Crew Gold Seems To Be Becoming The Sole Fiefdom Of Its Chairman
By Charles Wyatt
minesite.com
Many long years ago, when Leslie Parker was mining editor of the Financial Times, he received a visit from a brash Australian mining entrepreneur intent on promoting his companies. The meeting must have been quite short to judge by the paragraph in the following Saturday’s mining column. It read as follows: “this week I met a young man called Peter Briggs from Australia who claims to control the following companies [the names of the companies then followed]. I would not touch any of them with a bargepole”. Leslie was the doyen of mining writers at the time and this meeting took place during a mining boom when two words in combination – Australia and mining – had UK investors reaching for their cheque books without a thought. Exactly why this story suddenly comes to mind when thoughts turn to Crew Gold isn’t clear, but Crew, which is listed on the Toronto and Oslo stock exchanges, is certainly an odd company, and it would have been interesting to hear Leslie’s comments on it.
At the beginning of last year Jens Ulltveit-Moe, who claimed to control, directly or indirectly, 23 per cent of the equity of Crew Gold, joined the company’s board. He is the chief executive of Umoe AS, a large Norwegian-based conglomerate, and also holds a number of other directorships. These include positions as chairman of Petroleum Geo Services ASA, and as chairman of Kverneland ASA. He’s spent most of his career in the shipping industry. So not a mining man, but a very rich man all the same. A few weeks after Mr Ullveit-Moe’s move onto the board Jan Vestrum, Crew’s chief executive, made an upbeat statement concerning the upgrade and rectification programme at the LEFA gold mine plant in Guinea. This, he said, remained on track and on schedule. He also said that exploration continued to give very encouraging results on both tonnage and grade which were the key value drivers for the future.
It therefore came as something of a shock when Jan Vestrum resigned with immediate effect in August 2008, leaving Bill LeClair, the finance director, to fill the role until a replacement was found. Cameron Belsher, who was then chairman of Crew, had some good words for Jan Vestrum at the time. For his part, Jan Vestrum claims that he asked to leave earlier, but was persuaded to stay. The company was at that time on its way to producing 46,078 ounces of gold from LEFA during the third quarter, as well as 5,053 ounces from the Maco gold mine in the Philippines and 15,865 ounces from the Nalunaq mine in Greenland. Already, however, the axe seemed to be hovering over these last two, as Crew sought strategic alternatives with potential partners for Maco and put plans in place to put Nalunaq on care and maintenance. It was against this background, and during a terrible time for junior mining companies that a rights issue was announced in November 2008. So, 340 million shares and subscription rights were sold to existing shareholders at 0.30 Norwegian Kroner (NOK) per share.
A look at the chart of the Nowegian share price shows that the price has hardly moved since then. Factoring in the effects of a subsequent eight-for-one share consolidation, a year ago Crew’s shares were priced at over NOK 25.00. Then as the market mayhem of last autumn unfolded they fell almost vertically to NOK 3.00. The price is very close to that level today. This is right out of line with most other juniors who have tended to exhibit a significant recovery in share price in recent months. Anyway the rights issue enabled Mr Ulltweit-Moe to increase his shareholding in the company to 38.52 per cent, and he took over as chairman from Cameron Belsher in February of this year. Maybe the rights issue was a strategic move on his behalf as Crew Gold did not appear to be desperately in need of money at the end of the September quarter. It had US$27.9 million in the kitty so wouldn’t have been phased even by the operational issues with LEFA’s SAG mills that were developing.
Fast forward to June of this year when Crew announced that it was reducing the production guidance figure it had given for 2009 as a whole from 290,000 ounces to something between 220,000 and 240,000. The blame was put on continuing problems with plant at LEFA, particularly the SAG 2 mill, which now appears to have been out of action for most of the past year. The company also announced that it was also taking longer than anticipated to refurbish the mining fleet, and that throughput wouldn’t meet the planned rate of production until that refurbishment programme was complete. Fair enough, but the company now seemed to be getting into the old chicken and egg syndrome as lower production meant decreased cash flow, and decreased cash flow meant that it could not speed up the repair and maintenance process. Two months earlier the LEFA mine had been closed by the Guinea Government for a couple of days while a review of the environmental reclamation plan was carried out, and this had not helped matters.
In the last few days the quarterly result for the period to the end of June has been announced, showing that production at LEFA was only 40,743 ounces. This is going to mean that the company is under pressure to achieve even its reduced target for this year. Again, reduced SAG mill capacity was the culprit as the SAG 2 mill was taken offline for trunnion repair in July 2009 and is not expected to be operational until early in April. Meanwhile, the sale of the Nalunaq mine to Angus & Ross will be completed when the new Greenland Minister for Minerals and Petroleum gets round to signing the transfer authorization. And Rambler's offer for Crew’s Nugget Pond processing facility has been accepted too. This leaves Crew with LEFA, little Maco, which trundles along at a quarterly production rate of around 5,000 ounces of gold, and nothing else at all.
What poor old Bill LeClair must be praying for is for someone to take over the role of chief executive and to complete the rectification and debottlenecking programme at LEFA so that production can be ramped up significantly by the year end so the company hits its production targets. These are two ambitious prayers, as there is not a queue for the job, and the sort of production increases needed seem a bit of a stretch. High grading might help for a while, but there are always limitations to such an exercise. Even with high grading thoughput would have to be maintained at close to capacity from the point of view of both the mining fleet and the plant, and the past record is not encouraging. Mining is a tricky business at the best of times as so many things can go wrong, and Crew Gold seems to be walking on a bit of a tightrope in Guinea anyway. Half a page in the quarterly results is devoted to the problems the company has faced since a new Government was voted in in December 2008 and it does not make pretty reading.
Presumably the directors think that more money will be the answer as a debt to equity conversion is being proposed, as well as another rights issue. The rights issue is fairly complicated, but it appears to be underwritten by the chairman’s company, as North American shareholders are excluded. The debt for equity conversion also seems tilted in favour of bondholders, which seems to have been another cause for complaint in the newspapers of Norway. How much notice Mr Ulltveit-Moe will take of this is anyone’s guess, but all this ‘strengthening of the balance sheet’ as the share price languishes seems to be yet another reason why it is such a pity Leslie is not still with us to make a suitably succinct comment on the company. |
