Pamodzi well placed for ac­qui­si­tions

Only ju­nior gold miner that’s black owned and con­trolled

Finweek English Edition - - Companies & markets - MICHAEL COUL­SON

EV­ERY COM­PANY can do with a unique sell­ing propo­si­tion (USP), but the need is even more vi­tal in the ju­nior min­ing sec­tor. Though the com­pa­nies might not agree, it can be dif­fi­cult for an out­sider to tell, for in­stance, just how one ju­nior plat­inum de­vel­oper dif­fers in essence from an­other. But some ju­nior gold min­ing com­pa­nies are more ob­vi­ously dif­fer­en­ti­ated.

A case in point is Pamodzi Gold, which listed on the JSE last De­cem­ber, af­ter rais­ing R152m by plac­ing 8,21m shares at 1 850c. Al­though that was close to the bot­tom end of the ex­pected range of 1 800c to 2 500c, it still raised well above the min­i­mum R130m, be­low which the is­sue would have been scrapped.

It has since drifted be­tween 1 950c and 1 700c be­fore re­cov­er­ing to the is­sue price of 1 850c. That gives it a mar­ket cap of just un­der R760m. Apart from semi-mori­bund list­ings such as Halo­gen, Stil­fontein and Vil­lage Main, and the sus­pended Rand­Gold and JCI, that’s the low­est in the sec­tion: only about half Great Basin’s R1,495bn or Af­gold’s R1,45bn.

But MD Ken Steenkamp is un­abashed. To him, Pamodzi’s USP is that it’s the only gold ju­nior that’s not just BEE-com­pli­ant, but black owned and con­trolled, and the con­trol struc­ture en­sures this will be main­tained even if more pa­per is is­sued to pay for ac­qui­si­tions. This is strictly true, though the BEE eco­nomic in­ter­est is only 32,5%.

Pamodzi Gold is the gold min­ing unit of Pamodzi Hold­ings, which de­scribes it­self as one of the fore­most BEE houses. Other in­ter­ests in­clude 65% of Food­corp, 28% of NamTech, 25% of Al­tech Data, 26% of Wes­Bank and 49% of BMW Auto Bavaria. Headed by Nd­aba Nt­sele, it claims to have raised R5bn cap­i­tal to date.

Steenkamp, pre­vi­ously a 20year Gold Fields man who fin­ished up as GM of Kloof, be­lieves this gives Pamodzi the po­ten­tial to be a ma­jor player in the ra­tio­nal­i­sa­tion of the sec­tor that – as with the ju­nior plat­inum min­ers – he sees as in­evitable in the next few years. Pamodzi is al­ready, to a de­gree, a prod­uct of ra­tio­nal­i­sa­tion: it com­bines the Mid­delvlei ven­ture, started by Steenkamp and his as­so­ciates, with the East Rand prop­er­ties for­merly owned by Canada’s Bema Gold, at present a 29,9% share­holder.

The Bema prop­er­ties were much courted, and for much of last year it seemed that Neal Frone­man’s Aflease was best placed to buy them. Look at the map and you’ll see why: They are sur­rounded by Aflease prop­er­ties on al­most ev­ery side. Steenkamp reck­ons that he sim­ply man­aged to put to­gether a bet­ter struc­ture, in­clud­ing re­pay­ing Bema’s debt with some of the pro­ceeds of the plac­ing.

But whether the Aflease ar­eas are an early takeover tar­get or not – which may de­pend in part on how much Aflease de­cides to con­cen­trate on its ura­nium prospects through sxr – Pamodzi has am­bi­tious plans to bulk up. A 200 000oz op­er­a­tion on list­ing, it wants at least to dou­ble this in short or­der.

What Pamodzi has in com­mon with Great Basin, an­other ju­nior gold miner that listed last year, is a two-pronged strat­egy.

Mid­delvlei is an early-stage open­cast mine 55km south­west of Jo’burg, north of the Ven­ter­spost sec­tion of Kloof (which was the orig­i­nal owner) and south­west of the orig­i­nal mine of Har­mony-owned Rand­fontein, which is ex­pected to pro­duce 32 000oz a year from 2008 with an eight-year life.

Bema’s much big­ger East Rand, or Pe­trex, prop­er­ties com­prise three un­der­ground mines and a pro­cess­ing plant at Grootvlei, that are ex­pected to pro­duce 160 000oz for the next three years and should have a sim­i­lar life to Mid­delvelei, though it will take sig­nif­i­cant capex to sus­tain pro­duc­tion at this rate. How­ever, the Pe­trex prop­er­ties have con­sid­er­able tax losses and shouldn’t in­cur tax for many years. Group cash costs should be no more than US$300/oz.

Steenkamp points out that all th­ese cal­cu­la­tions and pro­jec­tions are based on a gold price of R117 000/kg. At cur­rent lev­els the lives of the mines would be con­sid­er­ably ex­tended. But even on th­ese as­sump­tions, the prelist­ing state­ment put an en­ter­prise value of about R1bn on the group, of which al­most 80% re­flects the Pe­trex prop­er­ties. How­ever, Pamodzi is not alone in be­ing priced by the mar­ket be­low an es­ti­mate of en­ter­prise value.

And Pe­trex, in par­tic­u­lar, is highly geared to both the rand and the US$ gold price.

Steenkamp sees Pamodzi as be­ing in a sim­i­lar po­si­tion to Har­mony 10 years ago. He be­lieves the ma­jors – per­haps even in­clud­ing Har­mony it­self – will be sell­ing off non-core as­sets, and that Pamodzi is ideally placed to buy them, run them at lower cost and con­fer BEE cred­its on the ven­dors. Then there are the syn­er­gis­tic op­por­tu­ni­ties from sur­round­ing ar­eas and the abil­ity to as­sist smaller op­er­a­tors that re­quire scale to be­come prof­itable.

It’s al­ready talk­ing to Har­mony about that com­pany’s dor­mant Lin­dum Reefs open pit, and Steenkamp be­lieves there are op­por­tu­ni­ties un­der­ground on the VCR in the north­west of the Ven­ter­spost lease area, as well. While at last week’s Har­mony pre­sen­ta­tion Bernard Swanepoel de­nied that any ac­tive talks were in progress, he did ad­mit that Har­mony would at least con­sider any of­fers for any of its as­sets from peo­ple who thought they could mine them more cheaply.

The flacks have pre­pared us to ex­pect an ac­tive deal flow from Pamodzi, and though noth­ing has hap­pened yet, there could be more than one deal dur­ing 2007. But I’m sure the com­pany would like to see a rather higher share price be­fore di­lut­ing the eq­uity too much by share is­sues.

Al­ready in talks re­gard­ing op­por­tu­ni­ties. Ken Steenkamp

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