Adanac avoids ‘fire-sale’ for 28 days

Vancouver – With more than US$80 million owed on a bridge-loan maturing Jan. 31, 2009, and about $100 million committed to construction of its Ruby Creek molybdenum project, but only $16 million in the bank as of Dec. 16 and no financing in sight, the B.C. Supreme Court has agreed to give Adanac Molybdenum (AUA-T) an initial 28 days of protection from its creditors.

In an affidavit filed Dec. 19 Adanac CEO Peter Jones argued that “Adanac requires time to weather the current financial crisis” and a “fire-sale atmosphere would likely result in minimal recovery for the Lenders and almost assuredly no recovery for its unsecured creditors.”

The court gave Adanac until Jan. 16 to submit a restructuring plan at which time it may also receive an extension to creditor protection under the Companies’ Creditors Arrangement Act (CCAA).

This spring the future of Adanac, with its gargantuan, US$647-million, Ruby Creek molybdenum project near Atlin B.C., looked rosier. At the end of May it secured a US$80 million bridge loan and began ordering and paying for long lead-time equipment.

Although short of the nearly US$650 million Adanac estimated it needed to complete the project, at the time, with moly flying above US$30 per lb., it hoped to raise the rest of necessary funding by the end of December and begin construction in February, 2009.

But as the price of moly began tumbling mid-October, eventually settling at just above US$10 per lb., so too did Adanac’s hopes of finding financiers.

“Although months ago Adanac was able to raise $80 million in debt financing…at present, the global liquidity crisis and the dramatic fall in resource prices have combined to make it difficult to secure additional financing,” Jones said, “an indication that investors are concerned about the value of the project.”

Jones told the court that without any imminent cash infusion it became clear that Adanac would not meet looming loan repayments. Adanac doesn’t “expect to be in a position to repay the Notes when they come due Jan. 31. (2009),” he said.

In the near-term Jones said Adanac can repay $13.8 million of the bridge loan, including interest due Jan. 7, 2009.

It bears 15% interest a year, payable in quarterly arrears. But if Adanac defaults on payment, the interest rate increases by 3%. Since May Adanac has paid nearly US$8 million in interest on the loan.

Adanac also owes a 5% premium on the loan when it matures Jan. 31.

In addition to the loan, Jones also told the court Adanac is overdue on equipment payments and has a couple of outstanding financial disagreements.

Adanac has paid for $54 million, and committed another $84 million, on equipment destined for the Ruby Creek project.  Jones said about $4 million of that is overdue.

Jones also said that AMEC, a consultancy firm, has placed a lien against it for two outstanding invoices worth just under $2 million. But he countered AMEC’s action, saying “in Adanac’s view, the amount of the two invoices issued by AMEC was excessive in relation to the actual services provided by AMEC.”

As a result Adanac considers the lien invalid, he said.

Jones also said that Olympus Securities had filed suit against Adanac in US courts on matters related to financial services Olympus allegedly provided. That remains unresolved.

“The only way that any of Adanac’s other creditors will see any recovery is if the moly markets rebound making the development of the Ruby Creek Project once again financially viable,” Jones said.

For at least the next 28 days, however, Adanac will be protected from those creditors under the CCAA umbrella.

That allows Adanac a bit of the breathing room that Jones argued in his affidavit would give Adanac time to “better explore refinancing options.”

On news of receiving creditor protection Adanac dropped 4¢ to close at 1.5¢.