Coeur d’Alene Mines Corp. will take a $53 million write-down of its Golden Cross mine in New Zealand because a problem with its tailings pond will prevent the company from making the gold mine profitable.
The pond is located on a hillside near Waihi, New Zealand. Water pressure has caused the ground under the pond, which holds the processed rock from the mine, to shift.
At first, Coeur geologists thought a tunnel dug under the pond would relieve the water pressure and stop the ground from moving. The plan was to cost $4 million.
Now geologists believe fixing the problem will cost substantially more, said Tony Ebersole, director of investor relations for Coeur.
So much more, Coeur believes, that it cannot recover its original investment in the mine. For accounting reasons, the company will remove the mine as an asset.
Coeur bought Cyprus Gold New Zealand Ltd.’s 80 percent stake in the mine in 1993. Todd Corp., a New Zealand company, owns the rest.
The mine has depreciated since Coeur bought it. The $53 million includes the remaining value of Golden Cross and the cost of fixing the tailings pond.
The write-down represents a loss of 9 percent of Coeur’s assets, which contributed to the company’s stock falling Thursday. Coeur shares on the New York Stock Exchange lost $1.75 to close at $17.25 a share.
In the last two days, Coeur shares have lost $2.13 per share. Metals prices, which usually drive mining stocks’ prices, have also been down.
Coeur notified Cyprus Gold that it believes Cyprus failed to reveal the problems with the pond when Coeur bought it. Coeur now will “assess claims” against Cyprus Gold, but Ebersole could not elaborate on the size of the claims.
Golden Cross was to have provided Coeur with 77,000 ounces of gold and 251,000 ounces of silver this year. The mine will continue to operate at full capacity while geologists figure out how to stabilize the ground under the pond.
In fact, the mine could continue running while the pond gets repaired, Ebersole said. But the cost of such repairs will make it impossible for Coeur to sell enough gold from the mine to pay off its investment.
Golden Cross came into Coeur’s hands with some controversy. Former Coeur d’Alene Mines director Robert Shoemaker resigned from the board in March 1993 because of his objections to the lack of disclosure about Golden Cross. Shoemaker was not reachable in Sacramento Thursday.
Heavy rain at Golden Cross caused production problems after the company bought the mine. That raised the cost of getting gold from the mine, decreasing the margin Coeur earned. But costs dropped after that, making Golden Cross a big contributor to Coeur’s growing set of gold mines.
Environmental groups have used the Golden Crown mine to try to prevent future mining in the area.
The tailings pond has not leaked in any way. An independent study by Woodward-Clyde in January suggests no collapse is imminent.
Coeur is not the only company to take a large write-down recently. Hecla Mining Co. took a nearly $100 million write-down during the third quarter of last year after geologists discovered that its Grouse Creek mine contained far less gold than first thought. The write-down contributed to Hecla’s worst financial year ever.
Spokane-based Pegasus Gold Co. took a $53 million write-down in 1994 to reflect environmental remediation costs and the closure of several mine operations.
Coeur’s write-down will appear in its second-quarter earnings, due to be released in early August.