CRG fails to live up to expectations

Johannesburg - This week's cancellation of the Central Rand Gold [JSE:CRD] mining right brings to an end one of the gold mining sector’s more spectacular failures.

Since the company was established in 2007 with a great many promises, about R1.6bn (at current exchange rates) was attracted from investors to set up the company's operations.

Only around R400m-odd was invested in the project, but no more than some R100m remains.

The group says it is seeking an interdict to suspend the cancellation, but for now the cancellation ends  CRG’s largely stillborn mining plans.

It's an open question as to why the Department of Mineral Resources - which this week milked the mining right cancellation for publicity - ever awarded GRC the right.

In 2007 CRG received a total of $172m from investors when it listed on the London and Johannesburg stock exchanges.

At the time this was worth more than R1bn, giving the group a market cap of £308m or R4.5bn.

There were plans to raise a further $156m, but the economic crisis intervened.

Last year the group issued an amazing 1.35bn shares to raise $42.5m to avoid reporting a loss.

Before this issue CRG had only around 250m issued shares.

Today the group is worth R80m.

Of the $215m received from investors, $60.27m went towards capital expenditure and at the end of last year the group was sitting with $14.6m.

In 2007 CRG promised to resuscitate gold mining operations in the old Central Witwatersrand, using mechanised mining methods.

In its initial prospectus it had promised to produce 500 000 fine ounces of gold a year by 2010, and a million by 2012.

Mining last took place there decades ago and, as CRG’s failure subsequently proved, there was good reason for that.

In 2010 a total of 9 321 fine ounces were produced. The group was in the middle of a new “trial” mining phase in an attempt to reach 45 000 ounces using conventional methods when the department intervened this week.

The mechanisation on which its mining right and prospectus had been predicated was tested and found to be uneconomical, said the group.

Large parts of the company's resources have meanwhile been inundated by acid mine water.

The department cancelled the mining right because CRG has extracted virtually nothing and, as a consequence, has failed to make the community investment promised in its application for the right.

After the cancellation of its right CRG said that it had done everything possible to realise its plans, and that it was therefore unreasonable to penalise it for its failure.

Central Rand Gold is, as far as can be established, the first mine to have its mining rights cancelled since the Mineral & Petroleum Resources Development Act came into operation in 2004.

It is the only case of which Department of Mineral Resources spokesperson Bheki Khumalo is aware.

He told Sake24 that there had indeed been a number of recent suspensions, but not cancellations.

Manus Booysen, a partner at Webber Wentzel and a mining right expert, said that he too was unaware of any previous cancellations.

At the end of last year the department started a campaign to tackle offenders and a number of warnings were issued, he said. That was no secret.

But mining rights cannot summarily be cancelled and such action requires timely notice and he giving of an opportunity to put matters right.

• Blue Platinum Ventures 16, trading as Batlhanine Brick Yard outside Tzaneen, had its mining right recently suspended after the group neglected to report a fatal accident. “This is (Limpopo Premier) Cassel Mathale’s wife’s company and we suspended the mining right,” said Khumalo.

• Smokey Hills, a Limpopo mine belonging to Platinum Australia had its mining right temporarily suspended in July as, according to the department, it had made no progress with its social plans since 2007.

• First Uranium’s beleaguered mining waste subsidiary Mine Waste Solutions’ mining right over certain mine dumps was also recently suspended. The company claims that mine dumps do not need mining rights.