[miningmx.com] — DRDGOLD said on Thursday it decided to suspend financial assistance to its struggling Blyvoor mine, saying the asset would need at least R80m to remain operational until December this year.
DRDGOLD said Blyvoor’s board – DRDGOLD owns 74% of Blyvooruitzicht Gold Mining Company – has proposed to begin business rescue proceedings in terms of the new Companies Act, which has replaced the judicial management process of the previous act.
“The decision (to suspend financial assistance) follows the promulgation of the new Companies Act,” read a company statement. “(This) requires directors of parent companies to seek the consent of the parent company shareholders and then to consider the effects on the solvency and liquidity of the parent company.”
Blyvoor’s production has been trending down as a result of a drop in grade, public holiday interruptions and seismicity-related work stoppages, while costs have increased due mainly to higher electricity charges, and particularly power utility Eskom’s winter tariff which adds R11m a month to overhead costs.
DRDGOLD CEO Niel Pretorius said the group has had an internal revolving credit facility for Blyvoor since it came out of judicial management in April 2010, but that the facility was now fully drawn down.
The rescue process, however, would not affect operations at this point in time.
Pretorius said the new business rescue proceedings are in various respects an improvement on judicial management, most notably that the practitioner is a professional appointed by the company itself from a pool of certified rescue practitioners.
According to the previous act, judicial managers were appointed by the Master of the High Court from a pool of people whose main business involved the liquidation of companies.
The new act also provides clear guidelines on the business rescue process, which is designed to run for a pre-determined three-month period unless extended by a court application.
During this time, the rescue practitioner must formulate and implement a rescue plan with the cooperation of the distressed company’s board of directors. Blyvoor would enjoy a moratorium against civil claims while under business rescue proceedings.
Pretorius said it remained the group’s intention to sell Blyvoor, and that discussions were taking place with three parties.
“The ideal buyer would be someone who can keep the mine going for the next 18 or so months while further development is taking place.” he said.
Pretorius said that Blyvoor would be able to produce gold at a cost of no more than $1,050 per ounce should the new buyer succeed to lift output from the current 70,000 tonnes per month to 90,000 t – a process which would require some capital spending. The grade required for this is 4 g/t.
“The business rescue process will preserve the asset while it seeks a solution for its cash flow issues,” said Pretorius.
It will also provide Blyvoor with an opportunity to make submissions to the Industrial Development Corporation for development capital, canvass Eskom to consider cancellation or deferral of winter tariffs and continue negotiations with neighbouring mines on the development of shared opportunities, Pretorius said.
