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UPDATE: Arian Silver Fully-Funded For At Least 12 Months

Jul. 26, 2013 11:55 AM ET
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-- Adds management comments --

Arian Silver (LON:AGQ CVE:AGQ) is to raise up to C$15mln through a placing of convertible loan notes.

Funds from the issue will be used on numerous things, including the acquisition of the El Bote processing plant, which will need to be transported piece by piece to a more convenient location. The second-hand custom mill is expected to deliver cost savings of some 75% compared to previous toll milling operations

Proceeds from the issue will also be used on the refurbishment of the plant, new ground works at the new site of the mill, as well as expansion of the San Jose mine in Mexico. Any funds left over after all that lot will be used for working capital and corporate purposes.

"Upon the completion of this financing arrangement, Arian will be fully funded for at least 12 months over which it is intended to refurbish, transport and reassemble the El Bote custom processing plant. This processing plant has the capacity for processing up to 1,500 tonnes per day and is expected to provide significant cost savings from toll milling," said Jim Williams, Arian's chief executive officer.

The loan notes are expected to have a life-span of 12 months and will carry a coupon of 14%. It is anticipated that the notes will be convertible prior to redemption into Arian common shares at 11 Canadian cents a pop, which compares favourably with the 8 cent closing price of Arian shares in Toronto on the day before the fund raising was announced.
The agent in charge of the private placing of the loan notes has indicated it has a subscriber interested in taking on board the whole loan note issue.

At the same time, Arian intends to implement a share consolidation that will see shareholders receive one new share for every 10 shares currently held.

"The consolidation of shares in conjunction with the financing is intended to bring greater stability to the share price over the coming months," Williams said.

Speaking to Proactive Investors, Williams conceded that maybe Arian could have secured a better deal two years ago, before the silver price dipped, "but we are where we are".

Williams said there is always the possibility of restructuring the deal if the silver price moves back to where he thinks it ought to be. That may happen, Williams believes, once the US dollar loses some of its haven status; silver, like most commodities, is quoted in dollars, so a dearer dollar puts downward pressure on commodities prices.

The US has its own problems and the greenback should not be as strong as it is, Williams believes, but with no other currency offering itself as a viable alternative as a reserve currency, risk averse investors are understandably going for the safe option.

Focusing on the positive, Williams is looking forward to getting the processing plant transported to the new site, though, curiously, the plant will be refurbished before it is move, rather than after.

Williams explained it is more efficient to do it that way. The plant will then be dismantled, transported to the new site and reassembled.

It is a modular design, so it won't be up to the full targeted capacity of 1,500 tonnes a day right away. "We'll be up to 750 tonnes per day within 12 months, and in year two we will add the second module, and ramp up to 1,500 tonnes a day," Williams pledged.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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