Quinsam, Hillsborough go belly-up

In a final attempt to restructure its debt, Quinsam Coal has filed for creditor protection and suspended operations at its coal mine near Campbell River, B.C. As a result, 120 unionized workers have been laid off.

Hillsborough Resources (HLB-T), which owns a 63% interest in Quinsam Coal, has also filed for protection. The remainder of Quinsam is held by Japanese-owned Marubeni Coal Canada.

“Hillsborough and Quinsam are facing many of the same issues, and there are some common creditors,” says David Slater, who presides over both companies. “It was likely that a restructuring plan would eventually have to involve both companies.”

Over the past year, Quinsam has failed to comply with various financial covenants with banks and with Northgate Exploration (its other creditor). The company’s woes became more pronounced when, in November 1998, it failed to make a $500,000 principal repayment on a $3-million loan. Some time later, the company, in need of funding for working capital, asset replacement and debt reduction, decided to seek refinancing options through the government of British Columbia’s Job Protections Commissioner (JPC). However, negotions broke down in mid-May, just as Quinsam was in the process of arranging a 1-year, 10% deferral of salaries and wages, restructuring the Northgate-Trilon long-term debt, and securing a $3-million loan from the government.

At present, three British Columbian mines are operating under economic relief packages brokered by the JPC: Imperial Metal’s 55%-owned Mount Polley gold-copper mine; that company’s 60%-held Huckleberry copper mine; and Thompson Creek Mining’s Endako molybdenum mine. Earlier this month, the JPC failed to work out a satisfactory arrangement between Highland Valley Copper and its employees. Highland Valley suspended operations indefinitely after the union refused to accept cut wages (T.N.M., May 24-30/99).

Quinsam and Hillsborough are not the first mining companies to seek protection in British Columbia this year. Royal Oak Mines did so in May after failing to restructure its $665-million debt load. (The company’s Kemess South gold-copper mine is now operating under receivership.)

Slater says Hillsborough has filed for protection “in the interests of all our stakeholders, including our employees, our customers, our creditors and our shareholders.”

He says he is hopeful an acceptable proposal will be tabled, one that will enable the company “regain profitability in the short term and take advantage of the expected improvement in the world coal markets in the longer term.” Quinsam is expected to table a restructuring plan to the B.C. Supreme Court by June 8.

During the first quarter, Hillsborough incurred a net loss of $875,000 (or 5 cents per share) on revenue of $5.5 million, compared with a loss of $1.3 million (7 cents per share) on revenue of $7.6 million in the first three months of 1998.

The company earned $39,000 from coal operations in the recent quarter, compared with a loss of $1.35 million a year ago. Production between the two periods slipped to 144,000 from 171,000 tonnes.

The Quinsam mine slashed operating costs in 1998 by eliminating half of its workforce, curtailing exploration and deferring the delivery of new equipment. However, the improved results were offset by a $4.66-per-tonne drop in the sale price of coal.

Additional expenses included an interest charge increase totalling $58,000, a restructuring expense of $146,000, and a $105,000 increase in depreciation, depletion and amortization costs. The company also reported a $534,000 reduction in other income.