Las Vegas Sun

March 29, 2024

Mining company, creditors, resume arguments before bankruptcy judge

Opponents of the request include creditors, Montana's governor, its congressional delegation and even the Montana Mining Association. They claim that the only people who will benefit from $5.5 million in golden parachutes are the ones dangling from them.

Today's hearing is a continuation of one that ended late Good Friday afternoon with an admonition by U.S. Bankruptcy Court Judge Gregg Zive telling Pegasus attorneys to provide more evidence in support of the claim that their company needs the perks to retain key officials during its reorganization under Chapter 11 protection.

"People don't understand why anybody's going to be paid any kind of bonus by a company that's in bankruptcy," the judge said.

Pegasus Gold Corp., headquartered in Spokane, Wash., is a subsidiary of Canada-based Pegasus Gold Inc. It owns five mines in Montana and northern Nevada's Florida Canyon mine.

Three Montana properties are idle. Montana Tunnels and Diamond Hill in Montana and Florida Canyon are expected to pour approximately 300,000 ounces of gold this year at an average production cost of $250 an ounce.

About 300 of Pegasus' 670 employees are in Montana with another 300 in Nevada and the rest in Washington and Australia.

The company filed for bankruptcy protection on Jan. 16 to keep creditors at bay while it tries to recover from more than $200 million in debt and the hopes that gold prices will continue to struggle above $300 an ounce.

Werner G. Nennecker, president and chief executive officer, said Pegasus Gold was the victim of dismal prices earlier this year that saw gold fall to $290 an ounce, an 18 1/2 -year low.

That was denounced by John Fitzpatrick, who was Pegasus' director of public and governmental affairs for Montana until March 27, when he publicly blamed the company's problems on poor management.

Jim Jensen, executive director of the Montana Environmental Information Center, also challenged Nennecker's assertion that gold prices are the cause of the company's problems.

"This company is managed so badly that it is the first one to go bankrupt when gold prices go down," Jensen said.

Pegasus asked the court last month to approve the financial incentives for four top executives and 22 key managers, saying the perquisites were needed to keep the officers from bailing out during the reorganization.

But in the April 10 hearing, Assistant U.S. Trustee Nicholas Strozza, who is charged by Congress to supervise bankruptcy cases, argued that Pegasus had neither proved that any of the officials plan to leave or that it would throw the company further into crisis if they did.

"If they all jump off board, so many people are rowing the boat it will keep on going straight," he said.

The company initially proposed spending at least $2.8 million in severance pay, $2.3 million in retention bonuses and $368,000 in performance bonuses to the 26 executives.

While total reductions in an amended plan still are being tallied, cuts in the severance payments to the four top executives would reduce that package alone by $609,500 and retention bonuses would be reduced across the board.

"These are performance-related bonuses. People are not going to be paid just for staying there," Pegasus attorney Mark Thompson told the court. "We need to induce employees to continue working during difficult times."

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