EXHIBIT 10.34
** Portions of this Exhibit Redacted **
[LETTERHEAD]
BY FAX March 4, 1997
Mr. Gregory A. Hahn
President and C.E.O.
Summo Minerals Corporation
900 Denver Center Building
1776 Lincoln St.
Denver, CO 80203
Re: Commitment - Lisbon Valley Copper Project (the "Project") $45 Million
Financing
Dear Mr. Hahn:
We are pleased to inform you that we have received credit approval for the
above referenced $45 million project financing facility (the "Facility").
This letter will serve as ING (US) Capital Corporation's ("ING Capital")
commitment to underwrite $27.5 million of the Facility, subject to the terms
and conditions set forth in the attached Definitive Term Sheet and completion
of ING Capital's legal and technical due diligence. It is our understanding
that the Facility's co-underwriter, Heller Financial, Inc. has also received
the requisite credit approvals and will, under separate cover, confirm to you
their firm commitment to underwrite $17.5 million of the Facility.
As discussed, the attached Definitive Term Sheet incorporates the revisions
agreed to by ING Capital, including the following:
1. The Ore Reserves will be increased to permit at least two additional
years of production as a condition of Commercial Completion.
2. The Economic Test for Commercial Completion will require achieving the
following Debt Coverage Ratios:
Life of Loan at least 1.50
Life of Reserves at least 1.75
3. Following Commercial Completion, distributions of Cash Flow
Participation will be permitted so long as there exist no events of
default and the Debt Coverage Ratio is at least 1.50.
We are at this time not able to commit to the $7.0 million hedging facility.
We see this facility as being in the best long term interest of the Borrower.
We propose to revisit this matter and to give it consideration within the
next twelve months.
ING GROUP
135 East 57h Street New York, New York 10022-2101
Telephone: (212) 446-1500 Fax: (212) 644-0428
Telex: TRT 177792 RCA INTL 238686 ITT INTL 428379
Mr. Gregory A. Hahn
March 4,1997
Page 2 of 2
If you are in agreement with the foregoing and the terms and conditions
provided for in the attached Definitive Term Sheet, please sign in the space
provided below and return a signed copy to my attention prior to the close of
business on March 7, 1997. Please be advised that the contents of this letter
(including the attached Definitive Term Sheet) are confidential and may not
be disclosed to any third party (other than your legal or accounting
advisors) without the prior written consent of ING Capital and Heller.
In addition, by signing below, you agree to jointly and severally indemnify
and hold harmless ING Capital and each of its directors, officers, employees
and affiliates (collectively, the "Indemnified Parties") from and against any
damages, losses, claims, liabilities, demands, charges, suits, costs and
expenses (including court costs and reasonable attorneys' fees and expenses)
(collectively, the "Indemnifiable Costs"), which any Indemnified Parties may
sustain, or to which any of the Indemnified Parties may be subject, or which
in any way relate to or result from the Project, this letter, the attached
Definitive Term Sheet or the financing contemplated thereby (other than those
Indemnified Costs which result primarily from the gross negligence or willful
misconduct of such Indemnified Parties). The provisions of this paragraph
shall survive any termination of this letter or the attached Definitive Term
Sheet.
Again we are pleased to lead this transaction and very much look forward to
working with you and your team on this exciting project.
Sincerely,
ING (U.S.) Capital Corporation
/s/ Ricardo M. Campoy
Ricardo M. Campoy
Managing Director
AGREED AND ACCEPTED AGREED AND ACCEPTED:
this 5th day of March 1997 this 5th day of March 1997
on behalf of SUMMO MINERALS CORPORATION on behalf of SUMMO USA CORPORATION
By: /s/ Gregory D. Hahn By: /s/ James D. Hahn
----------------------- ---------------------
Name: Gregory D. Hahn Name: James D. Hahn
----------------------- ---------------------
Title: President and CEO Title: V.P. Finance and CFO
----------------------- ---------------------
cc: Mr. Mark Condon
James H. Dunnett
Hovey Kemp
[LETTERHEAD]
March 5, 1997
Summo Minerals Corporation
Summo USA Corporation
900 Denver Center Building
1776 Lincoln Street
Denver, CO 80203
Attn: Mr. Gregory A. Hahn
Re: Commitment - Lisbon Valley Copper Project (the "Project")
$45 Million Financing
Dear Mr. Hahn:
We are pleased to inform you that we have received credit approval for the
above referenced $45 million project financing facility (the "Facility").
