Central Rand Gold (LON:CRND) shares collapsed amid concerns that it may lose access to a large proportion of its gold reserves due to the rising water table across the Central Rand Goldfield of South Africa.
The company has been working with the South African government, as well as fellow mining groups in the area, to combat the rising Acid Mine Drainage (AMD) problem which is causing the water table to rise.
The news has more than halved CRG’s current market worth in early deals. The shares, which joined the AIM market at 125 pence back in 2007, have been weak for some time and this morning they were changing hands at just 1.48 pence, down 50 percent on the day.
CRG was expecting the government to make a decision on a plan to combat the problem by early January 2011, but it told investors that it has still not received any formal undertaking from the government.
The plan, which relies on government funding as well as support from the local mining industry, involves the construction of a submersible pump station that will lift 72 megalitres of AMD every day.
Although it is hoping for a joint solution, CRG has already had to order the pump - which is the longest lead item - itself at a cost of US$4 million. The full cost of the project is estimated at US$26million.
“To protect the existing resource base above 250 metres below surface, the project needs to commence construction by the end of the first quarter of 2011,” CRG said in a stock exchange statement.
The company adds: “Absent clear commitment to this joint project by the end of the first quarter of 2011 CRG faces the very real prospect of inaccessibility to its reserves below 250 metres by the end of the year.
“The uncertainty surrounding government participation affects the viability of the company, and until clarity emerges, the board believes it is essential it adopts a prudent position with respect to its capital resources and operations.”
It will now protect its cash resources and limit cash outflow as much as possible. It is delaying US$2.6 million in capital expenditure - which includes a planned metallurgical upgrade.
The company is hoping to arrange a short term processing solution for its excess mining production, because of the delay to metallurgical plants upgrade.
“Shareholders should be in no doubt that if a clear and positive way forward is not identified by the end of March 2011 the prospects of the company will need to re-evaluated,” CRG said.