UPDATE 1-Ormet alumina issues to hit results

(Adds details, background, terms of debt arrangement)

NEW YORK, Nov 2 (Reuters) - Ormet Corp. (ORMT.PK), a closely held U.S. aluminum producer based in Hannibal, Ohio, said Friday it completed a new line of credit to provide it with needed liquidity after alumina shortfalls delayed the restart of the sixth potline at its aluminum smelter.

The company said in a press release that Hurricane Dean disrupted delivery of alumina supplies to Ormet's Hannibal smelter and deferred startup of the sixth potline.

The potline delay affected its covenant compliance and will adversely impact its near-term financial performance, it said.

Ormet completed a $35 million private placement of three year senior subordinated secured notes exchangeable into shares of Ormet common stock. The exchange rate will be 66.6666 shares for each $1,000 note.

The notes will carry a 10 percent cash pay interest rate or 3 percent cash pay and 12 percent payment-in-kind interest rate at Ormet's option.

In addition, warrants to purchase 2,333,333 shares were issued with a $3 per share strike price and a four year life. They may be exercised at any time.

Ormet said it amended its revolving credit loan with a group of financial institutions to facilitate the note sale, waive certain financial covenant violations, and amend its financial covenants.

The company said a dramatic drop in metal prices made additional liquidity necessary.

Benchmark aluminum on the London Metal Exchange MAL3 tumbled from a high of $2,868 per tonne in July to an 18-month low of $2,376 a tonne in mid-September. It has since repaired some of those losses to close Friday at $2,611.50.

Chief executive officer Mike Tanchuk said, "These agreements will provide us with the additional liquidity that we need to restart the sixth potline, which will occur sometime later this year. The sixth line will place our reduction plant at full capacity."

At capacity, the Hannibal aluminum plant produces 260,000 tonnes of primary aluminum per year.

In August, Ormet said damage from Hurricane Dean to its alumina supplier's facility in Jamaica would curtail deliveries to the Hannibal smelter.

Ormet said it now expects the sixth and final potline to be operating within the next couple of months. It had previously targeted late September for the restart.

Ormet's smelter was idled following a bankruptcy filing and a prolonged labor strike under its former management team. Last December, under new management, the smelter restarted its first potline. Since then, four more potlines have come back online.