Highfield Resources Ltd (ASX:HFR) has secured a US$6 million (~A$8.9 million) investment in the form of convertible notes with funds to advance the Muga Potash Project toward development and production.
This investment comes from existing strategic shareholder funds managed by EMR Capital Management Limited, Tectonic Investment Management and from another institutional investor.
Highfield and these lenders have entered a convertible note deed (CND) which will see the investment made by way of limited security loan notes, convertible into fully paid ordinary shares in the company.
The company expects that this investment will enable activities associated with advancing the Spanish project and to finalise discussions with potential strategic partners.
Proceeds will also fund debt funding costs, pre-construction costs and for working capital.
“Strong support”
Highfield CEO Ignacio Salazar said: “We are fortunate to have a number of existing strategic shareholders who continue to demonstrate strong support for the company at a pivotal time as we focus on finalising a number of initiatives that will ultimately see the start of construction of the main facilities at Muga in the early part of 2024.
“Concurrently, our focus remains on completing the remaining funding for Phase 1 operations, the culmination of which is expected to deliver a major value inflection point for all stakeholders.”
Key terms
Key terms for these convertible notes are:
- EMR Capital to invest US$3 million, Tectonic A$3 million and another institutional investor US$1 million;
- Maturity date of June 22, 2025;
- The lenders may choose to convert all or some of the total amount outstanding convertible notes into fully paid ordinary shares in the company at any time;
- However, if the convertible notes remain outstanding at the time of first drawdown under the senior debt facility for the project, the outstanding convertible notes amount shall mandatorily convert into shares of the company at the conversion price;
- The conversion price for the notes is the lower of (i) a 25% discount to the price implied by a change of control transaction relating to the company, (ii) the volume weighted average price of the shares as traded on ASX over the 20 trading days prior to the date of the CND (VWAP), being A$0.3147 per share and (iii) a 10% discount to the price of any future equity securities capital raising undertaken by the company (subject to a floor of A$0.1574);
- Each note will bear interest at the rate of 14% per annum provided that additional default interest of 4% per annum will be payable while an event of default subsists. Interest on the investment will be paid in kind via addition to the convertible notes amount; and
- The convertible notes are secured by the same share pledge that was granted in September 2023 for the previous investment, over all of the shares in and shareholder loans to, the company's indirect wholly owned subsidiary Geoalcali S.L.U., which owns the project.
Use of funds
The proceeds of this investment are expected to facilitate the company to continue to advance the Muga Potash Project and finalise discussions with potential strategic investors. Specifically, the funds will be used to meet costs including:
- Pre-development costs such as long lead-time items, land acquisitions, technical studies, construction taxes and preparation for construction;
- Project finance costs;
- Corporate G&A/working capital costs of the company;
- Strategic investor due diligence and legal costs; and
- Transaction and financing costs.