New Elk owner gets financial restructuring package; Keeping company liquid, getting contract key to reopening
Cline Mining Company, owner of the New Elk Coal Mine west of Trinidad, announced Thursday that it has entered into a financial restructuring agreement with Marret Asset Management providing for a financial restructuring of Cline Mining, a Toronto-based company. It was announced Dec. 18, 2012, that Cline Mining was unable to make its semi-annual interest payment of $2.5 million on $50 million of 10 percent secured bonds. The restructuring package will assist Cline’s efforts to develop a long-term financial solution to address to address the uncertainty regarding the magnitude and extent of the downturn in the coal markets, according to a press release regarding the restructuring.
The main reason for Cline’s current financial difficulties was the suspension of operations at the New Elk Coal Mine, as announced by Cline in July 2012, according to the release. Production from New Elk was halted after a decline in the market for the metallurgical coal the mine produced. The closure of the mine was required to manage costs. The New Elk Mine was listed as “the only revenue generating mining asset of Cline,” before production was halted. The mine remains closed pending improved market conditions.
The mine employed about 300 people early in 2012, but a series of layoffs throughout the year resulted in the mine halting production.
Under the terms of the Restructuring, adjustments will be made to the terms of Cline’s outstanding 10 percent senior secured bonds (the “bonds”) and, subject to approval by the Toronto Stock Exchange (the “TSX”), the exercise price of Cline’s outstanding share purchase warrants will be changed and additional securities of Cline will be issued.
The bonds were issued under a trust indenture (the “Trust Indenture”) dated as of Dec. 13, 2011, between Cline, Computershare Trust Company of Canada (the “Trustee”) and Marret. In connection with the execution of the Trust Indenture and the issuance of the bonds, Cline issued 10 million warrants (the “Existing Warrants”) to certain bondholders. Each Existing Warrant currently entitles the holder to purchase one common share of Cline at a price of $1.15 (in Canadian dollars) until May 14, 2015, according to the release.
Ken Bates, Cline’s chairman and CEO put a positive spin on the restructuring package.
“This restructuring is an important step in the (Cline’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,” Bates said.
The restructuring package will also include a recapitalization plan, unless Cline is sold by April 30, 2013, according to the release.
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 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.
As the restructuring will result in the issuance of common shares to the bondholders in excess of 25 percent of the number of currently outstanding common shares of the company and at a price that is at a significant discount to the current market price of the common shares, the restructuring would ordinarily require shareholder approval under the requirements of the TSX. However, the company has applied for an exemption from the shareholder approval requirement on the basis of financial hardship, given that the immediacy of Cline’s need to address its financial difficulties through the restructuring does not afford it sufficient time to hold a meeting of shareholders, according to the release. Dave Stone, manager of the New Elk Mine, said in a Thursday phone call that he looks on the restructuring as a very positive move, helping restore the company’s liquidity as it moves forward with its future plans. Stone said he’s in negotiations right now with several potential buyers of the mine’s coal. He said the 22 current employees working at the mine site would keep their jobs. He said the question of when the mine would begin mining coal again depended on how the negotiations proceed.
“We’re in negotiations right now with several parties who are interested in buying our coal,” Stone said. “We don’t know yet when the mine will reopen. It could take days, weeks or months, and it all depends on how things go with the negotiations. The most important thing is that we now have our liquidity restored.”