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Reviving two old mines will kickstart Pamodzi
Shaun Harris
Posted: Wed, 04 Jun 2008
[miningmx.com] -- PAMODZI Gold's share price closed at a new low for the year last Tuesday and its first quarter results don't make for pleasant reading. But maybe we're being a little unfair.
If nothing else this gold mining junior is ambitious. It's the great pretender, so much so as to make Freddie Mercury's claim to the same crown look pretentious. Pamodzi plans to greatly increase its actual gold production and consolidate the junior gold mining sector. Good luck - it might need it.
It remains an ineluctable mystery why, with the gold price above US$900/oz, South Africa's mines battle to make money. We've heard all the reasons: deeper mining is more expensive, rising labour costs, too much of the book is hedged, and so on. But still, gold mining used to drive our economy.
Pamodzi's gold production increased by 35% on its previous quarter, which diluted the hedged portion of its book from 36% to 27%. But that didn't save its income statement. A greatly reduced gross loss - R6,973m compared to R110,341m for 2007 - was compounded by a foreign exchange loss of R56,189m, pushing the net loss for the quarter to R103,858m, nearly half the total loss for 2007.
But the action this year - and the basis of Pamodzi's turnaround strategy - is the acquisition of the
Orkney and President Steyn gold mines. Financing is, well, interesting. The two mines will cost around R533m. Far as we can work out, just R3.5m is being paid in cash. The rest will come from the issue of new shares - more than 50 million of them - increasing Pamodzi's issued share capital by about a seventh.
The mines will need attention: Pamodzi says both operations don't meet its health and safety standards but that's receiving urgent attention. But if it gets the mines right, and profitable, it will be a good start to achieving its ambitious goals.
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