Mundo Brazil goes broke

SOUTH America-focused Mundo Minerals is seeking protection from creditors under bankruptcy laws after failing to satisfy the requirements of one of its lenders, as it awaits approval to start development of its Crista open pit in Brazil.

The plant at Mundo’s Engenho mine

Its production timeline at this stage has been pushed out to mid-June, with the final licence approval unlikely to be determined until late February.

The company filed for Recuperacao Judicial in a Brazilian court, the Brazilian equivalent to the US chapter 11 process, whereby companies or individuals can file for protection against bankruptcy if unable to service debt or pay creditors.

In a statement, Mundo said the decision was not taken lightly and was only made when it was unable to reach commercial standstill agreements with its secured lenders and creditors after several weeks of negotiations.

This was despite obtaining standstill agreements with three of its four lenders in Brazil.

If the order is granted by the court, Mundo will have an automatic initial 180-day stay period, which will apply to unsecured creditors and to about 43%, or $US3.5 million, of the local Brazilian bank debt.

While it is unclear as to the intentions of the local banks representing 57% of the debt that is excluded from the process, Mundo is hopeful of a favourable outcome.

During the initial stay period, Mundo must present a reorganisation plan within the first 60 days and if unopposed by creditors, it is then automatically approved.

If, however, creditors object to the plan, Mundo said a general creditors meeting would need to be held within 150 days of the court decision.

At prevailing exchange rates, Mundo has in total about $8.1 million of term debt and hire purchase commitments (secured $4.4 million and unsecured $3.7 million), with four local banks in Brazil, relating to its Engenho gold project.

About $1.8 million of the amount is under hire purchase facilities that are secured against plant and equipment.

In addition, Mundo has about $2.5 million of other unsecured creditor liabilities, including employee termination payment liabilities.

It also owes Anglo Pacific Group about $3.4 million under a convertible debenture facility and is in discussions with APG in relation to a standstill for the facility.

“Preservation of the company and its subsidiaries’ assets was a key decision point for the board,” Mundo managing director Ashley Pattison said in a statement.

In the meantime, Mundo intends to apply to the Australian Securities Exchange to keep its shares under suspension while it assesses its available options and is not ruling out asset sales.

It has been a problematic year for Mundo, which was forced to delay the development of Crista after Brazilian authorities declared the area near Crista a national park.

It has since confirmed the park boundaries, which exclude Crista and the Engenho underground mine.

However, Engenho was placed on care and maintenance in October, two months ahead of its planned closure, due to falling production as a result of the delays.

Shares in Mundo were last trading on A4.6c.