Base Resources (OTC:BSRUF) has announced it has signed an agreement with Taurus Funds Management (which is one of the company's main shareholders), whereby the latter will provide a $20M credit facility, which was one of the requirements for Base Resources to be able to reschedule its debt repayments.
As this is an unsecured loan for a company operating a mineral sands project in Africa, this comes with a pretty decent price tag, and indeed, the loan isn't exactly what you'd call 'cheap'. There's an upfront fee of 2% on top of a 2% annual commitment fee on the undrawn balance. The interest rate of the cash which has been drawn down from the facility will be 10%, and the credit facility will mature in two years from now. On top of that, Taurus Funds will receive 61.4M new options with an exercise price of A$0.40 ($0.305) valid for 4 years. Even though the options are priced at a hefty premium compared to the most recent share price (+100%), 61.4M options is quite much and could result in a dilution in excess of 10%. However, as this would mean a cash injection of roughly $20M, there's no reason to complain and these options really are incentivizing to make the company's share price double.
As said, entering into a credit facility was a conditio sine qua non for Base's debt restructuring which gives the company more breathing room. This comes at a price, but the final terms of this credit facility are relatively market conform. The prices of rutile and ilmenite still look relatively weak, so Base Resources might have to tap this new credit facility, but I do expect the company to be profitable in the calendar year 2015 and to generate free cash flow which will obviously be used to pay down its net debt position. I will write an in-depth article during the holidays to investigate the effect of the lower ilmenite and rutile prices on my calculated fair value.
Disclosure: The author is long BSRUF.
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