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CRD - Central Rand Gold Limited - Response to cancellation of mining right
Central Rand Gold Limited
(Incorporated as a company with limited liability under the laws of Guernsey,
Company Number 45108)
(Incorporated as an external company with limited liability under the laws of
South Africa,
Registration number 2007/0192231/10)
ISIN: GG00B24HM601
LSE share code: CRND JSE share code: CRD
("Central Rand Gold" or the "Company")
RESPONSE TO CANCELLATION OF MINING RIGHT
Central Rand Gold Limited is disappointed by the South African Department of
Mineral Resources` ("DMR`s") decision to cancel the Company`s mining right,
notification of which was received by the Company on Monday, 26 September,
through its receipt of a Section 47 notice.
As a result of this ruling by the DMR, Central Rand Gold will be approaching the
Pretoria High Court, on an urgent basis for interdictory relief to enable the
Company to continue its operations pending the outcome of review proceedings to
set aside the Minister`s decision to cancel the mining right. Further updates
regarding this process will be made as appropriate.
The Company believes that it has done all that it can to satisfy the
Department`s requirements with the financial resources at its disposal and
considering the considerable mining obstacles and operational challenges it has
faced, several of which have been beyond its control.
CRG committed under the terms of its mining right to spend an amount of R32.9m
on various Social Labour Projects ("SLP") in its first two years, however the
actual spend was R18.8m. The original mining right application was based on the
premise of having access to the Main Reef resource base of 3,250,000oz, whilst
in reality; only 431,000oz is now available due to the Acid Mine Drainage
("AMD") situation in the Central Basin.
The shortfall of R14 million is due to lower human resource development from the
lower staff numbers required by the Company due to the revisions to its mining
plans and the delay in implementing Local Economic Development (LED) programs,
mainly as a result of the unavailability of suitable land. In recognition of the
shortfall, CRG requested meetings with the Department of Mineral Resources
("DMR") on various occasions since December 2010 to discuss this matter.
Unfortunately, our requests did not lead to any meetings being held. CRG also
made recommendations in June 2011 to revise the original SLP commitments base in
line with the limited availability of the resource base at CRG`s disposal.
Whilst this shortfall is disappointing, it is worth noting that the Company has
acquired the submersible pumps that would be required to stop the rising water
table in the Central Basin. These pumps cost the Company R35 million and there
are currently no other pumps available that can stop the rising water table.
CRG`s mining right area only comprises a small portion of the entire Central
Basin whilst these pumps will have the capability to maintain and dewater the
entire Central Basin. Due to the potential benefit that these pumps bring to the
entire Central Basin and its economy, the Company believes that this investment
should be classified as part of the Company`s social and labour commitment,
which would more than account for the shortfall.
The Company is currently engaged in a process of trialling the suitability of
conventional mining within the new smaller mining area. MineQuest (Mining
Consulting Engineers) has completed the first desktop scoping study and it
indicates that to achieve a production level of 35,000oz per annum, a mining
staff complement of 485 would be required. Thus, if this trial mining exercise
is completed successfully, the Company believes that two similar size mining
operations could still be created within its current mining right area. In
addition, there is scope for this project to create significant jobs and
economic value from this mining area in the future. The trial mining and review
process is expected to be completed by the end of October 2011, where after the
Company will be able to advise the DMR on its new operational plan. Halting this
trial process now would destroy the potential for the development of a long term
sustainable solution.
After receiving a notice from the Department in early August indicating that it
was reviewing its mining right, the Company made a presentation to the
Department on 24 August, accompanied by complementary documentation.
In addition, the Company sent a letter to the Minister, Honourable Susan
Shabangu on 9 September, explaining the Company`s position and why it felt it
deserves to retain its mining right.
Having received a Section 47 notice, the Company believes it is appropriate and
necessary for it to publish its letter to the Minister. The letter to the
Minister follows:
09 September 2011
ATTENTION: Honourable Minister Susan Shabangu
Department of Mineral Resources
108 Pretorius Street
Second Floor
1066 Building
PRETORIA
cc: Ms M Malebe : The Regional Manager Department of Mineral Resources
The Honourable Minister,
CENTRAL RAND GOLD
I refer you to the Sunday Times article, "Sushi kings risk sinking cash cow",
04 September, 2011, which also included comments from your office.
Central Rand Gold (CRG) has received, via the DMR`s Braamfontein offices, a
Section 47 notice dated 5 August, 2011 (copy attached for ease of reference),
of your intention to suspend or cancel its Mining Rights on non-compliance
grounds.
This notice unfortunately contains no details of the areas of the Company`s
non-compliance, though the broad headlines are listed in paragraph 5 as:
a Failure to fully implement the approved Social and Labour Plan
b Failure to comply with the approved Mining Work Programme, and
c Failure to comply with the approved Environmental Management Programme
CRG has provided, on August 24, 2011, a detailed response to this notice,
based upon a comprehensive self-assessment. In this assessment the Company
acknowledges that the ambitious plans on which it was founded, and which formed
the basis of the Mining Right Application, have not materialised as anticipated.
