MK RESOURCES CO company history: the story so far

History

MK Resources pushed its Las Cruces copper project toward development on Leucadia's loans, then agreed in 2005 to a deal selling 70% of the project and buying out minority holders.

2004: Las Cruces and a borrowed lifeline

MK Resources, then called MK Gold Company, was built around the Las Cruces copper project in Spain. In February 2004 it announced a new feasibility study: 16.1 million metric tons of mineable ore at 6.53% copper, up from 15.8 million tons at 5.94% in the 2001 study. Capital cost was put at 281 million euros, with cash operating costs averaging 0.33 euros per pound. Final engineering and project financing were expected to begin in the first quarter of 2004.

The company leaned on its majority lender, Leucadia. In October 2004 their credit agreement was amended to lift the borrowing limit to $75 million, at prime plus 3.0%. Leucadia could convert loans into MK shares, automatically at the offering price if a planned public offering with CIBC World Markets completed, or at its option at $1.75 per share if the registration was withdrawn. Conversion would dilute other shareholders.

2005: Deeper debt, a restatement and a sale

In March 2005 the limit rose to $80 million, the term was extended to January 3, 2007, and the conversion price fell to $1.30, below the $1.95 trading price. A new $35 million Dutch subsidiary facility with Leucadia funded a capital contribution of about 26 million to the Las Cruces company, needed to stay eligible for Spanish subsidies. MK guaranteed it and pledged 65% of the Dutch subsidiary's stock.

On May 2-3, 2005, MK and Leucadia, which owned 72.1% of MK, agreed to sell 70% of Las Cruces to Inmet Mining for 5,600,000 Inmet shares. To enable this, Leucadia would buy the remaining 27.9% of MK at 0.0317 Leucadia share per MK share. Conditions included a project financing commitment of at least $255 million. The public offering registrations were withdrawn that month.

On May 13 MK said its 2004 accounts could not be relied on because of an error in how a debt discount on the Leucadia loan was treated. The restated 2004 net loss was $5.8 million ($0.15 per share) and total assets $123.8 million. The loan was unchanged and would not be converted or repaid in the merger.

In July shareholders received the final proxy, valuing the offer at $1.28 per MK share on July 8. Leucadia's stake was enough to pass the vote on August 9, so minority holders could not block it. On August 8, after MK's 4,821,905 Bear Creek Mining shares rose from about $2.8 million to about $11.5 million, MK declared a dividend of deferred valuation rights tied to their sale proceeds, and added contractual appraisal rights. Leucadia refused to raise the exchange ratio. On August 19, 2005, MK deregistered its securities, ending its SEC reporting obligations.

Written from the 8 story beats below (2004 to 19 Aug 2005), which come from the company's own announcements and filings.

Beat by beat

The events that changed the company's story, in plain English, each written against everything known about the company at the time. The dot shows whether it was good, bad or neutral for shareholders.

2005

19 Aug
MK RESOURCES CO deregistered its securities, ending its obligation to file reports with the SEC.
listing compliance notice
8 Aug
One day before the merger vote, MK Resources declared a dividend of deferred valuation rights tied to its 4,821,905 Bear Creek Mining shares (about 15% of Bear Creek), and added contractual appraisal rights. Bear Creek stock rose from about $2.8M in value on May 2, 2005 to about $11.5M on August 5, 2005, and Leucadia refused to raise the exchange ratio but agreed to the dividend, which is based on net proceeds from an orderly sale of the shares minus the May 2 value. The filing says the minority's indirect share of the gain was about 27.9%, or $2.4M; the actual payout depends on future sale proceeds and is not fixed in the text. The vote was still scheduled for August 9, 2005.
dividend declaration
11 July
MK Resources sent shareholders the final merger proxy for the May 2005 deal: each MK share becomes 0.0317 of a Leucadia share (worth $1.28 on July 8, 2005), with about 333,503 Leucadia shares issued in total (the earlier figure was 333,463). The vote is on August 9, 2005, and Leucadia's 72.1% stake is enough to approve it, so minority holders cannot block it; the filing says holders can pursue appraisal rights under Delaware law, and the Inmet sale of 70% of Las Cruces is what the merger is meant to enable.
business combination
13 May
MK Resources said its 2004 audited financial statements should no longer be relied on because of an accounting error on the Leucadia convertible loan's debt discount, which was expensed when it should have been capitalized. The restatement cuts the 2004 net loss by about $6.0 million, to $5.8 million ($0.15 per share), and raises total assets to $123.8 million. The amount owed on the loan is unchanged, and the debt will not be converted or repaid in the Leucadia merger.
financial restatement
3 May
MK Resources and Leucadia (which owns 72.1% of MK) agreed to sell 70% of the Las Cruces project to Inmet Mining for 5,600,000 Inmet shares. To facilitate the sale, Leucadia will buy the remaining 27.9% of MK, with holders receiving 0.0317 Leucadia share per MK share (333,463 Leucadia shares in total). Both deals need conditions to be met, including MK stockholder approval, a registration statement and a project financing commitment of at least $255 million. Leucadia's votes are enough to approve the merger.
business combination
8 Mar
This continues the Leucadia financing (Amendment No. 11 in October 2004). Amendment No. 12 raises the borrowing limit to $80 million, extends the term to January 3, 2007 and cuts Leucadia's conversion price from $1.75 to $1.30 per share, below the $1.95 trading price. A new $35 million Dutch subsidiary facility with Leucadia funds a capital contribution of about 26 million (currency as stated in the filing) to the Las Cruces company, needed to stay eligible for Spanish government subsidies. The parent guarantees it and pledges 65% of the Dutch subsidiary's stock.
debt financing

2004

14 Oct
MK Resources and its majority lender Leucadia amended their credit agreement, raising the borrowing limit to $75 million and the interest rate to prime plus 3.0%. Leucadia can now convert loans into MK shares: automatically at the offering price if the planned public offering with CIBC World Markets completes, or at its option at $1.75 per share if the registration statement is withdrawn. Converting would dilute existing shareholders.
debt financing
6 Feb
MK Gold Company (the name on this filing; later filings use MK Resources) announced a new feasibility study for its Las Cruces copper project in Spain. The study puts mineable ore at 16.1 million metric tons at 6.53% copper (up from 15.8 million tons at 5.94% in the 2001 study) and capital cost at 281 million euros, with cash operating costs expected to average 0.33 euros per pound. The company says final engineering and project financing are expected to begin in the first quarter of 2004.
resource reserve update