---ADDS BROKER, CEO COMMENT AND SHARE PRICE---
The company has signed a term sheet with Acrux Resources, a private South Africa based finance group, for a combined convertible debt and revenue sharing facility.
Paragon will receive US$8mln in return for giving up 7% of the revenue from Mothae and Lemphane for first three years; after that Accrux will receive 4% of Mothae’s revenues but none of Lemphane’s.
A US$7mln convertible loan with a coupon of 10% and that converts at 5.5p makes up the rest of the package, while Acrux can also appoint two directors to Paragon’s board.
The funds will be used to acquire Mothae and bring it and Lemphane into in initial production early next year.
In addition, Paragon said it had received a formal letter of commitment from a separate investor for the majority of Stage 2 funding, which would lead to full production at the mines in two years time.
That would see an output in excess of 100,000 carats with average values exceeding US$1,500/carat and annual revenues of approximately US$36mln.
Paragon had previously received an offer of funding from International Triangle General Trading (ITCT), but the Dubai-based group is now only expected to be involved either through an off-take deal or in the second stage financing.
The terms of acquisition of Mothae have also been tweaked, with the price reduced to US$6.5mln from US$8.5mln, with US$2mln payable up-front.
Philip Falzon Sant Manduca, Paragon Diamonds’ executive chairman, said: “This term sheet sets out an important investment and funding agreement, which I expect to be concluded promptly and which will be coincident with the separate execution of the purchase of Mothae from Lucara.
He added that bringing in a private equity group such as Acrux also brought business management into the production side of the mine, where it was critical that money was spent efficiently.
The agreement with Acrux was an investment deal, he said. “They do well if we do well.”
Paragon would be looking for US$80-100mln in additional funding for the expansion at the two mines in 18-24 months time, Manduca added.
Broker Northland Capital Partners said: “The non-binding term sheet with Acrux Resources Proprietary Limited should mean that Paragon Diamonds now has the finance required for the up-front portion of the acquisition cost of Mothae and the funds required to advance both Lemphane and Mothae to Stage 1 production.
“The completion of both the financing and the acquisition of Mothae will be a major milestone for Paragon moving the company up the value chain.”
Shares in Paragon were up 0.5% at 4.75p shortly before the closing of trading on Friday.