[miningmx.com] — BURNSTONE is South Africa’s first new gold mine in
years – a deposit near Balfour, south of SA’s heartland of gold.
The pain and cost suffered by Great Basin Gold, which is developing the asset,
however, may provide a clue as to why SA doesn’t really produce new gold mines
anymore.
In the words of one, somewhat uncharitable, blogger, Great (Wash-) Basin has
brought only dilution to its hapless shareholders.
Since setting about developing the mine, Great Basin’s shares in issue have more
than doubled to 545m. Over the same period, Great Basin’s share price has
plummeted. Since the third quarter of 2008, when Great Basin was trading at
R25.50/share, the value loss has been 78%.
Roughly 70% of the share price decline has been in the last 12 months. And more
than a fifth has been lopped off the share price in the past month.
Most recently, investors have turned their backs on another bought deal – or shares
issued for cash – in which up to 70m shares have been placed. In fact, the shares had
to be repriced mid-deal as investors took fright.
To add insult to injury, Great Basin is negotiating with Investec because the shares
that the bank holds as collateral for a loan provided to Great Basin’s empowerment
partner, Tranter Burnstone, can no longer cover the loan. Again, a function of the
weakened Great Basin share price.
Great Basin’s woes are wholly to do with failure to meet Burnstone’s production
deadlines. The major misadventure at Great Basin was a miscalculation of geology
such that the company’s miners were forced to dig deeper into the orebody than
planned. The result was as much as a year’s delay in production, hence the need to
source fresh funds.
Bought deals haven’t been the only source of funding required by Great Basin.
It most recently raised $150m in bank debt in November, the repayment of which falls
due the first half of 2013. Great Basin CEO, Ferdi Dippenaar, dare not have Burnstone
fail more production forecasts, and a recent promise that Burnstone would be cash
flow positive by the third quarter of this year.
The company needs the cash to pay debt.
In the main, analysts are keeping the faith with Dippenaar, whose resolve to develop
and own a gold mine – after years spent supporting Bernard Swanepoel’s efforts at
Harmony Gold – has been profoundly tested.
“I’m convinced this mine will be developed successfully,’ says Dippenaar.
“The people at the mine are all focused. They all love what they do,’ he adds.
Said BMO Nesbitt Burns in a recent note: “Despite lowering production guidance and
extending development timelines, the update provides some confidence that
continued progress should yield operational improvements throughout the year.’
It was added in a later note that the capital repayments on the $150m would provide
“challenges’, however.
“While we do see value in GBG, especially at current levels, management delivery on
targets is the key catalyst for a re-rating,’ said Macquarie Securities.
– Finweek
