In the media
Wits Gold, Pan African partner to buy Evander [Business Live]
31 January 2012
Author: Jacqueline Mackenzie
In what is believed to be a first for the junior mining sector in South Africa, Wits Gold and JSE and AIM-listed Pan African Resources have formed a joint venture to purchase a major asset.
The two companies are to pay R1.7 billion for gold miner Harmony's entire interest in Evander Gold Mines. The aggregate purchase consideration excludes the proceeds of the Taung Gold transaction.
At the close of business on the JSE, Harmony's share price was R95.40 - up R1.40 or 1.5%, Wits Gold was at R40, up R1, or 2.56%, while Pan African Resources' share was down 4c, or 1.9% at R2.06.
The transaction represents an attractive value proposition to the consortium and will provide Wits Gold with an immediate increase in attributable gold resources and reserves.
"Undertaking this transaction as a consortium has created the opportunity for Wits Gold to bid for a better quality asset, at a lower risk and financial exposure to the company," it said.
Located in a sub-basin outside the main Witwatersrand Basin in South Africa, the Evander gold field has historically produced in excess of 48 million ounces (Moz) of gold at an average grade of 7g/t.
Well known to both management teams, the mine comprises, the operating 8 shaft, three development projects - Evander South, Rolspruit and Poplar - the Kinross metallurgical plant and the Libra surface tailings project. The mine was recently returned to profitability with production of 27,500 ounces at a cash cost of R208,597/kg (US$909/oz) in the latest quarterly figures reported by Harmony.
Evander 8 shaft currently has an expected life of mine of more than 10 years. Evander has an estimated resource of 34.4 million ounces of gold of which approximately 8 million ounces are in reserve.
Pan African CEO Jan Nelson told a conference call that the deal was a culmination of a three year journey, during which the parties had tried to convince Harmony to sell Evander to them.
"We recognise Evander is a quality asset and we have done a number of due diligences and that's why we like it and are making an offer for it," said Nelson.
He added that the management of both JV companies had worked on the asset and they have a good understanding of the asset.
Nelson added that the parties believed they were paying fair price for good value in this asset.
"It's not something we can do ourself, hence the JV with Wits Gold. This partnership is the way to do it and we believe it's a first in the gold junior sector in SA," he added.
"We are getting a producing shaft ... and access to existing projects - I don't know where else in Africa you can get this. We are also getting a highly experienced management team and experienced workforce," he said.
Philip Kotze, CEO of Wits Gold, noted the deal allows Wits Gold to become a producer overnight and the cash generated from this operation will be utilised to partly fund its growth projects.
"Forming a partnership with Pan African has enabled both companies to make an offer for a better quality operating asset with significant upside potential. We look forward to working together with our partners to provide the best value for all our shareholders," said Kotze.
In terms of the purchase consideration, R1.4 billion less certain distributions, will be paid in cash on the closing date of the transaction. Four cash payments of R25 million each will be paid quarterly, commencing three months after the closing date, amounting to a total of R100 million. A further R100 million is then payable 19 months after closing date, provided the average rand gold price exceeds R410,000 per kg over the 12 preceding months. This payment can be made in either cash or shares, or a combination of both.
R100 million is then to be paid 31 months after the closing date, provided the average rand gold price exceeds R450,000 per kg during the preceding 12 months. This payment can also be made in either cash or shares. No payment will be due if the average gold price for the period was not achieved.
Evander has previously entered into an agreement with a subsidiary of Taung Gold Secunda to dispose of Evander 6 Shaft and Twistdraai to Taung Gold for R225 million. The Taung Gold transaction remains conditional approvals from the Department of Mineral Resources.
Once the Taung Gold transaction completes, the disposal proceeds, net of any taxes incurred by Evander, will be remitted to Harmony. It is anticipated that such net disposal proceeds will be approximately R160 million.
The Evander deal is subject to various conditions including the consortium raising the funding comprising of debt and/or equity, shareholder approval and regulatory approvals, including approval from the Reserve Bank and the Competition authorities.
The consortium intends utilising a combination of debt, equity and operational cash flows to settle the transaction consideration. It will benefit from Pan African's specialist operational skill set and from Wits Gold's specialist exploration expertise, as well as the mining experience of both companies' CEOs. They will jointly control and manage the operations through a steering committee with equal representation from both companies.
Commenting on the Evander disposal, Graham Briggs, chief executive of Harmony, said: "Evander would require significant capital to develop the potential projects further. Harmony does not intend spending capital on developing these projects as it is not in line with our growth strategy."
He added that the proceeds from the Evander transaction would assist in the funding of the Wafi-Golpu project - Harmony's major project in Papua New Guinea.