| Tue 7 Sep 2010, 12:00 | | WGR - Witwatersrand Consolidated Gold Resources Limited - Wits Gold to |
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WGR
WGR
WGR - Witwatersrand Consolidated Gold Resources Limited - Wits Gold to
consolidate Mineral Holdings in the Southern Free State and withdrawal of
cautionary announcement
Witwatersrand Consolidated Gold Resources Limited
(Incorporated in the Republic of South Africa)
Registration Number 2002/031365/06
JSE Code: WGR
ISIN: ZAE000079703
TSX Code: WGR
CUSIP NUMBER: S98297104
("the Company" or "Wits Gold")
WITS GOLD TO CONSOLIDATE MINERAL HOLDINGS IN THE SOUTHERN FREE STATE
AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
- Wits Gold to acquire Harmony`s Merriespruit South area for R61 million in cash
- Wits Gold to commence drilling at Merriespruit South to confirm high grade
extensions of gold mineralisation already delineated in the adjacent De Bron
area
- Wits Gold to acquire Harmony`s 40% option over Wits Gold`s southern Free State
assets for R275 million, which can be satisfied through the issue of Wits Gold
shares
- Wits Gold southern Free State properties contain gold resources in excess of
34Moz and gold reserves of 5.4Moz
- Wits Gold establishes 100% control over its more advanced Bloemhoek and De
Bron projects; and
- Withdrawal of cautionary announcement
Marc Watchorn, CEO of Wits Gold said:
"These transactions have the potential to deliver significant value to Wits
Gold. Our exploration work on the De Bron project together with our regional
geological understanding leads us to believe that the Merriespruit South area is
likely to contain significant gold mineralisation. Combined with our De Bron
project this could create a shallow medium to high grade mine with substantially
enhanced economics. We expect to commence an exploration programme immediately
and are excited by the prospects of achieving positive results.
We also are delighted to have reached agreement with Harmony to acquire their
40% option over our assets in the southern Free State. We look forward to
advancing our key projects in the knowledge that Wits Gold shareholders will now
receive 100% of the value we are able to create and we welcome Harmony as future
shareholders."
Graham Briggs, CEO of Harmony said:
"These transactions are in line with Harmony`s strategy to focus on our growth
projects in South Africa. The Merriespruit South area and the Freegold Option do
not fit into our portfolio. This is an exciting opportunity for Wits Gold and
will unlock value for our shareholders."
1. Introduction
Further to cautionary announcements dated 21 June 2010 and 26 July 2010, the
Company is pleased to announce that, subject to conditions precedent, it has
agreed with Harmony Gold Mining Company Limited ("Harmony") to add the
Merriespruit South area which currently forms part of Harmony`s mining right
known as Virginia Operations in Wits Gold`s existing contiguous prospecting
right. At the same time, Wits Gold has signed a second agreement with the
Armgold/Harmony Freegold Joint Venture Company (Proprietary) Limited, a wholly
owned subsidiary of Harmony ("Freegold JV"), subject to conditions precedent, in
terms of which Freegold JV`s option to acquire up to a 40% interest in any mine
or mines established on certain prospecting rights held by Wits Gold in the
southern Free State will be cancelled.
2. Background
In April 2004 Wits Gold entered into an agreement with the Freegold JV to
acquire certain mineral rights in the southern Free State (the "Mineral
Rights"). The consideration for the Mineral Rights was the issue of an option
conferring to the Freegold JV the right to acquire up to a 40% interest in any
mine or mines established on the Mineral Rights ("the Option").
Since this transaction, Wits Gold has successfully undertaken exploration
activities in the southern Free State that have resulted in the estimation of
Mineral Resources and Reserves in terms of the SAMREC and CIM codes. These were
presented in a NI 43-101 compliant technical report, "Witwatersrand Consolidated
Gold Resources Limited: Mineral Properties in the SOFS Goldfield, South Africa"
dated May 2009 and prepared by Qualified Persons, George Gilchrist and Shaun
Hackett from Snowden Mining Industry Consultants. These include Indicated
Mineral Resources of 103.3Mt at 6.0g/t gold (19.9Moz) and Inferred Resources of
83.7Mt at 5.6g/t gold (15.0Moz) as well as Inferred Resources of 183.2Mt at
0.14kg/t U3O8 (56.7Mlbs). The above-noted technical report is available at
www.sedar.com and www.witsgold.com.
Drilling results obtained during the Company`s exploration programme led to the
identification of two key projects that occur adjacent to one another in the
Bloemhoek and De Bron areas, where they are separated by the De Bron Fault. The
principal targets in these areas comprise the Beatrix, Kalkoenkrans and Leader
Reefs which are currently being exploited by the surrounding gold mines
belonging to Harmony, at Joel and Virginia, and the Beatrix Mine operated by
Gold Fields Limited.
