Heaven-Sent has yet to make gold profit

Overseas Property | Avery Chen 21 Oct 2019

Heaven-Sent Gold, a South African gold mining company, is seeking to raise about US$200 million (HK$1.56 billion) through its Hong Kong initial public offering.

The subsidiary of Beijing-based private equity firm Heaven-Sent Capital Management plans to launch its IPO by the end of this year, according to Bloomberg. It refiled its listing application to the Hong Kong Stock Exchange earlier this month after its first listing application, submitted in March, lapsed.

Heaven-Sent Gold owns two underground gold mining assets, including Tau Lekoa Mine, which it acquired in 2015 by delisting subsidiary Village Main Reef Group Proprietary from the Johannesburg Stock Exchange. The company also owns Kopanang Mine, which it purchased from global gold mining firm AngloGold Ashanti last year.

Both mines are located in the western margin of the gold-bearing late Archean Witwatersrand sedimentary basin, which holds the world's largest known gold reserves. The company's annual gold production volume reached 168,031 ounces in 2018, making it the fourth-largest gold mining company in South Africa, according to Frost & Sullivan.

Its total proved and probable mineral reserves was 1.43 million ounces, while its total measured, indicated and inferred mineral resources was 17.98 million ounces as of June 30, according to its prospectus.

Heaven-Sent Gold's revenue is predominantly generated from sales of gold, which comprises for over 95 percent. Its revenue rose 38.76 percent year-on-year to US$131.44 million in the first half of this year after its acquisition of the Kopanang Operations.

However, the company has incurred net losses since 2017 and expects to continue to be unprofitable this year due to seismic activity at the Tau Lekoa Mine and long holidays without production in Kopanang Mine, it says.

Because its gold production for the first half was less than expected, Heaven-Sent Gold had net operating cash outflows of US$8.3 million in first half and recorded net current liabilities of US$15.1 million as of June 30.

It expects to realize a net profit next year by improving operational efficiency and implementing stricter labor policies in Kopanang Mine and ongoing mine development activities in the Tau Lekoa Mine.

The gold miner's flotation came as gold prices surged over concerns of an economic recession. The price of bullion, which is usually considered a safe-haven asset, has risen over 16 percent this year, after breaking a more-than-six year high of US$1,557.11 per ounce early September.

However, the company's hedging activity for gold sales may eliminate potential gains and may even result in losses, it says.

Heaven-Sent Gold started hedging its exposure to the volatility in gold prices since July last year. It recorded a gain of US$1.3 million on gold hedges in the first half, primarily due to spot prices of gold being lower than the contract forward sale prices at the time of delivery.

"If the market gold price continues to increase in 2019 and remains at a level higher than our forward sale prices, we will not benefit from such increases with respect to the gold that has been forward sold," it says.

Rising gold prices may increase the likelihood of thefts or robbery, the company said. It lost 1,921.9 ounces of gold and recorded a loss of US$2.6 million in the first half mainly because its trucks and the convoying vehicles from a private security company were attacked by unknown armed robbers while transporting gold sludge on February 8. No one was seriously harmed in the robbery, and the company's marine transit policy covers 85 percent of the loss, it adds.

Heaven-Sent Gold plans to use the net proceeds from its IPO for the development of new mining areas and operation of mines, as well as working capital.

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