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.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.