The major reasons fall into three categories; beyond our control, beyond our
reasonable expectation, and disappointing mining realities.
1 BEYOND OUR CONTROL
a Shortly after our listing on the London and Johannesburg Stock Exchanges
the 2008 Global Financial Crisis prevented further financing, either as
equity or debt, effectively limiting the growth of the Company to a 100 000
ounces of gold per annum (considerably smaller than envisaged in the Mining
Right Application)
b The failure of the affected and interested parties (including Government)
to agree terms to keep the pumping system at the SWV shaft of the East Rand
Proprietary Mines operating resulted, in 2009, in the summary closure of
that shaft and the flooding of the pump chamber. The loss of this facility,
which was keeping the underground water table at 900 metres below surface,
is the sole reason for the current Acid Mine Drainage crisis in respect of
the Central Rand Basin.
c The Acid Mine Drainage uncertainties proved unacceptable to investors and
were a major factor in a rights issue in 2010, just to fund the Company to
break-even, writing down the share price tenfold to just 2 pence a share.
d Pending resolution of the Acid Mine Drainage issue, which is coming, but at
the cost of huge (hopefully temporary) loss of ore reserves to the Company,
we have been compelled to wind down mining activities until the new pumping
scheme being masterminded by the Department of Water Affairs is
commissioned
2 BEYOND OUR REASONABLE EXPECTATION
a On completion of a trial-mining programme in early 2010 the Company
believed it had demonstrated that it was possible and economically
practical to access stopes with on-reef horizontal development. The
Life-of-Mine Plan, as verified by independent Competent Persons, was
based on this expectation. Regrettably it transpired that the area of
the trial-mining project was not typical, and that it commonly was not
possible to hold the hanging wall up on reef drives. The methodology has
had to be adapted towards one of footwall-drive development, necessarily
slower and more expensive.
b Regrettably, as underground ore-reserve development has expanded, the
Company is regularly coming across areas where Main Reef existence is
expected, based on historical plans, but where it has clearly been
co-extracted with the Main Reef Leader. The conditions which determined
when these two reefs were probably mined together have proved amenable
to technical analysis and have proven predictable. The outcome is good
levels of certainty as to where these "double-voids" might exist, which
aids mine planning, but an acceptance of reduced ore-reserves and higher
development costs.
3 DISAPPOINTING MINING REALITIES
a The original Mine Plan (which underpinned the 2007 London listing, and
which formed the basis of the Mining Right Application) was "Mechanised
cut-and-fill". The anticipated efficiencies from this simple and efficient
system were the basis for the expectation that the first mine at CMR East
could produce at an annualized rate of 100 000 ounces per annum.
Regrettably, detailed analysis based upon conditions as actually pertained
underground proved that there would be too much waste dilution, and support
costs would be too high, for this to be practical.
b The methodology proven and confirmed in the formal trial-mining programme
was long-hole stoping between on-reef drives. The logistical constraints of
this methodology dictated that CMR West could only be operated at an
annualized rate of 45 000 ounces per annum.
c Not only did the on-reef drives prove problematical (see paragraph 3 (a)
above), but, for similar reasons, the reef blasted out with the long-hole
stoping has brought with it unexpected and uneconomic amounts of hanging
wall waste dilution.
d The Company has concluded that the difficulties associated with the
mechanized mining techniques seem economically insurmountable and that
traditional South African hand-held jackhammer mining should be tested.
This is currently in hand with, thus far, encouraging results.
THE CURRENT POSITION
1 The sequence of events laid out above demonstrates how and why CRG is at
this stage a radically different (and unfortunately radically smaller)
company than envisioned when it first applied for a Mining Right.
The Company still has the potential to reach and even surpass the ambitions
as originally laid out, but this requires the removal of two external
obstacles, thus;
a The "overhang" of the as yet unresolved Acid Mine Drainage issues, such
that CRG`s access to its full ore-reserve basis is clearly visible. Without
this, we have nothing.
b When, and if, the Acid Mine Drainage issues are resolved, from a basis of
"conventional" South African mining methods the Company will be in a
position to develop a new Mining Plan and credibly present prospects of a
sound commercial future to investors.
2 As and when the Company emerges from its current stressed status, and
embarks on a growth trajectory towards the original targets, it will then
be in a position to meet (proportionally) the few targets in terms of the
SLP, and the EMP where it currently just cannot fully comply with
commitments made in the context of a full-scale operation
3 In the meantime, in pursuit of closure between the vaulting ambitions of
2008 and the realities of 2011 the Company has, without response, written
to your department on19 May 2011 and 22 June 2011 with a view to
recognizing the realities on the ground and renegotiating the detail,
timing and phasing of the SLP and the EMP. Absent response to this logical
and up-front suggestion we suggest that it is not reasonable to simply
issue a Section 47 Notice.
