Summo tables restructuring plan (April 08, 2002)

Facing a cash crunch and a US$136-million price tag to advance its Terrazas copper-zinc project in Mexico, Summo Minerals (SMA-T) intends to settle all its outstanding debt and restructure its share capital.

Under the plan, Summo will reprice its outstanding warrants, which currently number more than 99.4 million. Resource Capital Funds I and II hold a total of 80.5 million warrants, and these are exercisable at prices ranging from 12 to 20. St. Mary Minerals holds 17.5 million warrants exercisable at 12 apiece, though the exercise price of these will be reduced to 10 per share. St. Mary and RCF intend to exercise all their warrants, resulting in the issuance of more than 98 million Summo shares.

Of the proceeds, $14.1 million will be used to pay down more than $19 million owed to St. Mary and RCF. The remaining debt owed to the two will be converted into equity in Summo at the 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 notes into 31.6 million shares at 5.5 per share.

Meanwhile, Summo has announced a rights offering to existing shareholders. The offering is designed to raise $5.7 million via the issuance of up to 71 million shares. RCF has agreed to provide a standby commitment for the proposed offering and to advance Summo working capital funds until the offer closes. The loan will bear interest at the 30-day London Interbank Offer Rate and is repayable from the proceeds of the rights offering. Summo expects the deal to generate $5.1 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.

In the end, Summo is expected to have no debt plus 35.6 million shares issued and outstanding.

The entire plan has yet to be approved by shareholders and regulators.

In March, a positive feasibility study indicated that a solvent extraction-electrowinning operation at the Terrazas project is economic. The project is in Mexico’s Chihuahua state.

A proposed open-pit mine at the oxide copper-zinc property would operate at the daily rate of 15,000-20,000 tonnes. The 58.3-million tonne resource grading 0.35% copper and 0.57% zinc would support mining at that rate for 11 years. Numerous 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 costs are estimated at US$770 per tonne copper and US$550 per tonne zinc.

For the nine months ended Sept. 30, 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.