A subsequent pre-feasibility study on the Bloemhoek area was undertaken by the
independent Qualified Persons, Gordon Cunningham and Tim Spindler, from
Turnberry Projects (Pty) Ltd., with mine design and scheduling input from Ukwazi
Mining Solutions (Pty) Ltd. At Bloemhoek, the principal targets comprise the
Beatrix and Kalkoenkrans Reefs at depths in the range of 1300-2400 metres below
surface. In a NI 43-101 compliant report entitled "Technical Report on the Pre-
Feasibility Study for the Bloemhoek Project, Southern Free State Goldfield,
South Africa" dated 20 October 2009, the Qualified Persons illustrated that
mining is both technically and economically viable at Bloemhoek. Using only
Indicated Resources and applying appropriate modifying factors for the mining
method selected, this resulted in the definition of an estimated Probable
Reserve of 31.6Mt at a plant head grade of 5.3g/t Au, containing 5.4Moz of gold.
The above-noted technical report is available at www.sedar.com and
www.witsgold.com.
Financial modeling at a gold price of $975/oz, an exchange rate of R8.00 per US$
(equivalent to R250 000/kg) and a State royalty of 1.5% on revenue, illustrated
that the project has an IRR of 19.1% and an NPV (10%) of R2,228 million (US$278
million).
In the adjoining De Bron area, the main targets for gold mineralisation consist
of the Beatrix and Leader Reefs where they are preserved at relatively shallow
depths of 480-1300 metres below surface. A scoping study was undertaken by
Qualified Persons Gordon Cunningham and Tim Spindler who compiled a NI 43-101
report entitled "Technical Report on the Scoping Study for the De Bron Project,
Southern Free State Goldfield, South Africa" dated 2 May 2010. The study
considered alternative mine designs, one of which was a medium sized
62.5kt/month operation with a conventional system of footwall haulages and box
holes linked to raises. This was based on an Indicated Resource of 8.7Mt at
6.4g/t Au (1.8Moz) using a 4g/t cutoff and planned to exploit the entire area
situated to the east of the De Bron Fault. The above-noted technical report is
available at www.sedar.com and www.witsgold.com.
Using a gold price of US$975/oz and an exchange rate of R8.00/US$ (R250 000/kg),
a discounted cash flow model produced an IRR of 12.8% and an NPV (10%) of R303
million (US$38 million).
An assessment by Wits Gold of the historic drilling in the Merriespruit South
area has indicated that the Beatrix and Leader Reefs display similar
characteristics and gold grades as those encountered across the common boundary
into De Bron. These reefs in the Merriespruit South area are separated from the
Merriespruit Mine by a major fault known as the Merriespruit Thrust. This
geological structure vertically displaces the principal economic targets such
that they could not be efficiently exploited using the existing mine
infrastructure. These reefs do however occur in a contiguous structural domain
when combined with the De Bron area to the immediate south. Although further
confirmatory drilling is required, it is anticipated that the Merriespruit South
area will materially add to the potential of the combined area by establishing a
substantial shallow gold resource.
3. The Transactions
Shareholders of Wits Gold are advised that the Company has entered into an
agreement with Harmony in terms of which Harmony`s Merriespruit South area will
be included in Wits Gold`s existing contiguous prospecting right. The
consideration payable to Harmony is R61 million (US$8.5 million, based on R7.2
per US$) and is subject to the fulfilment of certain conditions precedent. These
include Wits Gold obtaining funding to an amount of at least R61 million not
later than 31 May 2011, the unconditional fulfilment of the Option Cancellation
Agreement and the Department of Mineral Resources consenting to include the
Merriespruit South area under Wits Gold`s existing prospecting right by not
later than 31 October 2011.
Concurrent with the Merriespruit South transaction, shareholders of Wits Gold
are advised that the Company has entered into an option cancellation agreement
with Freegold JV. This will result in the cancellation of the Option for a
consideration payable to Freegold JV of R275 million (US$38 million, based on
R7.2 per US$), subject to the fulfilment and/or waiver of certain conditions
precedent (the "Option Cancellation Agreement"). Subject to the receipt of
necessary regulatory and stock exchange approvals, Wits Gold has the option to
settle the consideration either in cash or by the issue to Freegold JV of up to
4,376,194 ordinary shares in Wits Gold (calculated using a volume weighted share
price of R62.85 as at 21 June 2010) or a combination of cash and Wits Gold
shares. Harmony has agreed to certain lock up provisions. In addition, as part
of the agreement, Harmony has agreed to waive any participation rights that its
subsidiaries currently hold over the Mineral Rights.
Together these two transactions will consolidate Wits Gold`s mineral holdings in
the southern Free State and allow Wits Gold to independently develop the key
Bloemhoek and De Bron projects in the best interests of the Company`s
shareholders.
