Charity worker and businessman Frank Timis needs some cash. $800m to be precise to help fund his development work in west African country Sierra Leone.
A press release from Timis’ African Minerals:
African Minerals Limited, the iron ore project development company that is developing the Tonkolili project in Sierra Leone, West Africa, is pleased to announce the launch today of a non pre-emptive conditional equity placing of 45m Common Shares at a price of 425 pence per share to raise approximately £191.3m ($307m).
Concurrently, AMI also announces that it has appointed a Lead Arranger to arrange for the provision of a secured loan facility of up to $500m.
The terms of the bond offering — something we don’t think Frank has attempted before — are as follows:
Two year term;
· interest of 12% per annum, payable monthly, and a commitment fee (as to which see below);
· repayment by the Company at any time. If the Facility remains outstanding on the first anniversary of drawing, the Company shall pay a bonus equal to 3% of the outstanding balance of the Facility either in cash or Common Shares at the Company’s election;
· estimated all in cost of financing to be an average of 18% per annum;
and · secured over all of the assets of the Group (subject to a carve out for implementation of Shandong transaction on terms previously announced).
And that commitment fee:
- warrants to subscribe for 12.5 million new shares in the Company at an exercise price of £6, at a ratio of 2.5 million warrants for every $100 million principal amount arranged under the Facility.
The warrants will be exercisable for a period of 3 years;
and · 4% of the amount of the Facility payable in the form of Common Shares valued for this purpose at £4.50 per Common Share.
Now, does all that reflect the risks of investing with Frank in Sierra Leone, given that there’s still a question mark over a proposed $1.5bn investment in the potentially huge Tonkolili project by Shandong Iron & Steel Group.
The company would say it does because it is only bad weather which has prevented the Chinese from completing their due diligence.
And so does house broker Canaccord Genuity, which reckons today’s fund raising move significantly de-risks the project.
This move is all about de-risking shareholder value in the Tonkolili project. This capital raise achieves this goal in three ways:
- It reduces the company’s dependence on the availability of funding from Shandong Iron and Steel, which has agreed to put up US$1.5 billion for 25% of the underlying subsidiaries and 10mtpa of the product at favourable discounts to the then market price;
- It provides greater certainty for shareholders that the Tonkolili direct shipping iron ore (DSO) project will be in production within 12 months – first production is planned for Q4/11 with 10mt of sales expected in 2012. Consequently, we are reducing our completion risk on the DSO project from 50% to 30% -
- ; and it provides management greater bargaining power in future negotiations with either Shandong or Arcelor Mittal, both of whom have indicated an interest in funding this project in return for favourable off-take agreements.
And the market seems quite relaxed:
(Note the share placing is being done a 425p.)
We certainly live in interesting times.
Related links:
Travelled Timis pays court to the Chinese – FT
The Regal report – FT Alphaville
AIM Disciplinary Committee Decision – Regal Petroleum
http://www.franktimis.co.uk/ – “A master entrepreneur”