The Rapu Rapu Group of Companies will seek court protection this week from creditors after its mother company, Australia- listed Lafayette Mining Ltd., entered voluntary administration or bankruptcy protection.

The legal process called voluntary administration in Australia, will allow Lafayette to seek recapitalization or to sell off its mining operations in the Philippines.

Lafayette’s Rapu Rapu mine was the first foreign-owned mine to operate in the Philippines after a law granting full foreign ownership of local mining projects was upheld in 2004.

Cyanide spills a year later led to a temporary closure and damage from three typhoons further hindered operations.

A bailout plan under consideration by a private equity group, South East Asian Strategic Asset Fund, would have eliminated around A$300 million ($260 million) of Lafayette’s debt and bad hedges with the help of a $151 million capital raising.

The bailout plan however fizzled out.

Carlos G. Dominguez, chairman and president of Lafayette Philippines, which oversees the Rapu Rapu group, said the local units will file a petition for rehabilitation so it can continue normal operations, which is the best way to protect all its stakeholders, particularly its host communities, employees, and the environment.

The rehabilitation petition is expected to result in a court order instructing the group’s present creditors and suppliers to continue their services and transactions with the local companies for as long as they are paid on cash basis.

Payment for existing debts will be suspended until the court has approved a rehabilitation plan that will fairly settle all outstanding debts and ensure the continued operations of the company.

In Australia, the voluntary administration of LML was reached after its board deemed that it could not continue to meet its obligations as and when they fall due.

Following Australian rules, two administrators had been appointed to take control of LML and to find ways to lighten the company’s debt burden through the sale or restructuring of bank debts and/or raise new capital.

"In the end, the administration process in Australia and the rehabilitation in the Philippines will make the local units stronger financially by addressing its longstanding issues regarding under-capitalization, over-borrowing, and poor hedging deals," he said.

Negotiations with new investors are still continuing, Dominguez said. Based on current term sheets, the investors will put in new money into the local units and buy the debt papers, wiping out its debts and allowing the operating companies to use its income for operations and community projects.

The mine has been forecast to generate annual production of 10,000 tons of copper in concentrate, 14,000 tons of zinc in concentrate, 50,000 ounces of gold and 600,000 ounces of silver.

Australia-based administrator Ferrier Hodgson had been appointed to take control of the company’s business and property, effective immediately, Lafayette said. (with reports from Reuters)