This letter will serve as Heller Financial Inc.'s ("Heller") commitment to
underwrite $17.5 million of the Facility, subject to the terms and conditions
set forth in the attached Definitive Term Sheet and completion of Heller's
legal and technical due diligence.
If you are in Agreement with the foregoing and the terms and conditions
provided for in the attached Definitive Term Sheet presented by Heller and
ING (U.S.) Capital Corporation ("ING Capital"), please sign in the space
provided below and return a signed copy to my attention prior to the close of
business on March 7, 1997. Please be advised that the contents of this letter
(including the attached Definitive Term Sheet) are confidential and may not
be disclosed to any third party (other than your legal or accounting
advisers) without the prior written consent of Heller and ING Capital.
In addition, by signing below, you agree to jointly and severally indemnify
and hold harmless Heller and each of its directors, officers, employees and
affiliates (collectively, the "Indemnified Parties") from and against any
damages, losses, claims, liabilities, demands, charges, suits, costs and
expenses (including court costs and reasonable attorneys' fees and expenses)
(collectively, the "Indemnifiable Costs"), which any Indemnified Parties may
sustain, or to which any of the Indemnified Parties may be subjected, or
which in any way relate to or result from the Project, this letter, the
attached Definitive Term Sheet or the financing contemplated thereby (other
than those Indemnifiable Costs which result primarily from the gross
negligence or willful misconduct of such Indemnifiable Parties). The
provisions of this paragraph shall survive any termination of this letter or
the attached Definitive Term Sheet.
Mr. Gregory A. Hahn
March 5, 1997
Page 2
Again, we are pleased to be taking part in this transaction and very
much look forward to working with you and your team on this exciting project.
Sincerely,
HELLER FINANCIAL. INC.
/s/ Mark S. Condon
Mark S. Condon
Vice President
AGREED AND ACCEPTED:
SUMMO MINERALS CORPORATION
By: /s/ Gregory A. Hahn
-----------------------------
Name: Gregory A. Hahn
-----------------------
Title: President and CEO
-----------------------
SUMMO USA CORPORATION
By: /s/ James D. Frank
-----------------------------
Name: James D. Frank
-----------------------
Title: V.P. Finance and CFO
-----------------------
cc: Ricardo M. Campoy
DEFINITIVE TERM SHEET
THE PROJECT: The development, construction, and operation of copper
mining facilities within the mining claims at Lisbon Valley
in east central Utah, as described in the October 1996
Update of Feasibility Study prepared by Roberts & Schaefer
(the "Feasibility Study").
BORROWER: A newly formed special purpose company, as sole owner and
operator of the Project.
GUARANTORS: Summo USA Corporation, a US corporation, and;
Summo Minerals Corporation, a Canadian corporation.
AGENT & ING Capital.
ARRANGER:
UNDERWRITERS: ING Capital and Heller Financial, Inc.
LENDERS: ING Capital and Heller Financial, Inc. and one or more
financial institutions acceptable to the Underwriters, the
Borrower, and the Guarantors.
FACILITY: The Underwriters commit to provide their respective share
for up to a $45.0 million senior credit facility as
detailed below:
ING Capital $27.5 million
Heller Financial, Inc. $17.5 million
EQUITY: The Borrower will place, in cash, a minimum of $13.2
million into the Proceeds Account to satisfy the Lenders
that these funds are available for the Project prior to
drawdown of the Facility.
PURPOSE: Drawdowns to be used solely to fund expenditures identified
in the following Sources and Uses:
SOURCES: MILLION USES: MILLION
------------------- ---------------------------------------
Equity 13.2 Construction Costs $42.0
Debt facility 45.0 Working Capital & Preprodn 4.6
Capitalized Interest & Fees 3.0
Contingency 3.6
----
53.2
Debt Service Reserve 5.0
----
Total $58.2 Total $58.2
----- ----
----- ----
AVAILABILITY: The Facility will be drawn on the basis of an agreed
Development and Operating Plan, each draw being no more
frequently than monthly, and each draw to be
approved/certified by the Independent Engineer.
