DRDGold to apply for Blyvoor's judicial management
By: Martin Creamer
9th November 2009
JOHANNESBURG (miningweekly.com) – JSE- and Nasdaq-listed gold miner DRDGold would on Tuesday bring a semi-urgent application to the South Gauteng High Court to have its loss-making Blyvooruitzicht gold mine placed under judicial management, the company said on Monday.
DRDGold CEO Niel Pretorius told Mining Weekly Online that the application was being made in order to prevent the underground Carletonville gold mine from plunging into liquidation, as occurred this year with the stricken Pamodzi Gold.
Pretorius said that the mine had been hit by the "perfect storm" of strikes, the strong rand, seismic damage and higher electricity tariffs, and faced the prospect of even higher power prices going forward.
He told Mining Weekly Online that the application was being brought on a semi-urgent basis in order to stave off the prospect of hostile creditor action, which would force the company into defensive mode at a time when it was pursuing Blyvoor's rescue.
"We want immunity against hostile creditor action sooner rather than later," Pretorius told Mining Weekly Online.
"We have managed to keep most of our payments on a pretty healthy basis without causing any distress or hardship to any of our suppliers, and now we can go into a situation in which a judicial manager can engage and try to reach a compromise," he said.
Pretorius believed that there was a good prospect of Blyvoor's financial position being restored, given that the mine made R190-million profit for the financial year ending June 30.
"It's now literally a matter of having to mine low grades, and to work on the rehabilitation of the high-grade areas, while having to pay too much for certain services," Pretorius added.
He felt that Blyvoor, which was currently losing R27-milliion a month, could be back into profit by March.
"It needs R50-million to R70-million in rescue capital," Pretorius told Mining Weekly Online.
DRDGold, which owns 74% of Blyvoor, is making the court application under Section 427 of South Africa's Companies Act.
Being the largest creditor, Pretorius told Mining Weekly Online that DRDGold was in a position to make a strong case for its nominated representative to be appointed judicial manager.
He said that the company had an independent third party in mind that was sufficiently commercially astute to be able "to do the things that we have tried to do over the past few months, but were not able to".
The company's attempt to restructure Blyvoor has not delivered the expected turnaround.
"The mine is finding it very hard to shake off the effects of the recent four-week strike; we now need a rescue plan that holds real promise of saving Blyvoor from insolvency," Pretorius said.
Judicial management was the "only appropriate course of action" in the face of the "combined negative impact of circumstances beyond the control of
the board of directors and management."
Blyvoor's period of "handsome profits" lasted only until April, after which it was struck by a 16% drop in the average rand gold price caused by the strong rand; extensive seismic damage to higher-grade underground production areas at the No 5 Shaft; power utility Eskom's higher winter tariffs, compounded by a 32% price increase effective from July 1; and the wage strike by the National Union of Mineworkers, which resulted in the loss of 8 000 ounces of production worth R60-million.
Pretorius, a former defence attorney, explained that, in terms of a judicial management order, the court appointed a judicial manager with wide powers to take action to save the business.
The steps that the judicial manager would take included giving certain creditors temporary preference over others and agreeing compromises with creditors without the risk of committing an act of insolvency and thereby exposing the mine to liquidation.
DRDGold envisaged Blyvoor remaining under judicial management until after access to the damaged higher-grade areas had been regained.
DRDGold would put the R75-million that it had allocated in the past three months towards rescuing Blyvoor at the disposal of the judicial manager and give the person appointed every assistance in obtaining additional "rescue finance" from institutions, like South Africa's State-owned Industrial Development Corporation.
Edited by: Creamer Media Reporter
