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« Central Banks Print Another $167 bln: This Will Not Solve The Problem | Main | Gold: The Latest Headlines »

Convertible Loan Notes: The way to go?

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While stuck on a train in London yesterday I scanned the Investors Chronicle in order to get a feel of what the mainstream investment community was doing right now. My mission partly failed as my eye was caught by an article by Alistair Ford on the subject of financing small cap mining companies via the use of Convertible Loan Notes.

The company featured in the article was Norseman Gold Plc, an Australian gold miner operating The Norseman Project which is Australia’s longest continuously running gold mining operation producing at a rate of around 100,000 ounces per annum. Norseman is listed on London’s AIM market, which is similar to Toronto’s Venture exchange.

Norseman were unable to raise equity finance in Australia but were able to secure A$20 million of 7% Convertible Loan Notes from Macquarie, an Australian bank. So these notes act as an alternative form of finance when bank funding is unavailable. It would appear to be a win-win situation as it has given Norseman the finance necessary to proceed without actually having to go the shareholders to raise cash. It could also be argued that a coupon paying 7% is a reasonable investment, to some. A number of other companies have taken the same route and include Jubilee Platinum, Mano River Resources and Metals Exploration.

It would appear to us that the city men have a good deal here, making a good return with the added kicker of being able to convert the notes into stock which gives them exposure to the metals boom. Norseman have gold so their notes look pretty solid, but what happens when the eager beavers get do the same deal with a company that actually does not have too much in the locker when it comes extracting the metal. Will we be reading headlines about Junk Loan Notes?

It will be interesting to observe just how fast this idea spreads to one of the minnows that you are holding right now!

Got a view? Then please send it to us as your input is of great value to our entire readership.

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