From Chaos to Control: Effective Cash Flow Management
Monitoring, analysing, and optimising the inflow and outflow of cash within a business is a vital component of any turnaround. It involves effectively...
Shaft Sinkers Holdings PLC
Shaft Sinkers Holdings PLC was a FTSE listed Isle of Man holding company whose principal business was to raise finance for the sinking and construction of mine shafts and underground infrastructure. The PLC was the ultimate parent company to a global network of intermediary holding and operating subsidiaries (“the Group”).
The Group was one of the first pioneers in sinking vertical shafts in hard rock when South Africa’s gold mining industry started to build the world’s deepest mines. The Group listed through the incorporation of the PLC and successfully raised £30.6 million on the London Stock Exchange. Much of the capital raised was to buy out minority interests and expand the Group’s global operating network and underlying assets.
The Group’s main business was predominately based in South Africa which undertook projects on behalf of established mining and infrastructure companies. Historically, the Group has completed projects in over 20 countries worldwide across Africa, Europe, South America, the Middle East, Asia and Australia.
The majority of the Group’s plant and equipment was held in its South African operating subsidiaries, which includes Shaft Sinkers (Pty) Limited. These activities were also funded by way of term loans from Standard Bank South Africa which conferred fixed and floating charges over the South African subsidiaries’ assets.
Operations ran into difficulty when a large claim was brought against Shaft Sinkers (Pty) Limited and the PLC’s majority shareholder, International Mineral Resources, by a former client, Eurochem. Significant costs had been incurred on the project, which Eurochem were unwilling to pay prior to settlement of their claim. To defend itself, Shaft Sinkers (Pty) Limited instructed solicitors, incurring significant legal costs which were a further drain on the Group’s cash resource.
Operational performance of the Group was also waning. Revenues and pre-tax profits were reported to be £150 million and £2.5 million respectively, down from £193 million and £3.4 million. The Group’s performance was suffered by the deteriorating value of the South African Rand against Sterling and a number of issues at several of its projects. For example:
- The Hindustan Zinc Limited project in India (operated through Shaft Sinkers Mauritius) experienced poor sinking progress, leading to higher than expected costs and lower revenues;
- Ongoing industrial strikes in South Africa hampered project development for its clients Impala Platinum, Royal Bafokeng Platinum and Lonmin PLC (the former two contracts were eventually cancelled); and
- The start of the project in Kazakstan for Kazchrome was delayed.
Given the above, the Group experienced increasing costs and declining revenues. In addition, Shaft Sinkers (Pty) Limited continued to incur significant legal expenses defending the damages claim brought against it by EuroChem. Group’s profitability and cash resource was under pressure resulting in a need for additional working capital. A bridging loan facility agreement was entered into between Shaft Sinkers Belgium BVBA (SSBB) and Hillside International Holdings Limited (a private equity company registered in BVI) (“Hillside”). The loan was guaranteed by Shaft Sinkers Mauritius (registered in Mauritius), Shaft Sinkers Management Co. Limited (registered in the Isle of Man) and Shaft Sinkers International B.V. (registered in the Netherlands) and secured by way of share pledges and debentures. The Group defaulted on the terms of its loans with both Standard Bank and Hillside.
Hillside exercised its rights under the aforementioned share pledges to take ownership of Shaft Sinkers Mauritius, Shaft Sinkers Belgium BVBA and Shaft Sinkers Management Co. Limited. As a result, these companies and their subsidiaries, and the underlying operations and contracts, were no longer owned by PLC. Hillside subsequently sold the shares in these companies to Underground Mining Services.
The PLC announced that, given recent events, there was no value attributable to the equity in the Company and, accordingly, requested for its shares to be suspended from trading on the regulated market of the London Stock Exchange with immediate effect.
The Group announced that it was going to commence with its voluntary winding up and that it had called meetings of members and creditors with the proposal to appoint us as liquidators. Pursuant to section 226 of Part IV of the Isle of Man Companies Act 1931, the members and creditors of the Company resolved to the winding up of the Company and duly appointed us as liquidators.