Wits Gold slides on cautionary notice

Brendan Ryan | Wed, 23 Jun 2010 12:00

[miningmx.com] -- SHARES in Witwatersrand Consolidated Gold Resources (Wits Gold) dropped 15% to R49 on the JSE on Wednesday morning, two days after the release of a trading cautionary announcement.

CEO Marc Watchorn told Miningmx: “This was a single trade of 2,000 shares. I think somebody just got the hell in. Trading in our stock is very thin and subject to huge fluctuations.”

Watchorn declined to say anything further about the cautionary notice. This stated that Wits Gold “has entered into negotiations which, if successfully concluded, may have a material effect on the price of the company’s securities”.

Wits Gold is an exploration company which acquired most of the unused old order mineral rights over various deep-level gold prospects in the Wits Basin which were previously owned by South Africa’s three major gold groups.

The groups had to give these rights up following the introduction of the Minerals and Petroleum Resources Development Act.

Wits Gold applied for new order prospecting rights over this ground, plus other prospecting rights owned by the state to consolidate its holdings.

The company has so far been granted prospecting rights for gold over 13 areas, covering a total of 102,512 hectares. Wits Gold also holds prospecting rights for uranium with its gold rights.

The company now holds title to total inferred resources of 151.7 million ounces (m oz) of gold and 267.8 million pounds (m lbs) of uranium oxide. This includes 19.9m oz of indicated resources, and 5.4m oz of proven and probable reserves at the Bloemhoek project.

In terms of the agreements with AngloGold Ashanti, Gold Fields and Harmony, Wits Gold undertook to fund exploration work for bankable feasibility studies over the respective areas.

Once the studies have been completed, the mining company that originally contributed the relevant old order mineral rights will have a once-off opportunity to buy a 40% stake in the future mining venture.

If it does not take up that option, Wits Gold is entitled to sell those rights. The original contributor is entitled to half the proceeds, less a three times multiple of the exploration costs incurred by Wits Gold.

Wits Gold is viewed by its key backers as a highly leveraged option on gold, with the major proviso that the company does not actually get involved in gold mining itself.

Watchorn told Miningmx: “That remains a fundamental principle. Wits Gold will not mine.

“The options are to go forward with one of the major gold groups, sell the project or set up a subsidiary which would own the project and would be dividended out to our shareholders.

“Wits Gold shareholders can then decide for themselves if they want to participate in the mining venture proposed by the subsidiary or not”.

Wits Gold has so far completed a prefeasibility study on the Bloemhoek project and a scoping study on the De Bron project in the Free State , which contains most of its shallow gold resources down to a depth of 2,500 metres.

Market speculation is that what’s coming from Wits Gold involves changes to its corporate structure and not a major development decision on Bloemhoek, its most advanced project.