Gill Marcus, chairwoman, Western Area
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Western Areas plans R700m capex
Allan Seccombe
Posted: Wed, 19 Apr 2006

[miningmx.com] -- GOLD miner Western Areas has a capital expenditure programme of R700m over the next three years at its South Deep joint venture mine and plans to issue shares to raise the money, chairwoman Gill Marcus said on Wednesday.

Western Areas’ capital expenditure is R207m for the 2006 financial year, exactly what was left in the company’s coffers at the end of 2005.

Western Areas has to find a further R493m to pay towards increasing South Deep’s production, currently the subject of a feasibility study, and reducing its crippling hedge position.

One of the options to raise cash is to issue 10% of the current 154 million shares for cash, which at today’s prices will realise just shy of R700m, Marcus told Miningmx.

“It should give us sufficient capital for our anticipated expenditure…. we think this will see us through until we become cash positive, which should be 2008,” Marcus said.

“It helps us with capital expenditure and what we need to feed into the hedge.”
Kebble's the only man I know who could turn gold to dust
It is critical for Western Areas to fund its portion of capital expenditure because under the Joint Venture Agreement its percentage participation in the project could be diluted if it fails to meet its obligations.

This will be the second rights offer in less than a year. In December Western Areas raised R639m through an 88% oversubscribed rights offer of 35.5 million shares. The funds paid off debt to JCI and capital expenditure.

Western Areas has spent R1.8bn between 2001 and the end of 2005 at the South Deep mine it shares with Barrick. South Deep has reserves of 29 million oz and expects to produce 553,700 oz of gold this year at a cash cost of R68,570/kg.

Marcus, a former deputy finance minister and deputy reserve bank governor, joined Western Areas in November and has been hailed for helping turn the badly managed company around after Brett Kebble was ousted as CEO in August. Kebble was shot dead under mysterious circumstances in September.

The cleaning up of Western Areas has lured Harmony Gold to buy a 29% stake in the company last month and speculation is rife that Harmony will ultimately take it over. Some analysts were sceptical about Harmony's decision, saying at the time the Western Areas hedge book had a negative mark-to-market value of R2bn and there was hefty capital expenditure looming.

Marcus said there had not been talks with Harmony about increasing its shareholding through a preferential take up of the newly issued shares, which shareholders will vote on at an annual general meeting on 10 May.

“I’m sure whatever the dilution is it would not go below 25%. That would be something we would be very clear about,” she said. “We’ve not discussed anything about preference over the buying of shares or anything like that.”

Harmony CEO Bernard Swanepoel has been invited to join the board after the AGM, she said.

“I’m sure he’ll accept,” she said. “As a major shareholder he will add value with perspective of it doing well. It is a major asset for him.”

Swanepoel told Miningmx he would like to join the board but the decision is not his to make. "My inclination would be to accept, but that is really a decision I would have to discuss with my board."

Harmony's board will meet before May 10, where the matter will be decided, he said. "It will be a good indicator we intend to have a cooperative relationship with Western Areas. It will allow us to stand closer to our nearly R2bn investment."

Harmony had not been approached about the share issue, but would decide closer to the time whether to participate so as not to dilute its stake, increase its holding or let it be diluted. "We haven't taken any of those decisions yet," he said. The Western Areas board is still deciding how best to deal with its toxic hedge book set up in 2001 and which expires in June 2014. In 2004, 83% of attributable production went towards the hedge, dropping to just over 70% last year. This year it should be 53%, dropping steadily to about 31% in the last few years.
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“The best way, in my view, to address the hedge is to increase production,” Marcus said. “We are midway between two points, is it easier to go forward or go back? It may cost more to go back, but it all depends on what happens with the gold price.”

“We haven’t decided what we’ll do but we’ll weigh up all our options.”

Western Areas has instituted action against Kebble’s estate to recover R7.4m for shares that were pilfered from an incentive trust.

“He’s the only man I know who could turn gold to dust,” Marcus said of Kebble.