Eastern Goldfields’ $75m recapitalisation falls through

Eastern Goldfields is at risk of collapse, after the $75 million recapitalisation plan it announced in late September was scrapped today.

In a statement to the ASX, Eastern Goldfields said the recapitalisation transaction would no longer proceed and it would adjourn its annual general meeting, due to be held on Friday, to consider alternatives, including voluntary administration.

Under the recapitalisation plan, Adaman Resources was to provide up to $17.5 million of in-kind services to support short-term capital requirements at Eastern Goldfield’s Davyhurst project, where the company suspended operations in early September.

US investor Hawke’s Point Holdings was also set to take a major stake in the Western Australian gold miner, which was to be renamed to Eris Gold.

Longreach Capital and Ashanti Capital acted as lead managers to the deal, while Squire Patton Boggs acted as legal adviser to Eastern Goldfields.

DLA Piper was brought in by Ashanti and Longreach to act as a legal adviser to the lead managers, Adaman and incoming investors.

Ashanti Capital managing director Rob Hamilton said the funding package would have been used to strengthen Eastern Goldfields’ balance sheet and deliver Davyhurst back into production.

“This funding package, on the information provided at the time, was sufficient to achieve these outcomes,” he said.

Mr Hamilton said the lead managers had engaged in a rigorous due diligence review.

“This included detailed work on revised mine plans, and cash flow analysis to ensure the business was appropriately capitalised to meet the requirements we had communicated to investors," he said.

“Whilst the DD has confirmed the quality of the EGS assets, and in many cases, exceeded expectations for future profitability of the operations, there remains work to be done to structure a transaction that makes sense for incoming equity investors.”

Mr Hamilton said Ashanti was continuing to seek a solution.

“We have worked tirelessly to find a solution for both existing and incoming investors, and will continue to work with all parties to structure a transaction that makes sense,” he said.

Eastern Goldfields was founded by Michael Fotios, who resigned as the company’s executive chairman in late August.

The company is currently chaired by professional director Peter Mansell.

Meanwhile, GR Engineering Services said it had not recieved word from Eastern Goldfields on its capacity to pay back the $7.25 million balanace it owes the contractor for refurbishment work on the Davyhurst gold project.

In August, Eastern Goldfields reached a legal settlement to pay GR Engineering $8.25 million.

Shares in Eastern have been suspended since July 23 while it searched for a funding deal, they last traded at 11.5 cents each.