Ferdi Dippenaar
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Great Basin looks to appease SA investors
Allan Seccombe
Posted: Fri, 20 Mar 2009

[miningmx.com] -- TIMING on stricter South African Reserve Bank regulations lies at the heart of Great Basin Gold (GBG) not offering shares in its latest rights issue to South African investors, much to their chagrin.

The irony of the C$130m rights issue by GBG is that the money raised will be used to bring the Burnstone mine on South Africa’s East Rand into commercial development by June 2010.

GBG CEO Ferdi Dippenaar had told Miningmx when the rights issue was announced that shares would be allocated specifically to the South African market to address the lack of liquidity on the JSE market of its equity.
It’s unfortunate
That did not pan out and local investors are annoyed. "They're completely ignoring their South African investor base," said one market watcher.

“The intention was to have five to 10% of the placement made available to South African shareholders,” Dippenaar said on Friday.

“We were advised by our sponsoring brokers Nedbank that due to (South African) Reserve Bank approvals and a lack of sufficient interest locally the elected not to complete the process,” he said.

“It’s unfortunate because from our perspective we had always planned to increase the liquidity of Great Basin’s shares locally. We were disappointed, but our international investors were delighted because there was more stock for them.”

That will come as cold comfort for the domestic market.

Reg Demana from Nedbank Capital’s Corporate Finance section said interest in TSX- and JSE-listed GBG amongst domestic investors was strong but a number of factors had prevented it from offering shares to the market.

Great Basin had managed to issue a limited number of shares two years ago, raising a total of C$150m towards its Hollister project in Nevada. South Africans received between two and three percent of that issue.

Demana argued that SARB had clamped down recently on inward listed companies offering shares at a discount to select investors, insisting that it review each instance and either approve or disallow the process.

He said the timing of SARB’s decision was unclear and could be anywhere between one to six weeks against GBG’s short timeline of just a couple of weeks.

“We started preparing everything, marketing the stock locally and talking to investors only for our exchange control department to rush in and say they’ve received confirmation from the Reserve Bank that we need to make an application for that issue,” Demana said.

SARB gets tough

Nedbank was certain the application would have been approved because the rights issue would result in money – the bulk of which was to be raised offshore -- pouring into South Africa to build the Burnstone mine and improve liquidity in the shares.

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“We were confident it would have been approved, but the timing was uncertain and Great Basin was on a very tight timeline,” Demana said.

Nedbank and GBG management are meeting next week to look at options to boost the liquidity of the JSE-listed shares.

One option might be for GBG to issue a limited number of shares in South Africa to raise a small amount of money towards exploration around its Burnstone mine. Meanwhile, GBG’s rights offer has been fully supported and there is an overallotment, an announcement on which can be expected in the next week or two after the company’s results on 24 March.

GBG expects to build up around 100,000 oz in surface stockpiles of ore ahead of commercial production in mid-2010. It will start feeding ore into its refurbished mills in bought from Harmony Gold in Papua New Guinea for $5m, from as commissioning starts as early as April.

Plans to toll treat early ore output at the nearby Evander plant owned by Harmony were canned for not being financially viable and depleting ore stockpiles that could be used to commission GBG’s own plant.

GBG has acquired the Esmeralda mill and defunct mine in Nevada, which will reduce its treatment charges per equivalent gold ounce to $110 from $215 it had been charged at the Newmont plant.

GBG will spend six months on desk-top work on the Esmeralda deposit and possibly another year on a feasibility study on the prospect to see if it can be viably brought back into production.

Work on refurbishing the Esmeralda mill will be completed in July this year.

GBG has stopped exploration work in Tanzania, Russia and Alaska, focusing instead on Hollister and to a lesser degree drilling in South Africa around Burnstone.

It will take a year studying technical reports into work done in those three suspended regions to plan for 2010’s exploration programme.