[miningmx.com] – PHILIP Kotze said failure at Burnstone – the Mpumalanga province mine that wrecked the fortunes of former owner Great Basin Gold – would signal “the end’ for Witwatersrand Consolidated Gold Resources (Wits Gold), the firm of which he is CEO.
“If we fail at Burnstone, then that’s the end of Wits Gold,’ he said in an interview with Miningmx following an earlier company announcement that Wits Gold would bid R72.7m ($7.25m) for the operation, currently in mothballs.
“We have got an opportunity to reposition this mine. It was certainly the lowest risk mine that we could get into operation by a long way,’ he said.
Great Basin Gold planned to produce 250,000 ounces a year of gold from Burnstone and had spent $800m building the mine and its infrastructure. Kotze thinks that no more than $100m in additional spend will be required to complete the mine, but that it will only produce up to 130,000 ounces a year, half of the original target.
“We will mine it more selectively because the deposit is a typical kimberley reef which is more channelised. The build up will be slower therefore,’ he said. First production is not expected until 2014 after the final stages of certain infrastructure, such as water treatment facilities, are completed.
There’s also the not so small matter of financing the asset at a time when debt and equity markets for any new production – especially in gold – is at an all-time low. Wits Gold has also said in the past it was concerned about its own balance sheet. It required a loan from chairperson Adam Fleming, to keep it liquid.
“We will pay $7.25m on deal completion and we have various production models. We can spend $40m and produce 50,000 ounces/year, or no capital at all and still get 20,000 to 30,000 ounces/year from the mine,’ said Kotze.
Wits Gold shareholders are likely to be tapped for funds on the proviso they will be repaid first. Debt will also be raised against the asset, especially as existing Burnstone debt was cut to $177m from about $400m which consisted of lender, creditor and note holder obligations. The $177m has also been back-end loaded so it’s only payable in three years.
Crucially, a gold price of about R410,000/kg has been assumed as the break-even price received. The rand gold price is currently at R395,000/kg.
Given the importance of the asset to the future of Wits Gold, the feasibility study for De Bron Merriespruit (DBM) will be completed but then put on the backburner. No other acquisitions are being contemplated by Wits Gold, Kotze said.
Earlier today, Wits Gold said that following an intensive due diligence and the submission of its business plan, it had been selected as the sole preferred bidder for Burnstone mine which is owned by Great Basin Gold subsidiary Southgold Exploration, but falls under the custodianship of liquidators in terms of business rescue proceedings.
SouthGold Exploration shareholders are scheduled to vote on the offer on July 11.
Shares in Wits Gold were unchanged following the announcement and was last trading at R10/share. As with all gold shares, the stock has been under pressure this year: it lost two-thirds in the last year.
“Wits Gold has indicated for some time that we would want to return value to shareholders through dividends,” said Adam Fleming, chairman of Wits Gold. “I see this as a first step in moving towards achieving that goal,” he added.
