Baobab secures £5m for drilling at Tete iron-vanadium-titanium project

Baobab Resources (LON:BAO) has secured a three year equity line facility (ELF) of up to £5 million, allowing it to accelerate the current drilling programme at its Tete iron-vanadium-titanium project that has produced “encouraging results”.
The ELF with Dutchess Opportunity Cayman Fund offers Baobab ongoing access to capital as it enables the Company to obtain funding from Dutchess at any time during the next three years via share subscriptions.
The subscriptions will be priced at a discount of just 6% to the market price and will take place at timings and intervals and in sizes determined by Baobab.

Under the terms of the ELF, Baobab will be able to specify a minimum acceptable price for each tranche to prevent shares being sold in the market at an “unacceptable discount”, allowing it to protect the stock price.

Baobab called the facility a “cost effective solution for some future financings with management being in control of the timing on accessing capital”.
The company’s main asset is the Tete iron-vanadium-titanium project in Mozambique, which currently has an inferred mineral resource of 47.7 million tonnes (Mt).
The company is currently working on bringing a second rig to the South Zone of Tete to accelerate its drilling campaign, having completed 3,000 metres of reverse circulation (RC) drilling at the South Zone as of last week.
Broker Astaire Securities called the progress achieved by Baobab at Tete “encouraging” as they have successfully identified priority areas at Chimbala for the 2011 drilling campaign.
“At a time when the company is consolidating its position in Tete the facility will assist in the acceleration of drilling programmes where warranted and better enable the company to participate in opportunities that may arise,” said chairman of Baobab Resources Jeremy Dowler.
In consideration for the ELF, Baobab agreed to pay First Columbus LLP a commitment fee through the issue of 0.66 million shares, while issuing Dutchess and First Columbus LLP 0.44 million warrants with an exercise price of 16.88 pence, which is a 50% premium to Baobab’s closing price on 20 October 2010.
In response to today’s news, Astaire said that the equity drawdown provides some security for the company as it progresses Tete and the flexibility to expedite the drilling programme, should it choose to do so.
Astaire also noted the “modest” 6% discount and the threshold price floor, preventing the arrangement from being “unduly dilutive”.
The news was met with a positive reaction in the market as shares climbed 2.5%.