Africa-focused Paragon Diamonds (LON:PRG) suspended trading Monday morning ahead of the company issuing a statement that revealed a precarious financial position.
The miner, who committed to buy a 75% stake in Lesotho’s Mothae project from Canada’s Lucara Diamond (TSX:LUC) earlier this year, said it currently has limited working capital.
Until a funding package has been secured, Paragon noted, there is a “material uncertainty” over the company’s financial position.
It remains in talks with potential financers in order to secure funding to complete the acquisition of Mothae, develop the Lemphane project, also in Lesotho, and repay short-term debts
However, it said it remains in talks with potential financers in order to secure funding to complete the acquisition of Mothae, develop the Lemphane project, also in Lesotho, and repay short-term debts, including a £500,000 (US$760,000) loan due on November 18.
If that loan is not repaid within five business days, Paragon will be in default, and the lender will be able to demand immediate repayment of the loan at 120% of the outstanding amount, or the lender may convert the outstanding loan into shares in the company.
Paragon’s situation reflects the challenging times currently affecting large parts of the diamond chain. Dealers are facing increasing difficulties to sell their existing inventory into softening markets, while also facing tougher financing conditions.
At the same time, major players such as Anglo American-owned De Beers, the world’s No.1 diamond producer, are finding it difficult to place expected volumes of rough stones with traders and polishers.
And even Russia’s Alrosa, the world’s top diamond producer by output in carats, said last month it was able to sell only 42% of the precious stones it mined in the quarter ending in September.
Paragon’s stock was last quoted on Friday at 3.98 pence, and it has lost almost 33% of its value this year.