Hot Features
Premium
Register to chat with like-minded investors on our interactive forums.
AIM-listed Central Rand Gold Ltd. (LSE:CRND) shares reached a 52-week high of 45.29 this morning. That is an increase of 466%. At its current price of 24.08, as at 4:00 p.m. UTC, it is still up by more than 200%, taking its market cap from £17.67 million to more than £35 million.
The significant upthrust immediately followed the company’s announcement that it had entered into a memorandum of understanding with the Hiria Group Company Ltd. for the latter to enter into a period of due diligence for the potential acquisition of 100% of the shares of CRND subsidiary Central Rand Gold N.V. Due diligence is targeted for completion by 31 March 2015. The proposed purchase price for the subsidiary is $150 million (£95 million) in cash.
Central Rand has indicated its desire to offload the subsidiary by obtaining Hiria’s agreement to allow it to continue to shop it during the due diligence process. The announcement cautioned that “At this time there can be no certainty that the potential sale of the Subsidiary to Hiria will be completed. The MOU with Hiria is not exclusive and the Board will continue to engage with other parties who have recently expressed an interest to better understand the assets of Central Rand Gold.”
Central Rand’s gold production has been severely hampered by the depth and flow rates of water in its underground mines, straining the company’s cash resources. Although they are confident that the current obstacles will be overcome, the board has decided to focus its efforts on several surface mines, at least until the underground inhibitors have been negated. By moving operations above ground the company should be able to regain a solid cash position.
Whilst access to surface mining areas has been available to CRND all along, it had chosen the underground option because the quality of the ore underground is a much higher grade. However, once the cost of working the higher grade ore became prohibitive, working the open pit mines becomes much more attractive. Their prime objective is to recover gold. How they do that is secondary and almost entirely dependent upon the best options available at any given time.
Central Rand operates mines in South Africa that had previously been abandoned when the previous owners found them to no longer be cost-effective for their much larger scale of operation. The concept of reopening once prosperous but abandoned mines has proven to be a boon to small companies more suited to mining the leftovers profitably.
Hiria is a wholly owned subsidiary of Canadian company, Marsa Group Holdings, based in British Columbia. Marsa already has investments in iron and nickel mining operations in Southeast Asia and Tanzania.
The announcement indicated that “The board is also actively reviewing (Hiria’s) balance sheet and capital requirements to ensure it remains well funded to continue operations and expedite completion of the transaction.”
Given the verbiage of the report, it appears that both entities want to close this deal. I would be surprised if they did not.