Page 1 of 9
FINAL No later than December 31, 2005.
MATURITY:
SCHEDULED Facility repayments shall be in quarterly installments
REPAYMENTS: commencing six months after Commercial Completion, but not
later than March 31, 1999. The anticipated repayment
schedule (Exhibit I) is structured in recognition of the
Project's currently projected Cash Available for Debt
Service.
MANDATORY Mandatory Repayments equal to the Prescribed Percentage of
REPAYMENTS: Excess Cash Flow will be made quarterly within 45 days of
quarter-end. Mandatory Repayments will be applied to
Scheduled Repayments in their inverse order of maturity.
Following achievement of Commercial Completion, the
Prescribed Percentage will be 50%, except that, if the then
Ore Reserves provide for a mine life of 24 months or more
beyond Final Maturity, then, if the lower of the Debt
Coverage Ratio and Historic Debt Coverage Ratio is between
1.5 and 2.0, the Prescribed Percentage for that quarter
will be 25%, and if it is greater than 2.0, then 0%.
VOLUNTARY The Borrower may prepay all or a portion of outstandings
REPAYMENTS: without penalty, such prepayments to be applied in their
inverse order of maturity. The Borrower will reimburse
Lenders for funding costs associated with making repayments
on non-interest rollover dates.
EXCESS CASH Cash Available for Debt Service less Debt Service.
FLOW:
CASH AVAILABLE Gross revenue less all associated royalties, cash
FOR DEBT production costs, taxes, non-discretionary capital
SERVICE: expenditures, and working capital changes.
DEBT SERVICE: Scheduled principal and interest payments.
ORE RESERVES: Those ore reserves certified by the Independent Engineer as
being proven and probable.
CAPITAL Those expenses necessary for the development of the Project
EXPENDITURES: and which will be more fully described in the Development
Plan.
DEBT COVERAGE Debt Coverage Ratio shall be the ratio of Cash Available
RATIO: For Debt Service plus the balance in the Debt Service
Reserve to Debt Service through the Facility's Final
Maturity as projected under the Development and Operating
Plan. Gross revenue will be calculated using the actual
hedged price for all future hedged production, and the
unhedged price for the balance. The unhedged price will be
the lesser of (1) the average of the historic 12 monthly
spot price, (2) the then spot price and (3) the average of
the future 12 month LME forward price.
Page 2 of 9
** Portions of this Page Redacted **
HISTORIC DEBT Historic Debt Coverage Ratio shall be the ratio of Cash
COVERAGE Available for Debt Service to Actual Debt Service (interest
RATIO: due and scheduled principal due) over the prior
four-quarter period to date of calculation.
PROCEEDS All proceeds for project development derived from Equity
ACCOUNT & and the Facility, operating cash flows, commodity hedges,
PRIORITY: sales of assets, insurance payments, etc., will be
deposited in the Borrower's Proceeds Account. During
construction a construction sub-account will be operative.
During the operating phase all transactions will be shifted
to the operating sub-account. All disbursements from these
sub-accounts will be made in the following priority: (i)
taxes; (ii) project development costs, Contingency, and
initial Debt Service Reserve; (iii) all operating and
maintenance costs, working capital, and non-discretionary
capital requirements; (iv) debt service; (v) top up of
Debt Service Reserve (if deficient) or reimbursement to
Summo of excess over its initial $5.0 million funding; (vi)
reimbursement to Summo of unused Contingency amount; (vii)
cash flow split to Underwriters and Summo; and (viii)
discretionary expenditures.
INTEREST RATE: LIBOR plus a margin of [**Redacted -- Confidential Treatment
Sought**]% p.a. prior to Commercial Completion and
[**Redacted -- Confidential Treatment Sought**]% p.a.
following Commercial Completion. The Borrower may select
interest periods of 1, 2, 3, or 6 months. Interest to be
paid on the last day of each interest period, but at least
quarterly.
ACCEPTANCE A $[**Redacted -- Confidential Treatment Sought**] fee was
FEE: paid to the Underwriters on the basis of the Guarantors'
acceptance of the Definitive Term Sheet under cover letter
dated December 26, 1996. With delivery of the Underwriters'
firm commitment, this fee has been earned.
