Obviously, the economy and businesses in this country will have to restructure in the months to come as they absorb this body-blow. The negative impact may in some cases be too much to absorb and there are predictions that many businesses will be liquidated.
This is simply not a viable option for mines, as mining rights revert to the state upon the final liquidation of the company holding the right, thus stripping out the most valuable asset, which is the right to access and exploit the minerals.
Business rescue has as its fundamental aim the preservation of the business in a revised form. It creates a moratorium on creditors claiming payment and puts the restructuring in the hands of an expert. But it takes time and great expense to restructure a mine, during which all statutory and regulatory compliance must be maintained. Even a small mining operation put out of production during its business rescue may spend several million rand per month on care and maintenance.
When restructuring businesses, it is best to do it as early as possible when more options are still available. Boards of directors should not delay in looking at their financial positions, as section 129(1) of the Companies Act requires them to continuously determine whether they can pay their debts in the ensuing six months, failing which, this triggers financial distress and obligations on directors to act. One cannot underestimate the negative impact of Covid-19 on businesses and a failure to continuously assess financial distress could be reckless.
Mines are capital hungry businesses with massive overheads. Restructuring may be required because of an inability to access capital, leading to solvency issues, or because there is a lack of liquidity. Restructuring may take many forms. At one level it may need the re-negotiation of funding covenants. At a more operational level, it may mean the right-sizing of overheads, reduction in employment or the moth-balling of unprofitable operations. At a strategic level, mines may want to merge in order to capitalise on economies of scale, centralisation of services, the pooling of mineral resources or access to beneficiation plants.
It is at this level where the Department of Mineral Resources and Energy (DMRE) and other governmental agencies may come in to assist by throwing a regulatory life line to ailing mines. Here are some suggestions:
There is precedent for this. We have seen how quickly our government can act in response to the pandemic. Other countries have already implemented and proposed similar regulatory holidays to combat the annihilation of their economies. It goes without saying that to achieve a more streamlined restructure of the mining industry, while at the same time aiming to preserve it, requires the urgent creative and collaborative efforts of government, industry and labour.
