Summo tables restructuring plan (April 02, 2002)

Facing a cash crunch and a US$136 million price tag to bring its Terrazas copper-zinc project into production, Summo Minerals (SMA-T) has announced a plan to settle all of its outstanding debt and restructure its share capital.

Under the plan, Summo plans on re-pricing its outstanding warrants, which currently number more than 99.4 million. About 80.5 million are held by Resource Capital Funds I and II and are exercisable at prices ranging from 12 to 20. Another 17.5 million warrants, exercisable at 12 apiece, are held by St. Mary Minerals. The exercise price of St. Mary’s warrants will be reduced to 10 per share. Additionally, St. Mary and RCF will exercise all of their respective warrants, resulting in the issue of more than 98 million Summo shares.

Of the proceeds, about $14.1 million will go to pay down more than $19 million owed to St. Mary and RCF. The remaining debt owed the two will be converted into equity in Summo at a rate of 5.25 per share for St. Mary and 7 per share for RCF. In all, the conversion will see nearly 72.1 million shares issued. RCF will also convert its outstanding US$1.1 million convertible note into another 31.6 million shares at 5.5 per share.

In the end, Summo will have no residual debt and a total of about 285.1 million shares issued and outstanding.

Also under the plan, Summo plans a rights offering to existing shareholders. The offering will aim at raising about $5.7 million via the issuance of up to 71 million shares. RCF has agreed to provide a standby commitment for the proposed offering. The fund has also agreed to advance Summo working capital funds until the offer closes. The loan will bear interest at the 30-day LIBOR rate, and is repayable from the proceeds of the rights offering. Summo expects the deal to generate about $5.15 million in cash.

Following that, Summo plans to consolidate its shares on a 1-for-10 basis. The company will also apply for a name change and a continuation from British Columbia to the Federal jurisdiction of Canada.

When all is said and done, Summo will have some 35.6 million shares issued and outstanding.

The entire plan is subject to regulatory approval. The proposed share consolidation, name change and continuation are also subject to shareholder approval, which will be sought at Summo’s annual general meeting slated for June 21.

In March, a positive feasibility study indicated that a solvent extraction-electrowinning (SX-EW) operation at the Terrazas project in Chihuahua state, Mexico, is economic.

A proposed open-pit operation would target the deposit, an oxide copper-zinc body, at a daily rate of 15,000-20,000 tonnes. The 58.3 million tonnes resource grading 0.35% copper and 0.57% zinc would support mining at that rate for 11 years. A number of satellite prospects have the potential to expand or extend the life of the mine.

The study pegs annual production at 18,000 tonnes of copper cathode and 27,000 tonnes of zinc ingot. Cash cost are estimated at US$770 per tonne copper and US$550 per tonne zinc.

For the nine months ended September, 2001, the last report period available, Summo lost US$1.6 million or 3 per share. The company posted a deficit of US$9.7 million.