 JOHANNESBURG (miningweekly.com) – The depressed share price of Simmer & Jack Mines (Simmers) shot up by more than 20% on Wednesday on the news that South Africa's Department of Mineral Resources had transferred the mining rights of the Tau Lekoa gold mine to the loss-making JSE-listed gold-mining company.
Simmers interim CEO Nico Schoeman told Mining Weekly Online that Simmers was aiming to produce 125 000 oz of gold from Tau Lekoa in the first 12 months, beginning on August 1, the official takeover date. Tau Lekoa last year produced 124 000 oz under the ownership of AngloGold Ashanti.
Simmers must pay AngloGold R600-million, plus a quarterly 3% royalty capped at 1,5 million ounces, for Tau Lekoa, as well as its adjoining Weltevreden and Goedgenoeg properties. Of the R600-million, R450-million must be paid in cash, which has been held in guarantee, and the remaining R150-million in either cash or in Simmers shares.
Schoeman told Mining Weekly Online that Simmers expected to generate R150-million in free cash flow from Tau Lekoa in the first 12 months, and to reduce the operating costs of its nearby Buffelsfontein mine by R100-million over the same period, as a result of the unlocking of synergies between the two operations.
"Tau Lekoa ownership will have significant benefit in restoring Buffelsfontein to profitability," Schoeman added to Mining Weekly Online.
The 125 000 oz of gold - which equates to 3 888 kg - will be produced at a total cash cost of $815/oz or R200 000/kg.
The final official transfer of mining rights puts Simmers, which has shadow-managed the Tau Lekoa team since September, in a favourable position to raise the further funding that it needs to meet urgent financial commitments. Simmers is embarking on a road show with investment bank Absa Capital to raise the funding.
The immediate target of the road show is to raise an outstanding R72-million, which must be paid over to Rand Merchant Bank (RMB) by the end of the month. RMB granted Simmers – which has a R250-million domestic medium-term loan note programme through Absa – a R220-million bridge loan facility.
Schoeman acknowledged the work of the company's black economic-empowerment partner Vulisango, in obtaining the Tau Lekoa rights, which he described as a company changing and the first strategic step towards healthy, sustainable profitability for Simmers, which recorded a pretax loss of R736-million for the 12 months to March 31.
"It was both a technical and a bureaucratic process and both Simmers and the Department of Mineral Resources have learnt from this exercise. We've set the rules for another transaction like this," Schoeman told Mining Weeky Online.
He expects to see the first free cash from Tau Lekoa in the second month of having taken over: "In the first month, we'll have to deal with gold lock-up (as a result of Tau Lekoa's higher gold grades of ore being put through the plant) but we look forward to positive free cash from September onwards," he said.
Tau Lekoa ore will be processed at Simmers' Buffelsfontein south plant from August 1.
Simmers has been carrying out an exploration drilling programme at Weltevreden and expects to complete preafeasibility study on this property this year.
It has no plans at this stage, however, to develop Goedgenoeg, which means that Simmers, in the medium term, will consist of a combination of Buffeslfontein, Tau Lekoa and Weltevreden.
Because of no longer processing Tau Lekoa ore, AngloGold will process more material from its other Vaal River mines and surface sources and yield an additional 7 000 oz of gold for the remainder of this year.
Simmers shares rose 20,73 % to 99c a share.
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