LONDON – Bema Gold has set a date for its London debut and decided, after consulting shareholders, not to go for the main market but to list on the Alternative Investment Market (AIM). Bema is therefore reactivating plans that were halted last year so that it could make its first foray into South Africa. The Toronto based company expects its shares to start trading on AIM on September 30. It reckons there would be no added value to be had from a full London listing at this stage and that AIM will give it all the extra visibility in Europe that it is seeking. That certainly seems reasonable because Bema will be one of the biggest companies of any type on London’s secondary market. Bema is already quoted on the Toronto Stock Exchange (TSX:BGO) where it has a market value of C$1bn.
That translates into about £465m, a value that far exceeds that of AIM’s present biggest mining group, Highland Gold (LSE:HGM), now worth about £229m.
Some observers fear, however, that not much trading will be done in London because of a lack of liquidity here. For Bema is not raising any new capital in London to coincide with the proposed listing.
Instead, it has opted to tap Canadian investors once again via a C$60m “bought deal” with an underwriting syndicate. Bema will issue 20m new shares at C$3 each.
Bema’s previous work on the AIM listing came to an abrupt halt after its nominated broker (nomad) in London, Canaccord Capital (Europe), introduced Bema to a small Canadian company, EAGC Ventures, that was having trouble putting together the C$67m required to buy the South African gold assets of Petra Mining (Petmin) - not to be confused with Petra Diamonds (LSE:PDL).
These assets are on the Witwatersrand and comprise eight underground shafts and three pits. The mines have reserves and resources of 1.6m ounces and Bema took on responsibility for 3,800 employees.
Bema finished the acquisition in February and immediately started mill modifications at the Petrex Mines, as it calls the South African interests. These modifications were completed in July and should reduce costs and increase gold production.
Bema has had a baptism of fire in South Africa. In the second quarter Petrex’s costs were not only impacted by the work on the mill but also by the weakness of the US dollar against the rand. Consequently, in the second quarter cash costs ballooned to US$354/oz. Nevertheless, Bema received $15.2m of revenue from Petrex for the sale of 39,880oz of gold at an average of $381/oz.
Banks who loaned money towards the Petrex purchase insisted on some hedging and Bema says that over the next six years 70 percent of expected output is protected by rand denominated put options that protect it against a strengthening rand without limiting its leverage to rising gold prices or a declining South African currency. At an exchange rate of eight rand to the dollar it will receive $375/oz on its rand put options in 2003.
Bema, if all goes to plan, is destined to become a substantial gold producer before long. In the first six months of this year the company produced 111,143oz of gold at total cash costs averaging $272/oz. Now the Petrex mill modifications are out of the way, the company expects annual gold output to reach 300,000oz. On top of that it plans to reactivate gold mining at Refugio in Chile, mothballed a couple of years ago because it could not cope with the gold price at that time. With Refugio’s contribution from mid-2004, annual output will be more than 400,000oz.
Bema is coming to London because it believes European investors have a better understanding of mining in South Africa – and also in Russia, where it owns the Julietta gold mine in the Russian Far East. Also in Russia it has the highly prospective Kupol project, where much of the money it is currently raising in Canada will be spent. According to Bema, drilling so far at Kupol, also in Far East Russia, “confirms the property hosts a multi-million ounce, high grade gold and silver deposit.” Some 26,000 metres of drilling is scheduled for this year, using two Canadian and two Russian rigs.
Bema has an option to purchase 75 percent of Kupol from the Government of Chukotka and the way things seem to be heading the company will need the access to a bigger pool of capital that a London listing provides.
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