Star DIAM & Rough Prices Review (07 Apr) - by Will PurcellStar Diamond has closed its placement short of its goal, but may have a second tranche before the end of April. Oh my! Paul Zimnisky's global rough diamond price index took a tumble this week, and worse, late-arriving data makes the mid-February all-time high look like a looming crag, not the gentle slope that was present just last week.
Prices dropped 0.6 per cent last week, are down 2.3 per cent in the past month and are off by 4.1 per cent from mid-February. Mr. Zimnisky's index is 24 per cent higher than in spring of 2011 but inflation has increased 26 per cent since then, leaving the long-term diamond price escalators touted by promoters and bullish analysts looking uberoptimistic.
Ken MacNeill and Ewan Mason's Star Diamond Corp. (DIAM) rose one cent to 30 cents on 64,000 shares today. The company said late yesterday that it has closed the private placement that it proposed in mid-March, with its stock then at 34.5 cents. Star proposed selling 16.67 million shares at 30 cents, a discount of 13 per cent to the stock's then two-week average price.
As a further come-on in support of its $5-million quest, Star attached a warrant exercisable at 40 cents over two years to each share. It also allowed existing shareholders to buy up to $3-million of the shares and opened the sale to the usual accredited investors, family, friends and business associates. When the books were closed on the placement, only 13.96 million shares were sold, and no insiders participated.
Star Diamond had proposed paying bills to eliminate a $2.5-million working capital deficiency. Another $500,000 was to be spent on technical analyses and evaluation, mainly at the FalCon project in central Saskatchewan. Star now holds a 25-per-cent sliver of FalCon, its co-venturer, Rio Tinto Exploration Canada Inc. (RTEC) having earned a 60-per-cent interest through a 2017 option arrangement and then a further 15 per cent when it agreed to front Star its share of exploration costs incurred until a positive production decision is made.)
The remaining $2-million was to cover general corporate expenses, a pot of cash that looked to be sufficient to carry Star Diamond through 2022 without needing a further cash infusion. Unfortunately, the just-closed placement raised just $4.18-million, leaving Mr. Mason, chairman, and Mr. MacNeill, president and chief executive officer, to ration the available cash unless the company completes a possible second tranche by the end of the month.
While they no longer put dollar amounts to each of the three main uses, the company's creditors will want to be paid and the proposed technical analysis is presumably critical to the company's participation in the project and the coming need to raise hundreds of millions of dollars to meet future cash calls from RTEC. Therefore, general corporate purposes -- working capital -- is likely to see less cash and if so, Star Diamond may be going back to investors sooner than planned.
The placement reveals that once again, Newmont Corp. (NGT: $101.95) failed to maintain its 19.9-per-cent interest in Star Diamond, a right it acquired in mid-2017 when it sold its remnant interest in FalCon for 53.8 million shares, leaving it with 70.74 million or just 15.1 per cent of Star -- yet another reminder to investors that Newmont emphatically quit participating in the project 13 years ago. And so, second tranche or not, Star's struggle to raise cash even at a discount is worrisome if the company is to pay its way once RTEC decides to build a mine.