02/07/2009 - 17:46

Iron price talks delay Territory deal

02/07/2009 - 17:46

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Territory Resources has extended its standstill agreement with its financiers until mid-August, prompted by the delay of a settlement in a benchmark iron ore price between China and the major miners.

Territory Resources has extended its standstill agreement with its financiers until mid-August, prompted by the delay of a settlement in a benchmark iron ore price between China and the major miners.

In an announcement released after market close today, cash-strapped Territory said it had extended the agreement to enable talks to continue over a proposed restructure of its $72 million debt and a potential equity raising.

The arrangment was first entered into in April, where the bank and Hong Kong company Noble Group agreed they would not call for repayment of Territory's loans by the June 30 deadline.

Last month, Territory, which operates the Frances Creek iron ore mine in the Northern Territory, placed its shares in a trading halt pending the release of an announcement regarding the finalisation of a debt restructure plans.

Shares in Territory last traded at 22.5 cents.

"The finalisation of our funding arrangements has been unavoidably put back due to the delays in the settlement of benchmark iron ore prices in China," Territory managing director Andy Haslam said.

"This extension will allow time for all parties to continue to work together positively and cooperatively to achieve a sustainable and positive long-term outcome for the Company and its shareholders which enables Territory to realise its longer-term growth potential."

The deadline for iron ore price negotiations expired at the end of June, and reports out today suggest China is aiming to resolve price talks at the end of this month.

China is chasing a larger discount to iron ore prices as compared to Japan and South Korea, which have both accepted a 33 per cent cut.

Under the extension to August 12, Territory said it had entered into an agreement with its bank to refinance the short term facilities, which has increased the loan amount to $15.5 million.

Additionally, offtake partner Noble has agreed to extend the repayment date of a $29.5 million loan to August 12 or at a later date as agreed to by both parties.

Territory said once the debt restructuring and equity raising plans are complete, it will seek the reinstatement of its shares for trading on the local stock market.

Territory also noted that it will receive an upfront payment of $2.9 million from Monarch Gold Mining following a creditors meeting earlier this week, which approved the recapitalisation plan as proposed by Stirling Resources.

Territory was one of Monarch's largest creditors.

In total, Territory will receive $25.5 million from Monarch, which went into administration last year, over staggered payments.

 

 

The announcement is below:

 

 

Territory Announces Extension to Standstill Arrangement with Financiers

KEY POINTS

- Tripartite Standstill Agreement with the Company's financiers extended by six weeks to 12 August 2009

- This enables negotiations to continue for a proposed Debt Restructure and a potential Equity Raising

- Monarch Gold Recapitalisation Deed approved by creditors, under which Territory would potentially recover the full amount of $25.5M owing over two years, if the transaction is completed

- The Frances Creek Mine has maintained production at an annualised rate of more than 2.2 million tonnes per annum, at a cost for the quarter of approximately $50/t loaded at Darwin Port.

Territory Resources Limited (ASX: TTY - "Territory" or "the Company") advises that it has reached agreement with its financiers, the hedge book facility provider ("Bank") and Noble Resources Limited ("Noble"), for a six week extension of the previously announced Tripartite Standstill Agreement to 12 August 2009 to enable the implementation of a comprehensive long-term debt reconstruction of the Company.

Under the previous standstill arrangements (as announced on 1 April 2009), the parties agreed not to enforce their rights under the financial instruments until 30 June 2009 to allow time to negotiate arrangements for the conversion of short-term debt into a suitable long-term structure.

The Company has today signed a Variation and Restatement Agreement - Standstill Agreement that has extended the standstill period until 12 August 2009 or such later date as agreed by the parties to allow for the implementation of a comprehensive debt reconstruction. The extension is subject to no event of default occurring under the standstill arrangements.

The Company has also entered into the following loan agreements:

- a Restatement Agreement - Loan Agreement with the Bank to refinance the short term loan facilities that were used to crystallise the Company's foreign exchange hedge contracts. The total loan amount under the new loan agreement is $15.5 million and is repayable on 12 August 2009 or such later date as agreed between the parties; and
- a Supplemental Deed to the Noble Loan Agreement that extends the repayment date of the $29.5 million loan by Noble to the Company to 12 August 2009 or such later date as agreed between the parties.

Territory is continuing negotiations with the various parties to finalise suitable arrangements for the debt restructure and proposed equity raising. The Company has placed its securities into voluntary suspension while these confidential discussions continue. Once finalised, the Company will make an announcement on the proposed arrangements and seek reinstatement of its securities for trading on the Australian Securities Exchange.

"This six week extension reflects the commitment of the parties to settle on the necessary debt restructure and the positive view adopted by the Company's financiers of the significant operational improvements achieved over the past six months, with consistent production at an annualised rate of 2.2 Mt achieved and operating costs now below A$50/tonne loaded on the boat at Darwin," commented Territory's Managing Director Andy Haslam.

"The finalisation of our funding arrangements has been unavoidably put back due to the delays in the settlement of benchmark iron ore prices in China. This extension will allow time for all parties to continue to work together positively and cooperatively to achieve a sustainable and positive long-term outcome for the Company and its shareholders which enables Territory to realise its longer-term growth potential," he added.

As part of the standstill arrangements and to facilitate the debt restructure, the Company entered into a Security Trust Deed on 1 April 2009 under which it has granted a fixed and floating charge over the Company's assets, a mortgage over its shares in key subsidiaries and a mining tenement mortgage over its Frances Creek Mining Leases to secure the funding provided by the Bank and Noble.

In accordance with the ASX Listing Rules, a General Meeting of shareholder has been convened for 16 July 2009 at 2.00pm WST to seek shareholder approval for the provision of the security to Noble (see Notice of Meeting dispatched to shareholders on 12 June 2009 for further details).

Territory also notes that the meeting of creditors of Monarch Gold Mining Company Limited ("Monarch") was recently held at which a Varied Deed of Company Arrangement and associated recapitalisation and restructure of Monarch was approved by creditors. Territory notes that, under the approved recapitalisation proposal, the Company would recover approximately $2.9 million upfront with the recovery of the balance of the full $25.5 million owed by Monarch being dependant on the various parties being able to complete the transaction over the course of the next two years. Under the proposal Territory will receive:

- $2,961,000 upon completion;
- Beneficial entitlement of the proceeds from the Minjar Project sale;
- The proceeds from the sale of the Davyhurst and Siberia Projects (if any); and
- A payment for the remainder of the $25.5 million outstanding (if not fully satisfied by the above payments) in two years from completion of the proposed recapitalisation transaction.

 

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