4. Rationale for Merriespruit South Transaction
A regional geological model for the southern Free State has been compiled by
Wits Gold which is based on exploration undertaken in the region since 2004.
This suggests that enhanced gold grades in the Beatrix and Leader Reefs are the
product of subtle subcrop relationships between older reefs and overlying
unconformity surfaces. Using available drill core, such subcrop relationships
have been observed in the vicinity of the boundary between Merriespruit South
and De Bron. Subject to completion of the Merriespruit South transaction and a
successful confirmatory drilling programme, Wits Gold believes a combined
Merriespruit South-De Bron project presents an opportunity to create a larger,
shallow resource. This is likely to have a positive impact on the economics of
the combined project.
5. Rationale for Option Cancellation Agreement
As reported in paragraph 2, the Mineral Rights originally acquired from the
Freegold JV contain Indicated Resources of 103.3Mt at 6.0g/t gold (19.9Moz) and
Inferred Resources of 83.7Mt at 5.6g/t gold (15.0Moz). The acquisition of
Freegold JV`s 40% option to participate in the future development of these
assets is considered by Wits Gold to represent a strategically important step.
This is particularly evident in the combined De Bron-Merriespruit South area
where drilling has already identified extensive, shallow Beatrix and Leader
Reefs, but also at Bloemhoek, where, as described in paragraph 2, a pre-
feasibility study has outlined an estimated Probable Reserve of 31.6Mt at a
grade of 5.3g/t Au (5.4Moz). Following the cancellation of the Option, Wits Gold
will be in a position to progress these projects towards a development decision
without being restricted to a single strategic partner. Consequently, any
additional value which is added to these projects will accrue fully to Wits Gold
shareholders.
6. Details of the Merriespruit South Transaction
Subject to fulfilment of the conditions precedent, the Merriespruit South
transaction will be effected by a cash payment to Harmony of R61 million (US$8.5
million, based on R7.2 per US$). R10 million (US$1.4 million, based on R7.2 per
US$) has already been paid into an escrow account and will be payable to
Harmony:
a. in the event the transaction becomes effective; or
b. if by, not later than, 31 May 2011 Wits Gold has not obtained at least R61
million in financing; or
c. any other of the conditions precedent are not fulfilled as a result of Wits
Gold frustrating or preventing their fulfilment.
The balance of the consideration (being R51 million) will be paid in the event
the transaction becomes effective. The effective date of the Merriespruit South
transaction will be the date upon which the last condition precedent is
completed or waived.
Harmony has granted Wits Gold immediate access to the Merriespruit South area
for a period of 180 days to conduct drilling operations. Wits Gold has made
preparations for these drilling operations and anticipates drilling up to five
boreholes over a period of six months. Wits Gold expects to be in a position to
report the outcome of these drilling operations to shareholders during the first
half of 2011.
The Merriespruit South transaction agreement is subject to the fulfilment of the
following conditions precedent:
a. by not later than 17h00 on 13 September 2010, Wits Gold and Harmony shall
have received a certified copy of resolutions of each other`s respective board
of directors to effect the transaction;
b. by not later than 13 September 2010, a Section 102 application has been
signed on behalf of Wits Gold and submitted to the Department of Mineral
Resources;
c. by not later than 17h00 on 5 November 2010, the Option Cancellation Agreement
has become unconditional in accordance with its terms and has been fully
implemented;
d. by not later than 31 May 2011, Wits Gold has obtained funding in an amount of
at least R61 million;
e. by not later than 17h00 on 31 October 2011, consent has been granted by the
Minister of the Department of Mineral Resources to amend Wits Gold`s prospecting
right; and
f. the transaction is executed by way of an abandonment of a portion of
Harmony`s existing mining right and the amendment of Wits Gold`s existing
prospecting right over the De Bron prospecting area by Wits Gold not later than
ten business days following the fulfilment of the last of the conditions
precedent.
7. Details of the Option Cancellation Agreement
Subject to fulfilment of the conditions precedent, the Option Cancellation
Agreement will be effected by a payment by Wits Gold to Harmony of R275 million
(US$38 million, based on R7.2 per US$) of consideration. Wits Gold has the
option to settle the consideration in cash or by way of an issue of up to
4,376,174 Wits Gold ordinary shares or a combination of both. In the event that
the consideration is settled by the issue of Wits Gold ordinary shares, Harmony
has agreed to a lock up period of 180 days and has further agreed to consult
with Wits Gold prior to disposing of any shares for a period of one year after
expiry of the lock up. The effective date is the 3rd business day after
fulfilment of the following conditions precedent:
a. by not later than 17h00 on 13 September 2010, Wits Gold and Freegold JV shall
have received a certified copy of resolutions of each other`s respective board
of directors to effect the transaction;
b. by not later than 17h00 on 13 September 2010, Harmony and its subsidiaries
shall have waived any participation rights which they have over the Mineral
Rights or the Merriespruit South area;
c. by not later than 17h00 on 5 November 2010, the shareholders of Wits Gold
shall have passed resolutions in general meeting in order to place the shares
necessary to effect the transaction under the control of the directors.
