Quadra Mining Ltd. and Centenario Copper Corporation are pleased to announce that they have entered into a definitive agreement whereby Quadra is expected to acquire, by Plan of Arrangement, all of the issued and outstanding common shares of Centenario at an exchange ratio of 0.28 Quadra common shares for each whole Centenario common share (the "Transaction"). The consideration to Centenario's shareholders represents approx. a 6.6% premium on the 20-day volume weighted average trading price of both companies on the TSX and approx. a 12.9% premium over Centenario's closing price as at Feb. 6th, 2009.
Centenario's principal asset is the Franke SX/EW, heap leach project in northern Chile, containing an NI 43-101 compliant estimated mineral reserve, as prepared by Centenario's QPs, of 41.7 million tonnes with an average grade of 0.75% total copper. The Franke processing plant is designed with a nominal design capacity of 70 million pounds of annual production of copper cathode over its estimated current 8.6 year mine life. The mineral reserves reflect today's release by Centenario of an updated mine plan, mineral reserves and operating and capital costs for the Franke project (the "Updated Information"). Centenario is currently preparing a new NI 43-101 compliant report which will include the Updated Information and other prescribed information which will be issued prior to the mailing of the Information Circular to Centenario shareholders. Quadra is aware of the input data, as provided under a confidentiality agreement, and has considered this in its offer to Centenario, but has not been involved in the new 43-101 as above.
On Nov. 13th, 2008, Centenario reported that the Franke project faced a projected funding shortfall of US$ 26 million, due to additional capital and working capital requirements. On Nov. 20th, 2008 Centenario reported that, with the consent of its lenders (the "Lenders"), it had repurchased a portion of its outstanding 2010 copper hedge contracts for net proceeds of US$26 million (the "Hedge Proceeds"), which were placed into an escrow account with its Lenders. The release of the Hedge Proceeds were subject to i) the completion, to the satisfaction of the Lenders, of due diligence activities underway by the Lenders' Technical Agent in relation to an updated Franke Development Plan and ii) the Company's ability to continue to meet the terms of the existing Franke Credit Facility, or such amendments as the Lenders shall require.
As of the date hereof, Centenario has not yet reached agreement with its Lenders for the release of the Hedge Proceeds, or an equity funded Cost Overrun account and the remaining credit available under the facility. The combination with Quadra should allow Centenario to restructure or refinance its existing loan and resolve its funding shortfall.
Based on the currently anticipated restructured debt amount, Quadra and Centenario estimate that an additional US$25 million in funding will be required to bring the Franke project to positive cash flow, based on the current Centenario start-up schedule. In connection with the Transaction and to provide Centenario with liquidity support, Quadra has agreed to loan Centenario up to US$3.5 million and subscribe for 10.24 million treasury common shares of Centenario, at a subscription price of CDN $0.80 per share, for a total aggregate investment of approx. US$10 million. The loan and share subscription are conditional upon, among other things, Centenario entering into a commitment letter with its existing or new lenders, by no later than March 31st, 2009, with respect to the restructuring or refinancing (the "Centenario Debt Restructuring") of Centenario's senior indebtedness on terms that are acceptable to Quadra, in its sole discretion and judgment, and the approval of the TSX. The proceeds from the loan and subscription will be used by Centenario for the Franke project, and form part of the estimated US$25 million net funding need. Upon completion of the plan of arrangement, Quadra would commit the remaining portion of the US$25 million funding required by the Franke project, based on the current Centenario start-up schedule.