Australian-owned Vantage Goldfields SA’s Barbrook and Lily mines near Barberton in Mpumalanga appear to be edging back from the brink of oblivion.
The group survived a recent threat to liquidate the mines by creditors claiming a combined R212 million in unpaid bills. Vantage was placed in business rescue in 2016 when the access entrance to the Lily mine collapsed, killing three workers who were in the lamp room directly above the crown pillar. This brought a swift end to stuttering production at Lily and its smaller Barbrook operation, with the loss of 1 000 jobs.
The mines had been teetering for several years, unable to turn the assets to account due to a declining gold price environment. The parent, ASX-listed Vantage Goldfields, delisted in 2015 and was unable to attract sufficient ongoing capex.
The mines need at least R100 million to repair the collapsed portal and resink a decline shaft as well as R50 million in working capital to restart operations. This is over and above creditor repayments of R212 million.
Business rescue practitioner (BRP) Rob Devereux has had to face down threats to liquidate the mines and remove him as BRP while trying to implement a rescue plan acceptable to creditors. “My first and primary responsibility is to the company and its future survival,” he says.
“There have been attempts to remove me as BRP, but this is not unusual when a company is in business rescue, as we have seen with the Gupta companies [which had to face down 44 court challenges from various claimants]. It comes with the territory. I have taken a stand, and it is very difficult to remove a BRP when rescue plans have been approved by creditors.”
Vantage’s physical assets are valued at about R42 million, according to one assessment by valuator CV Asset Management. But this figure shoots to between R857 million and R1.75 billion depending on the gold price and exchange rates, according to the competent persons’ report (CPR) applying cash flows from the 4.3 million ounce resource base. A more realistic, undiscounted valuation is R700 million to R850 million, according to one source.
Several local and international investors appear interested in the shallow Vantage assets, which include some of the oldest gold mines in the country. Compared to other SA mines, Barbrook and Lily are particularly attractive for their lower-than-average cash costs of around $805/oz and could be profitably operated in the current market environment.
Flaming Silver SPV, part of Siyakhula Sonke Corporation (SSC), has a binding contract to acquire 74% of the shareholder capital for R10 million, subject to certain conditions. The Industrial Development Corporation has offered to finance the Vantage companies in rescue with a R190 million loan package to restart its operations, subject to certain conditions such as the injection of fresh equity capital. This is sufficient to repair structural damage, but not enough to settle creditors who would have to be paid out of future cash flows. Devereux says there are also questions about the technical and funding capacity of the shareholders behind Flaming Silver.
He adds that less serious buyers have been weeded out of the process, and serious bidders are being asked for proof of funds. Canadian junior miner Galane Gold, which acquired the nearby Galaxy Gold in 2015, was reported to be interested in Vantage but failed to come up with the required funds.
A London-based consortium, with cleared funds, has put in a R30 million offer to invest in the retreatment of surface material at the Barbrook Tailings Storage Facility. This would meet the initial creditor payments as detailed in the amended rescue plan and agreed to by creditors in July 2018. This is seen as the fastest way to start generating cash flows and paying down creditors.
The suspension of mining activities has gutted the nearby community at Louisville, for which Vantage was the largest employer. Trade unions and the Department of Mineral Resources are keen to see it reopen without delay and are opposed to any further attempts to liquidate the mine.
Reasons for the collapse of the crown pillar supporting the entrance to the Lily mine remain unclear, though there are reports that zama-zamas had infiltrated the mine and conducted unauthorised blasting. This is denied by Devereux.
Barberton is the oldest gold mining area in the country. Gold was discovered here in 1881, five years before the great Witwatersrand gold find in 1886. The country’s first stock exchange was also opened in Barberton before the JSE ever got off the ground.
The Barbrook operation needs R30 million to recommence mining and has creditors of just R20 million. The revival of the Lily mine is more complicated as this is the scene of the crown pillar collapse. It is also not compliant with BEE requirements, and there are technical difficulties associated with mining the ore body.
Another problem involves Vantage’s 26% BEE shareholder, Lomshiyo Investments, comprising workers, community members and black shareholders. The shares were acquired at no upfront cost in a vendor-funded deal. The shares are valued at R20 million but are deep underwater with liabilities of R40 million due to the structure of the financing. A condition of the IDC loan is that these debts are extinguished.
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