Vancouver —
Western Areas is floating a rights issuance to raise 635 million rand (US$97 million). The financing is being underpinned by Western Areas’ 39% shareholder, JCI, a mining finance company that is arranging a 460-million rand (US$70.5 million) loan facility through Investec Bank.
Shareholders of Western Areas are eligible to subscribe for 29.95 rights shares for every 100 shares held. Each right would be exercisable at 18 rand (US$2.75). All major shareholders indicate they will fully participate in the offering.
Once the financing is complete, Western Areas CEO Brett Kebble will step down, along with non-executive director Sello Rasetheba.
The joint venture between Placer Dome and Western Areas has grown contentious. Vancouver-based Placer disclosed in its latest quarterly report that Western Areas had not fully contributed its 50% share of cash calls for development at South Deep. With the South African company owing US$13 million, Placer announced that it was considering “steps necessary to enforce its remedies under the agreement.” One of the tabled “remedies” included triggering a provision in which the joint venture would arrange the sale of Western Areas’ share of gold production to satisfy the shortfall in funding.
Western Areas’ Kebble elaborated on the inter-company tensions, attributing the 2-year delay in the commissioning of the South Deep twin shaft complex to “management failures” on behalf of Placer Dome.
The two companies are moving ahead with expansion plans at the South Deep gold project, situated about 45 km southwest of Johannesburg in the Witwatersrand Basin. Most of the development has focused on the 9-year construction of a new, almost 3,000-metre twin shaft complex, which was commissioned in late-2004 at an estimated cost of about 5 billion rand (US$800 million). Deepening of the workings will allow access to further reserve blocks within the auriferous palaeoplacer “reefs.”
Current underground workings are at an average depth of almost 2,700 metres, where rock temperatures approach 50C. A large portion of the reserve blocks lie beneath the current workings, particularly in the 3,000 to 3,300-metre levels, indicating further development in the not too distant future.
The mine is expected to produce about 430,000 oz. gold in 2005. Proven and probable reserves, at the end of 2004, stood at 220 million tonnes grading 7.8 grams gold per tonne (or 55.6 million contained ounces); although a recent Western Areas report warns of a reserve revision that will likely cut reserves by roughly 10 million oz., owing to a redesign of regional pillars. The revision is due by the end of 2005.
Once the new infrastructure is up and running, the South Deep mine is expected to produce an estimated 750,000 oz. gold annually over a 70-year mine life.
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