Chinese investment firms appear to be aggressively targeting South Africa’s smaller gold mines, with another potential takeover transaction confirmed at the weekend.
China African Precious Metals (CAPM) said it would offer R150 million ($20 million) to buy Pamodzi Gold Orkney from provisional liquidators, an announcement coinciding with a new high in the bullion price. This is the third Chinese-led foray into the sector here in three months, with Chinese investors showing considerable willingness to pursue opportunities outside the country’s major gold mining companies.
Reports suggest that aside from the settlement to the liquidator, CAPM would need to spend R500 million ($70 million) to bring the mine back into full production. Pamodzi Gold, part of a wave of junior gold contenders that listed on the Johannesburg Stock Exchange between 2005 and 2008, ran into financial problems in 2009.
It had initially attracted a number of suitors, including local investors and other gold mining companies. But no deals materialised. The most notable inroad was by Aurora Empowerment Systems, a company spearheaded by the grandson of the country’s former president, Nelson Mandela, and a nephew of Jacob Zuma, the present incumbent.
Aurora’s tenure was controversial and the company was ordered off the mine after employee unions strongly protested at what it was allegedly doing.
Liquidators ‘officially’ put Pamodzi’s various gold mining assets up for sale in late June this year.
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The Orkney operation (situated west of Johannesburg) historically produced 3,000 kg of gold per year, while figures from the 2007 financial year stated total mineral reserves and resources at a little over 12 million ounces (a kg is 28.35 ounces).
The proposed CAPM deal for Orkney follows hard on the heels of two other Chinese investments in SA’s junior gold mining segment. Later this month, shareholders in Wing Hing International will vote on a proposal to invest up to R4 billion in a transaction involving the acquisition of unlisted Taung Gold, which owns two marginal (and currently dormant) South African gold operations.
Yesterday, Gold One International, a junior gold miner already in production, got a green signal from SA’s competition authorities for a buyout by a Chinese consortium. In April, a group of Chinese investors, led by Baiyin Nonferrous Group, took a strategic 17 per cent stake in Gold One — paying, at that stage, a price well above the group’s recent share price trading range.
The Chinese investors have since indicated a willingness to increase their stake in Gold One — which is aiming for annual production of 120,000 ounces of gold this year — to between 60 and 75 per cent.