Papyrus Australia Secures $200,000 Related Party Loan and Appoints L39 Capital as Lead Manager for Capital Raising

L39 Capital Appointed Lead Manager for Papyrus Australia's Capital Raise

Papyrus Australia has engaged L39 Capital Pty Ltd, identified as a related party, to act as lead manager for its forthcoming capital raising. This engagement aims to secure additional funding to support the company’s expansion and commercialisation objectives. L39 Capital facilitated the $200,000 unsecured loan from Irwin Biotech Nominees Pty Ltd as part of this process and is in advanced discussions with PPY regarding a Further Capital Raising beyond the initial loan facility.

Under the engagement terms, L39 Capital will earn a 6% success fee (excluding GST) on gross funds raised from both the Irwin Biotech loan and any Further Capital Raising, payable in cash. Subject to shareholder approval, L39 will also receive 3,333,333 options exercisable at $0.015 per share expiring three years from grant. For any Further Capital Raising, L39 will be granted one option per six notional shares issued, calculated by dividing gross funds raised by $0.01 and rounded down. These options will have an exercise price at 150% of the issue or initial conversion price and expire three years after grant. The issuance of options requires approval under ASX Listing Rule 10.11.

Details of the Irwin Biotech Unsecured Loan Facility

Papyrus Australia has entered a loan agreement with Irwin Biotech Nominees Pty Ltd as trustee for the BIOA Trust, a related party controlled by a director of L39 Capital. The unsecured loan facility allows advances up to $200,000 at an interest rate of 1.5% per month, accruing until repayment or conversion. This structure offers the lender a defined return while providing PPY flexibility in debt management.

With shareholder approval, the loan principal plus accrued interest will convert into fully paid ordinary shares at $0.01 per share. Irwin Biotech will receive one option for every two shares issued upon conversion, exercisable at $0.015 and expiring three years from grant. Should shareholder approval not be obtained by 1 December 2027, the loan and accrued interest become repayable within 30 business days. Both the conversion and option grants require shareholder approval under ASX Listing Rule 10.11.

Shareholder Approval and Capital Raising Timeline

Papyrus Australia plans to seek shareholder approval for the loan conversion and option grants at its 2026 Annual General Meeting, fulfilling requirements under ASX Listing Rule 10.11 due to the related party nature of the transactions. The loan agreement sets a deadline of 1 December 2027 for obtaining approval; failure to do so will trigger full repayment of the loan and accrued interest 30 business days later. This timeline provides shareholders approximately 18 months to consider and vote on these matters.

Allocation of Funds and Commercialisation of Biodegradable Collar Keeper® Products

Funds from the Irwin Biotech loan will be allocated to three key areas: advancing commercialisation activities, supporting the contract with TBS Mining Solutions Pty Ltd for manufacturing and supplying biodegradable Collar Keeper® products, and meeting working capital needs. This funding supports PPY’s operational continuity, project execution, and scale-up of biodegradable product manufacturing. The TBS Mining Solutions contract validates market demand and PPY’s capability to produce environmentally sustainable mining equipment components at commercial scale.

Compliance with Related Party Transaction Rules and ASX Listing Requirements

The capital raising is structured as a related party transaction, reflecting the connections between PPY, L39 Capital, and Irwin Biotech Nominees Pty Ltd. These relationships trigger disclosure and approval obligations under ASX Listing Rule 10.11. The company’s transparency in disclosing these affiliations ensures compliance with continuous disclosure rules and informs shareholders of the nature of the transactions. While no independent fairness opinion is disclosed, shareholder approval provides an opportunity for independent assessment of the terms.

Loan Interest Rate and Conversion Mechanics

The loan bears interest at 1.5% monthly, approximately 18% annually, consistent with venture debt risk profiles. Interest compounds monthly, increasing the conversion amount and potentially diluting shareholders at the fixed $0.01 conversion price. For instance, a full $200,000 drawdown held for 12 months would accrue about $36,000 in interest, increasing shares issued upon conversion proportionally. The fixed conversion price benefits the lender if share prices rise but may dilute shareholders if prices fall below $0.01. Additionally, options granted to Irwin Biotech at a $0.015 exercise price provide further upside potential over three years.

Papyrus Australia's Market Position and Business Model

Operating in the biodegradable products manufacturing sector, Papyrus Australia focuses on eco-friendly alternatives for mining equipment and industrial products. Headquartered in Wayville, South Australia, PPY leverages partnerships with established manufacturers like TBS Mining Solutions to commercialise biodegradable variants of patented products such as the Collar Keeper®. This strategy capitalises on existing brand recognition and growing demand for sustainable mining solutions, aligning with environmental regulations and industry trends.

Further Capital Raising Discussions and Strategy

PPY and L39 Capital are in advanced discussions regarding a Further Capital Raising beyond the $200,000 Irwin Biotech loan. Details on size, timing, and structure remain undisclosed. The Further Capital Raising may involve fully paid ordinary shares or convertible securities, with option grants to L39 Capital tied to gross funds raised. This approach indicates PPY’s intent to explore multiple funding avenues to meet capital needs, potentially involving external investors alongside related parties. L39 Capital’s lead manager role and success fee apply to both the initial loan and any additional capital raising, aligning incentives to secure further investment.

Capital Raising Timeline, Conditions, and Shareholder Vote

The capital raising process includes key milestones: shareholder approvals at the 2026 Annual General Meeting and a critical approval deadline of 1 December 2027. Failure to secure approval by this date converts the loan into a debt repayment obligation due within 30 business days. Conditions precedent include shareholder approval under ASX Listing Rule 10.11 for loan conversion and option grants to Irwin Biotech and L39 Capital. These approvals will be considered collectively at the AGM. The company has not disclosed major shareholder support or conditions related to the Further Capital Raising. Maintaining liquidity during this period is essential, given the unsecured nature of the loan and potential repayment obligations.

Investor Considerations and Monitoring Points

Investors should consider the related party nature of the transactions and assess whether terms are comparable to arm’s length arrangements. The 6% success fee and option grants to L39 Capital represent significant participation and should be evaluated against market standards. The high interest rate of 1.5% monthly reflects an expensive capital source, warranting scrutiny of PPY’s cash flow and asset backing. The Further Capital Raising’s undisclosed terms add uncertainty to the company’s capital structure and dilution outlook. The shareholder approval deadline in December 2027 poses refinancing risk if unmet. Lastly, the announcement lacks details on the capital raise’s scale relative to market capitalisation, limiting assessment of dilution impact on existing shareholders.