Sunshine Ends Speculation, Files For Bankruptcy Restructuring Plan Gives Ownership To Creditors

Sunshine Mining and Refining Co. filed for Chapter 11 bankruptcy Wednesday, ending months of speculation about the future of the financially troubled silver producer.

The Sunshine Mine near Kellogg, which employs 226 workers, will continue to operate, company officials said.

The bankruptcy should be resolved by the end of the year under a restructuring plan that would give Sunshine’s creditors ownership of the company, said Bill Davis, chief financial officer. However, Sunshine’s 40 million shares of stock would become nearly worthless.

To miner John Evans, news of the bankruptcy was almost a relief.

“It lets us know what the company is doing. The rumors have been worse,” said Evans, a Pinehurst, Idaho, resident who has worked at the mine for 13 years.

“Nobody’s minds were on their jobs. They were on what is going on up here,” he said of the company’s troubles.

John Brueckmann, 40, and his wife, Mary, shared a quiet moment in their Ford pickup Wednesday after John finished his morning shift inside the mine.

“It’s frustrating as hell trying to figure out from week to week whether we are going to get a paycheck,” he said.

Mary Brueckmann was less than reassured by the company’s pledge to keep the mine open.

“I think it stinks,” she said. “I don’t want to leave the valley.”

The Brueckmanns have been saving money in hopes of buying a piece of land for a mobile home they inherited.

“I don’t know what we are going to do,” she said. “If things get worse, Sunshine won’t be the only one going bankrupt.”

Sunshine has been on shaky ground since March, when it was unable to meet bond payments. The company’s debts total $42 million, and it was recently removed from the New York Stock Exchange.

Despite its debts, Sunshine has continued to pay workers and suppliers in the Silver Valley, Davis said.

A $5 million advance from creditors will allow the Sunshine Mine to continue to operate. Creditors have promised another $5 million in long-term financing when the restructuring is complete, Davis said.

“It’s pretty obvious to me, and should be obvious to the employees, that they want us to continue operations,” Sunshine Mine Manager Harry Cougher said. “It’s been difficult for all of us, going through the uncertainties.”

The Sunshine Mine is one of three mines still operating in the historic Coeur d’Alene silver district.

The bankruptcy will allow the company to survive, Davis said. “We looked at other options, but they would have taken longer and cost more.”

The restructuring plan was co-authored by Elliott Associates and Stonehill Investments - New York firms holding more than 70 percent of the company’s debt.

Under the restructuring plan, the bondholders would own 90 percent of the company. A 4 percent interest in the company would be given to current stockholders. The remaining 6 percent share would be for other, unsecured bondholders.

News of the restructuring plan came as blow to Jerry Chapman, a shareholder from Sevierville, Tenn.

Chapman, 50, has held onto his stock for five years, hoping for a turnaround. At one time, the stock was valued at nearly $300,000.

“It pretty well wipes out a lifetime of investments,” he said. “I’m surprised, with everything they were telling us.”

Even in recent years, Sunshine’s reports to stockholders were optimistic about the company’s chances of opening a low-cost silver and tin mine in Argentina, Chapman said.

“They were telling us they could produce silver at $1 something per ounce. Why wouldn’t you want to stay with this company?” he asked.

The bankruptcy is the second in the past decade for Boise-based Sunshine. The company also underwent a reorganization in 1992.

Company officials blame their financial problems in part on the inability to put the Pirquitas Mine into production. The Argentina mine was supposed to bring the company back into the black.

But Sunshine couldn’t secure the financing to turn the underground mine into a low-cost open pit producer. And money borrowed to upgrade operations at the Sunshine Mine and finance studies at the Pirquitas Mine came due.

Shedding the company’s debts through the reorganization could help bring investor interest back to the Pirquitas project, Davis said.

Low silver and gold prices and lack of investor interest has created a difficult environment for precious metals companies, officials said.

Silver was trading Wednesday at $4.79 per ounce. The average price has been below $5 for the past decade.

Compounding problems, the Sunshine Mine is running out of identified ore. Enough ore is available to keep the mine open through the end of the year, according to company officials.

A search for new deposits is under way. Once an evaluation is complete in the Good Hope area of the Sunshine Mine, the company will re-evaluate its work force.

Larry Evans, 54, has worked the past 34 years at Sunshine. His son, John, followed him to the mine 13 years ago.

They didn’t have a bad word about the mine that allowed them good paying jobs near fishing, hunting and skiing.

“I wish Sunshine would stay open another 30 years,” Evans said, “but she ain’t going to make ‘er.”