Wits Gold may seek R450m in rights issue

David McKay | Tue, 31 Jan 2012 16:32

[miningmx.com] -- WITS Gold may tap shareholders for up to R450m and introduce new ones in an effort to boost the share’s liquidity, CEO Philip Kotze said on Tuesday.

He was commenting a day after unveiling – in joint venture with Pan African Resources – a proposal to buy Evander Gold Mines from Harmony Gold. Depending on the rand gold price over time, the deal could cost up to R1.7bn.

“I think the maximum we may ask for is R450m. If all shareholders follow their rights, there’s obviously no dilution,” said Kotze. “However, I may take the opportunity to introduce new shareholders [in a share placement],” he added. No decision had been taken in this regard, however.

Some R800m of the deal is debt financed, which means Wits Gold and Pan African Gold are only required to pump in R300m in cash each.

However, Wits Gold – which had cash of roughly R131m – has to pay R50m to Harmony for property south of De Bron-Merriespruit (DBM), while Kotze said the company was also hoping to “clean up some mineral rights”. Working capital requirements could top R150m.

So far, Wits Gold’s empowerment shareholders agreed to follow their rights, including Continental Africa Gold Resources through which the ANC's Chancellor House has a stake, and roughly 7% in Wits Gold owned by Sipho Nkosi’s Tranter Kismet Investments.

Harmony has a 12.68% stake in Wits Gold after it converted an option valued at R268m, structured originally to allow it to participate in 40% of Wits Gold’s southern Free State assets.

Harmony’s interest in Wits Gold assisted in deal completion. “We became seriously involved in this in about November, but Jan [Nelson, CEO of Pan African Resources] has been following this for three years,” he said.

Kotze said the rights issue would be complete in about three months. A share re- rating might take longer, however. Shares in Wits Gold were up R1 following the announcement yesterday, and didn’t trade today.

JUNIOR MINERS

The pre-feasibility study on DBM is likely to be published in the middle of this year; a development Kotze said would show a 27% improvement in the resources of the project, to just over 7.5 million ounces.

Included with Evander, which Kotze believes has a payback at the current rand gold price of about three years, Wits Gold will eventually produce about 250,000 oz annually including the attributable contribution from Evander. For its part, Pan African Resources will produce about 145,000 oz, which includes output from its Barberton mines.

Although styled as a shot-in-the-arm of South Africa’s gold junior industry, the scale of these two companies is still fairly modest, and raises the question as to whether they might just as well be combined at some future point.

Said Kotze: “I think the market will be saying exactly that and we initially looked at that.” Kotze added that he and Nelson were “relatively simple people” with no chance of egos “getting in the way”.

“Jan and I, having already worked together at Harmony Gold, have a like-minded approach. In three to five years, there could be lots of reasons to combine the companies, but it’s not on the agenda now especially as Wits Gold is looking for a re- rating,” Kotze said.