Guernsey-incorporated Shanta Gold is deferring payment of nearly Sh1 billion worth of loans to gain financial flexibility as it prepares to buy seven prospecting licences in western Kenya from Toronto-based Barrick Gold Corporation in a Sh1.4 billion deal.
Barrick will take $7 million (Sh700 million) in cash and a 6.4 percent stake or 54.6 million shares of Shanta valued at $7.5 million (Sh753 million).
Shanta says the transaction, which is expected to be completed mid this year, will trigger cash outflows that will interfere with its earlier plans to repay $9.78 million (Sh987 million) worth of convertible loans on April 10, 2020.
The multinational says investors holding 77.14 percent of the debt securities by value have agreed to extend their maturity date by one year. The restructuring needs the approval of investors controlling an aggregate of at least 75 percent of the debt value.
"Management and the board took the decision to defer the repayment of convertible loan notes in order to maximise financial flexibility ahead of making the payment to Barrick for the West Kenya acquisition announced last week,” Shanta’s CEO Eric Zurrin said in a statement issued yesterday.
“Today's announced convertibles restructuring allows Shanta the option to repay the loan note holders earlier than twelve months, if we so choose."
The acquisition of the Kenyan gold assets is expected to increase the multinational’s capital expenditure in the short term, necessitating the extension of the debt maturity.
Besides the cash to be paid to Barrick, Shanta also plans to invest $24 million (Sh2.4 billion) in staffing and gold exploration costs in Kenya over three years.
“What we expect (to spend) is likely to be $8 million (Sh800 million) each year for three years,” Mr Zurrin said in a recent analyst call.
Shanta has also agreed to pay Barrick a royalty rate at a rate of two percent, based on actual gold production in the future.
The multinational said that additional work to delineate the size of the orebody, progress an updated mineral resource estimate and proceed to a construction decision could take up to three years.
Shanta will acquire gold prospecting licences covering a 1,161 square kilometre area straddling Kakamega, Kisumu, Siaya and Vihiga counties.
The area has deposits estimated at 1.1 million ounces with a current market value of Sh186 billion.