Randall J. Newsome: Rise Gold, show me the money
A lot of print has been devoted to the pros and cons of Rise Gold Corp.’s reopening of the Idaho-Maryland Mine. The opponents have focused on various environmental impacts of the mine. Proponents point to the potential for as many as 300 new jobs, and urge that the company and its CEO, Benjamin Mossman, be given a chance to prove themselves.
Putting aside whether reopening the mine is a good or bad idea, there has been little discussion of whether Rise Gold has, or ever will have, the financial wherewithal to carry out its business plan. My experience as a U.S. bankruptcy judge for 28 years leads me to believe that this company is destined for financial failure.
Unfortunately, Rise Gold’s financial structure looks a lot like that of Bank Island Gold, Ltd. (“BIG”), Mr. Mossman’s last failed business venture. That company began commercial production of gold at the Yellow Giant mine in Banks Island, British Columbia, in January 2015. Only six months later, its operations were forced to shut down after an extensive pollution abatement order was issued by the British Columbia Ministry of Environment.
On Jan.15, 2016, Banks Island Gold was put into a receivership. According to FTI Consulting, the Canadian receiver, the company’s books showed assets in Canadian dollars of just under $12 million and liabilities of about $16 million. The creditors list includes 158 unsecured creditors holding over $6 million in claims. Significantly, about 50 of those creditors were former employees of BIG. They held claims for vacation and severance pay amounting to over $107,000. Most of the other creditors were small trade or equipment vendors.
Despite extensive efforts to market the mine, the receiver was unable to sell it. Ultimately, BIG’s principal lender, who had a security interest (lien) covering all of the company’s assets, took over the mine. Its stated value of $2.7 million did not begin to cover the full amount of the lender’s loan, which was nearly $8.9 million. Thus, the unsecured creditors probably recovered virtually none of the money they were owed.
Rise Gold’s financial situation is nearly as dire. By its own reckoning, it needs upward of $100 million for construction of a wastewater treatment facility, a second mine shaft, a ventilation system, and other improvements before the mine can commence operations.
According to its June 14, 2021, 10Q report ( a quarterly form public companies must file under SEC rules), the company only had about $1.5 million in cash as of April 30, 2021, down from nearly $3.4 million at the end of the previous quarter.
Apparently, it’s been unable to secure conventional financing with a commercial lender and has been forced to resort to a hard-money lender to raise funds.
In late 2019, it borrowed $1 million and gave the lender a lien on all of its assets. The loan comes due in 2023. The interest rate is 10% for the first two years, 20% for the third year, and a staggering 25% for the fourth year.
Nearly two years later, due to fees and charges on top of exorbitant interest rates, it still owes some $916,000 on this loan. This is the commercial version of what a consumer could expect when borrowing money from a payday lender.
Perhaps the most telling and chilling excerpt from the June 14, 2021, 10Q report is the following:
“The Company expects to operate at a loss for at least the next 12 months. It has no agreements for additional financing and cannot provide any assurance that additional funding will be available to finance its operations on acceptable terms in order to enable it to carry out its business plan.“
Where is the money going to come from to build a wastewater treatment plant that can handle 3 million gallons of water a day? Where is the money going to come from for an environmental bond? Where is the money going to come from to pay NID to extend piped water to homeowners whose wells fail?
In other words, who is going to pay for all the promises Rise Gold has made, and who is going to finance its other basic capital needs? Some four and a half years after buying the mine, Rise Gold still doesn’t have a clue.
If the Board of Supervisors doesn’t receive answers to these questions in the immediate future, it should put an end to this ill-conceived and futile venture.
Randall J. Newsome lives in Nevada City.
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