Village Main Reef had received an offer of R1 billion for its Tau Lekoa gold mine in the North West from the Tannous Investment Group, the junior gold producer said yesterday.
Village said it would appoint an independent financial adviser to evaluate the offer, and the stock rallied even though the group announced a fall in quarterly output.
Bernard Swanepoel, the joint chief executive at Village, said the bid was nowhere near the mine’s value.
Swanepoel, a former chief executive at Harmony Gold, argued that the R1bn was insufficient, based on the financial performance of the operation and its potential. The mine would produce gold for four to four-and-half years.
“We don’t know much about Tannous Investment Group; we are looking at the value of the mine,” Swanepoel said.
Tau Lekoa was acquired from AngloGold Ashanti last year, and produces 300kg of gold a month.
Village has also received an offer of R85 million for its Weltevreden gold deposit, which is a shallow extension of Tau Lekoa, located east of the mine.
Village reported disappointing financial results for its third quarter to March.
Although Village was able to cut costs, Swanepoel said the results were “typical” for the three months to March, with lower volumes and revenue.
Group revenue dropped to R543m from R693m in the three months to December last year.
Village did not escape the usual effect of a slow start-up after the December holiday. It also experienced hoisting problems at its Buffelsfontein mine, which reduced volumes.
Peter Major, an analyst at Cadiz Corporate Solutions, said he was concerned that Village had old and marginal mines with very low grades that were costly to operate. He argued that if the gold price fell much more than 10 percent below the current $1 640 an ounce, these mines could be close to shutting down.
“These are old, large, mines with big fixed overheads. And they’re running at way below the tonnages needed to optimise their efficiencies and costs.”
Revenue at Tau Lekoa dropped to R364m from R390m.
At the Buffelsfontein mine gold revenue slipped to R127m from R185m.
Village, which has offered to acquire DRDGold’s Blyvooruitzicht mine for R150m, said it was awaiting approval from the Competition Commission before the deal could be finalised.
Village and Simmer & Jack Mines merged last June, resulting in Village taking majority stakes in the Simmer assets.
Village shares gained 7 percent to close at R1.67 yesterday.