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Last week represented a major milestone for Canada’s Fortune Minerals (TSX:FT). The company announced on Wednesday that it had secured a 100 percent ownership in the Revenue Silver Mine (RSM) in Colorado, allowing it to step up from developer to producer.
The company reported the first phase of a staged acquisition of the mine in May, and its subsidiary, Fortune Revenue Silver Mines Inc., has been operating the mine and making improvements since then. Certainly, securing ownership of the RSM has fast-tracked Fortune’s status to producer, and that looks to have been a positive move for the company.
Fortune also owns two development assets, the Arctos Anthracite Project in British Columbia and the NICO gold–cobalt-bismuth-copper project in the Northwest Territories, as well as the Sue-Dianne copper-silver-gold deposit and other exploration projects in the Northwest Territories.
Fully funded
Allowing Fortune to complete the purchase was a $35 million investment by Lascaux Resource Capital. This summer, Fortune secured a metal prepay facility with Lascaux, and under the terms of the agreement, funds will be repaid with a fixed schedule of metal shipments from the Revenue Silver Mine over four years. Fortune has received a first tranche of US$25 million from Lascaux, which it has used to repay a $4 million bridge loan and to complete the transaction for RSM.
Beyond getting that support, Fortune also worked hard to amend the terms of its purchase agreement so that it could “acquire the assets under more attractive terms.” It reduced one of its future payments from $10 million down to $3 million plus common shares, and also cut another payment down by half a million.
Precious metals prices and the commodities markets have not been kind to miners lately, and Fortune’s president and CEO, Robin Goad, drew attention to the significance of the RSM acquisition given the current environment. “Our ability to arrange financing and close this purchase of the Revenue Silver Mine in a challenging capital market is a testament to our team,” he said in a statement. “We look forward to completing the changeover of operations and are delighted to welcome the employees of the mine to Fortune as we continue with the ramp up to 400 tons per day and cash flow from operations.”
Overcoming safety issues
To be sure, Fortune may have been able to pick up the mine at an attractive price for a reason – the Revenue Silver Mine has had some problems with safety, to say the least. In November 2013, two workers died of carbon monoxide poisoning at the mine, and this August, federal officials dinged the mine’s operator for failing to properly report a blasting incident that injured another mineworker.
According to The Watch, The Mine Safety and Health Administration (MSHA) has levied some fairly serious accusations against the RSM, including a Pattern of Violations (POV) of mandatory health or safety standards. That’s one of the agency’s most serious enforcement tools and signifies “serious compliance problems,” according to retired MSHA District Specialist Ron Renowden.
However, according to Fortune, that’s all in the past. “The Pattern of Violation recently issued by MSHA is based on historical issues and does not reflect the positive impact of our involvement since May,” the company said in a statement, adding that Fortune is looking forward to “full control of operations and a fresh start for the mine.” Furthermore vice president of operations, Mike Romaniuk, told The Watch that the company is “working very hard at changing the safety culture,” at RSM, while the publication noted that the Revenue mine met the criteria for a POV back in April – before Fortune Minerals moved in as operator.
What’s next?
Looking at last Wednesday’s press release, it certainly seems that Fortune is working in the spirit of those claims. In addition to improving mill performance and production efficiencies at the mine, Revenue is getting a safety overhaul, including scaling of the main haulage tunnel, improved ventilation, and the creation of a secondary emergency escape way at the back of the mine.
To be sure, the Revenue Silver Mine has its share of challenges, but Fortune Minerals looks to have found an opportunity in this beleaguered market, and at the very least has picked up a producing asset at a decent price. Investors will certainly be watching developments at the mine to see whether the bet pays off.
Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.
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