CRG bites the dust
Ambitious plans to reopen old mines under Johannesburg have failed
THE LATE JOHNNY CASH was singing about a coal mine in “Dark as a Dungeon” but the famous ballad is fitting for investors in gold junior Central Rand Gold (CRG), which has just announced it’s shutting down its underground operations pending a reassessment of its prospects in October this year.
Though the reasons for the closure are numerous, Cailey Barker, analyst at Numis Securities in Britain, summed up the situation succinctly as follows: “The release is riddled with technical nomenclature of a colourful nature that, in short, translates to ‘not working’.”
CRG hasn’t been working for some time. I recommended the share be avoided in September 2009, when it stood at around 290c. However, voices of caution were being raised as far back as 2007/2008, when management first announced plans to restart mining on some of its defunct operations on the Central Witwatersrand near Johannesburg.
CRG’s price currently sits around 18c/ share and it’s sobering to remember it had been as high as R20,25 in 2007, when management was hyping its prospects as a 1m oz/year producer to be achieved by 2012.
It seems there’s no optimist like a gold bull and plenty of investors opted to back CRG’s then CEO Greg James. He pocketed a total of R34,6m in salary and share-based payments during 2007/2008 and then quit at the beginning of 2009, delivering the mother of all hospital passes to current CEO Johan du Toit.
Clearly, investors paid little heed to the “boilerplate” clauses in CRG’s prospectus, one of which stated: “There’s no guarantee the group will be able to establish economic reserves and/or undertake gold mining on an economic basis.”
CRG failed to deliver for a number of reasons, the main ones being mining method, flooding of the workings by rising acid mine drainage and, most recently, problems with the resource base – much of which turned out to be simply not there.
One of the “colourful” terms referred to by Barker has to be “double void”. Essentially, CRG’s management seriously underestimated the volume of ore that had been removed by the initial mining operations. Underlying assumption was that the “old timers” who first mined this ground were inefficient and left a lot of ore behind. Reality is they were not and if the “old timers” left some ground behind it was usually for a good reason – such as being difficult to mine.
The reason all this history isn’t simply of academic interest lies in what Goliath Gold – formerly White Water Resources – is looking at doing near Nigel on the East Rand: which is to redevelop a number of former gold mines, including Vlakfontein, West Vlakfontein, Spaarwater, Sub Nigel and Wit Nigel.
Goliath is now owned 71% by JSE and ASX-listed Gold One International (Gold One). CEO Neal Froneman intends using some of the existing infrastructure to reach resources estimated at around 12m oz of gold sitting down there waiting to be