CENTRAL RAND ORD 1P (LSE:CRND)

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Today's high: 10.500
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Central Rand Gold survival in doubt

Central Rand Gold (CRND) saw its shares drop almost 50% in value on Thursday after it issued a statement doubting its survival unless the South African government helped with the rising Acid Mine Drainage (AMD) problem.

The AIM-listed firm said it had repeatedly received "strong indications of support" from the government with regards to providing funding for the problem and that it was supposed to communicate its decision by early January 2011. As yet, Central Rand Gold said no formal undertaking had been received from the South African government.

It added that recent heavy rains and flooding in the Gauteng province had exacerbated the AMD issue and accelerated the rise of the water table and as such the need to act is even more urgent.

Central Rand Gold said that, together with other affected mining companies, it was keen for the first phase of the construction of a submersible pump station to get underway. The pump would have the ability to lift 72 megalitres of AMD per day and is the first phase of an interim solution being considered by the government.

The plan then envisages the water will be partially treated through an existing high density sludge plant at East Rand Proprietary Mines. The full cost of this project is estimated to be $26 million with the contribution from Central Rand Gold amounting to $4 million.

But the firm said the project needed to commence before the end of the first quarter of 2011, otherwise the existing resource base above 250 metres below surface (mbs) would not be protected.

It added that it had already ordered the submersible pumps at a cost of $4 million, but that it could not shoulder the burden of the "legacy from 120 years of mining along the central area of the Witwatersrand" and complete or operate this project on its own.

Without clear commitment to the joint project by the other parties in the first quarter of 2011, Central Rand Gold said it faced the prospect of inaccessibility to its reserves below 250 mbs by the end of the year.

"The uncertainty surrounding government participation affects the viability of the company," it said, "and until clarity emerges the board believes it is essential it adopts a prudent position with respect to its capital resources and operations," it concluded.

Over on the Interactive Investor Central Rand discussion board, investors were perturbed.

Poor picker said: "As shareholders and following the RNS we have every right to write to the South African government complaining about their stance on the matter of the pumping station. I have written to Central Rand Gold asking for the governmental department concerned and relevant contact details."

Cockadoodledo added: "The South African government won't go out of its way to help Central Rand Gold, but it will need to go out of its way to sort the wider AMD issue. If that happens the knock-on effect for Central Rand Gold will be huge, but the clock is starting to tick loudly now."