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KCM - Kimberley Consolidated Mining Limited - Extraordinary General Meeting 6
August 2010: CEO`s report
KIMBERLEY CONSOLIDATED MINING LIMITED "KCM"
(Incorporated in the Republic of South Africa)
(Registration Number 2007/010470/06)
Share code on the AltX Board of the JSE Limited:
KCM ISIN: ZAE000119996
EXTRAORDINARY GENERAL MEETING 6 AUGUST 2010: CEO`S REPORT
Welcome to the Extraordinary General Meeting of KCM.
My name is Phemelo Sehunelo and I am the acting CEO of the Company having
been appointed as such at a Directors Meeting on 10 August 2009 when the
previous CEO, Hein Le Riche resigned. During the period under review our CFO,
Koos Pieterse also resigned and he has been replaced by Riaan Visser, a
qualified Chartered Accountant with years of experience in practice, diamond
mining and company secretarial work.
KCM as all Shareholders are aware is a Diamond Mining, Exploration and
Development Company with kimberlite and alluvial diamond projects located
primarily within a radius of 200 to 250 kilometres of Kimberley in the
Northern Cape.
OUR ASSETS
- An operating alluvial mine on the Farm Rietsdrift, District Hopetown on
the Middle Orange River owned through a wholly owned subsidiary, Bo-
Karoo Diamond Mining (Pty) Ltd and
- A Prospecting Right over the Farm Carter Block No 458 in the Hay
District in the Lime Acres Area in the vicinity of the World Famous
Finsch Mine which belongs to De Beers Consolidated Mines Limited which
Right is held through a second wholly owned subsidiary, Kimberley
Consolidated Mining and Exploration Limited. There are three known
kimberlites in the Carter Block Area, namely, the Shone, Bouden and PPC
Pipes upon which KCM conducted Prospecting Operations prior to the
collapse of Diamond Markets in 2008.
- A Prospecting Right Renewal application submitted to Department of
Mineral Resources (DMR)
OUTLOOK/RECESSION
Since the last General Meeting of KCM it has been an unusually uncertain time
for all world economies in general and South Africa and the Diamond Mining
Industry in particular and KCM has had its share of trauma, particularly in
relation to:
- The default by Nehawu Investment Communications (Pty) Ltd in taking up
65 million ordinary shares for which it had subscribed under an
Agreement dated 15 July 2008 and worth around R20 million at the time;
- The continued suspension of trading in the Company`s Shares on the AltX
Board;
- Decreasing Diamond Sales Revenue from operations and the need to service
ongoing commitments from a decreasing Revenue Base;
- The sourcing of capital for continuing exploration and mining
operations;
- The collapse of the Junior Diamond Mining Sector on World Exchanges;
- The need to cease direct production and employment of personnel and to
find financially able Contract Miners to work our projects on our behalf
to maintain income to survive the International Recession, the worst
since the Great Depression of the 1930`s.
- Negative Media coverage initiated in some instances by disgruntled
Shareholders.
NEHAWU/OUTSTANDING FINANCIALS/DESIGNATED ADVISOR
The Nehawu default hit the company particularly badly.This capital injection
had it occurred, would have certainly allowed us to keep mining at Rietsdrift
going ourselves during the downturn and just as importantly, to turn our
attention to further bulk sampling the highly promising Carters Block
project, an investment in the future. The Company has instituted proceedings
against Nehawu in the Cape High Court and these are still pending.
The suspension of trade in KCM`s Shares on 1 July 2009 came about as the
result of late financials which in turn came about as a result of illiquidity
resulting from the Nehawu default and the Company at that time not being able
to finance the Audit. To date the Company has spent R900 000,00 on Audit
Costs and Charges and it is hoped that the Auditors, Moore-Stephens BKV will
complete the Audit within the next month.
In this regard, I feel it necessary to mention that when first approached to
convene this Meeting, your Board advised the Requisitionists that it would be
more appropriate to convene a full AGM once the Audited Financials were
available but that they were not prepared to wait.
I apologise to Shareholders, therefore, for the unavailability of the Audited
Financials but wish to stress that it was your Board`s expressed intention to
call this Meeting when same would be available.
