SouthernEra takes Messina to the bank (August 27, 2002)

A bankable feasibility study of the Phase 2 project on the Doornvlei property at the Messina platinum group metals (PGM) mine in South Africa, has come back positive for SouthernEra Resources (SUF-T).

Completed by SRK Consulting, the study is based on an updated indicated resource estimate for the Merensky reef of 11.89 million tonnes averaging 4.47 grams combined platinum, palladium, rhodium, iridium, ruthenium, and gold (PGMs). The UG2 resource is pegged at 26.9 million tonnes of 5.35 grams PGMs. In all, the resources tallies to 6.3 million oz. of contained PGMs, a 12% increase over the previous estimate.

Applying mining layout losses (extraction is pegged at 78%, including shaft pillars) and dilution factors of 19% and 10% for the Merensky and UG2 reefs, respectively, SRK puts Messina’s Phase-2 probable reserves at 11.12 million tonnes of 3.69 grams PGMs for the Merensky reef and 20.85 million tonnes running 4.81 grams per tonne for the UG2 reef. The reserve estimate also includes a 25% geological loss for both reefs.

SRK’s study employed a 10% discount rate. Assumed metal prices were: US$556 per oz. of platinum; US$320 for each palladium ounce; US$740 per oz. of rhodium; US$280 per oz. of iridium; US$125 per oz. of ruthenium; and a US$312-per-oz. gold price.

According to the study, second-phase reserves at Messina are capable of supporting an annual production rate of 173,000 oz. of PGMs at an estimated operating cash cost of US$107 per oz. (net of nickel and copper byproduct credits) over its proposed 23-year lifespan to yield a net present value (NPV) of US$73.3 million and an internal rate of return (IRR) of 22.6%. Annual net revenues (including smelter and refining charges) are estimated at US$64.7 million, based on an average realized price of US$374 per oz. PGMs.

Estimated annual production will include 76,800 oz. of platinum, 58,200 oz. of palladium, 8,700 oz. of rhodium, 3,700 oz. iridium, 18,900 oz. of ruthenium, and 6,700 oz. of gold. Nickel and copper credits will total 1,670 tonnes and 1,000 tonnes, respectively.

The project comes with a US$84.7-million price tag, which SRK figures will be paid back after five years of production.

The plan at Messina is mine both reefs at the combined rate of 120,000 tonnes per month by sublevel open-stoping mining. The reefs will be accessed via two decline ramp systems from which the 175-, 250- and 325-metre levels will be mined.

In year five of the operation, a vertical shaft will be sunk to 700 metres to allow for mining between levels 400 and 700 beginning in year 7. The shaft will then be deepened in years 14 and 15 to provide access to the resource between 700 and 1 000 metres. In all, about 11.1 million tonne of material will be extracted from Merensky and nearly 20.9 million tonnes will come from UG2.

Trucked to the surface, ore will be processed in a two-stage milling and flotation plant with a design capacity of 120,000 tonnes per month. Sixty-five percent of the mill feed will come from the UG2 reef; Merensky ore will make up the remainder. Single flotation will produce a filter cake sent for further smelting and refining. The life-of-mine head feed is expected to average 4.42 grams PGMs resulting in an average plant recovery of 84%. Concentrate production is pegged at 2,400 tonnes per month.

Subject to permitting and financing, development of phase 2 is slated to begin in January, followed by full production by mid-2005.

A recently approved US$22-million deepening of the Voorspoed Main shaft at Messina is designed to boost phase-1 production by 50%. Deepening the shaft by about 300 metres to 730 metres is expected to boost the mining rate to 80,000 tonnes per month by the end of the third quarter and to 120,000 tonnes by the end of the first quarter of 2004. During the expansion, the mine will continue to run at 20,000 tonnes per month.

At last report, Voorspoed hosted 26 million tonnes in the measured and indicated categories at a grade of 6.3 grams platinum group metals plus gold.

SouthernEra’s President and CEO Patrick Evans said in a prepared statement, “We are proving, step by step, that the Messina project in its various phases will make SouthernEra one of the world’s leading and most profitable producers of PGM’s. Once we have achieved full production from Phase 2, PGM production from Messina will total approximately 400,000 oz. per year at a cash production cost of approximately US$100 per oz.”

SouthernEra recently announced plans to boost to 75.3% from 70.4% its stake in the mine’s owner, Messina Ltd., by underwriting the company’s proposed rights issue.

Messina plans to raise up to R155.6 million by offering shareholders 20 rights for every 100 shares currently in issue, for a total of 2.6 million rights. Each right is good for one Messina share at R60 (US$5.77) each. Proceeds will be used to repay Messina’s US$15 million in unsecured debt owed to SouthernEra, which stems from the construction of the Messina platinum project.

SouthernEra and its South African-based partner, Mvelaphanda Resources, are awaiting permits to begin exploring three platinum group metals properties between Voorspoed and Doornvlei. SouthernEra believes the new properties can augment known resources. A fourth property east of Doornvlei was awarded to another company.