Tough times for High River Gold Mines

It was a rough opening to the week for High River Gold Mines (HRG-T).

The company announced that it wasn’t able to complete a financing deal, that it was still in breach of debt covenants and that its chairman was resigning, and the market responded accordingly.

High River shares, which had been tracking upwards since the beginning of the year, gave back 23% or 5¢ on March 30 and were trading for 17¢ on a volume of over 4 million shares.

The Toronto-based miner with producing gold mines in Burkina Faso and Russia had been negotiating with Russia’s Severstal, its largest shareholder, to secure the financing it needs to continue as a going concern.

But those talks have broken down and no deal has been reached.

Severstal had considered a number of options including acquiring High River’s outstanding shares, providing debt or equity financing.

The failure to reach an agreement with Severstal comes as the company still finds itself in breach of covenants connected to loan agreements with Royal Gold and Standard Bank. High River says the firms have not taken any action with regards to their rights surrounding such covenants.

As of March 1, the company had consolidated debt outstanding of US$137 million.

That amount breaks down as US$64 million in various loans between Nomos Bank and High River’s Russian subsidiaries; US$29 million under a loan agreement between Royal Gold and High River’s subsidiary, Somita SA; and US$ 27 million under loan agreements with Standard Bank.

Roughly US$7 million in principal and interest debt repayments are due for March, with another US$27 million due in the second quarter and about US$22 million due in the second half of the year.

It currently is sitting with $3 million in cash and a consolidated cash position of $23 million.

To stay afloat, High River needs a few things to go its way.

It says it will have to get positive results from its ongoing discussions with its lenders, continue to get accommodations from its trade creditors, obtain additional financing and, if that weren’t enough, establish steady production at its Taparko-Bouroum mine in Burkina Faso and its Berezitovy mine in Russia.

While the two mines sit on sizeable deposits and have good economics on paper, both have been plagued with technical difficulties that have thwarted production and choked off much needed cash flows.

Another foreboding sign could be read into the departure of its chairman Terrence Lyons.

Lyons stint with the company was brief as he only joined in September 2008.

But High River explains his early departure as being connected to his being brought in to oversee the special committee connected with the Severstal negotiations. With those talks now dissolved he will move on to his other business concerns.

The company says a replacement for Lyons has not yet been found.