Metal Tiger invests in Sandfire entitlement rights

Natural resources investor Metal Tiger has completed its entitlement rights investment in Sandfire Resources, it announced on Tuesday, having subscribed for and received 3,300,690 new fully-paid ordinary Sandfire shares for a total cost of AUD 17.82m (£9.53m).

The AIM-traded firm said it had financed the investment partially via the sale of around 1.05 million Sandfire shares at an average price of 522 Australian cents each, as well as by using existing cash and by entering into a 12-month, AUD 9m margin lending facility agreement with a nominee of SC Lowy Primary Investments, secured against 4.71 million Sandfire shares held under a tripartite sponsorship deed with an Australian broker.

It said the terms of the margin lending facility included an interest rate of 10% per annum, rising to 15% in the event of a default, from 4 October, payable semi-annually, with the ability to extend for a further year for a small fee.

Metal Tiger said it provided for the ability to free up collateral under the facility in the event that coverage exceeded 3.5x the then-outstanding loan amount plus accrued interest.

The company also had flexibility to free up liquidity by selling the Sandfire shares that were acting as security for the facility over a period of five trading days, with a total value of at least AUD 1m at the time the trade instructions were given, and provided the coverage exceeded the minimum-security cover maintenance levels on the outstanding loan amount plus accrued interest.

Metal Tiger could apply the proceeds of any sale to either pay and repay all amounts payable under the margin lending facility in full, or as a prepayment to the amount outstanding under the margin lending facility, to the extent that following such prepayment, the collateral value was at least the multiple of the loan amount outstanding plus accrued interest that it was before the sale instructions.

Any surplus after such application would be released to Metal Tiger.

The facility carried an establishment fee of AUD 0.3m and an arranger fee of AUD 0.05m, with the agreement subject to security cover maintenance levels and margin levels that were deemed “commercially acceptable and standard” for such a transaction.

Metal Tiger said it maintained rights over all ordinary course-of-business dividends received from Sandfire.

Following completion, Metal Tiger said it would be interested in 8,462,057 Sandfire shares, representing about 2.4% of Sandfire’s issued capital after its institutional raise.

Of that holding, 2,842,667 Sandfire shares were subject to an equity derivative financing arrangement with a global investment bank.

“The margin lending facility allows Metal Tiger to maintain leverage to any potential upside in Sandfire over an extended period, with what the board considers to be an appropriate level of risk, thanks to strong liquidity rights over collateralised shares,” said chief executive officer Michael McNeilly.

“To conclude such a financing arrangement in such a short time frame is a significant achievement.”

At 1501 BST, shares in Metal Tiger were up 1.2% at 21p.