Pamodzi well placed for acquisitions
Only junior gold miner that’s black owned and controlled
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