Liquidation order for BRC's SA assets

Allan Seccombe & Ines Schumacher | Fri, 03 Jul 2009 10:51
[miningmx.com] -- A JUDGE has placed a BRC DiamondCore Resources subsidiary into liquidation putting into question the sale of BRC's alluvial assets to UK-based KIG Mining, a deal designed to inject much-needed cash into the struggling diamond junior.

The applications for the urgent liquidation of Diamond Core Resources and Diamond Core Technical Services were brought before the court on April 17 because of oustanding debt of around R9m. The matter was decided on Friday.

TSX- and JSE-listed BRC told the market on Friday it had agreed to sell its alluvial diamond assets to KIG, leaving BRC with prospective kimberlite projects in South Africa and its remaining diamond assets in the Democratic Republic of Congo (DRC).

The judge might rescind the transaction now that final liquidation has been granted for the South African subsidiary.

However, Brian Scallan, chief financial officer of BRC DiamondCore, said the company will appeal the decision, which means the assets will not pass into the liquidators hands just yet and it's the company's intention for the sale to KIG to continue.

"We are not happy with the results and we have stated our intention to lodge an appeal. There's a long way to go yet," Scallan told Miningmx.

It is only the Diamond Core Resources subsidiary on which the judgement has been passed. Diamond Core Resources holds the South African assets.

The applications were filed by security company Quemic Group and River Corporate Finance, a private firm appointed the sole corporate adviser when Canada’s BRC Diamond Corporation merged with the JSE-listed Diamond Core Resources. One of those behind the applications is former BRC chief executive Theo Botoulas.

Botoulas was not immediately available for comment.

KIG is a gold and diamond exploration company with properties in West Africa.

The assets have been sold to KIG for $10.7m of which $2m will be paid in cash in two tranches in the next three months, giving BRC a much-needed cash injection.

KIG will pay $100,000 to existing creditors in order to resume operations at the Silverstreams project. The remaining purchase price will be paid to BRC as 18 million shares in KIG at the price of $0.47 per share.

BRC will have an option to sell the KIG shares trading on the Frankfurt Exchange to KIG at a price of US$0.47 per share, exercisable in stages over a 13 month period commencing in May 2010.

During the same time period, KIG has an option to purchase its shares from BRC at a price of US$0.75 per share in the same time period after which BRC may sell any of the KIG shares it still holds.

For as long as this arrangement is still in place, BRC will be entitled to nominate one director to the KIG board of directors.

BRC has placed all its exploration work on hold and put its projects into care and maintenance, cutting off a flow of cash it generated from diamonds produced during bulk sampling work. It has retrenched staff, citing the weakness in the diamond markets.

“This is a necessary deal for BRC. The Silverstreams mine is closed, it has a liquidation hearing, it has a large debt of some $6m and it does not have access to sufficient funding,” RBC Capital Markets analyst Des Kilalea told Miningmx.

He said BRC would be looking to hold onto its alluvial and kimberlite projects in the DRC and would sell its remaining South African assets first if it needed more cash. “I’m sure BRC would be a seller of its South African kimberlite projects, but I don’t see a buyer in the current depressed diamond market,” Kilalea said.

Silverstreams

KIG will be taking control of BRC’s alluvial projects Silverstreams, De Kalk, Muishoek, Sanddrift and Uitlaai within the next two to four weeks.

KIG intends to resume operations at the Silverstreams mine immediately and BRC will assist KIG in bringing the project into production once again. KIG will be responsible for providing the working capital to resume the operations and has confirmed it will be employing the mine’s previous staff.

Kilalea said Silverstreams is a good mine which would not require too much of a working capital injection by KIG to ramp it up to full capacity.

“KIG got Silverstreams at a good price. It’s a debt-free and established operation. During better times, BRC would have gotten far more for Silverstreams,” Kilalea said.