Quintette seeks major concessions from creditors

A reorganization plan filed with the Supreme Court of British Columbia by Quintette Coal reveals the company is asking its creditors to write off in the order of $485 million in debt. The writeoff would bring the company’s debt down to $215 million, carrying an interest rate of 10% and an amortization schedule to March 31, 1998.

The plan also calls for concessions from a number of other parties. The company says the move is necessary to keep the mining operation viable after an arbitration hearing decision in early 1990 lowered the contract price of the company’s coal to a level well below cost.

As a result of the price drop, Quintette sought protection from bankruptcy in June, 1990, under the Company Creditors Arrangement Act. The company has until March 31, 1991, to obtain creditor approval of its reorganization package.

Quintette is controlled by 50% owner Denison Mines (TSE) which, in 1985, wrote down its carrying value of the mine to zero from $241 million. The mine is near Tumbler Ridge, B.C., and was opened in mid-1984.

Other items in the reorganization include lowering freight charges by about 30% to $17.40 per tonne. British Columbia Rail and Canadian National, the two companies which transport Quintette’s coal to port, are also being asked to forgive a debt of $2.4 million.

Ridley Terminals, the company which owns the port facility near Prince Rupert, B.C., is being asked to cut handling charges to $3.30 a tonne from the current $6.45 as well as forgive $1.7 million in debt.

In addition, the port facility must set aside 50 cents per tonne of the new handing charge for a trust to fund future development of the mine.

Quintette’s coal reserves will be depleted by 1998 and new reserves must be developed to extend the mine life. The new pit, called the Babcock, would extend Quintette’s operating life a further 15 years.

Development of the area would have to be started in 1996 in order to be up and running by 1998. The company estimates the cost of the development including stripping, surface facilities and conveyer to the wash plant would be covered by the funds set aside by the trust.

Prior to developing the new pit Quintette must receive approval from Ridley.

In addition to the cost reductions and debt forgiveness, Quintette will have to convince its customers — various Japanese steel mills — to agree to a floor price of about US$82.76 per tonne in 1990 dollars. The number represents the final price the arbitration panel set for the first quarter of 1991. The customers must also agree to continue to buy 4.75 million tonnes of coal per year.

Trade creditors, owed more than $20 million, are also included in the package. These creditors will be paid in full providing they agree to continue to supply the company under normal credit terms.

If Quintette can get approval of its plan, the company believes it will be able to operate as a viable company. Initial response to the plan by the various parties appears to be mixed.