Gold One under pressure

Brendan Ryan | Wed, 01 Sep 2010 07:12

[miningmx.com] -- The Gold One share price is being held back by production problems at the Modder East mine as well as the finalisation of the $65m debt facility needed to cover put options that fall due in December.

That’s according to CEO Neal Froneman interviewed on the sidelines of the Africa Down Under mining conference being held in Perth, Western Australia.

Gold One previously announced on June 23 that it had executed a mandate and term sheet for a $65m debt facility with Absa Capital and BNP Paribas.

Froneman commented at the time that, “the signing of the term sheet not only demonstrates our ability to raise corporate debt but also provides independent third party validation of the technical fundamentals of Gold One and its Modder East mine.”

But Gold One is still in negotiations with the banks over the final terms for the debt in which one of the major outstanding issues was the black economic empowerment (BEE) status of Modder East.

That has only recently been finalised through various amendments to the initial BEE agreement according to an interim trading statement and operational update released by Gold One on Tuesday.

The value of BEE partner Micawber’s 26% stake in Modder East has now been set at R520m and the total value of Modder East at R2bn.

According to Gold One “the amendments will ensure that the Lenders’ covenants in relation to security over the assets for the debt facility can be met.

“The lenders will be approaching their respective credit committees for approval in September.”

Froneman told Miningmx, “until that money is actually in our bank account there is going to be the fear in investors’ minds that we may have to raise the funds through the issue of equity.”

Gold One shares dropped from a 12-month high of 244c to a low of 181c ahead of the June 23 statement after which they recovered to around 193c before falling to current levels around 189c.

The operational update also revealed problems in the N2 section of Modder East where the production build-up had fallen behind schedule.

That resulted in the tonnage mined during August coming in below target with a knock-on effect expected into both the September and December quarters.

Forecast gold production for the September quarter has been dropped to between 18 000 and 20 000 ounces although the operation is expected to remain cash positive.

- Miningmx.com