[miningmx.com] — HEARING last week of Wits Gold’s (Witwatersrand Consolidated Gold Resources’) plans to consolidate some of its gold resources in the Free State province gave reminder of the fact the company’s listing in 2006 was predicated on a gold price run that would make even its deep level resources viable.
Adam Fleming, Wits Gold’s chairman, in a rare public appearance said in that year: “I think we’re in the foothills of a major gold run.’ The gold price was about $600/oz at the time.
Fleming also forecast that gold majors would return again to the Witwatersrand. “It’s inconceivable to me that the majors won’t have to come back to the Wits to find gold again,’ he said. “Between eight to nine million ounces of gold has to be found every year by Newmont (Mining) to keep its reserves stable,’ he added.
At the time, the prospect of a major North American company investing in South Africa seemed as improbable as a doubling in the gold price. Set against ongoing regulatory troubles in South Africa’s minerals department (see below), one doesn’t expect major foreign investment in South Africa’s gold industry even now, but it’s not impossible.
That’s if Wits Gold CEO Marc Watchorn’s plan to consolidate and investigate the company’s Free State province resources materialises into a resource other companies would consider taking on.
In a podcast with Miningmx last week, Watchorn identified three possible scenarios for the Free State resources which could include a listing or a partnership with an operator. Watchorn even mentioned Harmony as a potential partner if they found the prospect “to their liking’.
Certainly, the raging bull market in gold has silenced Wits Gold’s doomsayers who said at its listing some four years ago that the firm was an opportunistic proxy on the gold price, and that its resources would never be developed. That criticism may prove untrue.
What is undeniably true is that gold doubling in value since 2006 has done little for the established South African gold sector. Perhaps now it’s time for some of South Africa’s gold juniors to step from out of the shadows? RBC Capital Markets believes that’s the case.
In a note dated September 6, the stockbroker’s Leon Esterhuizen, said he was standing by his expectation South African gold shares would come into their own towards the back end of 2010 and in to 2011. This is notwithstanding a stubbornly strong rand/dollar exchange rate. Not even a 50 basis points interest rate cut by the SA Reserve Bank last week could shift it.
That would suggest South African gold shares shouldn’t expect support from a better gold price received. Yet Esterhuizen thinks the real impetus for gold stocks will be its improved cost controls in a climate where administered costs are making life hard.
Electricity tariff increases of about a quarter, the SA Treasury’s maiden royalties on pretax earnings, and third quarter wage bill increases are expected to add margin pressure, says Esterhuizen. This means that any improvements in the cost performances of the South African golds will only come later in the year, and next year – a development that could be interesting to long-term investors now.
“For investors with a longer-term investment view, we would suggest starting to buy now, but we would expect to see the majority of the stronger share price performances towards the end of 2010,’ he wrote. The possibility that the rand could weaken against the dollar will only “add gas’ to the fire that’s burning at South African golds again, he said.
Interestingly, however, it’s mostly the juniors that interest Esterhuizen, although Gold Fields is another favoured pick of the stockbroker. Great Basin Gold and Pan African Resources are identified as producing either solid production results or reaping the benefits of having been undervalued. In the case of Pan African Gold, there’s the possibility of takeover action. Gold One also gets a mention although Esterhuizen adds that it must first secure $65m in debt funding.
Absent from the picture is Wits Gold, however. Yet it was interesting to see RBC Capital identified DRDGold as having some marginal or option value. The company’s CEO, Niel Pretorius, has long worried over the loss of its cache among North American investors for its ability to respond vigorously to gold price improvements.
Shabangu
Speculation regarding the impending departure of mines minister Susan Shabangu, whose department has been the subject of attention lately, seems a tad overcooked.
In case you haven’t been following the story closely, Shabangu has been blamed in some quarters for the controversial exploration permit award to Imperial Crown Trading, a company with extensive political links to the Zuma family which has president, Jacob, at its apex. Now Zuma, the speculation runs, is preparing a cabinet reshuffle deploying Shabangu elsewhere for her sins.
The speculation is “real’ in the sense that it wasn’t magicked up by journalists, but stems from politicking within the tripartite alliance, labour specifically, in the build up to the ANC’s annual general council where some coups are being planned.
Certainly the removal of Shabangu can’t be what Zuma is thinking for he knows, surely, that any weaknesses in South Africa’s minerals legislation stem from its architecture and from those who penned it ahead of promulgation in May 2004.
In fact, Shabangu should be quietly applauded for having the cahones to acknowledge the country’s minerals legislation is “ambiguous’ [her phrase]. As such, Shabangu has outlined proposals to cabinet aimed at clarifying minerals law in amendments which, according to the Department of Minerals Resources, could be in force mid-2011.
Right now, South Africa’s mining law is not encouraging to foreign capital which is always important for a sector with huge lead times and invariably large budgets. Mining is a high risk game, higher risk than most other economic sectors, so the last thing the country needs is for weaknesses in the regulatory environment.
Shabangu, after initially scaring up a fuss in the industry when she warned the Chamber of Mines to expect sweeping change, has been forthright in acknowledging the problems in the legislation. Removing her would add fuel to the fire that South Africa’s minerals industry is an unpredictable no-go area.
