Red Rock Resources agrees to fund Steelmin

The AIM-traded firm confirmed it issued an eight month secured loan note for €3,874,560 to Steelmin, bearing interest at 13% per annum, extendable for a further eight months for a fee.

It said the first tranche of €2,737,712.96 had been paid, with a balance due in one week.

Red Rock had been issued 16% of the share capital of Steelmin, which would increase to a maximum 30% depending on the date of full repayment of the loan.

The company would also hold one board seat and one observer seat on the Steelmin board, with two seats if the loan is extended.

Security for the loan was in the form of a fixed and floating charge of Steelmin and a mortgage over the Bosnian assets, Red Rock explained.

It said the loan enabled Steelmin to complete refurbishment of its ferrosilicon smelter complex in Jajce, Bosnia with production expected in the first quarter of the 2018 financial year.

Steelmin's plant consisted of two electric arc furnaces with a combined annual capacity of 48,720 tonnes ferrosilicon and 9,700 tonnes of microsilica, and expected initial capacity from Furnace V of 29,000t of ferrosilicon per annum, and 5,800t of microsilica.

Red Rock said Steelmin was targeting annual revenues on initial production levels of €36m and EBITDA of €7m.

To fund the Loan, Red Rock borrowed $4,230,750 on a secured basis from YA 11 PN, on behalf of a group of institutional investors, for a term of one year bearing interest at 13% per annum, with a renewal option for a further eight months for a fee.

The first tranche of the Note, amounting to $3,069,250, had been received, with the balance due in one week.

Red Rock said 20m warrants with a two year life and exercisable at 2.2p per share had been issued to the noteholders, with the note is secured against the company's Jupiter Mines holding, as well as the loan and the shares.

The board said the investment offered Red Rock a “substantial stake” in a quality near-term producing asset in the company's familiar steel-feed space.

“This transaction gives us a stake in a brownfield ferrosilicon asset on which significant funds have been spent over several years,” said chairman Andrew Bell.

“A land dispute which caused delay has been resolved, and so we are providing the final slice of money before production.

“We see this as a sound cash-generative business that will have quality management and customers, generally stable margins, and where we have attractive terms of entry.”

Bell said on-site expansion capacity would facilitate growth, while the Red Rock board worked to find a “creative financing” solution to enable it to make the investment while not giving away equity upside in the business, knowing that a value crystallisation of the Jupiter Mines holding was likely in the summer.

“Using back-to-back financing facilities we transfer substantially all the financing costs to Steelmin, securing ourselves over their significant plant and equipment and with an equity stake and board representation giving us exposure to the upside potential in the business.

“Overall, the board of Red Rock believes that Steelmin constitutes an outstanding opportunity that will drive Red Rock forward along the road to becoming a multi-project natural resource producer.”