Ottawa seeks more details from Curragh

The federal government will not make a decision on Curragh Resources’ (TSE) recent request for a loan guarantee until the Toronto zinc-lead miner provides more justification as to why it needs support.

An official in the Department of Indian Affairs and Northern Development said the two sides decided last month to start serious discussions regarding Curragh’s request for the guarantees the company says are needed to raise $40 million.

Curragh is claiming that a cash flow shortage is preventing it from obtaining financing for the development of new ore at its Faro, Y.T., mine which contributed the lion’s share of the 487,800 tonnes of concentrates produced by Curragh in 1991.

But the situation has changed since Curragh raised $60 million from the sale of its 20% interest in Spanish smelting giant Asturiana de Zinc, S.A., says Hiram Beaubier, director general at the Ministry of Northern Development’s Natural Resources and Economic Development Branch.

When the asset was sold last month, Curragh also received $22 million in securities for Asturiana’s 30% stake in the Stronsay zinc-lead deposit in British Columbia. As part of the agreement, Asturiana’s 5% interest in Curragh has been sold to a third (but as yet unnamed) party. “Because of the sale of Asturiana, we wish to more clearly understand why they would have an interest in loan support,” Beaubier told The Northern Miner. He said federal and territorial governments have already provided $65 million worth of backing to Faro since the project began in 1984. Curragh executives admit that the company’s financial position has improved substantially since the interlocking relationship with Asturiana was unwound. But they also say the company needs a certain minimum level of liquidity to guard against a fall in the price of zinc.

Due to low metal prices and a summer strike at the Faro mine, Curragh reported a net loss of $98.3 million or $3.06 per share in fiscal 1991, compared to a profit of $32 million or $1.21 per share the previous year. As Curragh realized an average of US51 cents per lb. for its zinc output in 1991, compared to US69 cents the previous year, the company’s working capital dropped from US$65 million in the same period to US$20.8 million by the end of 1991.

“Such a large drop in metal prices would have brought most other companies to their knees,” says chief financial officer Adrian White.

As negotiations continue between Curragh and the federal government, crews at Faro are expected to mine the last ore from the Faro open pit deposit within three to four months. The nearby Vangorda deposit, scheduled to be exhausted by the second quarter of 1993, will bridge the gap until mining operations begin at the new Grum orebody.

But as it will take 18 months to complete the pre-stripping work at Grum, vice-chairman George Whyte is hoping for a fast decision on the request for loan guarantees. “We’ve got to get going, there is no question,” he said.