Taung Gold International, a small Chinese gold mining company that is slowly building up a portfolio of old and neglected mines in South Africa, has made an offer to acquire the Lily and Barbrook mines in Mpumalanga.
The mines belong to Vantage Goldfields and its related subsidiaries, largely the Makonjwaan Imperial Mining Company (Mimco).
Operations at both mines ceased a few years ago. A major shaft collapsed at Lily in February 2016 and several workers died. Previous attempts to reopen the mine, and recover the bodies of three workers still trapped under tons of rocks, were unsuccessful. Mining at Barbrook was suspended due to economic considerations.
Taung has partnered with Siyakhula Sonke Empowerment Corporation (SSC) and will house the two mines in a new company owned by Taung and SSC if their offer is accepted.
SSC previously tried to acquire the mines and had secured R190 million in funding from the Industrial Development Corporation to reopen them if its offer was successful. The transaction could however not be completed due to legal challenges from Vantage Goldfields, which eventually scuppered the deal despite SSC succeeding in overturning most of the objections.
Both mines were placed in business rescue at the beginning of 2016 with little prospect of resuming operations under Vantage, which seemed reluctant to spend a small fortune to reopen the small mines. Taung declined to disclose its offer, but is apparently willing to inject at least another R250 million to reopen the mines.
“The purchase consideration would only be disclosed once final business rescue plans are in place, hopefully within the next six to eight weeks,” Taung said in response to queries. “The offer is to acquire Vantage’s shares in and claims against Barbrook, as well as the assets of Mimco.”
Taung will also make an offer to the secured and unsecured creditors of the two mines. The assets will all be housed in a new company, with Taung and SSC as shareholders.
Previous plans to reopen the mines called for around R250 million, of which most would be spent at the Lily mine. The first priority will be to conduct a seismic survey to get detailed information about the stability of the area.
Lily will require a new incline shaft to access the mine, and most of the production areas will need to be reopened; most of the plant infrastructure to crush ore and recover gold is still intact. Barbrook does not need a lot of work before it can reopen as mining ceased per plan rather than due to an accident.
Pockets and ‘strings’ of gold
The mineral rights and geological features of the Lily and Barbrook mines make for a very interesting prospect. The gold deposits in the Barberton area are unique in SA in that they formed in pockets and ‘strings’ rather than in a long, flat reef as in the Witwatersrand basin.
Mines around Barberton are known for variable ore grades and have traditionally reported big variations from one quarter to the next. As such, the mineral rights include a lot of old small mines, typical of small-scale traditional mining in the area.
Nevertheless, Taung estimates that the mineral resources are attractive and can be developed to produce up to 50 000 ounces of gold per annum. Prospects look promising under the assumption of a stronger trend in international gold prices and the decline in the rand since the mines closed three years ago.
Taung could not give a definite indication as to when the mines will reopen or how many mineworkers will get their jobs back (the two mines employed more than 1 000 workers before they closed down).
The company has had little good news since it acquired its SA interests and listed on the Hong Kong Stock Exchange in 2011. The share was hit by what Taung has referred to in its annual reports as the ‘Incident’, which resulted in a suspension of the share on the stock exchange for nearly two years.
The incident relates to the issuance of options for 65 million shares, apparently without following proper procedure. Most unusually, the options were issued with voting rights as if the shares were already issued.
Taung’s existing South African projects
Taung secured the mineral rights to parts of the old Evander gold mine as well as a prospecting right to the Jeanette exploration project close to Harmony’s Target Gold Mine in the Free State a few years ago.
However, neither of these projects is in production yet. Progress has been slow despite Taung’s optimism with regards to their potential and estimates of large and profitable ore reserves.
Taung acquired full interest in Evander in 2010 and could only manage the transfer of the mining rights by 2013. It spent another three years on a feasibility study and is still to secure funding of around $580 million to further develop the mine.
The Jeanette project was acquired from Harmony in 2008 and the prospecting right was only transferred to Taung towards the end of 2013. A feasibility study was completed in 2016 and the prospecting right was converted to mining rights in December 2017. Taung needs to raise at least $750 million to get the project started.
Barbrook likely to be first priority
Taung’s latest financial statements resemble those of an exploration company rather than a mining concern, with the balance sheet dominated by mineral assets but very little cash.
The income statement reflects expenses to develop projects, but no operational income.
Flashing a Barbrook gold bar on the Hong Kong stock exchange trading floor will help raise capital for Evander, Jeanette and Lily – and push Taung towards mining the gold it had set its mind to in 2010.