14th Aug 2015 07:57
LONDON (Alliance News) - Stellar Diamonds PLC shares dropped on Friday after it proposed a capital reorganisation to allow it to issue a convertible loan note and associated warrants to a German private equity firm, and said it may issue a further, larger loan note to the same firm in the near future.
Stellar shares were down 24% to 0.438 pence per share on Friday morning.
The miner said it has raised USD330,000 after issuing the new loan note to German private equity firm Deutsche Balaton AG. The note matures on August 7, 2017 with an interest rate of 6% per year. That maturity date can be extended if the shares are not converted.
The note may be converted into 37.5 existing shares at an effective price of 0.56 pence per
share. If converted, Deutsche Batalon must convert the entire note. If exercised, Deutsche Batalon would hold a 4.4% stake in the company.
Separately, Stellar also has granted Deutsche Batalon a warrant to subscribe to just under 60.0 million existing shares for a total of USD330,000, equivalent to an exercise price of 0.35 pence per share.
If both the loan note and warrant are converted, Deutsche Batalon will hold a 10.7% stake in Stellar Diamonds. The warrant can only be exercised once the loan note has been converted.
However, the company said it needs to conduct a capital re-organisation in order to allow the warrant and loan note to go through, because the company is prohibited from issuing shares at a price below their nominal value of 1 pence apiece under the UK Companies Act.
"It is necessary for Stellar to undertake a capital reorganisation in order to amend the nominal value of our shares relative to the price at which we are currently able to issue new shares. As such, it is intended that the company's shares will be consolidated and sub-divided," said Chief Executive Karl Smithson.
Therefore, Stellar Diamonds proposes consolidating every 50 shares into one share, which will then be sub-divided into one new share and one new deferred share.
"The result of the proposed capital re-organisation, if approved by shareholders, would be to reduce the number of ordinary shares in issue by approximately 50 times and, accordingly, assuming normal market conditions, to increase the price at which the company's ordinary shares would trade to approximately 50 times the value at which the existing shares currently trade," said the company.
On top of all of that, Stellar Diamonds is holding further talks with Deutsche Batalon about potentially securing a larger convertible loan note and associated warrants to tie the company over until it secures the Tongo mining licence, which is expected before the end of 2015.
"Whilst discussions with Deutsche Balaton are at an advanced stage, there is no guarantee that the company will enter into definitive agreements in respect of the additional note," it said.
Non-Executive Chairman Peter Darebury has also provided an unrelated USD45,000 loan to the company which will "contribute" to its working capital during the course of its negotiations with Deutsche Balaton. There is no interest payable on the loan and the loan does not have a fixed repayment term.
"The directors consider that the participation of Deutsche Balaton and the proposed share re-organisation are important developments in the transformation of Stellar from a junior explorer in to an established diamond producer," said Smithson.
By Joshua Warner; [email protected]; @JoshAlliance
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