CRG's failure to clarify target gives wrong signs
Shares plunge by a third
May 27, 2009
By Justin Brown
The failure of Central Rand Gold (CRG) to bring clarity on its production targets in an annual general meeting (AGM) held last week had invoked negative sentiment from investors, analysts said yesterday.
CRG's shares plunged by about one-third after its AGM started on Friday afternoon to near a record low in late afternoon trade yesterday.
Leon Esterhuizen, an analyst at RBC Capital Markets, said the AGM had been a "bad meeting" and investors had been unhappy with what had been said.
"The key issue to come out of the AGM was a lack of clarity," added Esterhuizen. "The previous target of achieving an annualised production rate of 100 000 ounces a year by the end of this year is going to be missed, and no further updates have been provided regarding the expansion to 250 000 ounces of gold a year."
Peter Digby, a portfolio manager at Oryx Investment Management, said the AGM had been "disappointing". The departure of Michael Sullivan, the chief operating officer of CRG, had also hurt investor sentiment toward CRG shares. Oryx has a 4 percent stake in CRG.
Sullivan's departure was announced on Thursday.
Wayne Epstein, the spokesman for CRG, was not able to comment.
CRG is planning to mine up to 1 million ounces of gold a year in Johannesburg mining areas abandoned 30 years ago.
At the AGM, the company said it planned to mine gold at an annualised rate of 100 000 ounces by early next year, instead of the end of this year as initially announced.
In November 2007 CRG had hoped to achieve steady production of 500 000 ounces next year.
It said in its listing prospectus: "Underground mining operations are currently estimated to potentially reach a steady state of 1 million ounces during 2012.
"The development programme is designed to reach steady state production at an industry competitive cash cost of $320 (R2 650 at yesterday's exchange rate) an ounce."
The company had planned to complete a feasibility study by the first quarter of last year, but almost 18 months later, the study has not been completed.
It added that to increase the rate of gold output above 100 000 ounces a year would require extra funding at a time when raising finance was difficult.
"The lack of clarity causes a lot of uncertainty, particularly as it relates to the current cash balance and the need to raise funding," Esterhuizen said.
The company said it had sustained a loss of $39.7 million last year and had spent $49.1m during the year. At the end of last month, CRG had cash on hand of $51m.
"Cash management is a key priority for the company," CRG said.
Esterhuizen said missing production targets was normally not significant, but it became a problem when the schedule for future targets was withheld as the company had done.
By yesterday's close, CRG's shares had fallen 19 percent to R3.25, valuing the company at R802m. This was close to the stock's record low of R3 reached in November.
Meanwhile, CRG is in dispute with its empowerment partner, Puno Gold, sparked by CRG's demand that Puno make a R72m contribution to CRG South Africa for the costs of developing its projects.
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