The Tranche One Notes together with the Underwriting Facility
(together being the Greenstone Placing), conditionally cover the
full US$4.0 million anticipated to be required for the Phase One
Fundraising through to the end of 2015 ensuring that, subject to
the passing of the Resolution and the Conditions being satisfied or
waived, the Company has committed funds to enable it to continue to
develop the Namib Project through a construction decision, assuming
that the Mining Licence is issued and Phase Two Fundraising is
achieved without undue delay (it being noted that the current Work
Programme nominally assumes that the Mining Licence will be issued
on or before 31 October 2015). The Greenstone Placing is structured
by way of two tranches of Convertible Loan Notes, comprising:
(a) US$1.2 million on a firm basis before expenses, subject only
to Shareholder approval of the Resolution and satisfaction or
waiver of the Conditions, through a placing to Greenstone of US$1.2
million of Convertible Loan Notes (being the Tranche One Notes);
and
(b) up to US$2.8 million on a conditional basis before expenses,
subject to Shareholder approval, satisfaction or waiver of the
Conditions and levels of acceptance under the Open Offer and
participation in the Placing (being the Underwriting Facility),
through a placing of up to US$2.8 million of Convertible Loan Notes
(the "Underwriting Loan Notes").
The Open Offer and Placing will both be carried out at a price
(the "Issue Price") to be determined by the Board, in consultation
with its broker, RFC Ambrian Limited, by reference to the market
price of the Company's Ordinary Shares and the market conditions
prior to the launch of the Open Offer and Placing.
The Convertible Loan Notes will (assuming the Resolution is
approved and the Conditions are satisfied or waived) be convertible
at a price equal to the lower of the Issue Price converted into US$
applying the FT Exchange Rate and US$0.0046413 (the "Conversion
Price").
The Independent Directors recommend the Resolution be approved.
It will enable the provision of:
-- immediate working capital required to allow the Company to continue as a going concern;
-- funding for the continued advancement of the Namib Project,
which is what the Board believe is currently the best strategy to
unlock value for all Shareholders;
-- the opportunity for all Qualifying Shareholders to participate in the Open Offer;
-- funding certainty for the Company with the total funding need
conditionally underwritten by the Underwriting Facility in the
event that there is a shortfall in the Open Offer and/or
Placing.
If the Resolution is not approved and/or the Conditions are not
satisfied or waived, the Greenstone Placing will not proceed.
Without access to the funds from the Greenstone Placing, the
Company would immediately need to seek to secure alternative
sources of funds to enable it to fund its corporate activities in
the period immediately following the General Meeting. The
Independent Directors are unable to provide any assurance that any
alternative financing could immediately be secured or, that if it
were secured, it would be on terms as favourable to the Company or
would not result in a substantial dilution of Shareholders'
interests. If no funds were immediately available, it is highly
likely that the Company would cease to be able to trade, in which
circumstances it is unlikely that there would be any value
attributable to Shareholders. The Independent Directors have,
before entering negotiations with Greenstone, considered
alternative sources of financing (including both debt and equity
funding) and believe it is highly unlikely that the Company could
secure funding on as favourable terms on a timely basis in such
circumstances particularly given the recent downturn in commodity
prices. Even if financing were immediately available and the
Company were able to continue trading, the Independent Directors
believe that the circumstances of such financing could result in a
material adverse effect on the share price of the Company.
Assuming the Open Offer and the Placing proceed to raise US$2.8
million from investors other than Greenstone, the Tranche One Notes
will be converted either fully or in part (depending on the Issue
Price and the FT Exchange Rate) such that Greenstone will hold no
more than 29.99 per cent. of the Issued Share Capital following the
Open Offer and the Placing and such conversion.
The background to, and reasons for, the Greenstone Placing are
described in paragraph 2 below, and further details of the terms of
the Subscription Agreement and Convertible Loan Note Instrument are
set out Appendix I. The unanimous recommendation of the Independent
Directors, and the reasons for it are, given in paragraph 12
below.
