[miningmx.com] — FIRST Uranium shareholders probably couldn’t believe their luck when the announcement came on July 22 that AngloGold Ashanti was buying around 20% of their company, relieving Village Main Reef of most of its 26% stake acquired through the takeover of Simmer & Jack.
The market reacted decisively – First Uranium was up 36% at the end of Friday – seeing much more upside for the struggling gold producer boasting an anchor shareholder with deeper pockets and better synergies than Village, which has some balance sheet issues of its own.
Village also belatedly moved a bit, at first unchanged but then up 3.33% for the day. CEO Bernard Swanepoel said the $30m (around R205m) cash in return would come in handy to more aggressively advance the group’s Lesego platinum project and capitalise Simmers’ old underperforming gold mines.
More importantly, Village now has the option to settle a Deutsche Bank gold forward agreement. Simmers previously took a $25m loan from Deutsche in exchange for the delivery of 3,600 ounces per month for 18 months – effectively a hedge at $385 per ounce if you exclude interest charges. Which is absurd when gold is trading above $1,500/oz.
Another reason why this could be a smart move on the part of Swanepoel is that AngloGold’s shareholding would provide some security to the interest Village still got left in First Uranium. The remaining 6% equity stake is already worth 36% more than this morning, while Village also holds more than R400m in Mine Waist Solution’s 11% rand notes.
As for AngloGold, it didn’t want to say much on why it concluded the deal, except that it “was effected for investment purposes’. There are many ways how AngloGold can nurture its investment.
Anglorand Securities analyst Louis Venter says the obvious synergies are the highly profitable surface operations of AngloGold’s Vaal Reef assets and First Uranium’s MineWaste Solutions (MWS). Also, AngloGold may in some way assist to fast-track the commissioning of MWS’s uranium circuit – AngloGold is South Africa’s foremost uranium producer at present – which management earlier said would be delayed to preserve cash.
Should AngloGold decide to grow its stake, it may at the same time solve a headache of First Uranium by opting to buy-out or restructure the company’s two series of convertible notes, totalling C$172m and C$150m respectively.
Said RBC Capital Markets in a report dated 15 July: “Based on our forecasts, First Uranium will be unable to repay the notes and they will most likely remain well out of the money.’
This uncertainty is one of the many factors which had a drag on First Uranium’s share price, with AngloGold now providing a possible outcome.
There is no apparent synergies, however, between the Ezulwini mine and AngloGold’s operations. RBC Capital Markets said the asset would make much more sense to the owners of Randfontein’s Cooke 3 shaft, which is Gold One International through its acquisition of Rand Uranium.
“The Cooke 3 mine is located a few kilometres from Ezulwini and could benefit from the additional plant capacity and tailings facilities available at Ezulwini,’ said the analysts. “We, therefore, believe that Gold One may be a natural buyer of this stake.’
Swanepoel says First Uranium never formed part of his deliberations with AngloGold over the transaction.
One wonders how much the deal will influence the strategic review which First Uranium’s directors embarked on earlier this month, but they undoubtedly will now see clear opportunities for some aspects of the business; less so for others.
Still, especially given the recent animosity in its relationship with Village, First Uranium probably couldn’t have asked its biggest shareholder for a bigger favour than the sell-out to AngloGold.
