[miningmx.com] – VILLAGE Main Reef (VMR) is not yielding to renewed demands to sell its flagship gold mine, Tau Lekoa, and Buffelsfontein, the asset it has placed on care and maintenance. It says a R400m offer from Tannous Group, undervalues the long-term benefit of holding Tau Lekoa, a gold mine in the Orkney region.
“Tau made R150m in cash operating profit in the last quarter,’ said Ferdi Dippenaar, CEO of VMR. “I know it had a record quarter, but under normal circumstances it should make R300m a year. It has a four to five year life-of-mine, even longer dependant on a few assumptions. So that has an implied value of, say, R1.5bn at the current gold price.
“Even if that is seriously discounted, it will never be around R400m.’
The implication of this cursory valuation is that at a market capitalisation of R485m, VMR has serious upside value if Tau Lekoa can be made to perform.
The bidder for Tau, however, Anthony Tannous, the founder of Tannous Group which primarily operates in the leisure and property world of Orkney, is adament VMR is being offered good value for the mine. His argument is money today is better that promises and blue-sky.
“The sale of Tau Lekoa at R400m, or northwards, will bring mega finances into the pockets of the [VMR] shareholders and in my opinion you should pro-act accordingly by seriously taking the shareholders into consideration,’ Tannous said in a letter last month to Dippenaar, which was also forwarded to Miningmx.
Apparently, VMR’s non-executive director, Bernard Swanepoel, had earlier agreed to enter into discussions with Tannous Group in a memorandum of understanding, also in Miningmx’s possession.
The memorandum is unsigned by VMR, although Tannous is hoping to ‘arm-twist’ Dippenaar into signing it. He has asked Swanepoel ‘keep out’ of discussions. Tannous said Swanepoel unleashed his irritation at VMR’s annual general meeting which “I took like a man”. There’s bad blood, apparently, whilst Tannous argued that it’s Dippenaar who must do the negotiations as he’s the newly appointed CEO of VMR.
Aside from the personal duels, the question, however, is whether Tannous Group has the firepower and the mining expertise to give credence to its offer. “We have the support of an offshore bank, and local banks have also approached us,’ said Tannous.
As for mining skills, the group says on its website it has a mining division which at this stage seems to consist of former AngloGold Ashanti and Harmony Gold mining engineers who are now operating as independent consultants. “These are very highly skilled individuals,’ said Tannous.
Were it to sell Tau, VMR would become a little over a cash shell, with a 19% stake in thermal coal operator, Continental Coal – soon to list on the JSE – and antinomy and gold production from Consolidated Murchison (Cons Murch).
Consequently, Dippenaar thinks shareholders would be better served staying in for the long haul, the current market valuation notwithstanding. “VMR’s market cap is being influenced by other factors,’ he said.
“Firstly, the companies in the resources industry currently suffer from significantly lower market capitalisation when compared to the value of the underlying assets.
“And in the case of VMR, a few more unresolved issues remain. I think the market is concerned about the potential for unexpected costs of having put Buffels on care and maintenance in preparation for closure (R60m worth in the last quarter), and maintaining pumping operations within budgets,’ said Dippenaar.
“We have made significant inroads in the carrying costs of Buffels which we expect to come in below the R7m per month. Cons Murch is recovering from a strike in July and is making good progress and we expect a better performance this quarter. Lastly, VMR reported a R60m cash loss associated with Blyvoor costs in the September quarter as well.
“So all in all, VMR has successfully restructured its operations to deal with the lower gold price environment scenario and the market will catch up with these positive developments as we report them over the next few quarters,’ he said.
“I expect the gap between the current market capitalization of VMR and the value and performance of its underlying assets to decrease,’ he said.
