Central Rand Gold reprieve rockets share price

DMR says no formal settlement yet.

JOHANNESBURG - Much beleaguered and controversial miner, Central Rand Gold (CRG) (JSE:CRD), said it had come to an agreement with the Department of Mineral Resources (DMR) to set aside its decision to cancel the company’s mining right.

The company’s share price rocketed upwards of 200% during the day on the news.

DMR spokesperson, Zingaphi Jakuja, said that there was “no formal settlement” and that “DMR lawyers and CRG lawyers are speaking and we cannot at this stage reveal further details.”

The final decision ratifying the agreement reached between the DMR and CRG is to be made on December 22 in the High Court by way of an unopposed consent order CRG said.

CRG said it will continue to discuss its social and labour development plans with the DMR in order to agree a plan that is more appropriate for CRG's revised mining plans.

Patrick Malaza, CFO of CRG, said its revised mine plan makes provision for a much smaller scale mine and expects production to increase from 1 500oz per month to approximately 6 to 7 000oz per month by 2013. The operations are currently producing around 1 000oz per month Malaza said.

The original mining right application assumed more than 50 000oz per month.

The DMR cancelled CRG’s mining right in September citing non-compliance to its social and labour plan, mining work programme and environmental management programme. This was subsequently suspended in October pending the finalisation of review proceedings allowing it to resume mining operations.

CRG committed to expenditure of R32.9m in the first two years of its social and labour plan (SLP) but only spent R18.8m citing lower staff numbers and unavailability of suitable land. The reduction it said was due to a change in mining plan concomitant with acid mine drainage issues.

Malaza said “Our reason for not fully complying with our SLP programme was because we were forced into a corner due to unrealised mine production. Our original plan foresaw production of 4.2moz over five to six years but this has not been the case as most of our resources are under water.”

Malaza said “the water was always there but we thought that a solution could be found”.

The situation worsened substantially in November 2008 when there was a fatality at another miner’s pump station and it was shut down. The effect has been that water levels have increased from 1 000m to 500m below surface Malaza said.

Malaza said a solution is expected by August next year as the pumps purchased to remove the water would take six to seven months to install. Malaza confirmed it has taken delivery of the pumps and is busy with a tender process to appoint someone by January or February to proceed with installation.

Godfrey Makunene, a director for the Federation for a Sustainable Environment (FSE), said that the potential setting aside of the cancellation of Central Rand Gold’s (CRG) mining right is not welcomed and would be a bad decision.

Makunene said “the interest of management is to misuse investors’ money for their own benefit” and “people have lost confidence from a community point of view.”

“The company has failed to honour their commitments and they come up with all sorts of plans that are unproductive” Makunene said.

CRG’s dotted history includes reports of excessive expenditure, bearish production forecasts, and associations with renowned sushi king Kenny Kunene and Gayton McKenzie. An ongoing dispute with its BEE shareholder (Puno Gold Investments (Pty) Ltd) and local community dissent are also part of the controversy surrounding the company.

The miner said last month that there was still no resolution to its dispute with Puno Gold and it had filed court papers. The dispute relates to funding provisions in terms of a shareholder agreement.

The filing seeks to discharge an interdict that prohibits CRG from calling on an option to acquire Puno's entire shareholding. Alternatively, CRG requested permission to proceed with arbitration.

If the application is unopposed, the hearing is expected to commence tomorrow.

Malaza said “We are waiting for confirmation but think they [Puno] have responded, in which case it won’t take place now but only in January or February next year.”

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