Pamodzi Gold's funding plan in tatters

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Peter Steenkamp, CEO Pamodzi Gold

� No funds yet for Pamodzi Gold
� Pamodzi Gold's loan deal misses July target
� Pamodzi Gold funding deal "imminent"
� Pamodzi races to avoid JSE suspension
� Pamodzi to exchange gold for loan
� Pamodzi to raise $50m by end-May
� Pamodzi Gold looks to North American listing
� Harmony takes a third of Pamodzi Gold

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Pamodzi Gold's funding plan in tatters
Allan Seccombe
Posted: Fri, 15 Aug 2008

[miningmx.com] -- PAMODZI Gold's plans to raise a critical $50m loan has been scrapped because a consortium of international and local investors felt they had inadequate security, the company said.

The transaction with the consortium including Deutsche Bank fell through because Pamodzi could not use its mining rights as security for the loan, said CEO Peter Steenkamp.

The junior gold producer is now talking to local lenders, Steenkamp told Miningmx.

I'm comfortable that we'll get the money

Pamodzi has been talking about raising the money since May this year, with continual delays pushing finalisation steadily back month by month. creating deep concerns in the market and crippling its share price.

Pamodzi's shares crumpled, ending the day down 16% at R2.50, well off a year-high of R18.50/share and not far off the year low of R1.50. It could be that investors are no longer buying the story that the company will be a million ounce gold producer in a few years.

The money is absolutely imperative for Pamodzi, which has to re-capitalise two large but dilapidated mining operations it acquired this year. These are the Orkney mine bought from Harmony in exchange for shares, and the President Steyn mine bought from Thistle.

Miningmx has received a number of calls regarding suppliers in the Orkney and Welkom areas not being paid. There are also reports of skilled people leaving the company.

"The Company is no longer pursuing the forward gold sale and cash settled warrant funding proposal, as a significant portion of the consortium of international and local investors have withdrawn their non-binding interest, citing predominantly inadequate legal security as their reasons," Pamodzi Gold said in a statement.

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"The Company, however, continues to follow the strategy to capitalise its operations and as such is pursuing a number of both local and international interested parties," it said. "Part of this strategy includes considering restructuring of the current hedge."

Pamodzi is talking to local institutions, not necessarily banks, about raising R400m, the equivalent of $50m, Steenkamp said.

"There was a lot of feet dragging and it got to the point where we had to do something different. We started about a month ago on a back up plan and we've got the ball rolling on that," he said, declining to put a time line on when the funds could be secured.

"We've got a better chance now than in the past. I'm comfortable that we'll get the money."

In the mean time, creditors have been kept appraised of the situation and the company has been adapting plans at the two mines to account for the lack of working capital, he said.

Graham Briggs, CEO of Harmony, which owns 32% of Pamodzi Gold, told Miningmx on Friday his company would not become involved in funding or in the operational issues at the junior company.

Harmony, which was to have received R550m for its Orkney mines in cash, shares and a smelter royalty, settled for R300m all in shares.

Harmony recorded a R95m impairment on its income statement in the year to end-June 2008 because of the sharp decline in Pamodzi's shares. The asset is now worth R145m on Harmony's books. At the end of February, Harmony sold the Orkney mines for 30 million Pamodzi shares.

Asked if Harmony would exit the stake, Briggs said the shares were illiquid and he did not rule out writing the shares off. Harmony is locked into the shares for a year.

Gerard Kemp, chief investment officer for Pamodzi Resources Fund, said the mandate for investment in gold in South Africa has been met with the transaction to acquire Harmony's Randfontein uranium and gold assets.

The allocation towards gold, despite the predominant resource in the Harmony deal being uranium, has been spent and the funders in the United States don't want any more exposure to South African gold, Kemp said.

"Although I would have like to become involved, I couldn't. We can't invest any more into the South African gold sector," he said.

Under the hedge book agreements, Pamodzi sold about a third of total output at $350/oz last year. By including output from the two additional mines sales into the hedge book this would fall to between 13% and eight percent. Pamodzi in February this year forecast production of up to 375,000 oz in 2008.

In February, the marked-to-market value of the hedge was a negative R500m.

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