Dr Marc Watchorn CEO of Wits Gold
I interviewed Dr. Marc Watchorn in Vancouver at the Cambridge House Resource Conference. He has a great geological background and has an outstanding company. Having been a geologist for over 30 years, Dr Marc Watchorn has spent much of his career searching for gold and base metals throughout Africa. In 2003, he established Wits Gold (Witwatersrand Consolidated Gold Resources) in partnership with London banker Adam Fleming. He is CEO of the company, a Johannesburg-based gold and uranium exploration company.
There was an opportunity for the new company to acquire large resources in the ground, as Marc Watchorn explains: “New legislation was being introduced in South Africa whereby the major companies, such as Gold Fields, Harmony and AngloGold Ashanti, had to use their resources or they were going to lose them. Effectively, the mineral rights were being nationalized by the South African government so that it fell in line with international practice.”
Reviewing the Reserves
The Witwatersrand Basin, home to the world’s largest gold reserves, was reviewed and requests were made to the major companies to acquire resources that were outside their existing mines. The new company acquired substantial properties that covered extensions to the Klerksdorp, Potchefstroom and Free State gold fields.
“In those days, there were no known resources,” says Marc. “A lot of drilling had been completed and we acquired all the historic exploration data from the three main mining companies. We said to them that, if we completed a feasibility study on any of the properties we acquired, we would give them a one-time option to acquire a 40% interest in any future mines.”
The agreement suited all the parties. The existing owners were in no position to develop the properties and risked forfeiting them. Wits Gold, on the other hand, didn’t want to take on the additional risk of being a mine operator. This meant that it could use its geological expertise in defining the resources and hand them over to what it regards as the world’s best miners to exploit them.
Diamond Core Drill Rig at De-Bron.
Once the deals were concluded, the company was listed on the Johannesburg Stock Exchange. Snowden Mining Industry Consultants, the independent geological consultancy, undertook a resource assessment of the ground. The results, as Marc confirms, were encouraging: "Initially, we had 142 million ounces in the inferred category and just under four million ounces in indicated. That was in April 2006 and we’ve subsequently grown that to a total resource of 152 million ounces, of which nearly 20 million ounces are in the indicated category. Most recently, we’ve been able to define a probable reserve of 5.4 million ounces in our key project in the Bloemhoek Area.”
World Class Resource
The findings, coupled with the fact that the properties are bounded by existing working mines, rather suggest the company has a world-class resource. To the north is Harmony’s Virginia operation, which produced 250,000 ounces of gold last year, while to the south is Gold Fields’ Beatrix mine, with just under 400,000 ounces last year. Since Wits’ ground has the same geology as Beatrix, there is justifiable optimism that this is likely to become the next major gold mine.
The Bloemhoek gold deposit is between 1300 and 2400 meters below the surface, making it relatively shallow by Witwatersrand standards. Attention has been concentrated on two conglomerate reefs that host the gold mineralization. As an added bonus, they have the potential for by-product uranium.
The signs, Marc points out, are promising: “We have not considered the uranium at all, so the economics are based entirely on the gold. The reserve that we’ve outlined — 5.4 million ounces — is at an average grade of 5.3 grammes per tonne. Typically, the surrounding gold mines are producing at 4 grammes a tonne, so it’s over 25% above that. It’s also accompanied by uranium at about 130 grammes a tonne and, as a rule of thumb, you need above 120 grammes a tonne to be economical.”
The company has run a discounted cash flow model on the Bloemhoek project that showed an internal rate of return of about 19% at a time when the gold price was 250,000 Rand a kilogram against 270,000 today. It is currently drilling an additional bore hole in the area and hopes to move around 500,000 ounces of inferred resource into the indicated category before advancing it to a probable reserve. A scoping study has shown that this is likely to take the internal rate of return up to 23% while a further study is being done on the adjacent De Bron project, which has indicated sources between 500 and 1200 meters below the surface.
The outcome of these endeavors, as Marc explains, is that the company is reaching a crucial phase: “Should we be able to update financial models by the middle of this year, we have to make a decision on whether we’re going to go to a full feasibility study, which will take around twelve months to complete. So we’re looking at around eighteen months from now to decide whether we’re going to start mining or not and how we’re going to do it.”
Harmony has a 40% clawback option on the Bloemhoek and De Bron projects and so, if it chooses to participate, will put up 40% of the capital cost of a new mine plus bear 40% of the historical exploration costs. Theoretically, this leaves Wits Gold needing to raise $250 million for the balance of the development cost.
Diamond Core Drill Samples
Exciting Times Ahead
Decisions are likely to lead to exciting times for investors in the company. It has the fifth largest gold resource in the world and each issued share is underpinned by 5.5 ounces of gold in the ground, although the current market capitalization equates to less than $2 an ounce.
“We are surrounded by operating mines so the risk of establishing a new mine in a new environment is reduced,” comments Marc. “We think that’s an important consideration. Not only do we have gold but we also have the potential for by-products such as uranium and sulphur, which come for free.”
Although South Africa may have slipped to number three gold producer in the world, the Witwatersrand Basin has been producing continuously for 120 years and still has very substantial resources. Marc says: “It is a mining country and I don’t think that’s going to change irrespective of what happens because it’s an important part of our economy. I firmly believe that the Bloemhoek project will be mined within the next 5-10 years.”
For more information:
Dr Marc Watchorn, Chief Executive Officer
Tel: +27 11 832 1749
Fax: +27 11 838 3208
marcw@witsgold.com
12th Floor, 70 Fox Street, Johannesburg, South Africa
Mr Hethen Hira, Investor Relations Manager
Tel: +27 11 832 1749
Fax: +27 11 838 3208
hethenh@witsgold.com
12th Floor, 70 Fox Street, Johannesburg, South Africa