Resources and investment company, Cape Lambert Resources (ASX: CFE) has been repaid in full a loan facility provided to FE Limited (ASX: FEL) in cash and shares.
In June 2011, Cape Lambert agreed to lend FE Limited A$2,000,000 with interest accruing at the cash rate plus 3% per annum.
In December 2012, Cape Lambert agreed to lend FE Limited A$1,000,000, with interest accruing at the same rate.
On 20 December 2013, FE Limited agreed to repay A$1,000,000 to Cape Lambert in cash and A$2,000,000 (together with accrued interest) to be converted into shares at a conversion price (calculated at 80% of the volume weighted average closing price of the shares as quoted on ASX over the last ten days immediately preceding the conversion).
The latter was subject to shareholder approval.
At the FE Limited Meeting in February 2013, FE Limited shareholders approved the conversion of the amounts owing and on 26 February 2014, a total of 104,193,055 FE Limited Shares were issued to Dempsey Resources Pty Ltd, a wholly owned subsidiary of Cape Lambert.
At the current FE Limited share price, this is worth $2.81 million to Cape Lambert, reflecting the increase in the share price of FE Limited.
Cape Lambert now holds a 57.89% interest in FE Limited.
The balance of the consideration of A$1,000,000 cash has been received by Cape Lambert.
Which places Cape Lambert in a very strong position with cash and receivables of A$30.5 million that includes available unrestricted cash reserves of A$26.0 million.
Cape Lambert Executive Chairman, Mr Tony Sage said: "Cape Lambert is in a very strong financial position with no debt and a healthy cash balance that enables the Company to maintain its current portfolio and look for distressed assets in the current difficult market."
Analysis
With cash and receivables of A$30.5 million versus a Market Cap. of $72 million, cash represents $0.045 of CFE's share price of $0.11.
With a war chest of this size puts CFE in the box seat to take opportunistic advantage of distressed assets.
However, there is more. CFE has a royalty income stream commencing H2 2014.
The royalty is equal to US$1 per tonne for every tonne of iron ore shipped from the Mayoko Project (indexed annually to the CPI).
In essence, this involves a circa $360,000 per annum royalty stream rising to $2 million per annum from 2015 and to $10 million from 2019. This provides an underlying "annuity" Style income stream for CFE shareholders for years to come.
In all, it underlines our initial sum of the parts valuation of $0.265 per share.
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