HomeGoldEXCLUSIVE: Why the Lily mine deal with SSC went sour

EXCLUSIVE: Why the Lily mine deal with SSC went sour

The original change of ownership for Lily mine from Vantage Goldfields (SA) to Siyakhula Sonke Corporation (SSC) subsidiary, Flaming Silver, was an exciting announcement with prospects high to quickly reopen the mine. But the company’s inability to raise the necessary finance and failure to disclose this saw shareholders question the deal and explore alternative options, says CEO Mike McChesney.

McChesney says his only motivation in finding a new owner for Lily mine has always been driven by the need to reopen the mine and bring employment back to the area.

“We were first approached by business rescue practitioners in October 2017 who informed us he had a buyer for Vantage Goldfields. The offer presented an opportunity to secure the R300 million needed to pay creditors and re-open the mines.”

While the purchase price for the shares was only R10 million it was a fraction of the R1 billion invested by shareholders. Nonetheless, the deal was agreed on the strict condition that the mines were re-opened.

A deal for R310 million was signed on 1 November 2017 – to be concluded in 90 days on 31 January 2018.

The finance struggle started

The 90-day deadline was impossible to meet so the parties agreed to another 60 days to 31 March 2018.

Flaming Silver Trading/SSC finally secured a loan of R190 million from the IDC on 27 March 2018, which would be advanced to Vantage Goldfields on condition that FST contributed R60 million in equity.

The total funds available were still short at R250 million but Vantage agreed to continue with the deal recognising the difficulty in raising funds in South Africa.

But when it became evident that FST/SSC were unlikely to raise their funds the parties signed a second addendum to the agreement on 3 May 2018. This agreement sought the involvement of the current management to assist with the fund raising. “I personally spent months trying to find buyers.”

“It didn’t take long to establish that buyers were interested in buying Vantage (many saw the potential in the mines) but did not want to invest in the FST/SSC proposal.”

At the next deadline on 31 July 2018, FST/SSC had still not secured their required funding, yet their narrative indicates that the funds were secured. Why then were the mines not open?

TRACK HERE: The changing developments at Lily mine

A third addendum was signed on 3 August with a deadline of 31 October 2018 and, despite no evidence of funding, the Section 11 application for change of control was submitted by the two parties. Importantly, the Section 11 consent was only granted “subject to the terms and conditions of the Sale of Shares Agreement”.

A year later on 31 October 2018 FST/SSC had still not raised the required funding to release the loan funds from the IDC and questions again started to emerge.

The parties signed the 4th addendum on 31 October 2018 in the hope that the deal would be concluded before year end.

In the latter part of 2018 McChesney came under pressure from creditors to review the FST/SSC transaction and stop granting extensions while, obviously, the capacity to secure funds was absent.

“The Section 11 consent was granted by the minister on 21 December 2018 and so, again, we believed that this would encourage investors to join FST/SSC. Sadly, this did not eventuate.”

Changing direction

The joint BRPs issued a statement in December 2018 that a transparent bidding process would commence in January 2019 and a number of offers were received.

Obviously, another offer could not be accepted while the FST/SSC agreement was still in place.

Once it became clear that alternative funding arrangements could be made to reopen the mines Vantage Goldfields SA took the decision to cancel the agreement with FST/SSC.

FST/SSC brought an application to the High Court to compel transfer of the shares into their name despite no proof of funds. This application was dismissed with costs on 17 July 2019 on the basis that the agreement lapsed on 31 October 2018 owing to non-compliance.

Their appeal was also dismissed with costs on 8 August 2019.

While a conditional agreement had been signed in March 2019 with Real Win Investments they were somewhat hamstrung by the pending litigation. However, they completed their preliminary due diligence exercise and secured their funding arrangements in this period.

With the litigation settled on 17 July 2019, Real Win announced their agreement to purchase Vantage Goldfields and reopen the mines. “This has been welcomed by all parties because, after 21 months of uncertainty, they could now see light at the end of the tunnel.”

“Real Win is a new SPV (essentially a consortium) of like-minded mining entrepreneurs with good track records and loads of experience. They are apolitical business people who operate below the radar but are very successful.”

LEARN MORE: About Lily’s new owners

“I didn’t choose them because of their name but I’m hopeful it will be a ‘real win’ for Barberton and its local communities. Most importantly I want it to be a real win for the mines so that they can be restored to full operating status.”

Real Win has asked McChesney stay on and help re-assemble the new management team. “I have agreed to do so to get mines up and running again during which time there will be a smooth hand over to the Real Win team.”