Cheni works to restructure long-term debt

With economic reserves essentially exhausted and a balance sheet in critical condition, Cheni Gold Mines (TSE) is working to refinance its bank debt as well as restructure the company’s long-term liabilities.

Cheni, which owns and operates the Lawyers underground gold-silver mine in north-central British Columbia, reports a loss of $28.97 million for the year ended Dec. 31.

The loss includes the writedown of $22.6 million in the carrying value of the property, plant and equipment at the Lawyers mine. This year’s writedown, as well as a $30.9-million writedown in 1990, resulted from ore reserve downgrades and the company’s decision to shut down operations by the end of July.

Cheni reports negative cash flow of $1.3 million for the year, including a $1-million provision for site restoration.

The losses compounded the deterioration of the company’s balance sheet. Cheni finished the year with a working capital deficit of $4.9 million and long-term debt totalling $9.3 million. This compares with a positive working capital position of $3.29 million and long-term debt of $8.9 million at the end of 1990.

In its fourth-quarter interim report, Cheni noted that it has not met certain working capital and margin requirements under the terms of its credit facility with its banker. As a result, the company initiated discussions with its bank toward a refinancing of the bank debt.

The company’s long-term debt position includes a $3.7-million government assistance loan which is not repayable and does not accrue interest unless the combined price of an ounce of gold plus 50 oz. of silver is over US$825. The balance of the long-term debt is essentially owed to the company’s major shareholder, BRGM.

Cheni is now negotiated with BRGM for a restructuring of the debt. The company is still mining on a reduced scale at Lawyers, and expects to extract about 30,000 tons of ore grading about 0.25 oz. gold and 6 oz. silver. Including its stockpiled ore, Cheni expects to continue milling at full capacity to the end of July, processing a total of about 120,000 tons grading 0.24 oz. gold and 6 oz. silver.

This compares with an average millfeed grade of 0.21 oz. gold and 5.06 oz. silver during 1991.

Paul Savoy, president of Cheni, notes that the company is currently in negotiations with the owner of a nearby deposit which could provide the Lawyers mill with an additional five months’ feed.

Cheni has also outlined a number of exploration targets on its property and is negotiating exploration funding with BRGM in conjunction with a restructuring agreement.