In a statement yesterday, Gympie said although time had not allowed all issues to be fully evaluated, it was recognised that the situation could ultimately threaten the future of Southland Coal and will have serious financial implications for the Gympie Gold Group.
KPMG's Joseph Hayes and Murray Smith were appointed voluntary administrators to the group yesterday and HSBC Precious Metals (Australia), acting as agent for the company's corporate loan facility, appointed Andrew Love, Peter Geroff and Allan Lewis of Ferrier Hodgson as receivers and managers.
"Despite cash on hand currently and the strong outlook until the last week for future cash flows in light of increased US dollar coal prices, the current emergency at the Southland colliery has caused a rapid and substantial in the group's financial position and prospects," Gympie said.
The administrators plan to convene a meeting of creditors within five business days, and over the coming weeks will review the group's financial position and likely report to creditors again the next month or so regarding the group's future.
The first signs of trouble at Southland surfaced on December 23 when gas monitoring equipment detected elevated gas levels in the mine, triggering precautionary actions under the mine's safety management plan.
By the next day, Christmas Eve, it was apparent the situation had developed into a serious safety risk and the mine was evacuated. Gympie said it appeared the mined-out area adjacent to the current SL4 longwall panel and developed a "heating", indicating increased potential for spontaneous combustion of in situ coal.
On Christmas Day the heating worsened and a fire began underground, which was suppressed by further changes to mine ventilation. Two days later on December 27 suppression gases were pumped into the mine using a GAG jet engine to try and starve the fire of oxygen and the colliery was sealed.
Although the seal allows re-entry or ultimately permanent closure, Gympie has warned that in light of the rapid escalation of the heating into a fire and the subsequent emergency situation, it may be unsafe to re-enter the mine for a "protracted period".
Production is unlikely to resume for at least some months, which, as the group's primary source of net operating cash flow, will have a substantial impact on the company.
"The cost of re-establishing production at the Southland colliery, if proved feasible, cannot presently be quantified, but is likely to be substantial," Gympie said.
"It is not possible to quantify the amount to be recovered from insurance at present, and in any event the insurance recovery will not be immediately received."
The second tranche of Gympie's recent $25 million placement to cover losses from last financial year will no longer proceed, and Gympie said alternative sources of financial support have not been forthcoming.
A working group has been formed to evaluate the status of the fire and damage to mine workings and equipment. Directors and management are reviewing the situation and holding discussions with major suppliers, lenders and with other interested parties to determine the immediate course of action.
Timeline of Southland emergency
December 23: High gas levels detected and mine evacuated of personnel.
December 24: Situation deemed serious safety risk. Mined-out area adjacent to the current SL4 longwall panel develops a “heating”. Gympie informs key stakeholders, emergency services, community near the mine and the Australian and London Stock Exchanges of the problem.
December 25: Fire commences underground. Suppressed by changes in mine ventilation.
December 27: Further containment of the fire as suppression gases are injected into the mine. Mine in process of being sealed to allow for both, re-entry or ultimately, permanent closure.
December 29: Gympie Gold announces securities are suspended form official quotation.
December 30: Gympie Gold announces it has gone into voluntary administration.
