Pegasus Stock Hits New Low As Investors Bail Out

The sell-off of Pegasus Gold Corp. stock continued Tuesday, with nearly 2.7 million shares changing hands after Friday’s announcement of plans to close its Mt. Todd gold mine in Australia and take a $353.3 million write-down on the property.

Mt. Todd, with production of about 260,000 ounces a year, represented half of the company’s gold reserves.

After closing at a record low of $1.38 per share Monday, the stock dropped again, closing at $1 Tuesday.

The rush to unload Pegasus stock followed a Merrill Lynch advisory that predicted company debt related to $122 million outstanding on a revolving line of credit would force the mining firm into receivership.

According to the Merrill Lynch report, “outstanding debt exceeds the company’s breakup value.”

Based on current weak prices for gold and a decline in asset values throughout the industry, the report warned investors it would be unlikely any outside interest would step in to bid on Pegasus.

One firm most affected by the shutdown of Mt. Todd was Henry Walker Ltd., an Australian mining contractor that held the contract to work the project through 2003.

“The closure of the mine was unexpected, as recent discussions with the client had indicated operations could be expected to continue for the near term,” the company said in a statement.

Henry Walker managing director Richard Ryan said the firm’s total work on hand has been revised downward by $600 million due to the Pegasus announcement.

Minera Andes Inc., which, like Pegasus, has offices in Spokane, entered a joint venture project with Pegasus in August on the Arroyo Verde gold property in Argentina. Under the agreement, Minera Andes can earn an 80 percent interest in the Pegasus find if it invests $1.3 million over the next four years.

Arthur Johnson, director of investor and public relations, said Minera Andes’ profits won’t be tied to financial problems now facing Pegasus Gold.

“There’s no effect because we’re the operator on Arroyo Verde,” Johnson said. “We report to them as far as what we do and why, but we’re spending the money and it’s our people out in the field.”

Pegasus president and CEO Werner Nennecker and vice president of investor and public relations John W. Pearson were meeting with investors and lenders Tuesday and could not be reached for comment.

, DataTimes