Simmers finally takes over Tau Lekoa

[] — SHARES in Simmer & Jack Mines (Simmers) raced up 18% by mid-afternoon on the JSE following confirmation the company had finally completed the takeover of the Tau Lekoa mine from AngloGold Ashanti.

The share was trading at 97c which compares with a 12-month low of 74c and a 12-month high of 246c.

The deal to buy Tau Lekoa for R600m was struck in February 2009 and was supposed to be completed by the end of 2009.

It was held up initially by the renewed battle between the former Simmers management and its black economic empowerment (BEE) partner Vulisango. That dispute was finally settled in February, when former CEO Gordon Miller and former chairman Nigel Brunette were replaced.

The company then came under pressure to refinance 37%-held subsidiary First Uranium. The firm ran into a financial crisis because of the withdrawal of an environmental authorisation permit at its key operation, Mine Waste Solutions.

The Simmers share price was driven steadily downwards throughout the year as a result of these issues and other developments, such as safety stoppages at its flagship Buffelsfontein mine.

The last condition precedent for the acquisition of Tau Lekoa was registration of the mining right by the Department of Mineral Resources, which has been pending since the right was legally executed on June 3.

CEO Nico Schoeman said on Wednesday that the acquisition of Tau Lekoa “is a deal that marks a turning point for the company.

“This is the first strategic step in transforming Simmers into a company capable of sustaining healthy profitability, given that Tau Lekoa is capable of generating positive free cash flow from the outset.

“Not only does it add production and free cash flow, but it reduces the risk profile at Buffelsfontein and will lead to cost savings of around R100m between the two operations over the next 12 months.’

The cost saving would be achieved through shared metallurgical processing and services costs.

Schoeman said the benefits to Simmers would become apparent during the second month of operations at Tau Lekoa, after the initial gold “lock up’ in the processing plants during the first month.

Tau Lekoa is expected to produce an annualised 125,000 ounces of gold at a total cash cost of about $815/oz (about R200,000/kg). It is anticipated that this will generate an average, annualised free cash flow of R150m in the first year.

Schoeman said: “The acquisition will transform Simmers from a marginal, junior miner into a mid-tier gold producer.

“It provides cash flow, scale and substance to our current gold business as well as the potential for upside via the development of Weltevreden and Goedgenoeg, two expansion projects which could extend the life of Tau Lekoa by 14 years.’

Schoeman told Miningmx that, with the acquisition now completed, he would be going on an investment roadshow with Absa Capital to raise the balance of R70m outstanding on the R100m loan repayment due to Rand Merchant Bank (RMB) by the end of July.

Simmers owes a total of R220m to RMB. The balance of R120m is due in four equal instalments of R30m, to be made monthly from September this year.

The writer owns shares in Simmers.