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» Golds desperately seeking ounces


Scepticism hangs over Wits Gold
Allan Seccombe
Posted: Mon, 27 Mar 2006

[miningmx.com] -- The April listing of Witwatersrand Consolidated Gold Resources (Wits Gold) elicits mixed responses from analysts and fund managers: they either haven’t heard of the company or they regard it with a great deal of scepticism.

Marc Watchorn, CEO of Wits Gold, says the scepticism is unfounded because it is based on the preconceived view of the Potchefstroom gold deposit, known as the Potch Gap, most of which lies at enormous depth and would be awfully expensive to extract.

The common reaction amongst those who’ve heard of the company’s assets in Potchefstroom is to throw their hands up in horror.

“It’s so deep that there’s not a chance, not a chance in hell. The Potch Gap is more than 4km deep. No way is anyone going to be interested in that,” said John Clemmow, an analyst with Investec Securities in London.

Wits Gold has inferred resources of 142 million oz, with 75 million oz in the Potchefstroom area, 33 million in the Klerksdorp area and the remainder south of the Sand River on the Welkom gold field, bordering Gold Fields’ Beatrix mine.
It’s difficult to recommend
“Of our 142 million ounces, I believe about 40% is shallower than 2,500 metres and the major share of that is in the southern Free State,” Watchorn told Miningmx ahead of the listing on the JSE at an unspecified date in April.

More details will be contained in the company’s prospectus due out within two weeks. Wits Gold will to have a 20% free float.

Those who watch the South African gold mining industry remember the early 1980s when a flurry of newly listed companies drilled holes five kilometres deep on the Potchefstroom deposit and considered mining those levels because the gold price was so high.

But then the bottom fell out of the market and fingers were burned.

“Yes, a lot of our resources there are deeper than three thousand metres and come with problems inherent with deep level mining, but about 20% of our resources in the Potchefstroom area are at less than 2,500 metres,” Watchorn said.

Local mining analysts aware of the company are still not convinced.

“I’ll certainly take a look because it’s a new addition to the sector, but I don’t think people are going to rush to buy deep, out-of-the-money ounces,” said a Johannesburg-based analyst. “I sincerely hope the listing’s not a complete flop, but it’s difficult to recommend.”

Wits Gold should have listed in Toronto, where there is a deeper understanding of exploration companies and more appetite to buy their stock, said others.

“It’s very unlikely they’ll be able to raise capital with a listing here. It’s possible, but I don’t think so. Toronto is the place to be,” said Stephen Roelofse, a fund manager at Sanlam Investment Management in Cape Town.

Watchorn declined to be drawn on whether Wits Gold would look at an offshore listing.

“We are a South African company. We have South African assets. Forty percent of our shareholders are BEE (black economic empowerment). It is appropriate to show some solidarity with the South African investment community,” he said.
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There are likely to be local institutional and retail investors keen to add a gold exploration company to their portfolio to give them optionality on the gold price, which is at levels not seen in two decades, something which lured Wits Gold.

"We wouldn’t be in this business if we weren’t bullish about the gold price. All the factors are positive for gold. The big unknown is the South African exchange rate. We are looking at a consistent growth in the gold price through time," Watchorn said.

Wits Gold has R30m in the bank to spend over the next 18 months to two years on exploration, upgrading its resources to the firmer indicated and measured categories.

Wits Gold will focus on four main targets, three in the southern Free State province and one in the Potchefstroom area. All are at 2,000 metres or shallower, Watchorn said.

Should the projects move into mining, a new operating company will be formed. AngloGold Ashanti, Gold Fields and Harmony, which used to own the properties, have the one-off right to claw back 40% of the new company.