P914million proposal to recapitalise DML

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The cash strapped Botswana Stock Exchange and Australian Stock Exchange listed Discovery Metals Limited (DML), has reached an agreement with Montsant Partners LLC for recapitalisation.
The Gazette Business understands from the company’s statement last week that Montsant will recapitalise DML to the amount of P914 million (US$105 million). These funds will be used to repay existing debt facilities in full; and as working capital, including advancement of the Zeta underground mine.

In an interview with Gazette Business, DML Country Manager Mokwena Morulane explained that this is not a takeover but rather a proposal that is on the table for a recapitalisation which is subject to shareholder approval and executing binding agreements.

“The short to medium term objective is to secure the recapitalization proposal and commence value adding projects such as the Zeta underground. There may in future be additional employment opportunities for Batswana,” said Morulane.

He added that, the Company needs to increase productivity and optimise costs. As a result, the recapitalisation will afford DML the opportunity to commence underground opportunities at Zeta with access to better grades. “We still have to improve productivity and reduce costs,” he said.

As explained by Morulane, the statement from the company indicated that, the transaction is subject to shareholder approval and a satisfactory legal due diligence to be undertaken by Montsant Partners LLC.

The Company’s lenders, it said  have agreed to repayment in full of existing Project Finance Facility and Revolving Credit Facility in exchange for payment of US$65 million (P566 million) and the issue of 500 million fully paid ordinary shares in the Company. The Company also intends to make a pro-rata entitlement offer to existing shareholders.

The Company will have access to additional funds of US$40 million (P348 million) for working capital purposes and to progress the Zeta underground mine. “The development of the Zeta underground mine is of paramount importance to the Company as it will expose the sulphides zone in the ore body, resulting in better grades, and hence better returns. The Company is already in receipt of the environmental permitting for the Zeta underground mine; and is currently awaiting ministerial approval for underground mining to commence. Ministerial approval is expected in April 2014,” reads the statement.

DML Chief Executive Officer, Bob Fulker emphasised the importance of the recapitalisation proposal, “this investment is an important element to ensuring the survival of the Boseto operation, and enables the Company to reduce its reliance on the currently loss-making open cut operations. The Company will need to continue its focus on cost reduction while the new investment can be applied to the underground development, particularly in view of presently soft copper prices. This transaction demonstrates the value that Montsant Partners LLC places in the Boseto operations and the DML Group, and it will therefore be critical that DML maximises the value from this investment to ensure the long term future of the Boseto operation.”

Sometime in September 2013 the cash strapped DML sought a US$108-million recapitalization deal with Singapore-listed investment holding company Blumont Group. The deal consisted of a US$8.75-million share placement and a US$100-million convertible bond placement. The proceeds from the transaction would be used to repay the revolving credit facility, as well as the principal of the project finance facility. A portion of the funds would also be used to repay corporate advisory fees while the balance would be used to fund development, exploration and working capital. The restructured project finance facility also came with a two-year moratorium on principal and interest payments. Sadly, conditions precedent were not satisfied by the sunset date and subsequent negotiations with Blumont did not present a satisfactory outcome.

By December 2013, DML was saddled with two debt facilities, a project finance agreement (PFA), consisting of an amortizing US$180m term loan and a US$50m single currency corporate revolving facility (RCF) that matures in April 2014. The PFA and the RCF are in default with outstanding balances of US$128.9m and US$25m respectively. There had been no principal repayments of either the Term Loan or the RCF over the course of the half year ended 31 December 2013. Interest in respect of the period was also outstanding.