Last year’s acquisition of half of the South Deep mine in South Africa helped to more than double
The Vancouver-based major purchased a 50% joint-venture interest in the mine from Western Areas of South Africa in April 1999 for US$235 million, plus future payments based on production.
“Our decision to invest in South Africa and South Deep was the culmination of an intensive study of the world’s gold mining industry,” according to Peter Harris, chief executive officer for Placer Dome South Africa. Speaking to delegates at the recent Cape Town Indaba 2000 mining conference, he said: “Placer Dome was looking for a large, long-life, high-grade orebody that offered us an opportunity to add value to our shareholders.”
The South Deep mine hosts proven and probable reserves of 234 million tonnes grading 7.8 grams gold per tonne, equivalent to 58.9 million contained ounces, for a mine life of approximately 60 years. The estimate is based on a gold price of US$260 per oz. The total measured and indicated resource at Dec. 31, 1999, was 537 million tonnes grading 4.5 grams, equivalent to 77.2 million contained ounces. The cost to Placer for the 50% stake was US$8 per oz. in the ground.
The South Deep reserves at Dec. 31, 1999, are based on the reserves calculated by Western Areas at Dec. 31, 1998, depleted to reflect 1999 production.
“Through the process of risk assessment prior to our acquisition, many concerns were voiced relating to the business, political, social and other environments,” said Harris. “While South Africa has its own special blend of challenges, compared to other mining environments, our experience has demonstrated that: the risk is manageable; the country’s legal system is well-established and respects the rights of foreign and domestic investors equally; the financial services industry is well-equipped to support foreign direct investors; and labour legislation is flexible, with organized labour moving towards working with our business for the benefit of all stakeholders.”
The South Deep mine property comprises 35.6 sq. km, extending 9 km north-south and 4 km east-west on the northwestern limb of the Witwatersrand Basin, 42 km southwest of Johannesburg. More than 1.47 billion oz. gold have been mined from the prolific Witwatersrand goldfields since 1885. At the moment, production from the basin is around 15 million oz. per year.
Western Areas was established in the Westonaria region of the Witwatersrand Basin in 1959, originally to exploit the Upper and Middle Elsburg horizons and the Ventersdorp Contact Reef (VCR). In the past 38 years, Western Areas has produced a total of 23 million oz. from 110 million tonnes of underground ore.
The South Shaft operations began in 1968 and currently have a milling capacity of 135,000 tonnes per month. Through its merger with South Deep in 1995, Western Areas acquired the massive Elsburg Reef package, significantly expanding its resource base.
The marginal north section of the mine was then sold to Randfontein Estates in 1997 for R52 million (about $11.5 million) so that Western Areas could concentrate on developing the South Deep area.
South Deep is a deep-level mine. Gold mineralization occurs at depths ranging from 1,500 to 3,500 metres below surface and is hosted in two specific conglomerate horizons: the narrow Ventersdorp Contact Reef (VCR), to the west; and the wide Upper Elsburg reefs, which thicken to the east.
The VCR is a single-reef horizon 1-3 metres thick, whereas the Upper Elsburg reefs are a “unique, extraordinarily large” package of multiple reef horizons (MB, MI, MA and EC) with an overall thickness ranging from 6 to more than 130 metres.
The two reefs are separated by a geological discontinuity called the Elsburg subcrop, which runs north-east through the central portion of the property. Together, both sequences form a continuous orebody 5 km long and 2 km wide, with similar stratigraphic and sedimentary characteristics, structural style and gold distribution patterns. The orebody gently dips 18 to the south.
The VCR and Upper Elsburg reefs occur on a basal unconformity that defines the Ventersdorp formation, as well as the Modderfontein and Waterpan members of the Mondeor formation. The reefs are overlain by up to 1,200 metres of Klipriviersberg lavas and a succession of dolomite, quartzite, shale and volcanics of the Transvaal sequence.
High gold grades are found in wide payable zones in the Upper Elsburg reefs close to the eastern side of the subcrop, while, in the distal eastern areas, gold distribution becomes interspersed in narrow bands. The VCR reef on the western side of the subcrop is generally high-grade and at a fairly consistent width of 1-2 metres.
