The mining newspaper for Alaska and Canada's North
The mining newspaper for Alaska and Canada's North
Out of money and deep in debt, the junior that aspired to be a gold miner faces the likelihood of losing Nixon Fork to lenders
Fire River Gold Corp. has dug a deep hole at Nixon Fork- not only a drift to the high-grade gold for which the mine is known but also a more perilous financial deficit that could result in the Vancouver B.C.-based junior losing the remote Alaska operation.
Laden by heavy debt and unable to reach commercial production Fire River, in late June, said it was placing Nixon Fork on care and maintenance "until a revised operating plan has been developed and market conditions improve." While this is not good news for the struggling operation, the worst was yet to come.
In August, the company revealed that it missed a C$796,875 principal payment due to Waterton Global Value Limited Partnership, a fund managed by Waterton Global Resource Management. The payment is related to a US$12.75 million gold-backed credit facility that is secured by a lien and a first priority security interest in substantially all of Fire River Gold's assets, including the Nixon Fork Mine.
Waterton, which structures and manages investments in the precious metals sector, has an in-house mine development and operations team that has held high-level positions with the world's top gold mining companies.
Although Fire River said it is working with Waterton to come up with a plan to settle the debt, the transfer of Nixon Fork to the resource-investment fund is the only potential solution put forward.
Sweet deal
Fire River purchased the Nixon Fork project in 2009 for US$500,000 in cash and 6.4 million shares of the company. At that time, the deal, worth roughly C$3 million, was considered a bargain that would catapult Fire River from a newly-formed junior exploration company to a gold miner producing upwards of 50,000 ounces of gold per year.
With the purchase of Nixon Fork, located some 35 miles (56 kilometers) northeast of the mining town of McGrath, Fire River Gold could boast of owning a turn-key gold mine. Over the nine decades prior to Fire River, various operators had recovered 125,591 ounces of gold from about 106,137 metric tons of ore. In addition to the gold, at least 19,566 ounces of silver and 1.27 million pounds of copper were recovered during the same period.
The last of these former operators, St Andrew Goldfields Ltd., invested roughly US$54 million on upgrades and new equipment after purchasing the underground gold mine in 2003. St Andrew put Nixon Fork in limited production in 2007, but due to economic challenges, the Toronto-based company shuttered the mine and put it up for sale.
Pacific North West Capital bought the defunct mine for US$500,000 and turned around and sold it to Fire River Gold, a sister company formed for the purpose of putting the mine back into operation.
Fire River received a mine complete with a 200-metric-ton-per-day mill; a gravity gold separation circuit; a sulfide flotation circuit; and a delivered, but not yet installed carbon-in-leach circuit; a fleet of mining vehicles; diesel generators with plenty of capacity to power the operation; maintenance facilities; an 85-person camp; fuel storage; and a 5,000-foot- (1,500 meters) long airstrip.
The purchase also included a US$3.5 million bond posted to the State of Alaska and the permits needed to move the project quickly back into production.
And, if the deal didn't seem like it could get any sweeter, Fire River recovered 900 ounces of gold from behind the liners of the ball mills while refurbishing them in 2010.
Reaching the apex
The pleasant surprise of finding more than US$1 million of gold while getting Nixon Fork ready to resume operations may have been the apex of Fire River's ownership of the mine.
To avoid the pitfalls related to mining complex high-grade gold system at Nixon Fork, Fire River invested time and money in gaining a better understand of the geology.
To this end the company spent 18 months poring over documents left behind by two previous operators, re-logged several thousand meters of drill core and assessed the condition of the mill and mining equipment; a process that culminated in two preliminary economic assessments. The first, released in 2010 evaluated the viability of reprocessing tailings left behind by previous operators of the high-grade gold mine. The second, finished in early 2011, investigates the resumption of underground mining at Nixon Fork.
Both studies returned positive economic results, and Fire River gold pursued a hybrid operation that it felt could produce up to 50,000 ounces of gold per year.
Implementing its carefully laid plan, the company resumed operations at the Nixon Fork in July 2011.
Roughly half of the revenue-stream from Nixon Fork was expected to come from the sale of 1,000-ounce doré containing 60 percent gold and 30 percent silver; the remainder from the sale of a gold-rich copper concentrate. The company shipped the first batch of this concentrate in mid-September 2011. The US$1.8 million advanced payment for this 42.6-metric-ton shipment marked the first payment from the renewed operations at Nixon Fork.
Although Fire River was beginning to produce gold from Nixon Fork, the ramp-up to commercial production was behind schedule, and costs were higher than anticipated. Toward the end of 2011, the company reported that operating costs were about C$2.6 million per month and capital expenditures, at roughly C$594,000 per month, continued to be higher than expected.
