A Major Gold Producer Filed Chapter 11 & What We Can Learn From It

A major gold producer filed Chapter 11 bankruptcy protection recently, according to the Wall Street Journal.

Midway Gold Corp. suspended operations last week after failing to pay off a $63.5 million debt to the Commonwealth Bank of Australia and a $10.5 million subordinate debt to Hale Capital Partners.

Midway fails to generate revenue

The company incorporated in 1996 and shifted operations into gold mining in March 2014. Midway claimed $82.9 million in assets according to recent court documents, but has yet to produce necessary revenues, as expected production fell well short of projections.

By the end of March, construction costs exceeded $84 million. These costs, combined with the uncertainties of the company’s timeline for production, sent Midway into staggering debt. There were also investor concerns about fluctuations in gold prices, finding supplementary financing, drilling results, accuracy of gold resources and reserve estimates, rising legal fees, and exorbitant operating costs that led to the bankruptcy decision.

Compounding the company’s financial problems is the fact that Midway is incorporated in Canada, and will seek bankruptcy protection there as well.

The plan going forward

In accordance with the company’s filing, the debtor’s proposed restructuring plan calls for Midway to sell off non-core assets and equity ownership stakes. Midway’s goal is to obtain an influx of cash flow in order to buy the time and resources needed to resume operations at the mine.

The company also stated that it will remain as a “debtor in possession” as negotiations continue. However, with the company only at the beginning of bankruptcy proceedings, there is the possibility of a quick sale, debt refinancing or the formation of a strategic partnership. These negotiations are centered around the terms of the expired waiver with its senior bondholders.

Takeaway

Midway executives feel that the company can maximize the value of Pan Mine, which was expected to produce at costs lower than industry average. In fact, Pan Mine was originally projected to turn a profit for Midway and its lenders, even in a saturated gold market. Therefore, the company noted that there is hope for future growth and profitability in the near future.

Furthermore, with the outlook for the Chapter 11 yet to be defined, Midway and its senior lenders intend to reach a deal that will enable the company to restart operations during the pendency of the bankruptcy case. Many of these issues will be the subject of “First Day” motions, to be made shortly into the bankruptcy.

Are you a creditor in a bankruptcy?  Have you been sued by a bankrupt?  If you have any questions about your rights, please contact me, Joel Glucksman, at 201-806-3364.