Hey gmt & All Rember this ?, page-5

This was the link, I posted it a few years ago.

Charters Towers May Yet Be Saved Friday, July 5th, 2013
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CHARTERS TOWERS MAY YET BE SAVED
When he gets around to quilling the Dubious Distinction awards later this year, Pierpont may well award of medal to Ooi Cheu Kok for raw financial courage.
Frankly, your correspondent had never heard of Ooi before, but his company Expresss-Link Management (registered in the British Virgin Islands and listed in Singapore) has stepped up to offer $100 million to Citigold Corporation to finance the reopening of the old Charters Towers gold mine.
This is courage with a capital C, because the mine is littered with the bones of previous financiers who fell by the wayside. The financing is not done and dusted yet, because it has to be approved by shareholders at an extraordinary general meeting on Monday in Townsville.
For decades Pierpont has mentally filed Charters Towers under G , for gunner. I has been one of a multitude of Australian mines that’s gunner be great when they prove up a little more ore or raise a little more money.
The Lynch family who control the mine have been promoting it for decades as a gold deposit that’s gunner be economic. It still hasn’t quite happened and there’s no guarantee when or whether Ooi’s $100 million will get Charters Towers into profitability, but suddenly the company looks like getting some traction.
Pierpont has not written about the mine for 12 years, so perhaps he should refresh readers’ memories with a little history.
Charters Towers was one of Australia’s greatest gold mines a century ago. From its discovery in northern Queensland in 1871 until its closure in 1916, the mine produced some 6.6 million ounces of gold. In that period it was Australia’s fifth largest gold producer, boasting particularly rich grades. Charters Towers boasted one of the finest stock exchange buildings in Australia but, alas, low gold prices forced the mine’s closure.
Various companies explored the ground over the decades before walking away. In 1973 Jim Lynch, who made a fortune in the Poseidon boom, began acquiring the leases which cover the old mine.
The Lynch control was originally split between various Charters Towers companies, but in 2003 the leases were consolidated into the newly-formed Citigold. So the Lynches have now controlled the old Charters Towers mine for 40 years, which is quite remarkable considering that it still hasn’t really been mined.
Over the years, the directors of Citigold and its predecessor companies have made many rosy statements about the future of the Charters Towers mine. Company announcements by Citigold used to be accompanied by a strategic business summary which said: “Citigold Corporation is a gold producer controlling Australia’s richest goldfield at Charters Towers in North Queensland”.
That was rather misleading. The Central mine (which produced the majority of the riches and runs underneath the town of Charters Towers) was a large rich mine 100 years ago – mainly from the Brilliant and Day Dawn reefs - but is not actually producing gold now. The gold being produced by Citigold over the past decade has been from nearby deposits such as Stockholm, Warrior, Washington and Imperial, all a few kilometres away. Mark told Pierpont the Central mine itself has not been worked for 10 years.
Pierpont was always a bit sceptical about the main Charters Towers mine. It is a reef system in which the grades can reach several ounces to the tonne. However, the way the reefs run is not certain. There was one famous intersection in the 1990s which struck 200 grams to the tonne, but only over four inches.
The whole point of mining is that if you have to spend $X to pull gold out and treat it, the price of gold had better be more than $X or you might as well leave it in the ground. (And the same goes for any other mineral.) As the gold price has now held above $US1,000 for several years, a rich mine should have been able to attract the necessary capital expenditure, but Charters Towers hasn’t.
Meanwhile the Lynch family and the current Citigold board have shown great resilience in raising capital. There has rarely been a year without a placement or a share issue, so Citigold now has an issued capital of 1.1 billion shares and the Lynches have been diluted in the process.
Those capital raisings never raised more than $10 million, which was enough to fund exploration and working capital, but were never enough to fully develop the main Charters Towers mine. Mark must have bleeding knuckles from knocking on doors around the world looking for an investor with a big wallet. Interestingly, Australian financiers and miners have been notably lacking in enthusiasm.
The directors always had to find bigger fish, but never quite landed one. At the float of the original Charters Towers Gold Mines NL in 1993 the big fish was Queensland Industry Development Corporation, which chipped in $26 million.
But QIDC was then taken over by Suncorp just as the gold price fell to $US280 an ounce. Suncorp took one unfriendly look at QIDC’s Charters Towers investment and appointed receivers. After a legal brawl, the Lynches settled with the receivers and regained control.
In 1998, Princeton Economics International Ltd of the USA was going to buy a majority share in Charters Towers Gold Mines. That rescue struck two problems. The first was a report by Snowden Associates to the receivers, saying “the underground project [the Central mine} remains an exploration project and not a mining project”. The second was that Princeton went into receivership in 2000 with its chairman in a New York jail for alleged frauds involving Japanese promissory notes.
Eventually the Lynches unwound that disaster by buying back Princeton’s shares and repaying the Princeton receivers a $7.5 million debt.
Several other big fishes also flopped back in the water. In 2008, Citigold announced a $35 million raising from Dubai Group. The second chunk of that was supposed to be a $15 million convertible note issue, but never happened.
In 2010 Citigold announced it had raised $2 million by placing 20 million shares with China’s Zhaojin Mining of China and was continuing negotiations for a larger deal, but Zhaojin did not proceed. In the same year Citigold said it was in the final stages of an $18 million raising through RB Capital Group of Singapore and Khandwala Securities of India, both of which fell over.
And in 2012 Citigold announced a $50 million raising agreed to by Reignwood International Investment Company had failed also.
The lone success was a $10 million raising from Liongold Corporation of Singapore, which resulted in Liongold becoming Citigold’s largest shareholder with 18 percent. The result of these numerous raisings was that the Lynch family became progressively diluted, now holding only about 8 percent, and Citigold has become an open register company.
On Monday, Citigold directors are hoping directors will approve the $100 million Express-Link deal. Express-Link has so far advanced only $3 million, with the rest coming in tranches over 21 months.
When Pierpont asked Mark if Express-Link could just leave its $3 million investment and walk away from the rest, Mark said that couldn’t happen under the deal.
Express-Link has the right to conduct a review of the company. Mark told Pierpont that the review could only be conducted after the $100 million had been committed, so Citigold had its foot on the funds, and that any such review would be about “making future management decisions”. Mark’s quite happy about the deal, saying: “If you stay in the race long enough, you can achieve extraordinary things”.

1. Pierpont, the main risk is that the financing is in convertible bonds. BDO Corporate Finance, in its expert report to investors, noted that if Express-Link decides not to convert the bonds into equity, it could demand repayment of the $100 million, and if Citigold could not meet the demand it might be in risk of insolvency..

If the bonds are converted, Express-Link could gain 51 percent of Citigold. The bonds are convertible at 7c, but various terms of the bonds, including interest payments and concessions, could reduce the effective cost to 4.73c, so investors would receive no control premium for the effective takeover..
Which may explain why Citigold shares are currently languishing at 4.6c. Which also means that all those who subscribed to all those raisings in the past are probably now out of the money.
Investors may be unhappy about the deal, but given the fact that Citigold has been hawking the deposit around the globe for at least 15 years, it’s probably the best they can get.
Even if it all goes ahead, it will be a long wait for a dividend. Citigold says the development of Charters Towers has so far cost $200 million. The total development will cost $230 million more. So if Express-Link stumps up its whole $100 million, there’s still $130 million to go, which Mark says could be financed out of cashflow.
To finish on a bright note, Citigold made a maiden profit in 2010. It was $73,177, and no, Pierpont hasn’t forgotten any noughts. It has yet to make another.
Pip! Pip!
Pierpont