JOHANNESBURG (miningweekly.com) – JSE- and NYSE-listed Sibanye Gold has made a R407-million bid to acquire 100% of Wits Gold, in a deal that could “give life” to the gold junior’s assets and secure the future of Sibanye’s Beatrix mine.

The R11.55-a-share offer, for which a December 10 implementation agreement was executed on Wednesday, represented a 47.1% premium to Wits Gold’s 30-day volume-weighted average price on the JSE on December 9.

“This is a significant deal for the market and a watershed moment for both companies,” said Wits Gold chairperson Adam Fleming, adding that the Sibanye offer represented significant upside value and provided shareholders the opportunity to realise immediate value from Wits Gold at a substantial premium to current trading levels.

Fleming, who held a 25% stake in Wits Gold, gave his irrevocable support to the deal, along with four other shareholders. This meant that shareholders with a combined 57% of shares had committed to vote in favour of the deal. Sibanye needed 75% shareholder approval.

The share price of Wits Gold, which would be delisted from the JSE and the TSX and have its American Depository Receipts programme terminated on conclusion of the takeover, jumped more than 30% on the JSE on Wednesday morning. Sibanye’s share price on the Johannesburg bourse rose 2.5%.

Despite developing a portfolio of high-quality, strategically located assets, Wits Gold had reached the point where the “sort of funding, infrastructure and resources that Sibanye had" was required to fully exploit the Wits Gold assets and make them profitable, Fleming explained.

Wits Gold’s cash balance of R15.7-million as at December 6 was only sufficient as working capital until March.

Sibanye, which would absorb Wits Gold’s management and staff, aimed to consolidate the emerging gold producer’s Southern Free State assets with its adjacent Beatrix operations, leveraging existing infrastructure to significantly reduce the projected capital expenditure of the Southern Free State projects.

“[Wits Gold’s] advanced De Bron-Merriespruit and Bloemhoek projects in the Southern Free State, are adjacent to Sibanye’s Beatrix operations and offer an opportunity to extend the operating life of Beatrix and unlock significant value in the region,” explained Sibanye CEO Neal Froneman.

Sibanye’s buy-out would enable Beatrix to extend its life-of-mine (LoM) through the extension of shaft number three into the Bloemhoek project, which was anticipated to have a LoM of 25 years, and secure another one-million ounces of gold from the Beatrix North section. Beatrix shaft number four was also well positioned to dip into the Wits Gold project.

“[The transaction would] secure the future of the Beatrix operations through the removal of farm fences, enabling contiguous orebodies to be accessed from existing infrastructure and facilitating the logical rationalisation of mining blocks and increasing the effective use of existing surface and plant infrastructure,” he added.

In addition, the high-uranium-grade Beisa North and South properties, which were adjacent to the Beatrix West section, could enable critical mass for the possible extension of Beatrix West into a uranium mine.

Further, Wits Gold’s move to buy the embattled Burnstone gold mine, in Mpumalanga, following Southgold Exploration’s descent into business rescue proceedings, could boost Sibanye’s reach into the South Rand goldfield and drive the company's ambitions of shifting production into shallower gold-mining areas.

“Burnstone potentially secures an additional source of low-cost production, thereby enhancing Sibanye’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 commented.

Wits Gold, which would need to inject R950-million over three years as working capital to bring the Burnstone mine back into production, including an initial payment of R7.25-million, was expected to shortly execute a series of agreements, including transaction and refinancing agreements, in what Froneman dubbed “a good deal”.

While Sibanye’s final decision to invest in Burnstone was subject to the implementation of the proposed transaction and the outcome of the gold miner’s final due diligence investigation of Burnstone, Froneman was “excited” about the possible acquisition.

Speaking at a briefing in Sandton, he said the mine failed owing to a number of factors, including an incorrect resource model and the use of an inappropriate mining method for the complex structure, but believed that “there is a real resource there”.

“We like what we see,” he emphasised.

However, the acquisition of Wits Gold was subject to the continuation of the Burnstone takeover and its business rescue proceedings.

The deal also remained subject to various conditions precedent, including Wits Gold shareholder approval, third-party financier approvals and other regulatory and competition authority approvals by April.

An independent board, comprising Gayle Wilson, Kenneth Dicks and Patrick Cooke, and which had been convened by Wits Gold to review the proposed transaction, would appoint an independent expert to consider whether Sibanye's proposed offer was fair and reasonable to Wits Gold shareholders.