It’s not news to note that the gold mining sector in South Africa is under pressure – rising energy costs, labour issues, falling gold prices, and the threat of new taxes and regulations have combined to make the sector increasingly risky and unattractive. Amidst all this gloom, it’s somewhat cheering to see Sibanye making a fairly generous cash offer to acquire exploration company Wits Gold. However, the mooted transaction has received plenty of negative attention following an article alleging that the ANC could stand to benefit richly from the transaction. In this interview, CEO Phillip Kotze explains that the benefit to the ANC will be much more modest than has been alleged, and explains why, exactly, his company is worth the investment despite the many challenges facing the industry. Kotze does, interestingly, admit that the ANC stands to benefit from the sale, but insists that the money involved is far less than rumour has it. – FD
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ALEC HOGG: Joining us now is Wits Gold Chief Executive Phillip Kotze to explain more about the deal. Phillip, no doubt you saw the Sunday Times article that Barry wrote. Is he on the money there? Does the ANC stand to make 100 million rand in this transaction?
PHILLIP KOTZE: I guess the short answer would be ‘no’, Alec. It’s unfortunate that Barry didn’t get the detail and make sure that the article he wrote was accurate. Unfortunately, there were a number of inaccuracies in the article itself, which we will have a discussion with Barry to rectify. Hopefully he can put the right facts on the table, then.
ALEC HOGG: So the Chancellor House is not a shareholder.
PHILLIP KOTZE: Firstly, if we take it back, when Adam formed the company in 2006, there were three BEE entities: two major ones – the one was Continental Africa and the other one was Transfer Kismet Investments, and then there was a Women’s League – about three percent in it. Continental Africa Holdings is really comprised of a number of different entities, and in our structure, we really cannot see any specific holding for Chancellor House in it. Be that as it may, there is a portion of it that could potentially have an affiliate to Chancellor House and by our calculation that number sits in the region of about seven percent / 7.5 percent – so it’s substantially less than what Barry has alluded to.
ALEC HOGG: It will help print a few election posters, no doubt, but that’s not really the reason why we asked you to come here. It was more Wits Gold…when you did the Burnstone Deal from Great Basin God. You were quoted as saying that you needed to get Burnstone right. Great Basic couldn’t do it. We would love an update on that, but while you’re busy, sorting that problem out along comes the Neil Froneman who says ‘come and be part of Sibanye’.
PHILLIP KOTZE: Yes, I think if we just put the Burnstone transaction in perspective, you do very good deals when the gold price is under pressure and the market is under pressure, as it is now. I think Burnstone was a good example of that. Therefore, as Wits Gold, we had a slated intention to become operational, and this was part of that strategy. Neil has been in the industry for a number of years, equally as long as what I have, and I think we have discussed the synergies that are still available in South Africa. The way for us to become competitive again as gold miners in South Africa: we need to seize those synergies and bring them to the table. I think Neil has done a fantastic job in splitting Sibanye out from Goldfields, I think his performance has sort of explained itself, and being a dividend payer, I think it will be a very good away of attracting future investors back to South Africa again.
ALEC HOGG: Everybody knows….or people in the gold mining industry can see that the fit between yourselves and Sibanye, because of Beatrix and your operations there. However, where does Burnstone come into all of this?
PHILLIP KOTZE: Well, Burnstone is on the table currently as a transaction that Wits Gold is pursuing. I think you would agree that we’ve done a very good transaction there under the current circumstances. We effectively bought the company for one brand. We then accepted a portion of the debt that we will repay from future cash flows from the operation, so it comes with very little risk for us, as Wits Gold. If you look at the quality of the asset, there were a number of things that were done wrong historically, and we’ve identified that, Alec. However, this is one of the shallowest mines in South Africa, so I think for any future gold producer in South Africa – not looking at Burnstone, a mine where you’d spend 90 percent of the capital already – you are very close to production right now and you have about 700 million dollars sunk… You’d be silly not to look at that.
ALEC HOGG: It’s an extraordinary amount of money in there. Will that also go into Sibanye, then – Burnstone?
PHILLIP KOTZE: Yes, at this stage Sibanye is still busy with due diligence on that, to complete that, but it will certainly be considered by Sibanye and they will take that decision.
ALEC HOGG: The question has to be why not…if Burnstone is so attractive – keep that in Wits Gold and then sell the rest of the operating assets to Neil, because that’s what Sibanye wants.
PHILLIP KOTZE: Sure, I think Alec, for us to be successful in the Burnstone transaction, we need to get enough funding to grow production at Burnstone and get it to its full design capacity. That is one of the aspects that Sibanye certainly brings to the table. They are generating significant cash flows at this stage and whilst maintaining a dividend policy in place, then can afford to grow the Burnstone production as well.
GUGULETHU MFUPHI: Your investors still seem very keen on the Goldfields. We saw a sharp increase in the share price on the back of their announcement. Is this indicative perhaps of how shareholders are feeling towards the deal?
PHILLIP KOTZE: I think in a gold market, just from the beginning of this year, we’ve had gold shares that have dropped somewhere between 60 to 80 percent of their value across the board – both South African and international companies, so being an exploration company you are obviously affected even more. That was the reason why we wanted to get into production. I think getting a nice premium on the current share price for our shareholders has certainly won most of their support over. I must make the point though, that although Wits Gold Management and Board are positive about the offer/the transaction, the final decision rests with our shareholders who will be putting it to a vote, and they need to vote on this transaction.
ALEC HOGG: There’s already over 50 percent who say they like it.
PHILLIP KOTZE: You’re correct – yes. Look, we have a very tightly held share register and the top five shareholders in our company take us just over 50 percent, and they’re already supportive of it. Once again, I think in the markets that we currently are, getting a premium to where the share traded I think would be fairly attractive for our shareholders, and that’s why we put it forward.
ALEC HOGG: Would Adan Fleming be a seller – on one of those five?
PHILLIP KOTZE: Adam is certainly part of it. Adam is also our company chairman, so you would know that Adam had enough insight in the company and the offer, and as you know he’s a very staunch gold bull, and also very supportive of South Africa.
ALEC HOGG: Does he still own those blocks in downtown Johannesburg?
PHILLIP KOTZE: He certainly does – yes – and we operate from one of them, the best least rates we could have hoped for.
ALEC HOGG: What do you pay?
PHILLIP KOTZE: You would be very surprised. I can’t tell.
ALEC HOGG: Under R50.00 per square metre…
PHILLIP KOTZE: You’re looking around there.
ALEC HOGG: Wow.
