Lights out as Aurora loses backer

[] — IT’S looking bad for Aurora Empowerment Systems.

The latest development is that DRDGOLD, the gold company that entered into an agreement with Aurora to sell 60% of its Blyvoor underground operations, has cancelled that deal.

No monies were paid over even though at the time of the deal, Niel Pretorius, CEO of DRDGOLD, said he was confident of receiving the first cheque.

One month’s grace will be extended to Aurora to make good on the proposal. “We’ll listen to offers,’ Pretorius said. One gets the sense, however, he’s not hopeful.

In any event, Blyvoor has turned into profit again which has enabled DRDGOLD to pluck the mine out of judicial management. Pretorius thinks the mine can sustainably contribute to profits: “There’s still some work to do before we get grade equilibrium,’ he says.

So what is to become of Aurora?

Plans to find a listed vehicle into which it can reverse gold mining assets have twice been frustated with Cenmag and now Labat, a listed cash shell, although Aurora insists the listing is still on.

Meanwhile, it has all but shut its Grootvlei mine where salaries have not been paid and surface pollution has been reported, both clear signs working capital has dried up less than six months after first buying the operations.

It now emerges that the key reason Aurora has missed payment on Blyvoor, and the problems at Grootvlei, and stalled reverse listing into Labat is that the company’s principle backer, AM Capital, has not only refused to put more oney into Aurora but also pulled out of the investment.

That was confirmed in a podcast interview with Miningmx by Thulane Ngubane, Aurora’s commercial director, who added that the company was seeking replacement backers and had some options. He didn’t provide details, but said the names of new financial supporters would be up for “public consumption’ in two to three weeks. City Press reported last week the company was looking at potential US investors.

“They [AM Capital] have indicated to us they are not going to be part of this deal but we do have other backers,’ said Ngubane. The purchase, listing and recapitalisation of the mines in which Aurora has an interest was “taking too long’ for AM Capital, he said.

I don’t know enough of AM Capital, representing Middle Eastern private investors, to say just how deadly its exit from Aurora is to Aurora’s fortunes. But on meeting DATO Rajah Zainal, AM Capital’s representative, he seemed to suggest it was the primum mobile behind Aurora.

It was also slowly emerged that deals to buy Grootvlei, and other marginal gold assets in Orkney, for a collective R1bn, were all premised on intentions to buy. The liquidator, into whose care these assets were placed, is still the owner.

Aurora was, it would appear, hoping to raise the R1bn in a listing, but with AM Capital out of the picture, who would be buying the shares?

On the listing, Ngubane said all the suspensive conditions had been met and the transaction will proceed: “Our funders and the JSE are finalising the deal was we speak’. He further said that within 21 days the name of Labat would be changed to Aurora.

On the situation with Grootvlei, where the plan is to shut all but the most profitable shaft and use cash from that to start recapitalising the mine, Ngubane said “political point scoring’ had interrupted progress.

Ngubane is commenting on objections to labour to the strategy which will see 1,440 Grootvlei miners “temporarily’ laid off.

It all seems a disaster with the finger firmly pointed at Khulubuse Zuma, Aurora’s chairman and nephew of the current South African president, and Zondwa Mandela, grandson of Nelson Mandela. I’d stop short of calling this knavery so much as naivete.

At a time when government, the mining sector and unions have been convening in the mining summit on issues such as black empowerment, the Aurora episode is a real blot on the copybook of transformation.

Iron ore

Arcelor Mittal SA (Amsa) hasn’t responded well to Kumba Iron Ore’s insistence is should release it from a contract which allows Amsa to buy iron ore at 3% plus cost fees.

The steelmaker’s rebuttal was to jack up steel prices to account for the margin pressure of paying more for iron ore. This has incurred the wrath of government which wants to probe the onset of higher steel prices.

Arcelor Mittal is surely inviting unwanted attention on its near monopoly status in the South African market that moved gold producers Harmony Gold and DRDGOLD to sue it for anti-competitiveness. The matter was taken up the Competition Commission and the Competition Tribunal. Arcelor Mittal avoided a fine, however, following a successful appeal.

iron ore producers are becoming the price makers

There’s also the fact that conditions are changing in the iron ore market. This follows developments last month such that annual iron ore contract negotiations are giving way to regularly spot price related negotiations.

This suggests a number of things the most prominent of which is that iron ore producers are becoming the price makers in this industry owing to huge demand of iron ore and its strategic importance to economic growth.

The iron ore market is also becoming more volatile.

The two factors seem lost on Amsa which wants Kumba Iron Ore to stick to an agreement first forged when South Africa was an apartheid state. Amsa is painting itself into a corner.