Transaction support for a large gold mining acquisition

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South Africa

Transaction support for a large gold mining acquisition

South African Icon
South Africa

Company

Major gold mining company

Commodity

Gold & Uranium

Scope of work

Valuation & Optimisation

Challenges experienced

One of South Africa's largest Gold producers was in process of positioning itself for growth. Their strategy was to obtain safe, profitable ounces while increasing margins and portfolio returns.

This strategy was based on three pillars: operational excellence, cash certainty and effective capital allocation to achieve growth through acquisitions.

The company identified various target assets that could meet their criteria and unlock synergies in their portfolio.

The company required assistance with the following:
  • Determine whether the target assets would be value accretive in its portfolio
  • Advise on an appropriate purchase price which would be acceptable to both the buyer and seller
  • Provide transactional support with negotiations and the due diligence process

Approach to the solution

We believe that the value a mining asset can generate is different in different hands. The purchaser needs to create more value than the current owner and be able to apply an alternative operating philosophy. Value generation is also more likely if the purchaser has a better understanding of the asset to and a plan to integrate it into the purchaser's company.

Successful acquisitions and integration requires extensive industry experience, an understanding of how synergies could be created and an understanding of the “levers” that generate value. When conducting the due diligence, the Purchaser must also have a well-defined strategy and a plan for creating value.

Most consultants follow a tick-box approach to assess various areas of due diligence. In our experience, Boards and Financiers require assurance regarding the following key questions:

  • Do we understand the remaining value of what is in the ground?
  • Can we mine and process it in a cost-effective manner?
  • Can we add more value than the current owner?
  • Will the acquisition make our existing business more valuable?
  • Does this make sense in the broader external context (e.g. corporate strategy, commodity markets, local competitiveness, etc.)?
  • What is the likelihood that we get the required returns to justify our investment?
  • To conclude, what is the exposure to risk; for the company and financiers?

Our approach is comprehensive and risk focused, and is built on our extensive industry experience.

Illustrative Valuation Waterfall

Outcome experienced

The Client and Fraser McGill’s collaborative effort translated into:

  • Quantified the risks associated with the target assets.
  • Reduced exposure by recommending risk mitigation strategies
  • Identified synergies and priority initiatives that would yield increased shareholder returns.
  • Provided certainty on the range of possible valuation outcomes.
  • Specified the negotiable, non-negotiable, certain and uncertain matters for negotiations.
  • Prescribed sound advice on the purchase price and deal structure recommendations.

The study and negotiations successfully concluded and resulted in a favourable outcome for both the purchaser and seller. The target assets were successfully integrated into the purchaser’s portfolio and has been value accretive for the company.

The client relied on Fraser McGill's support for a similar subsequent transaction, which was successfully closed.