Sherwood Copper Corporation

Sherwood Copper Corporation

October 17, 2006 07:00 ET

Sherwood Receives Debt Approvals & Executes Forward Sales Program for Minto

C$85 million debt package Arranged, Forward Sales Complete, Concentrate Off-take Agreement Executed

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Oct. 17, 2006) - Sherwood Copper Corporation (TSX VENTURE:SWC) ("Sherwood") today announced that it has received credit approval for a C$85 million senior and subordinated debt package to complete the construction of the high-grade Minto copper-gold mine and has begun drawing on the subordinated facility. The Minto mine is now approximately one-third built and scheduled to commence production in the second quarter of 2007, producing an average of 41 million pounds of copper and 17,295oz of gold per year. In conjunction with the debt arrangements, Sherwood has also entered into forward sales contracts for copper, gold and silver production, as well as an off-take agreement for the sale of concentrates.

"The debt arrangements, forward sales and off-take agreements represent major milestones in the development of the high-grade Minto copper-gold mine," said Stephen Quin, President & CEO of Sherwood. "The Minto mine is approximately one-third built and should be in production during the second quarter of 2007, generating robust returns to shareholders as a result of minimizing share dilution, maximizing leverage but ensuring receipt of high metal prices once production commences. These transactions position Sherwood to continue its growth strategy, both through resource and reserve expansions within the Minto property and through the deployment of our anticipated robust cash flow into other areas."

Debt Package

Sherwood's wholly owned subsidiary, Minto Explorations Ltd. ("MintoEx") has received credit approval from Macquarie Bank Limited for a debt package totalling C$85 million, which is comprised of a C$65 million project loan facility ("PLF") and a C$20 million subordinated debt facility ("SDF"). The PLF carries an interest rate of LIBOR plus 2.25% and is repayable over two years commencing November 30, 2007. The PLF will be drawn in US dollars to mitigate the Minto project's potential exposure to currency fluctuations, given that project revenue will be generated in US dollars. The SDF comprises two tranches, a C$4.3 million Tranche A, which amount has already been drawn on an interim basis, and a C$15.7 million Tranche B. Sherwood intends to repay the initial draw of Tranche A from the proceeds of the PLF before the end of October 2006, which amount can be redrawn at a later date. Tranche B can be drawn after the PLF is fully utilized. The SDF carries an interest rate of LIBOR plus 3.0% and is repayable over one year commencing November 30, 2009.

On the basis that the PLF is used to pay off the initial Tranche A already drawn, Sherwood will issue a net 927,027 warrants on closing (the "Initial Warrants"). Each Initial Warrant can be exchanged for one common share over the next two years on payment of $3.70 per share. Sherwood would be required to issue an additional 755,405 warrants if Tranche B is drawn down, a further 755,405 warrants on any redraw of Tranche A and 848,649 warrants if any amount remains outstanding under Tranche B on September 28, 2007. These additional warrants (all warrants except the Initial Warrants) would be issued at a 20% premium to the 20-day weighted average price of Sherwood's shares at the time of a future draw down, and would expire two years after issuance. The issuance of all warrants is subject to the prior acceptance of the TSX Venture Exchange.

The PLF and SDF are secured against the Minto Project, and are guaranteed by Sherwood, which has pledged its shares in MintoEx as security for the loans. The debt facilities are subject to satisfaction of customary conditions for such facilities, including final documentation, a process that is expected to be completed before the end of October 2006.

"Sherwood appreciates the diligent effort made by Macquarie to optimize the debt package," said Mr. Quin. "We believe that the high leverage level obtained by Sherwood, a junior non-producing company with no other assets, is a testament to the robustness of the Minto Project which has been considerably enhanced by the re-engineering and optimization of the project and the exploration success since acquiring the project in mid-2005. We look forward to working with Macquarie on an on-going basis."

Forward Sales

Sherwood's subsidiary, MintoEx, has entered into forward sales agreements for 41,218 tonnes (approximately 90.9 million lbs) of copper, 42,202oz of gold and 467,697oz of silver for delivery between July 2007 and April 2011 at prices well above those assumed in the feasibility study announced August 28, 2006. MintoEx's copper forward sale prices start at US$3.17/lb in August 2007 and gradually decline to US$2.00/lb in April 2011. MintoEx's gold and silver forward sales are at a flat price US$636.25/oz of gold and US$11.51/oz of silver commencing in July 2007 and ending in April 2011. The forward sales ramp up to approximately 65% of the payable metal sales over the second half of 2007 and continue at 65% of forecast sales until the end of April 2011. Details of the forward sales are summarized, on a calendar quarter basis, at the end of this news release.

