JOHANNESBURG (miningweekly.com) – Siyakhula Sonke Empowerment Corporation (SSC) and its subsidiary Flaming Silver has filed an urgent application in the Mpumalanga High Court to resolve a dispute with Vantage Goldfields South Africa regarding a sale of shares agreement for the Lily and Barbrook mines, in Mpumalanga.
SSC had hoped to resume production at the mines in February, after a pillar collapse at Lily mine in February 2016 claimed the lives of three employees and put financial strain on Vantage, subsequently leading to the mines going onto care and maintenance and filing for business rescue.
Vantage on March 26 cancelled its agreement with Flaming Silver for sale of the assets.
At a media briefing, on Tuesday, SSC claimed Vantage had been stalling the transaction and had failed to perform their obligations to close the transaction, while Vantage claimed that SSC had not complied with funding arrangements to meet business rescue requirements.
“[Vantage] failed to mention that, in August 2018, they signed off on SSC’s funding ability when they applied for the Department of Mineral Resources’ (DMR’s) Section 11 consent to the transfer of the mines,” SSC group CEO Fred Arendse said, adding that Vantage could have cancelled the agreement at that stage if they were dissatisfied.
Arendse explained that SSC has presented proof of funding to Vantage and the business rescue practitioners (BRPs) Rob Devereux and Daniel Terblanche.
Vantage in November 2017 agreed to sell the mines to Flaming Silver, on the condition that it provides R310-million to discharge business plan requirements and reopen the mines. The DMR approved the sale and transfer of the mines in December.
The complicated business rescue process has had four extensions granted over 12 months. SSC in January indicated that it would soon submit a new business rescue plan, but has expressed dissatisfaction with and was seeking the removal of Devereux.
SSC came up with its own six-month implementation rescue plan, which, the company assured, set out defined funding and timelines.
Arendse anticipated that the parties would meet in court within the next few weeks, and that the matter would be heard by the court as a matter of urgency.
“The core of the current delay is that Vantage wanted the 12% ‘free carry’ shareholding – to be given to the management of Vantage, which was agreed upon on May 3, 2018 – to be increased to 26% by a forced dilution of the current Lomshiyo empowerment structure.
“Vantage directors and Devereux insisted that SSC should pay the creditors’ claims first, before any equity is spent on reopening of the mines. Devereux also demanded on March 13 that he be paid R10-million before meeting with any of SSC’s investors,” explained Arendse.
He said the three Vantage directors had lodged a R13-million creditor’s claim, with the blessing of the BRPs, for retrenchment packages, which SSC is also refuting.
Meanwhile, Arendse noted that the current monthly budget for care and maintenance of the mines is about R1.2-million, which SSC has been funding for “a substantial period of time”.
“The facts lie in the events leading up to the signing of the second addendum, in which Flaming Silver agreed to give free shares to Vantage directors in the form of Strategic Alliance Partners, a special purpose vehicle, in return for an agreement that the funding and purchase price conditions were deemed to have been fulfilled in their entirety.
“This agreement was signed on May 3, 2018, and followed a dispute as to whether the funding required – the R310-million in the principal agreement – had been met or not. Therefore, the funding quantum of R310-million no longer bore any relevance and was substantially reduced to between R190-million and R200-million, which on July 27, 2018, was confirmed by the BRPs to be sufficient to reopen the mines and for creditors to be paid out of subsequent proceeds,” stated Arendse.
According to SSC, Vantage CEO Mike McChesney and his board have overlooked, and have failed to disclose to the public, that the 12% “free carry” shareholding given to them by Flaming Silver was a quid pro quo for the concession that the funding requirement and “payment of the purchase price conditions” had been deemed to have been complied with.
Proof of a further conditional shareholder contribution amounting to R60-million was submitted to Vantage and Devereux on March 13 this year. Arendse said that this was in addition to the R32-million operating agreement SSC had signed with a reputable and listed processing operator for the Barbrook tailing storage facility (TSF).
“This TSF project, which in our opinion has significant potential, had previously been hidden from SSC and if the TSF project had been implemented by the BRP and Vantage three years ago, the mines could have been saved a long time ago.
“Funding in the amount of R190-million has also been secured from the Industrial Development Corporation (IDC) and the loan agreements were signed on March 29, 2018.”
The requirement for a R50-million equity contribution resulted from the submission of a “flawed” business rescue plan, which did not take into consideration all of the companies’ mineral resources, such as the TSF, which has a total revenue potential of R602-million and a net present value of R174-million, translating into free cash of R204-million over a period of three and a half years.
“This information came to light after the IDC agreement,” said Arendse.
McChesney confirmed to Mining Weekly Online that Vantage stands by its decision to cancel the agreement and that the company is evaluating new offers and will consider them in the event that the Flaming Silver agreement fails.
“Prospective investors who are bona fide mining companies, and who have provided proof of funds, are receiving priority so that the mines can be re-opened as soon as possible in the interests of all stakeholders.”