Last week’s filing for creditor protection in Canada by Veris Gold — the equivalent of a Chapter 11 bankruptcy reorganization filing in the United States — was brought about by a late December fire at the Jerritt Canyon mill near Elko that cost the company more than $17 million, the company’s chief financial officer says.
Veris Gold of Vancouver filed for creditor protection under the Companies’ Creditors Arrangement Act after its senior lender, Deutsche Bank AG of London, notified Veris June 3 of early termination on two forward gold purchase agreements Veris had defaulted on after the fire. Under the forward gold-purchase agreements signed with Deutsche Bank in August of 2011 and February of 2012, Deutsche Bank provided Veris with $140 million to be repaid with a maximum of 193,880 ounces of gold to be delivered over four years at an average rate of 4,980 ounces each month. Veris’ average monthly production from its Jerritt Canyon operations 50 miles north of Elko is roughly 14,000 per month, Veris CFO Shaun Heinrichs says.
The fire Dec. 18 at the ore processing facility, caused by an electrical arc-flash explosion in the primary crushing building, curtailed gold production for three weeks and crippled the company’s ability to fulfill its obligation to Deutsche Bank, which subsequently served Veris with notice of default on its forward-gold purchase agreements. The mill was shut down for three weeks and mining activity was halted for 10 days.
“Due to the accident in the primary crush, we were not able to operate at all, and we had a slow startup following that given the winter season and the usual aches and pains of older operation that needs little bit of coaxing, especially in 30-below weather,” Heinrichs said last week in a call from his Vancouver office. “We operate 24 hours a day, 365 days a year if we can, and it was something we can’t quite recover from.
“We lost about $14 million on gold revenue and incurred about $3 million in costs to fix the problems that arose from that accident,” he adds. “The gold agreements have very tight timeframes in which to remedy delivery, and we just couldn’t get the cash or gold we needed.”
Ernst & Young Inc. will serve as court-appointed monitor in the CCAA proceedings and will oversee company operations during the restructuring. Deutsche Bank public relations executives declined to comment on the proceedings late last week. Veris Gold also filed for Chapter 15 bankruptcy protection in Nevada, which basically is designed to follow and piggyback the foreign jurisdiction filing.
Prior to the fire, Veris already was deeply engaged in discussions with creditors to restructure its debt — talks that broke off when it became clear that Veris wouldn’t be able to meet its commitments to its senior lender, Heinrichs says.
“By going into default, our options for restructuring fell off due to concerns about the company and with the ability of Deutsche Bank to exercise termination,” Heinrichs says. “We basically had to start from scratch in our refinancing.”
Veris Gold was further hampered by another three-week shutdown in March as it awaited renewal of an air quality permit. During that time, the company carried out its annual maintenance program, which led to additional capital expenditures.
Veris currently mines three properties at its extensive Jerritt Canyon holdings: The Smith mine, which was placed back into production in the first quarter of 2010; the SSX-Steer mine, which was brought back online in the fourth quarter of 2011. Its newest minesite, Starvation Canyon, came online last April.
The company already was running tightly: Veris generated record revenue of $195 million in 2013, up 174 percent from total revenue in 2010. But during that four-year span, Veris only recorded a $26 million profit in 2011. It lost a total of $276 million from 2010 through 2013 as it brought the gold-producing mines back online.
Veris also generates revenue at Jerritt Canyon by using the milling facility to process ores from other mining companies with operations nearby, including Newmont Mining Corp.
The bulk of funding provided by Deutsche Bank was used to recommence mining at the SSX-Steer site, which required purchase of a fleet of underground and surface mining equipment, as well as significant developmental and electrical upgrades at the minesite.
Veris also constructed two water-storage facilities and second tailings facility at Jerritt Canyon so it could begin the reclamation process on its first tailings facility, Heinrichs says. The company had significant capital expenditures upgrading the mill, purchasing additional mining equipment and for exploration drilling to expand resources at Jerritt Canyon.
Heinrichs says Veris Gold continues to engage lenders on the possibility of buying out its existing senior credit facility on longer payback terms, and that its plans for restructuring haven’t changed in the wake of last week’s filing for creditor protection.
“Every lender we have spoken to proceeding and after (last) Monday’s filing has indicated a willingness to work with us,” Heinrichs says. “We are looking at ways to restructure so that we have a much lighter debt load and a much stronger working capital position.
“Our focus is ensuring we come through this process with a much stronger balance sheet with much more manageable and serviceable debt levels for the company. We believe in this operation and the value of it. If we are given the appropriate amount of time to fix the debt situation, we have a very viable and asset and operation that will provide jobs and opportunities for some time to come.”
The company was incorporated in 1988 as YGC Resources. It changed its name to Yukon-Nevada Gold Corp. in 2005 and became Veris Gold in 2012.
