Gascoyne Resources Ltd (ASX:GCY) has struck a $20 million convertible note facility with major shareholder Deutsche Balaton AG.
Ultimately, the funding runway strengthens the gold stock’s balance sheet just one month after it acquired fellow ASX-lister Firefly Resources Ltd and took its assets under its wing.
The debt facility, split into two equal tranches, will help Gascoyne repay an existing debt with financial services firm Investec and provide general working capital to invest in growth opportunities.
These include additional near-mine drilling at the Dalgaranga camp, resource drilling at the Yalgoo project and securing access to additional ore sources in the Murchison region.
What’s more, the debt facility contains conversion rights that, if exercised, allow the Balaton Group to convert both tranches of the debt into fully paid, ordinary GCY shares.
Shareholders need to approve the conversion rights, so Gascoyne intends to call a general meeting to get the greenlight by March 31, 2022.
All funding — save for a 2% arrangement fee — should hit Gascoyne’s accounts by tomorrow.
Accelerating near-term growth strategy
Commenting on the facility, Gascoyne Resources managing director and CEO Simon Lawson said: “The new debt facility provides us with the financial flexibility and balance sheet strength to progress our near-term growth strategy at Dalgaranga, Yalgoo and the broader Murchison region as a whole.
“Securing this new facility with the Balaton Group provides us with a less restrictive set of debt terms, additional working capital and the ability to put in place gold and diesel fuel hedging on Gascoyne terms.
“As the company’s largest shareholder, the Balaton Group are clearly demonstrating their support of our plans with this important debt facility, allowing Gascoyne’s management team to deliver on the strategy of bringing higher-grade ore to the low-cost Dalgaranga gold processing plant.
“We have separately updated the market today on some important near-mine exploration activities, which demonstrate the opportunities within a 5-kilometre radius of our 2.5-million-tonne-per-annum processing facility.
“This debt facility will help us to unlock those opportunities and accelerate our near-term growth strategy.”
The fine print
Both of the debt facility’s tranches run for two years at a fixed interest rate of 18% per annum, payable in six-monthly in arrears.
It attracts an arrangement fee equal to 2% of the facility’s face value and is unsecured, meaning no financial covenants or ratios apply.
The proceeds will first repay the Investec bank in full, covering roughly $10.3 million, while the remaining funds are earmarked for general working capital.
Tranche one of the deal holds a principal value of $10 million, convertible by Gascoyne at $0.30 per share.
That equates to a 3.4% premium on its last closing price and the company’s five-day volume-weighted average price.
Similarly, tranche two holds a $10 million principal value and is convertible by Gascoyne at $0.30 per share on the maturity date.
The Balaton Group can convert at $0.36 per share on the maturity date or when a change of control occurs.
The major shareholder can also convert at either this price or a capital raising price — whichever is lower — if Gascoyne opts to raise more than $3 million over the two-year term.
The $0.36 exercise price represents a 24.1% premium to the last closing price of Gascoyne shares and the five-day volume-weighted average price.
Outlook
Once the funding comes through on December 21, Gascoyne will repay Investec and start releasing the senior security the bank holds over its assets.
In addition, gold forward contracts with Investec will be closed out in full on the repayment date.
Now, the company is looking for a new hedge counterparty to partner with its endeavours.
With a new counterparty in tow, Gascoyne can enter any new hedging arrangements at its own discretion and execute hedges beyond 30 June 2022, which it was unable to do under the Investec facility.