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CAG bets the farm on Zimbabwe gold

Allan Seccombe | Tue, 12 Jan 2010 14:06
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[miningmx.com] -- CENTRAL African Gold (CAG) will advise shareholders within a month on plans to raise $10m towards restoring gold output at four of its Zimbabwean mines to around 50,000 oz/year.

AIM-traded CAG could possibly combine its two subsidiaries – the 85% owned and Zimbabwe-listed Falcon Gold Zimbabwe and the private wholly owned Olympus Gold Mines -- to form a single listed entity on the Harare bourse. It also sees the benefit of a potential listing on the JSE, CEO Roy Pitchford told Miningmx.

“We need a capital injection to stimulate the mines,” he said. The management team is talking to potential financiers in South Africa and Europe.

“We are looking at a number of options. We are looking at project or debt finance within the Falcon Group. We are looking at raising some money via other investments. We should be in a position to decide on a way forward fairly soon, within a month,” he said.

In CAG’s delayed 2008 annual report, it said capital could be raised “through new equity invested in the company or through exchanging some or all of the Zimbabwean assets for an equity stake in any acquiring company.”

Pitchford said it would make sense to combine Falcon and Olympus to take advantage of investor appetite within Zimbabwe for exposure to mining and it was being studied within the group.

Pitchford’s comments come the day after a report from the Zimbabwe Chamber of Mines rose 35% to 4.2 tonnes in 2009 from a low base the previous year. Production was, however, capped by electricity and skills shortages.

The operating climate for mining companies in Zimbabwe has improved radically since the deregulation of the gold sector, with the abolition of forced gold sales to the reserve bank and the lifting of restrictions on imports of capital equipment to the country that has adopted a multi-currency system, making the US dollar legal tender.

CAG’s future depends on getting it right in Zimbabwe, having lost its Bibiani gold mine in Ghana to Investec after defaulting on a loand. CAG has an agreement with Australia's Colonial Resources to sell its Mali exploration assets for a total of $5m to be paid in tranches as milestones are met.

The main payment of $3.4m is due on completion of the transaction by end-March this year, but it all depends on whether Colonial can raise the capital.

“The ability to continue as a going concern is dependent upon the Group effecting suitable financial and other arrangements to enable the development of the Zimbabwean assets and also to the successful completion of the sale of the Mali assets,” auditors KPMG said in CAG’s 2008 annual report.

CAG posted a £26.4m loss in the year to end-December 2008 and had net current liabilities of £20m up from £3.7m a year earlier.

The early-stage gold exploration project on the Kraaipan greenstone prospect in Botswana doesn’t fit in the group’s new focus either and would make sense in the hands of a specialist exploration company, Pitchford said.

CAG has restarted limited operations at its Old Nic and Dalny mines in Zimbabwe, but he declined to give production or cost numbers for these mines. The next two mines to be brought into production are the Camperdown and Golden Quarry mines. They’ll come back on line during the early part of 2010.

CAG does need to raise an initial $10m to refurbish aged plants, buy new equipment and develop the underground greenstone orebodies to ramp up production over the next 18 to 24 months to levels the company had some years ago of 30,000 to 50,000 oz a year, Pitchford said.

Once that’s done, CAG will investigate how to grow production either from its own resources or by external activity.

CAG’s three largest shareholders, Emerging Capital Partners, HBD Zim Investments Ltd and Investec Asset Management, which hold a collective 88.6% of CAG, have provided a total convertible loan of $1.25m to keep the company ticking over until it can raise $10m.

ECP and Investec have both extended the repayment of other outstanding loans totalling $4m to April 2011, giving the embattled CAG a breathing space to focus on operating its Zimbabwe mines.

The deregulation of the Zimbabwean gold sector has come at a critical juncture for CAG. “You can sell your gold where you like and you’re getting full value for it. I can’t remember a time when the gold miners in Zimbabwe have been in such a good position,” Pitchford said. “It’s a phenomenal opportunity.”

For investors who've been badly burnt holding this company's shares scepticism is likely to run strong and management has a massive task of winning back confidence. Pitchford is a well-respected figure in the mining sector, having won his spurs in the platinum sector in Zimbabwe.



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