8. Financial Effects of the Transactions
The unaudited pro forma financial effects of the transaction, for which the
directors are solely responsible, are provided for illustrative purposes only to
show the effects of the transactions on earnings and net asset value per share
as if the transactions had taken place on 1 March 2009, for the purpose of the
pro forma income statement effect, and 28 February 2010 for the purpose of the
pro forma balance sheet effect. Because of their nature the unaudited pro forma
financial effects may not give a true reflection of the Company`s financial
position and performance. The unaudited pro forma financial effects have been
compiled from the audited financial statements, prepared in accordance with
International Financial Reporting Standards, as at and for the year ended 28
February 2010 and are presented in a manner consistent with the format and
accounting policies adopted by the Company and have been adjusted as described
in the notes hereto:
28.2.2010 Pro forma
Audited After
before the the %
Notes transaction trans- change
action
Basic loss per share (cents) 1,2 (28.05) (23.54) 16.09
Headline loss per share (cents) 1,2 (28.05) (23.54) 16.09
Diluted loss per share (cents) 1,2 (45.02) (37.81) 16.03
Diluted headline loss per share (cents) 1,2 (45.02) (37.81) 16.03
Net asset value per share (cents) 3 670.63 1 575.17 134.88
Net tangible asset value per share (cents)
3 305.31 256.45 (16.01)
Actual number of shares in issue (000`s) 2 27 891 33 206 19.06
Weighted average number of
shares in issue (000`s) 2 27 716 33 031 19.18
Diluted weighted average number
of shares in issue (000`s) 2 27 841 33 156 19.06
Notes:
1. The "before" basic loss per share, diluted loss per share, headline loss per
share and diluted headline loss per share figures are based on the weighted
average number of shares in issue at 28 February 2010;
2. The adjustments to the basic loss per share, diluted loss per share, headline
loss per share and diluted headline loss per share are based on the weighted
average number of shares in issue at 28 February 2010 assuming that the
transaction is effective 1 March 2009. These adjustments reflect the effect of
the increase in the issued share capital resulting from the conclusion of the
transactions, as there are no effects on the statement of comprehensive income
resulting from the transaction.
3. For net asset value and tangible net asset value calculations, it is assumed
that the transaction is effective 28 February 2010 and based on the actual
number of shares in issue at 28 February 2010. The adjustments reflect the
increase of R336 million in the value of the intangible assets and the increase
of the issued share capital from the conclusion of the transaction.
9. Categorisation of Transactions and Shareholder Approval
In terms of the JSE Listings Requirements, the Option Cancellation Agreement and
the Merriespruit South transaction are categorised jointly as a Category Two
Transaction. Consequently, approval by shareholders is not required. However a
general meeting of shareholders is expected to be held on or before 5 November
2010 in order to approve the placement of the shares necessary to effect the
Option Cancellation Agreement under the control of the directors and to seek any
other approvals that maybe necessary at the time.
10. Withdrawal of Cautionary
Shareholders are advised that, in light of the information presented above,
there is no longer a need to exercise caution when dealing in Wits Gold shares.
11. Forward-looking information
Certain statements in this announcement may constitute forward-looking
information within the meaning of securities laws. In some cases, forward-
looking information can be identified by use of terms such as "may", "will",
"should", "expect", "believe", "plan", "scheduled", "intend", "estimate",
"forecast", "predict", "potential", "continue", "anticipate" or other similar
expressions concerning matters that are not historical facts.
Forward-looking information may relate to anticipated events or results, and may
include statements or information regarding the expected benefits of the
transactions disclosed herein, the gold mineralisation of the Merriespruit South
area and the future potential of exploration sites. Forward-looking information
involves known and unknown risks, uncertainties and other important factors that
could cause the actual results, performance or achievements of the Company to be
materially different from the future results, performance or achievements
expressed or implied by such forward looking information. Such risks,
uncertainties and other important factors include among others: economic,
business and political conditions in South Africa; decreases in the market price
of gold; labor disruptions; changes in laws and government regulations; and
macro-economic factors. These forward-looking statements speak only as of the
date of this announcement.
You should not place undue importance on forward-looking information and should
not rely upon this information as of any other date. The Company undertakes no
obligation to update publicly or release any revisions to these forward-looking
statements to reflect events or circumstances after the date of this
announcement or to reflect the occurrence of unanticipated events except where
required by applicable laws.
Johannesburg
7 September 2010
Sponsor
PricewaterhouseCoopers Corporate Finance (Pty) Limited
Attorney
Taback and Associates (Pty) Limited
Date: 07/09/2010 12:00:01 Produced by the JSE SENS Department.
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