Update on Lily Mine Rescue: briefing by Business Rescue Practitioner

Meeting report

Opening remarks
The Chairperson welcomed and wished everyone a new year. He said that Parliament had included him on a panel discussion and he was apologising in advance that he would possibly have to be excused if the proceedings would continue beyond that appointed time.

The Chairperson recalled that 5 February 2017 marked a year since three mineworkers sunk with a container wherein they were working at the Lily mine. The Committee had invited the company to brief the Committee on progress made around all matters concerning the collapse but it had been told that the business rescue practitioner would be up to the task. The Committee was concerned about how far the business rescue practitioner mandate was and whether the commitments made to date had been carried out. As far as the Committee understood business rescue was about making a business profitable again in which case the Committee’s stance was that business could not be the priority when there were people still trapped underground.  
He then introduced the Committee to the visitor and allowed him to present.

Sturns Business Rescue Practitioners 
Mr Rob Deveraux, Lily Mine Business Rescue Practitioner, said he would attempt to answer all questions associated with promises made by the management of Lily mine. He would give an overview of business rescue, the company and then focus on matters to do with Lily mine.

Vantage Goldfields (Pty) Limited and Barbrooks Mines (Pty) had gone into business rescue in December 2016.

A date for an inquiry in terms of section 60 of the Mines Health & Safety Act (MHSA) had not been set; but he understood that the Department of Mineral Resources (DMR) was to meet with Lily Mine on 16 February 2017 to set a date for that inquiry. Such investigations as per the MHSA were supposed to be done within 30 days but that had not been the case at Lily Mine because of the nature of the disaster, where the company had asked for various extensions which the DMR had granted.

Mr Deveraux said he had recognised those payments as due and payable within the business rescue plan as promised; as once a business rescue plan had been voted upon; it became a binding contract between the company and the affected persons (employees and families of trapped miners).  Because the mine had been closed since 5 February 2016 the monies were still outstanding and he was seeking to raise the funds as part of the funding initiatives of the business rescue plan.

The Committee also heard that the families of the trapped miners continued receiving salaries; the union and mine management met weekly with them; they had been accommodated and were receiving support from the Department of Social Development. A remembrance service had been arranged but had to be cancelled due to unrest from the unpaid workers.

The new Lily access project would cost approximately R130 million but would need a further R60 million working capital.

The mine rescue in February 2016 had attempted three times to retrieve the container using different methodologies. They had tried to retrieve the container from the top, then the bottom to the effect that an additional escape shaft had to be drilled. The mine had been declared unsafe to continue with the rescue operation wherein it had been closed to date
A streaming agreement was the pre-sale of the gold production at the Lily Mine. The streamer, the individual buying the gold would pay R200 million into Lily Mine immediately which would then allow the company to develop the decline shaft. The money would not be repaid in terms of currency but by way of gold production. When the gold was sold-off to the streamer he/she would get the gold at a discounted amount for example, instead of buying it at $1200 an ounce, he/she would buy it at $1000. The effect of that would be though the Lily Mine would be operational and there would be job retention; over a seven years period in repayment of the loan the mine would have no value as it would generate no profit.

Given the current conditions at the mine, he reiterated that though alternatives had been looked at everyone, including experts, DMR, the labour union that the decline shaft was the only way to retrieve the bodies.

Discussion
Mr H Schmidt (DA) said that the decision on viability and the rescue operations continuing  all rested with the business rescue practitioner; especially with Vantage Goldfields (Pty) Limited also going into rescue; he asked who ultimately decided on whether any of the funding operations would go ahead in the business rescue? What had the streamlining initiative depended upon?  Did it depend on some finances being available or was the entire R300 million needed for that initiative?

Ms D Tsotetsi (ANC) asked what factors were considered in firing and hiring of people by the business rescue practitioner; were labour representatives involved in the process of releasing people from work? At what stage did safety measures kick-in; were they after an incident or were they preventative as well?  In light of recent allegations that rating agencies were biased or dishonest were investors still uninterested in Vantage operations?

iNkosi Z Mandela (ANC) said that the Committee sympathised with the families of the trapped miners but it was a year later that the miners still remained trapped underground. The impression given was that the rescue of the trapped miners would be impossible without the new venture being realised: was it fair to conclude that unless investment was made and the mine operated, there was no chance of recovering the container that had fell into the mine? The presentation also alluded to seven years of non-profitability of Lily Mine though operational; that being the case how further long would the rescue operation and recovery of the container take?

Of the monies committed to the families as support; when would that support be eventually given to the families of the three trapped miners?  If there was no further investment and the newly proposed shaft was never realised; would the trapped miners never be brought to the surface?

Could the Committee also be clarified on how the Nenegate saga contributed to negative perception about investing in the Barbrook mine operation?

