Platinum Partners looking for buyer for bankrupted Firstgold’s assets (May 14, 2010)

When U.S. President Barack Obama’s administration threatened to block the sale of 51% of Firstgold Corp. (FGD-T, FGOC-O) to China’s state-owned Northwest Nonferrous International Investment Company late last year for national security reasons, the proposed deal fell through and Firstgold filed for bankruptcy.

Now the company’s biggest secured lender, Platinum Partners Long-Term Growth, one of the funds managed by Platinum Partners Value Arbitrage Fund, is trying to salvage its US$12 million investment and find a buyer for the company.

The U.S. Committee on Foreign Investment (CFIUS) objected to the sale on the grounds that it posed national security risks. Firstgold’s Relief Canyon open-pit gold mine, near Lovelock in Nevada, is about 80.5 km from the Fallon Naval Air Station and related infrastructure, which the Navy uses for tactical aviation training.

In July 2009, Northwest Nonferrous had agreed to purchase a controlling stake in Firstgold for US$9.5 million and loan it US$5.5 million for working capital. The Chinese mining behemoth also agreed to buy the secured lender’s position for US$11.5 million.

Northwest Nonferrous, 100% owned by the government of Shaanxi province in northwestern China, is in the top five of about 100 exploration and mining bureaus in China in terms of revenue and technical capacity. It was also one of the first mining bureaus to conduct exploration projects in partnership with overseas companies and in 2008 acquired Yukon Zinc with another Chinese company, Jinduicheng Molybdenum Group.

Firstgold filed for bankruptcy protection under Chapter 11 on Jan. 27. In its filing Firstgold listed assets of US$17.95 million, liabilities of US$26.98 million and outstanding shares of 196.77 million.

“A disappointing finish,” the company’s chief executive, Terry Lynch, wrote in a Form 8-K, submitted to the U.S. Securities and Exchange Commission on Apr. 20. “We had hoped to be able to restructure but unfortunately given the circumstances we were not able to achieve our objective. The CFIUS decision to reject the Northwest offer really set us back and unfortunately we have not recovered.”

Firstgold had planned to start mining from the existing pit in early 2010. Over the past two years the junior had spent about US$22 million overhauling its processing plant with a new crusher system. The company poured its first gold bar in March 2009.

Mark Mueller of Platinum Partners in New York is in charge of selling Firstgold. In late April, a public holding company, Senetec, purchased US$7 million of the US$20 million debt for US$5 million and currently holds about 30% of the total debt. It is trying to raise money to buy out the remainder with the hope that it can put Relief Canyon into production.

“Senetec is one of the interested parties but they just started the process and they don’t have the money to do this yet so we are in the process of putting together a presentation on the property with a National Instrument 43-101 resource that we should have done in the next few weeks and then go to the street,” Mueller explains.

Between 1986 and 1989, 141,000 oz. of gold were extracted from the Relief Canyon open-pit mining operation. Mining was suspended when gold prices started falling.

Much of the spent ore is currently piled in four huge mounds on the property and Firstgold has received all the permits it needs to re-leach about 7 million tonnes of the spent ore. Eric Klepfer, a consultant to Platinum Partners, said Firstgold estimated that there were between 40,000 and 60,000 oz. gold left in the existing heaps.

The only thing that is required now to start new mining from the existing pit is to get an amendment to the existing permit that would allow the owner to place new ore from the pit on the existing heap-leach pad for recovery.

“Given today’s gold price and the resource size that we think is there in the open pit and the infrastructure that is already there, this is a very attractive opportunity,” says Klepfer.

“The plant is there, the crusher is there, the conveyor belts and stackers are all in place. It’s all operational and has been mothballed so that it can be brought back into operation with very little effort.”

In addition to Relief Canyon, Firstgold has two or three early stage exploration projects in Nevada with “interesting anomalies on them,” Mueller says.