JOHANNESBURG (miningweekly.com) – Gold exploration company Wits Gold on Tuesday announced two transactions, to the value of R336-million, with gold-mining major Harmony Gold to advance the viability and value of its Free State gold assets.

JSE-listed Wits Gold would obtain a prospecting right over Harmony's Merriespruit South area for R61-million in cash and buy out a 40% option currently held by Harmony subsidiary Freegold for R275-million, which could be satisfied through cash or shares.

Wits Gold CEO Marc Watchorn explained to Mining Weekly Online that the acquisition of Merriespruit South would enhance the company's current De Bron project and ensure that a mine could be developed that was capable of delivering solid financial returns.

"This could create a shallow, medium- to high-grade mine with substantially enhanced economics."

He explained that extensive drilling had been carried out at the De Bron project, which confirmed that grades were improving to the north of De Bron and towards Merriespruit.

"When we conducted the scoping study for our De Bron project, the average grades were such that the financials were somewhat disappointing. We then decided to approached Harmony to acquire the shallow unmined Merriespruit South area."

Wits Gold believes that the two areas combined will have sufficient strategic mass to justify a development decision, based on drilling results from De Bron and historical data on Merriespruit South that was provided by Harmony.

However, Watchorn pointed out that the company would not necessarily be looking at developing the project itself. "Wits Gold will be looking at advancing the project to bankable feasibility stage and then consider a number of options such as bringing in a strategic partner, selling the project or even listing the project on the stock exchange."

To advance the Merriespruit South acquisition, Wits Gold would have to transfer the Harmony right and merge it with Wits Gold's prospecting rights.

"Hopefully, this will happen in the next three to six month," Watchorn said.

The company also gave Harmony a R10-million option fee, and would then owe it the balance of R51-million for the acquisition to go through, he elaborated.

Meanwhile, with the Freegold option cancellation, which allowed Harmony a 40% participation in any mines established on certain Wits Gold prospecting rights, the group has now effectively gained 100% control of its 34-million-ounce De Bron project and its adjacent Bloemhof project, which boasts a 5,4-million ounce reserve.

Wits Gold expected the option cancellation to come through by early November.

Harmony CEO Graham Briggs said that the Merriespruit South area and the Freegold option did not fit into Harmony's portfolio, but added that the transactions were an exciting opportunity for Wits Gold and would unlock value for the company's shareholders.