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Business Rescues in Mining ( so far ?! )

Peter van den Steen

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Chapter 6 v 1.0 (needs to evolve – v1.1 etc)

The BR environment in SA is young and undeveloped

BR legal framework offers protection and 'space to put together a deal or a plan’.

The legal framework does not ‘gel’ with other laws in SA such as: LRA. TAA. Minerals Act. OHS Act

Banks and institutions such as SARS and other regulators have not geared themselves for Ch6 – even after more than 3 years since the Act came to life.

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If there is some sort of investment deal, its not ordinary M&A. Very technical from a legal perspective

Can be litigious - militant creditors, shareholders

Regulatory environment in SA is a deterrent already. Within BR its emphasised.

In BR all stakeholders interests need to be balanced to avoid failure due litigation and/or unnecessary delays or 'no' votes.

BUT – the alternative has always been almost total value destruction and no sustainable solution forward – liquidation.

Complexity is an acceptable price

Chapter 6 creates layers of complexity

Blyvooruitzicht 1

Key challenges> Burning millions per month – old operation - 1937

> Eskom escalations and winter tariff exacerbated situation – Jun/Jul/Aug

> Labour and Unions

> Creditor confusion

> No PCF – despite some begging (IDC)

Mitigators> Creditors were not militant

> Shareholder support – minimal attempts to interfere, easily managed

> Good management support … mostly (see below)

> Many opportunities to improve and turn it around

Blyvooruitzicht 2

BRP Senior Management

> Departure of 2 senior officers

> Resulted in initial shock with the others – later heightened level of activity and improved morale

Labour/Unions

> Court interdict against illegal strikes

> Eventual cooperation

> Two firsts in the industry – blanket incentives – 3 year deal

Blyvooruitzicht 3

Operational issues

> Loss making operations were allowed to continue without intervention

> Tail was wagging the dog re unions

> Management was tired

> Old and over-populated structures

> Housing estate – no measurement, no idea

> No plans or strategy

> High risks of safety incidents – due to low morale

> Overtime abuse

Blyvooruitzicht 4

BR Plan

Shut down loss making operations – reef picking and potential 6 shaft and 4 shaft

Improve technology (SAG milling, Hydraulic vs pneumatic drilling, better density control)

Prove viable more tailings retreatment opportunities Reduce staff compliment by minimum 10 %- 189 process was started in

parallel (without closing shafts) – total potential lay-offs up to 2000 (35%) Change mining plan at loss making shafts – focus on the richer CLR

(carbon leader) Huge rock dump opportunities that had not been properly investigated or

exploited in the past Savings in electricity consumption – reducing wastage, village to pay

contribution, technology – 3% Business Rescue Initiatives forecast > R600mil positive swing in FCF

After settling with Eskom – no vote was required – Plan was still produced and handed over to mine for implementation

Blyvooruitzicht 5

Section 141(2)b• Gold price had surged• No longer reasonable grounds to believe that the

company was distressed• BRP filed to take it out of rescue• Plan was still produced

From potential collapse in June 2011 to the sale of the asset to Village in Feb 2012 for R194mil.

The Plan was handed over to Village in November 2011.

……………..and then?

Blyvooruitzicht 6

Questions:

Should Blyvoor have remained in BR?

Was it possible to keep it in Rescue [Section 141(2)b debate]

Did Village use and implement the plan? (they were not obliged to do so)

The gold price never dropped as low as the original gold price assumptions in the BRPlan. Could it have been the gold price?

Were the deals with labour honoured?

Were their further unforseen events that broke the “old lady’s back” such as catastrophic seismic events, flooding, a.n. other?

Blyvooruitzicht 7 - Post BR. positives and learnings:

Kept the place going for another 2 years instead of collapse in June 2011

Fed a few thousand families for two years

Multiplier effect on the Carltonville economy huge

BR can squeeze more life out of businesses.

Chapter 6 is far from perfect.

Chapter 6 helped buy more time – at the very least (s136)

Chapter 6 added real value

Post Chapter 6-life of the Co is out of the hands of the BRP

PCF was and has since proven to be a significant challenge

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PCF providers Standard Chartered Credit Suisse Combined Exposure R2.6bil --> secured Why BR? Care and Maintenance costs --> approx. R200mil SA only.

Other Creditors Note holders --> R1.0bil Trade --> R0.3bil InterCo/Shareholders loans --> R7.0bil

TOTAL --> approx. R11bil

BRP creates a team to assist: Webber Wentzel - BR legal, M&A legal JPMorgan - Transaction advisory KPMG - Financial modelling, creditor verification, advisory Terra Consulting - valuations

Southgold Exploration 1

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Southgold Exploration 2

Regulators and Gov: DMR (6 to 7 months) Comp Com (2 weeks for Wits deal, 3.5 weeks for

Sibanye/Wits deal) DWAF NNR SARS (more than a year to settle) SARB Local municipal and community structures

Witsgold Offer R 75mil on deal closure Fixed repayment schedule to lenders for R 600mil over current

LOM R1.2bil flex payment schedule to lenders based on FCF Further R680mil to lenders based on 10% FCF participation

over any additional LOM (if any). Option to settle without penalty 36 month interest moratorium

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Southgold Exploration 3 It lives!

So Witsgold bought an asset which swallowed an initial investment of R11bil before it went into rescue for approx. R1.9bil (PV)

Discount --> 83%

Duration--> 21 months

Level of Complexity --> Extremely!!! Various jurisdictions, Swiss, English, Canadian, USA Canadian CCMA and Receivership USA Chapter 11 Time zones --> conference calls with callers various time

zones - (worst was Vancouver, NYC, Toronto, London, JHB, Zurich, Singapore, Beijing) --> ITS a KILLER!!

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Brief Summary

BR can keep distressed company whole as opposed to non-BR solutions.

Big becomes Complex becomes Expensive --> underlying value is essential.

Time consuming and resource hungry.

Deep discounts are made possible for investors with appetite for risk.

Ultimately builds goodwill with stakeholders.

Young law – needs to evolve. Experienced advisors and BRP's are essential and also scarce – time.

Every rescue presents its idiosyncrasies --> there is no 'cookie cutter' approach.

Regulatory environment and other laws do not speak to BR --> need to know how to navigate the 'waters’

PCF remains a challenge and will do so until distressed investment (debt and equity) market develops