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San Gold Corp.’s new chief executive faces a straightforward challenge: mine much less gold, and make it profitable.
Greg Gibson was named CEO of San Gold on Tuesday, a formerly high-flying company that has fallen into a cycle of losses and liquidity problems like many other small gold miners. He said in an interview that his mandate is to shrink output to where it should have been in the first place.
“I see a small producer that always had ambitions to be a big producer. And when you take small mines and try to make big mines out of them, they don’t work,” Mr. Gibson, 52, said.
Winnipeg-based San Gold is one of many small gold miners operating in Canada that emerged last decade, when gold prices were going up every single year. In order to attract investors and capitalize on rising prices, some of these firms set aggressive production targets. San planned to churn out more than 100,000 ounces a year from its Rice Lake mine in Manitoba.
“When you went to see the fund managers, the more ounces you could tell someone you were going to discover, the bigger the cheque you got,” Mr. Gibson said.
“If you said you would produce 50,000 ounces of gold, no one would talk to you. If you said you’d produce 100,000 that’s when they sat up and took notice.”
The downside of this strategy became obvious last year, when gold prices plunged 25% in a matter of weeks. San was mining too much waste rock and too many low-quality ounces, meaning it was bleeding cash in a weak gold market. Its debt-laden balance sheet is now at risk, meaning there is limited time to get the issues fixed.
Mr. Gibson, who joined the company as a director last year, said San should be producing about 50,000 to 60,000 profitable ounces a year. He compared this period to the 1970s, when small gold miners were making money at a much lower gold price. “We’re going back to the history books and taking lessons from them,” he said.
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