Pegasus aims to sell Mt. Todd

Financially troubled Pegasus Gold (PSGQF-O) plans to sell off the Mt. Todd gold mine and seek damages from the engineering contractors involved in the planning and design of the Australian project.

The creditors of Pegasus have retained an investor relations group to help with the sale, the value of which had not been determined by presstime.

In December 1997, Pegasus filed a writ in the Northern Territory Supreme Court against the contractors who completed the feasibility study and who proceeded to design and build the Phase II facilities. Pegasus is seeking damages of A$272 million from a joint venture of Bateman Engineering, Kilborn Engineering and Australian-based Kinhill Pacific, alleging professional negligence and violations of the Australian Trade Practices Act. None of the firms could be reached for comment.

Pegasus closed Mt. Todd in late 1997, after gold production and operating costs fell short of expectations. Cash costs had soared above US$500 per oz.

In January of this year, the company filed for bankruptcy protection.

Pegasus intends to reorganize its remaining operating assets into a new entity. These include the Florida Canyon gold mine in Nevada and the Montana Tunnels and Diamond Hill mines in Montana. The creditors, which are primarily in the banking sector, are expected to exchange their debt for a majority interest in the new company.

However, existing shareholders of Pegasus are unlikely to be compensated for their investments. Shares were suspended on the Montreal Exchange in late May, and, at presstime, were valued at 19 cents on the over-the-counter market in the U.S.

At the end of the first quarter,

the company’s liabilities totalled US$333.3 million. Of that amount, US$315.7 million (including a revolving credit facility, convertible subordinated notes and foreign exchange settlements) is “subject to compromise,” meaning it could be transferred into equity of the new company.

The beleagered company posted a loss of US$9.1 million (or 22 cents per share) for the quarter, compared with a loss of US$15,000 (nil) for the corresponding period in 1997. Gold production fell to 65,632 from 87,486 oz.

between the two periods, reflecting the fact that only three of its mines are operating this year, compared with six in early 1997. Total cash costs dropped to US$242 from US$297 per oz., and production costs, though above the spot price at US$325 per oz., were likewise down significantly from the 1997 first quarter.

Pegasus no longer has any forward gold positions, so it sells gold at the spot price, having realized US$295 per oz. during the first quarter. At the end of the first quarter, the company had US$30.6 million in cash and equivalents.