Cline Mining (TSX: CMK), hurt by an idled coal mine in Colorado in which it has invested a lot of money lately, said Dec. 27 that it has entered into an agreement with Marret Asset Management, on behalf of certain funds advised by it, providing for a financial restructuring of the company.
Under the restructuring, adjustments will be made to the terms of the company’s outstanding 10% senior secured bonds and, subject to approval by the Toronto Stock Exchange (TSX), the exercise price of the company’s outstanding share purchase warrants will be changed and additional securities of the company will be issued.
The bonds were issued under a trust indenture dated as of Dec. 13, 2011, between Cline, Computershare Trust Co. of Canada (the Trustee) and Marret. In connection with the execution of the trust indenture and the issuance of the bonds, the company issued 10 million warrants (the existing warrants) to certain bondholders. Each existing warrant currently entitles the holder to purchase one common share of the company at a price of C$1.15 until May 14, 2015.
Ken Bates, the President and CEO of Cline Mining, said: “This restructuring is an important step in the Company’s efforts in developing a long-term financial solution to address the uncertainty regarding the magnitude and extent of the downturn in the coal markets.”
As announced on Dec. 18, 2012, the company was unable to make the semi-annual payment of interest on the bonds in the amount of US$2.5m that was due on Dec. 17, 2012. The principal reason for Cline’s present financial difficulties was the suspension of operations at Cline’s New Elk metallurgical coal mine in Los Animas County, Colo., as announced by Cline on July 11, 2012.
Due to economic and recessionary pressures, demand for production from the New Elk mine, which was the only revenue generating mining asset of Cline, had dropped to such an extent that a temporary suspension of production was necessary in order to manage costs. The suspension is still in effect pending improved market conditions. Cline Mining noted.
The restructuring will also include a recapitalization unless, by April 30, 2013, Cline implements a transaction which results in any of:
- a take-over bid of, or other business combination with, Cline in which any person or group of persons acting in concert acquires 50% or more of the equity securities of Cline;
- the sale of all or substantially all of the assets or business of Cline and its subsidiaries, or;
- a recapitalization of Cline, subject to certain conditions including that as a result of such recapitalization Cline receives at least C$35m of gross cash proceeds from the issuance of equity securities or, as a result of such sale, Cline receives sufficient net proceeds to repay all amounts (including interest, premium, principal and other fees) owing on or under the bonds and the other financing documents.
Cline’s management and Board of Directors expects the restructuring to provide the necessary funding in both the short-term and long-term to address Cline’s financial difficulties, including the sustaining of the company for approximately three years of operations under care and maintenance or, alternatively, providing the company with sufficient funding to ramp up operations to production if sales contracts are in place to warrant the recommencement of production, and to fulfill the company’s obligations under the trust indenture. The company said it continues to advance discussions with customers for the sale of its metallurgical coal and will provide an update to the market in the first quarter of 2013.