London Mining has lost more than half its value after admitting it would run out of cash without raising new financing.
A week after revealing it might end an iron ore supply contract with Glencore over a pricing dispute, it said it was in talks with a potential strategic investor. If successful this would significantly dilute existing shareholders and require a new capital structure, but would take a number of weeks to implement. It said:
At present the company does not have sufficient liquidity to enable it to continue to trade through this period without raising further finance... The company's lenders are working constructively with us to enable investment into the group and in addition are currently considering the provision of further finance.
While the lenders remain supportive of the process there can be no certainty at this time that such arrangements can be put in place to facilitate such an investment.
The news has sent London Mining shares tumbling 13p or 53% to 11.5p. The mining group has suffered from record low prices for iron ore in the face of oversupply and weak demand from key consumer China. Analysts at Liberum said:
The announcement is not unexpected following last week's announcement that the Glencore revolving credit facility had been pulled – the implied year end cash balance after taking into account half year finances, essential sustaining capex and interest costs is zero, and production is loss making at today's iron ore price.
We've spoken to the company and it expects the operations to continue for the time being with creditors delaying invoices, but clearly a solution is required imminently. Dilution from any deal is likely to be significant, but any cash injection will help to preserve the $55m equity value. We retain a hold recommendation until the terms of any deal are made public.
