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Saving Western Areas Posted: Mon, 28 Nov 2005 [miningmx.com] -- HAVING helped rescue South Africa’s finances in the 1990s, putting Western Areas back on its feet should be small beer. Right? That’s one conclusion you could draw from the appointment of Gill Marcus as Western Areas’ executive chairperson. Marcus was deputy finance minister in the early years of South Africa’s democracy and knows a thing or two about crisis situations. The apartheid regime was virtually bankrupt; now South Africa has unofficial growth of more than 4%. But restoring Western Areas’ fortunes is a huge job with its own unique problems. Its hedge book is drowning the company; it’s short of long-term capital; and it’s bereft of an empowerment plan. And with some major corporate decisions lying in wait, the board looks understaffed. Marcus’s brief is to establish an independent board with sufficiently capable individuals around her. Said Marcus: “New members will be appointed to the board. We don’t need a big one but we have to create a free-standing one.” Unlike other companies the late Brett Kebble ran, Western Areas already had the bones of a strong independent non-executive that included Sandy McGregor, the quiet but purposeful Allan Gray director. However, the departure of Western Areas directors Vaughn Bray and Mafika Mkwanazi mean that there are only four current directors. They include Roger Dixon and Chris Lamprecht. “We need institutional memory,” said Marcus of Lamprecht, an executive whose tenure at Western Areas has been criticised owing to his links to the Kebble era. Dave Nurek, a lawyer and Investec executive director, joins the board with Marcus. Nurek also has a non-executive position at JCI, a shareholder in Western Areas, as well as Randgold & Exploration. Western Areas is a listed gold company that owns half of South Deep, possibly the last of the famed Witwatersrand Basin’s riches. North American gold firm Placer Dome, which has operational control, owns the other half. The mine, situated on the West Rand, possesses around 45 million oz of mineable gold. Given the worldwide shortage of large-scale mining resources, South Deep is a treasure. The fact that the mine is located in South Africa, a gold mining region in its final hours, means that the country can’t afford to abandon it. “The mine is an enormous asset for the country and it would be a shame for the asset to go to waste,” Marcus said. Marcus doesn’t know much about mining – her first mine visit was earlier this month – but she’s hoping to import more board members who do and who can help tackle the hedge book. The hedge book consists of a number of contracts in which Western Areas sold unmined gold in order to raise capital. It’s like borrowing money from future cash flow. Were all the contracts liquidated today, Western Areas would make an estimated R2.5bn loss. But with the hedge book in its current shape, the mine gets 25% less than the current spot price of gold, which looks willing to test $500/oz. It’s a dilemma that presents no easy answers. “The hedge book will have to be a priority,” said Marcus. Losses on the hedge book will have to be financed, which could mean another rights issue much larger than the current R630m offering before shareholders. Another objective is to establish a firm grip on the mine plan and build in empowerment. There were plans afoot last year to sell Anglo American’s 13% stake in Western Areas to Inkwenkwezi, a company owned by Mkwanazi. But his departure from the board could mean that that empowerment deal has already been given the shepherd’s crook. “That was never our deal. It was Anglo’s,” said Marcus. And then there’s the strategic matter of Western Areas’ pre-emptive right over South Deep. The right is triggered should there be a change in ownership of joint venture partner Placer Dome, currently the subject of a $9.2bn takeover by North American compatriot Barrick Gold.Free news alerts: click here to subscribe
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