18th Dec 2015 16:22
LONDON (Alliance News) - Graphite producer StratMin Global Resources PLC saw its shares plummet late Friday after it posted a circular to shareholders outlining its proposals to reorganise its share capital and to give the board the ability to undertake more fundraisings in the future.
StratMin shares were dropped 33% to 2.25 pence per share on Friday afternoon following the announcement.
The company said it was proposing the share capital reorganisation because it can not currently issue any shares due to the weakness in its share price.
By law, a company cannot issue new shares at a price below the nominal value of those shares. StratMin's shares have a nominal value of 4.0p, but its share price has been below that since the second half of November.
As a result, StratMin has struggled to issue new shares to raise funds, because it would have to issue them for at least 4.0p - not an attractive proposal to investors when the market price is significantly below that.
At the close on Thursday, StratMin's market capitalisation stood at just over GBP6.0 million, divided into 151.1 million shares.
Under StratMin's proposals, each share currently held would be subdivided and reclassified into one new share with a nominal value of 0.01 pence and a deferred share with a nominal value of 3.99 pence each. The deferred shares are essentially valueless and will not carry any voting or dividend rights - meaning the only significant change is the nominal value, allowing the company to issue shares in the future at any price above 0.01p.
No shareholders stake will be affected by the restructuring, with the changes expected to take effect on January 6, 2016 if approved by shareholders at a general meeting to be held on the same day.
More importantly, the company is proposing to increase the amount of shares the board can issue without seeking shareholder approval, giving it the freedom to conduct more placings and fundraisings in the future without having to seek shareholder approval each time.
StratMin said it would undertake future fundraisings "when market conditions are appropriate", stressing it will benefit the company in 2016 to raise funds without convening meetings.
The miner wants the board to have the ability to issue 48.0 million new shares, equal to around a third of its issued share capital. Currently, the board can only issue shares equal to around a tenth of the company's issued share capital.
That means, if approved, the board will be able to issue shares representing 42% of the company's existing issued share capital - suggesting shareholders could face potential dilution in the near future unless they commit to future fundraisings.
"At this point in time, the board envisions that the net proceeds from any fundraising undertaken pursuant to this authority will be used, in conjunction with part of the cash received and to be received pursuant to the investment agreement with Bass Metals Ltd to fund immediate capital expenditures and provide for expanded working capital," said the company.
Another important aspect of the proposal is the board's intention to pay salaries that are owed to certain directors and senior management in shares, as it opts to try to hoard its cash reserves.
StratMin also has 11.4 million active warrants over its shares, and said it would use the increased allotment to issue any shares should they be exercised by their holders.
Whether or not shareholders will approve the deal is unknown, with irrevocable undertakings only amounting up to 12.2% of the company's share capital. Those have been supplied by Caralapati Raghairah Premraj, which holds a 10.9% stake, and Tirupati Carbons & Chemicals Group (P) Ltd which holds the other 1.3%.
The board said it will use its combined 0.8% stake to vote in favour of the proposals.
By Joshua Warner; [email protected]; @JoshAlliance
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