuing to explore other funding options," said Herencia.
In addition, both shareholders could potentially see their stakes in Herencia soar as a result of the deal.
Herencia said Oriental's stake in the company would rise to 37.02% if it exercised all of the options it holds over shares in the company, including the ones related to the financing Tuesday, whilst Lind would hold a 39.2% stake in Herencia if it exercised all of its options including the ones related to the financing.
That means there is potential for Lind and Herencia to own over three quarters of the company under that scenario with a combined 76.22% stake.
The best hope for the company is completing its deal to sell its interest in the Paguanta project to Golden Rim Resources. Herencia hopes to sell the stake for USD2.3 million in cash alongside some equity in Golden Rim, which has also agreed to pay up to USD2.1 million toward various contingent liabilities.
Since striking that deal, Golden Rim has paid only USD120,000 and Herencia warned it is only expecting to secure another USD100,000 payment on June 13 when a formal agreement will be signed.
There is still no guarantee that the deal will be completed and the payment timetable suggests Herencia will not be able to wait for the total consideration of the deal unless it finds another funding solution in the meantime.
By Joshua Warner; [email protected]; @JoshAlliance
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