Diamondcorp Share Discussion Threads

[wisecat2] 28/4/2015 22:38

They are covering the warrants, say they sell 5m shares at 9.5p They are now short, they then exercise the warrants at 9p and hence 0.5p profit. No risk. I think that's right

What I don't understand is why they don't run the warrants, they could be 12. 13 or 14p before October. A tidy profit for no risk

[hpcg] 28/4/2015 22:30

Whoops, I completely misread this:

The Warrants are exercisable at Darwin's discretion at a price of 9 pence per ordinary share over a period of three years commencing on 18 October 2012.

So yes they must have taken them already, but that does not explain how they could be short (still) as the maths in terms of making money does not work out.

[darcon] 28/4/2015 22:29

Looking at the DCP major shareholder info page (updated 15 April 2015) and comparing it to the major shareholder information stats as at 31 Dec 2014 (in DCP's indaba Feb presentation) the only major shareholders to have been reducing their stake have been:

- Legal & General Investment Mgt who reduced from 4.14% (13,185,890) to 3.63% (11,560,890) by 1,625,000 shares
- TD Direct Investing who reduced from 4.14% (13,184,293) to 4.02% (12,794,075) by 390,218 shares.

So it's evident that Darwin have been making the biggest effort to hold back the price as their short (2,992,635 shares) is approximately twice the size of the sell-down by L&G.

The reduction by TD Direct Investing is a reflection of some retail investors taking profits.

On the other hand:

- Hargreaves Lansdown Asset Mgt have increased from 6.17% to 8.18%
- Barclays Wealth have increased from 3.9% to 4.32%

[darcon] 28/4/2015 22:06

On DCP's shareholder information page (last updated on 15th April) it states that there are Nil warrants outstanding so it would seem that Darwin have now exercised their 5 mln warrants and DCP should have received the proceeds of that exercise being 9 pence x 5 million warrants = GBP 450k.

Source:hxxp://www.diamondcorp.plc.uk/investors-and-media/shareholder-information

The total shares in issue are 318,365,478.

0.94% of 318,365,478 = 2,992,635 shares shorted by Darwin

[wisecat2] 28/4/2015 21:59

I think any unforeseen matters will be more than covered by the royalty financing. The company has avoided any unnecessary dilution. I know there is market risk but considering the potential newsflow in the short term, have Darwin been premature in covering the warrants. Or am I missing something?

[darcon] 28/4/2015 21:17

hpcg & wisecat2 - thank you for your explanations / sleuthing.

I agree that if Darwin hadn't shorted then we probably would be higher than 10 pence now.

Shorting (covering) their warrants also means that Darwin have acted to depress the share price just at the moment when the Company may be thinking about making use of the EFF (e.g., if there are unforeseen delays and/or cost overruns and/or delays in alternative financing). Hopefully, the company won't need to exercise the EFF and Darwin have merely capped the potential profits on their warrants.

If the Company does exercise the EFF then presumably Darwin will use shares issued under the EFF to fill its shorts and then short some more.

[darcon] 28/4/2015 21:05

The Darwin Warrants are also described in the annual accounts as follows:

Darwin warrants:

In respect of agreeing to provide a standby equity finance facility of up to £10,000,000 which can be drawn upon at the Company‟s discretion during a period of 36 months ending on 18 October 2015, the Company has granted 5,000,000 warrants to Darwin Strategic Limited a unit of Henderson Global Investors which are exercisable at 9p on or before 18 October 2015.

These warrants were valued by the Directors using the Black-Scholes valuation model, based on the assumptions as detailed below.

Black-Scholes Assumptions

Term range: 3 years
Expected dividend yield: Nil
Risk free interest rate: 1.4%
Share price volatility: 100%
Share price at time of grant: 4 pence

[darcon] 28/4/2015 20:53

Copied from the 19 October 2012 RNS announcement:

Equity Finance Facility
The Board of DiamondCorp is pleased to advise that in addition to the equity placing an equity finance facility of £10 million (c. R140 million) (the "EFF") has been arranged with Darwin Strategic Limited ("Darwin"), a majority owned subsidiary of Henderson Global Investors' Alphagen Volantis fund and was signed on 18 October 2012.

Pursuant to the EFF, the Company may make draw downs up to an aggregate of £10 million ("Maximum Commitment Amount") by way of Darwin subscribing for new ordinary shares of 3p each in the Company ("Ordinary Shares") during the period of 36 months commencing on 18 October 2012 ("Commitment Period").

The EFF will be drawn down at the Company's sole discretion, but it is the intention of the Board to only use this facility if and to the extent that the Lace funding requirement is not met by the proceeds of the Placing, the convertible bond issue, off-take arrangements and/or royalty sales. Further details of the EFF agreement are set out in Appendix 1 below.
Appendix 1

Further details of the Equity Finance Facility

The EFF agreement with Darwin provides DiamondCorp with a facility which (subject to certain limited restrictions) can be drawn down at any time over the next three years. The timing and floor subscription price of any draw down is at the sole discretion of the Company.

DiamondCorp may drawdown at its sole discretion, up to the total value of the EFF, by way of issuing subscription notices to Darwin. Following delivery of a subscription notice, Darwin will subscribe and the Company will allot to Darwin new Ordinary Shares.

The subscription price for any Ordinary Shares to be subscribed by Darwin under a subscription notice, subject to certain exceptional circumstances, will be the average of the three lowest closing bid prices for ordinary shares over the 15 trading days immediately following the delivery date of the subscription notice (the "Pricing Period").

DiamondCorp is obliged to specify in each subscription notice a minimum price below which Ordinary Shares will not be issued to Darwin. The Company will have the right (with the consent of Darwin) to modify that minimum price at any time during the relevant Pricing Period.

