Tuesday, February 23, 2016

Newmarket Gold Is Going To Redeem All Of Its Convertible Debentures

Newmarket Gold is one of the companies included in my precious metals portfolio. That is why I closely track this company. Most recently Newmarket announced its intention to redeem all its convertible debentures. In this article I want to discuss what impact this transaction may have on the company's ownership structure.

Convertible Debentures

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.

Main Shareholders

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
         Total: 124,087,087 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.


  1. Thanks for the detailed post. I think it would help NMI if they were listed in Australia.

  2. I noticed that Lloyd Miller has been doing some inside selling. As you noted he will be getting over 14 million shares. Any insight into who he is and what he will do with the shares? Thanks

  3. Harry,
    Mr. Miller seems to be quite a big and serious investor. Here are two links that may be helpful: