Dark Days For Sunshine Mine Some Workers Take Other Jobs As The Possibility Of Bankruptcy, Ore Drying Up Haunt Historic Site

Brian Christmann left his job at the Sunshine Mine to head for Elko, Nev., last week.

A job offer from Barrick Gold Inc. seemed more secure to the 22-year-old miner than continued employment at the financially troubled Sunshine Mining and Refining Co.

“We didn’t want to be the last to leave,” said Shasta Christmann, who plans to join her husband in Nevada next month.“A lot of people, they don’t want to stick around to see what happens.”

Sunshine is in a precarious position. The company is behind on $27 million in debt payments. Stock prices have tumbled below $1 per share. And the century-old Sunshine Mine could be out of ore by the end of the year.

When metals giant Barrick set up a job fair in Coeur d’Alene earlier this year, Christmann called for an interview. He was low on the seniority list at the Sunshine Mine and was worried about a possible layoff.

About two dozen workers from the Sunshine Mine have left for jobs in Montana and Nevada, said Ken Paulson, president of Local 5089 of the United Steelworkers of America. “Everyone here is assuming that the mine is going down soon.”

Sunshine officials have scheduled a meeting Monday with creditors in an effort to hammer out a plan that would keep the company afloat. However, neither the best hopes, nor the worst fears of Sunshine’s employees are likely to result from the meeting.

Company officials don’t expect to announce a refinancing plan that would solve its financial crisis. But bankruptcy is not imminent either, said Bill Davis, Sunshine’s chief financial officer.

“We’re still in negotiations,” Davis said. At this point, the note holders want to avoid a bankruptcy, which would be costly and time-consuming for them as well, he said.

The Sunshine Mine is one of three operating mines left in the historic Coeur d’Alene silver district. The mine employs about 260 people in one of the most economically depressed areas of Idaho.

Davis said the company’s predicament is a result of low silver prices and an inability to get an Argentina mine up and running.

The company borrowed money in 1996 to finance exploration work at the Sunshine Mine near Kellogg and at the Pirquitas property in Argentina. Sunshine hoped to turn the Pirquitas property into a low-cost producer of silver and tin, turning around a decade of losses for the Boise-based company.

But the company couldn’t raise the $130 million it needed to develop the property and refinance its debt. When the $27 million in bond payments came due last month, Sunshine couldn’t pay up.

Defaulting on the bonds would also put the company into default on $15 million in bonds due in 2002. The default provision is standard in bond contracts, and it would push Sunshine into bankruptcy.

Compounding problems, the Sunshine Mine could be out of ore by the end of the year. Efforts to find new, short-term sources of ore haven’t been successful.

“It’s a little scary at this point,” said Jerry Chapman, a shareholder from Sevierville, Tenn. “I wonder who the bondholders are, and what they’re thinking.”

The company’s future is in the hands of Paul E. Singer, a New York businessman. Singer controls three companies that hold the majority of the bonds that were due last month.

The companies are Elliott Associates, which buys, sells and trades in securities; Westgate International, a Cayman Islands limited partnership; and Martley International.

Singer’s other investments include Florida real estate, software and pharmaceutical companies, gold and diamond exploration, and oil and gas.

When contacted Thursday, a spokesman for Elliott Associates would only say that talks with Sunshine are continuing.

Last month, Sunshine announced that it had reached an agreement with the bondholders to delay debt payments by up to two years. Elliott Associates also agreed to extend a $20 million credit line at that time.

The agreement was later rescinded. It wouldn’t have provided a long-term solution to the company’s financial troubles, Davis said. In 2002, Sunshine would have found itself in the same situation, he said.

One possible solution is offering the bondholders shares of Sunshine stock in lieu of payments, Davis said. The company’s proxy statement asks shareholders for permission to increase the number of shares to up to 250 million.

Sunshine’s shares are trading at such a low price right now, that it would take a large amount of stock to pay down the debt, Davis said.

Such a move would hamper the company’s efforts to stay listed on the New York Stock Exchange. Share prices below $1 per share have put the listing in jeopardy, and could force Sunshine to trade on a smaller exchange.

Issuing large numbers of new shares would be devastating to the company’s 41 million shareholders. Shareholders have lost nearly 97percent of the value of their investment over the past five years.

Chapman purchased his first Sunshine stock five years ago at prices that would be equivalent to $24 per share today. The stock closed at 9/16 Thursday.

Chapman had 160,000 shares before the company tried a maneuver intended to boost stock prices by dividing the number of outstanding shares by eight. It whittled his shares from 160,000 to 20,000. At the time, company officials said the reduction would help Sunshine keep its NYSE listing and attract financing for the Pirquitas project.

But fears of a bankruptcy have kept share prices down.

Scott Morgan, a shareholder from the Detroit area, has sold off most of his Sunshine stock and invested in Coeur d’Alene Mines instead.

He said he’s troubled by “golden parachute” provisions in company documents. They guarantee Sunshine’s three top officials a lump sum if the company is taken over and they lose their jobs.

The payment would be $700,000 for Chairman and CEO John Simko, $480,000 for Davis and $280,000 for Harry Cougher, vice president of operations.

Morgan also questions why management received $200,000 in bonuses over the past three years.

“It seems like they want to protect their own income,” he said.

Davis, who received a $50,000 bonus last year, said the bonuses aren’t excessive by industry standards. “Nobody got a bonus this year, despite the fact we all worked a lot harder,” he said.

The bonuses have also been a contentious point with union workers. Paulson, a 23-year employee, earns $11.60 per hour working in the mine’s mill. Cody Mathewson, journeyman electrician with 27 years at the mine, earns $12.96 per hour.

Some contract miners earn $70,000 to $80,000 per year, but hourly workers at the mine have modest wages, Mathewson said.

Chapman hasn’t sold off any stock yet. The company has weathered a century of ups and downs, which makes him optimistic. “After over 100 years, it seems like this thing will work itself out,” he said.

Paulson hopes so. “We’d all like to keep our jobs.”