A man looking for gold in Serra Pelada, Brazil, in Aug. 2004, though the open-air pit of the 1980's is now flooded. Many who work there are too poor to leave.Nicolas Reynard/The New York Times
The first of what is likely to be more than a few failures of once highly-touted mining companies is official. Colossus Minerals Inc. has served notice that it is seeking bankruptcy protection.
Colossus was once worth $8 a share, a valuation of more than $1-billion. The company ran into no end of problems developing its flagship Serra Pelada mine site in Brazil, and finally ran out of money. Last ditch attempts at saving Colossus (which would have also basically wiped out shareholders) came to nothing.
Colossus was unable to make an interest payment, triggering its bankruptcy attempt. The plan is now to take interim financing from some noteholders and Sandstorm Gold, which had backed Colossus before. The hope is to sell the company or find a new investor in the next six weeks.
The debt will be flipped to equity, leaving shareholders who once thought they would own a chunk of a rich mine with less than 2 per cent of the company. That all requires court approval.
The financing comes at standard, steep terms. Colossus will have access to up to $4-million (U.S.) at an interest rate of 20 per cent. That can go up to $10-million if the lenders agree.
Given the terrible state of many corporate balance sheets among small miners, this is a scenario that may well be repeated in 2014 as companies lack access to capital markets.