Mr Deveraux replied that the mine rescue in February 2016 had attempted three times to retrieve the container using different methodologies. They had tried to retrieve the container from the top, then the bottom to the effect that an additional escape shaft had to be drilled. The mine had been declared unsafe to continue with the rescue operation wherein it had been closed to date.
The experts with management had designed the best way to get to the container which was by developing a decline shaft at a cost of R130 million. One of the premises was that they could not put further lives at risk in the mine or during the rescue operation. In September 2016 Deputy Minister Godfrey Oliphant had visited Lily mine with a delegation, where various options were discussed to retrieve the container. It had been agreed that mine safety would remain a priority but there would be a delegation that would look at the possibility of retrieving the container using any other methods.
That delegation had consisted of company management, mine rescue services, the DMR, labour union and other experts but the deterioration of the mine had been such that no one managed to go underground. What followed was that underground cameras were sent down and from those visuals the deterioration of the mine became apparent. It was decided by all parties that the mine was too dangerous to enter and the best way to retrieve the container would be to develop the decline. 

A streaming agreement was the pre-sale of the gold production at the Lily Mine. The streamer, the individual buying the gold would pay R200 million into Lily Mine immediately which would then allow the company to develop the decline shaft. The money would not be repaid in terms of currency but by way of gold production. When the gold was sold-off to the streamer he/she would get the gold at a discounted amount for example, instead of buying it at $1200 an ounce, he/she would buy it at $1000. The effect of that would be though the Lily Mine would be operational and there would be job retention; over a seven years period in repayment of the loan the mine would have no value as it would generate no profit. That would have a big effect on the Vantage group of companies, which was why there was a reluctance to enter that sort of contract.

He said that the business rescue practitioner stepped into the role of the board of directors and assumed all the responsibility for the company; except for official appointments. The various safety officers’ appointments remained with the individuals concerned. Although the board of directors would be without the power to negotiate contracts during business rescue, directors would still remain with their fiduciary duties.  Sturns recognised that though the practitioner was the ultimate decision maker they maintained and ensured good working relationship with company management so that discussion could be had and business would continue.  Recurrent problems with management during business rescue were that people made the same decisions expecting different results. In distressed business environments people did not want to make harsh decisions which were those that practitioners made, for instance, retrenchment of workers which was sometimes necessary became a challenge.

The practitioner had the power to remove directors and people which were not necessarily working in terms of the business rescue process. Sometimes the harsh decisions the practitioner makes would not be accepted by management hampering the work of rescuing in various ways or there would be different interests at play. In such cases the practitioner could apply to the court to have a director removed so that the business rescue could continue.  In terms of employees the normal retrenchment process would be followed with payment of proper retrenchment packages. Business rescue prioritised jobs retention as a key aspect therefore any changes to staff had to be done through the unions or proper labour laws and during business rescue where a practitioner was able to change contracts of creditors, set them aside or stop them; that was not the case with employees as they retained all their rights even under business rescue as part of the job retention process.  As practitioners they consulted with unions where at Lily Mine the Union was the Association of Mineworkers and Construction Union (AMCU). Mr Deveraux had regular meetings with AMCU and Lily Mine management thereafter they made decisions collectively.

Regarding the fact that a year later nothing had happened at the Lily Mine: the key to retrieving the container was having investment of R200 million to develop the decline shaft so the container could be retrieved as agreed by DMR and others on the safest way to do so. He had met with many people from overseas that offered advice and service on how to retrieve the container where it had been apparent that no one understood well enough the magnitude of the disaster. For example, an American company had a satellite system which could locate gold and other bodies underground. The problem with that technology was that at the time of the collapse the container went down with generators and other steel items; therefore the area where the container was believed to be located also had those items. The technology would locate all other things together with the container which would create other issue in terms of the rescue operation. What was further known was that mine and rescue service had located more or less where the container was believed to be, using sound equipment. Once the decline shaft is developed a tunnel would be made to where the container was believed to be but the job was made difficult by the fact that the site of the decline development had compacted earth but where the container was believed to be had loose earth with very large rocks that were mobile and where moving continuously.

In light of the streaming agreement; the company had to raise the money to pay the families of the trapped miners and the employees of Lily Mine inclusive of the money for the decline shaft. Mr Deveraux had clarified the matter that as soon as he had raised the money the priority would be the payments.
The difficulty with investment was that they had to ensure that they raised the full amount needed for everything once-off, to avoid stop and start projects.

Regarding utterances by the Minister; there was a lot of media attention on the matter in June/July 2016 where the press quoted the Minister stating that the retrieval of the bodies was first priority and that the mine would not open until such retrieval had occurred. An investor spending R200 million would see that as a risk and would be averse to such spending and not being allowed to mine. The economic down grade of South Africa (SA) and Nenegate had been seen as political risks by potential investors. All those factors made investors feel that the risk of putting R200 million into a relatively small mine like Lily would be too great and even in the local market some investors were highly unhappy with those odds though some had been ready to assume the risk.

