Note 16 - Debt

9 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Debt Disclosure [Text Block]

16.  Debt

On  April 26, 2022, the Company closed on a $20,000,000 unsecured convertible debenture to Queen’s Road Capital Investment, Ltd. (“QRC”).  The Company used the proceeds from the sale of the debenture to fund commitments to the Peak Gold JV, the exploration and development at its Lucky Shot properties, and for general corporate purposes.

The debenture bears interest at 8% per annum, payable quarterly, with 6% paid in cash and 2% paid in shares of Common Stock issued at the market price at the time of payment based on a 20-day volumetric weighted average price (“VWAP”). The debenture is unsecured, with a maturity of four years after issuance. The holder  may convert the debenture into Common Stock at any time at a conversion price of $30.50 per share (equivalent to 655,738 shares), subject to adjustment. The Company  may redeem the debenture after the third anniversary of issuance at 105% of par, provided that the market price (based on a 20-day VWAP) of the Company’s Common Stock is at least 130% of the conversion price. The Company  may also redeem the debenture, and the holder will have rights to put the debenture to the Company, upon a change of control of the Company, with the redemption or put price being 130% of par for the first three years following issuance and 115% of par thereafter and accrued interest at the time of redemption or put being paid in the same form as other interest payments.  Upon the completion of a secured financing the holder has the right to require the Company to redeem the debenture.  Additionally, upon announcement of a change of control, the Company has the right to require the holder to convert some or the whole principal amount of the debenture into shares at the conversion price, subject to certain conditions.

In connection with the issuance of the debenture, the Company agreed to pay an establishment fee of 3% of the debenture face amount. In accordance with the investment agreement, QRC elected to receive the establishment fee in shares of Common Stock valued at $24.82 per share, for a total of 24,174 shares. The establishment fee shares were issued to QRC pursuant to an exemption from registration under Regulation S.  QRC entered into an investor rights agreement with the Company in connection with the issuance of the debenture. The investor rights agreement contains provisions that require QRC and its affiliates, while they own 5% or more of our outstanding Common Stock, to standstill, not to participate in any unsolicited or hostile takeover of the Company, not to tender its shares of Common Stock unless the Company’s board recommends such tender, to vote its shares of Common Stock in the manner recommended by the Company’s board to its stockholders, and not to transfer its shares of Common Stock representing more than 0.5% of outstanding shares without notifying the Company in advance, whereupon the Company will have a right to purchase those shares. 

The debt carried an original issue discount of $0.6 million and debt issuance costs of approximately $0.2 million.  As of March 31, 2023 and June 30, 2022, the unamortized discount and issuance costs were $0.6 million and $0.8 million, respectively.  The carrying amount of the debt at March 31, 2023 and June 30, 2022, net of the unamortized discount and issuance costs, was $19.4 million and $19.2 million, respectively.  The fair value of the note (Level 2) as of March 31, 2023 and June 30, 2022 was $20.0 million.  The company recognized interest expense totaling $0.4 million related to this debt for the quarter ended March 31, 2023 (inclusive of approximately $400,000 of contractual interest, and approximately $47,000 related to the amortization of the discount and issuance fees).  The company recognized interest expense totaling $1.3 million related to this debt for the nine months ended March 31, 2023 (inclusive of approximately $1.2 million of contractual interest, and approximately $144,000 related to the amortization of the discount and issuance fees).   The effective interest rate of the note is the same as the stated interest rate, 8.0%.  The effective interest rate for the amortization of the discount and issuance costs as of June 30, 2022 was 1.0%.  The Company reviewed the provisions of the debt agreement to determine if the agreement included any embedded features.  The Company concluded that the change of control provisions within the debt agreement met the characteristics of a derivative and required bifurcation and separate accounting.  The fair value of the identified derivative was determined to be de minimis at April 26, 2022, June 30, 2022, and March 31, 2023 as the probability of a change of control was negligible as of those dates.   For each subsequent reporting period, the Company will evaluate each potential derivative feature to conclude whether or not they qualify for derivative accounting. Any derivatives identified will be recorded at the applicable fair value as of the end of each reporting period.