JOHANNESBURG (miningweekly.com) – Canadian gold producer and investor AfroCan Resources Gold has outlined its reasons for withdrawing from an equity transaction with Vantage Goldfields for the Lily gold mine, in Barberton.

Through its attorneys in Sydney, Australia, AfroCan issued a letter to Vantage providing the reasons why AfroCan believed Vantage had “no grounds” on which to bring action or any claim “whatsoever” against AfroCan and that AfroCan would “vigorously resist” any such claim.

On Monday, AfroCan said it was also compelled to place in the public domain certain facts in its possession that would provide the public, affected parties and AfroCan's current and future stakeholders with a more “balanced representation” of the reasons for AfroCan’s withdrawal from the transaction.

The company said that South African Mineral Resources Minister Mosebenzi Zwane had announced the award of ex gratia payments of R200 000 for each family [of the three presumed] deceased workers and R50 000 to each worker who was underground at the time of the crown pillar collapse on February 5.

AfroCan commented that Lily mine’s business rescue plan also contained a disclaimer in this regard. “During the investigations into the affairs of [Vantage] it is apparent that no one director, management nor a collective of directors has the mandate or the limit of authority to make such a decision, nor was it taken by them. The company therefore denies these commitments.”

AfroCan then goes on to say that, together with the Lily mine’s business rescue practitioner it would honour the ex gracia payments as stated. The money will be paid by July 30.

AfroCan highlighted that, as the business rescue plan was published on May 16, and voted on by affected parties on May 25 – which was before the company signed the subscription agreement on May 26 – it was “still unclear” who would fund this award of R4.3-million, particularly in light of Vantage’s admission that there is no funding available from State-owned development finance institution the Industrial Development Corporation (IDC).

AfroCan contended that Vantage CEO Michael McChesney had admitted that it was at the Minister’s behest that it chose not to retrench the Lily mineworkers, which had caused the “significant problems” with arrear salaries.

Further, the company noted on June 6 that Zwane had declared that Lily mine would remain closed until the container was recovered.

“This is practically a force majeure event as definitive as the crown pillar collapse itself and makes Vantage uninvestable. Without the certainty of Lily mine recommencing commercial operations, just who will provide the R160-million required to attempt the recovery of the container is unclear,” stated AfroCan.

The company also noted that, on June 17, McChesney and the Lily mine business rescue practitioner Rob Devereaux met with the Department of Mineral Resources (DMR). AfroCan CEO Brian Barrett was invited to this meeting, but the time of the meeting was changed “at the last minute” and he was unable to attend.

McChesney reported to Barrett after the meeting that the DMR would “of course” allow mining operations to recommence but would not confirm this in writing, nor would the DMR make any public announcements in contradiction of the Minister's statement.

AfroCan added that trade unions Solidarity and the National Union of Mineworkers (NUM) had “enjoyed” much press coverage recently and that this was “wholly opportunistic”, as the actual percentage representation of Solidarity and the NUM combined at the time of the crown pillar collapse was very close to zero, the company claimed.

“The Association of Mineworkers and Construction Union (AMCU) is, by [a] vast majority the representative union at Vantage. During the first week of June, AMCU leadership offered to facilitate the funding of the April salaries with a post commencement loan of R10-million from [a] respected businessmen in their local community. This offer was rejected out-of-hand by Devereaux and Vantage,” AfroCan alleged.

Moreover, the company remarked that a meeting was held at the offices of Vantage in Nelspruit at which Barrett and McChesney shook hands in front of a witness (Charles Mostert, chairperson of Capital, the financial intermediary in the transaction) on a deal whereby AfroCan would provide funding to Vantage on the basis of a convertible note.

Four days later, McChesney phoned Barrett to say that he was reneging on this deal, Vantage was not going ahead with the transaction. Mostert called Barrett, “furious” at this development, accusing McChesney of negotiating in bad faith.

AfroCan asserted that, had that deal been struck, Vantage would have received funding from AfroCan before the end of April.

Meanwhile, on June 23, AfroCan stated that, at its invitation, McChesney and Devereaux attended a meeting aimed at resolving the challenges facing the parties in concluding the transaction.

“McChesney agreed that the foundation principle upon which the meeting was conducted was that, given the current circumstances, AfroCan could not perform in terms of the signed subscription agreement and any talk of breach by AfroCan was off the table.”

AfroCan further contended that, at this meeting, it had declared its belief that it “may” take a month to get the desired comfort that AfroCan’s investors would have required to move forward with the transaction.

“It was suggested that the current Vantage shareholders invest the $700 000 (R10-million) required to pay the April salaries. McChesney declared that his shareholders were jaundiced by the South African situation, the sovereign risk, the political and black economic-empowerment issues and, therefore, existing shareholders would not invest any further funds into Vantage,” AfroCan reported.

On June 25, Vantage sent AfroCan a letter formally acknowledging the difficulties facing AfroCan’s investor base. The letter proposed alternative investment strategies for AfroCan’s investment in Vantage, including reverting to the convertible note option that Vantage walked away from in April.

On June 27, Vantage placed AfroCan in breach under the terms of the May 26 signed subscription agreement, threatening legal action. Then, on June 29, faced with “yet another about-turn” in negotiations and with “insufficient time” to review Vantage's proposals or properly address the challenges acknowledged by McChesney in his letter of June 25, AfroCan had “no option but to withdraw from the transaction”.

“The intention of a media onslaught is to intimidate and leverage the risk of loss of reputation to coerce one party to perform to the will of the other. AfroCan shall not be coerced by the recent media reports nor will it succumb to threats of continued intimidation. AfroCan was forced to make a decision in the interests of its stakeholders,” the company emphasised.

Barrett stated that the “about-turn” by Vantage just two days after McChesney confirmed in a letter that the parties had commenced a joint-process aimed at removing the obstacles to concluding the transaction, combined with the aftermath of Vantages’ subsequent malicious media attack on AfroCan, “may have scuppered any chance of AfroCan getting its stakeholders and investors back to the table”.