The Chairperson said that he sensed two things were being implied; one was that there was no money and therefore the bodies could not be retrieved. There was no certainty on funding and retrieval depended on that. To the Committee’s knowledge, Lily Mine management had promised the families of the trapped miners and employees the payments as reported in the presentation. Because those monies were subject to funding being raised it had to be agreed that there was no money from the beginning and people had been misled and therefore the Committee had to find out who made those commitments, apart from the announcement by the Minister at DMR. The Chairperson questioned why the Minister would have been expected to make a promise for mining to go on at Lily Mine when the actual intention of raising funds was to retrieve the bodies of the trapped miners which included the development of the decline shaft?   It was odd that guarantees had to be given that mining could occur whilst people still remained trapped. What had been wrong with the Minister’s commitment to mining being stopped until the bodies were retrieved? Further unsettling was the fact that the concern was more about political stability and returns over and above the retrieval of the bodies from potential investors and the fact that there remained uncertainty about where exactly the container was. The report given to the Committee had said that the Industrial Development Corporation (IDC) made an offer but Lily mine management rejected it due to the conditions associated with the offer. Amongst the conditions were the issue of an equity partner guarantee. The seven year non-profitability of the Lily Mine due to a streaming agreement had to be conditioned on the retrieval of the bodies as the impression the Chairperson was getting was that there seemed to be an intention to go on mining whilst people remained underground and trapped. The uncertainty of the transfer of labour to Barbrook was equally unsettling as that mine was also under business rescue. Was it possible to retrieve the bodies under the current environment that the Vantage group of companies was in?

iNkosi Mandela sought clarity whether Mr Deveraux was saying the bodies would come to the surface only when investment was received.

Mr Deveraux replied that there was possibly a misunderstanding. The streaming arrangement was where the mine would receive R200 million as a funding mechanism no different from a loan or equity. The money would be used to develop the decline shaft without which nothing could happen. Given the current conditions at the mine, he reiterated that though alternatives had been looked at, everyone, including experts, DMR, the labour union felt that the decline shaft was the only way to retrieve the bodies. The mine would not be opened purely for mining but would prioritise retrieval of the container first and that had been relayed to the families and all the potential investors.

Mr S Jafta (AIC) asked if the situation remained as dangerous as it had been a year ago; what situation had those workers been working under in the first place.
 
Mr I Pikinini (ANC) said that in news broadcasts the workers had accused those in authority of being reckless and unsympathetic to their plight as some were not from around Lily Mine and had been there since December 2016 awaiting their payouts as promised. Though there would be no resolution that day, the Committee possibly needed to speak to DMR and all affected parties directly to get further clarity.

Mr Deveraux concurred that it was a sad state of affairs and he had been in regular contact with the Director-General (DG) at DMR and he would definitely welcome any further assistance from Government.

The Chairperson said he understood that Sturns Business Rescue practitioners were managing a situation; but maintained that he still wanted to know who to Mr Deveraux’s knowledge, committed to making payouts to the affected parties at Lily Mine.

Mr Deveraux said his understanding was that the Minister made the commitment and a few days later Vantage management had been phoned and told that they would have to honour that commitment.  In both instances it created problems because any Government commitments in that regard set a precedent for any future mine disasters.  In terms of Lily management the commitment equated to R4.35 million and in a company that size such a commitment would require board resolution decisions and to his knowledge there was no resolution to that effect, and no authority for a single individual at Lily covered for a R4.35 million decision. In his business rescue plan he had acknowledged and committed to paying that money regardless of who had committed to it originally.

The Chairperson said Mr Deveraux’s promise was similar to someone saying the day I get a job I will do this; when in fact Lily Mine had no money. The Committee would have to consult its minutes and all other correspondence and it had to consider whether the company could have its bread buttered on both sides because it was keeping all its equipment and waiting for funding. 
What had to be avoided was the prospect of going to business rescue to avoid liquidation where assets could be collected so that due payment to creditors could be given though he was not saying that had been the case at Lily Mine. Additionally it had to be asked whether Lily Mine could continue to hold a mining licence where the implication was it intended to mine over people trapped underground. He was convinced that a decision would need to be taken and he was not satisfied that utterances and Government action could be construed as investment risks. It could not be that Government would agree to mining over the remains of those trapped individuals when it was well aware they were there. The comments in public were strange for the fact that he did not know that the union and Lily Mine management visited the families of the trapped miners weekly. 

The Chairperson said he would allow the Committee to re-read the report as submitted before any decision could be taken and certainly the Committee had to request the company’s investigative report; DMR’s investigative report on Makonjwaan Imperial Mining (Lily Mine). In Mr Deveraux’s interest the Chairperson said possibly the Committee could invite him after it had received the reports for further input.

He asked that the minutes stand over and the meeting was adjourned.