City brokers have welcomed news that Paragon Diamonds (LON:PRG) has received two extensions that should allow it to complete the acquisition of the Mothae mine from Lucara Diamond Corp in Lesotho.
Lucara has agreed to extend exclusivity “based upon an appropriate timetable” for Paragon to complete its US$15mln funding package with South Africa based finance group Acrux Resources.
When the financing is completed, Paragon will pay Lucara an initial US$2 million of the US$6.5 million due.
In addition, the US$0.5mln unsecured debt facility has been extended again, now to Nov 18 this year.
If the loan is repaid after the previous deadline of October 14 this year, Paragon will issue the loan provider with a further 3.57mln of warrants with a 7p a share strike price, it said.
Paragon's finance director Simon Retter said: “The company is progressing activity at both Lemphane and Mothae and there should be no delays in bringing plant and other equipment, including the use of two technologically advanced XRT machines to site.
"We currently have no plans to procure additional funding in order to commence production nor to cover existing overheads.
“With the reduction in the purchase price for Mothae, revised terms of payment with Lucara, and other working capital and capital expenditure efficiencies identified, we are well placed to deliver on our strategy. Our mining plan at Mothae has been independently reviewed by MSA and indeed improved on our original estimation of the economics of the project.
“We have also secured a letter of commitment for funding for the majority of stage two financing for both projects as announced on 30 September 2015. So, the board believes that Paragon is now in an exceptionally strong position, looking forward to production in 2016 at both assets. I believe we have made a large amount of progress over the last 12 months and that significant value has been added to the company over this time.”
As previously reported, the terms of the acquisition of Mothae have been tweaked, with the price reduced to US$6.5mln from US$8.5mln, with US$2mln payable up-front.
Broker Shore Capital said it yesterday spoke to the Honourable Lebohang Thotanyana, Lesotho’s minister of mines and was "encouraged" by his support for Paragon.
House broker Northland rates the shares a 'buy' and targets 10.5p.
"It is positive to see both Lucara and the provider of the £0.5m loan providing Paragon Diamonds with the extra time it requires to finalise the US$15m funding package with Acrux. We continue to believe 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," it said in a note.
Paragon shares added 2.86% to 4.5p.