It’s been a while since we reported on NWM Mining Corp. (NWM.V), so now we’ll give our comments on the most recent developments.
Q2 Production Numbers
The production numbers in Q2 were slightly disappointing. Whilst we were counting on production in excess of 5250 ounces of gold, the company reported a production of 4813 ounces, which is only marginally (36oz) higher than Q1 production. On the positive side, the company remained cash flow positive with an operating profit of $1.8M and a net profit slightly under $1M. Net profit for H1 2012 came in at approximately $3.1M which is still very good for a company with a market capitalization of approximately $30M.
The company reiterates its production guidance and states it still expects to produce 25,000 ounces in 2012, so the average gold production over the next two quarters should be in excess of 7,500 ounces per quarter. But this would mean an increase of over 50% on the current production rate and we really doubt the company will be able to achieve this.
The Debt situation
The main issue for NWM Mining is their debt. In excess of $18M of debt matures in just three months from now, and it’s quite obvious the company will be unable to repay debt with the cash flow they’ll generate by then. NWM has raised $770k last week at $0.06, and we’re afraid more private placements will be necessary to reduce the debt position so the lenders will agree to extend the maturity dates on the loans.
We were a little bit unhappy with the placement fees, as placement agents received a compensation of 10% in cash and 10% in shares, which is exorbitantly high and shows how difficult it is for NWM to attract new capital.
We expressed our concerns to NWM’s CEO, but unfortunately our e-mail has gone unanswered.
It’s time for action at the NWM headquarters, as the company only has 3 more months to tackle the looming debt problem. If NWM succeeds in ramping up the production at an acceptable cash cost, the lender will probably agree to extend the maturity date of the loan. We would like to see the company reduce their debt dramatically, as they currently pay a stunning 15% interest on both the revolving credit line and the standby credit facility. If debt can be reduced by $8M before years’ end, NWM will save $1.2M in interest expenses in 2013.
Maybe it’d be an interesting idea for the company to offer longer-term notes to the current shareholders, raising $10-$15M with a 3-5 year maturity at a more acceptable interest rate of 8-10% which is considerably cheaper than the current rate of 15%. To sweeten the deal, NWM might offer the note holders the option to be repaid in cash or in gold.
As we still have a considerable position in NWM Mining, we hope the management team takes action and tackles the problems right now, with as little dilution for the current shareholders as possible.
Disclosure: The author holds a long position in NWM Mining Corp. Please see our disclaimer for current positions.