London listed Pan African Resources (LON:PAF) has successfully concluded months of negotiations and said it has now entered into a deal with Harmony Gold to buy the operating Evander gold mine in South Africa.
It is paying R1.5 billion for the asset, or just under £115 million.
It plans to finance the acquisition mainly with a mix of debt finance and cash, the latter augmented by selling certain non-core assets. It is also considering raising equity finance.
The acquisition will double Pan African's annual gold production to approximately 200 000 ounces and increase its resources and reserves significantly, it told investors in a statement issued after the market close.
Chief executive Jan Nelson said: "The transaction meets Pan African's strategic objective of acquiring a high grade, high margin, quality asset on the low end of the cost curve from which the company will achieve profitable, sustainable, stakeholder growth. “
Evander mines and produces gold and related products and is located in Mpumulanga, South Africa. The mine’s total underground resource stands at 32.5 million ounces, 147 million tonnes at 6.88 grams per ton, and a reserve of 7.6Moz, 29.5Mt at 8.02g/t.
Evander has recently experienced a vast improvement in performance through the closure of unprofitable shafts, plants and additional investments in its infrastructure and reported a net profit of R269 million, £20.6 million, for the six months to end-December 2011.
The deal is still subject to regulatory approval in South Africa and Evander entering into a new electricity supply agreement with utility Eskom by no later than July 31 2012, on terms and conditions acceptable to Pan African.
Pan African and Harmony plan to complete the sale by the end of October 2012.
The company has in principle agreed debt finance from third party lenders for a total of up to R600 million, or around £46 million, comprising a R500 million single draw-down facility and a further R100 million revolving credit facility.
Pan African currently has available cash of approximately R250 million, or around £19.2 million, and is looking at using cash that its Barberton Mines and Phoenix Platinum operations generate up until the closing date.
In line with its stated goals, it is also currently considering the disposal of certain non-core assets, such as its interest in the Manica gold project in Mozambique, to gain additional cash which it would put towards the Evander purchase.
Once the debt financing has been confirmed and Pan African knows how much cash it will use, it may chose to raise additional funds through the issue of new shares, it added.
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