A significantly amended plan of reorganization from Montana Tunnels Mining, Inc. (MTMI), the long-troubled owner of a shuttered mining complex in Jefferson City, was confirmed Oct. 4 by a U.S. Bankruptcy Court judge, clearing the way for creditors to be repaid over several years and leaving open the possibility that the operation may one day reopen.
After a final hearing in Butte, featuring an appearance by MTMI CEO Patrick Imeson, Judge Benjamin P. Hursh ruled that the company’s third amended plan “satisfies all provisions” of Chapter 11 of the federal bankruptcy code.
The plan generally commits MTMI to paying off its creditors in monthly installments over four years, beginning in January, 2024 — $130,000 a month to Goldfields Funding, an affiliate company, and about $126,000 per month to other claimants. It calls for MTMI’s parent company, Montana Goldfields. Inc., to pay $150,000 per month to partially fund those payments. In addition, MTM will lease its Diamond Hill Mill property, near Wickes, to Elkhorn Goldfields, Inc., a related Montana Goldfields company, raising $275,000 a month.
Imeson told The Monitor that, if MTMI clears financial and regulatory hurdles, he hopes to start operations at two small mines, Golden Green and Diamond Hill, in spring of 2024. Doing so could be a precursor to an initial public offering of stock, or note or bond financing, that would support the reopening of the much larger Montana Tunnels mine.
Any hope that the mines could reopen, however, depends on MTMI’s ability to pay a bond required the state Department of Environmental Quality (DEQ) to ensure that the costs of future environmental liabilities are paid. DEQ has proposed that the bond be set at $40.96 million, an amount subject to a 30-day public comment period.
MTMI’s current bond payment is $21.5 million. Under terms of the reorganization plan, MTMI must pay $1.5 million toward the increased bond by Nov. 30, another $1.5 million by Dec. 31, and the remaining outstanding amount of $16.46 million by Mar. 31, 2024 — a critical deadline.
Imeson said MTMI is negotiating with institutional investors to obtain financing that would allow it to pay the DEQ bond. “That’s a work in progress,” he said. “We’re working through options to get that in place.” If MTMI fails to make timely payments, DEQ would be authorized to seize the bond, according to Kevin Stone, a department communications manager.
Following multiple revisions of MTM’s original reorganization plan, all of the company’s creditors voted to accept the payment terms — except for Jefferson County, which is owed $3.1 million in back property taxes.
Jefferson County Treasurer Terri Kunz told The Monitor that the county had opposed MTM’s plan because it questioned the likelihood that payments would be made on time, or ever.
“Over the years, we have made payment arrangement plans with Tunnels on at least three different occasions, and they never follow through,” Kunz said. “It wasn’t until I threatened to take their property that they paid $5m two years ago.”
MTM paid $5.175 in taxes due since 2009 in December, 2021, days before the deadline on a tax deed. Of the total, $1.68 million went to the county, $1.2 million to the Clancy School, and $470,000 to Jefferson High School, with smaller amounts going to the Jefferson City Volunteer Fire Department and the North County Library District.
“They have a history with us of not paying,” Kunz added. “So our thinking was, why should we go through with that again?”
The plan calls for MTM to repay Jefferson County the property taxes still owed, plus interest of 10%, in monthly installments of $78.248.13, with a final payment in December, 2027, of $152, 270.21.
The Montana Tunnels Mine, which has produced gold, silver, zinc and lead, has an inglorious recent history. It was owned by Pegasus Gold until that company’s 1998 bankruptcy. Apollo Gold, an entity created by Pegasus’ directors, took control in 2002, and Montana Tunnels completed its acquisition of the property in 2009. It has not produced ore since 2008.
DEQ suspended the mine’s operating permit in 2018 when it failed to meet an increased bond requirement. And environmental groups have long raised concerns about its potential environmental impact. A 2018 Earthworks report noted that testing in 1987 had found elevated cyanide levels in groundwater monitoring, and that a 2008 environmental impact study determined that groundwater quality “have exceeded secondary maximum contaminant levels (SMCL) for sulfate and manganese and increased in concentrations over time. Average concentrations of cadmium and zinc were also above water quality standards.”
Bonnie Gestring, Earthworks’ Northwest program director, said that her group’s biggest concern is about the health of Clancy Creek, which runs through the Montan Tunnels site. “There’s been severe erosion, so the pit walls have been collapsing,” she said. As a result, a section of the creek has been encased in a plastic pipe for protection.
“We’d like to see [the creek] moved away from the pit wall, so it can be taken out of the plastic pipe and restored to its natural condition,” Gestring added. The risk, she noted, is that the longer that reclamation is deferred, the more expensive the work will be.
Imeson, whose Denver-based Black Diamond Financial Group controls Montana Tunnels, has long pledged to bring the mine back into production. In 2010, he attempted to secure $60 million in bonds through the American Recovery and Investment Act, which he said at the time would support the reopening of Montana Tunnels and the start-up of the Elkhorn Goldfields mine northwest of Elkhorn.
In a 2012 registration statement for a “reverse merger” with China VantagePoint Acquisition Company, Black Diamond reported an $8.3 million net loss for 2011. The statement noted that, “due to recurring losses and no revenues from operations, accumulated debt and insufficient cash reserves and limited alternative sources of capital to implement Black Diamond’s business, Black Diamond may not be able to continue operating.”
The mining industry is in quite a different place today. When MTMI acquired the Montana Tunnels property in 2009, gold was selling for about $1,300 per ounce. Today, it is at $1,850, about 35% higher. Imeson noted that the expenses involved in mining have increased significantly in that period, as well — “but metal prices have outpaced those.”
In addition, zinc, which is used to produce galvanized steel, was added last year to the nation’s list of critical minerals — those deemed to have a crucial role in national security, the economy, renewable energy development, and infrastructure. The list provides guidance for the allocation of certain federal funds. The Montana Tunnels mine holds an estimated 6% of the nation’s zinc supply, Imeson said.
On the other hand, the shares of gold mining companies have significantly underperformed the prices of the minerals themselves in that period. As a result, it’s not certain if, or when, MTMI might raise money from a stock offering that would support the capital expenditures required to restart the Montana Tunnels mine. “Access to capital,” Imeson said, “is going to be important.”
