Shares in Sundance Resources plunged as much as 50 per cent after the troubled iron ore hopeful announced a heavily discounted rights issue to settle a legal dispute with a former employee.
It also announced widespread job cuts, a significant reduction in board members and their pay and a decrease in activity on its flagship Mbalam-Nabeba iron ore project after the plummeting price for the key commodity unsettled a key contract.
The one-for-one rights issue will be predominantly underwritten by David Porter, a former employee who launched two legal actions against the company, in order to settle the claims.
Sundance said it would not have been able to pay ordered damages which "would have presented significant issues for the company".
Sundance will seek to raise up to $16.5 million at 0.5¢, well below the 1.2¢ its shares traded at before being suspended on December 23.
Shares in Sundance resumed trading on Monday and plunged 50 per cent to 0.6¢ before regaining slightly to end the day at 0.7¢, down 41.7 per cent.
Mr Porter will underwrite $11 million of the issue and an additional amount, expected to be about $3 million, will be underwritten by lead manager Patersons Securities.
It is understood that as part of the settlement, Mr Porter and the company he was contracted through, Absolute Analogue, will receive a $500,000 cash payment on lodgment of the prospectus as well as a portion of the funds raised via the rights issue.
As a sub-underwriter, Mr Porter may also potentially gain heavily discounted Sundance shares if the rights issue falls short.
Mbalam-Nabeba in Cameroon
Last week, Sundance said the Chinese construction company selected to build the Mbalam-Nabeba project's key port and rail infrastructure, China Gezhouba Group Company, had postponed signing a contract for the work until market conditions improved and Chinese funding for the work was more advanced.
While the infrastructure for the project is being spearheaded by the Cameroon government, the construction contract was critical for Sundance to secure an equity partner and financing for the $1 billion mine development.
Sundance managing director Giulio Casello said the company wasn't sure when the contractor would choose to move ahead with the project ,but in the meantime, it would move to conserve cash.
"We are going to batten down the hatches, the project is in good shape and we will support the Cameroon government and the activities they are undertaking with China to get this progressed," Mr Casello said.
He said he remained confident the iron ore price would recover.
"It will be a tough 2016 but the fundamentals in China haven't changed; I expect we will see a recovery in the latter part of 2016."
Sundance had about $7 million cash at September 30 and has since raised another $7 million in convertible notes.
It said the rights issue would generate additional working capital that would see it through until early 2017, subject to an expected 80 per cent reduction in expenditure due to measures announced on Monday, including a reduction in board members, board remuneration, employee numbers, overheads and activities.
It remains unclear how many employees have been affected by the job cuts in Cameroon and the Republic of Congo but it is understood the majority of its nine Perth employees will be made redundant.