The directors of Aim-listed BlueRock Diamonds have notified the business rescue practitioners (BRPs) that control Kareevlei Mining and its operations – the Kareevlei mine in South Africa’s Northern Cape – that it is unable to contribute any further funding to help recapitalise the operations.

Kareevlei Mining, BlueRock’s principal operating subsidiary, was placed into business rescue in February owing to its excessive indebtedness.

BlueRock notes that the first meeting of creditors was held by the BRPs on March 13, where the BRPs gave feedback on the reasons why Kareevlei was placed in business rescue by its board of directors.

The BRPs reported that the assets of Kareevlei are unlikely, in a liquidation scenario, to realise sufficient proceeds to settle the secured creditor, Teichmann South Africa (TSA), and that there is unlikely to be any distribution to preferred and unsecured creditors.

The BRPs believe Kareevlei Mining can only be rescued if its debt is extinguished or brought to a manageable level; capital is invested to comply with the conditions of the mining licence and to upgrade the plant; working capital funding is obtained; and that the mine is owner-managed and operated.

Post commencement financing (PCF) was secured from TSA, which exercised its security over the Kareevlei bank account prior to Kareevlei going into business rescue, for essential expenses only.

Operations are restricted to the processing plant, which is drawing material from the run-of-mine (RoM) stockpile. There has been no mining activity since the beginning of business rescue proceedings.

The BRPs exercised their rights to suspend the obligations of Kareevlei. The impact on BlueRock is the immediate suspension of the management agreement and loan agreements under which interest accrues on outstanding balances. Therefore, BlueRock has no source of income from Kareevlei.

The BRPs asked the company, as the majority and controlling shareholder, to provide all or part of about R150-million to recapitalise the mine and fund working capital.

The board has considered and explored the possibility of the company being able to raise sufficient further finance to fund Kareevlei Mining and has concluded that it is unlikely to be able to do so at the current time.

BlueRock has approached its loan note holders to ascertain their response to a possible restructuring of the capital structure of the company and has not received a reply to date.

Meanwhile, the BRPs, at a second meeting of creditors held on March 24 reported that they were in discussions with three parties that had expressed an interest in acquiring the Kareevlei diamond mine, either through buying the shares in Kareevlei Mining or the assets and business of Kareevlei Mining.

A business rescue plan has not been finalised as the outcome of these discussions is material to the final assessment of the BRPs regarding the ability to either rescue or liquidate Kareevlei Mining.

TRADING UPDATE

Production for the period preceding the start of business rescue proceedings was in line with management expectations, with 2 350 ct produced during the four weeks to March 4.

This included three diamonds, for which final prices of $393 888, $342 000 and $57 888 were achieved, with total sales of $1.55-million.

Mining operations stopped immediately after business rescue proceedings began and production has been from material on the RoM stockpile. This production has been poor in grade and in terms of the size of diamonds recovered, BlueRock says.

The RoM stockpile had material for 18 days' processing plant requirements as at March 31.

Significant waste stripping is required for the mine to be able to supply acceptable material to the plant, and the cost of this is included in the funding requirement of R150-million calculated by the BRPs.

The BRPs have suspended non-essential activities to minimise the amount of PCF which is required and are in discussions with those parties that have expressed an interest in Kareevlei. Until these discussions are concluded and a viable business rescue plan is approved, activities at Kareevlei will be limited.

TSA continues to provide PCF using the funds in the bank account over which security is held. TSA has removed some equipment from the mine site and the resumption of mining, particularly the drill and blast operations, to enable waste stripping to access ore to feed the plant is critical to avoid closure of the mine, BlueRock says.

Also, in the absence of any distribution from Kareevlei Mining or new capital being raised, it is unlikely that BlueRock can be considered to be a going concern.

The absence of certainty about Kareevlei Mining in the near future, either from the business rescue plan or a viable offer to buy its operations or assets, increases the uncertainty about the prospects for BlueRock, it warns.