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Binding Memorandum of Understanding signed for US$12m equity and debt finance package
Paragon Diamonds, a AIM quoted diamond development company, has signed a legally binding Memorandum of Understanding with International Triangle General Trading LLC with regards to a US$12m equity and debt financing package. ITGT is a privately owned international investment group, with a focus on construction, automobiles, real estate and banking. ITGT was established in 1991 and is based in Dubai, the wider Middle East and China.
The proceeds will fund Stage 1 production at Paragon’s 80%-owned Lemphane Kimberlite Pipe Project in Lesotho, which is located among a cluster of kimberlites known for producing large, high value diamonds. This update is in line with Paragon’s objective to build a leading vertically integrated diamond company with significant interests across the investment grade diamond value chain from the mine to the final investor and the consumer.
The key terms of the MOU are summarised below:
* Terms have been agreed for the funding of Stage 1 production at Lemphane
that will involve the extraction of approximately 1 million tonnes of
kimberlite over two years and according to an independent report, is
expected to lead to the recovery of over 100 diamonds larger than 9 carats,
including some stones over 100 carats in size.
* A US$12m investment in Paragon from ITGT which is comprised of a mixture of
new equity and a secured loan note resulting in limited dilution to
existing shareholders.
* ITGT will subscribe for 98 million new ordinary shares of 1p each in the
Company (`Ordinary Shares’), at 5.5p share raising US$8.09m, the
subscription price represents a 4.8% discount to the closing market price
as at 27 January 2015.
*
+ Taking into account the 63 million ordinary shares which were purchased
and cancelled by the Company at 3p per share from Lanstead Capital L.P.
(`Lanstead’) as announced on 11 November 2014 the net dilution for
existing shareholders is significantly reduced
* Issue of US$4m three year secured loan note guaranteed by Paragon and its
100% owned subsidiary Meso Diamonds (`Meso’) with a 10% per annum coupon
payable annually in arrears. The loan note will be secured as senior debt
with guarantees and debentures granted by Paragon and Meso, including
security over the plant and machinery at Lemphane.
* The Investor will be entitled to appoint up to two nominees to the Board of
Paragon.
* The Investor intends to increase its interest in Paragon through the
acquisition of existing Ordinary Shares including the purchase of 9.09
million Ordinary Shares which are currently held by Titanium Capital at a
price of 5.5p per share. This will bring Titanium’s interest in Paragon on
a fully diluted basis (allowing for the conversion of loans to Ordinary
Shares) below 30%.
* In addition, Obtala Resources Limited and Grandinex International Corp
collectively have agreed to sell 40 million shares in the Company to ITGT
at a price of 5.5p per share.
* To ensure that the funding package was secured on appropriate terms for
shareholders, Stage 1 production at Lemphane is now expected to commence in
Q2 2015.
*
+ As previously announced, the design of the plant has been finalised and
construction has commenced, including ordering of key long lead time
items, ensuring minimal down time between now and the commencement of
Stage 1 production.
* The Investor has confirmed that it will support Paragon with an additional
loan should any suitable opportunities to acquire a proven diamond resource
arise. The Company is currently evaluating strategic opportunities within
Africa.
Further announcements regarding the issue of the 98 million new Ordinary Shares (and their subsequent admission to trading on AIM) and the secured US$4m loan note to the Investor will be made as soon as practicable.
Paragon’s Chairman, Philip Falzon Sant Manduca said, “This US$12m finance package demonstrates our ability to meet the goals we set ourselves, specifically limiting net dilution for existing shareholders and securing a significant cornerstone investor that shares our vision of building Paragon into a major player in the diamond world. Under the terms of the MOU, new equity is to be issued, near existing market prices, while the effective re-issue of shares we recently re-purchased from Lanstead will make up around two thirds of the new shares. We have secured debt financing on reasonable terms and, in my view, this finance package confirms that a well-run diamond company such as Paragon, with strong resource potential in the right asset class, can attract substantial funds without having to give the Company away cheaply, whatever the stage of development.
“Most importantly, we have secured a proactive new shareholder, which is a highly respectable and influential investment group in Dubai, the wider Middle East region and in China. We believe Dubai is going to rapidly grow into one of the major diamond centres in the world. Paragon is now well placed to take advantage of the expected growth in market share and concomitant diamond distribution activity in Dubai and elsewhere. I have no doubt that our new partners will greatly assist us in achieving our ambition to vertically integrate our business and distribution reach from production in Lesotho all the way downstream to both consumers and investors in diamonds in Dubai and globally. Together with Titanium Capital, I believe that we now have a strong and committed shareholder base in place for the long term.
“This US$12m finance package is a strong vote of confidence in not only the high quality of our diamond assets, particularly our flagship Lemphane Project, but also Paragon’s Board and management team and our ability to deliver on the stated objective to build a leading global diamond house. We believe the trade-off between securing funding on the most appropriate terms for our shareholders, and the pushing out of the commencement of Stage 1 production at our flagship Lemphane project into Q2 2015 is an acceptable one. A deep trust between shareholders and the Board of Directors cannot be built with words alone; actions count the most. We will continue to adhere to this and will update shareholders on our progress as we advance Lemphane towards production.
“These are great times for shareholders in Paragon, which I believe is still significantly undervalued by the market. To all our existing shareholders, thank you for your support and the enthusiasm you share with me in regard to our prospects, I believe they couldn’t look better right now.”
