Constellation Copper files an assignment in bankruptcy under the Bankruptcy and Insolvency Act
December 24, 2008 Filed Under: Mining Investment, Mining Stocks
Constellation Copper Corporation announced that it has filed an assignment in bankruptcy under the Bankruptcy and Insolvency Act (Canada). The Lisbon Valley mine was originally financed with a $30.0 million collateralized loan package from Investec Bank (UK) Limited and a $3.0 million subordinated loan from Sempra Metals & Concentrates Corp.. The Investec financing facility was amended in February 2006 to extend the facility by $10.0 million which was used to pay construction costs and to repay the Sempra loan. In connection with the increased Investec debt facility, the Company agreed to sell forward copper in commodity swap transaction arrangements with Investec. The Investec financing facility was further amended in March 2007 for an additional $1.5 million.
On March 15, 2007, the Company repaid the outstanding Investec loan of $30,685,000 with a portion of the proceeds of the sale of Cdn.$69 million of 5.5% convertible unsecured senior debentures due March 31, 2012 (the “Debentures”). The Company was unable to retire the remaining hedges at that time and continued to service that obligation to Investec from production revenues. The hedges were originally struck at an average copper price of $1.86 per pound. Since that time all of the remaining hedges have been closed out at higher prevailing market prices, and the Company owes Investec $9.7 million.
Interest on the Debentures is payable semi-annually on March 31 and September 30. The Company did not pay the interest on the Debentures when due on March 31, 2008 and September 30, 2008. Following the prescribed cure period ended April 30, 2008, the non-payment of interest in March 2008 was considered an event of default, requiring the Company to accrete the Debentures up to their Cdn.$69.0 million face value, which is payable on demand.
In February 2008, the Company finalized an amendment to the Hedging Arrangement. Under the terms of the amendment which have previously been disclosed, the Company agreed to allow Investec to sweep the Lisbon Valley bank accounts for cash in excess of a prescribed minimum balance on each settlement date after February 2008, until all amounts due have been paid. Investec has been sweeping the amounts without leaving a balance since October, 2008. The Company has been negotiating with Investec to have amounts released that would permit the Company to continue operations. Investec has released certain amounts for specific necessary operating expenditures at the Lisbon Valley Mine but has not released sufficient funds for the Company and its subsidiaries to continue corporate operations. This led to the inability to pay the property payment due on the Terrazas zinc/copper project in Chihuahua, Mexico during October such that the Company’s interest in Terrazas had to be relinquished. Further, the Company was unable to make required property payments on its San Javier copper project in Sonora, Mexico during December, and those rights are also in default. Current copper and zinc prices have made both projects much less valuable than they had been earlier in the year.
The Company has been working to reach an agreement with Jaguar Financial Corporation and Glencore International AG pursuant to the letter of intent announced on September 3, 2008 without success. Since announcing that the Company was seeking new financing or a sale of properties in September 2007, 35 mining companies and financial firms have completed confidentiality agreements and have conducted due diligence on the Company’s various assets. Detailed negotiations were conducted with several firms, but only a few went past the confidentiality agreement and initial due diligence stage.
The Company is unable to meet its ongoing obligations and expects that no value will remain available to shareholders. The Board of Directors of Constellation determined it had no choice but to file an assignment in bankruptcy and has appointed Deloitte & Touche Inc. to act as Trustee in Bankruptcy. All of the board members and officers of Constellation have tendered their resignations effective today.
As first announced on November 20, 2008, the Company was unable to file its unaudited financial statements and related Management Discussion & Analysis for the third quarter ended September 30, 2008 by the required filing date under applicable Canadian securities laws. The Company no longer expects to file such documents on or before January 14, 2009. The Company has therefore asked the securities regulatory authorities in each of the Provinces of Canada to replace the management cease trade order covering the former Chief Executive Officer and Chief Financial Officer of the Company with an issuer cease trade order.
Pat James, Chairman, President and CEO, stated “The Company has been actively pursuing its strategic alternatives, including various near term financing alternatives, such as bank financing, equity investment, mergers, and sale of certain assets or sale of the entire Company as first announced in September, 2007. Unfortunately, we have been unsuccessful in finding a solution to the Company’s cash liquidity problems. The Board and management would like to acknowledge the outstanding efforts of the Company’s employees during the exploration and development of its mineral properties, the operation of the Lisbon Valley mine and the recent difficulties experienced by the Company. We would also like to thank the vendors and professional service providers who have supported our efforts in this difficult time.”