This article first appeared in Moneyweb.
Every mining accident is a tragedy, but few compare to the horror of the collapse of a supporting pillar at Lily gold mine in Mpumalanga in 2016 which claimed the lives of three workers operating the lamp room in a shipping container on the surface.
The collapse of the pillar buried the container under 60 meters of rock and debris. The bodies of Solomon Nyirenda, Yvonne Mnisi and Pretty Nkambule remain buried there.
This tragedy brought an abrupt end to mining operations at Lily and its sister mine, Barbrook, one of the oldest gold mines in the country. The mines are owned by Vantage Goldfields, which has been in business rescue for three years. The nearby town of Louisville was devastated by the loss of nearly 1 000 jobs when the mines were shuttered.
Earlier this month a glimmer of hope returned to Louisville when Vantage Goldfields cleared a major hurdle in its path to recommence mining operations after Siyakhula Sonke Empowerment Corporation (SSC) and its subsidiary Flaming Silver were granted approval for the transfer of control of mining rights by the department of mineral resources (DMR).
Last week Flaming Silver announced that its offer to purchase Vantage Gold had become unconditional.
“This is a historical and transformational event in the history of the 52 year old Vantage Goldfields Group, whereby control of the company will for the first time change to black ownership,” said SSC in a statement.
But the deal is far from in the bag, according to business rescue practitioner Rob Devereux.
Straight-out street fight
There’s no doubt the Vantage business rescue has been a straight-out street fight. Nor is there doubt that the relationship between SSC head Fred Arendse and Devereux has been anything but smooth. This is not uncommon in business rescue, where creditors continually weigh the pros and cons of liquidating rather than saving the company.
The chief bone of contention in the Vantage case is how SSC will come up with the R50 million equity capital needed to trigger R190 million in loan funding from the Industrial Development Corporation (IDC) which would allow the rescue to proceed.
Arendse says Devereux failed to timeously disclose additional mineral assets capable of generating revenue of about R550 million over three years, and accused him of “capturing” Vantage, effectively delaying its return to operations for three years. “Creditors’ businesses would have been saved and a lot of people’s livelihoods would have been saved by them continuing to be employed on the mines,” said Arendse, adding that Vantage had been subjected to “attacks, sabotage and interferences.”
Devereux was recently joined by fellow business rescue practitioner, Daniel Terblanche, who appears more to Arendse’s liking.
Says Devereux: “Mr Arendse has been threatening to remove me since October 2018 and has ample time to do so. He has also stated that he has terminated my services unilaterally without consultation to affected persons, which cannot be done. I need to be removed by the court and have invited him to do so. I have acted in the interests of the company at all times, and vehemently deny [his] allegations in this regard. As a solution to the problem I offered [to] resign under certain conditions and this was met with resistance in certain areas. I appointed Daniel Terblanche as a co-practitioner to assist with the Fred Arendse impasse. He too has been met with similar problems.
“The Section 11 [transfer of mining rights] is a consent by the DMR to own the shares in Vantage Goldfields and the practitioners are not party to this transaction. To date we have not had proof that the necessary funding to open the mine is available by Flaming Silver nor have we been advised when the company intends to reopen the mines. We have also been led to believe that the transfer of shares to Flaming Silver has not occurred.
“The biggest issue is that funding and the relevant skills to open the mines must meet our criteria as business rescue practitioners, and not that of Flaming Silver.”
There are others questioning Flaming Silver’s claims to Lily and Barbrook mines. The Mining Council of SA questioned the suspicious Section 11 transfer of the Lily mine rights to new owners “without due adjudication”, and called for the resignation DMR director-general Thabo Mokoena. Also suspicious, says the council, is the closure of Mpumalanga’s DMR office around the same time as Flaming Silver was filing its application for a transfer of mining rights. The office was reportedly closed for reasons of corruption and incompetence.
The Flaming Silver application went straight to DMR’s national office, where it appears to have been approved without delay.
Mike McChesney, long-time CEO of Vantage, says there is a more mundane explanation for the expeditious manner in which the so-called Section 11 approval (in terms of the Mineral and Petroleum Resources Development Act, or MPRDA) of shares to Flaming Silver was handled. “An application for the transfer of rights was made to the Witbank DMR office in August last year, knowing that the closure of the office was imminent. When the office was closed, a duplicate application was hand delivered to the DMR head office in Pretoria. There was nothing irregular about this.”
There is no doubt political urgency in relaunching Vantage Gold’s operations, given the declining trend in mining investment, and the announcement last year of tens of thousands of job losses at major mining groups. At this stage any flicker of good news, such as the relaunch of Lily and Barbrook, could lift the mood of the sector.
Terblanche and McChesney confirm that SSC’s equity funding is not yet forthcoming. “This issue has to be resolved in line with the business rescue process,” says McChesney. An overseas bidder for Barbrook’s surface operations is aggrieved that its offer received no response from the business rescue practitioners, and that SSC’s bid is mired in irregularities. A DMR employee involved in SSC’s application, speaking anonymously, said the so-called Section 11 application bypassed the chain of command by going straight to head office in Pretoria.
“As business rescue practitioners we will have to make a call by end March this year on whether we should to continue with this assignment, if the transaction has not been implemented by then,” says Terblanche. “We have been informed that SSC has received Section 11 approval from the DMR, but it is still unclear how the mine will be re-opened. Discussions are continuing with SSC in this regard.”
Creditors who are owed R212 million will have to vote on the SSC deal to assess how much of this they are likely to get back. A further R150 million is required to recommence mining operations and fund working capital, though McChesney says operations could be restarted with less capital. The IDC’s loan commitment of R190 million is contingent on the buyer coming up with equity co-financing of R60 million.
Moneyweb asked the IDC whether SSC had come up with the necessary equity co-financing. The IDC emailed the following response: “As you may be aware, IDC’s mandate is to facilitate creation and sustaining existing job opportunities. Flaming Silver’s application for funding was therefore in line with our mandate given the significant loss of jobs resulting from the closure of the Mine.
“One of the major conditions precedent to IDC providing funding to Flaming Silver was for the consortium meeting the terms set by the DMR. Barring any other developments, the IDC has not changed its commitment. As far as we are aware, Flaming Silver presented to IDC an acceptable co-financing plan which then was part of their application for funding.”
With combined loan and equity capital of R240 million, both mines could be restored to profitability: Lily within nine to 12 months, and Barbrook within 18 months. Lily is an underground mine operational to about 300 metres and accessible by vehicles. Lily grades average about 2.5 grams a ton (g/t) and Barbrook 4.5g/t. The Barbrook ore is more complex and therefore expensive to mine.
All going well, Lily and Barbrook mines will be back in business within a few months. But there are a few more hurdles to clear before then.