TORONTO (miningweekly.com) – While regretting the loss of its only operating asset after failing to repay its creditors, Canada’s Fortune Minerals could potentially emerge from a restructuring positioned to carry on with its flagship Canadian assets without any debt, provided that a negotiated agreement closed within the next weeks.
The TSX-listed company last Friday announced that its subsidiary Fortune Revenue Silver Mines (FRSMI), which owned the Revenue silver mine (RSM), in south-west Colorado, had received notice from funding partner LRC-FRSM (Lascaux) that events of default had occurred under the amended and restated senior secured metal prepay agreement dated March 25, triggering all amounts and deliveries owing under the contract to become immediately due and payable.
Under the terms of a proposed settlement, Fortune would among other actions, transfer to Lascaux all FRSMI’s shares and intercompany indebtedness owing from FRSMI to Fortune. All related permits and the shares of Fortune NWT and Fortune Saskatchewan would also be spun out into a new wholly owned subsidiary of Fortune (Newco), of which Lascaux would receive C$5-million face amount of preferred shares of the new company and the other secured creditors would receive C$3.75-million of preferred shares of the new company.
Fortune spokesperson Troy Nazarewicz on Tuesday explained to Mining Weekly Online that the RSM was over-levered for the current commodity price environment, which was compounded by the operation taking longer and costing more than expected to achieve production required for positive cash flow.
“The capital markets for mining are closed, precluding an equity solution to solve the cash requirements. We have been working on financing options but were unable to complete any in time to maintain operations at site and our creditors issued a notice of default,” he said in an emailed response to questions.
According to Nazarewicz, the company had worked with all the creditors to find a solution that would allow Fortune’s subsidiary to continue as a going concern.
“We regret the loss of the RSM, but the company is positioned to carry on with its Canadian assets, without any debt, provided the negotiated agreement closes,” he said.
Fortune, in October last year, completed its acquisition of the RSM underground high-grade silver/gold/lead/zinc mine with a mill and concentrator and surface facilities near the town of Ouray, in the historic Sneffels mining district, which marked the company’s strategic transition from project developer to miner.
However, stubbornly low precious metals prices and continued capital requirements at RSM had scuppered Fortune’s plans to turn a profit from the operation.
“More capital was required to make improvements to the mine and mill than initially forecast. In addition, the mine plan had to be adjusted, due to the commodity price environment, to focus on high-grade areas of the mine that require additional investment and development work, and to purchase a fleet of trackless mining equipment.
“Positive results achieved from these changes have only been partially realised and need more time to be completed. The mine also required significant investment of time and funds to make changes to the safety culture of the mine after our acquisition from the previous owners,” Nazarewicz said.
A falling silver price had compounded Fortune’s efforts to stabilise the operation, having fallen from about $22/oz, when the company first acquired an interest in the RSM, to less than $16/oz. Silver on Tuesday slid a further 4.62% to just over $15/oz.
Nazarewicz explained that Fortune’s investments and efforts to achieve operational efficiencies included shutting down mining in high-cost areas of the mine and ceasing production from the lower-grade Yellow Rose vein.
Fortune had shipped 27 shipments of concentrate over the period.
The company would now redouble financing efforts for its shovel-ready Nico gold/cobalt/bismuth/copper mine and concentrator in the Northwest Territories. All permits were in place to construct and operate the project, pending the finalising of financing. The ore would be processed in two stages at the Nico site and the company’s Saskatchewan metals processing plant, near Saskatoon.
Nazarewicz said the nonbinding agreements contemplated with creditors allowed for some working capital, but additional capital would be required to deliver the financing for Nico.