JOHANNESBURG (miningweekly.com) – The successfully concluded business rescue of Southgold Exploration this week has set a precedent in the South African debt restructuring landscape, demonstrating that ailing businesses had a vehicle through which they could potentially avoid liquidation.

“This is probably the biggest and most complex business restructure the country has seen. The implications are that the mining industry can now see business rescue as a possible alternative through which businesses can be saved. It's a true success story,” Webber Wentzel litigation practice partner Lara Kahn told Mining Weekly Online on Thursday.

Southgold’s turnaround story began in 2012, when it filed for bankruptcy protection under South African business rescue procedures after suspending all mining operations at its Burnstone mine, in the country’s Witwatersrand basin, citing its inability to afford the mine’s required working capital to reach cash-flow breakeven by May 2013.

Mining Weekly Online reported at the time that the insolvency filings were intended to allow Southgold time to seek buyers and partners for its two gold mining projects, or corporate-level financiers, in an effort to return to solvency.

The bankruptcy protection proceeding constituted a default under the company's TSX-listed unsecured convertible debentures, which had a principal amount of $126-million.

Business Day Live (BDLive) reported in July last year that Southgold’s total debt ran to $400-million, comprising $235-million owed to lenders, $127-million to bondholders and $37-million to creditors.

This prompted Southgold to bring in business rescue practitioner Peter van den Steen, who tabled a revival business plan for the mine, which entailed the restructure of the company’s debt and the sale of Burnstone to Witwatersrand Consolidated Gold Resources – now Sibanye Gold.

The Southgold business rescue plan would see Southgold’s debt cut to $177.35-million, with Sibanye paying only $7.25-million, BDLive reported.

Sibanye had also agreed to invest R950-million into Southgold over three years as working capital to resuscitate and expand the mine.

Critically, this plan was last year accepted by the mine’s various creditors.

“The practitioner mandate is to first find funding and then put together a plan, which he then puts to the company’s creditors, who then vote on that plan. If they pass it with the requisite majority, he then has a period within which the plan is implemented,” explained Kahn.

Following the successful completion of the plan, the Southgold mine was officially taken out of business rescue on Tuesday, after concluding the transaction with Sibanye Gold.

Khan added that the deal would see some 2 000 people, who were initially retrenched in 2012 when Burnstone went into care and maintenance, re-employed at the mine.

Sibanye said previously that it could restart gold production at the suspended mine early in 2015, establishing a 50 000 oz/y operation initially, before increasing output to 100 000 oz/y in Phase 2.

“With the plan in place, it’s expected to take around 18 months for the mine to be up and running again, and then, perhaps after a year, it will get back to full production and be back at full employment. This may lead to the employment of even more people than [before]. It's a really big success story,” Kahn reiterated.

Elaborating on the significance of Southgold’s successful business rescue to the broader sector, she said it was the first time that Chapter 6 of the Companies Act – which dealt with business rescue proceedings – had been used with such success in the mining industry.

“One thing that differentiates this rescue from others is that it was very well planned, it had funding, and it had the support of its lenders from the outset. People often say that the legislation is inadequate, because there are lots of examples of these kinds of things failing, but often it has to do with timing and planning,”Khan commented.

Had Southgold’s business rescue plan failed, the company would likely have gone into liquidation, rendering the mine’s total staff complement permanently jobless.

“I hope that the Southgold restructure is a shot in the arm for the debt restructuring industry as a whole and not just for the mining industry, because it has resulted in jobs being saved. It's a good example of creditors and employees being patient,” Kahn asserted.

Kahn, in collaboration with Webber Wentzel colleagues Etienne Swanepoel, Mareli Vermeulen and Crystal McIntosh, advised Van den Steen on all aspects of the rescue.