The failure to produce Audited Annual Financial Statements was one of the
principal factors too in our Designated Advisors resigning and has been an
ongoing factor in inhibiting those Firms of Corporate and Designated Advisors
that we have approached to take on the appointment to commit themselves to
taking the appointment.
Your Board is confident that a reputable firm of Advisors will take on the
appointment once the Financials are available and this in turn will enhance
the Company`s ability to have the suspension in the trade of its Shares
lifted.
CESSATION DIRECT MINING/RIVERSIDE PARK TRANSACTION
In the light of all this and continuingly deteriorating diamond prices in
early 2009 , the Directors had no option but to suspend exploration
activities at Carters Block and to cut direct production at Bo-Karoo and to
find a self funding Contract Miner.
This unfortunately meant that the majority of our employees were made
redundant and retrenched into a society already experiencing huge
unemployment.
In March 2009 KCM entered into a Contractor`s Agreement through Bo-Karoo with
Riverside Park Trading 82 (Pty) Ltd. to do the mining on its behalf at
Rietsdrift.
The term of the Agreement was for an initial 1 year period with an option to
renew for a further 5 years.
The consideration payable to KCM from Mining Operations was 10% on monthly
gross sales up to R5 million, 12, 5% on monthly gross sales between R5
million to R10 million, 15% on monthly gross sales over R10 million.
In addition, Riverside was obliged to pay the monthly installments due on the
Hire Purchase Contracts for the Mining, Earth Moving and Processing Equipment
on Site. The transaction was an arms length transaction and there were no
related Parties. The CEO of Riverside was one Riaan Timm who had no
connections to KCM.
Riverside defaulted on payment of the consideration and the monthly
installments due to Standard Bank on the Equipment.
Notice of default was given and since Riverside failed to remedy the default,
the relationship was ended.
KCM`s Directors considered the institution of legal proceedings. However, it
then came to the knowledge of the Board that Riverside itself had financial
difficulty and had gone into liquidation.
Had Riverside performed, the resulting royalty income would have certainly
allowed us to keep operations at Rietsdrift going and more importantly, to
address the ongoing liabilities of KCM and allow us too, to turn our
attentions to the Carters Block Exploration Project at Lime Acres.
Unfortunately Riverside defaulted and KCM was plunged yet again into a
financial crisis with liabilities, as the Chief Financial Officer, Mr Riaan
Visser, will outline well in excess of R20 million.
PICO DIAMONDS TRANSACTION
Since the Mining at Rietsdrift was and remains critical to the future
survival of KCM and hence in the interests of Shareholders, one of our
serving Directors, Mr Trevor Pikwane who has considerable financial ability
and mining interests independent of KCM, proposed to the Board that one of
his Diamond Companies, Pico Diamonds (Pty) Ltd. take over the Contract and
render the services on the same conditions as those applicable to the
transaction between KCM and Riverside.
At a meeting of the Board at Kimberley on 10 August 2009 from which Mr
Pikwane recused himself, the remaining Members of the Board resolved to enter
into such a transaction subject to the additional requirements that JSE
consent be sought if necessary and also subject to Mr Pikwane`s Company
assuming liability for payment of any arrear amounts owing to Standard Bank
on the Credit Agreements relating to the Equipment aforesaid and to the South
African Revenue Services in respect of outstanding Taxes owing by the KCM
Group.
At the time, the Board was under the impression that the arrears due to
Standard Bank amounted to R360 000, 00 and the outstanding Taxes owed to SARS
to R2 million. Pico Diamonds paid Standard Bank. When Pico Diamonds
approached SARS, it appeared the Group`s exposure was closer to R7 million
than R2 million. Pico accordingly made application to SARS on KCM`s behalf
for an extension of time within which to pay which was granted and currently
negotiations are underway with a view to reaching a compromise, the prospects
for which are reasonable.
The Agreement between Bo-Karoo and Pico Diamonds was on the same material
terms as that between Bo-Karoo and Riverside, except that Pico Diamonds
undertook to settle the arrears aforesaid and was given an option to purchase
the Earth Moving Equipment and Mine Processing Plant used at Rietsdrift at a
consideration to be agreed.
When the arrears are taken into account the terms of the Pico Diamonds
transaction were in fact far more onerous on the Contractor than the earlier
Riverside transaction.
