Can Beleaguered Carpathian Gold Recover?

This article was first published on Gold Investing News on January 29, 2014.
It’s been a tough few months for beleaguered Carpathian Gold (TSX:CPN), whose focus is on getting its Brazil-based Riacho dos Machados (RDM) project into production. And unfortunately, the news it’s put out in the past few days does not seem to herald improvement. 
The company’s troubles began back in October, when news surfaced that the first gold pour at RDM would be delayed “pending the commissioning of the mill by a third party group and the wet commissioning of the balance of the gold production line.” Though mining continued to take place, Carpathian was left with what it delicately described as “a lack of sufficient resources.”
At the time, the company said that it was considering various options, including merging with another company and a recapitalization. Ultimately, what ended up happening was that Carpathian and Macquarie Bank entered into an agreement under which Macquarie was to provide further debt financing for the project.
A turnaround?
On December 13, Carpathian announced that it had received from state environmental agency SUPRAM a provisional permit that would allow it to “proceed with the full operation of its gold producing facilities.”
Commenting positively on the situation, Dino Titaro, then chairman and CEO, said, “[w]hile the unfortunate delay in the start-up of the operation may have affected the outlook for the Company and led to a cash shortfall situation, it is nonetheless a pleasure to report that with the receipt of the [provisional permit] the RDM gold project can now commence gold production and be Brazil’s next gold producer.” The company expected to pour its first gold within two weeks, he also said.
Trouble strikes again
At that point, it looked like Carpathian’s troubles might be at an end. Indeed, a week later the company said that “[d]espite several days … of severe precipitation” it still anticipated pouring its first gold by the end of 2013.
Sadly, the good news was not to last. Though Carpathian managed to complete its first gold smelt on December 24, commenting that its belief was that it would be able to start gold doré production and ship it on a regular basis, the day after that announcement the company’s provisional permit was suspended, largely due to ”unusual heavy rainfall at the site.” As a result, Carpathian had to halt production at RDM.
All was quiet until this past Friday, when Carpathian came forward to say that as a result of the rainfall, it must now complete remedial work at the mine site and does not anticipate completing that work until the end of next month. The work is expected to cost between US$500,000 and $700,000, while production loss caused by the suspension of the permit is estimated at “7,000 to 9,000 ounces of gold per month” — that amounts to $8.75 to $11.25 million per month.
Adding to that blow is the fact that Titaro and the company’s COO, Daniel Kivari, have stepped down from their positions. Kivari has been replaced by Vito Hugo Belo, whose experience in the mining sector includes 20 years with Rio Tinto (ASX:RIO,LSE:RIO,NYSE:RIO), while Guy Charette, formerly Carpathian’s executive vice president, will act as interim CEO.
What now?
Carpathian announced Monday that it had “concluded an extended forbearance and amendment agreement” with Macquarie that “provides for a US$10 million increase in the amount of funds made available under Tranche 3 of a project finance facility.” While the forbearance currently expires on January 31, the company plans to meet with Macquarie this week to discuss an extension.
Somewhat ominously, the press release states that “[t]here is no assurance that any or all of the funds to be provided … will actually be made available” because “any disbursements thereof remain solely at Macquarie’s discretion nor is there any assurance that Macquarie will agree to any extension of the forbearance.” In other words, at the moment, nothing is guaranteed.
At end of day yesterday, shares of Carpathian sat at $0.06 each, down 7.69 percent. Investors would do well to keep an eye out for any updates from the company — and should perhaps be mindful of the weather conditions in Brazil as well.
 
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 
Related reading: 
Gold in Brazil: Producers and Explorers