Firstgold Files for Bankruptcy

Gold mining and exploration company's agreement to receive an investment from a Chinese entity was quashed by CFIUS.

By Joshua Hamerman, Investment Dealers' Digest

February 1, 2010

Firstgold Corp. filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Nevada on Jan. 27. The gold mining company is hoping to find a buyer or investor during the bankruptcy process.

Firstgold listed assets of $17.96 million and liabilities of $26.98 million in its bankruptcy filing. Its secured creditors include GE Capital, Lakewood Group and Platinum Long Term Growth, while its largest unsecured creditors include Iordan Tarachmanov, Sierra Geosynthetic Service and Baystreet Capital Management. Belding, Harris & Petroni of Reno, Nev., is acting as debtor counsel on the bankruptcy, which is filed under case No. 10-50215 and is being overseen by Judge Gregg Zive.

Lovelock, Nev.-based Firstgold signed a restructuring agreement with Northwest Non Ferrous International Investment Company Ltd., an investment firm controlled by the Chinese state-owned Northwest Mining and Geology Group Co. Ltd. for Nonferrous Metals, and its secured lenders on Nov. 23. Northwest, which paid Firstgold a $500,000 advance, agreed to invest $9.5 million in exchange for a 51% stake in Firstgold, and also agreed to invest $5.5 million in the company via a three-year loan.

However, the Committee on Foreign Investment in the United States recommended that President Obama reject the investment from Northwest, citing national security concerns due to the proximity of Firstgold's properties to Fallon Naval Air Station.

"The termination of the Northwest deal on Dec. 21, 2009 meant we had a very short period of time to find a new investment group or buyer for our company," Terry Lynch, Firstgold chief executive, said in a press release. "Chapter 11 will extend this time and protect the company while we seek a comprehensive solution that might be able to be executed under the particular remedies available within the Chapter 11 environment."

Over the past two years, Firstgold has spent $16 million toward developing a processing facility at its Relief Canyon property, which is located 110 miles northeast of Reno. Between 1986 and 1989, 141,000 ounces of gold were extracted from the 965-acre property, but production ceased due to a decline in the price of gold. Besides Relief Canyon, Firstgold owns three other exploration properties.

The company's shares were delisted from the Toronto Stock Exchange on Jan. 28.

Firstgold also announced the resignation of one of its directors, Donald "Bob" Heimler. "Bob feels, understandably, that in the current environment of Chapter 11 that there is little he can do to be a positive force for our shareholders and regrettably has decided to take this time to resign," Lynch said in the release. Heimler spent 29 years at Scotia Capital, where he was a director of institutional equities.

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