JOHANNESBURG (miningweekly.com) – The bid that Simmer & Jack Mines (Simmers) would submit for the stricken Pamodzi Gold’s provisionally liquidated Orkney mine would not cover the operation’s current R337-million financial liability, Simmers CEO Deon van der Mescht told Mining Weekly Online on Wednesday.

Asked, on the eve of the company’s requested meeting with joint Orkney mine liquidator Enver Motala, whether Simmers' formal offer would come close to matching the mine’s present financial obligations, Van der Mescht said unequivocally: “Not a chance, not by a long shot.”

Earlier, Motala had confirmed to Mining Weekly Online that the JSE-listed Simmers would meet him on Thursday.

“They’ve completed their due diligence and they’ve called for the meeting, so I will be able to tell you more tomorrow,” Motala said.

Van der Mescht said that Simmers’ strategy in seeking to acquire the Orkney gold mine was one of area consolidation, which would allow synergistic geographical benefits to be unlocked.

“Orkney is perfectly wedged between our Buffelsfontein mine and our Tau Lekoa and Weltevreden lease areas, making its acquisition a perfect fit in terms of boundary pillars, overhead structures and service department overheads.

“The results of the due diligence indicate that there is a sustainable business case for us there and that’s what we want to gauge with the liquidator,” he said.

Asked when Simmers intended submitting its formal bid, Van der Mescht replied that it would be at the formal bidding point that the negotiations would be at their toughest because “it’s no secret that those assets are significantly under-capitalised”.

As Simmers experienced when it acquired the DRDGold liquidated Buffelsfontein gold mine out of liquidation, a “substantive” capital investment would be required to create flexibility and to ensure that the infrastructure was sound.

“That requires a significant injection of capital and that’s what we want to discuss with the liquidator, because, on the one hand is a price expectation, and, on the other, is sustainable growth, and we need to balance the two. Our bid is around sustainable growth of the asset.

He warned of bidders that might cash-strip Orkney: “You could take Orkney and asset strip the mine over three years and make a handsome sum of money, but that approach would not please labour.

“Will the liquidator be persuaded by a bidder who offers a handsome sum, but asset-strips it in three years, or will the liquidator be persuaded by the bid we intend submitting, which may not necessarily be the most attractive in terms of an immediate cash sum, but will commit to capital injections that create a long-term sustainable business entity.

“Let’s take one step back. Pamodzi Gold paid R300-million to Harmony Gold for Orkney. To expect more than that to be paid for something that failed dismally is absolutely ludicrous,” Van der Mescht said.

He would be pushing hard for a fully transparent bidding process, re-echoing the transparency plea of Solidarity spokesperson Jaco Kleynhans, who said: “It would be ideal if the potential buyer’s existing operations could form a synergy with the Pamodzi mines in order for costs, such as for transporting and smelting ore, to be cut.”

“There’s talk of two other bidders and that’s a concern, because those bidders are faceless,” Van der Mescht added.

“We are going to propose a transparent bidding process. All creditors and all interested parties should be able to gain access to the concise plans of each bidder so that decisions can be based on the benefits to all stakeholders.”

Asked if Simmers would retain the 2 800-to-3 000 meployees at Orkney, Van der Mescht said: “There won’t be a material change. Employee numbers will be slightly lower, but the difference will be immaterial.

“Our offer will be quite simple. We’re not aligned to a first or second party to process the ore. We have our own metallurgical plant that has the capacity to process ore from Orkney. The Orkney lease area borders our Tau Lekoa and the synergies are obvious,” he said.

Moreover, Orkney in Simmers' hands would able to withstand the vagaries of the current rand gold price.

Asked how much Simmers was prepared immediately to invest in Orkney, Van der Mescht said: “We haven’t made that number public and, for strategic reasons, we don’t want to. That’s exactly why we want a transparent process, because every gold-mining hopeful is going to come up with all sorts of strategies to try to acquire the Pamodzi Gold assets.”

Asked to comment on the expression of interest of the consortium comprising Middle Eastern investors along with diversified non-mining JSE-listed Sekunjalo Investments in tandem with Sekunjalo Holdings, he replied: “Capital is one element and sufficient capital is compelling, but crucial is having the expertise to operate this mine safely and sustainably.

“At the end of the day, Orkney is a nice-to-have rather than a must-have for Simmer & Jack. Yes, it can add value, and that’s why we are showing interest, but we’re certainly not going to pay a price that is not accretive.

“We’re looking at many acquisition opportunities and we’re going to put our buck where we can give the best return to shareholders. There is low hanging fruit. The industry is stressed. At the current rand gold price things are really difficult. We are basing our strategy on area consolidation so you can take off the radar screen anything that does not fit regionally.

Asked if the due diligence had thrown up any negative surprises, Van der Mescht replied: “On the contrary, we had positive surprises. In our visits underground the physical conditions were far better than we had expected. There are some grey areas, without a doubt, including the huge amount of equipment that was sent off mine that required repairs, but is still off mine and was obviously never paid for. But in terms of the overall physical conditions, we were pleasantly surprised. It really was a eye-opener.”

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