Goliath Gold might bid for Grootvlei Goliath Gold, the new...

Goliath Gold might bid for Grootvlei

Goliath Gold, the new gold-focused development company, is a possible contender for at least one of Pamodzi Gold's mines, now that the removal of Aurora Empowerment Systems as the mines' management has thrown open the chance for new bidders to enter the fray.

Goliath Gold, which was spun out of Gold One (GDO) late last year, on Monday issued a cautionary notice, saying it had "entered into negotiations, which, if successfully concluded, may have a material effect on the price of the company's securities".

The company focuses on deeper, longer-term assets, while Gold One, which holds a 74% stake in Goliath Gold, is focused on shallower deposits.

Both companies are run by Neal Froneman, a doyen of the mining industry and an aggressive dealmaker.

Just two weeks ago, Froneman announced a major transaction with a consortium of Chinese investors that would become a strategic partner in Gold One. A series of transactions, if successfully completed, would give Gold One an enterprise value of 5.6 billion rand.

Froneman said at the time of Goliath Gold's unbundling that the company would be acquisitive and would be on the lookout for opportunities in the South African gold sector.

Until now its focus has been on exploiting the Megamine assets, which are located east of Johannesburg, comprising the operating Sub Nigel mine and the Vlakfontein, West Vlakfontein and Spaarwater prospecting areas.

It is because of this focus on assets in and around Johannesburg that Goliath is unlikely to make a play for Pamodzi's Orkney operations in the Free State. Grootvlei, on the other hand, is near Springs. In fact, Grootvlei is just one of the assets that fall under what has been bundled together as Pamodzi's East Rand operations. Besides Grootvlei Proprietary Mines, the assets include Nigel Gold Mining Company and Consolidated Modderfontein Mines.

The sticking point is, however, expected to be the price.

Aurora was named the preferred bidder for Pamodzi's Orkney and Grootvlei mines in late 2009 after Pamodzi went into liquidation.

At the time, Aurora was said to be paying 215 million rand for Orkney and 390 million rand for Grootvlei, with plans to inject at least 150 million rand into the mines.

But after the mines have been stripped, estimates put the recapitalisation of the mines at closer to 500 million.

This would affect any price offered for the assets, making it likely that new offers would be substantially below that offered by Aurora.

What is astounding is that Aurora was given so much time to come up with the capital. Under any other commercial deal it would have been booted out after a couple of months and a new buyer would have been brought in without a second thought.

By former liquidator Enver Motala's accounts, Aurora was having a hard time and they were to be given a break because they had promised to save all the jobs at the mines. By Motala's own admission, about 6,000 jobs were at stake.

In retrospect this is ironic, because under Aurora's management the mines' workers not only lost their employment, but many have been plunged into poverty.

First Aurora's initial Malaysian backer failed to put up the funds it had promised, then GEM Management, a Swiss firm, agreed to back Aurora should it list and maintain a share price above a certain level. A so-called reverse listing into Labat Africa with Aurora taking control of the firm has failed to increase Labat's share price and now it appears as if Aurora's last hope, Chinese investors, have also jumped ship.

Its latest hope was Shandong Gold Mining, a Chinese state-owned firm, but by all accounts this deal has also all but fallen through, with media reports saying that Shandong might bid directly for the mines, now that Aurora has been removed.

Aurora was last week given three days to vacate the mines' premises. This came just days after the Department of Justice announced that it had fired two of the six liquidators working on Pamodzi's liquidation.

Motala, from SBT Trust, and Gavin Gainsford, from KPMG, were removed to "safeguard the integrity of the liquidation process and the interests of the company, workers and creditors", said Department of Justice spokesman Tlali Tlali.

While celebrating the news of the liquidators' removal and the fact that Aurora's interim management contract had been cancelled, trade unions have called for the government to take a closer look at Aurora's failure.

The Congress of South African Trade Unions (Cosatu) on Monday demanded that the government look into allegations that Aurora, with the connivance of the liquidators, was asset-stripping the mines by looting and selling off equipment.

It suggested that the liquidators received kick-backs for turning a blind eye to this.

But Motala has denied any claims of bias. In a 14-page media statement, which accompanies 15 pages of "supporting documentation", Motala said that by no means were the liquidators favouring and protecting Aurora.

"There is simply no merit in these accusations," said Motala. "The simple truth is that while the Aurora deal has had its problems, care and maintenance, until very recently, was being provided by Aurora. This, coupled with the fact that for a very long time there were no other meaningful offers on the table, was the only reason that the Joint Provisional Liquidators, in consultation and on instructions from the major secured creditors, were entertained," he added.