With only a $260,000 cash balance at the end, insolvent Pure Gold Mining has started the process of finding a new buyer or deep-pocketed investor for its Red Lake mine and mill operation.
Facing an “imminent” cash crisis, unable to raise any outside financing, and plagued by “operational challenges,” the Vancouver mining company called a halt to operations Oct. 24 and was granted creditor protection by the B.C. Supreme Court under the Companies’ Creditor Arrangement Act on Oct. 31.
Seeking shelter under CCAA protection gives Pure Gold some necessary “breathing room” for management to huddle with its primary lender, Sprott Private Resource Lending, its advisors, and KSV Restructuring, the court-appointed monitor, to continue on with a strategic review process that the mining company started last July. Among the options being considered last summer was a partial or outright sale of the mine.
It allows Sprott to provide interim financing to maintain the operation during the temporary shutdown. The monthly care and maintenance bill amounts to $1.8 million. Factor in the accountants and lawyers and it will cost $3 million to $4 million a month to cover the cost of these CCAA proceedings.
According to court documents, Pure Gold anticipates bringing an application forward shortly to trigger the start of a court-supervised sales and investment solicitation process.
The mine, located 10 kilometres southwest of town on the site of the former Madsen Mine, went into commercial operation in early August 2021. Since the 1920s, the area has seen much historical exploration and mining activity. Management believes the business is still viable. The mine asset includes about 4,600 hectares of mineralized ground. .
Of the 275 non-unionized employees in Red Lake — most being from the area — only 54 remain on the payroll for care and maintenance purposes of the mine.
Most of the workforce are from Red Lake and the general area. About 100 contractors and mine service providers from the town and surrounding areas are impacted too.
Court documents say Pure Gold owes Sprott about $123 million as of June 30, plus $33 million through a gold streaming deal.
The unsecured creditors — utility companies, equipment and other mining suppliers — are collectively owed $16 million, according to the company’s books.
A lengthy suspension of mining activities and the CCAA process will impact tax paid to the Municipality of Red Lake. The company (originally Laurentian Goldfields) has been paying municipal taxes since 2014, including $142,000 for year-end of 2021.
At $0.015, Pure Gold’s common shares on the TSX Venture Exchange have been relegated to the NEX Board of the TSX-V, a separate board for inactive companies or those with low level of activity.
The company’s problems began to surface last spring. A new team was installed and a turnaround plan introduced that involved layoffs, renegotiating with its suppliers, and an all-around belt-tightening plan to cut costs and boost gold production performance while looking for a deep-pocketed financier.
According to affidavits, considerable progress had been made in the second and third quarters in reducing operating costs by $4 million a month, compared to the first quarter, with higher hopes for more savings by early 2023.
But from its 2021 start, gold production had been falling behind from the original projections toward consistently meeting the 800-tonne-per-day design capacity. Operating costs were higher than anticipated and the company was unable to raise any outside financing.
Last summer, president-CEO Mark O’Dea attributed the rocky startup to mining on the lower grade side of the deposit and not having a clear geological picture of the area, problems that he said had been rectified.
In recent months, the company had been trying to bolster investor confidence by releasing a new — and significantly reduced —mineral estimate with a new life-of-mine plan due out by year’s end in order to try and secure long-term financing.
Before Pure Gold entered CCAA, one published report mentioned that the company entertained a mining analysts site tour in Red Lake on Oct. 6.
Those analysts who attended reportedly came away impressed with the new management team and their turnaround plan, and believed that, although money was tight, the mine was on the right track and that 2023 would be a transformative year. One investment banking firm placed a “speculative buy” rating on Pure Gold stock.