The deal which is said to be worth 407 million rand, will see South Africa’s largest gold producer, Sibanye Gold, acquire the cash strapped Witwatersrand Consolidated Gold Resources in order to control deposits near its Beatrix mine in the Free State.
Chancellor House, the ANC’s front company currently holds 23 per cent of Wits Gold shares through its proxy, Continental Gold Resources Consortium. This has resulted in a journalist for the Sunday Times, Barry Sergeant, suggesting that major profit may be on the cards for the political party.
Phillip Kotze, chief executive officer of Wits Gold, however stated that the reports are inaccurate and that Chancellor House is not part of the Wits Gold holding structure and will not reap such a large amount from the deal.
“The short answer would be no. there are a number of inaccuracies in the article in the Sunday Times. In our structure, we cannot see any specific holding for Chancillor house in it,” Kotze told CNBC Africa in an interview.
“Be that as it may, there is a portion of it that could potentially have an affiliate to Chancellor House. In our calculation, that number sits in the region of about 7.5 per cent so it’s substantially less than what Barry has alluded to.”
The acquisition, which is still in its due diligence phase, means that Sibanye will also have access to the newly built Burnstone mine in Mpumalanga, which Wits Gold is buying from the liquidators of Great Basin Gold. Kotze believes that Burnstone holds major potential for them.
“Burnstone is on the table currently as a transaction that Wits Gold is pursuing. We effectively bought the company for 1 rand, we then accepted a portion of the debt that we would repay from future cash flows from the operation so it comes with very little risk for us as Wits Gold,” explained Kotze.
“This is one of the shallowest mines in South Africa so I think for any future gold producer in south Africa not looking at Burnstone, a mine where 90 per cent of the capital has been spent already and is very close to production right now, you’ve got about 700 million sunk, you’d be silly not to look at that.”
However, since Wits Gold are currently suffering from cash flow problems, Sibanye may pick up the funding of up to 950 million rand to bring Burnstone mine into production at about 100,000oz a year.
“For us to be successful in the Burnstone transaction, we need to get enough funding to grow production at Burnstone and get it to its full design capacity. That is one of the aspects that Sibanye brings to the table. They are generating significant cash flows at this stage while maintaining a dividend policy in place, they can also afford to grow the Burnstone production as well,” he said.
The all- cash offer of 11 rand and 55 cents per share is a 47 per cent premium to the 30-day average price of Wits Gold, resulting in its share price and investor interest to soar.
“I think getting a nice premium on the current share price for our shareholders has certainly won most of their support over. Although Wits Gold management and the board are positive about the offer and the transaction, the final decision rests with our shareholders,” added Kotze.
Wits Gold’s top five shareholders who own 50 per cent of the company are already said to be in support of the deal.