Business Day (Johannesburg)

1 July 2005

South Africa: Western Areas Faces a Cash Crunch And Could Sell South Deep Stake

Johannesburg — GOLD producer Western Areas has informed shareholders that its current liabilities exceed assets by R394m, and there is doubt that the company can proceed as a going concern.

Analysts say that unless the company can reverse its cash bleed it may be forced to sell a stake in its main asset -- the South Deep mine.

The warning about Western Areas' cash problems is contained in the company's annual report, published yesterday.

However, the company's directors also said a turnaround was under way, and that Western Areas remained a going concern.

Western Areas' main asset is its 50:50 joint venture in South Deep mine with Placer Dome of Canada. The R4bn Twin Shaft complex was commissioned in November, and is expected to boost output from the mine, and also to help with the turnaround of Western Areas.

The company, which is headed by mining magnate Brett Kebble, said in the report that its current liabilities consisted partly of a derivative funding structure related to the hedging of its gold production, as well as a bridging loan from JCI, which is another Kebble company.

"The derivative structure was put in place in 2001 to fund the then estimated residual capital expenditure relating to the completion of the South Deep project, based on the mine plan at the time," said Western Areas, noting that it was restructuring this hedging setup.

However, the company said there had been an "excessive cash outflow, primarily as a result of the delays and overruns that occurred at South Deep".

It also said cash outflows "will place a burden on the cash resources of the company for the next few years", and as a result the restructuring of the derivative structure and other measures are under way.

These include boosting funding through an existing bridging loan with JCI by an additional R100m to R300m, the raising of about R730m through a rights offer, and an additional loan facility from JCI "to repay the funds borrowed in the event that the rights offer is not concluded timeously".

Western Areas directors said that should these initiatives not be successful in meeting forecast cash outflows, "there is significant doubt that the company will be able to meet its obligations in the normal course of business, and therefore a material uncertainty exists that the company will continue as a going concern without undertaking further borrowings and/or the partial disposal of a portion of its assets".

An analyst said: "It is not a very comforting picture, with Western Areas needing cash, while its parent JCI also needs more cash."

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