CRG RESPONSE TO THE SECTION 47 NOTICE
Notwithstanding the fact that CRG believes the Section 47 Notice is premature,
the Company has responded in detail. This detail has been taken from the full
report and a PowerPoint presentation made to the Acting Regional Manager on
date 24 August 2011.
The recurring theme of the detailed report and presentation is the quite
remarkable extent to which CRG, despite its reduced and straightened
circumstances, has complied with its obligations.
In many cases CRG is fully compliant and in almost every other case the Company
has indicated the extent of its partial compliance with a summary note to the
effect "We therefore submit that we are partially compliant, as fully compliant
as we reasonably can be, and as compliant as the Department can reasonably
expect"
Appendix A to this letter provides a high level summary of our submission
and focuses on three key aspects:
1 Rising water table
2 Mining commitments
3 Why CRG should keep its mining right'
The Company is justifiably proud of its achievements to date. These have
included overcoming a large number of obstacles, investing a significant amount
of capital in understanding and developing this resource base, and creating
jobs and investing in various community projects. However disappointed any of
the stakeholders may be, whether, they be investors, employees, communities or
the DMR, it is not valid to presume that some new entrant to these mineral
resources would have some simpler or better prospects than this Company, with
its detailed understanding of the geology and the mining practicalities can
offer.
The bottom line is that CRG remains committed to making the most of its highly
prized mining right and continues to explore options - such as conventional
mining - to produce gold for the benefit of the country and a wide range of
other stakeholders. CRG values its mining right and, if given the opportunity,
will remain focused on overcoming obstacles - several of which have been
unavoidable - to unlock more of its undoubted potential.
Yours sincerely,
Michael McMahon Johan du Toit
Chairman CEO
Central Rand Gold Central Rand Gold
APPENDIX A: SUMMARY OF RESPONSE TO SECTION 47 NOTICE
1 Rising water table
The impact of the rising water table on the Company is severe and it is
estimated that 90% of the mining right resource base will be underwater if
the water table is arrested at the current planned Environmentally Critical
Level ("ECL") of 186 metres below surface. To re-access this resource base, a
long and expensive process of de-watering the basin will need to be
implemented. Current estimates are that it could take up to 26 months at a
cost of R130 million to reduce the water table from ECL to 400mbs. If the
Central Basin is not de-watered, this will result in an economic loss in this
national Main reef resource base of 2.8 million ounces (this excludes the
significant resource base outside CRG`s mining right area). As CRG is the
only active mining company in the Central Basin, the onus will be on it to
carry this additional financial burden.
All stakeholders, which include Government and industry, have been made fully
aware that flooding the Central Basin could potentially sterilise a significant
economic resource base. In my letter dated 8 July, 2011, I provided your
office with a detail overview of all the interventions, proposals and meetings
that CRG was involved in since 2009 to try and protect the Central Basin
resource base.
The Company also took the bold move to acquire the submersible pumps that
would be required to not only stop the rising water table in the Central
Basin, but also have the capability of de-watering it, thereby re-exposing the
resource base. These pumps cost the Company R35 million and there are currently
no other pumps available that can stop the rising water table. It is worthwhile
to note that CRG`s mining right area only comprises a small portion of the
entire Central Basin. However, these pumps will have the capability to maintain
and dewater the entire Central Basin. It is difficult to comprehend the
significant environmental and financial impact that would occur if this rising
water table was left to decant on to the surface. It is as a result of this
potential impact and the benefit that these pumps bring to the entire Central
Basin economy, that the Company believes that this investment should be
classified as part of the Company`s social and labour commitment.
CRG believes that its actions prove that it did everything possible to try
and protect this valuable resource base. Ultimately, the decision about when
and how a water solution is implemented in the area, resides with the South
African Government.
The reality of the delay in resolving this ongoing uncertainty is that CRG
needs to rebuild its business case, based on a short term accessible Main reef
resource base of 431,000oz.
Whether CRG maintains its mining right or not - this challenge will remain and
will affect any future entities attempting to mine in the area.
2 Mining right commitments
CRG committed in its mining right to spend an amount of R32.9m on various
Social Labour Projects ("SLP") (excluding redundancy) in its first two years.
However, actual spend was R18.8m (excluding the R35 million cost of the pumps
to dewater the Central Basin). The shortfall between R32.9 million and R18.8
million - an amount of R14 million - is due to lower human resource development
from much lower actual staff numbers in the Company and the delay in
implementing Local Economic Development (LED) programs, mainly as a result
of the unavailability of suitable land.
