Intergroup Mining – convertible loan notes in a gold mine offering 12% per year

Intergroup Mining Limited is an Australian gold mining company offering unregulated 12% convertible loan notes paying 12% per year over three years.

Who are Intergroup Mining?

According to Intergroup Mining’s website, the directors are Walter Doyle (CEO), Brian Stockridge (Non-Executive Chairman) and Stephen White (director).

Doyle and Stockridge are also CEO and Chairman respectively of NQ Mining, a listed Australian penny share mining company (listed on the NEX exchange at 10p a share at time of writing).

How safe is the investment?

These investments are unregulated corporate loans and if Intergroup Mining defaults you risk losing up to 100% of your money.

The purpose of the bonds is to allow Intergroup Mining to mine gold in the Brilliant Brumby mine.

If Intergroup Mining fails to make sufficient returns from its gold mine, or for any other reason Intergroup Mining runs out of money to service these bonds, there is a risk that they may default on payments of interest and capital to investors.

Intergroup Mining may well have struck gold in its gold mine, but its ability to repay the capital and interest will depend on whether it can extract and sell the gold profitably enough to pay its bondholders 12% each year, and have the mine profitably up and running within three years (when repayment becomes due).

The investor documents I have seen contain a lot of detail about the geological details of Intergroup’s mine but virtually no details on what Intergroup’s expected revenues and costs are, which is what matters to bond investors.

Convertible notes

The shares can be converted to equity shares at the current share price.

As Intergroup Mining is not listed on any stock exchange, it is likely to be very difficult to sell shares in Intergroup Mining for as long as that remains the case.

If investors convert their bonds to equity, they are still subject to a risk of total loss (as with any individual equity share) if they are unable to ever find a buyer for their shares.

Should I invest with Intergroup Mining?

This blog does not give financial advice. The following are statements of publicly available facts or widely accepted investment principles, not a personalised recommendation. Investors should consult a regulated independent financial adviser if they are in any doubt.

As with any unregulated corporate bond, this investment is only suitable for sophisticated and/or high net worth investors who have a substantial existing portfolio and are prepared to risk 100% loss of their money.

Any investment offering 12% per annum interest should be considered very high risk. As an individual security with a risk of total and permanent loss, Intergroup Mining’s bonds are higher risk than a mainstream diversified stockmarket fund.

Before investing investors should ask themselves:

  • How would I feel if the investment defaulted, the sale of the security failed to raise enough money to compensate all investors, and I lost 100% of my money?
  • Do I have a sufficiently large portfolio that the loss of 100% of my investment would not damage me financially?
  • If I plan to exercise the option to convert the bonds into equity shares, am I comfortable with the fact that my capital could be locked up indefinitely, as Intergroup Mining shares cannot be sold on any recognised exchange?

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