First Uranium raising $150M in convertible notes (April 05, 2010)

First Uranium (FIU-T) is on its way to raising some desperately needed capital that will allow it to build a third gold plant for its Mine Waste Solutions project 160 km north of Johannesburg, South Africa. But the help comes at a dear price.

In the midst of facing “serious financial difficulty,” First Uranium has entered a heads of agreement for a private placement of $125-$150 million in senior secured convertible notes due March 31, 2013. The notes have a principal amount of $1,000 with a conversion price of $1.30 per share — a 13% discount to the five-day volume weighted average share price.

Simmer and Jack Mines (Simmers) has agreed to buy $40 million in notes while Gold Wheaton Gold (GLW-T) will buy $20 million in notes. Another $65-$110 million will be offered to accredited investors by RBC Capital Markets.

Simmers has also agreed to exchange its $22.1-million loan plus accrued and unpaid interest for an equivalent value of notes.

First Uranium was also facing a US$42-million penalty by Gold Wheaton for not completing the third gold plant by June 2010 but the terms have been modified. Gold Wheaton has an agreement to buy 25% of First Uranium’s production but the lower production at MWS has forced Gold Wheaton to reduce its attributable production forecast by 20,000 oz. gold for 2010 and 2011.

Now, First Uranium will issue Gold Wheaton 14 million shares and has committed to completing the third gold plant module and technical tests before Sept. 1, 2011. If that doesn’t happen, First Uranium will have to pay Gold Wheaton US$1.5 million in September, October, November and December 2011. If First Uranium still hasn’t met its commitment by Dec. 1, 2011, it will have to pay Gold Wheaton US$30 million.

Converting all of the notes from the maximum offering, the debt and penalty payments will result in the issuance of nearly 146.8 million shares — about 88% of the current share count of 166.8 million shares.

Simmers already holds 62.1 million First Uranium shares, Gold Wheaton doesn’t hold any.

As First Uranium restructures its financial situation, it’s also doing a little restructuring in the boardroom. Simmers CEO Deon van der Mescht has been appointed interim CEO for First Uranium. He is stepping down from his current position to take this role. First Uranium will also reorganize the board on closing of the offering to include three new members from Simmers, and possibly one independent director from Gold Wheaton if it subscribes for a minimum of $10 million in notes.

First Uranium will need special approvals and exemptions for the deal to go through. The TSX is still considering a delisting review, but First Uranium says that once the offering is complete, it will be in compliance with listing requirements.

First Uranium went into capital conservation mode in February after the South African government unexpectedly revoked an environmental permit needed for the Mine Waste Solutions tailings recovery project.

The permits were reinstated a few weeks later but in that time First Uranium was forced to scale back production from two gold plants to one and had to delay construction of the third plant that was supposed to be finished in May.

First Uranium chopped its 2010 production forecast to 11,000 oz. gold in the first quarter, 13,000 oz. in the second quarter, 25,000 oz. in the third and about 22,000 oz. in the fourth — down from the planned 35,000 oz. gold per quarter.

The project consists of 14 tailings deposits from three gold and uranium mines that operated for about 50 years. The tailings hold reserves of about 2.9 million oz. gold and 55.8 million lbs. uranium.

On top of that, First Uranium was already having financial problems with production start up at its Ezulwini underground gold-uranium mine, 40 km from Johannesburg, where it has not yet generated positive operating cash flow.

First Uranium shares rose 13% on the financing news, or 19¢, to $1.68 apiece on a trading volume of 20.1 million.