Junior Canadian Gold Mining Company Harte Gold Corp. The creditor is seeking protection after it failed to address a number of technical problems at its North Ontario mine.
Roman, formerly headed by well-known Canadian mining entrepreneur, Hurt put its Sugar Zone mine in White River, Ont., into production in 2019, and struggled almost from the beginning.
The rookie miner suffered from poor ventilation underground, suffered equipment failures and even suffered from freezing of its tailings facility For severe weather. Moreover, both the quantity and grade of gold recovered from the mine were much lower than expected. Eventually, Hurt’s production cost skyrocketed north of US$2,000 an ounce, much higher than the price of gold, and more than double the originally estimated US$800. In May, Harte put itself up for sale but turned up no buyers.
Hurt Gold’s filing for protection under the Companies Creditors Arrangement Act (CCAA) is a breeze. Five years ago, another junior from Canada, Rubicon Minerals Corp., was forced to join the CCAA after experiencing serious technical problems at its gold mine in Ontario. Both Rubicon and Hurt stumbled upon further charges on the mines after the completion of an early-stage engineering report, bypassing the industry standard of conducting a full feasibility study – traditionally the backstop against disaster.
Unlike equities, Hurt’s capital structure was also heavily weighted toward debt, says John Case, a portfolio manager at CI Global Asset Management in Toronto. As a result, it had less breathing space to survive after the trouble started. “A company that has a lot of debt doesn’t have the ability to withstand shocks,” Mr. Case said.
Under the proposed restructuring arrangement, Australian miner Silver Lake Resources Ltd is set to take control of Hurt. Silver Lake is willing to provide a $10.8 million loan that will allow the mine to continue operating for now. Earlier in the year, Silver Lake owned an estimated $65.6 million in Hurt loans, owned by French bank BNP Paribas. It will now take on the remaining debt of about $29.4 million, owned by Appian Capital, a London-based private equity company.
Under the arrangement, the common shareholders in Hurt would be eliminated. These include Appian, its largest shareholder, as well as Canadian wealth managers Goodman & Company Investment Council, and Mackenzie Financial.
Harte’s second largest shareholder, Toronto-based New Gold Inc., acquired 154.9 million of its shares worth $24.8 million earlier this year, in an apparent bet that Harte can fix its problems.
“Absolutely terrible for them,” said Mr. Case, referring to New Gold’s investment. “For them to burn $25-million to zero, and they didn’t have $25-million to burn. It’s a shame.”
New Gold did not respond to a request for comment.
Most gold mines in Canada are built after the completion of a feasibility study, which consists of complex engineering work detailing the location, and the grade of gold in the ground and the costs associated with mining the metals. But the sugar sector was only taken into production with the Preliminary Economic Assessment (PEA) – a much earlier engineering study – in hand.
Like Hurt, Rubicon Minerals did not conduct a feasibility study before commencing mining, and this too collapsed in 2016. Rubicon emerged from creditor protection and its mine in Red Lake, Ont., was brought back into production on a much smaller scale. Renamed Battle North Gold Corp, it was sold to Evolution Mining in Australia earlier this year.
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