[miningmx.com] — Hong Kong listed company Wing Hing International is paying R3.9bn for assets that were valued at just R300m less than a year ago when current owner Taung Gold bought them from HARMONY GOLD MINING COMPANY LIMITED.
The assets are the Jeanette prospecting rights in the Free State and what Taung has called the Evander project in Mpumalanga.
According to Harmony it sold the Jeanette prospecting rights to Taung Gold for R75m in June last year and then concluded a subsequent cash sale of assets in September concerning portions of the group’s Evander mine for R225m.
These included the Evander 6 shaft, the related infrastructure and surface right permits as well as a mining right over the Evander 6 and Twistdraai areas. The R225m is to be paid in cash “when all remaining conditions precedent to the transaction have been fulfilled.’
The initial deal between Harmony and Taung dates back to March 2008 when Harmony negotiated with African Precious Minerals (APM) which controlled Taung.
Harmony, under new CEO Graham Briggs, at that time was starting to dispose of “low ranking, low priority’ projects as it focused its limited available funds on developing the decent mines in its South African portfolio like Elandsrand, Tshepong and Doornkop.
The initial deal included an “earn in’ JV agreement with Harmony following completion of a bankable feasibility study within five years. A Harmony spokesperson told Miningmx that arrangement was subsequently dropped in favour of a straight sale of the assets for cash.
APM in 2008 was talking about listing on London’s AIM bourse to raise around $100m to fund its plans but that listing never took place because of the global financial crisis.
According to Taung CEO Neil Herrick – interviewed on SAfm’s Market update on Tuesday night – the company believed that the valuation that underpinned the transaction was a very sound valuation.
According to Wing Hing CEO Jack Li, Taung Gold was “the appropriate channel for Wing Hing to further develop its gold mining related business globally.’
A report by I-Net Bridge said the combined mineral resource at both projects was estimated at 24m ounces of gold while Taung was considering various options for listing and production was likely to start in 2014 at Evander and 2016 at Jeanette.
Herrick told Miningmx that the value had been agreed between Wing Hing and Taung on the basis of the “ounces of gold in the ground” adding that the price put a value of just $27/oz on that resource.
Herrick added, “but it would be simplistic of you just to compare the two nominal figures at which we bought and sold. We have added value through carrying out scoping studies and engineering studies on both projects and by acquiring information not available to the original owner of the rights to quantify the size of the resource.”
The history of Jeanette is that it was the only failure amongst the mines developed in the initial rush into the Free State gold fields in the early 1950’s, the mine was opened by the former Free State Development and Investment Corporation and then shut down almost immediately.
It subsequently passed through various hands and was acquired by Harmony when Harmony bought the former Avgold. It has never been re-opened.
The Evander assets that Harmony sold to APM were arguably the most unattractive of a large but marginal operation that Harmony has battled to return to sustainable profitability.
Harmony closed the 2, 5 and 7 shafts at Evander at the end of 2009 restricting mining to the 8 shaft decline, where high-grade areas of ore are being targeted.
Briggs early last year said Harmony was looking at spinning out Evander through a separate listing but then dropped the plan because of various problem areas.
These included the facts that Evander was not large enough while the business plan was not “robust’ enough because of issues with grade and the likely capital cost at the Everest South project.
There’s an obvious question. If Harmony is shying away from developing the better parts of Evander which it retained then what is that Taung is going to do differently with the sections that Harmony did not want to keep?
*The writer owns shares in Harmony.