There can therefore be no question of any collusive dealings between Mr
Pikwane as a related party to KCM and KCM as would appear to be alleged in
the motivation of those requisitioning this meeting.
In fact the current Board is of the view that it is unlikely that a Contract
as beneficial to Shareholders as the current Agreement could have been
negotiated with any unrelated Party.
This transaction was discussed with the Company`s then Designated Advisors,
PSG Capital who had discussions with Officials at the JSE and the Board was
advised that the conclusion of the Agreement between KCM and Pico Diamonds
was not the type of related party transaction contemplated in Section 9 of
the JSE Listing Requirements and that neither were the assumption of the
liability for the arrears nor the granting of the option and that there was
nothing therefore to impede the implementation thereof.
As Mr Visser will point out, the conclusion of the Agreement enabled KCM to
capitalize on the significant upside that has occurred in the price of rough
diamonds since August 2009 which it would not otherwise have been able to do.
At the same meeting of the Board at Kimberley on 10 August 2009 from which Mr
Pikwane recused himself, a proposal was tabled on his behalf by his Legal
Representative in his absence whereby he offered to approach all concurrent
creditors of the Company to purchase their claims against KCM for 50 cents in
the Rand in cash and to reconstitute the full amount of this debt into a Loan
Amount to KCM which could be paid off over a 10 (Ten) year period.
This proposal also entailed a right during the 10 (Ten) year period to
convert the Loan into equity in KCM at 10 cents a Share. Your Directors
resolved to accept this proposal too.
The reorganization of the claims of creditors, then approximately R6 million,
into a 10 (Ten) year credit facility was, in the view of the Board in the
interests of all Shareholders and a lifeline to the Company.
This transaction too was discussed with the Company`s then Designated
Advisors, PSG Capital who had discussions with Officials at the JSE and the
Board was advised that the conclusion of the Loan Side of the Agreement was
not the type of related party transaction contemplated in Section 9 of the
JSE Listing Requirements and could proceed without hindrance but that the
option to convert to Shares would require Shareholder approval and / or
ratification at an AGM and since this has not occurred, this Agreement was
not fully implemented and later superceded by a direct 2 (Two) year Loan
Agreement.
The extent to which the original proposal was implemented will be reported on
by Mr Visser but I am aware that Mr Pikwane has settled around R4 million in
claims against the Company.
MINIBILLBOARDS CC JOINT VENTURE
Most recently, the Board has entered into a Joint Venture Agreement with a
Close Corporation known as MinibillBoards CC, to investigate the feasibility
of the extraction of gold content in the debris, tailings and slimes on the
Rietsdrift Tenements and to apply for the necessary Prospecting and Mining
Rights to carry out such extraction. The initial investigation and costs of
the Application will be for the account of our Joint Venture Partner and KCM
will only become committed to further expenditure after MinibillBoard`s
expenditure has exceeded R5 million. It is the Board`s view that a Joint
Venture of this nature is prudent to allow us to add value to and
recapitalize your company and move forward.
THE FUTURE
Despite these exceptionally difficult times, I am pleased to report that KCM
still controls a suite of quality mineral assets and a focus on the tasks at
hand and once the current disputes between Shareholders are resolved I have
no doubt the Company will forge ahead.
I remain extremely positive about the potential for Rietsdrift and that it is
a potential Company maker.
I believe it was prudent for the Board to take the decision to work with
mining contractors as this has substantially reduced our operational cost and
hence financial risk.
I am very aware that the suspension in the trade of our Shares has placed KCM
and KCM Shareholders under a great deal of pressure and stress for a long
time.
I hope that our strategies which clearly focus on getting KCM to a position
of financial stability and regulatory compliance will result in the lifting
of the suspension, strong performance in our Share Price and significant
interest in a company which I believe has much untapped potential.
In closing, I would like to sincerely thank my Non-Executive Chairman,
Ranthoko Rakgoale, my fellow Directors Trevor Pikwane, Alex Rodionov, David
van Tonder and Riaan Visser and the Company`s Professional Advisors for their
untiring support under the most difficult circumstances.
Thank you too for your attendance and I look forward to your support for KCM
once this Meeting is concluded.
Phemelo Sehunelo
Chief Executive Officer
3 August 2010
Date: 03/08/2010 11:46:01 Supplied by www.sharenet.co.za
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