Platinum Group Metals Receives $5 Million From Sprott And Must Raise $20 Million Before The End Of 2016

| About: Platinum Group (PLG)

Summary

Sprott Resource Lending Partnership lenders have provided a $5.0 million second advance to the Company. The credit agreement has been raised to $45 million.

The Company has agreed to issue ~114k shares at $2.194. However PLG must raise $20 million using an equity offering by the end of 2016.

PLG has been weak recently and I believe it is a good opportunity to accumulate.

Platinum Group Metals, Ltd. (NYSEMKT:PLG)

This article is an update to my previous article on Platinum Group Metal on September 19, 2016 about the last Maseve update.

Note: WBJV Project 1 will be named the Maseve Mine.

Wednesday, October 12, 2016, Platinum Group Metals announced the following:

Sprott Resource Lending Partnership lenders have provided a US $5.0 million second advance to the Company. The original US $40.0 million credit agreement entered into by the Company and Sprott, pursuant to which funds were advanced to the Company on November 20, 2015, has been amended and restated to reflect an increase to US $45.0 million. A summary of material terms related to the second advance under the amended and restated credit facility are:

  • Interest will accrue and become payable to Sprott monthly on the second advance at a rate of LIBOR plus 8.5%, the same rate as for the original advance;
  • Other terms, conditions and covenants related to the second advance are substantially the same as for the original advance, as amended;
  • For a summary of the material terms of the original advance from Sprott to the Company, as amended, please see the Company's news release dated September 19, 2016;
  • The second advance may be repaid in six equal, monthly instalments commencing on July 31, 2017, unless Sprott elects for earlier repayment from the proceeds of an equity or debt financing prior to December 31, 2017; and
  • The Company must obtain certain regulatory approvals as a post-closing requirement of the second advance. The Company must complete equity financings raising gross proceeds of US $20.0 million by December 31, 2016.

In consideration of the second advance, as a fee, the Company has agreed to issue 113,963 common shares of the Company as directed by Sprott pursuant to the amended Sprott facility. This amount is based on the value of five percent of the second advance, being US $250,000 converted to $332,600 Canadian dollars using the Bank of Canada noon spot rate on October 7, 2016. The shares were then priced at the ten-day volume weighted average price on the Toronto Stock Exchange of $3.2428 per share, less a ten percent discount.

In my preceding article, I indicated that the company reached a significant milestone and reached the Block 11 in mid-August.

Access to Block 11 has been a primary objective for the last two years. We are very pleased to find the reef in this area as good or better than expected. We are currently driving primary access along Block 11. Breakaway drives for mining are also in process. We are excited to mine the excellent tonnes and grade available in Block 11 as we continue to drive for volume...

Block 11 is a large, well-drilled and stable mining block estimated to host more than 545,000 4E Merensky Reef ounces (3,066,512 tonnes at 5.53 gpt 4E Indicated). This block is modelled as flat dipping at an average of 9 degrees, with an average seam thickness of 157 cm and is scheduled to be mined initially utilizing a bord and pillar mechanized method.

However, the work has not been without challenges again -- mostly related to ramp up of stoping tonnes -- and the company experienced some delays that required more cash from the lender(s).

Production challenges have related to the ramp up of stoping tonnes. Project construction savings have offset some but not all of the costs resulting from the delay. Difficulties and delays have been experienced in certain areas of underground infrastructure, causing bottlenecks in the movement of waste and ore out of the mine. Completion of the first underground silo top, the addition of a belt loader at this silo and future top and bottom completions at silos two and three are expected to increase production from September 2016 into 2017.

The first negative consequence is that PLG is now lowering guidance for concentrate production for the Maseve Mine (100% project basis), from April 2016 to April 2017, from 110,000 ounces 4E to 91,500 ounces 4E.

