Heron Resources Ltd. outlined plans to raise A$91 million to complete commissioning its Woodlawn zinc-copper project in New South Wales, Australia, and to see the company through to positive cash flow operations while having enough funds to repay existing creditors during that period.
The company said Oct. 4 that it expects to run out of unrestricted cash by the end of October if the financing fails.
Heron plans to undertake a A$35 million fully underwritten 0.7324-for-1 nonrenounceable entitlement offer at 20 Australian cents apiece, issue US$35 million of convertible notes, and receive a further US$3 million deposit from a streaming agreement over zinc by-product. The entitlement offer is at a 47% discount to its last closing price of 38 cents, and a 48% discount to volume weighted average price over the last five days.
Meanwhile, maturity of an existing US$60 million senior secured loan was extended by 12 months to the end of 2023, and the company will prepay US$10 million of the loan from the planned fundraising.
A working capital shortfall emerged following a seven-month delay in completing construction at Woodlawn as well as plant commissioning problems. In mid-September, Heron's board asked CEO and Managing Director Wayne Taylor to step down amid the delays.
Meanwhile, Heron reached a A$15 million settlement of a dispute with CIMIC Group Ltd. unit Sedgman Pty. Ltd. over the engineering, procurement and construction contract for Woodlawn. This will involve the company making deferred cash payments starting in June 2021 for one year and issuing shares to Sedgman.
In mid-March, a contract superintendent rejected the majority of a revised A$53 million claim by Sedgman over additional costs for building the Woodlawn project.
The company said it elected to settle the dispute to provide certainty over its working capital requirements for Woodlawn. The contractor will continue to be responsible for defects during each 12-month period following handover of each of the three separable portions within the project scope.
After the project achieves positive cash flow, Heron will aim to restart exploration over its tenement package to convert underground resources to reserves, extend existing VMS lenses, and targeting near mine discoveries.
