President Steyn decision next Friday

Allan Seccombe | Fri, 12 Jun 2009 16:17
[miningmx.com] -- A DECISION on the preferred bidder for the President Steyn gold mine will be made by 19 June, said Enver Motala, one of the provisional liquidators of Pamodzi Gold’s assets.

The bidding process formally closed last week and Harmony Gold is one of those vying for the mine contiguous to its own Free State assets, which creates synergies that other bidders are unlikely to have.

A second bidder has asked until Wednesday to finalise funding letters, an extension the liquidators have granted. Once the funding is secured the group will be identified.

One of the other bidders for President Steyn is the Sekunjalo Middle East Mining Consortium, which said this week it made an offer of $105m, made up of $75m in working capital and $30m to purchase the asset.

Bearing in mind that Pamodzi bought President Steyn for R300m from Thistle Mining in 2007, the $30m or R242m is unlikely to be viewed favourably by the liquidators who want as much money as they can raise to pay back creditors with which Pamodzi ran up debts topping R1bn.

The $75m would be poured into operating the mine to the benefit of the owners instead of creditors.

A mining source suggested Harmony had offered $55m (R443m), but Motala declined to comment. He did say the Harmony bid was an outright purchase offer, with no capital expenditure built into the figure.

It would take around R300m to bring President Steyn back into production and sustain output.

Graham Briggs, Harmony CEO, has told Miningmx the interest in the mine lay not so much in the existing workings focused on the southern part of the mine where there is largely pillar mining left. The real interest in the mine is the ore body in the northern part of the mine, home to the bulk of the mine’s 12 million resource ounces.

Harmony has processing plants nearby, which mean it could dismantle the President Steyn plant and extract the gold from that. These old processing plants are usually a very rich source of gold left after decades of operation.

Not only that but President Steyn comes with tailings dumps that have gold and uranium, which would slot in nicely with Harmony’s plans to build up a tailings re-treatment operation.

One of the arguments is that by bringing President Steyn into production it would take some pressure off Harmony’s perennially underperforming Target mine, which lies to the north of President Steyn -- and allow management a breathing space to give it a proper tweak.

A second party has made an offer and has been given until Wednesday, 17 June, to come up with funding documentation. Once the funding is in place, it’s understood the name of the group will be made public.

“By the end of next week, the provisional liquidators will have made a decision on which the preferred bidder is,” Motala told Miningmx.

Interestingly, 19 June is also the closing date for bids on the East Rand assets, which comprise three mines and a processing plant. The assets are likely to have become a lot more attractive to potential buyers since an onerous 100,000 oz hedge book within Pamodzi Gold East Rand, a wholly owned Pamodzi Gold subsidiary, was cancelled.

The Orkney mines, which used to belong to Harmony until it sold them to Pamodzi, are the other assets up for sale. Simmer & Jack has put in an offer, planning to utilise the infrastructure at its nearby Buffelsfontein mine to bring down operating costs at the mine.

Pamodzi is reported to have had milling costs of R140/tonne at AngloGold Ashanti, which is well above the R45/tonne Harmony had in its toll treatment arrangement with South Africa’s largest gold producer. Simmers is likely to get its milling charges to around similar levels of those Harmony had by utilising its own plant.

Another interested party has put in a bid for Orkney and has been given until next week to organise funding letters too.