Forensic worries at Pamodzi Gold

Allan Seccombe | Thu, 03 Sep 2009 12:06

[miningmx.com] -- PROVISIONAL liquidators of Pamodzi Gold’s assets says interim forensic investigations have turned up some questions that need answering from Pamodzi’s management, which denies there was anything untoward.

Meanwhile, Zondwa Mandela, the managing director of Aurora Empowerment Systems, has rowed back on suggestions that Aurora may make a bid for the Free State assets now that Harmony has suspended the process to buy them from the provisional liquidators for R405m.

Provisional liquidator Enver Motala said the team of provisional liquidators that are now managing Pamodzi Gold’s three business units -- comprising the Free State assets, the Orkney mines and the East Rand assets – have started forensic work into the company’s finances.

Once the assets are sold, the liquidators begin a Section 417 and 418 inquiry as proscribed by the Companies Act into what lead to the company’s assets becoming financially distressed. If Pamodzi's management raises funds and retrieves assets from provisional liquidation the investigation falls away.

“We have been doing certain forensic investigations already. So although the process of the sale of assets has been ongoing we have been doing certain investigations. Once the assets are sold, this investigation will pick up momentum,” Motala told Miningmx.

Asked if the investigation has turned up anything of concern, Motala said: “Yes, it has. Unfortunately I can’t discuss this or divulge anything with you now.”

“There are certain concerns we have. Our interim forensic report indicates there are certain areas that need very thorough investigations,” he said.

The interim investigation included a look at a R200m loan from the Industrial Development Corporation. “That is part of the interim forensic investigation we have conducted to date. Once the inquiry is open to the public we can talk freely about that.”

Kobus du Plooy, the acting financial director at Pamodzi Gold, which has its shares suspended from trade on the JSE, said there was nothing wrong with the company’s accounts.

“People are in their good rights to do any inquiry they want. We are very confident -- and we have the audit trail to prove this -- that there is nothing untoward that happened in that company,” du Plooy told Miningmx.

“There’s been no money taken out by stakeholders or profiteering. All the money has gone into the operations, paying employees and creditors. I’ve been part of the process and I can tell you that there’s been nothing untoward,” he said.

Pamodzi Gold’s mines were put into provisional liquidation in March. The process to sell them has been fraught with difficulties.

The latest development is Harmony Gold suspending its acquisition of the Free State assets, which are contiguous to its own mines. This decision was taken in part because Pamodzi’s management has told the market it has secured backing of R626m from the China Africa Development Fund to recapitalise these mines.

The provisional liquidators point out the letter from the CADF is one of interest rather than a binding offer and the funding is contingent on what Motala described as “onerous” conditions being fulfilled.

One of those conditions is a due diligence study of the assets, which will take some months to complete. Du Plooy argued that by restructuring some R1.1bn of debt within the group, Pamodzi management's proposal would be far better for creditors than the sale of assets by the provisional liquidators.

It's very much a question of time. It's not entirely clear how long the Pamodzi proposal will take before it can begin mining again. Aurora could begin mining almost immediately at Orkney, while Harmony would have to wait for a number of months if and when it reinitiates the process to secure new-order mining rights.

The liquidators have warned they have run out of money to fund the R11m to keep the Free State mines dry and cared for this month. Pamodzi management doesn't have the R11m and the IDC has declined to invest any more in the company. The IDC is owed nearly R300m by Pamodzi.

Aurora, which has been chosen as the preferred bidder for the Orkney mines, will push on with its offer and will sign an agreement with the provisional liquidators on Thursday to begin mining operations by the end of the week, Mandela told Miningmx.

Aurora has backing from Malaysian and Middle Eastern funders. It offered R215m for Orkney and has plans to list a resources company to raise further funding to recapitalise the mine and to build a mill thereby avoiding toll treatment charges at AngloGold Ashanti.

Motala has said the Aurora team has visited the Free State mines and was expected to make a bid for those mines.

Mandela, the grandson of anti-apartheid icon Nelson Mandela, was, however, less forthright about the matter.

“We’ve not put in formal bid for the Free State itself. We’ve not indicated any interest whatsoever as regards the Free State,” he said. “It’s a really complicated issue with the parties involved. We are really focused on the Orkney interests. Our full and 100% focus is set on that.”

He said Aurora is keen to grow its gold portfolio and had the financial and management backing to do so.

He also did a big row back on comments made by Motala at a press conference last week that Aurora might be one of the companies interested in looking at the East Rand assets, which are still in active production.

“That was a passing joke to be honest. It’s a difficult thing. We have to be careful with our processes and strategy. If an asset looks bankable and will fit in our profile then we’ll look at it, but the focus right now is Orkney.”