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South Africa: Analysts Consider Options On Wits Gold
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Business Day (Johannesburg)
8 May 2008
Posted to the web 8 May 2008
Charlotte Mathews
Johannesburg
THE risks and uncertainties associated with building deep-level mines in SA make gold explorer Wits Gold's shares suitable for a three- to five-year investment by speculative holders, Imara SP Reid analysts Percy Chiweshe and Steve Meintjes said.
In a report on the company this week, they said it was hard to compare Wits Gold's valuation with other gold explorers because of the size and depth of Wits Gold's resources. Up to a depth of 3km below ground, Wits Gold has a resource of 55,1-million ounces of gold.
At a share price of R105, Wits Gold's market capitalisation was $380,3m, equivalent to $19,60/oz of measured and indicated gold resources. The closest comparison among South African stocks was Central Rand Gold, with a valuation of $21/oz of measured and indicated gold resources.
Yet Central Rand was unlike Wits Gold in that it was committed to mining and would not necessarily transfer its assets to other gold producers. SA's three top gold producers have options to take part in Wits Gold's projects on properties they vended to the company. Central Rand would also mine at shallower depths than Wits Gold.
Chiweshe and Meintjes said Wits Gold management had said they were geologists, not miners, so the company would probably never mine an ounce. Growing costs made it very expensive to develop mines and the success of Great Basin Gold's Burnstone mine, being built near Balfour southeast of Johannesburg, would reflect the complexity of deep-level mining in SA.
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The analysts said another risk to Wits Gold was its shares were thinly traded, making the price very volatile. Management should address this.
They said Wits Gold's resources, despite their depth, were valued fairly low compared with other explorers, which showed market disbelief they would ultimately become a mine. Sentiment was negative, given SA's power cuts and safety issues and the market was waiting for Gold Fields, AngloGold Ashanti and Harmony to report success on deep-level projects.
Wits Gold shares would typically suit an investor with a large portfolio of which 5% had been allocated to exploration stocks -- of which this would be one, Chiweshe and Meintjes said.
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