Aurora says it is financially sound

Allan Seccombe | Thu, 03 Dec 2009 17:26
[miningmx.com] -- RUMOURS and complaints are starting to surface about unpaid and late salaries at the two Pamodzi Gold mines newcomer Aurora Empowerment Services bought out of liquidation for R605m, but the company says it is financially sound.

The comments are starting to flow a little quicker since Aurora said on Wednesday it was buying a 60% stake in DRDGOLD’s Blyvoor mine for R375m. It has also spent some R25m buying a small gold mine called Primrose, bringing the total Aurora has spent in little more than three months to R1bn on arguably troublesome gold mines.

This total figure excludes funds to recapitalise the mines and in some cases add milling capacity. The recapitalisation will step up a gear once the listing has taken place and the group is able to raise the money it needs.

“We are really upset that Aurora has just bought another mine. They’ve done this before they’ve got control of their other assets and workers at the East Rand mines haven’t been paid for two weeks. There are also payment problems at Orkney,” one caller, who declined to be identified, told Miningmx.com. “They should get right what they’ve got first before buying more poor mines.”

The National Union of Mineworkers, South Africa’s largest labour group, has received feedback from its members at the Orkney of late payments but this was put down to a change of banks resulting in payroll delays, said spokesman Lesiba Seshoka. He could not offer comment on the East Rand mine.

Aurora is headed by anti-apartheid icon Nelson Mandela’s grandson Zondwa as managing director and Khulubuse Zuma, the nephew of ruling president Jacob Zuma, as chairman. Michael Hulley, who worked as Jacob Zuma’s lawyer is a non-executive director of the company.

Asked about the allegations of late payments of salaries, Aurora MD Zondwa Mandela said he wasn’t aware of such cases. As far as he knew, he said, there weren’t any financial concerns within the group, which plans a listing of mining assets in the first half of next year. East Rand was turning around quickly, he said.

One of the issues at the Orkney mine is that it is toll treating its ore at nearby plants owned by AngloGold Ashanti and Simmer & Jack, so payments for Orkney’s gold are not smooth, but overall the financial health of Orkney was good.

“There are no financial problems at Orkney. It’s really a case of how do we counter this situation of milling our product at certain places,” Mandela told Miningmx, adding Aurora was keen to renegotiate certain contracts because they were key to the wellbeing of the mine.

“We have to put the mine in a very good position and once we’ve done that everyone can benefit. It may take some time but we’re making a lot of headway in that regard,” he said.

One of the provisional liquidators at Pamodzi Gold, Enver Motala said Aurora’s payment schedule had not been breached and everything was still on track. A Section 311 Compromise will be sanctioned by the courts early in the new year and creditors of the company should be paid around April 2010.

A concern is that Aurora is following the same path as Pamodzi Gold, which came to the market with big promises and over extended itself acquiring two large mining operations. It reached the point where it collapsed under R1.5bn of debt, putting 13,000 jobs at risk at its own operations let alone thousands more jobs at suppliers, which ran into difficulties because of Pamodzi’s inability to pay them.

It is an open question at this stage whether Aurora is growing its asset base too quickly and whether it will outstrip the limited skills within it. This path is one all too familiar for those who watched Pamodzi Gold. The difference, though, might be Aurora’s Malaysian partner, AM Group, which is largely bankrolling the venture and that might set it apart.

“There’s a lot of risk involved in the type of transactions we’ve done, but as long as we don’t lose sight of that and manage that risk I don’t think we’ll go wrong,” Mandela said.

The South African mining industry is an incredibly tough one and it’s debatable whether Mandela, who is not yet 30, and Zuma have the experience to run a mining company. Dawid Stander was brought on board on a five-year contract as managing director of Aurora’s mining interests.

Stander, from Dawid Stander Consultants, is described in Aurora literature as having 32 years of corporate experience in gold, platinum and chrome. He represents the Association of Mine Managers of SA on the Engineering Council of South Africa. He was the general manager of mining operations at Impala Platinum.

Mandela’s comments suggest it’s not going as smoothly as they may have hoped. Orkney is underperforming while the East Rand mine is slowly coming up to budgeted production. Adding an old mine like Blyvoor, which has had high-grade areas temporarily blocked off in a seismic event and soaring costs, is going to further dilute management attention.

“We’re very happy with the type of management that’s part of Blyvoor, so it’s not a case of reinventing the wheel. It’s a case of studying what went wrong and how to rectify it,” Mandela said. “It’s pretty much an exercise of attending to the problems and fixing them up.”