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Northland Capital Partners View on the City Paragon Diamonds, Premier African Minerals, URU Metals, 3Legs Resources and others

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Paragon Diamonds (LON:PRG) – CORP: $12m financing package

Market Cap: £15.7m; Current Price: 5.8p 

  • Binding MOU signed for a $12m equity & debt finance package for Stage 1 production
  • Paragon Diamonds has signed a legally binding Memorandum of Understanding with International Triangle General Trading LLC (ITGT) for a $12m equity and secured debt financing package.
  • ITGT is an international investment group focused on construction, automobiles, real estate and banking with operations in Dubai, the Middle East and China.
  •  ITGT will subscribe for 98m shares in Paragon at a price of 5.5p per share, raising $8.09m.
  •  Paragon will issue a $4m secured loan note to ITGT. The note will have a three year term and a 10% per annum coupon payable annually. The note will be secured on the plant and machinery at Lemphane.
  • ITGT will be entitled to appoint two nominees to the Board of Paragon.
  •  ITGT will also look to increase its holding in Paragon through the acquisition of 9.09m shares from Titanium Capital and 40m from Obtala Resources Limited and Grandinex International Corp at a price of 5.5p per share.
  • ITGT will support Paragon should a suitable acquisition opportunity arise.
  • The commencement of Stage 1 production at Lemphane is now expected Q215. Design work has been concluded on the planned 75tph process plant for Stage 1 Production, metallurgical test work is being concluded, and long-lead-time item procurement has been undertaken ahead of fabrication of the main plant components.

NORTHLAND CAPITAL PARTNERS VIEW: The completion of the financing for the Stage 1 production at the Lemphane Project is a major development for Paragon Diamonds that moves the Company to developer status. Importantly for investors, the mixture of debt and equity ensures that dilution is kept at a relatively low level without over leveraging the Company and burdening it with heavy coupon repayments. Investors should also recognise that Paragon will now be backed by two significant financial institutions with the ability to support the Company as it grows organically and through potential acquisitions. In our view, the relatively small amount of slippage in the development schedule for Stage 1 to Q215 from Q115 is a small price to pay for the positive funding agreement now in place. With Stage 1 production just around the corner and the Company fully funded with a $12m financing package, Paragon’s valuation looks significantly undemanding at these levels.

 

URU Metals (LON:URU) – CORP: Närke update

Market Cap: £3.8m; Current Price: 1.5p 

  • Progress on Baseline Environmental Study
  • The first stage of URU Metals environmental base line study for the Närke Oil Shale-Uranium project has demonstrated that there are no wetlands, protected areas for wildlife or national parks in the areas where the Company will focus its exploration activities.
  • The Swedish Forestry Board did, however, define four small areas as habitat protection areas (Figure 1) that lie outside the areas of uranium anomalies (Figure 2). 
  • A subsidiary of URU has applied for exploration permits in the areas of interest that will allow the Company to extract oil and uranium for metallurgical purposes.
  • Historical uranium assays are available for 77% of the historical drill holes and core is available for 28% of the holes.
  • Figure 1 The licences that make up the Närke project and habitat protection areas 
  • NORTHLAND CAPITAL PARTNERS VIEW: It is positive that the initial environmental studies at the Närke Oil Shale-Uranium project have not detected any major impediments to the advancement of the project. The definition of four small areas of habitat protection should not significantly affect the project as they lie outside the areas of interest. Importantly, URU can capitalise on the historic work completed to date by re-assaying the core that’s available potentially allowing it to use a portion of the historic data to advance the project at a minimal cost.

 

Premier African Minerals (LON:PREM) – CORP: RHA update

Market Cap: £4.9m; Current Price: 1

  • Implementation study completed
  • Premier African Minerals has completed the implementation study for its open pit start up strategy for the RHA Tungsten Project, located in Zimbabwe.
  • Pre-production capex of $4.15m. Opex reduced to $89.1/mtu from $95/mtu. Project schedule maintained, targeting production in June 2015. Process plant fabrication is on schedule.
  • Prem is now planning to initiate all construction contacts, an operational readiness program, obtain and finalise all required permits and submit its ESIA for approval.
  • The project has a pre-tax IRR of 161% and a pre-tax NPV10 of $5.4m.
  • The mine life is twenty-two months with a life of mine pre-tax cash flow of $8.92m assuming a received dollar per mtu price of $215/mtu (an APT price of $325/mtu with 66% playability).

NORTHLAND CAPITAL PARTNERS VIEW: The completion of the Company’s implantation study is a positive milestone for Premier African Minerals. Prem is continuing negotiations on securing the additional finance necessary to move the RHA project to production and the target production date may slightly slip slightly as a result. The Company has been offered offtake agreements for the life of the mine, but the current price discount associated with these deals is high following the weakening in the a ammoniumparatungstate (APT) price last year. The Company is also examining the potential to produce a ferro tungsten product in line with the Zimbabwean Government’s policy to encourage in-country beneficiation. The Company’s low capex strategy makes sense in difficult funding markets and we look forward to further developments.

 

3Legs Resources (LON:3LEG) – CORP: Update

Market Cap: £1.2m; Current Price: 1.4p

  • From Yesterday: Return of Capital, subscription, adoption of new investing policy and board changes
  • Proposed return of remaining cash of £1.1m to shareholders (1.28p per share).
  • Proposed subscription to raise £800,460 (gross) through the issue of 345,025,861 at a price of 0.232p per share.
  • Proposed adoption of a new Investing Policy to focus on new investments in the natural resources and technology sectors.
  • Proposed appointment of Richard Armstrong and Colin Weinberg as Directors and resignation of Tim Eggar and Kamlesh Parmas.
  • EGM to be held on 13/02/15.

 

Filtronic (LON:FTC): Profit warning

Market Cap: £28.3m; Current Price: 26.5p 

  • Wireless will not deliver in H2
  • Wireless division has been impacted by the delay of an advanced integrated antenna incorporating Filtronic filters and combiners due to technical issues that have arisen during final testing. As a result, the product will enter production at least four months later than expected. Second, an anticipated order from an Operator has not been received. Finally, two programmes with a major OEM have been delayed into FY16. FY15 was expected to be heavily H2 weighted and as a result performance at the Wireless business will be substantially lower than current market expectations.
  • Broadband has traded marginally down on last year in H1 and slightly below management expectations adversely impacted by curtailment of orders from customers selling into Russia. Long term management expects good demand for E-band and V-band products but no significant improvements in the short term.
  • Interim results still due tomorrow. 

NORTHLAND CAPITAL PARTNERS VIEW: A FY profit warning the day before a company is scheduled to announce its interims is reasonably unusual and the shares are likely to take a substantial step down today. FY15 was always expected to be heavily weighted to H2 with the larger Wireless division (c. 70% of FY14 revenue) set to deliver on a number of fronts. The combination of events means that Filtronic looks certain to stay in loss in FY15 (against the consensus forecast of a small profit). On the positive side, management did strengthen the balance sheet with November’s £2.1m placing (at 22p/share). Focus tomorrow will be on the outlook for FY16 trading and getting the antenna into production.

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