Fifth report from the trustee...April 20, 2015From the
FIFTH REPORT TO THE COURT
SUBMITTED BY MNP LTD.
IN ITS CAPACITY AS TRUSTEE UNDER
THE NOTICE OF INTENTION
All of which is respectfully submitted on this 20th day of April, 2015.
For the March 23 to April 12 period, revenue was $2.4 million, and cash disbursements were $3.7 million, and remaining cash was $309,000.
A further $475,000 is available from the present DIP lender.
26. As noted in Gibson’s April Affidavit, notwithstanding the substantially reduced operations and costs, San Gold has continued to be unable to generate even the reduced, revised projected revenues. On average, grades achieved in the limited mining operations since the reduction in operations have been approximately 43% below projected grade.
27. On or about April 8, 2015, San Gold revisited its strategies aimed at conserving cash over the period of the SISP. To that end, following discussions with representatives of the Present DIP Lender and Beacon, San Gold has made or is in the process of making the following additional operational changes:
a) layoff of approximately 102 further employees, on an 8-week layoff program;
b) the approximately 64 remaining employees will complete the milling of ore already at the surface or readily able to be brought up (i.e. “in circuit”), and thereafter undertake a process of shut down and clean-up of the mill, expected to take 3 to 4 weeks to complete; and
c) thereafter, the mine sites will remain “de-watered” and on “care and maintenance”.
35. On March 23, 2015, the Trustee became aware of San Gold entering into transactions on March 19, 2015 involving the sale of assets outside of the ordinary course of business, without prior consultation or notice to the Trustee and without Court authorization. Beechwood, the DIP Lender and the Additional DIP Lender advised the Trustee that San Gold had advised them of San Gold’s intention to sell redundant equipment but did not at that time provide specifics.
36. In these transactions San Gold sold certain Caterpillar equipment and electrical/mining parts for the sum of $200,000. This transaction was on an “as is where is” basis, with no warranty implied or given. San Gold also sold cyanide for $30,612. A copy of San Gold’s invoice related to this transaction is attached as Exhibit “D”.
37. Given the timing of these transactions, the Trustee was not able to investigate and determine whether consideration received by San Gold is reasonable and fair. The Company advised the Trustee that it entered into these transactions to meet critical obligations including payroll
38. Subsequent to issuing the Fourth Report, the Trustee was advised of the following (as referenced in the Gibson April Affidavit): For the March 23 to April 12 period, revenue was $2.4 million, and cash disbursements were $3.7 million, and remaining cash was $309,000.
a) the assets were sold to Barkerville Gold Mines Ltd. (“Barkerville”), of which Greg Gibson is the Chairman of the Board of Directors, and included a used Caterpillar Articulated Rock Truck, a used Caterpillar Bulldozer, a used Caterpillar Generator, and certain minor electrical and mining parts;
b) it is commonplace and ordinary course in the mining industry to sell used, redundant equipment;
c) Greg Gibson is of the belief that the price paid by Barkerville is fair and supportable in the circumstances;
d) upon learning that the sale of the equipment may not have complied with s.65.13 of the BIA, Greg Gibson directed San Gold to reverse the transaction, but San Gold did not have the resources to do so; and
e) the Bulldozer may be subject to Caterpillar Financial Services Limited’s secured claim, and Caterpillar Financial Services Limited may be owed $10,000 in relation to the Bulldozer.
39. The Trustee asked a well known third party auctioneer/appraiser familiar with the equipment sold by San Gold to provide it with a preliminary estimate of value recognizing that the Trustee does not possess information concerning the condition of the equipment sold. Subject to that limitation, on the basis of the information provided to the auctioneer, the amount paid by Barkerville in respect of the Caterpillar Articulated Rock Truck and Caterpillar Bulldozer is $160,000, which compares unfavourably with the following range of values provided by the auctioneer:
2010 Caterpillar Articulated Rock Truck - $180,000-250,000
2011 Caterpillar Bulldozer - $170,000-220,000
44. With Phase I of the SISP drawing to a close within 7 days from the date of this report, San Gold is limiting its request for an extension to May 15, 2015. In this manner, San Gold will be able to complete and assess the results of Phase I, and in consultation with Beacon and the Trustee, determine the best course of action, and return to Court, if necessary, to seek further advice and direction in respect of the SISP, and/or seek further extensions of time, as necessary