Nine months after filing for bankruptcy started the timer on Montana Tunnels’ race to reorganize, the company is still working to overcome its largest hurdle: the reclamation bond held by the Montana Department of Environmental Quality.
“I think the DEQ is the big hurdle that Montana Tunnels has to clear,” attorney for the mine Andy Patten said during a Tuesday, Aug. 29 hearing on the Chapter 11 bankruptcy case.
The goal of the hearing, according to U.S. District Court of Montana Judge Benjamin Hersch, was to assess where friction existed in the case and decide how best to proceed. The hearing was also meant to discuss Montana Tunnels’ previously filed amended Plan of Reorganization and disclosure statement.
All parties – except Judge Hersch and The Monitor – attended the hearing via Zoom.
The documents, filed on Aug. 9, describe Tunnels’ plan for securing financing that could allow its mining operations outside Jefferson City — dormant since 2008 — to reopen. They also detail which creditors would be paid first. The company sought bankruptcy protection on Dec. 5, 2022, citing a total of $37.4 million in liabilities.
According to its plan, Montana Tunnels’ parent company Montana Goldfields, expects to raise $16 million via a public stock offering (IPO). Tunnels also would rent its mine’s concentration facility to Elkhorn Goldfields Inc. for $275,000 per month and lease a gravel pit separately for $387,500. In addition, Tunnels would receive a series of payments of between $100,000 to $150,000 per month from its parent company Montana Goldfields.
In the filing’s disclosure statement, Tunnels indicates that Montana Goldfields will not raise funds for development of the pit until its DEQ bonding requirements are met.
The DEQ requires that Montana Tunnels post a bond to cover potential future costs of reclaiming Clancy Creek, which runs past the mine site. The current bond requirement is $36.6 million, and Montana Goldfields’ IPO proceeds could cover the difference between that amount and the $21million the company has already put up against the bond. But the DEQ’s five-year recalculation proposes a nearly $5 million increase for a new bond total of $41.2 million — suggesting that the IPO wouldn’t raise enough to bridge the gap.
Throughout the bankruptcy process, representatives for the DEQ have questioned whether Tunnels is capable of securing the financing explained in the plan.
Its growing skepticism regarding Montana Tunnels’ viability became clear during the hearing. It is demanding that Tunnels meet the bond payment by Dec. 31. Judge Hersch asked whether the DEQ would consider an extension of the deadline to March 2024, providing Tunnels more time for a successful reorganization. If Tunnels doesn’t meet the bond payment, DEQ can seize the company’s funds already put up against the bond.
Steve Johnson, attorney for the DEQ, said the department had set the earlier deadline out of caution in the wake of Tunnels’ “trail of broken promises.”
Montana Tunnels’ disclosure statement concedes that it “does not have commitments for the financing projected and is basing its projections on the information now available to it.”
“It is the trail of broken promises that gets us to bankruptcy court,” Judge Hersch said.
Johnson also explained that there was a sense of urgency to protect the environment and the public from damage or harm through speedy reclamation.
Judge Hersch ordered that Patten submit a revised disclosure statement and plan by Friday, Sept. 1, addressing discrepancies pointed out by U.S. Trustee Andrew Jorgenson. Jorgenson must then file a response to the new documents by Sept. 5, explaining whether they address his concerns.
If Jorgenson accepts the revised plan creditors will have until either Sept. 25 or 27 – the final date was not decided in the hearing and awaits Judge Hersch’s order – to submit their vote on whether to approve or deny the plan for reorganization.
In addition to the plan for reorganization, creditors were also provided with a Chapter 7 analysis. The analysis explains how claims would be paid were Tunnels to liquidate.
“The Liquidation Analysis shows that in a hypothetical chapter 7 case, all claims, including all general unsecured claims will be paid in full,” reads the disclosure statement.
In fact, liquidation solely of the property considered collateral for the secured claims would pay off all creditors’ claims and leave a surplus of more than $9 million.
Judge Hersch is scheduled to confirm a decision on the bankruptcy, informed by the creditors’ vote, at a hearing on Oct. 4.
