In the media
Pan African & Wits Gold buy Evander from Harmony: Jan Nelson (Pan African Resources) & Philip Kotze (Wits Gold) [SAfm]
30 January 2012
‘We've been for the past three years trying to prise this out of Harmony’s hands.’ - Jan Nelson
HILTON TARRANT: Both companies have been trading under cautionary for some time – Pan African Resources and Wits Gold today announcing the acquisition of Evander Gold Mines from Harmony for a total consideration of R1.7bn. Philip Kotze is chief executive of Wits Gold, Jan Nelson chief executive of Pan African Resources.
Jan, obviously a company-changing transaction for both companies. From a Pan African Resources point of view, what does this acquisition of effectively 50% of Evander do to Pan African?
JAN NELSON: I think what it does is it earns another 50 000 ounces of attributable production per annum to Pan African. It's a high-grade mine, so there’s a fair good margin, and then what it also does it adds another 34m ounces in terms of the project pipeline that we've got in Evander, projects that are very shallow and can be developed very quickly. We are also gaining an experienced management team and workforce at the mine, and then we are also gaining an attractive partnership with Wits Gold. One of the issues of junior gold-mining companies is access to skills and I think this transaction also gives us access to some of their excellent skills sets.
HILTON TARRANT: Philip, your point of view – you're fairly new to the chief executive chair at Wits Gold. Wits Gold obviously up until this point hasn’t been a producer. Is that as simple as the change for Wits Gold?
PHILIP KOTZE: Hilton, yes, I joined the company in September last year, so you are correct in very new to the position in Wits Gold. This is a company change of life, because the company has been an exploration company from 2006 and to that extent didn’t have any opportunity to generate positive cash flow. So it basically turns us into a producer overnight, and we hope that we will get a commensurate rerating of the stock as well.
HILTON TARRANT: Jan, from you side , from Pan African’s side, were you the lead in trying to make this transaction happen? Take us through the history of this. Did you approach Harmony, did Harmony try and find a buyer for this asset?
JAN NELSON: No, we've been for the past three years trying to prise this out of Harmony’s hands. I think it's prudent to say that management from both Wits Gold and Pan African have worked on Evander in management positions. Philip was the operations director for Evander when he worked at Harmony, and I was the mineral resource manager there, and some of our management the shaft managers there. So we, I think collectively as a pool, identified quite some time ago that this was an asset that we wanted. Pan African started this process three years ago. But I think it's important to say that there’s no way we could have done this ourselves. We've been engaging with Wits Gold over the last six to seven months, and I think a lot of questions have been raised in the junior sector about how the juniors are going to grow. They don’t have enough cash resources to buy a quality asset, and I think this is a game-changing in the South African junior space in terms of what Wits Gold and Pan African have done. There is no way we could have done it separately, so I don’t think you can detract from either of the partners. I think the great thing is we have put together a very good proposal for a quality asset, and we are doing it together, which we believe is a first in the South African mining junior industry.
ALEC HOGG: Jan, you mentioned the cash resources there. Philip, from a funding point of view, R1.7bn, a total transaction cost here. It's made up of a number of payments, the bulk of which is a R1.4bn payment, less certain distribution. On the closing date of the transaction, which you hope will be on 1st April, how are you going to fund this transaction?
PHILIP KOTZE: Hilton, let me first say the effective date is the 1st April, but the closing date we expect to be in the region of October to December. So the way that we structured this transaction is at R1.4bn that will be payable on closing. All the profits and losses that will accrue from the 1st April will come to the consortium. That means that by the time that we have to pay the R1.4bn, if we just look at what Evander has done in the last quarter, chances are fairly good that we might have in the region of about R200m in Evander, and that would be deducted from the R1.4bn to be paid. Having said that, we've got a facility of R800m that we would be putting in on the Evander company itself, so that won't be for Pan African or for Wits Gold. And then that leaves, if the number is still at R1.4bn, R600m that must be funded by the consortium partners – R300m for us and R300m for Pan African. On Wits Gold side we really want to sort of keep our shareholders on board. They’ve been waiting for this for quite some time, so we potentially will go out with a rights issue. But we haven't taken the final decision on that.
HILTON TARRANT: Jan, from your side – the funding of he remaining roughly R300m?
JAN NELSON: Well, Pan African currently has a debt facility in place for R150m, which we can increase to R400m on Barberton. So we could do the entire transaction out of debt and not go to our shareholders for equity. But our company belongs to our shareholders. We will engage with institutional and retail shareholders now and get a sense of what their appetite is. And, based on that, we will then make a decision as to either equity or debt or perhaps a split between the two.
HILTON TARRANT: Jan, as a producer currently, and as one of the low-cost producers in the market, what does the acquisition of effectively 50% of Evander do to your cost structure and your cost of production?
JAN NELSON: Well, currently Evander is running at a total cash cost of R208 000/kg. Barberton is sitting at R165 000/kg. But they are slightly different ore bodies. We believe that is a low cash cost margin for Evander and, if you look at the total resource base we think that more than sets off – and we think there is still room for improvement. There’s a very good management team, so I think we are very comfortable with those levels of cash costs.
Source: http://moneyweb.co.za/mw/view/mw/en/page295799?oid=560789&sn=2009+Detail&pid=287226