[miningmx.com] — CENTRAL Rand Gold (CRG) shares plunged to new lows on the JSE and London Stock Exchange (LSE) on Monday, after the company announced a huge share offer and placement at a deep discount.
The troubled junior attempted to restart mining operations on defunct gold mines near Johannesburg but ran into lengthy delays and technical problems with its highly ambitious initial project schedule.
CEO Johan du Toit said CRG intended issuing 1.32 billion new shares to raise $35m, of which 649 million would be in terms of a “firm placing’ and 679 million through an open offer to shareholders.
Existing shareholders will be offered five new shares for every two held, and will be able to apply for more through an “excess application facility’.
Shares are being offered at 2 pence each – a 56% discount to the CRG closing price on the LSE on June 3 of 4.6p.
However, CRG shares plunged to 2.6p during early trading on Monday on the LSE, where they have declined steadily from around 14p at the beginning of the year.
In rand terms the offer is pitched at 22.4c a share. This compares with a 12-month high on the JSE of 490c, and a 12-month low of 65c prior to Monday morning’s trading which saw CRG shares fall to 50c.
In its mining sector morning summary, UK institution Libertas printed a graph of the CRG share price on the LSE since March and said: “The placing and open offer at 2p can best be summed up with the share price graph.’
The announcement of the share placing carries a comprehensive disclaimer from advisers Macquarie First South and Evolution Securities.
This states that the announcement “is the sole responsibility of Cenral Rand Gold’ and both Macquarie First South and Evolution make no representation and accept no responsibility or liability for the contents.
CRG’s initial aim was to start gold production in 2009 at a rate of 100,000 ounces per year (oz/year), which would be built up to 1 million oz/year by 2012.
Management released a revised plan last year, which called for 20,000oz to be produced in 2009 and an average of 40,000oz to be achieved annually during the first seven years of mine life.
That plan has now been revised once more, according to the rights offer announcement.
According to Du Toit, the $35m to be raised “will move the company from trial mining to full-scale commercial production at a rate of 45,000oz by the end of 2013′.
Du Toit said: “This is some way short of the aspirations in the original IPO [initial public offering].
“Part of this is due, inevitably, to any trial mine being at the wrong end of economies of scale, particularly in terms of fixed costs and overheads.
“The board believes the company’s mining and metallurgical methodologies can be implemented across its entire tenement area, requiring at worst, minimal adjustment to and re-testing of its mining methods to suit local conditions, in particular reef widths, before full-scale mining development can commence.
“The “vision’ in this sense is intact and there is no doubt that overall unit costs will decline as fixed costs are carried over a larger base and as the mining crews increase efficiencies with experience.’
In addition to the mining problems encountered, CRG has also fallen out with its black economic empowerment (BEE) partner Puno Gold Investments, which has 26% of the operating South African subsidiary.
Du Toit said that despite this, CRG’s prospecting and mineral rights “are not under question or threat’.
CRG holds prospecting rights along a strike length of 40km on a number of the defunct gold mines of the Central Witwatersrand, extending from Roodepoort in the west to Germiston in the east.
The company has so far been granted new order mining rights at the former Consolidated Main Reef (CMR) and Crown Mines operations on the West Rand. It started trial mining at CMR in March 2009.
The technical problems immediately encountered led to sweeping changes both in CRG top management – where the chairman and CEO were replaced – and at the work face, where new mining contractors were brought in.
Du Toit remains steadfastly upbeat. He said: “Certainly CRG have had our disappointments as the project transitioned from desktop to reality, but this current team has successfully developed the revised mining method and delivered the trial mine.’
Fairfax analyst John Meyer commented, ” We hope this latest capital raising takes the company successfully without further financings required to support this current plan.
“Trial mining results give cause for optimism, however this has been a very costly development processes for a relatively limited production base that remains some years away.”