The existing South Shaft operations are accessible by means of a single 6-compartment shaft from surface down to the 50 level at 1,400 metres below surface. From there, two sub-vertical shafts (SV2 and SV3) service levels 70 to 95 (1,938 to 2,785 metres below surface). SV2 is used to hoist ore and waste, whereas SV3 transports personnel and materials.
The ore is drilled and blasted, scraped to a series of gullies that feed an ore pass system; from there, it is trammed by rail to a shaft-loading system and hoisted to surface. The ore is processed at the South Shaft plant utilizing a Merrill-Crowe-style conventional filtration zinc precipitation circuit. This consists of three stages of crushing, two stages of milling with gravity gold recovery, followed by thickening, cyanide leaching, drum filtration and final recovery by zinc precipitation. The plant averages an overall gold recovery of 97.5%.
On a recent underground tour of the South Shaft operations, The Northern Miner learned of a 4-year optimization plan that will double gold production from the current 350,000 oz. per year to more than 700,000 oz. in 2003. Cash operating costs are expected to decline to less than US$160 per oz., with total costs falling to less than US$180 per oz. For 2000, Placer’s forecasted share of production is 176,000 oz. at a cash cost of US$205 per oz. and a total cost of US$222 per oz.
The capital expenditure over the 4-year optimization period is estimated to be US$339 million. The optimization study calls for development of the South Deep orebody and the transition from conventional, mini-longwall, narrow-reef mining to that of a predominantly mechanized, trackless operation. A new shaft system is being sunk 2.7 km southwest of the existing South Shaft complex. The South Deep twin-shaft development project includes the sinking of a main shaft to a depth of about 3,000 metres and an adjacent ventilation shaft to a depth of 2,850 metres.
History
Underground development on the South Deep project started in 1991, and, to date, more than 35 km of development work have been completed. The sinking of the main shaft began in September 1995 and is now at a depth of about 2,700 metres. The ventilation shaft sits at 2,400 metres.
The South Deep project is scheduled to begin hoisting from the main shaft in July 2002, with the commissioning of the ventilation shaft expected in 2004. The hoisting capacity of the new system is expected to be 235,000 tonnes per month, of which 15,000 tonnes per month will be development waste. The new shaft will take the miners directly to the production areas, rather than have them travel a distance of 2 km underground, as is currently the case.
The existing mill complex will be expanded with a new plant module by December 2001, increasing the capacity to 220,000 tonnes per month, equivalent to 2.6 million tonnes per year. The new plant module will utilize a semi-autogenous-grinding (SAG) and ball mill configuration, with gravity concentration and a pump cell carbon-in-pulp (CIP) circuit. The joint venture has begun an expansion feasibility study to determine the production rate for the new South Deep operation. The study is scheduled for completion by the end of 2001. A new ore reserve study is also under way.
In 2000, 95% of the millfeed tonnes will be s
upplied from conventional hand-held stope mining, with 70% being mined primarily to de-stress the orebody for future trackless mechanized mining. The other 25% of the stope mining this year will consist of traditional narrow-reef mining.
By 2003, 82% of the stope tonnes will be from trackless mining and 18% from conventional narrow mining. During the transition period, operating costs are forecast to drop from US$60 per tonne down to the region of US$40 per tonne.
Trackless mining
De-stressing the orebody is one of the key ways to manage the risk of trackless mining at depth. This involves taking a narrow reef cut over a 250-metre horizontal distance through the orebody, which effectively transfers the stress into the abutment ahead of the stope face, lowering the stress level above and below the narrow cut. At 2,600 metres of depth, there is a high virgin vertical rock stress in the order of 75 megapascals (MPa), which if left untreated, would lead to seismicity in the pillars, rock bursting and general deterioration of the stoping areas.
However, the de-stressed zone at 2,600 metres of depth has a modified vertical stress of 20-30 MPa and a horizontal stress of 30-38 MPa, equivalent to a depth of 1,200 metres. According to Gordon Miller, chief operating officer of the Placer Dome Western Areas joint venture, this provides “good, stable underground mining conditions” without any of the potential problems due to seismicity damage in the pillars.
