JOHANNESBURG (miningweekly.com) – Black economic-empowerment company Aurora Empowerment Systems, of which President Jacob Zuma's nephew Khulubuse Zuma is chairperson and Nelson Mandela's grandson Zondwa Mandela is MD, has bid R215-million for the provisionally liquidated assets of Pamdozi Gold Orkney and has undertaken to preserve all jobs.

Joint provisional liquidators Enver Motala, Allan Pellow and Deon Botha announced on Monday that Aurora, which has a controlling interest in the JSE-listed Cenmag, had been selected as the preferred bidder.

Motala described Aurora as a well-capitalised company that had local and Middle Eastern shareholders.

He said that Aurora had undertaken not to retrench any of the permanent 1 500 employees of Pamodzi Gold Orkney, who would all be eligible for the company's share incentive scheme.

Aurora, he revealed to Mining Weekly Online, had not excluded the possibility of bidding for Pamodzi Gold East Rand as well: "If Aurora does bid for the East Rand assets, it will be the fifth bidder, and we believe Aurora is seriously looking at becoming that fifth bidder," Motala added.

Motala said that the AM private equity fund of Kuala Lumpur, Malaysia, would underwrite Aurora's raising of R200-million in a rights issue and vendor placing.

The remaining R15-million portion of the R215-million purchase price, excluding value-added tax, would be paid in cash, Motala said.

Aurora's Malaysian counterpart would also be arranging R150-million capital for investment in the Orkney gold mine.

Mandela, 26, told Mining Weekly Online that Aurora was keen to make additional inroads into the precious-metals business.

The care-and-maintenance of the Orkney mine, Motala said, had been self-funding from the processing and selling of gold obtained from surface sources.

"One of the many reasons why Pamdozi Gold found itself in financial difficulties was because it had, in the view of the joint provisional liquidators, a very onerous agreement with AngloGold Ashanti as far as the milling was concerned.

"The joint provisional liquidators have an agreement with Simmer & Jack Mines (Simmers) for the milling, and we believe that Aurora will continue with that milling agreement.

"What's very encouraging is that, in our discussions with the representatives of Aurora, we have been given the assurance that, going forward, Aurora, will buy its own milling poant and is in the process of negotiating with a party in Zimbabwe for one at a cost of about R80-million," Motala said.

He described the Aurora offer as being "substantially better" than Simmers' R110-million offer, which he repeated was "audaciously low".

While the R215-million Aurora offer was "on the low side", as the liquidators believed that the Orkney mine was worth close to R300-million, Motala said it was market-related and saved R40-million to R60-million in retrenchment costs, because there would be no retrenchments.

"Aurora will be taking over all of the employees, in a manner of speaking, as a going concern," Motala told Mining Weekly Online.

Aurora had also undertaken to establish a community trust that would include the provision of healthcare services, and had undertaken to fund housing development for first-time owners, and bursaries and educational subsidies for employees' dependants.

He said that Aurora had contracted Dawid Stander of Dawid Stander Consultants for five years to ensure the future sustainability and long-term stability of the Orkney mine.

The bid was, however, subject to formal approval from South Africa's State-owned Industrial Development Corporation (IDC), the major secured creditor.

Pamodzi Gold Orkney mine manager Louis Bezuidenhout told Mining Weekly Online that the company would be able to reach a monthly production level of 200 kg by April next year.

"Thereafter, I see no problem in reaching an output of 250 kg/m a year later, provided we have a capital injection into development at Shaft 7.

"It's a great orebody. There are 2,4-million ounces in our planning, but, in total, there are 18,7-million resource ounces, 4,9-million ounces as a measured reserve," Bezuidenhout told Mining Weekly Online.

Adequate capital investment in the completion of the Shaft 2 high-grade area, as well as the planned completion or upgrade of Shaft 1 and Shaft 3 pillars was key.

"This, together with the increase in volumes of Shaft 4 and Shaft 7, which consist of lower grade material, will be a major contributing factor," Motala said, adding that the life-of-mine would be extended to the year 2025.

The liquidators want Aurora to commence mining activities ahead of the finalisation of the agreements and may also pursue a Section 311 compromise to take Pamodzi Gold Orkney out of liquidation rapidly.

"If a 311 is done, it will speed things up tremendously. We won't have to wait for the transfer of mining licences. The other advantage, is that there will be a marginally higher dividend to creditors," Motala said.

The dividend payout to the creditors would depend largely on what the joint provisional liquidators would seek to pay the IDC.

The IDC's initial capital loan to Pamodzi Gold in late 2008 was R200-million at an interest rate of 30% a year.

The IDC obtained security over all the assets of Pamodzi Gold Orkney and Pamodzi Gold Free State by way of a notarial bond.

The IDC advanced R50-million to keep the Free State assets on care-and-maintenance, at between R8-million and R10-million a month, and also provided funds to insure Orkney. Funds to insure the East Rand assets were obtained from the HyperVereinsbank of Germany.

Motala estimated that some R293-million was outstanding to the IDC.

The dividend payout to Orkney creditors would thus be dependent on what the IDC recovered from the Free State, which, Motala reiterated, had been sold to Harmony Gold for R405-million.

There are also preferent employee creditors in the Free State, as well as concurrent creditors.

"Within the next couple of days, the joint provisional liquidators of Orkney are going to engage with the IDC to put the Aurora deal forward and to discuss a possible dividend payout between Orkney and the Free State.

"Assuming the IDC obtains R100-million from the Orkney sale, the concurrent creditors, after the preferent creditors have been paid in full, will get a dividend of approximately 43c in the rand.

"However, if the IDC obtains less from Orkney, then the dividends will increase. It all depends on what the IDC will be able to get out of the Free State sale for the joint provisional liquidators to be able to calculate the precise dividend on Orkney.

"But if the IDC takes a maximum of R100-million from Orkney, the concurrent creditors will still get 43c in the rand. That's the reason we believe that a 311 compromise is the most efficient and the best way to go forward.

"If the IDC secures all the money from the Free State assets, then the creditors in Orkney will get a substantially higher dividend," Motala said.

United Association of South Africa operational manager Garth Ellis told Mining Weekly Online that his union had had meetings for the past two weeks with Aurora executives.

"At their request, we, as a trade union, are looking at formulating the contract of employment and we are suggesting the rates of pay. They have given us certain guarantees of no retrenchment.

"We are looking at Chamber of Mines' conditions and structures, which makes it competitive in the area," Ellis said.

Attorney Michael Hulley, who defended Jacob Zuma in a series of trials prior to his election as President, is listed as a nonexecutive director of Aurora. Other Aurora directors include executive directors Dató Raja Zainal Alam Shah of Malaysia and Sheshile Ngubane.

According to an Arcay media release, Mandela is a director of marketing company Merloni and a trustee of the Ibongo Trust, a minority shareholder in Barlowrand through Moty Capital.

Aurora also owns Redwood Timber Merchants, a holder of timber concessions.

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