Otter Gold Mines has struck triple trouble and the New Zealand company says its finances are "strained."
Industry sources said Otter's two-for-five rights issue announced last week would provide a desperately needed injection of cash.
Otter executives said the cash issue had restored cash flows and the company's difficulties were behind it.
Sir Ron Brierley's Guinness Peat Group, which must now deeply regret winning its bitter battle late last year to take control of Otter Gold from longtime chairman Tony Radford, has had its arm twisted to underwrite the issue.
It is understood GPG was told that it risked losing its investment if it would not underwrite the issue, as no other party was willing. GPG is the largest shareholder with just under 20 per cent.
Its executives would not comment but are understood to be surprised at developments.
"It needs money like there's no tomorrow," the source said.
Otter chairman Tony Frankham denied the company was in crisis, but admitted the $11.7 million to be raised from the cash issue was needed.
"We're stretched to the point that we need the monies that will flow from the two-for-five rights issue, which is fully underwritten. That will put the company into a very comfortable position," he said.
Asked if GPG was pressured to underwrite the issue, he said Otter invited GPG "to put up a proposition," which was accepted.
Mr Frankham said the company had known a cash shortage was looming for some time. "The question was how much and where we were going to get it."
Otter announced a $6.9 million bottom line loss for the year to June 30 that included an $11 million writedown in the value of its share of the Beaconsfield mine in Tasmania. The writedown was allegedly due to "significant defects in design and works" performed by the contractor.
Otter reported an operating surplus, before unusual items, of $5.9 million. That was up from $3.1 million last year, but the cash flow figures reveal problems.
Gold production was a record 118,891 ounces, 3000 up on last year, but well short of the budgeted 150,000 ounces. That $20 million shortfall put pressure on the company's now fully drawn finances.
Balance sheet figures show net operating cash flow dropped to $7.8 million from $17.1 million last year.
The company spent $22.8 million last year on plant and property (mostly Martha Hill, at Waihi), up from $13.0 million last year. It also spent $29.5 million developing Beaconsfield, a similar amount to last year.
Net cash at year end fell by $11.2 million to $3.3 million.
Despite the $60 million invested in Beaconsfield over the past two years, the mine is not producing anywhere near design.
As well, there have been problems at the company's other two mines, Martha Hill, and Tanami in the Northern Territory desert.
Twice as much rain as previously recorded disrupted Tanami production, and there were cost over-runs and a delay in commissioning an expansion at Martha Hill.
"You normally expect with three gold mines, if one of them falls over, you've got the other two to carry you through," company secretary Peter Liddle said.
"We believe the difficulties are behind us," he said. The company hoped to rectify Beaconsfield's shortcoming by Christmas.
Both Beaconsfield and Martha Hill needed further capital expenditure, and Otter was pursuing a "substantial" exploration programme in the Northern Territory.
Otter said reserves at June 30 contained 0.66 million ounces of gold and 2.1 million ounces of silver.
Shares were unchanged at 57c, 1c above their year low and well down on the 96c they reached in February.
- NZPA
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