Wits Gold Makes Offer for South Africa’s Burnstone Mine

Witwatersrand Consolidated Gold Resources Ltd., which explores for the metal in South Africa, made an offer for Great Basin Gold Ltd.’s Burnstone mine to give the company its first bullion-producing asset.

Wits Gold will pay a nominal 100 rand ($10) for Great Basin Gold’s Southgold unit, which owns the mine in Balfour in Mpumalanga province and started business-rescue proceedings last year, the company said in a statement. Wits Gold will also advance as much as 950 million rand to Southgold through a shareholder loan at 400 basis points, or 4 percentage points, over the three-month Johannesburg interbank agreed rate, which was 5.14 percent yesterday.

“I liken this asset to a brand new car,” Chief Executive Officer Philip Kotze said in a telephone interview. “It’s still got the plastic on the seats but they just didn’t put in the gear box. We just need to put in the gear box and there we go.”

Wits Gold, based in Johannesburg, is making the offer as producers in the nation confront slumping prices for the metal and labor unrest amid demands by entry-level workers at mines for pay to be doubled. Gold’s decline in the three months through June was the biggest quarterly loss in nine decades. South Africa was the world’s sixth-biggest bullion producer in 2012, the Chamber of Mines said July 2.

Great Basin Gold spent $800 million of capital on the project, which can produce 30,000 ounces of gold a year without additional spending, Kotze said. Wits Gold could raise production to 150,000 ounces by spending an extra $100 million, he said.

Generating Cash

Creditors of Great Basin Gold, which include Credit Suisse Group AG and Standard Chartered Plc, will be paid a weighted average of 18 cents on the dollar once the shareholder loan is repaid and the mine starts generating cash, Kotze said.

Gold dropped 22.7 percent in the second quarter, the biggest three-month decline since at least 1920, according to data compiled by Bloomberg. Bullion dropped 1.1 percent today to $1,235 at 11:40 a.m. in Johannesburg.

“The business plan for this transaction was done more than two months ago and the gold price has subsequently dropped another $250 an ounce,” Kotze said. It would be “foolish” for the company to raise $100 million in equity and debt immediately so it will take a “phased approach” to fundraising, he said.

The offer is conditional on the restructuring of all Southgold liabilities due to debt holders and the South African Revenue Services.

Wits Gold had cash and cash equivalents of 15 million rand at the end of December 2012, the last period for which it released financial statements.

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