Shareholders in Mercator Minerals Ltd.
, Stock Forum
) face a highly uncertain future following news that Russia-focused Intergeo MMC Ltd. is not planning to extend its offer for the proposed business combination involving the two companies beyond the August 1, 2014 deadline.
“Intergeo’s decision puts the proposed combination in jeopardy unless the Russian Federal Anti-Monopoly Services (FAS) completes its review prior to the August 1 deadline, which we view as highly unlikely,” wrote Scotia Capital analyst Mark Turner in a research report Wednesday.
Turner went on to say he believes that Mercator’s ability to operate as a going concern is again in question, given the current capital structure
As a result Scotia has revised its rating on the stock to “under review” from “sector perform.”
In December, 2013, Mercator said it planned to combine with Intergeo to create a new copper-focused based metals company with a “robust growth profile” and strong financial backing.
It said the combined assets would include Mercator’s Mineral Park copper mine in Arizona, two development projects in Mexico, and Intergeo’s flagship Ak-Sug copper-porphyry deposit in southern Siberia.
Mercator said the deal would provide liquidity after it reported a 2013 third quarter net loss of $151.9 million or 48 cents a share.
However, Mercator shareholders are facing a lot of uncertainty now that the proposed combination looks to be in jeopardy, Turner said, citing uncertainty around renegotiation of the existing Mineral Park credit facility, which was previously amended as part of the proposed transaction.
“Implications are that any equity value remaining for shareholders is extremely uncertain,’’ he added.
Mercator said Intergeo’s controlling shareholder Daselina Investments Ltd. had agreed to invest US$100 million (including a US$14 million bridge loan) via a private placement in the combined company at approximately 13 cents a share.
The bridge loan was designed to provide Mercator with sufficient funding to stabilize its operations until the combination was completed.
Approximately US$50 million of private placement proceeds were destined to fund principal payments under Mercator’s existing credit facility.
Mercator said it entered into a amended and restated credit agreement with lenders under the credit facility which was set to take effect once the business combination was completed. Under the amended and restated credit agreement, US$86.8 million will be outstanding in the form of a term loan, the company had said.
Scotia said Mercator is now back evaluating strategic alternatives, which could include the sale of the company, another business combination, sale of all or a portion of the assets, strategic investment in the company, or any combination of these.
Mercator shares were unchanged at 6 cents Wednesday, leaving a market cap of $19 million, based on 315.7 million shares outstanding. The 52-week range is 15.5 cents and 4 cents.