AGENT FEE: $[**Redacted -- Confidential Treatment Sought**] p.a. will be
paid to the Agent annually in advance at Closing and annually
thereafter.
ARRANGEMENT [**Redacted -- Confidential Treatment Sought**]% of the
FEE: Facility to be paid at Closing to the Arranger (i.e.
$[**Redacted -- Confidential Treatment Sought**]).
FRONT END FEE: [**Redacted -- Confidential Treatment Sought**]% of the
principal amount of the Facility, less the Acceptance Fee
payable to the Underwriters at Closing (i.e. $[**Redacted --
Confidential Treatment Sought**]).
COMMITMENT [**Redacted -- Confidential Treatment Sought**]% p.a., payable
FEE: quarterly in arrears, on the unutilized amounts under the
Facility, but limited to the amounts not drawndown against an
agreed drawdown schedule.
CASH FLOW For underwriting the Facility, the Underwriters will be
PARTICIPATION: granted additional consideration in the form of 13.5%
(carried) of the Project's Excess Cash Flow calculated
before income taxes over the first 382 million pounds of
copper sold. Cash flow participations will be paid
quarterly within 45 days of quarter-end and will be
annually adjusted.
Page 3 of 9
HEDGING No hedging requirements will be imposed on the Borrower.
REQUIREMENTS:
SECURITY: Prior to Commercial Completion to include, without
limitation (except that if the Borrower is a newly formed
LLC, then this security will be restructured
appropriately):
(1) First and floating priority liens and/or assignments on
all of the Borrower's assets, construction/proceeds
accounts, insurance policies, contracts, rights, permits
that are required under the Facility, and are necessary
to the Borrower's business, and to the Project's
development, operations, and sale of Product.
(2) Pledge of the Guarantors' stock in the Borrower.
(3) The Guarantors' full and unconditional guarantee of the
Borrower's obligations under the Facilities.
(4) Negative pledge over Guarantors' other assets.
Following Commercial Completion, to include, without
limitation, only (1) and (2) above.
DEBT SERVICE The Debt Service Reserve will be maintained with a balance
RESERVE: at least equaling the next 2 quarters' Scheduled Debt
Service and budgeted capital expenditures, but in any event
not less than $5.0 million. Distributions from the Debt
Service Reserve will be permitted to meet these
obligations to the extent that funds are not available from
other sources.
PHYSICAL AND Subject to absence of Events of Default and of Material
COMMERCIAL Adverse Effect, the date upon which the Independent
COMPLETION: Engineer has determined to the Underwriters'
satisfaction that the Project's construction and
development is physically complete and that its operating
performance over an agreed period of time (e.g. 90
consecutive days) generally accords with the Feasibility
Study's projections upon which the Lenders' credit
evaluation was predicated (see Exhibit II for examples).
CONDITIONS The drawdown under the Facility shall be subject to certain
PRECEDENT TO conditions, including, without limitation, absence of
DRAWDOWN OF Events of Default and of Material Adverse Effect, and the
THE FACILITY: Underwriters' satisfaction with the following:
(1) Loan and Security documentation with related legal
opinions.
(2) Assurances as to the corporate existence and authority
of the Borrower and the Guarantor.
(3) The Independent Engineer's technical and environmental
review of the Project.
Page 4 of 9
(4) The Independent Insurance Advisor's opinion that there
is usual and adequate insurance policies with respect
to the Borrower's business and the Project's assets.
(5) Evidence of the necessary regulatory approvals,
licenses, authorizations, and permits having been
issued for the Project.
(6) Funding of Equity.
(7) EPCM and contract mining contracts satisfactory to the
Underwriters. EPCM contract to be fixed cost with
respect to the Construction Costs and include
liquidated damages equal to at least 15% of such
Construction Costs.
(8) A detailed project Development and Operating Plan.
(9) Other documents and third party consents and approvals
as the Underwriters and their Legal Counsel shall deem
necessary or appropriate.
BORROWER'S To include, without limitation:
COVENANTS:
(1) Usual reporting requirements including notifications,
audited financials, monthly Project construction and
operating reports, and quarterly operating plans. The
Lenders reserve the right to have such information
audited by the Independent Engineer.
