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No Wits End in Sight

No Wits End in Sight
Source: Thom Calandra and
The Gold Report 05/19/2009

 

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http://www.theaureport.com/images/calandra.jpgThe joke still gets snorts in the clubhouse—'What's the difference between a golfer and a mining executive?' 'The miners get to improve their lies.' With Wits Gold Ltd. (TSX:WGR) (JSE:WGR), the lie is the truth, or had better be. The South African company's earliest investors are shackled to the integrity of Witwatersrand Consolidated Gold's preferred 'lies,' Because the convolutions of resource estimates, adorned as they are with footnotes and engineer's notarized signatures and the semantics of geology, are central to the promise of a hole-in-one return on investment. The published and government-sanctioned word of this fledgling (and non-producing) company, and the resource and reserve estimates its tiny team of 18 provides for the lay (lie) of the land, will fulfill or deny any riches that come with a rising gold (and uranium) price.

CEO Marcus B. Watchorn spent 45 minutes this week chatting with Thom Calandra. Marc was in Boston, midway through a get-friendly tour of current and targeted Wits Gold investors in London, New York, Toronto and elsewhere. At age 56, Marc, a doctor of geology with dual citizenship (South Africa and Britain), and executive chairman and co-founder, 60-year-old Adam Fleming of Britain's Fleming family of aristocrat bankers, are exploiting the mineral-laden Witwatersrand Basin. The Wits duo is counting on South Africa's willingness to let upstart Wits Gold take the resources and run—to the bankers. Whether the promise of massive returns on buried bullion ever sees light of day depends, once again, on the resources that lie … and lie … and lie … in the ground.

Thom: Hi Marc. Boston must be bummed about its Celtics out of the playoffs.

Marc: I think you can say it is all everyone is talking about. Basketball.

Thom: What, and not Wits Gold?

Marc: Well, yes, us, too. We look like winners, if you look at our stock chart these past three or four months.

T: I see that. But the stock was twice this level, and more, a year ago. Wits Gold fell hard last (Northern Hemisphere) summer and autumn, much harder than mining companies with producing properties, yes?

M: And in rebounding, the market seems to be giving us credit for what we have been saying all along, that we are an option in the ground, an option on 150 million ounces of gold. We are in many ways a bank that does not intend to use much capital unless a bankable feasibility study paves the way.

T: Yet now, you actually are working toward possible production. Your work in the Bloemhoek-De Bron area of the Basin to some might be seen as a detour from a business model as an organic repository for gold.

M: A natural progression for us. We have identified resources that have the opportunity to be brought into production. Understand that as a company, in one of the richest gold belts in the world, we have one of the top 10 undeveloped gold resources ... and some uranium byproduct as well, perhaps 50 million pounds total. We have these prospecting rights for the Potchefstroom, Klerksdorp and Welkom areas of the Witwatersrand Basin. We also managed to get exploration data from AngloGold Ashanti, from Harmony Gold and from Gold Fields. It all comes out to roughly a resource of 130 million or so ounces with another indicated resource of 17 million ounces at De Bron.

T: And your day job?

M: We have a pre-feasibility study out in three months or so, and if it shows more than 5 million ounces, we do a bankable feasibility that we would present to our partners, which in this case is Harmony Gold Mining (HMY in USA and HAR in Jo'Burg). Harmony would take a 40% interest, or we would IPO the De Bron project or sell it off to a third party. We are looking for a rate of return of 20% on the project.

T: I imagine when you go on these get-friendly tours, you get asked just how much you and Mr. Fleming think the shares should be worth—yes?

M: Crikey, Thom, we are trading at just a dollar a resource ounce right now, and we have uranium assets. If I could answer that, I'd be a banker, not a geologist. Until we have a discounted cash flow model based on an actual project, we probably cannot satisfy the (purists) out there. But the market is starting to appreciate us. Our company is not just pure optionality. We have indicated resources that will move to probable reserves, and if we move that to the probable reserve category, we can go to $20 or more an ounce at 6 or 7 million ounces of probable reserve. Once we can prove that, it will go from indicated resource to probable reserve ... and a 43-101 (independent confirmation) in three months.

T: Your investors must like the crikey part. Very down under.

M: I tell the funds the same thing I tell you: Adam and I have done what we said we are going to do. We are not here in North America raising money. We are just blowing the trumpet for what we can achieve. The major gold companies—all of them, Anglo American, Newmont, Gold Fields—are not replacing their reserves via exploration. And if you believe in the workings of the bullion market, you know the presence of a sustainable or growing reserve is important to shareholder and company value.

T: Cash?

M: Some $13 million U.S. We spent just over $4 million last year. We have at least another three years, with 18 people, including a tea lady. About 70% of our spend goes for exploration.

T: Stock?

M: Liquidity is tight. The Flemings have 31%. We have a free float of about 40%. Our black empowerment group owns 31%. The institutions bought in 2006 at an IPO. Some came in early at 20 rand a share, before prospecting rights were awarded by the government. We have 28 million shares fully diluted and no warrants. There is a huge gap between the bid and the ask price.

T: Marc, I noticed the Deep Blue Research Report that your folks sent over mentioned 'exciting new developments' in future. To what is that a reference, do you think?

M: I presume the report was referring to the pre-feasibility study that we are currently undertaking in the Bloemhoek-De Bron area and anticipating a positive result.

T: Nice report, but I am not sure who publishes it. It looks like a kind of contracted research report from the U.K.? Dated April of this year.

M: You are partially right. Since Wits Gold has not needed to raise capital, none of the institutions have tended to write research on the company. Deep Blue is a research company run by a journalist, Ilja Graulich (an ex-DRDGold Ltd. investment relations manager) and Dennis Tucker (an ex-Investec mining engineer) out of South Africa. The report was paid for by Wits Gold.

T: That is helpful, knowing that. Also, if gold, say, were to stay flat or decline, the shares might suffer as well ... or not? How do you answer that to investors?

M: I believe the positive IRR result from the scoping study that was completed during 2008 at $900 gold and Rand 8 per dollar suggests the Bloemhoek project alone has legs. I think the answer to your question will (come) once we have completed the current pre-feasibility study and consider the sensitivity of the project to changes in gold price.

T: One more, Marc. Does it not seem the lack of a brisk market for the shares keeps some investors -- hedge funds for example, wary of Wits Gold?

M: I think the lack of liquidity in the stock has indeed made some of the funds shy away from the stock.

Thom Calandra is the author of subscription service Ticker Trax at www.tickertrax.com. Thom's holdings are listed on www.Stockhouse.com under the “portfolio setting” for user TCALANDRA. It is public and free to view. He and his family own recently minted gold and silver coins. They own no shares of any of the companies mentioned in this report with Marc Watchorn of Wits Gold.

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