Furthermore, these delays translated clearly to "more cash" from Sprott or LLM. Already, the lenders agreed to change some elements from the initial agreement at a total cost of 1,602,628 shares (split between Sprott and LLM). Below are the changes agreed:

  • The Sprott lenders have agreed to defer 12 planned monthly repayments of their original US $40 million loan facility from commencing on January 31, 2017 to commencing on January 31, 2018;
  • LMM has agreed to defer 9 planned quarterly repayments of its original US $40 million loan facility plus capitalized interest from commencing December 31, 2018 until June 30, 2019;
  • LMM has agreed to defer the quarterly payment of interest due to LMM from commencing December 31, 2016 until December 31, 2017. During the additional twelve-month period interest will continue to be accrued monthly and capitalized to principal;
  • Sprott and LMM have both agreed to reset agreed monthly production covenants so that month one of production will be October, 2016.
  • Under the terms of the LMM loan facility, pursuant to the production payment agreement referred to therein, LMM was granted the right to 1.5% of net proceeds received on concentrate sales or other minerals from the Maseve Mine. LMM and the Company have agreed to extinguish the Company's right to buy back 1% of LMM's 1.5% production payment right for US$17.5 million until January 1, 2019 or for US$20 million until December 31, 2021; and
  • Sprott and LMM have agreed to waive certain cash sweep requirements they would otherwise be entitled to under the original loan facilities.

Today, we learn that Sprott is increasing the original credit agreement from $40 million to $45 million, under certain conditions and fee:

  • Interest will accrue and become payable to Sprott monthly on the second advance at a rate of LIBOR plus 8.5%, the same rate as for the original advance;
  • Other terms, conditions and covenants related to the second advance are substantially the same as for the original advance, as amended;
  • For a summary of the material terms of the original advance from Sprott to the Company, as amended, please see the Company's news release dated September 19, 2016;
  • The second advance may be repaid in six equal, monthly instalments commencing on July 31, 2017, unless Sprott elects for earlier repayment from the proceeds of an equity or debt financing prior to December 31, 2017; and
  • The Company must obtain certain regulatory approvals as a post-closing requirement of the second advance. The Company must complete equity financings raising gross proceeds of US $20.0 million by December 31, 2016.

The "fee" related to this cash increase of the credit agreement has been paid in share. PLG will issue 113,963 shares to Sprott.

In consideration of the second advance, as a fee, the Company has agreed to issue 113,963 common shares of the Company as directed by Sprott pursuant to the amended Sprott facility. This amount is based on the value of five percent of the second advance, being US $250,000 converted to $332,600 Canadian dollars using the Bank of Canada noon spot rate on October 7, 2016. The shares were then priced at the ten-day volume weighted average price on the Toronto Stock Exchange of $3.2428 per share, less a ten percent discount.

What was the stock price in US$ used for the conversion?

Based on a 0.7538 ratio and a 10% discount, Sprott got an average price of $2.194 per share. This is what I was expecting in my preceding article with a $10-$15 million cash increase.

Now, if we look at the recent trading we can see that someone may have manipulated the price? Who can he be?

If we look at the "shares were then priced at the ten-day volume weighted average price on the Toronto Stock Exchange of $3.2428 per share, less a ten percent discount" and go back 10-trading day from October 7, 2016, we arrive at September 26, 2016.

From ~$2.82 to $2.16 (per Yahoo). The stock tumbled 23.4% in 10-day.

Date Close
September 26 2.82
September 27 2.75
September 28 2.82
September 29 2.79
September 30 2.74
October 3 2.75
October 4 2.48
October 5 2.46
October 6 2.24
October 7 2.16
Average 2.601
Click to enlarge

If we apply a 10% discount we get $2.341 compared to the ~$2.20, which means 106.8K shares instead of the 114k shares?

However, lets put this minor hiccup aside, and let's talk about the trading itself, especially what happened during the preceding trading week.

"Someone" has clearly used this "private information" to trade the stock down (short), and profit in my opinion. Sorry, I do not buy the recent drop in platinum price as the main culprit for such a crash.

Click to enlarge

Click to enlarge

In my opinion, this is called insider trading, and as a shareholder I have to protest against this unfair situation, that has been recurring a few times before and should be thoroughly investigated.

This illegal profit from a few "in the know" is paid directly by the PLG shareholders -- who have supported this startup company from a long-time -- and should not be rewarded by this unfair practice, which turns them into powerless victims.

The company should not use a short average price, and rather take a better and longer price indicator, such as the 50MA (2.91) or the 200MA (2.71) to prevent any manipulation or any doubt that could arise.

The second issue, which is much more concerning, is that "The Company must complete equity financings raising gross proceeds of US $20.0 million by December 31, 2016."

This equity financing will represent approximately 10 million to 13 million shares before the end of 2016.

This is clearly another big dilution potential for shareholders that may trigger another sell off.

Conclusion: I recommend now a hold until early January with an accumulation under $1.55.

Important note: Do not forget to follow me on PLG and the precious metal sector. Thank you

Disclosure: I am/we are long PLG.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.