The Grandich Letter
Market, Economic, Social, Political and Life Commentary by Peter Grandich

Springboard into production achieved through joint acquisition of Evander from Harmony

Wits Gold (the Company), the Johannesburg-based mining and exploration company, took a giant leap forward on Monday, 30 January 2012, when they announced their joint acquisition of 100% of Harmony’s interest in Evander Gold Mines Limited (‘Evander’), in a 50/50 joint venture with fellow South African gold junior, Pan African Resources, for a total transaction consideration of ZAR1.7 billion (less any distributions made by Evander to Harmony prior to the closing date of the Transaction).

The acquisition reinforces the Company’s strategic shift from pure exploration specialist to mid-tier gold producer. The new three-tiered strategy includes acquisition, fast-tracking the building of their own advanced flagship projects and continued exploration in the Witwatersrand Basin. The joint acquisition of Evander has apparently put them well on their way, giving them an immediate increase in attributable reserves and resources, with positive cash flows, effectively springboarding them into production overnight.

Located in South Africa’s Mpumalanga Province in a sub-basin outside the main Witwatersrand Basin, the Evander gold field has historically produced in excess of 48Moz of gold at an average grade of 7g/t. Well known to both management teams, the mine comprises, amongst others the operating 8 shaft, three development projects (Evander South, Rolspruit and Poplar), the Kinross metallurgical plant and the Libra surface tailings project. The mine was recently returned to profitability with production of 27,500 ounces at a cash cost of ZAR208,597/kg (US$909/oz) in the latest quarterly figures reported by Harmony.

The man responsible for implementing the new strategy is new CEO, Philip Kotze, a mining engineer with an extensive track record of bringing projects to account in the South African gold and platinum sectors. Kotze was appointed in August 2011 and has wasted little time in moving Wits Gold forward. He is understandably excited about the agreement: “The transaction allows us to become a producer immediately,” he says, “and the cash generated from this operation will be utilised to partly fund our development growth projects, thus mobilising the second leg of our strategy.

The partnership with Pan African has enabled both companies to make an offer for a good-quality operating asset with significant upside potential. We look forward to working together with our partners to provide the best value for all our shareholders”.

The agreement is particularly significant given the profile of South Africa’s mining industry, which contains a noticeable absence of genuine mid-tier producers in the gap between its three biggest companies and the country’s junior players. The joint venture is being described as a potential revival of the junior mining sector and a much needed growth story in the country’s mining landscape in general.

Wits Gold’s next step is expected to be to progress their flagship De Bron Merriespruit (DBM) Project, which has also undergone a significant resource estimate increase in the last month and now boasts Indicated Resource of 7.5Moz, with a high grade zone of 3.6Moz at an average grade of 8.1 g/t. DBM also features shallow mineralisation starting at just 480m below surface, allowing for safer, more efficient mechanised mining methods. Production is planned at 135 000oz/year with cash costs of $569/oz. A 25-year Life of Mine has been modeled and first production is targeted for 2016.

All aboard!