Lily mine deal grounds to a halt
Owner wants to back out of a sales agreement over concerns the buyer cannot provide the required funding IN JANUARY, THE MINERAL RESOURCES MINISTER GAVE CONSENT FOR THE TRANSFER OF THE MINING RIGHTS TO FLAMING SILVER
A deal that was hoped to revive the shuttered Lily mine, where the bodies of three miners remain trapped after a fatal accident in 2016, has ground to a halt.
A deal that was hoped to revive the shuttered Lily mine, where the bodies of three miners remain trapped after an accident in 2016, has ground to a halt.
The embattled owner of the mine, Vantage Goldfields, wants to back out of a share sales agreement over concerns that the buyer, Flaming Silver Trading, cannot provide the required funding. But the hopeful new owner maintains the deal should be finalised as it has both the funds and regulatory approval.
Unable to come to terms, a legal battle has ensued.
Lily mine in Mpumalanga was the site of a ground fall incident in February 2016, which trapped three miners underground. Their bodies are yet to be retrieved.
Lily, as well as Vantage Goldfields’ nearby Barbrook mine, quickly fell into distress and were placed into business rescue in April that year.
Flaming Silver, a subsidiary of the Siyakhula Sonke Corporation (SSC), entered into a share sales agreement with Vantage Goldfields in November 2017. The parties agreed that the shares and relevant documentation would be transferred if, among other requirements, the necessary funding of R310m was secured and government approval to transfer the mining rights obtained.
In his founding affidavit submitted on March 12, Fred Arendse a director of Flaming Silver and the CEO of the SSC Group contended there is no reason the deal shouldn’t be immediately concluded.
In March 2018, it secured a R190m loan from the Industrial Development Corporation (IDC). The balance would be raised from the shareholders and through mining operations.
In January 2019, the mineral resources minister gave written consent for the transfer of the mining rights to Flaming Silver.
This, Arendse said, implied that the minister was satisfied with his company’s technical and financial ability to run the operations.
Michael McChesney, CEO of Vantage Goldfields, in his answering affidavit, argued that he and another directors had, several times, expressed concern over Flaming Silver’s ability to access the required funding. He said they had no choice but to take Arendse at his word about the terms of the IDC loan because he refused to provide a copy of the agreement.
McChesney said that when he later had sight of the agreement he came to the “startling realisation” that Flaming Silver would be unlikely to fulfil the suspensive conditions and that the availability of the funds had been misrepresented. For example, Flaming Silver must raise R50m in equity before the IDC funds will be released.
Arendse countered that while the IDC would not permit him to provide the agreement to third parties, Vantage Goldfields has always been aware that there were suspensive conditions attached to the funding.
When the minister’s permission to transfer the mining rights came through, Flaming Silver insisted the sale of shares be completed in accordance with the agreement. Vantage Goldfields, however, refused to do so until Flaming Silver provided proof of funding.
Arendse said the IDC funds will only be released on the transfer of shares. McChesney denies that this is the case.
McChesney argued that because Flaming Silver has been unable to produce the proof, Vantage Goldfields cancelled the sale of shares agreement, “as it was entitled to do”.
Speaking to Business Day, Arendse said his company has spent R29.3m on the transaction to date. “I don’t want my money back, I want compliance to the agreement that we have. We made a commitment to the communities and to the former employees. We are not walking away from this.”
Flaming Silver has brought the matter on an urgent basis because, Arendse said, the business rescue practitioners are considering applying for liquidation of the mining companies.