(2) No additional indebtedness, nor liens and encumbrances
with respect to Security, except in regard to
equipment lease finance attendant to the Brown & Root
contract or, for reasonable purposes in the normal
course of business.
(3) Achieve Commercial Completion by no later than
December 31, 1998.
(4) Maintain the Debt Coverage Ratio greater than or equal
to 1.25, calculated up to Final Maturity and a Historic
Debt Coverage Ratio greater than or equal to 1.25.
Failure to meet either test will result in the
Prescribed Percentage being 100% of Excess Cash Flow
and will be an Event of Default.
(5) Distributions of Cash Flow Participation will be
permitted after Commercial Completion so long as the
Borrower is in compliance and the Debt Coverage Ratio
is equal to or greater than 1.5OX.
Other covenants to include: limits on hedging; conduct of
business; no sale of assets; restricted payments (capital
expenditures); and insurance proceeds.
GUARANTORS' To include, without limitation:
COVENANTS:
(1) Until Commercial Completion, maintain a net worth of at
least $20,000,000, such figure to be revised upward in the
event of a successful equity offering prior to Closing.
Page 5 of 9
(2) Until Commercial Completion, maintain current assets in
excess of current liabilities of at least 3,000,000.
(3) Until Commercial Completion, incur no additional
indebtedness.
(4) Maintain 100% ownership of the Borrower.
(5) Assumption of the Borrower's income tax liabilities.
OTHER TERMS & Representations & Warranties, Events of Default, Material
CONDITIONS: Adverse Effect, and other terms and conditions usual for
Facilities as described herein.
EXPENSES: All consulting, legal, and any other out-of-pocket expenses
incurred by the Lenders in connection with the Facility due
diligence, credit preparation, negotiation, documentation,
execution, administration, and enforcement shall be for the
account of the Borrower. These expenses will remain the
Borrower's responsibility in the event that for whatever
reason the transaction does not close.
EXCLUSIVITY The Borrower and the Guarantors undertake not to solicit or
& COMMITMENT: negotiate with other parties for the provision of competing
financing for the Project for a period of 120 days
commencing on January 2, 1997 (i.e. from acceptance of the
Definitive Term Sheet dated December 26, 1996). The
Underwriters' commitment will terminate at the end of this
period.
CONFIDENTIALITY: Borrower, Guarantors, and any of their affiliates agree to
not release any material terms contained herein to third
parties not related to this transaction, without the
written consent of the Underwriters, except as required by
law. Any press releases regarding the Facility are to be
agreed in advance with the Underwriters.
INDEPENDENT The Winters Company.
ENGINEER:
LEGAL COUNSEL: Davis Graham & Stubbs.
GOVERNING LAW/ This Definitive Term Sheet and all other subsequent credit
JURISDICTION/ documentation among the Lenders, the Borrower, and the
JURY TRIAL Guarantor will be governed by and construed in
WAIVER: accordance with the laws of the State of New York
(excluding any conflict of laws provisions). The parties
hereto hereby waive all rights to a trial by jury with
respect to the matters set forth herein.
Page 6 of 9
EXHIBIT I
REPAYMENT SCHEDULE
($ 000)
TOTAL TOTAL
YEAR # YEAR QUARTER QUARTER ANNUAL
1 1998 1st
2nd
3rd
4th
--------------------------------------------
2 1999 1st $1,250
2nd $1,250
3rd $1,250
4th $1,250
--------------------------------------------
$5,000
3 2000 1st $1,250
2nd $1,250
3rd $1,250
4th $1,250
--------------------------------------------
$5,000
4 2001 1st $1,250
2nd $1,250
3rd $1,250
4th $1,250
--------------------------------------------
$5,000
5 2002 1st $1,250
2nd $1,250
3rd $1,250
4th $1,250
--------------------------------------------
$5,000
6 2003 1st $1,750
2nd $1,750
3rd $1,750
4th $1,750
--------------------------------------------
$7,000
7 2004 1st $2,250
2nd $2,250
3rd $2,250
4th $2,250
--------------------------------------------
$9,000
8 2005 1st $2,250
2nd $2,250
3rd $2,250
4th $2,250
--------------------------------------------
$9,000
Total $45,000
-------------
-------------
Page 7 of 9
EXHIBIT II
PHYSICAL COMPLETION EXAMPLE
1. The plant, equipment, and related infrastructure have been completed and
installed essentially as described in the Feasibility Study
[Development and Operating Plan and/or EPCM Contract] and shall have been
commissioned.
