Eastplats deepens loss after spending R31m in legacy issues

EASTERN Platinum (Eastplats), a Canadian company now under the control of Chinese investment firm, Ka An Development Company (Ka An), said it had spent R31m ($2.2m) sorting out legacy issues related to previous management it had ousted in July.

According to management commentary in its third quarter financial results, announced today, some $1m was spent on “legal and other investigation costs” whilst $1.2m was for one time termination costs related to previous management. All in all, the company posted a $4m net loss (2015: $0.5m) for the quarter.

The investigation costs relate to two transactions pushed through by Eastplats previous management before a shareholders’ meeting in July which resulted in the ouster of a board led by then chairman and CEO, David Cohen. Eastplats long-standing CEO, Ian Rozier, resigned in February although he continued to provide consulting services until June.

The transactions were the $50m sale of Eastplats’ key asset, Crocodile River, held in Barplats to Hebei Zhongheng Tianda Platinum Company (HZT) and the buy-out ahead of that sale of Eastplats black economic empowerment (BEE) partners for $13m.

In both cases, Eastplats said that it was unsure whether either transaction would be completed or suspended, pending an assessment of the company’s rights. Some 85.5% of Eastplats shareholders have voted against the sale of Barplats to the Chinese.

The company reported that attempts to complete the review of the BEE buyout had been “… impeded by the difficulty in accessing underlying documents and agreements” as well as the cooperation of “various parties” while the implications of the BEE buyout in terms of its mining rights vis-a-vis the mining charter were also being assessed.

The $13m consideration for the BEE buyout was placed in escrow but was released once there was a change in control of the company.

The main BEE partner in Barplats is the Gubevu Consortium which was founded by former mining and justice minister, Penuell Maduma, in 2005. He sold his stake in Gubevu in 2012 to the late Zwelakhe Sisulu.

Diana Hu, CEO of Eastplats, said that despite the uncertainty regarding previous transactions, and difficult conditions in the platinum market and in South Africa, the company remained committed to developing its assets.

“Overall, Eastplats is continuing its commitment in developing and advancing its PGM projects in South Africa,” she said.

She added, however, that it was “in a strong position to enter a new development stage” subject to resolving certain issues inherited from former management.

The company has cash and short term investments of $29.2m and working capital totalling $48.2m. In October, Ka An raised $10.3m in a private placement of the company’s shares at a price of 56 Canadian cents per share.

The shares, which were equal to about 19.9% of the company’s shares in issue, were sold at a 20% discount to Eastplats’ then share price.