With creditors demanding repayment,
The company’s latest woes began in late July, when its US$18.7-million line-of-credit matured, creating a default that allowed bondholders to demand immediate payment on their notes and accrued interest, totalling $104 million and US$5.6 million, respectively. The company soon filed a lawsuit against the banking syndicate in hopes of restructuring the debt and, as part of that effort, has retained Pincock, Allen & Holt to review its operations and KPMG, its books.
Greenstone’s cash reserves have been essentially eroded by the creditors, leaving it to run “on insufficient financial resources,” namely revenue from limited gold production and leftover bank lines. Such revenue totalled US$22.8 million for the first nine months of the year, though expenses pushed the company US$7.9 million (10 per share) into the red. After production costs of US$19.6 million, interest payments were the largest expense item, at US$5.9 million.
Moreover, Greenstone had a working-capital deficiency of US$41.8 million at the period’s end, when long-term debt stood at US$74.7 million and future site restoration and reclamation costs totalled US$4.3 million.
As expected, production has suffered: mining at Cerro Mojon in Nicaragua was suspended in early August and San Andres in Honduras requires an immediate injection of funds to avert a similar fate. Both open-pit heap-leach operations accounted for the bulk of the 92,653 oz. gold produced by Greenstone during the first nine months.
Since 1997, Cerro Mojon has cranked out more than 103,000 oz. gold; about 43,859 oz. were produced in the first nine months of 1999, with 19% of that supplied in the third quarter. Operating costs have been high, with the average for the first nine months ringing in at US$297 per oz.
Since pouring its first gold bar in March (six months behind schedule, owing to construction delays and inclement weather), San Andres has yielded 32,197 oz. gold at US$233 per oz. Periodic disruptions to mining have made it impossible for the company to reach its 1999 target of 117,000 oz. at US$120 per oz.
Cerro Mojon hosts proven and probable reserves of 14.1 million tonnes grading 2.22 grams gold per tonne; similar-type material at San Andres totals 20.5 million tonnes averaging 1.1 grams. The reserves were calculated by Bikerman Engineering & Technology Associates of Connecticut and reviewed by Mine Development Associates of Reno, Nev.
Greenstone has also been unable to fulfil certain financial obligations tied to the sale, in June, of its subsidiary that owns the Hemco concession in northeastern Nicaragua. Although both the bondholders and banking syndicate favoured the deal, the latter has not yet released the subsidiary as a guarantor under the company’s credit facility. As a result, Greenstone says, the sale may be reversed.
Similar difficulties could block the proposed sale of the separate subsidiary that owns the Santa Rosa open-pit mine in Panama, as this too must receive creditor approval. The buyer,
Hemco hosts the underground Bonanza mine, where 10,700 oz. gold were produced at US$369 per oz. in the first half of the year. Santa Rosa, currently closed, cranked out 6,294 oz. during that period at a cash cost of US$343 per oz.
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