At the end of the 4-year de-stressing optimization period, there will be 18.2 million tonnes of ore available for mechanized mining at a grade of 7.17 grams, equivalent to 4.2 million oz. The narrow component of the orebody will be mined using selective drift-and-fill methods, whereas thicker sections will be mined by trackless long-hole stoping. This year, the joint venture is starting with two fleets of drift-and-fill, building up to a total of 14 fleets in 2003, comprising seven fleets of drift-and-fill, plus seven fleets of longhole.
Other significant challenges exist underground with respect to operating temperatures and ventilation flows in the headings, and these challenges are a reflection of the large geographic extent of the mine and the mining depth.
Placer made some sweeping changes to the operation in 1999. At the start of the joint venture, the mine experienced several fatalities. Placer responded by upgrading the mine’s safety standards. In April and May 1999, production was temporarily halted in those areas of the operation found unsafe and recommenced only after the necessary improvements had been made.
“The results with regard to safety have started to come through,” said Miller. Medical attention cases were down significantly to 372 per month in the fourth quarter of 1999, from 894 per month in the first quarter. There was also a slight decrease in the number of the most serious lost-time injuries, though, owing to retrenchment and a change in the demographics of where people work, lost-time injuries in terms of man hours have not improved.
Said Harris: “We believe our goal of zero fatalities is achievable and must be achieved.” The low level of seismic activity contributes significantly to this goal. The mine is said to experience a seismic event in the order of magnitude of between 1.4 and 1.8 once every two months.
Restructuring
In October 1999, the joint venture completed a restructuring program at South Deeps, which saw a retrenchment of some 3,000 workers, or 35% of the mine’s workforce. The labour force is currently more than 5,100; the size of each underground crew was reduced to 12 from 22; and multi-task training programs were initiated. The number of management and supervisory levels were also reduced. “The net effect is a smaller, more flexible and more productive workforce gaining more skills in a multi-skilled environment,” Harris said. “By year-end, we had reduced our cash costs to US$200 per oz. and our total costs to US$220 per oz. We are now operating more safely and at a lower cost with fewer employees.”
Over the next four years, the company intends to reduce the size of its workforce further, to about 3,500.
The restructuring period has not been easy. The National Union of Mineworkers (NUM) vigorously opposed the retrenchment and petitioned the Labour Court, which ruled that the joint venture had respected the rights of its employees and had also fulfilled its obligations under the Gold Crisis Committee process.
Recognizing the leadership role NUM plays in South Africa, the joint venture has since held several meetings with the union, and the two have signed an agreement on a set of principles to guide their relationship forward.
The joint venture has established an innovative social plan to help retrenched employees become economically self-sufficient over the next two years. Group leaders have already visited Mozambique, Lesotho and those parts of South Africa where former employees have returned to. The program is operating with a R15-million (about $3.3 million) budget.
HIV-AIDS is viewed as a major threat to the African workforce. According to the World Health Organization, Africa, with 10% of the world’s population, had 63% of the global HIV-AIDS cases at the end of 1997. More than 21 million Africans were infected. AIDS has overtaken malaria and other diseases as the leading cause of death for adults between the ages of 15 and 49 in Botswana, Burundi, Malawi, Rwanda, Tanzania, Uganda, Zambia and Zimbabwe. In South Africa, 12.9% of the adult population was living with HIV-AIDS in 1997. The joint venture has budgeted R2 million (about $450,000) towards an AIDS awareness program.
African search
Anthony Harwood, vice-president of exploration for Africa-Eurasia, said Placer is seeking other acquisition and exploration opportunities in Africa. The focus is “large, high-quality gold deposits that can add significantly to the bottom line of the company.” Placer is looking at gold projects that are able to meet the following characteristics: a minimum resource potential of 4 million oz.; production rates greater than 300,000 oz. per year; a mine life greater than 10 years; and operating costs below US$170 per oz. and total costs of less than US$240 per oz.
Currently, the company is active in three countries: Burkina Faso, Tanzania and Zimbabwe. Harwood speaks highly of the West African nation of Burkina Faso. “We believe the country has high prospective geology, open and transparent mining laws, [is] politically stable and has a manageable fiscal regime.”
