“Debt rating agency Moody’s warned .. it was concerned the miner may not have the liquidity to absorb the financial impact of the spill. Imperial had $1.5-million in cash versus $464-million in debt, and a working capital deficit of $21.7-million as of the end of March, according to its financial statements.
The shutdown of Mount Polley will stretch thin an already tight balance sheet,” Raymond James analyst Adam Low said in a note to clients.”
Important to note that working capital deficit of $21.7 million is pre TSF failure. With Mt. Polley out of the picture for income and costing enormous outlays for cleanup and recovery and no significant recourse to bonds and insurance for any part of failure costs the working capital deficit is most likely now many times that.
In its 2013 annual report Imperial announced that it could no longer fund operations and development out of cash flow as it had done to that date and would have to go to credit markets. Post failure It did obtain $100 million in unsecured 5 year debt but at a fairly high rate, 6%, and principally funded by the two existing investors with most at stake. We do not need world class accoutants and rating agency’s to wonder how this $100 million can contribute in any way to funding failure costs. The working capital deficit alone required all of that.
Imperials stock plummeted immediately after the massive TSF failure which further impairs access to and cost of capital even on the risk robust mining centered TSX . Mt Polley has $900 million in assets but $500 million in liabilities so its net worth ( unencumbered assets) is only $400 million. With $100 million already drawn down just to meet working capital deficit and the price per share still impaired that doesn’t leave much possibility of access to the TSX to fund the Mt. Polley failure and meet Imperials public and environmental liabilities.
By comparison, Grupo Mexico who have expended $150 million so far on clean up of their Buena Vista Del Cobre feeder dam breach which occurred 2 days after the Mt. Polley failure had $2.44 billion cash on hand and only $5.78 billion in debt ( a ratio (debt to cash) of 2.36 as compared with Imperial/MPMC’s of 309.3. To meet an uninsured, unfunded loss of $100 million and not risk impairment of all other operations a company needs to have sufficient liquidity and revenues from other operations to be able to absorb the unplanned costs of the failure. Only the largest miners, like Grupo have that.”