He has been forced to quit the company he spent two decades building, but John Greenslade says Baja Mining Corp.'s (TSX:BAJ) Boleo mine project can be saved.
The company's auditors aren't so sure.
The $1.14 billion copper-cobalt-zinc-manganese mine in Mexico – which was slated to go into production in 2013 – is $400 million short, Baja's shares are plummeting and the company's auditors say there's "substantial doubt" the company can continue as a going concern.
In the midst of a reorganization of its board of directors, Baja needs to raise roughly $200 million by August, according to Greenslade, or the company's lenders will turn off the funding tap.
"Should the company not be permitted to continue drawing on its loans, it would not have the resources available to continue with the development of the project and may be required to shut down," the company's auditors said in a management and discussion analysis released last week.
Greenslade said the project can be saved and has even offered to help, despite being forced out of the company he built. Last week, he resigned as CEO and quit the board of directors.
"In my opinion, I was constructively dismissed as president and CEO," Greenslade told Business in Vancouver.
He confirmed that his daughter, Kendra Low, who was the company's corporate secretary and vice-president of administration, has also been dismissed.
Mount Kellett – a New York-based investment firm headed by former Goldman Sachs executives – holds a 20% interest in the company and has been trying to engineer a takeover of the company's board of directors since April.
It succeeded at the end of April when two former directors – Wolf Seidler and Tom Ogryzlo – quit and then rejoined a reconstituted board that now includes two of Mount Kellett's proxies.
Seidler and Ogryzlo said they quit because they had had no forewarning that the project was in such deep financial trouble.
On April 23, Baja publicly announced a capital cost overrun of $246 million. That's in addition to a $100 million cost overrun facility and cost contingencies of $54 million. The total overrun is therefore $400 million, the company's auditors say.
Former directors have suggested Greenslade must have known about the overrun long before he reported it to the board.
Greenslade told BIV that management became aware of "creeping" costs for things like steel in March, but that no one had any idea of how dramatic overruns would be.
He said management received a detailed capital cost estimate on April 13 and on April 20 the board was given the report.
Greenslade blames the overrun on a corporate structure that had the project's former vice-president of construction – Mike Shaw– also serving as the COO on the Boleo project, a dual role that Greenslade said he tried to have changed because of what he said is its inherent conflict.
"I've been ranting at the board since 2010, when we started construction, that we needed to change the COO because those two positions should be arguing with each other continuously," he said.
Baja is short on both time and money. The company has only $41 million in unrestricted cash, a burn rate of $60 million per month, and if it doesn't come up with some alternative funding fast, the company will get no more money from its lenders.
Before leaving the company, Greenslade said he had been working on financing alternatives with a consortium of Korean investors that own a 30% stake in the company.
Greenslade said he met with the Korean partners, who do not want the project slowed down. He said the Korean investors agreed to what he called a "non-dilutive solution using non-subordinated debt." Greenslade added that he also has proposed deferring the mine's cobalt and zinc circuits to focus on copper – a move that would defer $85 million in capital expenditures until the mine is producing copper.
As a shareholder in the company, Greenslade said he wants to see the Boleo project succeed and has offered to help out on the project in a consulting capacity.•
