CRG survival plan calls for cuts in staff and salaries
Share price has fallen 50% since JSE listing Tough times force lower production targets
July 26, 2009
By Wiseman Khuzwayo
MINING company Central Rand Gold (CRG), whose operations to extract gold from disused mines under Johannesburg are scheduled to begin next month, is cutting its costs by asking staff to take voluntary redundancies.
Its cash reserves have dwindled fast since it raised $150 million (R1.2 billion) when it listed in 2007. CRG has its main listing on the London Stock Exchange and its secondary on the JSE.
Its share price has tumbled by more than 50 percent since then, closing 2.04 percent lower at R2.50 on Friday.
CRG now aims to produce 20 000 ounces of gold next year from processing the surface ore, down from a previous target of 40 000 ounces. When it listed, it said it hoped to produce 100 000 ounces this year.
At the beginning of last month chief executive Johan du Toit wrote to staff, mulling over lay-offs.
In the letter, he said: "Due to the fact that CRG is in a position wherein the anticipated yield of 1 million ounces of gold has not materialised due to unexpected and extended world markets and wherein the yield and expected medium and long-term yield is only some 100 000 ounces, it appears that the company shall have to consult on means short of dismissal based on operational requirements. When this happens, your position and current terms of employment within the company may be affected."
He wrote that alternatives that had been taken into consideration and exercised by CRG had included salary cuts of between 10 percent and 20 percent by some board members and executive managers, and the cancellation of third party contracts and contractors, where the functions could be effectively run from inside the company.
Wayne Epstein, the executive director for investor relations and special projects at CRG, said 33 staff out of 150 had taken voluntary redundancies.
"At this point in time forced redundancies are not under consideration," Epstein said.
This month, CRG said cash on hand by the end of last month was $46m, compared to $69m at 2008 year-end. Its cash burn for last year was $49m.
In the announcement, CRG said it had engaged Snowden Mining Consultants to review its proposed development strategy and mining methods to extract the Main Reef.
The decline development had now reached 200 metres, with 100 metres to go before reaching the reef.
Underground trial mining would start in August.
CRG is in dispute with its empowerment partner Puno Gold. It has demanded that Puno make a contribution of R72m as part of the company's budgeted spending and issued a call option over Puno gold's 26 percent stake in CRG.
In May, the South Gauteng High Court ruled against CRG's actions until the matter had been resolved by arbitration or by court proceedings.
The relationship between CRG and the local community, as represented by the 45 members of the Affected Communities' Elected Representatives (Acer) group, has been frosty.
The organisation's chairman, Godfrey Makene, said Acer was no longer holding meetings with CRG because the company had decided to convene parallel meetings with the communities.
Epstein said he was unable to comment on Makene's remarks.
In a research report on CRG sent to clients, Percy Takunda, a mining analyst at Imara, said: "Our concern is that the dispute with Puno Gold could be protracted and could have material consequences regarding mining licences.
"It is not clear how the new partner will be funded nor the fate of the reported $5.8m loan extended to Puno. The group's ambitious 'urban' mining project is dependent on significant local community approval. We are not sure how the dispute with Puno will affect the relationship with the local communities and the group's ability to mine the area."
In another report, Takunda says: "In our view, the current market capitalisation of over R1bn is not justified given the risks we have mentioned. The group will also require considerable capital to develop full- scale mining and would in all likelihood have to come to the market to raise capital, which will be challenging given the market's perception of the share."
He said that in the absence of any concrete resolution to the black economic empowerment and other financial issues there was no reason to change Imara's recommendation: sell.
Other analysts are divided on CRG's prospects.
Canaccord Adam, a leading independent full service investment dealer, has recommended that stakeholders hold onto the CRG shares. RBC Capital said the share price would outperform, while Ambrian Partners gave a sell recommendation. Investec recommends a hold.
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