Following on from yesterday's article on PAN/WGR's joint-SENS (LHG, PAN/WGR and HWN), PAN and WGR announced at the conference yesterday that Harmony (HAR) has accepted their offer to buy its Evander Gold Mines Ltd ('Evander') for R1.7bn. The assets sold consist of a producing asset, Evander 8, and the projects Rolspruit, Poplar, Evander South and Libra (a surface tailings resource) as well as the Kinross metallurgical plant.

I will be the first to admit that I am not overly familiar with Harmony's assets. Also, I know that our mining analyst team at Thebe Stockbroking are currently working on gold research, so I must be very careful what I say.

Those two disclaimers aside, the deal has some very interesting aspects to it.

Firstly, I am very much human and, thus, I like it when I am right. In my trends of 2012 article late last year (see here - "SmallCaps.co.za 2012 Forecasts") I saw gold sector consolidation led by the junior gold miners. PAN and WGR are certainly junior gold miners and Harmony's strategy of diversifying their assets out of South Africa plays into these junior's appetites for local gold operations.

Secondly, I think PAN could have bought this asset by itself. PAN has a share price that has risen by +76% over the last year and could easily have raised a good amount of debt and gone to the market with a rights issue for the rest. The problem with that approach is two-fold: PAN would still have needed R1bn++ to develop the asset further and Evander's acquisition would have been so significant to the Group that if it failed, PAN would have failed with it.

So, what PAN did do was pull in WGR to share the acquisition. In other words, PAN will probably not now need to do a rights issue (hence, no dilution) to pay for its c.R850m half of the acquisition price and its 50% of Evander will make a significant contribution to the Group, but hopefully not overly expose it to 'buyers remorse'. The portion of the purchase price that PAN would have had to do a rights issue to handle, is really WGR's 50%, thus PAN has "outsourced" its dilutionary rights issue to WGR where the gold exploration group will have go to the market for its part of the price tag.

Hope the above makes sense, but as PAN's CEO, Jan Nelson, said in the teleconference, this is an industry firs and may set the model for gold juniors to lead the consolidation charge in South Africa.

On that note, another two interesting things came across in the teleconference: PAN's Jan Nelson was really excited about the deal. Really. Excited! I haven't heard Jan sound that excited, not even when he was first explaining to me about the wonderful Phoenix PGM project. Secondly, Jan explained how he has been bargaining with Harmony's Briggs for about three years to get the asset.

I think that says more than I ever could.

Moving on, Murray & Roberts came out with a business update of doom and gloom. Major contract problems coupled with litigation and unpaid/disputed claims riddle this weary piece of stock market news. The real negative line item for MUR, though, is that "...the Board has decided to propose a rights offer of circa R2 billion to Shareholders...".

MUR's last reported equity is c.R4bn and its share trades on a Price-to-Book ratio of c.2.0x, thus this implies that the rights issue will be in the order of 80m shares or 1 rights issue share for every 4 shares held at a price of around 2500cps to 2600cps.

There are two types of small caps: those that are growing up through the index and those that are falling down through to oblivion. Most USA institutions define a "small cap" as a company with a market cap of less than $1bn. MUR's current market cap is currently $1.1bn (= R8.7bn / 7.78), so it very-very close to verging on my small cap coverage universe!

Careful, Murrays, I may soon give you a call...

MUR is down 5.4% today already, slightly off its lows.

Murray's business update also bodes badly for the rest of the small cap construction groups, as the African region remains a tough trading environment.

Finally, just a side note, I've been too much in cash after selling my EOH position. Hence, I've decided to bolster my holding in MTN (Keith's Portfolio).

While I hold good exposure to MTN through my Satrix Divi, MTN has come down so much on a number of real worries about the geographies it operates in in Africa.

The worries are real, but their contribution to the group aren't all that major (except Nigeria, but it sounds like things are have quietened down. In fact, if there really is a Nigerian civil war, I suspect telecos will do pretty well there... Think about it.).

Hence, I've topped up my exposure to MTN relative to Satrix Divi by buying some on the open market.

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