UPDATE 1-Aurcana rejects credit facility, faces lawsuit; shares fall

April 18 Mon Apr 18, 2011 3:04pm EDT

April 18 (Reuters) - Aurcana Corp's board rejected a $25 million credit facility citing high costs and the lenders filed a law suit against the company alleging breach of contract, sending the miner's shares down 15 percent.

On Nov. 19, Aurcana announced an $85 million debt and equity financing to advance its Shafter silver mine in Texas, which included a $25 million credit facility agreement with Sprott Asset Management LP and Sprott Resource Lending Partnership.

If silver prices remain in the current $35 per ounce, the aggregate cost of the debt facility would be double the amount borrowed over three years, the company said.

The lenders have filed the suit in British Columbia Supreme Court, claiming damages for breach of contract, costs and interest.

Aurcana said it had signed a non-binding agreement with the lenders on Oct. 26 and the only obligation it had, if it did not proceed with the credit facility, was privacy, confidentiality, jurisdiction and the payment of legal fees.

Shares of the company were trading down 11 percent at 73 Canadian cents on Monday on the Toronto Venture Exchange. They touched a low of 70 Canadian cents earlier. (Reporting by Aftab Ahmed in Bangalore; Editing by Don Sebastian)

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