2. All construction costs have been paid in full and the Project shall be
free and clear of any lien, charge or encumbrance of any kind not
permitted under the loan documents and free and clear of any
materialmen's liens arising in connection with the construction of the
Project.
3. All governmental, regulatory and third party permits, licenses, consents
and approvals necessary for a continuous operation of the Project in
accordance with the Feasibility Study are in full force and effect.
4. Management and a work force in appropriate numbers and with the
appropriate qualifications are on the job in accordance with good mine
operating practice.
5. The required insurance is in full force and effect as certified by the
Independent Insurance Advisor.
COMMERCIAL COMPLETION TEST EXAMPLES
Commercial Completion shall occur on the date on which (a) there is no Default
or Event of Default and (b) the Independent Engineer submits to the Agent a
certificate stating that (i) the conditions set forth below have occurred and
are correct and (ii) the conditions required for Physical Completion continue to
be satisfied by the Borrower.
1. For 30 consecutive days, after pregnant leach solution ("PLS")
strengths and flows have been built up to permit the continuous, full
operation of the solvent extraction and electrowinning plants, the
Project has produced at least [xx] tons of Class I copper cathodes
meeting LME "A" Grade specifications ("Product") during which period such
production has totaled at least [yy] tons for 10 consecutive days.
2. For 90 consecutive days following satisfaction of the test set forth in
paragraph 1 above, cumulative production of Product has been no less than
90% of cumulative copper cathode production calculated in accordance with
the Feasibility Study to be recoverable from the actual ore placed and
leached on the heap leach pad since Physical Completion.
page 8 of 9
3. The Ore Reserve as defined in the Feasibility Study has been increased in
an amount sufficient to allow at least an additional two years of full
production;
4. The cumulative grade, tonnage and contained copper of at least [X,000,000]
consecutive tons measured by the plant head sampling systems have each
been no less than 90 percent of the cumulative grade, tonnage and
contained copper of Ore Reserves fed to the plant, such Ore Reserves,
together with Ore Reserves within stockpiles and planned open pits, being
sufficient to sustain no less than 90% of the ore and Product production
forecasted by the Feasibility Study.
5. For 30 consecutive days within the test period referenced in paragraph 2
above, aggregate operating costs per ton of ore mined and processed and
per pound of Product produced have each been less than 110% of the
Feasibility Study's unescalated unit operating costs projected for the
Ore Reserves mined and processed. Operating costs shall include all
direct and indirect cash costs incurred by the Project toward the
production and sale of Product.
6. For 30 consecutive days within the test period referenced in paragraph 3
above, at least (Y,000,000) tons of ore and waste have been mined and
delivered to their respective crusher, stockpile and waste disposal areas
during which time such mining rate has exceeded (Z,000) ton per day for
10 days.
7. For 30 consecutive days within the test period referenced in paragraph 3
above, at least (A,000) tons of ore has been crushed to 100% at minus (P)
in. during which time such crushing rate has exceeded (B,000) tons per
day for 10 days.
8. For 30 consecutive days within the test period referenced in paragraph 3
above, at least (C,000) tons of crushed ore has been conveyed and stacked
on the heap leach pads during which time such delivery rate has exceeded
(D,000) tons per day for 10 days.
9. For 30 consecutive days within the test period referenced in paragraph 3
above, the flowrate of PLS to the solvent extraction circuit shall
average the equivalent of at least (H,000) kilograms per hour of copper
contained in PLS.
ECONOMIC TEST
In lieu of the tests set forth in paragraphs 5 through 8 above, the Borrower
may elect to satisfy an economic test to be agreed between the Borrower and
the Lenders. For example, to meet the Economic Test, the Debt Coverage Ratio
shall be shown to be in excess of 1.50 for the period remaining to Final
Maturity and 1.75 for the period to end of reserve life.
Page 9 of 9