TORONTO (miningweekly.com) – Struggling fertiliser producer MBAC Fertilizer has filed for bankruptcy protection in Brazil, and is considering a similar move in Canada, as it seeks to recapitalise and restructure its business.

MBAC owned and operated the Itafós Arraias single super phosphate (SSP) operation in Brazil, which was impacted by significant working capital constraints throughout 2015 and 2016.

On April 5, MBAC had entered into a support agreement with Cayman Island limited partnership Zaff, which had previously provided bridge financing to the company as part of its recapitalisation.

MBAC advised that, under the agreement, it would complete the recapitalisation under a plan of compromise and arrangement under the Companies' Creditors Arrangement Act of Canada and a parallel extrajudicial restructuring proceeding in Brazil under The Bankruptcy Law, which had already been started.

Under the support agreement, Zaff had acquired substantially all of the outstanding secured and guaranteed debt of the company and its Brazilian subsidiaries, as well as certain outstanding unsecured debts of the company and its Brazilian subsidiaries that were not guaranteed by the company.

MBAC explained that as soon as all transactions contemplated by the support agreement had been completed, the investment fund would receive securities representing a controlling interest in the common equity of the reorganised MBAC, in exchange for the acquired debt and the interim working capital financing that had been provided or would be provided to the company.

Subject to certain conditions, Zaff would fund MBAC during the term of the support agreement, up to a maximum of $5-million. MBAC would also indirectly acquire all of the shares of GB Minerals (GBL) held by Zaff, in return for common shares of MBAC at a ratio of 2.5 shares of MBAC for each share of GBL. TSX-V-listed GBL is a Canadian mining exploration and development company focused on advancing the Farim phosphate project, located in Guinea-Bissau, West Africa.

In early 2015, the company suspended production at its Itafós mine, placing the operations on care and maintenance, mainly in response to weak market conditions and as a means of preserving working capital pending and during a strategic review process. The company expected to resume production if and when its recapitalisation transaction had been completed and its liquidity constraints resolved.

Subsequent to the end of the first quarter, MBAC’s FINAME loan, Itau loan, Votorantim loan, Mizuho loan, Itau Mezzanine working capital loan, Votorantim working capital loan, and Santana BNDES loans were bought by the Zaff investment fund, which specialised in fertilisers. The International Finance Corporation loan was previously bought by Zaff during the fourth quarter of 2015. No terms were amended as part of these assignments, the company advised.

MBAC noted that, should the recapitalisation prove unsuccessful, the company's ability to continue would be highly unlikely.