Shaft Sink Share Discussion Threads

[petersinthemarket] 15/10/2012 17:09

This will strike some as a pretty daft question,
but can anyone see a case for buying shft at the moment?
Not looking for advice, only opinions.

[rcturner2] 15/10/2012 13:06

I find it hard to believe that the eurochem issue could not have a significant impact on shft, insurance or no insurance.

[noirua] 15/10/2012 12:56

SHFT will have covered themselves for any claim against them, note previous posts on insurance obligations, and carrying on the present contracts is the important factor.

Troubles in South Africa will pass as individual agreements are made. There will be losses or reduced profits that should affect the current year only.

Damage to SHFT's reputation is a factor for investors to factor into the companies share price as they see it.

[orb1] 15/10/2012 12:50

As far as i can see there is no basis for summary judgement or court/judge intervention. There is, as I understand it, an arbitration agreement and therefore, with the exception of enforcement (or possible appeal on a point of law), no jurisdiction for the courts at all. If it proceeds to trial, the issues will be heard and decided by an arbitration tribunal most likely 3 arbitrators with an independent chairman and an arbitrator appointed by each of the parties. This can take some time.

[rcturner2] 15/10/2012 12:35

The trouble is that the only way to strike out a spurious claim is to apply for summary judgement. If you lose (ie the judge says you must go to trial) then that can well be seen as a black mark, so you have to be very sure that you will win to apply for summary judgement.

[muckshifter] 15/10/2012 12:13

Agree with that RCTurner, unless the contract is under a legal durisdiction which has a provision to deal with a spurious claim, if that's what the Eurochem one is.

Years ago, I was effectively the instigator of a court action against one of the UK's biggest contractors who came up with a spurious £6m counterclaim in order to try not to pay my company (a subcontractor) an account for approx £120,000 for a final months work. They tried to push the case into an arbitration, hoping we would run out of steam after a year or two, but our lawyer said it was a clear cut case under a particular clause and we won (10-0 I reckon the score was). So if it is a spurious "counterclaim" and the contract is under Swiss law, it might be a faster settlement than we think.

But I personally doubt that it is spurious. The bits I noted in post 1515 above about shft trying to negotiate new terms during the period of the delay look a bit ominous to me.
Regards.

[rcturner2] 15/10/2012 11:47

The problem with litigation is that you will have uncertainty about the outcome for quite a long period of time.

I say this as someone who has been involved in litigation for many years.

[hectorp] 15/10/2012 11:42

muckshifter thanks for the comprehensive post which is in itself a small course on mining conract issues.

RCTurner , yes it is the combination of the Eurochem situation and, the SA mining crisis which has caused this very powerful slide in share price. Clearly this is going to overshoot to low valuation, and at some point, today, next month or whatever , the risks will be factored in. The key risk to me is not Eurochem which I still see as the secondary risk.. but we can see there may be a very poor income stream in 2013 and the company shall miss guidance.
It is a long time however, to say spring 2013, and I suspect SA mining situation will have calmed down by then.

One small point about the litigation, surely in Court, the judge is going to consider, to what extent did Eurochem make every effort, to conclude an acceptable hole drilling contract with SHFT?

H.

[rcturner2] 15/10/2012 11:13

It is going to be a while before this hits the bottom I think.

[john09] 15/10/2012 10:59

A bad day here

[rcturner2] 15/10/2012 10:42

Thanks rimmy - so plenty to worry about here given the state of the SA mine industry right now.

[rimmy2000] 15/10/2012 10:36

about 80(ish) percent of revenue from South Africa.



see slide 10

[rcturner2] 15/10/2012 10:28

Does anyone know what percentage of SHFT's revenue is from South Africa alone?

[muckshifter] 15/10/2012 10:16

Wasn't shft, or Eurochem, who "told you" that though was it Noirua, as it's rubbish.
Regards.

[noirua] 14/10/2012 17:51

I'm told that Eurochem would have gone for the best option in suing Shaft Sinkers, as allowing them to continue very slowly indeed may not have have produced a successful financial outcome for them. They would be aware that insurance cover both for them and SHFT would allow for a far greater pay day, and worth going for.

The sum that could be awarded to SHFT would be very low compared to an award to Eurochem. Neither side would be allowed to do other than, for insurance reasons, support the fact that the other has 100% liability.

[buywell2] 13/10/2012 11:24

Meanwhile the Mining Industry in South Africa goes into meltdown .... contracts for SHFT will be VERY difficult to come by when pits are being closed.

Margins on contracts will reduce to wafer thin .... just to survive


Gold Fields Warns of Gold Industry Overhaul as Strikes Persist
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By Alex MacDonald


LONDON--Gold Fields Ltd. (GFI.JO) said Friday that the ongoing illegal strikes in South Africa have increased the likelihood that the South African gold mining industry, including Gold Fields, will have to undergo significant restructuring that could result in possible mine and shaft closures.

South Africa's three largest gold mining companies--Gold Fields, AngloGold Ashanti Ltd. (AU) and Harmony Gold Mining Co. Ltd. (HMY)--have increased their profitability due to rising gold prices. But the need to dig deeper in South Africa to find gold coupled with rising energy and labor costs has crimped the profitability of more marginal mines in South Africa.

On Thursday, the three mining companies jointly tabled a wage increase proposal to their workers that was met with mixed reaction partly because the workers may not have been properly told the full scope of the offer. The mining companies gave the workers until Monday to consider the wage proposal in full before rendering a verdict.

Gold Fields said Friday that the illegal strikes have already negatively affected its operations. The company estimated that it may have lost about 35,000 troy ounces of gold production due to illegal strikes during the third quarter ended Sept. 30 after it shut down its KDC West and Beatrix mines. Company spokesman Willie Jacobsz said KDC and Beatrix account for more than half of the company's South African gold production capacity.

