Marc Watchorn, CEO, Wits Gold
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Pressure on Wits Gold, CRG
Brendan Ryan
Posted: Wed, 23 Jan 2008

[miningmx.com] -- WITS Gold and Central Rand Gold (CRG) seem to have fallen from favour with investors, paradoxically at a time when market conditions are running their way.

Both are exploration companies offering investors "blue sky" exposure to gold projects in South Africa that a few years ago looked highly unlikely to get off the ground.

Wits Gold controls a number of deep-level projects in the Free State and North West Province hosting gold reefs at depths down to 4km. CEO, Marc Watchorn, said in November that five key projects had been identified that were believed to contain "elevated" gold grades at depths of less than 2,500m below surface.

Last week, he added that at least "one-third" of Wits Gold's resource was located at depths ranging from 500m to 2,000m. The company was about to begin a pre-feasibility study on its resources in the Free State, but Watchorn says it would be premature to talk about the economics of such a project.

Yet Wits Gold's price plunged from an all-time high of R180 in November to R102/share in December despite the surge in the gold price over that period to challenge the record of $850/oz set in 1980.

Its price has now recovered some lost ground, getting back to levels around R135/share as gold has continued on up to breach the $900 level.

At rand gold price of near R200,000/kg, the projects owned by Wits Gold may still not fly but they look a lot more feasible than they did at around R100,000/kg when the company listed in mid-2006.

Central Rand Gold

CRG listed in London and Johannesburg in November 2007 and raised £75m through an equity issue at 125p/share. Its London share price has dipped slightly to 120p currently, but its price on the JSE has dropped from 2050c to hit 1500c/share earlier this month from which it has recovered slightly to current levels around 1600c.

CRG is looking at restarting operations on its gold field immediately south of Johannesburg incorporating parts of old mines, including Consolidated Main Reef, Langlaagte, Crown Mines, Village Main, Robinson Deep, City Deep and Simmer & Jack.

Various gold juniors tried to restart operations on some of the old Witwatersrand gold mines in the mid-Eighties but none survived. Re-opening old gold mine workings often turned out to be far more difficult than anticipated.

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The risks involved are considerable and the CRG prospectus spelt them out, including: "There's no guarantee that the group will be able to establish economic reserves and/or undertake gold mining on an economic basis."

Others were that "the actual costs of developing and operating mines may differ from the group's current estimates and the profitability of the group's operations and the cash flows generated by these operations will be affected by changes in the market price for gold".

The competent person's report by Australian consultants Snowden noted the work on gaining access to old workings and the compilation of conceptual studies to recover ore from underground "is still in its infancy".

Snowden reported the project had the potential "to be a world-class gold producer but at the same time will have to deal with a range of challenges, including its location within the Johannesburg City precinct, accessing a vast extent of old mine workings, upgrading the mineral resource estimates and commencing the process of defining mineral reserves. Despite these challenges, the project holds the promise for a multi-million ounce gold project".

Central Rand CEO Greg James says the prospectus assumed a long-term gold price of $580/oz at an exchange rate of US$1/R7 - equivalent to R130,000/kg. So the current gold price should be a large plus factor.