Junior Canadian gold mining company Harte Gold Corp. is seeking creditor protection after failing to overcome a multitude of technical problems at its Northern Ontario mine.
Formerly chaired by well-known Canadian mining entrepreneur Stephen G. Roman, Harte put its Sugar Zone mine in White River, Ont., into production in 2019, and almost from the get-go it struggled.
The rookie miner encountered poor ventilation underground, faced equipment failures and even grappled with the freezing of its tailings facility owing to severe weather. In addition, both the quantity and grade of gold recovered at the mine came in significantly lower than expected. Eventually, Harte’s production costs skyrocketed to north of US$2,000 an ounce, significantly higher than the price of gold, and more than double the US$800 that was originally predicted. In May, Harte put itself up for sale but no buyer emerged.
Harte Gold’s filing for protection under the Companies’ Creditors Arrangement Act (CCAA) has an air of déjà vu. Five years ago, another Canadian junior, Rubicon Minerals Corp., was forced into CCAA after encountering serious technical problems at its gold mine in Ontario. Both Rubicon and Harte stumbled after charging ahead on mines after only the completion of an early-stage engineering report, eschewing the industry standard of conducting a full feasibility study – traditionally a backstop against disaster.
Jon Case, a portfolio manager with CI Global Asset Management in Toronto, says Harte’s capital structure was also too heavily weighted toward debt, as opposed to equity. Consequently, it had little breathing room to survive once trouble started. “A company that has a lot of debt doesn’t have the ability to withstand shocks,” Mr. Case said.
Under the proposed restructuring arrangement, Australian miner Silver Lake Resources Ltd. is poised to take control of Harte. Silver Lake is willing to provide a $10.8-million loan, which would allow the mine to continue to operate for now. Earlier in the year, Silver Lake assumed $65.6-million in Harte debt owned by French bank BNP Paribas. It will now take on the remaining debt of approximately $29.4-million, owned by London-based private equity company Appian Capital.
Under the arrangement, common shareholders in Harte will be wiped out. Those include Appian, its largest shareholder, as well as Canadian money managers Goodman and Co. Investment Counsel, and Mackenzie Financial.
Harte’s second biggest shareholder, Toronto-based New Gold Inc., acquired its 154.9 million shares, worth $24.8-million earlier this year, in an apparent bet that Harte could fix its problems.
“Completely awful for them,” Mr. Case said, referring to New Gold’s investment. “For them to burn $25-million to zero, and they didn’t have $25-million to burn. That’s an embarrassment.”
New Gold did not respond to a request for comment.
Most gold mines in Canada are built after the completion of a feasibility study, which contains intricate engineering work detailing the location, and grade of gold in the ground, and costs associated with mining the metals. But Sugar Zone was rushed into production, with only a preliminary economic assessment (PEA) – a much earlier engineering study – in hand.
Like Harte, Rubicon Minerals didn’t have a feasibility study before it started mining, and in 2016 it too collapsed. Rubicon emerged from creditor protection and its mine in Red Lake, Ont., was put back into production on a much smaller scale. Renamed Battle North Gold Corp., it was sold earlier this year to Australia’s Evolution Mining.
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Niall McGee