SOUTH African miners have made hay in Australia in recent years. Harmony Gold and Thungela Resources have bought mines in the country as local resources dry up.
Gold miner Pan African Resources is another. In 2024 it spent $54.2m acquiring Tennant Consolidated Mining Group (TCMG), a privately held company in Australia which owned the Nobles gold project.
Two years on, and after building a processing plant, Pan African has forecast 46,000 to 48,000 ounces in gold production from the Nobles project for the 2026 financial year ending June. It hopes to take production to 100,000 oz/year.
Nobles is located near other old workings and projects in Australia’s Northern Territories, a region that’s been mined for gold since the 1980s yet has not been fully developed. It is unloved, a lot like Barberton gold mines, the century-old mining complex in Mpumalanga that Pan African has mined with mixed success over the years.
Even at the recently corrected gold price, Barberton Mines looks a tastier prospect for Pan African and, if handled correctly, it is expected to continue yielding gold for a further 26 years. Pan African is hoping Nobles gold will do exactly the same, with the prospect of real growth.
It’s perhaps with this growth in mind that investors didn’t seem to punish the miner too heavily after a March 9 announcement saying it has proposed buying Australia-listed Emmerson Resources. The deal is set at a princely sum of $218m (£163m/A$311m) in shares.
Emmerson is effectively Pan African’s joint venture (JV) partner in Tennant Creek, the company that directly controls some TCMG assets. “The JV was entered into between Emmerson and Tennant, which we ultimately acquired,” says Pan African CEO Cobus Loots. “Basically, when we bought Tennant, we also assumed the JV agreements at the same time.”
What’s eye-popping about the offer for Emmerson, however, is the major markup. In effect, Pan African is paying more than three times the price of its initial 75% stake for 25% of the JV. Blame the gold price, perhaps, but it also emerges there are penalties that Emmerson is entitled to impose on the JV that Pan African believes are far too costly to carry in the long term.
“If no gold had been produced by a certain date, Emmerson would be entitled to charge certain penalties for a period,” says Loots of the JV agreement with TCMG. “Those were well known, and they were factored into our valuation when we originally did the deal. But now we’re eliminating them,” he says.
How chunky were they? “About $30m a year,” Loots says.
It has given Emmerson a lot of leverage in negotiations with Pan African, it would seem. For instance, Loots says it was part of the process that Pan African opted to list in Australia. “It was a negotiated position where Emmerson felt that it wanted to retain exposure. It believes in the story, it believes in the upside of the combined group,” says Loots.
“For us, it’s good because it’s part of how we can secure an Australian listing. If you want to grow further in Australia, it’s an interesting concept — but Australian companies and investors mostly only want Australian [scrip]. They’re not simply willing, even if it’s foreign scrip — it just makes the deal far more complicated.”
Good vibes
The deal structure is that Pan African will issue 103-million shares for Emmerson, the fourth time Pan African has issued equity for a deal. At £1.58 a share, the transaction represents a 36.4% premium to Emmerson’s last closing price of A$0.330 a share on March 6 and a 42.7% premium to Emmerson’s 30-day volume weighted average price of A$0.315 a share up to March 6.
Under the scheme, Emmerson shareholders will hold about 4.2% of Pan African’s total shares. Three-quarters of Emmerson shareholders are required to support the deal. About 26% have already thrown their weight behind it, and the board is unanimous in its support.
Analysts have also taken a fairly sunny view of the deal. “The transaction consolidates Emmerson’s share in the JV, reduces JV complexity and streamlines decision-making. Emmerson also owns exploration assets in the Macquarie Arc in New South Wales,” says BMO Capital Markets analyst Raj Ray.
Peel Hunt, Pan African’s UK broker, says: “The premium is in line with Australian market precedent.”
For a company with continental ambitions, the listing is no great chore, but the premium for Emmerson is hefty nonetheless. “It’s not the cheapest deal we’ve ever done,” Loots acknowledges.
From here the onus is on Pan African to prove just how prospective the Tennant Creek region really is. In addition to Nobles, it includes the Warrego, White Devil, TC8, Mauretania, Eldorado, Chariot and Golden Forty deposits. The projects have a combined total reserve of 200,000oz. Resources, metal in the ground calculated with less economic confidence, total nearly 1-million ounces.
“Exploration successes may make the valuation look more attractive over time, and Emmerson shareholders, via the Australian listing, could also benefit from this,” says Hunt. “For Emmerson shareholders, the value inherent in accessing Pan African’s processing plant should not be overlooked.”
This article first appeared in the Financial Mail.
