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No Wits end in sight The Gold
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The joke still gets snorts in the clubhouse –
'What's the difference between a golfer and a mining executive?' 'The miners
get to improve their lies.' With Wits Gold Ltd. (TSX:WGR) (JSE:WGR), the lie is the truth, or had better be. The South African
company’s earliest investors are shackled to the integrity of Witwatersrand
Consolidated Gold's preferred 'lies.' Because the convolutions of
resource estimates, adorned as they are with footnotes and engineer’s
notarized signatures and the semantics of geology, are central to the promise
of a hole-in-one return on investment. The published and
government-sanctioned word of this fledgling (and non-producing) company, and
the resource and reserve estimates its tiny team of 18 provides for the lay
(lie) of the land, will fulfill or deny any riches that come with a rising
gold (and uranium) price. CEO Marcus B. Watchorn
spent 45 minutes this week chatting with Thom Calandra. Marc was in Boston, midway through a get-friendly tour of current and
targeted Wits Gold investors in London, New York, Toronto and elsewhere. At age 56, Marc, a doctor of
geology with dual citizenship
(South Africa and Britain), and executive chairman and co-founder, 60-year-old
Adam Fleming of Britain’s Fleming family of aristocrat bankers,
are exploiting the mineral-laden Witwatersrand Basin. The Wits duo is
counting on South Africa’s willingness to let upstart Wits Gold
take the resources and run – to the bankers. Whether the promise of
massive returns on buried bullion ever sees light of day depends, once again,
on the resources that lie … and lie … and lie … in the
ground. Thom: Hi Marc.
Boston must be bummed about its Celtics out of the playoffs. Marc: I think you
can say it is all everyone is talking about. Basketball. Thom: What, and not Wits
Gold? Marc: Well, yes, us,
too. We look like winners, if you look at our stock chart these past three or
four months. T: I see that. But the
stock was twice this level, and more, a year ago. Wits Gold fell hard
last (Northern Hemisphere) summer and autumn, much harder than mining
companies with producing properties, yes? M: And in rebounding,
the market seems to be giving us credit for what we have been saying all
along, that we are an option in the ground, an option on 150 million
ounces of gold. We are in many ways a bank that does not intend to use
much capital unless a bankable feasibility study paves the way. T: Yet now, you actually
are working toward possible production. Your work in the Bloemhoek-De
Bron area of the Basin to some might be seen as
a detour from a business model as an organic repository for gold. M: A natural progression
for us. We have identified resources that have the opportunity to be brought
into production. Understand that as a company, in one of the richest gold
belts in the world, we have one of the top 10 undeveloped gold resources ...
and some uranium byproduct as well, perhaps 50 million pounds total. We have
these prospecting rights for the Potchefstroom, Klerksdorp and Welkom areas
of the Witwatersrand Basin. We also managed to get exploration data from AngloGold
Ashanti, from Harmony Gold and from Gold Fields. It all
comes out to roughly a resource of 130 million or so ounces with another
indicated resource of 17 million ounces at De Bron.
T: And your day job? M: We have a
pre-feasibility study out in three months or so, and if it shows more than 5
million ounces, we do a bankable feasibility that we would present to our
partners, which in this case is Harmony Gold Mining (HMY in USA and
HAR in Jo’Burg). Harmony would take a 40%
interest, or we would IPO the De Bron project or
sell it off to a third party. We are looking for a rate of return of 20% on
the project. T: I imagine when you go
on these get-friendly tours, you get asked just how
much you and Mr. Fleming think the shares should be worth – yes? M: Crikey,
Thom, we are trading at just a dollar a resource ounce right now, and we have
uranium assets. If I could answer that, I’d be a banker, not a
geologist. Until we have a discounted cash flow model based on an actual
project, we probably cannot satisfy the (purists) out there. But the market
is starting to appreciate us. Our company is not just pure optionality. We have indicated resources that will move
to probable reserves, and if we move that to the probable reserve category,
we can go to $20 or more an ounce at 6 or 7 million ounces of probable
reserve. Once we can prove that, it will go from indicated resource to
probable reserve ... and a 43-101 (independent confirmation) in three
months. T: Your investors must
like the crikey part. Very
down under. M: I tell the funds the
same thing I tell you: Adam and I have done what we said we are going to do.
We are not here in North America raising money. We are just blowing the
trumpet for what we can achieve. The major gold companies – all of
them, Anglo American, Newmont, Gold
Fields – are not replacing their reserves via exploration. And if
you believe in the workings of the bullion market, you know the presence of a
sustainable or growing reserve is important to shareholder and company value. T: Cash? M: Some $13 million U.S.
We spent just over $4 million last year. We have at least another three
years, with 18 people, including a tea lady. About 70% of our
spend goes for
exploration. T: Stock? M: Liquidity is tight.
The Flemings have 31%. We have a free float of about 40%. Our black
empowerment group owns 31%. The institutions bought in 2006 at an IPO. Some
came in early at 20 rand a share, before prospecting rights were awarded by
the government. We have 28 million shares fully diluted and no warrants.
There is a huge gap between the bid and the ask price. T: Marc, I noticed the Deep
Blue Research Report that your folks sent over mentioned 'exciting new
developments' in future. To what is that a reference, do you think? M: I presume the report
was referring to the pre-feasibility study that we are currently undertaking
in the Bloemhoek-De Bron
area and anticipating a positive result. T: Nice report, but I am
not sure who publishes it. It looks like a kind of contracted research report
from the U.K.? Dated April of this year. M: You are partially
right. Since Wits Gold has not needed to raise capital, none of the
institutions have tended to write research on the company. Deep Blue is a
research company run by a journalist, Ilja
Graulich (an ex-DRDGold
Ltd. investment relations manager) and Dennis Tucker (an ex-Investec
mining engineer) out of South Africa. The report was paid for by Wits Gold. T: That is helpful,
knowing that. Also, if gold, say, were to stay flat or decline, the shares
might suffer as well ... or not? How do you answer that to investors? M: I believe the
positive IRR result from the scoping study that was completed during 2008 at
$900 gold and Rand 8 per dollar suggests the Bloemhoek
project alone has legs. I think the answer to your question will (come) once
we have completed the current pre-feasibility study and consider the
sensitivity of the project to changes in gold price. T: One
more, Marc. Does it not seem the lack of a brisk market for the shares
keeps some investors -- hedge funds for example, wary of Wits Gold? M: I think the lack of
liquidity in the stock has indeed made some of the funds shy away from the
stock. Thom Calandra is the author of subscription service Ticker Trax
at www.tickertrax.com. Thom’s holdings are listed on www.Stockhouse.com under the “portfolio setting” for user TCALANDRA. It is
public and free to view. He and his family own recently minted gold
and silver coins. They own no shares of any of the companies mentioned in
this report with Marc Watchorn of Wits Gold. The Gold
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