Placer is involved in a joint-venture option arrangement with
Previous work by Channel outlined seven mineralized zones in the BFT, covering a cumulative strike length of 8.5 km and extending from surface to an average depth of 50 metres. The junior estimated an indicated resource for the oxide material of 35 million tonnes averaging 1.1 grams, or 1.2 million contained ounces.
Placer can acquire Solomon’s 45% interest in the Bombore property, along with a half-interest in Naoube and a 45% stake in a third property, known as Soubeiga, for staged payments totalling US$2.7 million over three years. By spending US$5 million on exploration and completing a feasibility study, Placer can acquire a further 20% stake in Bombore and 15% of Naoube from Channel, increasing its interest to 65% in both properties. Channel would hold the remaining 35%.
A program of reverse-circulation exploration drilling, under the operatorship of Channel, is under way at Bombo
re.
Elsewhere in Burkina Faso, Placer also holds an option to earn a 65% interest in the 1,725-sq.-km Somifa permit from Channel by spending US$5 million on exploration and financing a feasibility study. Last year, in the Goulagou area, Channel identified two mineralized zones containing an inferred resource of 16.3 million tonnes averaging 1.2 grams, equal to 635,000 contained ounces.
A follow-up geophysical and soil geochemical survey will assess and define drill targets over five major regional target areas that show regional signatures comparable to those detected in the Goulagou area.
In Tanzania, Placer is exploring for gold in the Lake Victoria greenstone belt. Efforts are concentrated at the Kiabakari project, a 112-sq.-km licence area northeast of Mwanza. According to Harwood, it was the second-largest historical gold producer in Tanzania. The project area has been flown by magnetic and electromagnetic geophysical surveys, and followed up with geochemistry sampling. Historical data show the average grade of the underground mine was between 6 and 8 grams per tonne. Underground drilling indicates wide zones of mineralization outside the mined-out areas, with values ranging from 2 to 5 grams over 50 metres. Drilling on strike to the mine has returned 6.35 grams over 54 metres and 7.22 grams over 24 metres.
Based on the survey of the old mine plan and historical exploration drilling, an unconfirmed resource sits at 8.5 million tonnes grading 3.16 grams.
Placer produced a record 3.15 million oz. gold last year, representing an 8% increase over 1998. Operating and total costs were among the lowest in the industry at US$159 per oz. and US$231 per oz., respectively. Placer’s share of copper production was 267 million lbs. at a cash cost of US44 per lb. and a total cost of US67 per lb. Cash flow from operations in 1999 totalled US$346 million.
The company recorded a healthy US$339 million in mine operating earnings for the year. Normalized net earnings were US$115 million (or 35 per share) before writedowns and charges for other non-recurring items. Net earnings were US$35 million (11 per share).
Other mines
The 60%-owned Cortez mine in Nevada and the 60%-owned Granny Smith mine in Western Australia turned in stellar performances for the year. Production at Cortez topped 1.3 million oz., of which close to 800,000 oz. are attributed to Placer. Cash costs averaged just US$48 per oz., whereas total costs were US$116 per oz.
At Granny Smith, production totalled 523,000 oz., of which Placer’s share was just over 313,000 oz. Cash costs averaged US$48 per oz., with total costs estimated at US$106 per oz.
Although Placer does not expect either the Cortez or Granny Smith mine to match 1999 levels, the company is looking forward to another 3-million-oz. year. Costs will remain competitive at slightly above 1999 levels; cash costs are projected at US$165 per oz.; and total costs will be roughly US$240 per oz.
Capital expenditures in 2000 will add up to US$200 million, including US$47 million at South Deep, US$35 million at Getchell, US$31 million at Cortez, US$26 million at Granny Smith and US$56 million in sustaining capital at the company’s other 11 mines. An exploration budget is set at US$60 million, with 60% of that to be spent on programs in and around the operations, including US$20 million at Getchell, where 33 drill rigs are currently turning.
At the end of 1999, Placer’s cash and short-term investments sat at US$204 million.
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