Hard times — but no ‘cute deals’
Central Rand Gold’s problems are piling up thick and fast and the exact financial position will only be known by end-june
New management of Central Rand Gold has not stinted on providing information to the market. They have put out 11 news and operational updates in the first five months of this year.
So it is fairly clear, even though the company has not released its preliminary December year-end results yet — they should have been published before the end of March — that the financial position is dire.
Central Rand listed 10 years ago on the prospect of extracting gold left behind in relatively shallow old workings around Johannesburg. It raised a staggering R1bn ahead of its listings in London and Johannesburg but today has little to show for it other than two processing plants and a shallow underground mine near Langlaagte that has been largely sterilised by rising acid mine water.
Since 2009 the company has been in dispute with its black empowerment shareholders,
Puno Gold, over funding arrangements.
The dispute has frequently turned nasty, with Puno at one stage managing to have Central Rand’s mining licence suspended and last year applying to put the company’s operations into business rescue, which was defended.
Central Rand has adopted a “no comment” stance on the litigation in the past few years.
In February management warned that its toll treatment operations were battling with heavy rainfall and lightning which, together with ongoing legal fees for litigation against the BEE partners, affected cash flows.
Other problems that have arisen this year include a dispute with iprop over a lease agreement. A settlement was reached, but Central Rand management has not quantified the costs Another was the loss of 11 days of production as a result of a strike over wages. To resolve the strike, it has agreed to pay workers a bonus at the end of this year.
In March it managed to raise £300,000 through a share placement at 0.5p/share but it has still not received the full $1m loan promised in January by Jia Bang Wang, an investor who holds 10.4% of the shares. Only $750,000 had been received by early May. The money will be used for working capital and to buy a centrifugal concentrator to improve recoveries.
In May the company issued 4.2m ordinary shares to a creditor at 0.4p each in lieu of a cash payment.
The shares were suspended from trade three weeks ago because the strike, together with other recent operational setbacks, had “materially negatively affected the company’s cash position”, it said.
On June 5, management reiterated that the cash position was “extremely challenging” and directors were seeking finance as well as considering options, including the sale of operating assets. The shares remain suspended “pending further developments”.
Central Rand has to meet about $1m in cash commitments by mid-june.
The key question is whether, without a sudden surge in the gold price, Central Rand shares have any value. The answer, despite management’s sterling efforts to find new revenue streams, is probably not.
The company has attracted interest from Chinese investors in the past few years but they might get the assets more cheaply through a fire sale than by making an offer to shareholders.
In an e-mailed response to a shareholder query about a possible sale of assets to certain large shareholders who are owed money, which was posted on the London South East share chat forum, chairman Simon Charles said there would be no “cute deals”. He hoped there would be no disposal of assets but if that was necessary, it would be on arm’s-length terms.
Charles declined to answer questions put by the Financial Mail before the publication of the financial statements, which he said would be around end-june.