Developing phosphate interests in the Georgina Basin, Queensland, Australia
Message: Q2 10-Q
Quarterly report came out yesterday (Aug 14). What a great deal they got on the convertible note ... borrow AUD 10mm in Feb 2012, do nothing productive with the money, then pay back AUD 17mm 15 months later! Financial alchemy! These guys are geniuses!
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15.
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CONVERTIBLE NOTES
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Effective as of February 7, 2012, the Company entered into a convertible note agreement via its wholly-owned subsidiary, Paradise, with two Australian investment funds, pursuant to which Paradise issued $7,500,000 in principal amount of notes due 12 months from the issue date (the “Notes”), which bear interest at a nominal rate of 10% per annum (the actual amount of effective interest depends upon the event that triggers repayment). It was the intention that if within 12 months of the completion date of the agreement, Paradise conducted a public offering of securities in Australia and those securities were listed on ASX, then the convertible notes would be converted into ordinary shares of Paradise at a conversion rate which was based on the pre-money value of Paradise at the time of the public offering of securities. The note agreement calls for an adjustment to the repayment factor if Paradise did not complete the public offering, as defined. On April 30, 2012, Paradise raised a further A$2,500,000 via an increase in the convertible note facility on the same terms and conditions set out for the A$7,500,000. The A$10,000,000 convertible note was due for repayment on March 10, 2013. Acorn agreed to extend the repayment date for 2 months under certain conditions including the finalisation of a term sheet for an off-take agreement prior to March 10, 2013. Paradise has entered into a term sheet with a third party and the repayment date was extended to May 10, 2013.
Paradise did not proceed with the IPO and listing on ASX due to market conditions and the advanced state of discussions with strategic partners at the time.
On April 11, 2013 the Company entered into a new agreement with Acorn to finalise repayment of the convertible note by April 29, 2013. The cash payment made by April 29, 2013 was A$16,929,000 made up of the principal amount of A$10,000,000 paid on April 12, 2013 plus interest of approximately A$1,183,000 divided by a repayment factor of 0.66 equating to A$5,746,000 and all mortgages and securities held over Legend’s shares in Paradise and Paradise’s phosphate assets have been released.
They ended the quarter with a whopping AUD 78k in cash, but they reduced liabilities from AUD 25.8mm to 1.5mm. So basically it seems the company is dormant, just sitting on its Paradise phosphate assets, waiting for some investors to pump more money into the project, which seems increasingly unlikely. The current market cap of about $12mm probably reflects liquidation value. Given that LGDI seems to be winding down I would not be surprised if the Paradise subsidiary is sold, allowing LGDI shareholders some modest recovery (5 to 10 cents perhaps?) while the principals (mainly Slager and Gutnick) end up with the phosphate asset at a fire sale price. Perhaps that's the best outcome for LGDI shareholders at this point. Phosphate DAP prices have been in steady decline over the past two years and there does not appear to be much need for new phosphate supply at this time, but in the longer run there will be a great need as living standards continue to rise in Asia, creating increased demand for fertilizer in that part of the world. Unfortunately that is an opportunity that is still some years off and LGDI won't be around to benefit.
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