Low prices frustrate Sunshine

Denver — The U.S. government has approved a newly amended plan of reorganization for Sunshine Mining & Refining (SSCF-O), though, with silver prices well below US$5 per oz., the company may have nowhere to go.

Under the plan, Sunshine’s old stock and warrants are cancelled. Previous shareholders will receive only a 3.4% stake in the new company.

Sunshine’s previous debts, totalling US$49 million, were converted into equity in the new company. Most of that equity is held by two groups: Elliot Associates (and its affiliates) and Stonehill Capital Management. Sunshine expects to issue the new shares before the end of February.

Meanwhile, the company has settled environmental litigation pertaining its activities in Idaho’s Coeur d’Alene river basin. The litigation was brought by the U.S. Department of Interior, the Environmental Protection Agency and the Coeur d’Alene Native American tribe.

Also, Sunshine has reached an agreement with plaintiffs, releasing the company from a 1994 consent decree obligating it to clean up part of the Bunker Hill Superfund site. Under the agreement, the company will issue 10-year warrants to plaintiffs for nearly 5 million shares at US66 per share, hand over certain timberlands to the plaintiffs and pay a sliding-scale royalty, starting at silver prices above US$6 per oz.

The recent announcement to close Asarco’s East Helena smelter in Montana has put a bit of a wrinkle in the company’s reorganization plan, which has changed the complexion of the resulting company from a producing miner to a non-producer. Beginning in April, and until metal prices improve, East Helena we be closed.

Without a place to send its silver and lead concentrates, the company either has to restart its own refinery or close the Sunshine mine in northern Idaho. The latter option is considered the more likely; indeed, most of the mine workers have already been laid off.

In 2000, the mine hoisted as much as 750 tons per day, or about 75% of capacity. Production totalled 3.9 million oz. silver and 4.9 million lbs. lead. Cash costs were US$4.90 per oz., net of lead credits. The company is operating on a US$5-million credit facility provided by its major shareholders. Some funds are being used to repay a US$2.7-million debtor-in-possession financing, which was arranged when the company was in bankruptcy.

Sunshine’s other major asset is the Pirquitas silver-tin deposit, in Argentina, where reserves total 23.9 million tons grading 4.9 oz. silver per ton, plus 0.33% tin and 0.57% zinc. Capital costs fare expected to exceed US$130 million, and annual production from the open-pit mine is pegged at 10 million oz. silver.