"The ongoing unlawful strike action in South Africa is of concern and will, even if resolved in the near term, increase the likelihood of major restructuring in the South African gold mining industry, including at Gold Fields," the company said in a statement.

Mr. Jacobsz reaffirmed that any restructuring would most likely involve shutting down mines and shafts that are considered high cost and therefore marginal. Gold Fields employs about 40,000 workers in South Africa, of which more than half are on strike, he said.

"The probability of closures is very high," Mr. Jacobsz noted. "There are [Gold Fields] shafts that were very marginal prior to the strike. Those are the ones that are at risk in particular" of being closed, he added.

The company said Friday that it expects to report on Nov. 26 that third- quarter gold output dropped about 6% from the previous quarter to 810,000 ounces with its international operations accounting for 424,000 ounces and its South African operations accounting for 386,000 ounces.

Gold Fields' South African operations are forecast to produce nearly 12% less gold in the third quarter compared to the previous quarter due to the illegal strikes and another 30,000 ounces of lost production stemming from a fire at the YaRona Shaft at the KDC mine.

Gold Fields' international gold production is forecast to drop by 1,000 ounces in third quarter compared to the previous quarter following a two-week closure of its heap leach facilities in Tarkwa Gold mine in Ghana.
Gold Field's shares closed Friday down 1.2% at ZAR106.64 a share resulting in a market capitalization of ZAR79 billion, or $9 billion.

[muckshifter] 12/10/2012 18:06

As with everyone else here, I've no idea what the detailed contract terms are as far as Eurochem are concerned, but had a look at various documents on shft's website today and found comments about the Eurochem contract:
"We are currently in discussions with the client to amend the contract in order to align the contractual terms with the physical conditions encountered." Which does not sound like a company which has the situation all sewn up.

Four months later:
"due to the continued slow progress resulting from extremely difficult ground conditions previously announced, it (SHFT) has entered into discussions with its client EuroChem with a view to amend or terminate the contract. Sinking works have now been suspended and the parties are in negotiation on the way forward." Same comment.

And from the prospectus in December 2010:
Under summary of risk factors, of about fifteen factors, only one mentions a specific contract:
"• Reliance upon the successful completion of its contract with EuroChem;" which again doesn't sound good.

"Other sinking companies use alternative techniques such as freezing (the sinking of a series of surrounding large diameter holes and injection of a refrigerant to freeze the surrounding ground)." ie. as I thought shft don't do freezing.

"Contracts are based either on conditions generally accepted in the industry (such as FIDIC or NEC) or on a client's in-house conditions as varied by mutual agreement. Common variations include provisions relating to over-runs, liability limitations, cost escalation (for wage increases, raw materials price increases, poor ground conditions, water/gas intersection and other factors), ownership of the plant and equipment, bank guarantees, performance bonds, warranties, advances and payment terms. The individual contract terms negotiated inevitably reflect the particular circumstances and demands of each client and the Group's perception of the overall balance of risk and reward.
Margins depend on the nature of the project, services to be provided and the jurisdiction involved. Margins are typically higher on shaft sinking contracts outside South Africa and lower on contract mining services within South Africa.
Where the client uses strategic assets owned by the Group such as winders, the Group will normally retain ownership of the underlying asset and charge a usage fee equivalent to depreciation with a view to fully depreciating such assets over the course of the contract.
Many contracts provide for extension in certain circumstances as the scope changes. Almost all of the Group's existing contracts include liability caps limiting the Group's exposure in the event of an overrun."

NB. note the Almost in that final sentence about Contract terms.
I doubt if this contract is under either Fidic or Nec terms, it's probably job specific terms negotiated between Eurochem & shft, based on a Eurochem starter document.

None of that stuff would make me confident if I had shares in shft, so best of luck to those who have.
Regards.
PS. If, as looks possible, the contract is under Swiss law, there is a possibility that Swiss law would have a provision to deal with a spurious "counter claim" if that is what Eurochem are doing, but personally I doubt that is the case.

[hectorp] 12/10/2012 17:24

Agree with muckshifter there are too many unknowns regarding the nature, duration and cover or otherwise, relating to the Eurochem issue.
If it were not for that alone, the other problems strike me as offering us a recovery bargain at today's price. However we closed below the last support line ( need Monday close to confirm however).

The Eurochem situation, now means I am like many, tied in with my position here tied up ( about 6% of my folio) till I can see clear light above 65p area. IF this goes to Arb, it can take a year or two ( witness HOIL V the Gov Of Uganda).
I feel we are in a bit of a mess. Nothing else I can add , sorry.
Let's all have a cup o' tea and a biccie.
Sorry Buywell no biccy for you.
H.

[buywell2] 12/10/2012 16:47

SHFT share price is now entering uncharted waters

A new low at some point will be hit

It is now in the 'Punt' category , strictly for gamblers who don't mind playing the 'catching falling knives' game.

If it were just 1 negative , ie SA mining industry going through the wringer then perhaps the number of punters might be bigger.

But with what could be a killer court case coming as the facts are NOT known by posters here ..... punters are few and far between.

Chart saw NO bounce from the fall to 40p whatever.

This was I think a prelude of what could now come .... ie a slow but steady stream of sellers coming to terms with what is happening.


Conclusion

The Mining sector is one to AVOID just now

[redbraces] 12/10/2012 16:08

Yes,

Come and join mine!

[petersinthemarket] 12/10/2012 16:02

Anyone know where I can find a nice high ledge to jump off!

[old tyke] 12/10/2012 10:46

Nap 14th
well said!

[napoleon 14th] 12/10/2012 01:08

Hope you're right about Zurich & Paris, mucker!
Much prefer that...