Carpathian Gold (TSX: CPN; US-OTC: CPNFF) has temporarily halted production at its new Riacho dos Machados (RDM) gold mine in Brazil, a day after pouring its first doré gold bar.
The Toronto-based firm says the production freeze follows suspension of its APO provisional permit, which allowed it to start up its processing plant. It says that SUPRAM, the state environmental agency, temporarily withdrew the APO mainly due to the “unusual recent heavy rainfall at the site.” Carpathian adds it is working with the government to assess the remediation work required to reinstate the permit.
This comes as a blow to the company, which has spent the last six years trying to bring the past-producing RDM mine online and transition into a gold producer. It was only on Jan. 7 that Carpathian announced its first doré gold bar weighing 10.1 kg, boosting its shares 21% to 11.5¢.
It cautioned that it was experiencing more rain than normal in its Jan. 7 release, but reassured investors that the plant would ramp up to 8,400 tonnes per day in the coming weeks.
But now that’s not the case. After news of the suspension, the stock fell 17% to close a day later at 9.5¢.
Shobana Thaya, the company’s director of corporate communications and investor relations, said in an emailed response that Carpathian didn’t expect the APO would be suspended and gave no other reason for the stoppage other than the rainfall. Asked how long the remediation work would take and its extent of damage, she replied that the company would provide more details at a later date.
Adding uncertainty to the fate of the RDM mine is the company’s bleak financial state, and how it intends to meet its looming debt payments. At the end of last September Carpathian had a huge working capital deficit of US$102.5 million.
On Dec. 20, 2013, Carpathian said that Macquarie Bank Ltd. extended its forbearance agreement to Jan. 3, 2014. In this contract Macquarie agreed to provide Carpathian more funds under a third tranche of project financing. Repayment was originally due last November, and bears a 15% annual interest rate.
So far, Carpathian has drawn down US$30 million from the third tranche, noting the Jan. 3 repayment date “has not been formally extended.” It has another US$90 million outstanding under the first two tranches of the Macquarie project loan. Thaya says the firm plans to begin paying down this debt this year.
“At present, additional funding for the project to be able to continue producing and shipping gold remains entirely at the discretion of Macquarie, and there is, therefore, no assurance that [MRDM, the company’s subsidiary that owns the mine] will have sufficient funds to continue its operations,” Carpathian outlined in the Jan. 7 release.
The miner added that it was working with Macquarie to assess “all possible ongoing options, including the strategic alternative process that remains underway.”
The gold-focused firm revealed its financial strain last October after it delayed production at RDM to fourth-quarter 2013, and later deferring revenue. Carpathian’s board has since been assessing strategic alternatives, including merging with another company, and selling Carpathian or its assets.
Along with the RDM mine, Carpathian owns the Rovina Valley gold–copper project in Romania.
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