In recognition of this shortfall, CRG requested meetings with the Department
of Mineral Resources ("DMR") on various occasions since December 2010 to
discuss this matter.
Unfortunately, our requests did not lead to any meetings being held. CRG also
made recommendations in June 2011 to revise the original SLP commitments base in
line with the limited availability of the resource base at CRG`s disposal.
The motivation for this request was that the commitments made in the mining
right application were based on the premise of having access to the Main Reef
resource base of 3,250,000oz, whilst in reality; only 431,000oz is now
available.
Unfortunately, to date, no response has been received from the DMR.
Due to the uncertainty and delay in determining the final water solution, as
well as some challenges with regards to its mining methodology, CRG has delayed
the submission of its amended Mine Works Program ("MWP"). It did, however, in
March 2010, submit a comprehensive report to the DMR on its new proposed mining
methodology, changes in its production profile and staff numbers and how these
compared with the original MWP.
The DMR has never commented on or rejected this plan, which CRG has been
endeavouring to implement. CRG has also indicated to the DMR that it intends to
submit an amended MWP.
3 Why should CRG keep its mining right'
In CRG`s submission to the DMR on 24 August, 2011, it provided a detailed
response to the above question by answering the following questions:
Question 1 What is the intent of the Company towards its
obligations'
Question 2 Has the local community benefitted'
Question 3 Has South Africa benefitted from CRG having this
Mining Right'
Question 4 What is the future of this Company'
Question 5 Should we not give this right to another company
to better serve the objects of the Act'
CRG believes that it has been able to appropriately respond to all the above
questions and would like to highlight the following key points:
* At the end of December 2010, it employed 507 direct and indirect employees.
* 87% of CRG`s employees were classified as Historically Disadvantaged South
Africans ("HDSA") ; participation throughout the organisation i.e. HDSA
representation : 67% at Board level, 57% at Senior management level, 61% at
Middle Management level and 90% at Junior management level. This
representation sets a new benchmark for the mining industry.
* 38% of all its procurement has been awarded to +25% black-owned companies.
CRG has exceeded the targets set by the Mining Score Card ("MSC") i.e.
Capital Goods 10.6% vs. MSC 5%; Services 53.2% vs. MSC 30% and Consumer
Goods 28.8% vs. MSC 10%.
* CRG has directly benefitted between 4,000 and 5,000 people in the community
through employment, educational programs and through preferential
procurement (R200 million of goods and services has been procured from
communities to date).
* CRG meets its requirements with regards to 26% BEE ownership. The Company
acknowledges that its relationship with its BEE partners, PUNO Gold
Investment (Pty) Ltd ("PUNO"), is strained, mainly as a result of a dispute
with regards to the interpretation of the shareholders` agreement. CRG has
made various attempts to take this matter to arbitration, but has been
frustrated by PUNO`s reluctance. To move this matter forward, CRG will
shortly be lodging papers with the Gauteng High Court to force both parties
to commence a process of arbitration. It is also incorrect to assume that
PUNO have not benefitted from CRG. Its two main shareholders African
Development Group and Ditholwana each received for no consideration 2 000
000 CRG Limited shares (which are freely tradable on the LSE or JSE). These
shares were worth around R68m at the date of the Company`s Listing in 2007.
* CRG believes that any new mining company attempting to mine in the Central
Basin area will face the same challenges as CRG, and their production will
also be limited to the resource base above the water level. The only
significant difference is that a new company would have no access to the
pumps recently acquired by CRG and would therefore have to acquire their
own pumps if they wished to access the resource base below ECL.
* The Company is currently engaged in a process of trialling the suitability
of conventional mining within the new smaller mining area. MineQuest
(Mining Consulting Engineers) has completed the first desktop scoping study
and it indicates that at a production level of 35,000oz per annum, a mining
staff complement of 485 would be required. Thus, if this trial mining
exercise is completed successfully, the Company believes that two similar
size mining operations could still be created within its current mining
right area.
* There is scope for this project in the future to create significant jobs
and economic value in this mining area. The trial mining and review process
is expected to be completed by the end of October 2011, where after the
Company will be able to advise the DMR on its new operational plan. Halting
this trial process now would destroy the potential for the development of a
long term sustainable solution. )
For further information, please contact:
Central Rand Gold +27 (0) 11 674 2304
Johan du Toit / Patrick Malaza
Evolution Securities Limited +44 (0) 20 7071 4300
Chris Sim / Neil Elliot
Merchantec Capital +27 (0) 11 325 6363
Roger Pitt / Monique Martinez
Buchanan +44 (0) 20 7466 5000
Bobby Morse / James Strong
Jenni Newman Public Relations (Proprietary) Limited +27 (0) 11 506 7351
Jenni Newman
28 September 2011
Johannesburg
JSE Sponsor
Merchantec Capital
Date: 28/09/2011 08:00:07 Supplied by www.sharenet.co.za
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