[miningmx.com] – GREAT Basin Gold said it would shut its Burnstone mine and seek up to $40m to finance its closure as the Toronto- and Johannesburg-listed firm was unable to indefinitely cover its $10m per month working capital costs.
The closure would result in the retrenchment of 1,000 employees at the Mpumalanga province mine. Several hundred contractors would also be affected, said Lou Van Vuuren, interim CEO, in a telephonic interview with Miningmx.
“We are in negotiations with unions. Burnstone is mostly not unionised but we recognise the National Union of Mineworkers,” he added. He declined to disclose how much cash Great Basin Gold had left.
Earlier this morning, Van Vuuren issued a statement which said: “While it is disappointing that operations at Burnstone had to be suspended … the
board had to take this step pending the completion of the strategic review process
and potential financial restructuring’.
Great Basin Gold is currently studying offers for the company and its assets after it
emerged on August 15 that it was running out of money amid the slow ramp-up of Burnstone and production problems at its Hollister mine in Nevada. A strategic review committee was established to consider the sale options.
This was preceeded by the resignation of CEO Ferdi Dippenaar and analyst calculations that it needed short-term funding of $60m. Total debt as of end-June was $296.5m (C$293m), which carried a settlement value of $322m (C$318M).
Great Basin Gold said the closure of the mine was on the recommendation of the
strategic review committee as Burnstone was unlikely to break-even until May 2013.
“We believe that following the injection of sufficient new capital, this asset will
demonstrate its long-term value to investors and employees,’ said Van Vuuren.
He added that there could be no guarantee that the $30m to $40m to finance the
closure, which included paying off debts and the $1.2m required for care and
maintenance, could be arranged.
This raises the uncomfortable prospect for Great Basin Gold shareholders that the
company would be sold at a snip to its after-tax net present value (NPV) which has
been calculated at between $170m to $190m on the mine.
“The orebody is still there but the market value of the mine is the challenge. It was always going to be difficult to recover the market value of our mines whether they remain open or closed,” said Van Vuuren.
He added that the closure of Burnstone would allow Great Basin Gold to find a buyer for the operation. The initial plan was to sell Hollister, he said. “That was always the preferred option but a deal on this won’t be closed overnight,” he added.
Great Basin had initially guided full-year production of between 90,000 oz to 100,000 oz. However, this was subsequently downgraded to 30,000 oz by Van Vuuren. The Great Basin Gold board has also established a committee to find ways of raising the $60m. As for June 30, Great Basin reported a working capital deficit of $23m, which includes some $17m in cash.
The Burnstone mine, which in December had targeted 2012 production of 135,000 oz and then some 175,000 oz for 2013, has been refinanced on several occasions, apparently to no avail.
In March, the company cancelled an earlier $50m share placement and replaced it with an offering that was cheaper per share, to which warrants have been added as a sweetener. It then hoped the $50m raised from the new share placement would see Burnstone through to positive cash flow in the third quarter of this year.
In December, it secured a US$150m (R1.1bn) credit facility, which it said was enough to finance additional development at Burnstone. In terms of the refinancing, Great Basin retired existing debt, leaving U$80m for development.
