Orkney gold mines, previously managed by Aurora Empowerment Systems (Aurora), will again be functioning by October this year, according to the new owner’s managing director, who says the company has already secured up to R400m to return the assets to an operational state.
China African Precious Metals (CAPM) confirmed earlier this week it has paid the R150m purchasing price for Orkney into an escrow account in favour of Pamodzi Gold’s liquidators. The transaction would be made final once the Department of Mineral Resources approved the transfer of the mineral rights.
CAPM’s managing director, Elias Khumalo, told Moneyweb on Thursday the company would “almost immediately” be able to mine Orkney’s shafts 6 and 7, followed by shafts 2 and 4 at a later stage.
“It will take us six to seven months to go underground and mine,” Khumalo said. “We have the skills and capital we need.”
Asked about the state of the mine’s infrastructure after the highly controversial tenure of Aurora, Khumalo said the company would have to spend between R300m and R400m to get the asset operational again. The purchase price was provided by a debt facility, Khumalo said, while the operational capital would be forwarded by CAPM’s 76% shareholder, the Shanghai Pengxin group.
CAPM’s acquisition of Orkney is widely hoped to bring an end to the fallout from the liquidation of Pamodzi Gold, which acquired the mine from Harmony Gold in 2007.
The company was placed in provisional liquidation in April 2009. Aurora, with the politically-connected Khulubuse Zuma and Zondwa Mandela among its directors, was adjudicated the preferred bidder for Orkney in August that year for a purchase price of R215m. It soon thereafter also bid R390m for Pamodzi Grootvlei assets in the East Rand.
After a failure to pay the purchase amounts, reports of a widespread looting of the assets as well as the non-payment of workers’ salaries and supplier services, Aurora was ordered in May 2011 to vacate the properties. The head liquidator, Enver Motala, also faced accusations of improper conduct in putting the deal together.
CAPM was then indicated in August 2011 as the new preferred buyer of Orkney, while Gold One International bought the Grootvlei property early last year.
CAPM major shareholder Shanghai Pengxin describes itself on its website as “a growing conglomerate with a diversified business scope covering real estate development, modern agribusiness, mining industry and infrastructure construction investment”.
The website was last updated in 2011.
It claims to have more than 40 subsidiaries worldwide, with total assets of over $2bn.
“Mining is an emerging sector for Pengxin Group,” the website read.
Khumalo said he was not yet in a position to disclose the ore reserves and mineral resources of the asset. Louis Venter, an analyst at Anglorand Securities, said there remained large quantities of unmined resources in the area, but he questioned to what extent it would be economical to mine.
According to Harmony’s annual report for 2006, the last financial year when the asset was under its control, Orkney had a total mineral resource of about 25 million ounces, of which only 1.3 million ounces were deemed economical to mine.
This calculation was done at a gold price of R105 000 per kg. The price of gold has since gone up by more than 400%, but so has the cost of mining on the back of higher electricity and labour costs.
Khumalo said erstwhile workers of Pamodzi and Aurora were still living in the mines’ hostels. These workers would be given first preference once CAPM starts recruiting.