- London Mining signs a $25M short term debt agreement with two banks which might indicate the company is under a lot of financial pressure.
- This seems to be reconfirming that London's financial state isn't great and that the next few months will be very important for its survival.
- I did not expect the company to face liquidity issues this soon.
Despite the current low iron ore price, London Mining (OTC:LIIGF) was able to sign an additional short-term debt agreement with Standard Chartered Bank and FirstRand bank. This $25M debt facility which will mature in either November of December of this year carries an interest rate of 8.5% and includes a $3.5M fee payable of which $2.5M is payable upon the completion of the strategic review process which should result in a strategic partner taking an equity stake in either the company or its iron ore project in Sierra Leone. The fact that London Mining needs an additional $25M for the short term (3-4 months) shows that the company definitely needed some liquidity.
The current iron ore price weakness continues longer than I expected and raising more debt doesn't really come out of the blue as London's iron ore operations won't generate a lot of free cash flow at the current price. I was excited about London's future when the iron ore price was trading at $130/t but now the price has dropped to a double digit number, I'm less optimistic, and I hope the strategic review process will reign in a reliable partner with deep pockets to give the company some wiggle room.
It was clear the clock was ticking for London Mining and unfortunately the iron ore price still didn't want to cooperate so I think securing the new partner for the project will be a matter of life or death for the company. As London was forced to enter into a $25M short term debt agreement, it looks like the (financial) pressure is mounting, and that the company is in a worse shape than I thought it was in my previous article. The next 3 months will be incredibly important for London Mining, and any boost in the iron ore price will be incredibly helpful.
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