Star DIAM Mentioned (Tue, 22 Mar) - Summary by Will PurcellStar Diamond is late to the trough, but it has launched its annual quest for operating cash. Ken MacNeill and Ewan Mason's Star Diamond Corp. (DIAM) lost one cent to 29 cents on 827,000 shares.
The move comes later than usual but was inevitable: Star Diamond is going back to the trough for cash, offering 16.67 million shares at 30 cents. The offering was made at a 13-per-cent discount to the previous close -- something that the market quickly corrected -- and each share also comes with an attached warrant, exercisable over two years at 40 cents. The offering is "not subject to any minimum amount," Star says, which typically translates to "we need whatever we can get."
Mr. Mason, chairman, and Mr. MacNeill, president and chief executive officer, say they need $2.5-million to settle the company's current working capital deficiency. The company owed $1.14-million as of Sept. 30, 2021, and the bills have been piling up since then. (Fortunately, those of the legal variety should have tapered off late last year, after Star settled its two-year dispute with Rio Tinto Exploration Canada Inc. (RTEC) concerning their joint venture at the FalCon diamond project in central Saskatchewan.)
FalCon appears in line for up to $500,000 of the new cash as well, although for what purpose is uncertain. RTEC has agreed to carry Star's share of the exploration costs until it makes a production decision, and only then would Star need to pay its 25-per-cent share. Nevertheless, there are presumably some items that Star Diamond would have to cover on its own, including items related to its continuing review of the "enormous amount" of data that RTEC dumped on the company early this month during their joint venture management committee meeting.
Star Diamond might elect to spend some cash on its other diamond project, Buffalo Hills in Northern Alberta, although the company's shareholders would likely shudder at that thought. That project -- arguably described as a poor man's FalCon -- has not seen much work since the Great Recession of 2008 and it has been on various corporate back burners since Ashton Mining of Canada Inc. completed a series of ho-hum mini-bulk tests in the late 1990s and early 2000s.
The rest of the cash, $2-million if Mr. Mason and Mr. MacNeill succeed in raising all they are after, is for general corporate purposes. The most obvious corporate purpose is administration. Star Diamond has typically spent about $2-million on administrative matters in the past few years. (It also spent $2.2-million on "consulting and professional fees" in 2020 and even more last year, mainly for lawyers, but it should not need to do so this year -- at least one hopes.) As a result, Star Diamond could raise enough cash to see it through the year.
The company does dangle another possible use for the cash before investors. While it intends to use the cash raised as described, Star says that the actual allocation of the net proceeds may vary, depending on future operations or unforeseen events or opportunities. If the prospect of work at Buffalo Hills gives shareholders the shudders, they might gasp in horror at the possibility of an unforeseen exploration opportunity popping up to bleed valuable cash from FalCon, given that their company can expect huge cash calls to start just six months after RTEC gives FalCon the go-ahead -- a decision most Star shareholders deem a certainty.
It is not clear which investors will be lining up for Star's latest batch of discounted shares. The company "anticipates that officers and directors of the corporation may participate" -- perhaps buying nearly 4.16 million of the shares -- but that may just be boilerplate. Among the insiders, only Mr. MacNeill has been a regular and enthusiastic supporter of his company, having amassed direct ownership of over 11 million shares and over 14 million in total, but nearly all his shares acquired since 2015 have come through option or rights exercises, not private placement participation.
Loyal shareholders with long-unrequited feelings for Newmont Corp. (NGT: $95.53) -- those hoping that their one-time joint venture partner might step up again as a foil against RTEC -- will be watching the list of insiders participating. Newmont holds 70.7 million shares, about 15.4 per cent at last report, and it has the right to maintain a 19.9-per-cent stake in Star. So far Newmont has chosen not to do so, as it has not acquired a single share since it sold its remnant interest in FalCon to Star Diamond in mid-2017 for 54 million shares.