What’s Going On With Aurcana Silver?
A new elevator in the pipeline, a 17.7-million ounce silver mine, and a fresh $28 million term loan–things were looking up for Aurcana Silver (TSXV: AUN) when the year started.
Fast forward to today, the firm is scrambling for funding sources led by a missing-in-action CEO. The shares have also been trading at their lowest.
What happened in between?
Intermittent operations
Back in November 2021, the mining firm had to temporarily suspend underground operations at its Revenue-Virginius silver mine in Ouray, Colorado. Rock movement that occurred in the #2 Alimak Raise caused a temporary limitation to the production of the mine.
After the investigation, while no fatalities and injuries were reported, the mine operations have been impacted. Vertical transportation capacity has been reduced to 50% until the #1 Alimak raise has been fully constructed. All development plans have been put on hold as well, and the operations were focused on concentrate production.
“The Company’s plans to manage operations are continuing to evolve and the Company cannot forecast what production levels may be achieved given the change to underground vertical transportation capacity,” the company said in its statement.
Come February 2022, the firm had to temporarily suspend mining operations “due to the high cost of maintaining the company’s labor on standby and the higher cost of winter operations in general.” The firm anticipates the resumption of the operations to follow the completion of the #1 Alimak raise.
#1 Alimak raise hoist
The firm shipped its first concentrate production from the Revenue-Virginius mine in December 2021, albeit full details on the size and transaction cost weren’t disclosed.
Aurcana admitted that the delays in operations are getting in the way of achieving full production. It has identified the full completion of the #1 Alimak raise hoist as the main bottleneck “to achieving target mining productivities,” and thus, is the key to the success of the overall operations.
“Work on the #1 Raise Hoist continues and is the number one priority in the mine,” the company said.
The hoist is estimated to be completed by May 2022 and has been the primary concentration of skeletal operations during the first quarter.
In essence, the majority of the firm’s plans for the mine are anchored on the hoist being fully operational.
Restructured loan
Back when the firm was still planning to restart operations at the Revenue-Virginius mine in 2020, the firm entered into a 5-year, $28 million term loan and an associated hedging package with Mercuria Energy Group. The initial principal payment was supposed to be scheduled for March 2022.
Instead, the parties negotiated a restructuring agreement “to provide Aurcana with increased financial flexibility in the medium-term while the operational work is completed.” The agreement includes a standstill until May 31, 2022, to allow Aurcana to procure an additional US$25 million in liquidity.
The restructured agreement also included deferrals on current principal and interest payments to allow the mine to reset towards full production, and eliminating the hedging obligations, albeit with a commitment to re-hedge once the #1 Alimak raise is completed.
“Given the robustness of the economics outlined in the updated feasibility study along with the inquiries we have received from financial entities who could provide the funding needed, we feel very confident we can meet the timeline and raise the funding to meet the requirements established by Mercuria,” said CEO Kevin Drover.
As part of the restructuring agreement, the mining firm paid Mercuria Energy $1.5 million in common shares.
Search for funds
The restructuring agreement was inked in March 2022. More than two months later, the firm still “continues to evaluate all available alternatives.”
In Q1 2022, the company closed the two tranches of a $6 million non-brokered private placement offering. In total, the offering sold 17.1 million company units at $0.35 per unit, generating $5,972,724.80 in total proceeds.
Each unit composes of one common share and one purchase warrant redeemable at $0.525 per share within three years.
After that, the mining company has released two corporate updates that, in effect, said it is still working to satisfy the conditions laid out in the restructured agreement. It said that discussions have revolved around equity offerings, potential non-dilutive structures, debt refinancing packages, and possible merger partners.
However, it assured the stakeholders that the board and management are focused on and remain optimistic about achieving a full solution to the financing needs. But as always, nothing can be made certain.
“However, the Company has not made any decisions related to any of the foregoing strategic alternatives or transactions at this time, and there can be no assurance that this evaluation of strategic alternatives will result in any transaction or change in strategy,” the company said.
No COO; Sick CEO
When the firm announced its first shipment in December 2021, and shortly after the rock movement in the #2 Alimak raise that caused a temporary halt in operations, the firm also disclosed the resignation of Brian Briggs as COO of Aurcana and CEO of Ouray Silver Mining, one of the firm’s subsidiaries.
Since then, no COO has been appointed and the responsibilities and duties of the position are being shared among existing managers and officers.
The firm’s investor relations consultant has also apparently departed the company. Drover tried to address the departure, saying that “although practically speaking there will be times when [they] are simply unable to answer all the calls and emails,” they will endeavor to return to the usual accessibility to its shareholders.
However, even Drover himself has recently been not readily available for the past few weeks “due to personal health issues.” The company promises he “will have periodic availability and will be more accessible over the coming weeks.”
Where does it stand now?
In the latest feasibility study for Revenue-Virginius silver mine effective December 31, 2021, the property has an NPV5% of US$108.8 million. Total production is estimated at 17.7 million payable silver equivalent ounces (including approximately 13 million payable ounces of silver) over the approximately 6.25-year mine life.
Total costs to cash flow positive are pegged at approximately US$20 million, while all-in sustaining costs net of by-product credits equal to US$12.55 per ounce over the life of mine.
The mine operations are said to be focused on optimizing mine development and a restart plan. The completion of the #1 Alimak raise is expected to push the operations between the 2000 level and the four levels being developed above 2000.
The optimism on the operations side doesn’t seem apparent in the firm’s financials. In its annual statements for 2021 ended December 31, the company posted a $34.7 million net loss, driven heavily by the $31.0 million impairment on property, plant, and equipment related to the limited productivity brought by the rock movement in November 2021.
This also led the firm to shrink its cash balance throughout the year, down to $1.5 million from $29.7 million at the beginning of the year. This put the firm’s current assets balance at $7.2 million while current liabilities came in at $21.6 million.
This financial position has left the firm looking for someone to lead a potential equity offering, while also examining “potential non-dilutive structures and debt refinancing packages,” while the firm is also purportedly in discussions for a potential merger.
In the end, the completion of the #1 Alimak raise hoist–seemingly the key to Aurcana’s direction for the coming months–is still scheduled to be done by Q2 2022. But whether it finishes on schedule or not, given the current standing of its financing needs, the firm’s outlook is still unclear at best.
Aurcana Silver last traded at $0.08 on the TSX Venture.
Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
hang on until the price of silver makes everthing worthwhile
Deadline extended until June 20 for the financing problem, but it would also be essential to know what is happening with the resumption of mining activities. No information on this subject, it is worrying!
The deal with Mercuria includes a standstill until May 31, 2022, to allow Aurcana to raise an additional $25 million in cash.
So tomorrow is the deadline. Will a financing solution have been found at the last moment?
If not, what will happen?
YOU REAP WHAT YOU SOW!
Do you really believe they are working on the elevator? I sent them an email and received no reply.
Thank you for this good summary of the Aurcana situation.
The most important thing would be to have information on the progress of the elevator1 and the resumption of mining activities. The worst would be if the situation remained frozen and without progress due to cash flow problems! How could we find out more when the management (what remains of it) does not deign to communicate on the subject?