U.S. REPORT Bunker Hill seeks Chapter 11 protection while filing

In a move to buy time from creditors, Bunker Hill Mining (TSE) has filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Alan Richardson, president, said the company made the move as a result of a drop in base metal prices and a resultant shortage in working capital.

Bunker Hill has experienced a chronic working capital deficit since the third quarter of 1989, when the company had a deficit of about US$1.3 million. As at Sept. 30, 1990, Bunker Hill’s deficit had ballooned to US$3.7 million and the company had notes payable totalling US$1.9 million.

Bunker Hill owns and operates an underground zinc-lead-silver mine near Kellogg, Idaho. The mine’s major product, zinc, has dropped in price from more than US80 cents per lb. in early-1990 to the present level of about US55 cents.

Despite these problems, the company reported a cash flow from operations of US$2.9 million for the nine months ended Sept. 30.

The company’s working capital problems appear to be associated with development expenses. During the same 9-month period, deferred development expenses totalling US$3.2 million plus capital additions of US$1.5 million helped to push working capital further into the red.

Richardson said the company’s biggest problem has been its inability to bring unit costs down by fully utilizing bulk mining methods. Since the mine’s infrastructure dates back to the 1940s, mining tends to be limited to the technology of the day.

Richardson noted the company has an excellent mill and an orebody with a reserve life of over 20 years.

Proven, probable and possible reserves as of Dec. 31, 1989, were reported at 10.8 million tons grading 4.6% zinc, 2.3% lead, and 1.2% silver.

Bunker Hill estimates the mine could be modernized at a cost of about US$10 million. The company had been in negotiations in 1990 to fund the development, but Richardson said they were derailed by the invasion of Kuwait and the resulting uncertainty.

He said the company is presently seeking about US$1 million for working capital purposes from existing shareholders through private placements. Negotiations are ongoing to secure the capital for modernization, he adds.

Other funding options are being considered, for example, having a joint venture partner.

In the meantime, Bunker Hill has streamlined its operations, laying off 60 employees while the remaining 160 will be asked to take pay reductions.

As a result, Richardson said the operation should operate on cash- neutral basis while funding is sought.