Five days after Cline Mining Corporation (TSX: CMK.TO) completed and filed an updated resource estimate for the New Elk coal mine property which showed 618.9 million tons of Measured and Indicated coal resource, an increase of 230.4 million tons, or 59%, production at the metallurgical coal mine in southern Colorado has been halted as the company reviews its strategic alternatives.
Back on July 6, 2012 Ken Bates, CEO of CMK.TO, stated “We are very pleased with the substantial resource increase at New Elk. This latest resource update further demonstrates that the New Elk coal mine property is a significant asset that the Company expects will produce considerable amounts of coal over a very long mine life.” Now the question is will the company survive.
Shares have nosedived, falling to a 52-week low of 0.340 on Wednesday and there have been few signs to indicate the bleeding will stop anytime soon. Just last week shares were trading as high as 0.840 but with Wednesday’s announced production halt as well as their plans to temporarily lay off 78 percent of its workforce at the New Elk mine last week’s figures look like a distant memory.
CMK.TO has said they intent to explore strategic alternatives and potential financing as well as complete the sale of the coal in inventory but their options may be limited. That inventory currently consists of 70,000 tons of saleable coal stockpiled at New Elk but finding a buyer has proven difficult.
Without a sale that temporary layoff of CMK.TO’s workforce could extend well beyond 60 days and the company stated a much in Wednesday’s press release, saying “While the Company anticipates that the duration of the layoffs will last for approximately sixty (60) days, the variability of market conditions and other economic factors make it impossible to project an exact personnel return date with certainty.”
As stated by company COO David Stone, “”The Company acknowledges it is extremely regrettable that the workforce is being temporarily laid-off, but Cline believes it is in the Company’s best interests to manage its cash position during the mine optimization period.”
Stone went on to say, “The combination of cash conservation from the temporary suspension of operations and reduction of our workforce will enable both the plan to be properly developed and implemented efficiently and effectively.”
Well investors aren’t buying it and shareholders are doing everything they can to selvedge what they can from what appears to be a sinking ship. For those investors who see it through another lens this could be the perfect time to build up a position in CMK.TO given the fact they aren’t losing their property, they’ve simply stopped production.
If CMK.TO could get their finances figured out, and granted there are reasons to doubt their ability to do so, then the current share price looks like a bargain. Right now coal prices aren’t doing any mining companies any favors so the struggle to unload that inventory is somewhat understandable but they have been sitting on it for some time. Any sale will almost certainly be at a substantial discount and more than likely won’t be enough to get production at New Elk back on track or the workforce back on the job.