In April 2013 Crocodile Gold (a predecessor of Newmarket Gold) issued C$34.5 million of 8% convertible unsecured debentures for net proceeds of US$31.03 million. The debentures mature on April 30, 2018, unless converted or redeemed earlier.
According to the agreement, debentures may be converted into the company common stocks in two ways:
- at the holder's option at any time prior to maturity (April 30, 2018)
- by the company at any time after April 30, 2015
The conversion price is C$1.02.
This year Newmarket Gold decided to exercise the second alternative. It means that the company is going to convert all debentures into common shares.
There is another condition - prior to April 5, 2016 (Redemption Date) the volume-weighted average trading price of common shares for the 20 consecutive trading days ending five trading days before Redemption Date is not less than C$1.53 per share. I think this condition should be fulfilled because since February 8, 2016 the company's shares have been trading at the price higher than C$1.52.
Number of New Common Shares
In its last financial report, Newmarket reported that at the end of September 2015 the book value of convertible debentures was standing at U$23,450 thousand. At that time it was equal to C$32,146 thousand. If the company converted all these debentures into common stocks at the price of C$1.02 the number of common shares would go up by 31,579,981 shares. I do not know the precise number of new common shares - it depends on the exchange rate between the US and Canadian dollar on April 5, 2016 - but this calculation should be more or less O.K.
Summing up, as a result of redemption of debentures the number of Newmarket shares should go up by around 31.6 million.
Digging a little bit into Newmarket ownership structure I have found the following big shareholders (all figures comprise common stocks, warrants and common stocks coming from conversion of debentures):
- Luxor Holding - 61,756,671 shares
- Lloyd Miller - 14,743,416 shares
- Zebra Holdings (controlled by Lundin family) - 27,333,334 shares
- Sun Valley Gold - 6,666,666 shares
- Management - 13,587,000 shares
Number of shares outstanding (diluted plus shares convertible): 187,879,981
It means that after conversion the biggest shareholders should control around 66% of all shares outstanding. I think that all big shareholders, excluding Lloyd Miller (a private investor), should be regarded as the so-called strong hands.
It means that free float should stand at around 78.5 million shares (41.8% of all shares outstanding).
- Newmarket Gold wants to redeem all its convertible debentures into common stocks
- If such is a case, the number of fully diluted common shares will go up by around 31.6 million (an increase of 20.2%).
- After redemption the company will have more commons shares (higher dilution) but less debt (it will go down from around US$25.3 million to US$1.9 million)
- In my opinion, Newmarket Gold has quite strong ownership structure. After redemption, big shareholders should control around 66% of the company.