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DiamondCorp – another grim update as trip to corporate undertakers beckons

By Nigel Somerville | Tuesday 14 February 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

AIM-listed DiamondCorp (DCP) has issued another grim update on its predicament and time is running out. As each day goes by, the end of the road for its beleaguered shareholders draws closer and this morning’s news suggests that for all the efforts of the board to rescue the company salvation is as far away as ever. But the fat lady is ready to enter stage left.

Last month, it began to look as though an unlikely rescue deal might be pulled off. The company’s Lace mine had suffered flooding damage which stopped production and thus the flow of any possibility of income. The subsidiary holding the mine was put into a business rescue process which has allowed some time for a suitable plan to pull things back from the brink to be put together.

All seemed to be heading the right direction when the company announced that conditional on a few important matters, the tin had successfully been rattled and £1 million was lined up to keep the lights on and get the mine working again.

Amongst other boxes to be ticked in order to get the funding over the line were a deal the labour force so as to make operations viable going forward, the agreement of debtholders and sign-off from the business rescue practitioners. Happily, an agreement in principle was reached with the labour-force but this morning it seems that this is no longer the case.

The bad news at the last update seemed to be that the debtholders were holding out, although from this morning’s news it begins to sound as though there are discussions regarding modifications to the loan package, and the business rescue practitioner has commenced solicitation of expressions of interest from potential strategic investors in the Lace mine. Whether that means it might be sold from under DiamondCorp’s shareholders’ noses, or just that they face mega-dilution is not clear, but it is hard to see much good news on that score either way.

This morning we are told that if the placing, conditional on a suitable labour deal and the acquiescence of the business rescue practitioners (in turn contingent on lender approval) is not completed in the very near term then the company’s remediation plans for its Lace Mine will be compromised. Worse, if the business rescue is not concluded successfully then we are warned of administration.

In other words it is just seconds to midnight: it is insolvency ahoy.

One can only hope for a series of last-ditch deals, but as things stand the omens are not good. Tom Winnifrith tells us that delays are never good, so the pushing back of the potential completion of the conditional rescue placing to a fortnight today reads badly.

Meanwhile the company has just 9 days to confirm to the JSE that it will be meeting or agreeing to delay the next scheduled interest payment on its loans.

It never rains when it pours. 

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