[miningmx.com] — CENTRAL Rand Gold, the last underground miner left
standing in the historic central basin of the Witwatersrand, may well become a
modern-day Lazarus after being left for dead by the markets barely nine months
ago.
When the group had its mining licence revoked in October 2011, it seemed like the
final nail in the coffin for the company whose main resource was also getting flooded
by rising acid mine drainage. On top of that, CRG had some operational false starts
as its initially preferred mining method proved to be a costly disaster.
For some perspective, CRG produced 14,856 oz of gold during the whole of 2011.
This is the same company that raised £100m prior to its listing on the LSE and JSE
in November 2007, and promised that by mining the secondary reef of
Johannesburg’s historic gold mines, it would become a one million ounce producer by
2012.
Around the time of its listing on the LSE its shares were trading at £1.40; in
September last year those shares were available at less than a fifth of a pence.
Yet, when most thought it was time to lower the curtain, CRG had the courage to
take on the Department of Mineral Resources over the mining right in court, and
won.
At the same time, it struck a deal with government’s agency responsible for
managing acid mine drainage, the Trans-Caledon Tunnel Authority (TCTA), to help
subsidise pumping costs, even though the majority of its former resource base will
remain under water. Dumping its preferred long-haul mine stoping methods in
favour of the “traditional’ South African hand-held method has also yielded
dividends, allowing the company stabilise its output with a reasonable amount of
predictability.
Yet, while these small wins have allowed CRG to at least tread water in the
meantime – the company is cash-flow positive for the first time since its listing – it
still has to work out a viable long-term strategy and gain some hard-to-earn
credibility.
Its shares are trading at around 0.7 pence, an indication of how far it has to go
before winning back anything resembling faith and trust from the market.
The results of an independent assessment released in June show multiple scenarios
for future growth, based on the level of investment and output targets: carrying on
with internally generated funds would give CRG’s current operating asset, CMR
West, a net present value (NPV) of $43m, while a future fundraising could lift this
figure to $117m.
According to CEO Johan du Toit, CRG is still weighing up its options. “This year we
really just want to get into steady state production,’ he says. “We’ve never been in
this space, and will be our main priority after a disastrous 2011. We’re in an
interesting scenario. We can be self-sustaining and not need to raise money, but
then you’ll be looking at a very small mine,’ Du Toit added.
“The challenge for us is how we exploit this base optimally. Depending on that, I
suppose we’ll need some level of financing . whether that is in debt or equity
markets.’
One brokerage that is showing plenty of appetite for CRG is London’s Charles
Stanley Securities, pointing to the large gap between the most conservative
estimate of the company’s NPV and the current market cap of £10.8m.
“We have concluded that Central Rand Gold offers investors an attractive
opportunity to gain exposure to the gold market via a company set to radically
increase production by capitalising on a significant resource base,’ it said in a
research report dated 14 June.
“We believe that the company should be priced at a price/NPV ratio of 1.0x,
generating a price target of 2.34p.’
– This article first appeared in Finweek. If you want to subscribe to the digital
format of Finweek visit www.zinio.com.
