-- ADDS BROKER COMMENT --
Richland Resources (LON:RLD) has launched a £4mln fund-raise to bolster its financial position and finance the re-start of its recovered tanzanite operations in Tanzania.
Richland has been heavily loss-making recently in part due to illegal miners occupying part of its site and restricting access to higher grades and some equipment.
A recent licence sharing agreement with Tanzanian state-owned STAMICO and the help of the government has seen it regain control of two mine shafts in the northern part of the licence area.
Money it raises from the placing and open offer will enable it to restart mining here and also settle outstanding royalty claims.
The funding will consist of a placing and open offer at 3.4p per share. The placing will raise £2mln, with the open offer (on a one-for-one basis) aimed at raising up to a further £2mln.
Because of its recent losses, Richland said it must raise at least £2.1mln overall to meet its working capital requirement. It has cash of US$560,000 currently, but if it cannot raise this minimum will not have enough working capital to continue.
Richland made a consolidated loss of US$13mln in 2012 and US$0.56mln in the six months to June 2013.
In the third quarter, sales totalled approximately US$3 million with a 5% rise in the price of tanzanite since August. The company is hopeful of a further rise as black market selling of illegally mined tanzanite is reduced.
In the quarter, the company produced 810,347 carats from the processing of 7,182 tonnes of material at an average grade of 108 carats per tonne.
Bernard Olivier, Richland’s chief executive, said: "Our intention is to rapidly establish new production and return to profitability, a situation fully supported by our licence partners, STAMICO."
Broker VSA said: “Illegal miners had caused violence and were so numerous on the Richland licences that it caused mine closure as it could not afford the liability much less make money with all the theft.
"These are the largest, richest tanzanite licences in the world. The STAMICO participation announced on 12 December indicates some sharing of the burden as well as net profits of a re-start."
The news is positive but dilutive to existing shareholders, said VSA.