[miningmx.com] — EMBATTLED junior miner Central Rand Gold (CRG) appears on the brink of losing its operations on the West Rand as the SA government continues to stall over the acid mine drainage (AMD) issue.
CRG announced on Thursday it was delaying capital expenditure and conserving its remaining cash, after the government failed to deliver a decision by early January over a joint solution to the AMD problem.
CEO Johan du Toit said in a statement released to Sens that “absent clear commitment to this joint project by the end of the first quarter of 2011, CRG faces the very real prospect of inaccessibility to its reserves below 250m below surface by the end of the year.’
That would be the final nail in CRG’s coffin. The company has failed miserably to deliver on its hugely ambitious plans to restart operations on some of the old mines of the Central Witwatersrand.
The share price had collapsed from an all-time high of R20 in 2007 to around 35c ahead of Thursday’s announcement, which immediately knocked it down another 31% to 24c on the JSE. In London the shares plunged 47% on the news.
As Roger Bade, analyst for UK institution Libertas said: “The Central Rand Gold update of woe may be the last straw for many.’
Government and the mining industry have been talking for the past 15 years over what to do about water levels in the old mine workings under the Witwatersrand, which have been rising steadily after nearly all the gold mines shut down.
The key stumbling block has been over who should pay. The government for many years maintained that the mining companies were solely responsible.
The few remaining gold mines retorted they could not afford it and refused to pay for the liabilities incurred by the other mines that had since closed down.
Du Toit commented that CRG “cannot shoulder the burden of the legacy from 120 years of mining along the central area of the Witwatersrand and complete or operate this project on its own.’
The total cost of the infrastructure required to pump 74 megalitres of AMD to surface daily and partially treat it through the existing high density sludge plant at ERPM is estimated at about $26m.
Du Toit said CRG’s share of that was to be $4m. He said the government had consistently provided assurances of its commitment to a joint solution over the past year, and was supposed to reach a formal decision by early January.
He added that to protect CRG’s resources above the 250m level, the project had to start construction by end-March.
Du Toit said: “As there is no alternate proposal within the timeframe available to resolve this problem, CRG unilaterally ordered the longest lead time item – the submersible pumps – in August last year at a cost of $4m.’
CRG had cash totalling $14.6m on hand at end-December. CRG raised $35m in June last year through a placing and rights offer at around 22c per share.
Du Toit warned shareholders that “the uncertainty surrounding government participation affects the viability of the company.
“Shareholders should be in no doubt that if a clear and positive way forward is not identified by the end of March 2011, the prospects of the company will need to be re-evaluated.’
