The fate of the Lily and Barbrook gold mines in Mpumalanga hang in the balance as Siyakhula Sonke Empowerment Corporation (SSC Group) and its subsidiary Flaming Silver, have turned to the Mpumalanga High Court to resolve a dispute with Vantage Goldfields South Africa regarding a sale of shares agreement for the two mines.
Flaming Silver entered into a sale of shares agreement on 1 November 2017 with Vantage for the sale of the mines on condition that it provides R310 million to discharge the requirements of the approved and/or amended business rescue plans to enable the business rescue practitioner (BRP) to resume normal production on the mines.
Since entering the sale of shares agreement, the agreement has undergone four amendments with four extensions to its completion date from 31 January 2018 till December 2018 – the date upon receipt of the Section 11 sale and transfer approval of the mines.
At a media briefing on 16 April 2019, SSC claimed that Vantage had been stalling the transaction by not performing in terms of its obligations to close the transaction; while Vantage insists that SSC had not complied with the funding arrangements.
According to SSC Group CEO Fred Arendse, Vantage failed to mention that in August 2018, it signed off on the SSC Group’s funding ability when it applied for the consent from the Minister in terms of Section 11 of the Mineral Resources and Petroleum Development Act. “Had the SSC Group not complied with the funding requirements, Vantage could have either refused to compile and submit the Section 11 application, as they were the applicant to the Department of Mineral Resources,” Arendse explained, adding that Vantage could have cancelled the sale of shares agreement at that stage.
“Contrary to recent media reports that the SSC Group had failed to meet the funding requirements, SSC has on several occasions presented proof of funding to Vantage and the BRPs Rob Devereux and Daniel Terblanche,” says Arendse.
According to Arendse, the facts lie in the events leading up to the signing of the second addendum, in which Flaming Silver agreed to give free shares to Vantage directors in the form of Strategic Alliance Partners - a special purpose vehicle - in return for an agreement that the funding and purchase price conditions were deemed to have been fulfilled in their entirety.
“This agreement was signed on 3 May 2018 and followed a dispute as to whether the R310 million funding required had been met or not. Therefore, the funding quantum of R310 million no longer bears any relevance and was substantially reduced to R190 – R200 million, which on 27 July 2018, was confirmed by the BRP to be sufficient to re-open the mines and for creditors to be paid out of subsequent proceeds,” Arendse explains.
According to SSC, Vantage CEO Mike McChesney and his board have overlooked, and have failed to disclose to the public/media, that the 12% “free carry” shareholding given to them by Flaming Silver was a quid pro quo for the concession that the funding requirement and “payment of the purchase price conditions” had been deemed to have been complied with.
Proof of a further conditional shareholder contribution amounting to R60 million was submitted to Vantage and the BRP, on 13 March 2019. This is in addition to the R32 million operating agreement SSC Group have signed with a reputable and listed processing operator for the Barbrook tailing storage facility (TSF).
“It should also be noted that this TSF project, which in our opinion has significant potential, had previously been hidden from the SSC Group and if the TSF project been implemented by the BRP and Vantage three years ago, the mines could have been saved a long time ago,” Arendse states.
Funding in the amount of R190 million has also been secured from the Industrial Development Corporation (IDC) and the loan agreements were signed on 29 March 2018.
The requirement for a R50 million equity contribution resulted from the submission of a flawed business rescue plan which did not take into consideration all of the companies’ mineral resources, such as the TSF, which has a total revenue potential of R602 million and, translating into free cash of R204 million over a period of three and a half years.
“This information came to light after the IDC agreement,” says Arendse.
Arendse further commented, “SSC has to date contributed over R29.3 million to the transaction and the post commencement funding of the companies”.
In the SSC Group’s opinion, the core of the current delay is that the 12% “free carry” shareholding to be given to the management of Vantage which was agreed upon on 3 May 2018, as Vantage wanted the “free carry” shareholding to be increased to 26% by a forced dilution of the current Lomshiyo empowerment structure (employee and community shareholding structure) – a demand that SSC is currently resisting.
Current legal proceedings
Flaming Silver placed Vantage on terms by sending it a letter on 8 February 2019 demanding that it perform its obligations to close the transaction. A further letter was sent by Flaming Silver’s attorneys on 14 February 2019.
A letter from the attorneys of the BRPs was also received by Vantage on 12 February 2019 placing Vantage on terms to close the transaction and confirming that SSC/Flaming Silver had complied with all their obligations in terms of the sale of shares agreement.
On 12 March 2019, Arendse, in his capacity as a director of Flaming Silver, deposed to an affidavit in terms of which papers were filed on 14 March 2019, for an urgent court application to enforce the transfer of the shares.
The purpose of the filing of these papers also included the intention to avert the liquidation of the gold mining companies, as threatened by the BRPs.
The matter was initially set down for 2 April 2019, but due to the fact that Vantage missed the deadline to file its answering affidavit, the parties agreed that the matter be postponed to 9 April 2019.
However, the court ruled on 2 April 2019 that the matter be case managed by the court to prevent further and unnecessary delays.
All parties were given specific time lines to their file papers and once that process is completed, which is estimated to be by 3 May 2019, the matter will be re-enrolled on an urgent basis.