On the lack of any updates on LBSR’s mining activities this year, the company’s financing activities have seen a lot of news recently. Since an 8-k filing from Wednesday, it is clear that LBSR will be sued by some former lenders, who claim that the company has the obligation to issue to them a number of warrants, higher than the number of the currently outstanding shares of the company. Also, that warrants should have a much lower exercise price than the current market share price.
On that news, yesterday LBSR shares suddenly headed straight down towards the oversold area. The total volume sold out was nearly 60 million, as compared to an average share volume of 9.4 million, resulting in a 52% lower closing price of $0.084.
The filed last Thursday lawsuit concerns the convertible notes that the company had sold last August for a principal amount of $589,177. The lenders were also issued 58,917,700 common stock purchase warrants with an exercise price of $0.00125, whereby the exercise price was subject to adjustments under certain conditions, for example if LBSR issues other shares, warrants and stock options at a price of below $0.005.
As that notes were in default in June this year and LRSR had no cash to pay them out, a new lender came around. LBSR entered into a letter of agreement with another company to sell part of its mineral claims and receive a cash advance of $1 million, along with a convertible loan in the amount of $3 million. Thus, the amount due under the August 2009 Notes has been paid out.
Now, the former lenders argue to have the right to receive ten times the number of warrants previously issued to them at an exercise price of $0.002, which means that if they are successful, LBSR will have a total of 589,177,000 warrants outstanding. Still, the warrant holders will not be able to take control over the company, as the contract does not allow for them to hold more than 9.9% of the company’s common stock upon exercise of the warrants.
