Miners getting crushed by commodity price crash

Miners getting crushed by commodity price crash
ANDY HOFFMAN



The global credit crisis and commodities collapse has pushed High River Gold Mines Ltd. to the brink of insolvency in what could foreshadow a wave of liquidity crises at mining companies.


Delays in starting up gold mines in Burkina Faso and Russia put the Toronto company offside with lending arrangements and it is now scrambling to sell assets or secure an emergency cash infusion.


"We are looking at all of the alternatives. From a sale of assets to strategic investors to strategic financings to other financial alternatives," High River chairman Terry Lyons said in an interview.


High River is among the first mining firms to hit a wall as commodity prices plunge and corporate financing dries up amid the global financial crisis.


Analysts say there are scores of other cash-strapped miners, including Canadian zinc producer Breakwater Resources Ltd. that are struggling to survive.


High River has breached the covenants of a $35-million loan from Denver royalty company Royal Gold Inc. High River's Taparko-Bouroum mine failed to achieve "project completion" by Oct. 1 - a stipulation of the financing deal.


Royal Gold is not willing to relieve High River of its obligations and could foreclose on the mine, although Mr. Lyons said that was unlikely. Royal Gold officials did not respond to a request for comment.


High River also has a looming deadline with another lender, Russia's Nomos Bank. A loan repayment of $15.2-million (U.S.) from a High River subsidiary is due to be paid to Nomos on Nov. 21.


High River has just $4.1-million (Canadian) in cash on hand and 8,300 ounces of unsold gold worth about $6.2-million (U.S.). As of Sept. 30, the company's outstanding short-term payables amounted to $32.9-million (Canadian). High River's overall debt load totalled $187-million at the end of its second quarter.


"The ability of the company to continue as a going concern is therefore dependent on the ongoing discussion with and/or forbearance of lenders, accommodations from trade creditors, establishing steady production at the two new mines and obtaining additional financing," High River said in a statement.


Mr. Lyons, who joined the beleaguered company in September, conceded that High River had failed to conserve enough cash to weather the unexpected credit crisis, its mine start-up problems, and the plunge in commodity prices, including gold.


"They really didn't have enough rainy day capital at the parent company level to anticipate all of the situations," he said.


Two of the company's directors, Graham Farquharson and Robert Buchan, have resigned, the company said yesterday.


High River shares plummeted 21 per cent to 11 cents on the Toronto Stock Exchange yesterday. They had traded as high as $3.50 this year.


Chief executive officer David Mosher was in Moscow yesterday seeking financing. "I have been having meetings with a number of interested parties who are considering taking an investment in High River," he said in an e-mail.


High River has four gold mines in Russia and West Africa that the company has said could annually produce 300,000 ounces of gold.


High River is unlikely to be an isolated case. Other mining firms, both large and small, are facing liquidity issues in varying degrees.


Breakwater Resources shuttered two zinc mines this week in response to dismal prices but analysts believe that may not be enough to save it.


"We question the company's ability to continue as a going concern despite the production cuts announced earlier this week. At current spot copper and zinc prices and exchange rates our model indicates that the company's cash reserves could be drawn down to minimal levels by year end," TD Newcrest analyst Greg Barnes said in a note to clients.


Even mining majors are reeling from the credit crunch and the worst monthly fall in commodity prices in more than half a century that has already put about $50-billion (U.S.) worth of development projects on hold.


AngloGold Ashanti, the world's third-biggest gold producer is reviewing its capital spending and may sell assets because it is having trouble refinancing a $1-billion convertible bond that is set to mature.


High River Gold (HRG)


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