Celtic Resources has moved to clean up its balance sheet with an agreement with its biggest shareholders, Dragon Oil, under which Dragon will convert a loan of $2.36 million (#2.17 million) into 1.9 million preference shares.

Dragon owns 29.9 per cent of Celtic, but since its takeover by Emirates National Oil Company, is not seen as a long-term investor in Celtic.

These 1.9 million shares can convert into Celtic ordinary shares in September-October this year at the higher of 15p or the Celtic market price.

Given that Celtic shares trade at 2 cents (2.5p), it seems certain that 15p will be the conversion figure.

But one clause in the loan agreement prevents Dragon converting the shares if it would put Dragon over 30 per cent, and this suggests Dragon will hold the preferential shares until it can find a buyer for them.

Celtic's managing director, Mr Sean Finlay, said that eliminating the Dragon load would make it easier for Celtic to find a new strategic investor who would provide additional finance for its Nezh daninskoye gold mine project in the Russian far east.