Deep thinking required to resolve Red 5’s Philippines drama It seems totally appropriate that troubled gold company Red 5 takes its name from one of lateral thinking expert Edward de Bono’s six hats. In de Bono’s theory, the red hat is the emotional or intuitive hat. The past 12 months have been an emotional ride for Red 5 shareholders as the company has struggled to bring its Siana gold mine in the Philippines into production. Directors have had to call on all their professional intuition to deal with the issues. PUBLISHED: UPDATED: 03 AUG 2013 LUKE FORRESTAL While the sliding gold price hasn’t helped Red 5’s predicament, Siana has been set up as a low-cost operation and would probably be turning a reasonable profit if it was still in production. The latest problem, however, is operational. In April, a fault was detected in the wall of the Siana tailings dam. No spill occurred but the Philippines Mining and Geosciences Bureau saw fit to place a cease and desist order on the mine two months later. This resulted in Red 5 having to lay off 750 employees. The cease and desist order remains in place. But Red 5’s new managing director, Steve Norregaard, is confident that the company’s new operating plan will soon get the approval of the MGB. He says the intermediate tailings disposal solution that has been devised for Siana, which involves converting tailings into paste form and then combining them with waste rock, could have a multitude of applications in the seismically active Philippines. In the meantime, Red 5 is seeking to raise up to $47 million through a rights issue to ease the financial pressure caused by the break in production at Siana. Norregaard says all the company’s major shareholders, including funds such as Baker Steel Capital Managers and Franklin Resources, are sympathetic. But the cease and desist order creates inherent uncertainty and he admits he has been sounding out parties that might want to take up any shortfall. “Nothing’s too precious in this sort of situation,” he says. “We’ll consider all avenues.” Red 5’s principal lender Credit Suisse has agreed to a standstill on debt repayments until September 15. The first capital and interest repayment on a $US25 million facility was due this week. With Siana being placed on care and maintenance, Red 5 was in technically in breach of conditions on the facility. MORE FUNDS NEEDED FOR PERKOA Another junior company that is looking for additional capital to prop up a newly commissioned mine is Blackthorn Resources. Blackthorn has been informed by its joint venture partner, Glencore Xstrata, that the Perkoa zinc and lead project in Burkina Faso requires an additional $US30 million ($33.4 million) in working capital. The shortfall has arisen primarily as a result of forecast delays in concentrate deliveries and export sales from the mine. Blackthorn owns 39.9 per cent of Perkoa, but says its share of the money required is just $8 million. It is in talks with Glencore, also its largest shareholder, on funding alternatives. Perkoa’s path from discovery to development and production hasn’t been a smooth one. In 2008, when Blackthorn owned the whole project, construction was suspended about the halfway point because of the global financial crisis. Glencore then stepped in to help complete the development, but earlier this year the partners revealed the capital cost had risen to $US180 million and the timeline had been pushed back by a month. One of the main reasons for the commissioning delay, and the increase in costs, was the difficulties importing parts and equipment into landlocked Burkina Faso. The partners had previously forecast that Perkoa would be cash flow positive by the end of this year. OM TAKES ITS MEDICINE One of the more shameful moments in Australian mining history had its conclusion in a Darwin courtroom on Friday when manganese miner OM Holdings was found guilty of desecrating an Aboriginal sacred site. OM was fined $150,000 for damaging the Two Women Sitting Down site at its Bootu Creek manganese mine, about 170 kilometres north of Tennant Creek, two years ago. OM chief executive Peter Toth says the company was well aware there was a scared site on the edge of one of the new pits it was opening up at Bootu Creek. But mistakes were made in assuming the geology would be the same as in previous pits as well as in the actual design of the pit. Part of the pit wall ultimately slipped, resulting in damage to the sacred site. OM is working hard to restore its relationship with the traditional owners of the land, which has understandably taken a battering in the wake of the incident. Toth says a lesson has been learned and geological monitoring at Bootu Creek has been improved to ensure there are no repeats. There are seven sacred sites that are fenced off and made known to all employees. The Australian Financial Review BY LUKE FORRESTAL
Posted on: Sat, 31 Aug 2013 17:32:34 +0000
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