CRG bites the dust

Am­bi­tious plans to re­open old mines un­der Jo­han­nes­burg have failed

Finweek English Edition - - INSIGHT -

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

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