2. Background to and reasons for the Greenstone Placing
As set out in the Company's announcement dated 22 July 2015, it
was originally anticipated that part of the Company's equity
requirement to develop the Namib Project would be met from the
remainder of the conditional commitments from Greenstone as set out
in the investment agreement dated 3 July 2014 (the "2014 Investment
Agreement"). The Company has to date received two funding tranches
from Greenstone, amounting to a total of US$6.0 million.
Greenstone's obligation to advance the remaining third and fourth
tranches, totalling US$6.0 million (the "Final Tranches"), was
subject to the Company achieving a number of project
milestones.
The development timeframe for the Namib Project has changed
since the 2014 Investment Agreement was agreed. A Board review of
the definitive feasibility study ("DFS"), which was announced in
November 2014, highlighted additional work required to allow the
Board to make an informed investment decision to develop the Namib
Project. This review, and the resulting need for additional work,
resulted in a revised development timeframe. In light of the
revised development timeframe for the Namib Project, the
Independent Directors concluded that the relevant project
milestones, including completion of the engineering design work to
the degree of accuracy required under the 2014 Investment Agreement
that would allow the Board to make an informed construction
decision, were not achievable before the long-stop date under the
2014 Investment Agreement of 4 October 2015. As a result, the
Company and Greenstone agreed to terminate the 2014 Investment
Agreement. However, Greenstone has indicated that it remains a
committed Shareholder and is supportive of the Company's
development plans for the Namib Project and the next phase of work.
The Board appreciates the commitment Greenstone has made, as a
strategic cornerstone investor to support the Phase One
Fundraising.
As noted above, the Company intends to launch the Open Offer and
Placing in order to raise sufficient equity financing to see the
Company through to the end of 2015 and a construction decision in
relation to the Namib Project, assuming that the Mining Licence is
issued and Phase Two Fundraising is achieved without undue delay
(it being noted that the current Work Programme nominally assumes
that the Mining Licence will be issued on or before 31 October
2015). The Company currently has total cash resources of
approximately US$500,000, and so requires additional working
capital in the short term to maintain development of the Namib
Project according to the current timetable.
Shareholders voted against the resolution to dis-apply statutory
pre-emption rights at the Company's annual general meeting held on
25 June 2015. As a result the Company is constrained as it does not
have the authority to make any offer of Ordinary Shares to any
investor (whether existing Shareholders or third party investors)
without first offering such Ordinary Shares to all Shareholders, in
every jurisdiction in which any Shareholder is based, in proportion
to Shareholders' existing holdings. The Company is of the view,
having taken appropriate advice, that the financial and time cost
of any such pre-emptive offer would be prohibitive, and that any
such fully pre-emptive offer is therefore not practicable at this
time.
The Company, having reviewed current weak commodity market
conditions and following consultation with its broker, RFC Ambrian
Limited, has also determined that, in order that Qualifying
Shareholders have adequate time to participate in an Open Offer and
that the Company can most effectively market the issue to
investors, it would not be appropriate to launch the Placing and
Open Offer during the summer period. As such it is currently
intended that the Placing and Open Offer will be launched in
September 2015.
Consequently, the Company has requested Greenstone, and
Greenstone has agreed, to commit to enter into the Greenstone
Placing. Subject to Shareholder approval of the Resolution and the
satisfaction or waiver of the Conditions, the Greenstone Placing
secures a commitment for the required funds and provides a cash
injection so that progress on the Namib Project (as set out in
paragraph 7 below) can be continued while the Company prepares for
the Placing and Open Offer. The preparation includes obtaining the
relevant Shareholder approvals by virtue of the Resolution to allow
an Open Offer to be made in a cost efficient and practical manner
(as set out above). Further, the Greenstone Placing conditionally
underwrites the entire funding requirement of the additional US$2.8
million and provides funding certainty for advancement of the Namib
Project and ongoing working capital needs regardless of the outcome
of the Placing and the Open Offer.
The Company has therefore reached agreement with Greenstone as
to the terms on which Greenstone is willing to provide a minimum of
US$1.2 million, and up to a total of US$4.0 million, by:
North River (LSE:NRRP)
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