Sherwood is confident that the current metal cycle remains robust and is likely to be so for some time. However, Sherwood has elected to spend approximately 50% more capital to maximize near term metal production by pre-stripping more aggressively to access higher grades sooner, and by putting in a 54% mill expansion, to 2400mtpd, during its first year of operations. Having committed this additional capital, as well as taking on a substantial level of debt in order to reduce shareholder dilution, it would be imprudent to not ensure that cash flow is available to not only service the debt but to also fund the continued growth of Sherwood during the period of debt repayment.

"The forward sales arrangements not only ensure we can rapidly pay off our debt facilities, but allow for robust project returns for our shareholders and significant free cash generation in the early years that can be used to grow the company," said Mr. Quin. "Further, the forward sales represent only 35%, 39% and 32% of the recoverable payable copper, gold and silver, respectively, in the mineral reserves used in the feasibility study, leaving substantial upside exposure to sustained higher metal prices. In addition, recent drill results suggest Area 2, immediately south of the current open pit, could add significant high grade production, providing the opportunity for a natural dehedging of the project through reserve growth in the near term."

The recent feasibility study assumed prices of US$2.00/lb of copper, US$550/oz of gold and US$9.00/oz of silver. Through its forward sales, MintoEx has exceeded these levels for the metals committed for the entire period of its forward sales, thereby enhancing the already robust rate of returns forecast in the feasibility study announcement on July 10, 2006 and updated August 28, 2006.

Sherwood may elect, subject to bank approval and market conditions, to increase or decrease its forward sales position depending on market circumstances and progress in developing and optimizing the Minto Project.

Concentrate Off-take Agreements

The Minto mine is expected to produce high quality copper concentrates that contain significant gold and silver by-products and are penalty-free. The concentrates are expected to grade approximately 36-37% copper over the life-of-mine, but will likely exceed 40% copper in the early years of production. These characteristics (high copper grades, precious metal by-products and penalty-free) make the Minto concentrates a highly sought-after product. After a lengthy and competitive bidding process, Sherwood's subsidiary, MintoEx, has entered into a concentrate off-take agreement with MRI Trading AG of Switzerland ("MRI") whereby MRI will purchase 100% of the concentrates produced by the Minto mine on attractive terms for payment, treatment charges ("TC") and refining charges ("RC"). Importantly, there is no price participation payable during this entire period, up to mid-2010.

MRI have also agreed to provide MintoEx with a US$20 million inventory financing facility that MintoEx can draw on as concentrates are delivered into the concentrate storage shed at the mine site, thereby significantly reducing the working capital required during the production ramp-up and operation of the project.

"The off-take agreement with MRI provides for attractive terms that recognize the exceptional quality of the Minto concentrates, as well as the forecast worldwide shortage of copper concentrates over the next two to three years," said Mr. Quin. "I look forward to working with MRI, who has proved to be competitive, flexible and innovative in their approach to the Minto Project."

Impact on Financial Model

If the forward sales and off-take agreement terms are input into the financial model provided in the news release dated August 28, 2006, and no other changes are made (including assuming financing continues to be assumed to be provided on an all equity basis), Sherwood's management has calculated that the key project parameters would change as follows, with changes underlined:

- Production averages remain at 41.0 million pounds of copper, 17,295 oz gold and 0.25 million oz of silver per year for first six years of operations;

- Cash costs fall slightly to US$0.56/lb, net of by product credits, over first six years of operations and US$0.59/lb over the life of mine, reduced from US$0.57/lb and US$0.60/lb previously;

- Operating cash flow is forecast at C$76 million and C$79 million in Years 1 and 2 of operations, respectively, pre-tax, on an all equity basis and averaging C$61.6 million over the first six years, versus C$49 million and C$61 million in Years 1 and 2 previously;

- This comparative analysis uses the same 5-year average metal price assumptions for all unhedged production, comprised of 3-year historic and 2-year forward prices, that average to US$2.00 per pound for copper, US$550 per oz for gold and US$9.00 per oz for silver, and an exchange rate of C$1.192 per US dollar, to allow a direct assessment of the impact of these arrangements;

- The rate of return is forecast to increase to 53.2%, pre-tax, assuming 100% equity financing, versus 37.1% previously;

- The pre-tax net present value is now estimated to be C$173.4 million at a 7.5% discount rate, or C$201.7 million at a 5% discount rate, assuming 100% equity financing, versus C$126.9 million and C$152.2 million previously reported;

- The payback is now forecast at 1.7 years versus 2.4 years previously;

- The project optimization process continues, focused on project improvements.

