Huge South African gold project could double Placer Dome reserves — US$235m deal part of plan to boost company to No. 1, says Willson

Placer Dome (PDG-T) has reached an agreement with Johannesburg-based Western Areas to acquire a 50% operating interest in a property in the Witwatersrand district of South Africa.

The property contains a proven and probable reserve of 235 million tonnes grading 7.8 grams gold per tonne, equivalent to 59.3 million contained ounces gold. Of this, a deposit known as South Deep accounts for 52 million oz.

The calculations are based on a gold price of US$260 per oz. and a cutoff grade of 4.2 grams. The total mine life is estimated at 79 years.

Placer Dome must pay Western Areas US$235 million upfront and make additional payments over the life of the mine. The transaction, which is subject to due diligence by Placer Dome and the approval of Western Areas’s shareholders, is expected to close in the first quarter of 1999.

The acquisition would double Placer Dome’s overall reserves to 60 million oz. gold. The company now estimates it will produce 2.9 million oz. gold in 1999 at an average cash production cost of US$170 per oz.

“To become the earth’s gold leader, it is logical we take a position in a country with a great gold mining tradition and great gold resources,” says Placer Dome President John Willson. “We are looking forward to merging Placer Dome’s global mining experience with Western Areas’s South African mining skills to form a winning combination.”

Says Brett Kebble, deputy chairman of Western Areas: “The transaction holds major benefits for us. In the short term, it should create immediate shareholder value by placing a realistic price on what has so far been an underrated development asset. In the longer term, the introduction of Placer Dome’s exceptional skills and substantial resources should maximize cash flow from the 50% holding Western Areas will retain in the mine.”

South Deep is scheduled to enter commercial production in 2002, whereupon Placer Dome’s share of production will total 375,000 oz. per year at a cash production cost of US$185 per oz. and a total cost of US$215 per oz. Until that time, Placer will add 300,000 oz. to its coffers annually from Western Areas’s existing operation at an average cash production cost of US$200 per oz. This production will provide most of Placer’s cash requirement for its share of the South Deep deposit’s development costs, which have been pegged at US$150 million.

To develop the South Deep deposit, a twin shaft system has been sunk to the 2000 level. Its ultimate depth will be 3,000 metres below surface. Mining will consist of mechanized and conventional methods at depths of between 2,400 and 3,400 metres.

Western Areas estimates that about half of South Deep’s reserves are amenable to mechanized bulk mining. Recoveries are anticipated to be in the 97% range.

The deposit is described as a continuous wedge of multiple, stacked reefs up to 60 metres thick, which stretch for 12 km along strike and range between 1 and 2 km wide.

In 1995, Western Areas merged with a company known as South Deep and subsequently acquired the deposit of that name. Currently, the company is mining the upper VCR and Elsburg reefs, which represent the deposit’s updip extension. Minable reserves in the Upper Elsburg and VCR reefs were last reported to be 16 million tonnes grading 11 grams gold per tonne, or 5.8 million contained ounces. Mining is expected to continue for another 14 years before this portion of the deposit is exhausted.

Western Areas’s existing plant has a throughput capacity of 138,000 tons per month. Additional plants in the area have excess throughput capacity, which the company can use.