KINGMAN - Investors and sources close to the bankruptcy case of Sierra Resource Group, owner of Chloride Copper Mine, said the proposed reorganization plan with Orotecno mining company of Ecuador is being contested.
U.S. Bankruptcy Court in Nevada entered an order in June dismissing Sierra Resource Group's Chapter 11 bankruptcy, thereby taking all pending hearings off the calendar.
The dismissal does not, however, affect the status of any adversary proceedings or any motions that are pending in such adversary proceedings, U.S. Bankruptcy Court Judge August Landis wrote in his decision.
Sierra Resources petitioned the court for a reorganization plan with Orotecno, which would acquire 100 percent interest in Chloride Copper Mine for $1.1 million, with $100,000 to be paid at closing and $1 million to be paid over a 24-month period with revenues from the mine when production begins.
Several investors have been doing extensive due diligence on the situation, gathering information and trying to "put the pieces together," Robert Brown told the Daily Miner.
Some investors have forwarded emails from the chief executive office and chief financial officer of Sierra Resource, linking a communication connection to Jorge Cedena of Orotecno. Apparently there was miscommunication about who was in charge of Sierra Resource, and Cedena wasn't in touch with the right people, Brown said.
Some speculate that Sierra Resource owns only a 20 percent share of the Chloride mine, with the remaining interest owned by a company called Sunburst Minerals, a subsidiary of Grand View Ventures LLC, which was at one time a lender to Sierra, Brown said.
Documents from the Mohave County Recorder's Office show a trustees deed recorded on July 6 with Sunburst Minerals as the grantee, listing Michael Urman, Sierra Resource Group and a number of other companies as grantor.
Brown wonders why there's a deed exchange placing the mine in another owner's hands, when there's a "definitive agreement" between Sierra Resource and Orotecno. The purchase of the mine would flow through M&C Metals Corp., a Delaware corporation and wholly owned subsidiary of Ortotecno.
"Some are still unclear about this as there is hardly any transparency from either side, Brown said. "There isn't a phone number we can find for Sunburst Minerals, either."
Some investors have ties in Ecuador's mining industry and know miners who have done business with Cedena, he said. There's speculation that Cedena is in trouble with the Ecuadorian government over tax evasion, he added.
Oftentimes, a bankruptcy case for single-asset real estate will involve debt comprised predominantly of a mortgage on the property that's "under water," where the value of the property has declined below the amount owed on the mortgage or the cash being generated by operation of the project is insufficient to pay the mortgage.
Typically in those cases, the lender files a foreclosure action, and the owner of the project retaliates by filing a bankruptcy petition. The bankruptcy filing operates to stay, or stop, any legal actions against the project, including the foreclosure action.
The Chapter 11 debtor, Sierra Resource in this case, has the exclusive right to file a plan of reorganization during the first 120 days following its bankruptcy filing, and another plan in 60 days to seek acceptance of that plan from creditors.
Consequently, the debtor is in control of its reorganization for at least the first six months after filing for bankruptcy protection. It does not have to worry early in its reorganization that one of its creditors may file a competing plan that the debtor does not endorse.
In a single-asset real estate case, the lender may be given a quicker opportunity to recover the project. The debtor must either file a plan of reorganization within 90 days of filing for bankruptcy, or begin making monthly interest payments to the lender.
Because there was a deed exchange between Sierra Resource and Sunburst Minerals, it's "plausible" that the definitive agreement between Orotecno and Sierra Resource fell through, Brown said.
"The connection has still yet to be made with Sunburst as several investors are still stumped on the relationship ... who actually owns the mine at this point, and who is doing what sort of deal," he said.
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