BUSINESS Rescue Proceedings (BRP) aimed at saving DiamondCorp’s Lace mine were in danger of failure after a number of agreements required to implement the rehabilitation of the Free State province diamond operation had not been concluded.
The company said in an announcement today that an agreement with shareholder the Industrial Development Corporation (IDC) to reschedule loan repayments had not been finalised. The IDC has lent some £18m to Lace Diamond Mine (LDM), the operating subsidiary of DiamondCorp.
In addition, an agreement on cutting back labour aimed at putting the Lace mine on care and maintenance was still in flux after terms of an agreement with the Association of Mineworkers & Construction Union were adjusted by the union.
One of DiamondCorp’s successes during a dismal six month period in which it failed to ramp-up production on time was that it managed to extract an agreement in principle with the AMCU on mothballing Lace mine while attempts were made to save the company at large.
However, this agreement was “… now being subjected to material amendments by AMCU,” said Paul Loudon, CEO of DiamondCorp in the announcement.
“In the event that the original agreement is not finalised in the very near term, then it is currently expected that LDM’s, and therefore DiamondCorp’s, ability to effectively execute the mine’s care and maintenance and remediation programme will be compromised,” he said.
A £1m share placement, which had been planned for January 31, would now be postponed to February 28. The share placement is crucial in keeping LDM liquid.
Some R1.3m had been received in an insurance claim relating to heavy rain in December which flooded the Lace mine’s underground workings where machinery was located.
“The board reiterates that without agreement on the above points, it is likely that the Business Rescue will not be concluded successfully and therefore that the group would be subsequently placed into administration,” said Loudon. Deloitte, which is the business practitioner, is also seeking third party investors in the mine.
“The continued delays to the agreements sought by the BRP and the group from both AMCU and the IDC are causing commensurate delays in commencing with care and maintenance and remediation programme of the Lace mine,” he said.
“The mine remains non-operational, without mine water pumping, roadway and electrical rehabilitation and the longhole drill rig remains underground,” he added.
DiamondCorp announced on January 13 terms of a proposed two-stage recapitalisation of LDM. The first stage was the placement in which shares priced at four pence each would be issued with one warrant per share attached. The warrants could be exercised at a price of 1p per share.
This would be enough to bring Lace Diamond Mines out of business rescue and lead to a second stage capital raising which would raise between £3m to £5m.
Lace diamond mine was supposed to be in commercial production in December. However, this was pushed out to February owing to tonnage constraints related to drilling complications caused by falling kimberlite rock.
The company for a while considered selling the mine but in the absence of value offers sought to solve its own problems until the rains struck severely damaging its equipment and ending its hopes of meeting the February production deadline.
