found this explanationt's difficult to draw a clear picture of what went wrong in the startling implosion of True North Gems Inc.
On Sept. 7, True North Gems, a publicly listed company in Canada, said its majority-owned subsidiary True North Gems Greenland A/S, or TNGG, filed for bankruptcy. Its chief asset is the Aappaluttoq project, which is a gem mine under construction in Greenland that is said to be on the verge of production. Project partner Leonhard Nilsen & Snner AS, a major Norwegian construction firm, is building it.
True North was light on details about the bankruptcy, though it stated management had "worked relentlessly over the last year" to find the money it needed to finish the project.
The news shocked markets, which pummeled True North's shares. In a flurry of trading the stock cratered, dropping 91% from just over 5 Canadian cents to 0.5 cent in trading Sept. 7. Volume spiked to 28.9 million that day, whereas the stock typically trades a hundredth of that volume.
Oddly, in that regard, True North's share volume also jumped over 4 million on Aug. 31, a couple days before TNGG had filed for bankruptcy — meaning, at the very least a significant shareholder luckily avoided a much greater loss than if they had sold just a few days later.
Unanswered questions
What went wrong? How much money does the subsidiary estimate is needed to reach True North's hoped for production and cash flow? And what are the funds needed for?
These questions are difficult to answer. True North Gems has not clearly outlined what issues face it in filings and public statements and did not respond to repeated requests in phone messages for comment.
SNL Metals & Mining got hold of TNGG trustees and a minority TNGG shareholder, however. They answered questions over the phone and by email.
Henrik Poulsen is one of two TNGG trustees with the Danish firm Bruun & Hjejle. The other is Peter Scriber, another partner at the same firm.
Poulsen was in Greenland, he said, and had just visited the TNGG project site with an expert evaluator to look over TNGG's assets.
Capital cost blowout?
In speaking with SNL Metals & Mining, Poulsen drew a picture of a mining project with essentially complete processing facilities.
He pegged funding needs on the order of 100 million Danish kroner.
Karsten Hy, CEO of Greenland Ventures, which owns 7% of TNGG, said via email that the figure "seems correct."
In the context of Aappaluttoq, this suggests a capital cost blow out.
The project, the construction of which is now said to be almost done, was projected to cost US$25 million in a 2015 pre-feasibility study.
True North in October 2015 said the mine was 75% complete. Since then, it has outlined significant progress in acquiring a process plant and stripping its deposit of overlying waste to expose gem-bearing ore. That is a lot more work has been done over the past year.
"They are very close to being able to start up," Poulsen said.
Yet, Poulsen said he didn't know for what TNGG needed the additional funds.
What's next?
The main shareholders and creditors of TNGG are True North Gems with 76%, construction firm Leonhard Nilsen & Snner AS with 17% through a subsidiary and Greenland Ventures with 7%.
The LNS shareholding comes as part of a broader earn-in agreement, which sees it largely funding mine construction. It can earn up to 27% of TNGG, and would initially own some of the production facilities, which are to be leased back to TNGG.
As it stands, Poulsen described the bankruptcy process for TNGG as "tight," given a lack of cash held by TNGG and significant debt, which he estimated at around 100 million kroner.
Ideally, he said, the process ends up with a buyer willing to try to operate the assets, not as a fire sale of parts, which would be expensive to remove from site and were built for purpose.
"They have a value. The production line is out there. But if you can't use it for the purpose they are meant for, then I'm not sure that it's worth anything," Poulsen said. A successful bid, if one emerges, will depend on government approval for the transfer of assets, he added.
So far, investors have clearly not been forthcoming, including the existing TNGG shareholders, in anteing up more funds. Poulsen said TNGG has been trying for months to find outside investors, with no takers.
"If no one is able or willing to buy these assets, what can we do to them? Should we just leave them?" Poulsen said, reflecting on the process.
"We can do that as a trustee especially if you have no money at all. If we're informed these assets are worth nothing, unless someone is continuing this project, we will have to leave it out there."
SNL Metals & Mining, an offering of S&P Global Market Intelligence, is owned by S&P Global Inc.
As of Sept. 9, US$1 was equivalent to 6.64 Danish kroner.