Technology company Labat yesterday issued a surprising announcement to shareholders, saying it was entering the gold-processing space, an industry that seems out of step with its other interests.
Adding to the lack of clarity surrounding the deal is that Labat does not have any publicly declared mining interests. However, yesterday's announcement points to the contrary.
Labat stated the motive for the deal is to acquire income-producing businesses that will supplement its current plant processing activities, which will ensure an “ongoing business into the future for those shareholders who wish to remain invested in Labat”. The deal will also “provide Labat with a sound foundation in the gold industry”.
The company, which is in the process of being bought out by Aurora Empowerment Systems, says it purchased two metallurgical plants, for R38 million, from Primrose Gold Mines, a subsidiary of Aurora. The purchase will be paid for through the issue of 38 million Labat shares, at R1, which is about 30% higher than the current trading price.
The gold-processing and smelting operations at the centre of the deal are Primrose Gold Metallurgical, as well as ERPM Gold Metallurgical, on Johannesburg's East Rand.
However, its rationale for the move is unclear, as the company does not have any apparent experience in the processing sector.
In addition, Labat seems to have gone to ground, and is unreachable, nor does it have a Web site, or a directory listing.
Meanwhile, its latest financial results are several months overdue. The surprise entry into the gold-mining segment sent Labat's shares plunging 20% yesterday, to close at 64c.
The deal is baffling, as the buyout of Labat by mining-focused Aurora has not yet been finalised, and the company has yet to tell shareholders that conditions have been fulfilled. In addition, Labat has not provided a further update on the buyout offer from Aurora, since a statement several weeks ago.
The acquisition will give Labat control over two of only four ore-crushing and gold-smelting plants on the East Rand, it says. Labat is buying out the plants as going concerns, and will not take over debt.
Unexplained switch
The purchase directly contradicts a previous Stock Exchange News Service announcement in which Labat said: “There are no agreements in place between Labat and Aurora in relation to the acquisition of new assets by Labat from Aurora.”
In addition, the gold-processing plants do not seem to fit into any of Labat's current operations. Labat's only operating entity, after selling traffic camera company Total Client Services, was South African Micro Electronic Systems, the only commercial semiconductor manufacturing facility in Africa, which Labat is closing down.
Its latest results, for the year February, show a net loss of R33 million.
Labat CEO Brian van Rooyen, former president of the South African Rugby Football Union, was unavailable this morning to explain the reasons behind the deal. Calls to his cellphone went unanswered.
Gold moves
Chris Gilmour, an analyst with Absa Investments, says the move “sounds like a material change in the nature of the company”. However, he queries the move as Labat is not known to have gold-processing experience, and the deal is being done as if it was majority-controlled by mining wannabe Aurora.
Aurora's bid for Labat previously came under fire from labour unions. Empowerment company Aurora is chaired by Khulubuse Zuma, a nephew of president Jacob Zuma, while Zondwa Mandela, a nephew of Nelson Mandela, is its MD. It offered a huge discount to Labat's share price. At the time, Labat was trading at 50c, and Aurora offered a tenth of that price.
Aurora has also been in the spotlight over concerns about its financial viability. Several media reports have pointed fingers at the company because it did not have enough cash to keep its mines - currently under liquidation - running.
The company is the preferred bidder for Pamodzi Gold's Orkney and East Rand mines, which are currently in liquidation. It is reportedly set to be bailed out by Swiss-based financier Global Emerging Markets, to the tune of R725 million.
Primrose Gold processes about 4 500 tons of gold a month to recover refined gold of about 15kg a months, at a grade of 3.3g per ton, says Labat. The plant will be bolstered by the re-commissioning of another mill, which will take total output to between 45kg and 50kg a month within the next year-and-a-half, it adds.
ERPM Gold Metallurgical, which was commissioned in 1960 to treat gold-bearing rock from the underground operations, can process 240 000 tons a month, but has become redundant, says Labat.
The company expects to have the plant operational and processing 10kg a month within the next two years.
The deal is subject to several conditions.
Related story:
Aurora to buy out Labat
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