Maravi

(TALKZIMBABWE) New Dawn, CAG playing casino with Zimbabwe's assets

New Dawn, CAG playing casino with Zimbabwe's assets
By: Minister of State Didymus Mutasa
Posted: Monday, June 28, 2010 1:25 pm

THE Government of the Republic of Zimbabwe wishes to express its grave concern at the purported acquisition, on 16th June 2010, by New Dawn Mining Corporation (New Dawn) of an 89% controlling share of Central African Gold (CAG) through a share swap involving three of CAG's major shareholders and New Dawn's wholly owned subsidiary called NDM (UK) Ltd.

Government notes that this transaction to take place offshore and without reference whatsoever to the Inclusive Government of Zimbabwe, especially considering that both New Dawn and CAG are off-shore to Zimbabwe's jurisdiction. New Dawn is listed on the Toronto Stock Exchange (TSX) and the Frankfurt Stock Exchange, while CAG is quoted on the Alternative Investment Market (AIM), which is the London Stock Exchange's international market for smaller growing companies.

Government is particularly concerned by the fact that it only learnt of this transaction of through the local press. Further, CAG, whose major shareholders are also non-Zimbabwean and include Emerging Capital Partners (ECP) Africa Fund, HBD Zim Investments Limited and Investec Asset Management Limited, owned a controlling 84.7% of Falcon Gold Zimbabwe Limited and 100% of Olympus Gold Mines Limited.

It is manifestly wrong and indefensible for foreigners to play casino with Zimbabwe's assets in this way, whichever way one chooses to look at this transaction, be it political, legal, economic or social.

CAG acquired its controlling share in Falcon and Olympus Mines 1st March 2007, through a similar offshore share swap transaction. With that, it took ownership of Dalny Mine, Golden Quarry Mine, Venice Mine, Camperdown Mine, Old Nic Mine and other significant additional geologically prospective ground holdings in various parts of Zimbabwe, all attributable 100% to Falgold and Olympus.

These two mining houses, together, constitute the second largest gold mining group in Zimbabwe after Metallon Gold. This makes any transactions involving them strategic and of major national security interest.

In 2008, CAG decided to shut down operations and place all of the above mines, except Old Nic Mine, under care and maintenance in protest at what it termed a 'hostile fiscal and policy environment'. According to impeccable information in Government's possession, CAG leveraged the 2007 acquisitions to raise substantial finances through equity and loans, but went on to invest this money in Ghana where it claims to have lost all of it, while the Zimbabwe assets lay in disuse.

With the benefit of hindsight, however, it is now clear to Government and all well-meaning stakeholders that CAG never intended to mine a single ounce of gold in Zimbabwe because, by the mere acquisition of these assets, it was able to continue to keep a decent balance sheet through various offshore listings.

This enabled it, at the same time, to keep the Zimbabwe assets under care and maintenance for prolonged periods, for speculative negative political ends. As a result of this deliberate policy, of all the CAG mines in Zimbabwe, only Old Nic and Dalny are currently producing, after Dalny resumed operations at bare minimum capacity 2009.

The current CAG-New Dawn deal was structured in two parts, namely acquisition of the 89% share of CAG through a share swap and assignment to New Dawn by the sellers of their interests in and benefits of the approximately US$7,080,000 debt owed by CAG to the Sellers, in exchange for the issuance of more shares of New Dawn common stock, at significant initial profit to both parties. In return, the Sellers acquired a 23.3% interest in New Dawn, with ECP now holding a position of 12.8% in New Dawn.

Evidence at hand suggests that, had this transaction taken place with due adherence to Zimbabwe's indigenisation, empowerment, competition and securities regulations, for a number of reasons New Dawn would scarcely have qualified as the first choice candidate to take control of Falcon and Olympus Gold. Firstly, although New Dawn markets itself as a Zimbabwe focused junior level gold company whose business objective is to become a mid-tier gold producer and the 'in-country consolidated of gold mining assets in Zimbabwe, its board is entirely international and white in composition. Its Management Team is equally wholly white and international, except the CEO Ian R Saunders, who is touted as a 'resident of Zimbabwe'.

Secondly, with Turk and Angelus its only two mines in Zimbabwe operating well below capacity prior to this transaction, it goes without saying that New Dawn's declared total balance sheet size of US$19.6 million as at 31 March 2010, of which only US$6.8 million is available as working capital (US$4.5 million being cash and cash equivalents), is too little to even start dreaming of resuscitating the newly acquired Zimbabwe assets.

Thirdly, New Dawn's well documented investment track record includes the acquisition of a 74% shareholding in Blue Dot Properties 40 (Pty) Limited a few years ago, which in turn owns Blue Dot Project, a mining project that has since been closed and placed under liquidation in South Africa.

This chequered pedigree gives credence to Government's concern that under New Dawn the
Falcon and Olympus Gold assets are likely to suffer the same the same tragic fate as the South African asset sooner rather than later if this deal is allowed to proceed in its current configuration and intent.

Finally, based on its experiences with the CAG and the African Consolidated Resources (ACR) precedents, Government is also acutely alert to the fact that this acquisition is entirely speculative. Contrary to New Dawn's lofty declared objective of expanding its gold resource base and associated mining capability in exponential terms over the next five years as a result of this acquisition, the company, like CAG before it, also appears in reality to have neither the intention nor interest to produce a single ounce of gold in Zimbabwe.

Government cannot, therefore, continue to countenance this kind of transactions. This one evades any local involvement, particularly as the Western sanctions persist. There is absolutely no monetary value accruing to Zimbabwe from it. It does not bring even one additional cent into its cash-strapped economy. It does not create a single new job to ease the country's high unemployment rate.

It does not conform to Zimbabwe's indigenisation, empowerment, competition, exchange and securities policies. In short, in its current configuration, it constitutes a direct threat to Zimbabwe's sovereignty and national security. No country in the world allows outsiders to play such casino games with its natural resources.

Government, therefore, will subject this deal to rigorous collaborative scrutiny by Cabinet, the Ministry of Indigenisation & Youth Empowerment, the Ministry of Mines and Mining Development, the Ministry of State Security, the Parliament of Zimbabwe, the Zimbabwe Investment Centre, the Competition and Tariffs Commission, the Securities Exchange Commission and other relevant Government and regulatory authorities, in order to ensure its conformity with Zimbabwe's immediate national security needs.

This notwithstanding, Government will also follow with keen interest and encourage any engagements that seek to build honest business partnerships in the interest of indigenisation, international best practice and Zimbabwe's national security.

________________________________
*Honourable Didymus Mutasa is the Minister of State for Presidential Affairs and is the Zanu (PF) Secretary for Administration.

Labels: INDIGENIZATION AND EMPOWERMENT ACT (ZIMBABWE), MINING

posted by MrK @ 4:36 PM