VHGI Holdings Inc. is in the process of securing a loan, says Jim Bender, vice president of investor relations, in an interview with Mergers & Acquisitions. The move comes after the miner’s auditor raised doubt about VHGI’s ability to continue without the threat of liquidation.

Auditor Liggett Vogt & Webb PA raised substantial doubt about VHGI’s ability to continue as a going concern, or without the threat of liquidation, because the company has incurred substantial losses and has a working capital deficit, the company says in a June 26 filing with the U.S. Securities and Exchange Commission.

The company is in the process of developing a coal mine in Indiana.

For 2012, VHGI reported a net loss of $22.3 million, down from the $45.4 million loss it recorded at the end of 2011. At the end of 2012, the company’s working capital deficit was $60.4 million.

In Liggett Vogt’s June 24 letter to the company, the auditor says that VHGI will need to obtain additional capital to sustain operations. The company has about $44.7 million in debt that is either in default or becomes due in 2013, and doesn’t have financing in place to meet those obligations.

In June, VHGI announced that in May subsidiary Lily Group had entered into an equity investment agreement with Al Rami Pure LLC, a Sharjah, United Arab Emirates-based company that makes infrastructure investments and provides other services, which would give Al Rami a 45 percent stake in Lily in exchange for a $65 million loan. For the deal to go through, VHGI needs to get a $10.5 million letter of credit and reach an agreement with its current secured lender, Regions Bank.

The deal is still being negotiated, according to Bender. If VHGI is able to secure the loan, the mine will be launched “to the next level,” and revenues will increase substantially, Bender says. The mine is in the final stages of development with limited production.

Before the Al Rami agreement, the company attempted a similar loan with Ariana Turquoise Investment AS, but the deal collapsed. The loan was dependent on the company’s securing a $13 million letter of credit, which it was unable to do.

VHGI has had a muddled history. It was founded in 1988 as Sherry Lyn Corp. That same year, the company’s name was changed to Equity Gold Inc., as it pursued gold mining and ore processing opportunities. In 2000, VHGI redirected the business plan to develop and market prescription drugs over the Internet. In 2006, the company acquired MB Holding Corp. and two subsidiaries, VPS Holding LLC and Envoii Healthcare LLC, and changed its name to VirtualHealth Technologies Inc.

The company once again returned to metals and energy resources in 2009 and sold the health care assets and adopted its current name in 2010. In 2012, VHGI bought Lily, the builder of the Landree Mine, a coal mine in Greene Country, Indiana. Since the acquisition, VHGI’s sole focus has been on the coal mine, Bender says, although the company retains some gold claims.

“Prior management jumped around a little bit,” Bender says. But the current management team is all new.

For the last edition of Turnaround Tuesday, see “Floundering FreeSeas Negotiates with Lender.” 

For more struggling companies, see Mergers & Acquisitions’ Distressed Company Watch List. 

Energy industry Restructuring