20th Jul 2016 08:47
LONDON (Alliance News) - Xtract Resources PLC shares plummeted on Wednesday after it said the purchasers of the Manica gold project in Mozambique will now pay USD2.5 million less than planned and issued a huge amount of shares priced at a significant discount.
Xtract Resources shares were trading down 34% to 0.064 pence per share on Wednesday.
The company struck a deal back in May to sell Manica to Nexus Capital Ltd and Mineral Technologies International Ltd for a total of USD17.5 million and the original plan was for the entirety of that sum to be paid in cash upon completion.
However, under the new adjusted terms, Nexus and Mineral Technologies will make an initial payment of USD2.0 million to Xtract and, in return, the total consideration has been lowered to USD15.0 million - meaning the purchasers are paying USD2.5 million less in total than first envisaged.
"We have restructured the proposed transaction in order to de-risk the company in relation to its near term requirements," said Chief Executive Jan Nelson.
"Whilst this has been done under very difficult circumstances and challenging market conditions, we are pleased to have now reached this point where our payments to Auroch will be satisfied in the coming weeks, enabling us to now focus on starting to rebuild value within the company as we focus on revitalising the plant at Chepica in order to enable the company to start delivering meaningful production at the mine." he added.
Xtract only formally acquired Manica from Auroch Minerals in March after first agreeing the acquisition in June 2015 and the London-listed company, after agreeing several adjustments to the terms, agreed to pay a total cash consideration of USD4.3 million, with the potential to issue shares worth around USD5.6 million, plus a USD1.0 million payment towards debt.
Xtract still needs to pay USD2.5 million to Auroch under the acquisition terms and that was to be settled through a USD1.3 million cash payment with the other USD1.2 million either being paid in cash or shares at Auroch's option.
Xtract said it has now agreed to pay Auroch USD750,000 of the USD2.5 million owed, with that payment being made on Wednesday and funded through a drawdown of USD671,000 from Xtract's
standby equity distribution agreement with YA Global Master.
Notably, the initial payment of USD2.0 million that will be paid to Xtract by the purchasers of Manica will be made on August 12 and, importantly, will have to be refunded if the transaction does not complete.
That USD2.0 million payment will then allow Xtract to pay Auroch the remaining USD1.75 million owed to complete and settle the acquisition of Manica, in turn allowing Xtract to sell the asset to Nexus and Mineral Technologies.
The USD2.0 million payment will be deducted from the total consideration that has been revised down to USD15.0 million from the original USD17.5 million. Nexus and Mineral Technologies will make another USD12.5 million payment on completion, which is expected in March next year.
The remaining USD500,000 will be initially retained by Nexus and Mineral Technologies until the working capital position of Manica has been calculated and agreed on completion of the deal.
However, there are a swathe of conditions that need to be satisfied before Xtract can sell Manica and, like the terms of the deal, they have been adjusted again following the news on Wednesday.
Under the original terms of the deal, Xtract had to deliver the bankable feasibility study for the project to Nexus and Mineral Technologies by the end of June this year or the London-listed company would have to reduce the consideration by USD1.0 million.
With that deadline passed, Nexus and Mineral Technologies have agreed to extend that deadline to the end of this month - but Xtract said it does not believe it can deliver it until early August and the company is trying to negotiate a further extension to facilitate that.
Without another extension past the end of July, Xtract would still have to lower the consideration by USD1.0 million if it does not make that delivery by the end of July.
August will be a pivotal month as that is when Manica is expected to begin producing and Nexus and Mineral Technologies are keen to begin benefiting from the start rather than next year when the deal is completed.
As a result, all of the gold that is produced from Manica will be 20% owned by Xtract and 80% owned by Mineral Technologies whilst due diligence is being undertaken. If that process is completed but the deal falls through, then those stakes will change, with Xtract owning 40% of the gold compared to the 60% owned by Mineral Technologies.
Xtract and Mineral Technologies will bear the operating costs of Manica on a pro rata basis in line with ownership of gold produced which will be funded from the proceeds of gold sales. Should the gold sales not cover costs, the purchasers will cover the operating expenditure and recover such from future gold sales.
Xtract said Manica is expected to produce up to 5,000 ounces of gold before the start of March when the deal is completed and, at a gold price of USD1,300 per ounce, would generate revenue of around USD6.5 million.
Xtract said its own estimates show that costs in that period would be equal to around 40% of that revenue, implying costs of USD2.6 million.
The deal is also subject to standard conditions such as regulatory approvals, which need to be secured by February 28, 2017, and the completion of due diligence by the purchasers within 240 days of the bankable feasibility study being delivered.
In addition, Xtract said it plans to spend USD350,000 to construct a new floatation plant at the Chepica gold mine in Chile and a further USD160,000 to refurbish the existing crushing plant on site. Both will take 60 days to complete and the mine will not be able to produce any concentrate in that period, meaning production will be hampered by two months.
Underground mining operations will continue during that time and Xtract expects to accumulate a stockpile of around 20,000 tonnes of ore as a result.
The benefit of the work is significant. Xtract believes the mine could produce concentrate worth USD650,000 to USD850,000 per month once the work is completed, based on 10,000 tonnes of ore being processed and product being sold for USD1,300 per ounce.
On the flip side, costs would amount to USD280,000 per month - providing a monthly margin of around USD370,000 to USD570,000 per month to Xtract, equal to USD4.4 million to USD6.8 million each year.
That work will be funded through a placing that was launched on Wednesday, with 1.53 billion shares issued at 0.065 pence per share solely to new investors, which should raise just shy of GBP1.0 million.
The issue price is a substantial discount to the closing share price on Tuesday, coming in a third lower, and the volume of shares being issued is also significant.
Xtract said it has also issued a further 1.03 billion new shares at 0.065 pence each to YA Global Master in return for drawing down the funds needed to pay Auroch.
An additional 600.7 million new shares will also be issued to creditors of the Manica project. Xtract took on USD1.5 million of creditors when it acquired the project and those new shares will settle the remaining USD780,000 that is owed to them.
Overall, taking the placing and the shares issued to creditors and YA Global Master into account, Xtract is issuing 3.17 billion new shares in the company - representing 25% of the enlarged issued share capital of the company.
The company has also drawndown another USD450,000 from a separate loan facility provided by YA Global Master to fund the completion of the bankable feasibility study that needs to be completed as quickly as possible to avoid lowering the sale price of Manica.
By Joshua Warner; [email protected]; @JoshAlliance
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