African investment company CIG's wholly-owned subsidiary Nioko Resources Corporation has announced a recommended cash offer to acquire debt-ridden Aim-listed Hummingbird Resources, aiming to address the latter's significant financial and operational challenges.

The offer, valued at about £13.8-million, proposes paying 2.68p a share for Hummingbird's issued and to-be-issued share capital not already held by Nioko. The deal includes a critical debt-to-equity conversion plan to stabilise Hummingbird's finances.

Hummingbird, a gold mining company operating in Mali and Guinea, has been grappling with operational inefficiencies, working capital shortages and debt repayment pressures. Despite efforts to enhance productivity at its Yanfolila and Kouroussa mines, the company has struggled to achieve sufficient cash flow to alleviate mounting liquidity issues.

Nioko's offer comes as Hummingbird prepares for an important general meeting on December 23, during which shareholders will vote on resolutions essential to finalising the deal.

Central to the agreement is the conversion of a $30-million debt owed to Nioko's parent company, CIG, into equity.

This would increase Nioko’s ownership of Hummingbird from 41.81% to 71.8%, following a two-stage equity issuance process. The conversion is contingent on shareholder approval of a Rule 9 waiver resolution, which would exempt Nioko from a mandatory takeover offer triggered by its increased shareholding.

The debt-to-equity conversion is part of a broader restructuring plan designed to avert insolvency. Hummingbird's current liabilities include $140-million in debt, $30-million of which is linked to the proposed equity conversion.

The company also faces operational setbacks, such as delays in developing its Kouroussa mine and challenges at its Yanfolila operation, which is reliant on unfunded drilling projects to extend the mine life. Without this transaction, Nioko cautions that Hummingbird risks entering administration, potentially erasing shareholder value.

Nioko's proposal includes plans to delist Hummingbird from the Aim, the LSE's growth market, to enable a more streamlined and cost-effective restructuring as a private entity.

While this raises concerns for shareholders, the offer provides an exit opportunity at a fixed price, which independent directors of Hummingbird have deemed fair and reasonable.

Hummingbird CEO Geoff Eyre emphasises the urgent need for equity financing, noting that the company's financial strain hampers its ability to meet creditor obligations, secure essential supplies, and invest in operational improvements.

“The offer by Nioko represents an opportunity for independent shareholders to realise cash for their holdings, which may not otherwise be available if the resolutions are not passed,” Eyre states.

Nioko plans to implement a strategic review of Hummingbird’s assets following the acquisition, focusing on operational efficiencies and potential cost reductions, including a workforce reduction of up to 20%.

The review will assess the long-term viability of Hummingbird’s Yanfolila and Kouroussa mines, as well as the development potential of the Dugbe gold project, in Liberia.

The transaction, expected to be finalised in the first quarter of 2025, is seen as a lifeline for Hummingbird amid challenging market conditions and escalating financial pressures.