Simmers may still bid for Orkney

Allan Seccombe | Tue, 30 Jun 2009 19:16
[miningmx.com] -- THE MARKET is watching whether Simmer & Jack will take a second run at bidding for the Orkney mine currently under the management of provisional liquidators after Pamodzi Gold racked up debt of nearly R2bn.

There has been a nasty war of words between the provisional liquidators and the JSE-listed gold producer whose assets are contiguous to Orkney, making it the best bet for the success of the old mine.

Simmers said in mid-June its offer had lapsed, sparking an angry response from the provisional liquidators, who regard the company as playing at brinkmanship to secure a lower price.

Deon van der Mescht, the head of Simmers’ gold division, didn’t entirely close the door on a second approach, but warned that the time it would take to select a preferred bidder and the time to wrap up the sale before Simmers could take operational control of the mine was of paramount importance and would be the decider.

Simmers made an offer of R110m for Orkney. This is about a third of the R315m at which Standard Bank values the mine.

According to documents released by the provisional liquidators, Simmers wanted the labour force of 1,513 employees to be retrenched and paid R76m out of its offer, leaving precious little behind for the secured creditor, the Industrial Development Corporation, which is owed nearly R300m, and trade creditors who are owned R150m.

“Any reasonable and realistic offer from Simmer and Jack would be considered and recommended for formal approval by the IDC and the major representative unions,” the provisional liquidators said in a statement.

“For us to consider a higher offer is impossible and it’s not going to happen,” van der Mescht told Miningmx.

“The provisional liquidators have slammed the door shut in our faces by calling our first bid ‘audaciously low’,” he said.

SMALLER AND SMALLER

However, he did not definitively rule out Simmers re-engaging the provisional liquidators. “The chance of us sensibly engaging in talks has become very small and it’s becoming smaller with every day that passes.”

Asked if Simmers had approached the IDC directly after it said its offer had lapsed, van der Mescht said: “Through our advisors we are looking at all alternative avenues.”

Simmers said its offer had lapsed, basically implying that the provisional liquidators were taking too long to select a preferred bidder. The liquidators argue that they needed to approach the IDC and labour with the offers and get their approval, a process which takes time.

Particularly vexing for Simmers is the decision by the IDC and the provisional liquidators to re-open of the bidding process for three weeks and then take another three weeks to decide on a preferred bidder. Using the Harmony Gold blueprint for the purchase of Pamodzi’s President Steyn gold mine, it could take another six months to effect the sale of the mine.

“Time will kill any bid for that mine, which is deteriorating by the day in the working areas and access ways,” van der Mescht said.

The liquidators argue that the mine is under care and maintenance but Simmers regards it as virtually impossible for such a programme to ensure the integrity of the stopes and access tunnels, which if not cared for tend to close up or become very dangerous.

An eight-month shut down at Buffelsfontein, a DRDGOLD mine that Simmers bought out of liquidation, showed the company just how much a mine can deteriorate. It took more capital and more time than management expected to restore production levels at the mine.

Simmers is meeting the department of mineral resources on Wednesday with one or two of the junior unions to find a solution to the apparent impasse.

The liquidators argue that they have a duty to protect creditors, including the IDC, labour and trade creditors and that if they accept an offer unacceptable to the IDC and labour aggrieved parties can approach the court to have the liquidators replaced.

Van der Mescht said this was not a matter of brinkmanship, with Simmers trying to secure the lowest price it could. “We made our offer based on sound financial principles. This is a very high risk for us. We can return value if we pay R110m. How the liquidator intends using the funds is irrelevant to us.”

One of the options that could break the impasse could be that Simmers drop its condition that workers are paid a retrenchment package out of the R110m and buys the mine as a going concern. That would mean it effectively picks up the retrenchment costs of R76m and brings its offer to R186m, which could sway the provisional liquidators in its favour.