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Simmers raises the gold bar

Simmer & Jack moves closer to freeing up one of the biggest value traps among listed gold mining stocks.

Author: Barry Sergeant
Posted: Wednesday , 18 Feb 2009

JOHANNESBURG -

Simmer & Jack on Wednesday announced a bought deal, where it has sold 19.6m of the shares it holds in First Uranium, to raise some CAD 90m. At the same time Simmers has announced that it will pay up to ZAR 600m, plus a royalty, to buy the Tau Lekoa mine in South Africa from global Tier I gold miner AngloGold Ashanti.

The Simmers stake in First Uranium falls from 54% to 41%, freeing up further liquidity in a stock that ranks as one of the world's top-performing uranium names. At the same time, the deal could push the Simmers stock price to performing more like a stand alone. On Tuesday, before the bought deal and Tau Lekoa transactions were announced, the market value of First Uranium computed at USD 617m.

The value of the Simmers stake in First Uranium thus computed at USD 333m, while at the same time the entire market value of Simmers computed at much the same amount. Investors thus effectively value Simmers at zero, despite its status as an emerging global Tier II gold producer.

Simmers runs significant South African gold operations at Buffelsfontein, Transvaal Gold Mining Estates and Sabie Mines. Simmers previously demerged, or spun off, First Uranium, which is developing the Buffelsfontein tailings re-treatment project and the Ezulwini mine. The stated goal of Simmers is to become a major, low-cost gold producer, with a target, ahead of the Tau Lekoa acquisition, of 1m ounces of gold production a year by 2012, building up from around 170,000 ounces this year to 350,000 ounces in 2010, and so on.

The acquisition of Tau Lekoa will accelerate the Simmers production profile. Tau Lekoa, one of four AngloGold Ashanti mining operations in the Vaal River area, mines at depths between 800 and 1,743 meters, ranking it was one of the shallower AngloGold Ashanti mines in South Africa. It had a further mine life, under AngloGold Ashanti management, of about seven years, but that could change under Simmers's management; the deal, moreover, includes acquisition of the Weltevreden and Goedgenoeg properties.

While Buffelsfontein is on line to produce around 144,000 ounces in the year to March 2010, Tau Lekoa is scheduled for an output of 150,000 ounces in calendar 2009. Tau Lekoa is a relatively low cost mine, with projected cash costs of around USD 470 an ounce this year. Simmers this week reported that its total cash unit costs for the fourth calendar quarter of 2008 fell in dollar terms from USD 800 to USD 694 an ounce. If Simmers can continue to deliver sustainable lower costs, its path to being fully valued as an independent gold producer may be waiting in the wings. The acquisition of Tau Lekoa, moreover, increases Simmers's available in-ground gold resources from around 15m ounces to more than 20m ounces.

* 12-month