BRC in heavily dilutive rights issue

Allan Seccombe | Tue, 10 Nov 2009 18:08
[miningmx.com] -- SHARES in BRC DiamondCore traded down on Tuesday after the embattled diamond junior told the market it is going to treble the number of shares in issue by granting paper in a highly dilutive exercise to reduce debt and bulk up the balance sheet.

TSX- and JSE-listed BRC is applying to the Toronto bourse to circumvent shareholder approval for the transactions which will see it issuing up to 83.3 million shares in two schemes. The company has 25.7 million shares in issue.

Shares in Johannesburg traded down to 39 cents from 41 cents in just a few minutes of the news coming out on the stock exchange news service. By late South African afternoon the shares were unchanged at C$0.08 in Toronto, well off a high of C$0.53 a year ago. It had a 12-month high of 460 cents in South Africa.

BRC, which is involved in a messy liquidation process of its South African assets, said it will issue 43.3 million shares at a price of C$0.20 each to raise C$8.66m under a debt settlement scheme. The bulk of these shares will be issued to Banro Corporation, which has a long overdue loan of at least C$6m.

Banro will receive 31.7 million shares, lifting its holding in BRC to 39.6% from 14%. The shares are equivalent to C$6.34m.

The second part of the capital raising plan is a private placement of 20 million units for C$0.05 each to raise C$1m. Each unit is made up of one common share and a warrant allowing the holder to buy one share for C$0.066 over the next four years.

This money will be used for working capital and general corporate purposes, BRC said. BRC told the market last week it has signed a letter of intent with Rio Tinto whereby the major group will earn into 75% of a joint venture exploring for diamonds in parts of the Tshikapa kimberlite project in Democratic Republic of Congo.

The units may be entirely subscribed for by BRC’s directors, but there may be other subscribers too, it said, adding both these exercises should be wrapped up within three weeks.

Realising perhaps it may have a problem getting shareholders to back such a dilutive series of transactions, BRC is applying to the Toronto bourse for something called a financial hardship exemption to avoid having to ask shareholders to approve the large rights issue and change in control of the company, which is in serious financial difficulties.

BRC has said it sold its South African subsidiary, which was put into liquidation in early July, for $500,000 if the unnamed buyer can enter into a compromise with the subsidiary’s creditors and that compromise is approved by the courts. There has been no further update on this October announcement by BRC.