Potash Ridge (PRK.TO) went into trading halt last week before announcing a comprehensive financing package which would allow the company to raise up to US$11.8M in a convertible debenture offering with The Lind Partners, a New York based asset management firm, as sole subscriber.
A first tranche of $2.64M will close this week and Lind will have the option to fund an additional $6.2M, which could be increased by an additional 2.05M. The cash will definitely be a huge help for Potash Ridge, but The Lind Partners isn’t a charity foundation, and the cash comes at a relatively high price.
Potash Ridge will initially receive US$2.5M in cash (after deducting the closing fee), but the face value of the convertible security will be $3.17M (which means that if Lind doesn’t convert the debenture into common stock, Potash Ridge will have to repay $3.17M in cash, in two years from now). On top of that, the interest rate on the bonds is 10%, which means The Lind Partners will be able to book a profit of approximately 19% per year on the bonds (using the interest rate and issue price as basis).
It’s however very likely The Lind Partners will indeed convert the debt into common stock, and the fund will be able to do so at 85% of the 5 day VWAP. If you would assume the company’s share price will remain at the exact same level as it’s trading at now (C$0.26), Lind Partners will be allowed to convert its initial US$3.17M (C$4.23M) in stock at C$0.221 per share (excluding the interest payments on the principal amount).
With this deal, Potash Ridge is effectively hoping for a higher share price to minimize the dilution. We expect 2017 to be a very important year for the company, as the development and construction of the Valleyfield project in Québec should accelerate. In a perfect world, this should push the share price higher as once all permits have been received and all financing secured, Valleyfield will be one of the very few SOP producers in North America.