Unless otherwise stated, all reporting is in Canadian dollars and metric units.

This analysis is provided for comparative purposes only in order to indicate the impact of the forward sales and off-take agreement on the financial model. This analysis does not incorporate any other changes that may or may not have been incurred or adopted since the date of the feasibility, may occur in the future, nor does it incorporate the impact of the project financing arrangements agreed to and detailed in this news release.

Minto Project

The Minto Project is a high-grade copper-gold deposit located in the Yukon Territory of Canada. As announced on July 10, 2006 and updated August 28, 2006, Sherwood has completed a feasibility study for the development of the Minto Project as a high grade, open pit copper-gold mine, which study demonstrated robust returns. Sherwood has engaged its engineering, procurement, construction management, mining and general contractors for the development of a mining operation at Minto. Development is now well underway and production is forecast to commence in the second quarter of 2007.


Sherwood's successful consolidation of the ownership of the Minto Project provides a unique investment opportunity - participation in an already permitted, high-grade, open pit copper-gold project that will be in production in approximately six months, and is located in Canada with good infrastructure and tremendous exploration potential on the property.

Quality Assurance

The technical information in this news release has been prepared in accordance with Canadian regulatory requirements set out in National Instrument 43-101 and reviewed by Stephen P. Quin, P. Geo., President & CEO for Sherwood Copper Corporation.

Additional Information

Additional information on Sherwood and its Minto Project, including photographs cataloguing recent construction progress, can be obtained on Sherwood's website at

On behalf of the board of directors


Stephen P. Quin, President & CEO

This news release may contain forward looking statements which are not historical facts, such as ore reserve estimates, anticipated production or results, sales, revenues, costs, or discussions of goals and exploration results, and involves a number of risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include, but are not limited to, metal price volatility, volatility of metals production, project development, ore reserve estimates, future anticipated reserves and cost engineering estimate risks, geological factors and exploration results. See the Company's filings for a more detailed discussion of factors that may affect expected results.

Details of Sherwood's Forward Sales Contracts
(To accompany News Release #06-35)

Copper Forward Gold Forward Silver Forward
Sales Sales Sales
Sales --------------- ------------------ ------------------
Period Tonnes US$/lb oz US$/oz Oz US$/oz
Q3/2007 757 $3.14 1,010 $636.25 17,830 $11.51
Q4/2007 2,181 $3.04 3,471 $636.25 49,936 $11.51
Q1/2008 4,055 $2.93 3,306 $636.25 40,367 $11.51
Q2/2008 3,217 $2.83 1,334 $636.25 23,938 $11.51
Q3/2008 1,675 $2.75 1,375 $636.25 20,672 $11.51
Q4/2008 2,231 $2.64 2,822 $636.25 30,043 $11.51
Q1/2009 3,141 $2.56 3,431 $636.25 35,218 $11.51
Q2/2009 3,626 $2.47 3,365 $636.25 36,414 $11.51
Q3/2009 3,207 $2.38 2,853 $636.25 32,034 $11.51
Q4/2009 2,931 $2.29 2,853 $636.25 32,034 $11.51
Q1/2010 2,931 $2.23 2,853 $636.25 32,034 $11.51
Q2/2010 2,931 $2.17 2,959 $636.25 30,067 $11.51
Q3/2010 2,612 $2.11 3,171 $636.25 26,133 $11.51
Q4/2010 2,453 $2.05 3,171 $636.25 26,133 $11.51
Q1/2011 2,453 $2.02 3,171 $636.25 26,133 $11.51
Q2/2011 818 $2.00 1,057 $636.25 8,711 $11.51
Totals 41,218 42,202 467,697
---------------- ------- --------

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this press release.

Contact Information

  • Sherwood Copper Corporation
    Stephen Quin
    (604) 687-7545 or 1-888-338-2200
    Sherwood Copper Corporation
    Brad Kopp
    Investor Relations
    (604) 687-7545 or 1-888-338-2200
    Sherwood Copper Corporation
    Kristy Reynolds
    Investor Relations
    (604) 687-7545 or 1-888-338-2200
    (604) 689-5041 (FAX)