Operational problems continue to dog High River

High River Gold Mines (HRG-T) continues to have operational difficulties at its key gold mines, and this while the Russian firm Severstal looms on the horizon as its potential acquirer.

On June 25 High River mailed its shareholders a directors’ circular that recommended the Severstal bid of 22¢ per share in cash. The offer expires at on July 31.

While that price may seem to be a pittance for a company with four producing gold mines, a look at the balance sheet offers a suitable explanation.

As of June 30 High River’s total consolidated debt outstanding was estimated at US$103.9 million — with US $27 million of that being owed to Severstal.

High River says it is still in breach of certain covenants under the loan agreements with Severstal and another lender, Royal Gold (RGL-T, RGLD-Q). And while neither Royal Gold nor Severstal has taken action against the company for the breach, they reserve their right to do so.

As for the near term debt burden, total short term debt comes to US$75 million and on top of that accounts payable are at US$20 million.

On the other side of the balance sheet the cash position just isn’t strong enough.

As of July 15 High River had just US$3.4 million in cash with consolidated cash totaling a more respectable US $13.9 million.

The upside for High River, and no doubt the source of Severstal’s interest, comes from the company’s growing gold production.

But even here the company has met with one operational problem after another.

Its two key projects — Taparko in Burkina Faso and Berezitovy in Russia – were responsible for the bulk of the 79,997 oz. of gold produced for the second quarter, but again underperformed.

While Taparko operated at a slightly higher capacity than the first quarter, High River says vibration levels at the plant remain above acceptable levels. That means less productivity at the mill.

At Berezitovy a six day shutdown in April and an eight day shutdown in May cut into production. The shutdowns came so repairs could be made to the SAG mill lifters, pumps, conveyors, and the ball mill motor.

While the mill is operational, throughput is below design capacity requiring a by-pass of a portion of the tailings slurry past the disk filter plant into a wet tailings storage facility, the company says.

High River also announced that it will now lose its chief financial officer as Steven Poad resigned “to pursue other business interests”.
News of his departure comes after a string of resignations from management. In early spring the company’s president and chief executive David Mosher, its chairman Terrence Lyons and director John Crow all resigned from their positions.

Poad will be replaced by High River’s treasurer Andrei Maslov.