“It’s highly unique, there’s no question about it,” Claudio Ciavarella, CEO of Kerr Mines (TSX: KER; US-OTC: KERMF), says of his decision, along with the company’s chairman, Fahad Al Tamimi, to restructure the company and lend it nearly $10 million of their own money.
But Ciavarella, an accountant who has built thriving businesses in Canada’s manufacturing, construction and real-estate sectors, and Al Tamimi, a Saudi-based businessman who has founded a flourishing engineering group in the Middle East and holds assets in oil and gas and mining, believe it’s worth the risk.
Both men have been investors in the junior long before it changed its name from Armistice Resources to Kerr Mines in 2014. Al Tamimi got involved in 2012 as an equity participant and shareholder, while Ciavarella has been an investor since 2005, and a director since 2013.
Between 2012 and 2014, however, the company had gone on an acquisition spree, acquiring projects and companies (including Copperstone through a merger with American Bonanza Gold in July 2014).
“During the course of that process it accumulated not only assets but also a lot of liabilities,” Ciavarella says. “Unfortunately, during 2014 to 2015 the equity market wasn’t very strong, so we put all of our assets on care and maintenance.”
By 2016, he says, it looked as though the equity and gold markets were on the brink of a recovery and management thought it was a good time to take the Copperstone project off the shelf. But the executive team had to deal with all the debt accumulated from the company’s earlier buying spree.
“We were upside down financially with regard to liabilities and obligations, so what we did was we ended up restructuring,” he says.
Kerr Mines started the process by selling off its non-core assets, primarily its properties in northern Ontario, to generate cash to deal with some of the $24 million it held in liabilities. When the total debt owed was whittled down to $9.5 million, Ciavarella and Al Tamimi each put up half the money and paid off the remaining creditors. The company has until 2019 to repay the loan, at which point management hopes the company will be cash-flow positive.
Ciavarella was appointed CEO in April 2017 and along with the board put together a strategy of creating value focused on advancing Copperstone. It has launched a drill program and plans to complete an updated resource estimate and a prefeasibility study in the first quarter of 2018, at which point, Ciavarella says, the company will be able to make a production decision.
