Chifeng Gold Africa plans to win control of Ghana's Wassa gold mine by 1.862 billion yuan.

Chifeng Gold is ready to buy a mine again.

On the evening of November 1, Chifeng Gold announced that the company intends to acquire 62% of all issued and outstanding common shares of Golden Star Resources Limited ((hereinafter referred to as "Venus Resources") in cash through its wholly-owned subsidiary Chijin Hong Kong, in a transaction consideration of about US $291 million, or about 1.862 billion yuan.

Based on a consideration of $3.91 per share, the purchase price represents a 24.13% premium to the target company's closing price of $3.15 per share on October 29, 2021 on the New York Stock Exchange.

Behind the high premium, Chifeng Gold has its eye on a gold resource.

According to the announcement, Venus Resources is an international gold exploration and production company with a registered address in Ontario, Canada and headquartered in London, England. its core asset is the Wassa Gold Mine in Ghana, which currently holds a 90 per cent stake and the other 10 per cent is held by the Ghanaian government.

From the perspective of mining rights, the Wassa mine obtained a mining lease in September 1992 for a term of 30 years, which will expire in September 2022, with a mining area of 5289 hectares, followed by a new boundary application, and the total mining area is expected to increase to 6496 hectares. As of fiscal year 2020, the mine has produced a total of 2.4 million ounces of gold.

In terms of resources, the Wassa mine is a large gold production mine located in the Asanti (Ashanti) gold belt, Ghana's largest gold metallogenic belt. The mine began open-pit production in 2005 and underground production on January 1, 2017. As of December 31, 2020, the mine has a total resource of 11.72 million ounces (364.8 tons), with an average grade of 3.53g / ton, of which the proved + controlled resource is 3.537 million ounces (110t).

With regard to the impact of the acquisition, Chifeng Gold said that in the context of the increasing scarcity of gold resources and strong demand for gold, the acquisition is intended to quickly obtain high-quality resources and increase gold reserves, which is also a further expansion of the international layout after the company completed the acquisition of overseas mergers and acquisitions in Sepon Copper and Gold Mine in Laos in 2018.

However, from the financial data, despite the rich mine resources, the profitability of the target company Venus Resources is still volatile.

As of June 30, 2021, the total assets of Venus resources are 383 million yuan, with net assets of 42 million US dollars. In the first half of this year, the company had operating income of $129 million and a net profit of $395000, compared with a net profit of $18.281 million in 2020 while operating income was $272 million.

For Chifeng Gold, the acquisition of Venus resources is also a big expense.

According to the data, Chifeng Gold, which was listed in 2004, is a company mainly engaged in gold, non-ferrous metal mining and comprehensive recycling of resources. From 2016 to 2020, Chifeng Gold realized net profit of 321 million yuan, 274 million yuan,-133 million yuan, 188 million yuan and 784 million yuan respectively. The acquisition price of 1.862 billion yuan has exceeded the company's total net profit in the past six years.

However, Chifeng Gold continued its high profit level in the first three quarters of this year, with a net profit of 551 million yuan, after a 3.17-fold year-on-year increase in profits in 2020. As of the third quarter of 2021, the company's book currency capital is 2.134 billion yuan, enough to complete this payment.

But there is also a risk of uncertainty about whether the deal will be completed or not. Chifeng Gold said frankly in the announcement that as this transaction still needs to obtain the necessary approval or filing, including but not limited to obtaining the Chinese government or its authorized departments to participate in the internal audit of the third party of the transaction, there is some uncertainty about whether the target company can be successfully completed with the approval of the court of jurisdiction, shareholder approval and regulatory approval of the target company.

Interface journalists read the announcement and found that Chifeng Gold has made frequent acquisitions in recent years, and there is no lack of cases of final transaction failures.

Among them, the most recent acquisition is the 100% equity acquisition of Mensin Bibiani Pty Ltd announced in December 2020, the target company is a subsidiary of an Australian gold mining company, Chifeng Gold intends to acquire control of the Bibiani mine through the acquisition of the underlying stake. However, the acquisition was eventually terminated in April.

Judging from the stock price trend, with the substantial improvement in Chifeng Gold's performance, the company's share price began to climb rapidly at the beginning of 2020, reaching an all-time high of 25.40 yuan per share in August last year, and then showed a fluctuating downward trend. Since the beginning of this year, the stock has fluctuated between 14 yuan and 18 yuan per share, down about 4.9% during the year.