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Sello Rasethaba, CEO of Matodzi Resources
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» No future for JCI in Matodzi
» Elphick buys Letseng for R900m

» JSE:MATODZI RESOURCES LIMITED:
115c 0%
JCI, Matodzi battle for Letseng sale cash
Allan Seccombe
Posted: Tue, 27 Jun 2006

[miningmx.com] -- A TUSSLE between JCI and Matodzi Resources appears to be brewing for the proceeds of the R879.5m cash sale of diamond group Letseng Holdings to Clifford Elphick’s Gem Diamond Mining Company.

JCI has to repay roughly R1.7bn to Randgold & Exploration and Investec. The sale of Letseng was to go a substantial way towards paying down that debt. JCI's shares were suspended last September for failing to submit financial reports in time. It's former CEO Brett Kebble has been named in a financial audit as having played a key role in the misappropriation of R500m. Kebble was shot dead in mysterious circumstances in September.

Letseng Holdings, 50% owned by Matodzi, has agreed with Gem Diamonds to sell its 76% stake in the Letseng diamond mine. JCI holds 40% of Letseng Holdings.

JCI will realise a direct R351.8m from its stake in Letseng, but the question is whether it will receive any of the cash coming to Matodzi, in which it holds a 58% stake. If it had complete access to what its holdings would suggest, JCI would receive R606.85m.
a battle brewing over the proceeds
A JCI source said: “I think there is a battle brewing over the proceeds. It seems Matodzi is intent on holding onto their proceeds. The whole idea was that money realised from the sale of Letseng would be used to settle JCI’s debt.”

Matodzi CEO Sello Rasethaba told Miningmx he had nothing to add to a brief announcement published on the JSE electronic news service and that the company was trading under a cautionary.

However, he did see fit to tell Business Report newspaper Matodzi’s share of the proceeds would be put towards investment opportunities, operating mining projects and exploration of its current assets.

Rasethaba made it clear a couple of weeks ago at a presentation to analysts at the JSE that Matodzi would decide Letseng's fate, despite JCI holding a 58% stake in his company and ultimately control of Letseng. Matodzi is keen to shake off JCI and is talking to the suspended company on ways to sell their shares, he said.

“JCI, as the controlling shareholder of Matodzi, will have signed off on this deal so the implications would have been fully understood,” said JCI spokesman Brian Gibson.

JCI has holdings in other companies it can sell to repay debt. Notably, it has a 25% stake in Western Areas currently worth about R1.5bn and stakes in Randgold and Matodzi.

Aflease Gold CEO Neal Froneman said last week his company was increasing its stake in Randgold with a view to getting its hands on the Western Areas shares. His argument was that JCI owes Randgold R1.1bn and this could be repaid in shares.

A South Africa-based diamond analyst said the price paid for Letseng was at the upper end of what the mine appeared to be worth based on a Venmin Rand valuation that the mine was worth R1bn. A 76% stake in the mine would be worth R760m.

Keith Whitelock, CEO of the Letseng mine, has had vast experience of the mine and Elphick, who worked for De Beers was likely to have had access to data from when the world’s largest diamond producer operated the mine until the early 1980s when a collapse in the world diamond market and rising stocks caused it to shut it down.
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“Whitelock is no hot air balloon and Elphick is not known to be a fool either. If they think it’s worth nearly R900m I suppose it is and the market was wrong,” the analyst said.

“There is a gap in the market for gem quality diamonds and Letseng provides Gem Diamonds with immediate production of some of the world’s highest quality rough,” Elphick said, adding there were major opportunities to expand production there.

Trans Hex and De Beers were thought to have bid for Letseng, but their bids came in at the R500m to R600m range.

“Letseng relies on the occurrence of large stones for its profitability. It does a lot of smalls and relies on the fairly predictable distribution of big stones worth a lot of money to make it a viable mine,” the analyst said.

The mine produced nearly 20,000 carats of diamonds in the six months to end-September 2005 at a yield of 1.7 carats per 100 tonnes of kimberlite treated from a satellite pipe pit and stockpiles. The average revenue achieved was $1,734 per carat.

The largest diamond discovered at the mine is the 601-carat Lesotho Brown.

Rumours were spread about the mine being used to recycle diamonds from conflict zones, notably Angola, but the analyst said these rumours were designed to knock the price of the mine down. “It was rubbish. The mine’s production is too small to efficiently recycle blood diamonds.”