Curragh sells assets to handle liquidity squeeze’

After returning from a skiing vacation in Wyoming, Curragh Resources (TSE) Chairman Clifford Frame has resumed discussions aimed at easing the zinc-lead-coal producer out of its financial plight.

With almost $300 million in debt, Curragh is attempting to raise much-needed cash by selling assets including the Westray coal mine in Nova Scotia and a 20% stake in Spanish smelter owner Asturiana de Zinc. Frame is also seeking a partner to finance development of the 56-million-ton Stronsay zinc-lead project in northwestern British Columbia, and prepare the Grum deposit at Faro, Yukon, for mining.

In a telephone interview with The Northern Miner, Curragh’s chief financial officer Adrian White said it is still too early to say when a definitive announcement will be made on any of those issues.

He said Asturiana may wind up its relationship with Curragh by selling its 30% stake in Stronsay plus 1.6 million subordinate voting shares of Curragh, acquired in 1990 for $41.4 million.

While Frame has been on vacation, Curragh shares have fallen to a low of $3 from a 52-week high of $8.13 and some analysts are concerned that the company may be unable to survive a prolonged recession.

Investors became nervous after Curragh was forced to cancel a $55-million convertible debenture designed to fund development of new ore at its Faro mine and pay off a $12-million loan from the Nova Scotia government. Faro and the new Sa Dena Hes mine aren’t generating enough cash flow to cover operating costs and services of $23.2 million repayable within the next 12 months.

“It is now evident that the company is facing a very severe liquidity squeeze and further asset sales and writedowns are expected,” said First Marathon Securities analyst John Lydall.

He and other analysts claim Curragh’s survival depends on its ability to clean up a balance sheet ravaged by low zinc prices which have fallen from an average of US68.9 cents per lb. in 1990 to US50.6 cents in 1991. An economic recovery, they say, would spark a zinc price rally driven by increased demand from the depressed auto industry. But such a turnaround could be modest and without selling assets, Curragh needs zinc to trade at US55 cents and lead at US30 cents per lb. on a sustained basis in 1992 for it to cover liabilities, says Victor Lazarovici, analyst at B.B.N. James Capel in Toronto. Lead averaged US25.2 cents per lb. in 1991, down from US36.8 cents the previous year.

Lazarovici believes Curragh could enhance its ability to weather the recession by postponing plans to develop Stronsay at a cost of about $180 million (including $37 million from the British Columbia government). As mineralization is situated on the side of a mountain, Lazarovici says no previous operator has been able to come up with a viable mining plan or feasibility study.

Meanwhile, Curragh absorbed a loss of $18 million on 2.4 million Sherritt Gordon (TSE) shares sold in November for $7.25 each.

Without providing for a writedown of Curragh’s investment in Asturiana, analysts interviewed by The Northern Miner expect Curragh to report a loss of $1.25-1.50 per share for fiscal 1991, compared to a 1990 profit of $32 million or $1.12 per share.

Due to summer strike at Faro, Curragh expects concentrate production in fiscal 1991 to drop to 480,000 tonnes from 548,484 tonnes in 1990. Sa Dena Hes, which went into production in September, is slated to yield 150,000 tonnes of concentrates in 1992. Westray is still in a startup mode. White says Curragh is unwinding its association with Asturiana because the two companies have failed to set up a joint metal marketing concern. Analysts attribute the failure to differences in style at Curragh and Asturiana’s biggest shareholder Banco Espanol de Credito. Curragh’s Frame is regarded as something of a maverick whereas management at Asturiana is known to be more conservative.