Inca One Resources (IO.V) has announced it has raised $5.5M in debt ($5.1M net proceeds) which will be used to increase the capacity of the processing plant at Chala One to 100 tonnes per day, up 300% from the current nameplate capacity of 25 tonnes per day. This expansion should already be completed by the end of this year, so we are anticipating the company to reach its upgraded capacity in the first half of 2015.
The debt issue consists of two tranches totaling $5.5M bearing an interest rate of 10% (payable quarterly) and a 3.5% ‘financing fee’ on the net revenues (operating cash flow) from the Chala One plant. The maturity date of the bond is three years from now.
We consider this financing as an excellent solution for Inca One to raise sufficient funds to fourfold the processing capacity without further dilution to its shareholders. If the company’s projections of a net cash flow of $9.8M per year at a throughput of 100 tonnes per day are true, Inca One will have a net cash flow per share of approximately C$0.15 from next year on. Even if you’re extremely conservative and slash the estimate in half, Inca One still is trading at just twice its expected operating cash flow.
This debt funding undoubtedly is a major milestone for Inca One as it will allow the company to fund its expansion plans by its own cash flow. We anticipate to release a Q&A report with CEO Edward Kelly shortly.
Disclosure: The author holds a long position in Inca One Resources. Inca One is a sponsor of the website. Please see our disclaimer for current positions.