To help finance operations until Nixon Fork reached its commercial capacity, Fire River took out a C$7.5-million loan with Sprott Resource Lending Partnership in November 2011.
Downhill slide
The challenges of operating a small mine in this remote region of western Alaska cropped up during the depths of winter. In December 2011, Fire River announced that it was forced to shut down the mine and mill for four days due to inclement weather that prevented aircraft from delivering fuel to Nixon Fork.
In addition to the delay of fuel and supplies, the company encountered several other problems in its attempt to ramp up to commercial production. Among these difficulties was the transitioning from disposing of tailings in the existing storage pond to placing the tailings in a newly constructed dry-stack facility.
"Most of the downtime was caused by the commissioning of the Larox filter, which dries the final tails just prior to disposal," Fire River explained in its quarterly report.
Likely as a result of these difficulties, Fire River reported an overflow of the tailings pond to the Bureau of Land Management in March 2012. Upon conducting an inspection, the federal agency issued a non-compliance order to the company for failing to stick to the approved plan of operation. BLM also upped the reclamation bond for the project to US$6 million from the previous US$3.5 million.
The good news was the carbon-in-leach circuit was completed and ready for commissioning. This not only was expected to boost gold recoveries to around 90 percent, the company could reprocess some 100 tpd of the tailings, which run between 7 and 8 g/t gold - bolstering Fire River's gold recoveries while removing tailings from the brimming pond.
Digging deeper
With the CIL recovery circuit online, Fire River took out the $12.75 million loan from Waterton. A portion of the funds were used to pay off the Sprott loan, the balance was used to pay the reclamation bond and continue operations at Nixon Fork.
Cheryl Brandon, portfolio manager at Waterton Global said, "We look forward to working with Fire River Gold to provide the additional capital required for commissioning. In addition, we have provided Fire River access to our in-house technical team to further expand the Nixon Fork Gold mining operations in Alaska. The Waterton Global facility will allow Fire River to carry out further underground development, commission the CIL circuit to improve gold recoveries and execute their production growth strategy."
The Waterton loan has a fixed rate of 5 percent per year, with the first payment due at the end of July. The loan was to be repaid, at Waterton's option, in either cash or ounces of gold at 78 percent of the then prevailing gold price.
As part of the transaction, Fire River also agreed to sell to Waterton all of the gold and silver produced from the CIL circuit through April 2014.
Bringing the CIL circuit online provided its own set of challenges.
"The addition of leaching as the third recovery process in April 2012 also imposed a conversion of the mill to a zero-discharge facility. These process changes resulted in numerous commissioning issues and downtime from various sources, including the mechanical reliability of the final tailings filter, maintaining clear water overflow from the tailings thickener, and upgrading key transfer pumps resulting in an average process rate of 92 metric tons per day so far in 2012," Fire River President Richard Goodwin explained during a May update on operations.
Goodwin, Fire River COO Timothy Smith and two board members turned in their resignations in June. Following the exodus, Waterton loaned Fire River an additional US$1.5 million. Blane Wilson filled the president and CEO positions at Fire River in July 2012.
The company then raised C$13.9 million by issuing 213.7 million shares to BayFront Capital Partners Ltd. for C6.5 cents per share; each share came with a full warrant exercisable at C10 cents for five years.
With the plant availability, head grades and plant recoveries all running lower than expected, roughly 8,800 ounces of Nixon Fork gold was sold during 2012, substantially less than the 30,000 ounces the company had forecast.
With the challenges that plagued Nixon Fork carrying over into 2013, the lower-than-projected gold recoveries continued.
"In particular, the company's milling throughput for February and March has been negatively impacted by continued inclement weather, logistical challenges relating to air deliveries of key production supplies and fuel, and unscheduled downtime for equipment repair of the Larox filter, secondary cone crusher and ball mill motor," the company explained during its first quarter financial report.
Gold production at Nixon Fork peaked at 2,032 oz in January, dropping to 1,153 oz for the first 26 days of March.
At the end of April, Fire River Gold reported assets, including C$5.83 million for the Nixon Fork property and equipment, of C$10.44 million; versus liabilities, including C$22.27 million in loans and advances, of $32.07 million. The company's cash had dwindled to C$157,762, according to the quarterly statement.
Out of cash and weighted down by debt, the junior that aspired to be a miner was forced to shut down Nixon Fork. Fire River now faces the likelihood of joining the procession of historic miners of the high-grade but exceedingly complex gold deposit in Interior Alaska.
Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.
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