[miningmx.com] – SIBANYE Gold has bid R407m in cash for Witwatersrand Consolidated Gold Resources (Wits Gold) in an effort to extend the life of its Free State mine Beatrix which is adjacent to Wits Gold projects.
The bid represents Sibanye Gold, Neal Froneman’s, first major swoop in the merger and acquisition market for which he is most regarded, and comes just over a year after Gold Fields announced the unbundling of its South Africa assets that created Sibanye Gold.
The offer is also at an enormous 31% premium to Wits Gold’s current market capitalisation of R282.82m – and a 47.1%premium over the 30-day volume weighted average price (VWAP) of Wits Gold shares traded on the JSE at market close on 9 December 2013 – and is clearly intended as a knock-out blow. Shares in Wits Gold, however, have shed 59% in 12 months but was up 32% in morning trade on the JSE today, taking its market value to R376m.
The offer has a 56% acceptance from among shareholders. A non-binding terms sheet was signed between the parties on November 7.
“Wits Gold owns significant exploration and project areas in the Wits Basin, containing approximately 157 million ounces of gold resources,” said Froneman in a statement.
“More importantly, its advanced De Bron Merriespruit and Bloemhoek projects in the Southern Free State, are adjacent to Sibanye Gold’s Beatrix operations and offer an opportunity to extend the operating life of Beatrix,” he said.
By accessing Wits Gold’s projects from Beatrix, Sibanye Gold hoped to reduce capital expenditure projected for De Bron Merriespruit and Bloemhoek.
“The high uranium grade Beisa North and South properties are also adjacent to Beatrix West Section and may provide critical mass for the possible development of Beatrix West Section into a uranium mine in future,’ said Froneman.
The move for Wits Gold is not entirely unexpected. In December last year, James Oberholzer, an analyst for Macquarie Research, said Sibanye Gold would be a potential vehicle for merger and acquisition activity in the gold sector. He identified Wits Gold as a potential target given the location of its projects to Beatrix.
“Given the proximity of these assets to the Beatrix mine, and that Wits Gold currently lacks the funding to develop them, we feel that sufficient synergies exist to warrant a transaction between the parties,’ Oberholzer said at the time.
Less obvious a perk in any successful bid for Wits Gold, is whether Froneman’s Sibanye takes on Burnstone, a mine on which the now bankrupted Great Basin Gold spent some $800m over several years and which in July became the subject of Wits Gold’s own R72.7m takeover bid.
Sibanye Gold said in its announcement today that proceeding with a bid for Burnstone would turn on its own feasibility assessment. Froneman refused to rule out proceeding with a bid for the mine over which he himself has run the rule several times.
“Burnstone potentially secures an additional source of low cost production, thereby enhancing Sibanye Gold’s existing production profile and shifting its operating profile towards shallower operations, as well as establishing a new operational base in the South Rand Goldfield,’ Froneman said.
The bid for Wits Gold was subject to various conditions precedent including the approval of Wits Gold’s board which includes chairman, Adam Fleming, a well known and respected gold bull. Fleming’s view on the matter may be crucial if Sibanye Gold is to avoid having to make a hostile takeover.
Fleming has had to contribute his own funds in order to keep Wits Gold afloat after it almost ran dry of cash at the turn of the year. Given the deterioration in the company’s share price, the hefty premium may well be music to his ears.
“This is a significant deal for the market and a watershed moment for both companies,” said Fleming in a statement who added that the company had “… reached the point where in order to fully exploit the assets and make them profitable, we require the sort of funding, infrastructure and resources that Sibanye can provide”.
Wits Gold would be delisted from the JSE and its American Depository Receipt (ADR) programme terminated once the transaction was finalised, Wits Gold said.
Wits Gold management and staff would be integrated into the Sibanye team, but no special mention was made of Philip Kotze, CEO of Wits Gold who said in July: “If we fail at Burnstone, then that’s the end of Wits Gold”.
