Platinum Group Metals (NYSEMKT:PLG) announced that it has decided not to realize the intended private offering of senior unsecured notes due to the unfavorable market conditions. The company also announced a bought deal financing worth $110 million. The company will issue 207,600,000 new shares at a price of $0.53 per share. The syndicate of underwriters also has an option to purchase up to an additional 15% of the offering to cover possible over-allotments. The offering should be closed by December 31. As a result the number of fully diluted shares will grow from 571,082,342 by 36.35% to 778,682,342 (or by 41.8% to 809,822,342, if the option is realised).
Moreover Platinum Group Metals has secured a $40 million senior secured operating loan facility from Sprott Resource Lending Partnership. The loan facility was secured at an interest rate of LIBOR + 8.5%. The facility will be available in 4Q 2015 after the sale of first commercial concentrate from WBJV Project 1 mine.
Although the dilution is drastic and painful, the company claims that after the bought deal is closed, it should have enough money to finish the construction of WBJV Project 1. In my September article I stated that "WBJV Project 1 is worth at least $1.8 per share and Waterberg should add another $2.85". The current share dilution alone leads to a revision of my numbers to $1.17 and $1.85 respectively. Although the numbers are significantly lower, they are markedly higher than the current share price of $0.52. Taking into account that an important hurdle on the way to production is surpassed, the company still represents a very good return potential.
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