VANCOUVER, BRITISH COLUMBIA -- (Marketwired) -- 05/26/15 -- Platinum Group Metals Ltd. (TSX: PTM)(NYSE MKT: PLG) ("Platinum Group Metals" or the "Company") announces that the Japan Oil, Gas and Metals National Corporation ("JOGMEC") has committed to fund the next US $20 million of joint venture funding at Waterberg. In conjunction with JOGMEC's firm funding commitment, Platinum Group Metals, JOGMEC and empowerment partner Mnombo Wethu Consultants ("Mnombo") have agreed to consolidate the Waterberg Joint Venture and the Waterberg Extension projects into one unitized project area (the "New Waterberg JV"). As a result of the consolidation announced today, and with the funding provided by JOGMEC, approximately 15 drill rigs and crews will immediately be returned to active status at the Waterberg site.
Agreed New Waterberg JV ownership interests:
-- Platinum Group Metals: 58.62% (1)
-- JOGMEC: 28.35%
-- Mnombo: 26.00%
(1) (45.65% directly and 12.97% indirectly through Mnombo)
Platinum Group Metals will increase its direct and indirect effective interest in the old Waterberg Joint Venture area from 49.98% currently to 58.62%. Platinum Group will decrease its effective interest the old Waterberg Extension from 87% to 58.62%. JOGMEC will decrease its interest in the old Waterberg Joint Venture from 37% to 28.35% and increase its interest in the old Waterberg Extension from zero to 28.35%.
Based on the most recent declared resource estimate for the Waterberg Joint Venture and the Waterberg Extension, as at June 2014, the exchange of interests described above are "ounce neutral" in that each party is exchanging the same number of inferred resource ounces. Platinum Group Metals Ltd will retain operatorship of the consolidated project and achieves a majority effective interest in the overall project.
Bridge Financing May Tide Over Until Strategic Alliance Formed
We recommend Western Lithium USA Corp with a BUY and C$1.20/sh Target Price. This dropped $0.10/sh due to higher than expected cash needs as management sees a 3-6 month delay in Hectatone sales. A deal with NY-based asset manager, The Lind Partners was announced, looking a lot like bridge financing. Cash is required to prop up working capital requirements while Hectatone organoclay business gets off the ground (first shipment was Jan/15).
Aggressive terms include US$2.8 MM, 10% coupon, 2-year convertible debt (exercisable at 85% of market) with option for another US$0.6 MM. Lind Partners will receive a US$140k fee, and 3.125 MM, 3-year warrants, exercisable at $0.8464/share. A second deal with similar terms may also be arranged. Four month hold on this paper gives time for management to review strategic options and consider how it might move the lithium business forward. This seems less painful than a full equity financing, in that two years down the road, with the anticipation that the stock price goes up, there would be less dilution. Even better is that the conversion rate rises with the stock (15% discount). The financing looks to be routed out of necessity, and itself, doesn’t change any long-term plans. CEO Jay Chmelauskas says: 1) WLC continues to advance discussions with potential strategic partners to develop the Li project in NV; and 2) funding will support product sales from the Hectatone facility in NV.
Clay business experiencing slow initial sales. Despite its broker RMC taking production, the main need for this short term cash injection is that potential customer qualification period is taking longer than expected due to the recent shock in the oil industry following a rapid drop in price. ....
A debt restructuring plan: PDL announced a debt restructuring agreement which effectively converts existing debt for a 98% equity interest in the company, of which at least 92% interest would be held by Brookfield. The residual 2% would be held by the existing shareholders. In addition, Brookfield has granted an immediate additional credit line of $25 million, and has agreed to back-stop a $50 million rights offering.
A structuring was required, but really – this is more than a hair-cut: No exchange rate terms of the reorganization was disclosed, but with 384.4 million shares outstanding pre-reorganization means ~19.14 billon shares needs to be outstanding post-reorganization to reduce this positon to 2%. Clearly a roll back of ~100:1 would be required post-reorganization just to reduce the shares outstanding to a reasonable level. Further, it also means that debt levels would have be converted at a share price of ~$0.015/sh for every $1.00 face value of debt – a huge discount to the pre-announcement equity price ($0.26/sh). The alternative to not agreeing to reorganization would be bankruptcy, in which case the secured debt holders would ultimately take-over the company.
Also looking to sell the company: As part of the restructuring plan it was also announced that CIBC has been retained to seek a potential buyer for PDL, but the search process has only until June 30 to find a superior offer. In our opinion, this exercise will likely fail to yield results.
IMPACT – Hugely Negative
From an existing shareholders perspective, massive dilution: The effective conversion price for the debt values of PDL at ~$0.015/sh, roughly equivalent to our original thesis that given the level of debt, there was minimal residual value for existing shareholders. .......