The number of Ordinary Shares which may be issued under any individual subscription notice may be up to the lower of 25 per cent of the company's issued share capital following completion of the relevant subscription, or four times the average daily trading volume of DiamondCorp's Ordinary Shares over the 15 trading days preceding the issue of the relevant subscription notice. This may be reduced in certain circumstances, including where the minimum price is not maintained. The maximum draw down under a subscription notice may not exceed £500,000 without Darwin's consent.

There is an over-allotment facility available to DiamondCorp, under which the Company may authorise Darwin, at Darwin's discretion, to increase the amount of the draw down by up to the aggregate undrawn amount under the EFF. Darwin may direct allotments under the EFF to its parent fund, Henderson Global Investors' AlphaGen Volantis Fund.

Darwin and DiamondCorp may mutually agree at the end of the pricing period to a variation of subscription price. This may allow for a larger subscription via any over-allotment facility authorised by the Company.

The issuance of a subscription notice is conditional upon the satisfaction of certain subscription notice conditions which have been agreed between Darwin and the Company. Any subscription notice which DiamondCorp may issue will only be valid to the extent that it has the requisite shareholder authority to issue the maximum number of Ordinary Shares that Darwin may be required to subscribe under the relevant subscription notice.

Darwin and the Company may terminate the EFF agreement if certain conditions are not met.

In respect of agreeing to provide the EFF to DiamondCorp, Darwin has been granted warrants over 5 million Ordinary Shares in the Company (the "Warrants"). The Warrants are exercisable at Darwin's discretion at a price of 9 pence per ordinary share over a period of three years commencing on 18 October 2012.

[jaf1948] 28/4/2015 20:52

Darcon,

Thanks - most appreciated.

[darcon] 28/4/2015 20:43

JAF1948 you can find out by downloading the latest spreadsheet of short positions disclosed to the UK's Financial Conduct Authority. This can be found at the following link:

hxxp://www.fca.org.uk/firms/markets/international-markets/eu/short-selling-regulations/notifications-disclosures

[wisecat2] 28/4/2015 17:01

Whatever there has been a lot of stock going through the market and the appetite is still there. Interesting 8 weeks ahead

[wisecat2] 28/4/2015 16:58

There was a line of 3.2m shares completed Friday before last. That seller went on last week. Maybe a coincidence but they maybe close or even finished the whole 5m.
Which is why we have slowly started to move up against a red day in the market.
Or wishful thinking

[hpcg] 28/4/2015 16:25

Good sleuthing wisecat2. That would mean they are locking up a profit above 9p, presumably somewhere around 9.25. Which isn't very optimistic! At 1% short that is around half the 5 million. So they aren't locking in much profit at all.

It is a free short; with the warrants they know that their buyback is capped at 9p. From a shareholder point of view it means no overhang and an extra half million to shareholders at almost no dilution.

However if we assume they have stopped then they are actually playing a very astute no risk long / short on 2.5 million warrants. Price goes down then no warrants exercised and a 2.5 million delta. Price goes up, all warrants taken up, 50% go to the short and the remaining 50% are for profit. I'm impressed, though not big numbers it is a guaranteed 25K GBP profit for every point move away from 9p in either direction.

[wisecat2] 28/4/2015 15:03

PS Without this we would probably be above 10p

[wisecat2] 28/4/2015 15:01

This doesn't seem to be a straight short. They may have provided a credit line sometime in the past and were granted 5m warrants @9p which expire this year. They would be covering those above 9p. Look back to RNS 19th October 2012 re Diamondcorp Plc (DCP) - £1m Placing, £10m EFF & Update on Lace Finance

[jaf1948] 28/4/2015 13:59

Thanks, Darcon. How does one find out these things ?

[darcon] 28/4/2015 10:39

Darwin are marketers of liquidity finance so a bit strange that they are shorting a relatively illiquid stock such as DCP unless they are trying to prove a point to management.

[darcon] 28/4/2015 10:27

Darwin Strategic Limited notified FSA on 17 April 2015 that they have a 0.94% short.

[jaf1948] 27/4/2015 20:34

I would not be too concerned if there is a small delay if it means improved production later on. Having held since May 2011 (and buying in first time at 14.2p), another couple of months would not be a problem.

Naturally, I'm hoping that everything has gone smoothly during the past 3 months but, however good the company, mining is always an unpredictable business.

[tiger60] 23/4/2015 19:31

This is heading up over the next few days

Over 200c on Jse but extremely volatile.

My hopes for the update this week is not to see the 'D' word. I can put up with cost increases but in the three month window since the last update any delays would be disappointing. I currently put production date as end of August/ Sept and if that happens i would be very impressed.

AIM is littered with miners who have over promised and under delivered but for the few that meet their own deadlines the rewards are huge. Is this one of them that bucks the trend or has the feasibilty study overestimated timings and resource?

We are on track with the capital requirements and labour relation although have the feeling prod may slip based on peer group history. But maybe this mgmt team are different

Still think this is a takeover waiting to happen and if we are on time and budget the next leg up will be steep and fast.

Good luck all

[iicb] 22/4/2015 20:05

keep accumulating, plenty of upside remains if no bad news.

[hpcg] 22/4/2015 09:01

I'm still gradually adding at this consolidation point. We'll get another leg up at some point soonish, unless there is bad news of course, and rinse and repeat. The slower we move up the less chance of a pull back.

[granitetim] 22/4/2015 07:13

Late reported 3m trade (£286k) from 17 Apr.. Either L&G further offloading or someone taking a tidy stake..

[apadgham90] 21/4/2015 22:21

Eagerly awaiting the next RNS. Any positive news around the path to production and we will be rewarded.

[hpcg] 01/4/2015 08:29

Mines don't trade on PEs, they trade versus NPV.