Johannesburg - The judicial managers overseeing the Pamodzi Gold business urgently need cash to sustain the mining operations, which are in far more parlous financial circumstances than at first thought.
The judicial managers are not convinced the company has raised the R200m it says it has from an on-again, off-again investor, Best Rock. There were media reports on Monday morning saying the money had been secured.
The money would be a critical lifeline for a company swamped by debt and that is struggling to produce gold. Judicial managers reckon it could restore a level of production to two of the company's mines and start paying back creditors. A third mine is in care and maintenance.
Enver Motala from SBT Trust, a court-appointed joint provisional liquidator for the Orkney mines, and joint provisional judicial manager of the other two operations, said CEO Peter Steenkamp had told him the money had been deposited on Friday, but it wasn't. He then said Saturday, but again it wasn't. He then told the judicial managers it would be in the bank on Monday morning.
"At this point, I've absolutely no confirmation that this money has been received. We are told it's coming but there's no confirmation," Motala said late on Monday afternoon. He was going to a meeting with Steenkamp on Monday evening.
The size of debt within the group made the outlook bleak, he said.
The last set of financial results from the junior gold producer are those from the September 2008 quarter and show a creditors' book of R722m. The company's three mines - Orkney, President Steyn in the Free State province, and the Grootvlei mine on the East Rand - all have creditors demanding their money and demanding liquidation of the assets to recoup their cash.
"This morning we met with Peter Steenkamp and asked for update on financial affairs of the Free State and East Rand operations. The situation is much more precarious than that R700m," Motala told Miningmx.
"In one instance (Free State assets) there is R1.1bn of liabilities and the other (East Rand assets) R1.3bn against what we consider conservative asset value of R250m and R260m in the other. The situation is very serious," he said.
Very concerned
The judicial managers don't have the money they need to run the company. Court-ordered judicial management means that all creditors' claims are frozen and liabilities suspended pending the outcome of an investigation into the company's affairs and its viability.
The judicial managers report to the court in May.
"I can tell you I'm very concerned. The financial figures I saw this morning, it's very worrying. It's a lot worse than I thought," Motala said.
He gave the example of the Grootvlei mine, which need R35m immediately to pay wages for March as well as medical aid contributions. The mine has R8m in cash and a further R7m due from gold sales. It also has to pay cash to service providers like explosive companies who are refusing to extend credit.
"We require a cash injection of R35m in the next day or two, or, in my view, it was an exercise in futility to place this operation in judicial management," he said.
Pamodzi has since last May been talking about raising the money it needs to recapitalise its mines and ramp up production to 400 000 oz and ultimately become a million ounce producer. Those targets have proved to be impossible to achieve.
In October, management trumpeted the news it had secured R400m. After long delays and much confusion in the market, it secured just R200m from the Industrial Development Corporation at expensive rates. Its management has repeatedly told the media the balance of the money would arrive imminently. It hasn't.
In hindsight, it was that drive for ounces that lay at the heart of the Pamodzi downfall.
Asked what he thought the reason was for Pamodzi's difficulties now that he's had a chance to scrutinise the company, Motala said not only were there reportedly unfavourable gold treatment and milling costs imposed by other gold groups like AngloGold Ashanti, but also that it grew too quickly.
"They acquired too many assets too quickly and they didn't have cash behind those acquisitions. It's been a cash flow problem," he said.
Reckless trading
AngloGold has defended its milling prices, saying it gave Pamodzi those services at cost. It was also said to have implemented onerous contracts on Pamodzi for gold treatment and this is something the judicial managers are investigating.
Miningmx has received a number of calls from disgruntled creditors accusing Pamodzi's management of reckless trading, which is an extremely serious allegation to make. Motala said creditors he'd met two weeks ago at the Orkney mine had told him the same thing and it was an issue the judicial managers would investigate.
"In the normal course of events this is what liquidators do in high-profile cases. It's our duty to investigate if there has been any reckless trading, not only by the directors but also management. If Section 44 in the Companies Act has been infringed the consequences can be quite serious," he said.
"Allegations are just that: allegations. We have to investigate them."
Management has pressured the judicial managers not to engage potential buyers of the assets, insisting the money it needed would be arriving soon, he said. If the Best Rock money or other injections of capital are not forthcoming immediately, the judicial managers have no choice but to invite expressions of interest in the assets.
- Miningmx.com
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