Ashanti is being forced to auction off half of Geita as part of a restructuring plan approved by its bankers and hedge counterparties. The major’s well-publicized financial woes began in October 1999, when it was caught offside with its hedge book after gold prices rose US$86 per oz. in the 11 trading days following the Bank of England’s second auction, on Sept. 21. The sudden run-up in the gold price turned Ashanti’s hedge book from a US$290-million asset into a US$570-million liability.
The Ghana-based company is Africa’s third-largest gold producer, with interests in six mines in three African countries: Ghana, Guinea and Zimbabwe. In 1999, Ashanti’s attributed share of production was 1.49 million oz. at a cash operating cost of US$206 per oz., compared with 1.48 million oz. in 1998 at a cash cost of US$218 per oz., or a total cost of US$311 per oz. The company has approximately 110 million shares outstanding.
Ashanti reached an agreement in late October for the right to trade margin-free for the next three years in return for issuing warrants covering 15% of its share capital to its lenders at an exercise price of US$3. Ashanti recently completed a deal to secure a US$100-million line-of-credit to complete construction at Geita and renegotiated an existing US$270-million revolving credit facility at higher interest rates.
Toward the end of 1999, Ashanti announced it would be selling a 50% stake in Geita. Chief Executive Officer Sam Jonah told delegates attending the Cape Town Indaba 2000 mining conference that several interested companies have signed confidentiality agreements and undertaken extensive due diligence. The company was expecting to receive binding offers by the end of February.
“Visitors to the site and the data room have been very complimentary, and early indications give us cause to be optimistic about the final outcome,” said Jonah. The sale of the 50% interest will be used by Ashanti to pay down some of its US$550 million of debt.
During a recent site visit, The Northern Miner learned that construction at Geita was about 70% complete. All major equipment was on site and Ashanti was in the process of building the structural steel and electrical installations, as well as the semi-autogenous grinding (SAG) and ball mills.
At the current rate of progress, the mine should be commissioned by June of this year, some three months ahead of the original schedule and within budget. The capital cost for the project is estimated at US$165 million. Managing Director Harry Michael said the cost of work completed to date totals about US$100 million, and that an additional US$55 million remains to be spent.
Geita is expected to produce 150,000 oz. gold in 2000 and approximately 500,000 oz. per annum for the first five years at an operating cash cost of less than US$180 per oz. The mine was originally scheduled to produce 400,000 oz. annually over a life of 10 years. Ashanti revised its mine plan following last year’s successful infill and deep-drilling program, which more than tripled the resource of the Nyankanga deposit, boosting the overall resource at Geita to 12 million contained ounces — a 79% increase over the previously estimated 6.7 million oz.
“The Geita project will continue to hold the promise of vast upside for some time to come,” said Jonah. “The impressive resource delineated so far comes from the systematic exploration of only 20% of the ground Ashanti holds.”
Situated 80 km southwest of Mwanza and 68 road kilometres from Barrick’s Bulyanhulu project, the Geita licences cover a total area of 440 sq. km and centre on six distinct gold deposits hosted in a series of folded and sheared rocks dominated by banded iron formation (BIF) units interbedded with andesite and other volcanic rocks. The Nyankanga, Geita Hill and Lone Cone deposits occur along the so-called Geita trend, whereas the Matandani, Kukuluma and Area 3 West deposits lie along a second mineralized trend, dubbed Kukuluma, a further 9 km to the northeast.
The six deposits host measured, indicated and inferred resources totalling 89.2 million tonnes at an average grade of 4.17 grams gold per tonne, equivalent to 12 million oz. A good chunk of the resource sits in the Nyankanga deposit at 38.3 million tonnes grading 6.01 grams, equal to 7.4 million oz. This consists of a surface resource of 28.2 million tonnes grading 5.15 grams, or 4.7 million oz., and a potential underground resource of 10.1 million tonnes averaging 8.42 grams, or 2.7 million oz.
In the final quarter of 1999, Ashanti completed a positive scoping study on a proposed 1-million-tonne-per-year underground mining operation. Further infill drilling is planned this year, in conjunction with a feasibility study.
The pit optimization of the surface resource at Nyankanga has outlined a 3.1-million-oz. minable reserve of 19.3 million tonnes grading 5 grams at a stripping ratio of about 8-to-1. By comparison, the 1999 ore reserve was estimated at 13.7 million tonnes grading 3.97 grams, or 1.75 million oz., at a stripping ratio of 5.9-to-1.
Mining operations will be carried out by conventional open-pit methods using hydraulic excavators and 100-tonne-capacity trucks. An initial 51/2-year mining contract has been awarded.
Mining begins and ends in the Nyankanga pit, over what is now a 12-year mine plan, though Michael is confident that, at the end of the day, Geita will have a life upwards of 20 years.
Four pits
Pre-stripping of the Nyankanga pit began in early August 1999. The second pit, Lone Cone (3.5 million tonnes at 2.54 grams, or 282,000 oz.), will come on-stream in 2001, followed by Kukuluma (6.7 million tonnes at 3.28 grams, or 662,000 oz.) and Geita Hill (18.8 million tonnes at 2.36 grams, or 1.3 million oz.) in 2002, and Matandani (2.9 million tonnes at 2.95 grams, or 283,000 oz.) in 2003.
These four other pits host reserves totalling 31.9 million tonnes grading 2.44 grams, equivalent to 2.5 million contained ounces, based on a gold price of US$325 per oz.
A 4-million-tonne-per-year processing plant has been designed to treat a blend of oxide, transitional and sulphide ore using conventional gravity concentration and a carbon-in-pulp (CIP) circuit. The ore will be fed through a primary gyratory crusher and into a 9.14-metre-diameter SAG mill and a 6.7-by-9.6-metre ball mill circuit, with recycle crushing. The milled ore will then be sent through a gravity concentration circuit consisting of two 48-inch Knelson concentrators.
The remaining ore will be fed into a 25-metre-diameter pre-leach thickener and processed through a CIP circuit consisting of one agitated leach tank and seven agitated adsorption tanks. Depending on the blend of the ore, gold recoveries are expected to average 89% for the life of the mine.
“The mineralogy is not complex for the bulk of the ore,” said Michael, though further tests will determine if a magnetic separation-flotation-regrind circuit is required to process the Matandani ore, which has shown recovery problems with respect to the sulphides.
Ashanti has designed the processing plant with some upside. There is space to add another ball mill, as well as two additional adsorption tanks.
Electricity is being supplied by a new, diesel-powered, 46-MW power plant, which was designed to accommodate a possible suplus. A newly constructed, 26-km-long water pipeline from Lake Victoria will supply the bulk of the mine’s water needs.
Regional geology
The Geita licences sit in the northern arm of the regional east-westerly striking Sukamaland greenstone belt, south of Lak
e Victoria. The belt is dominated by two ridge complexes of oxide-facies BIF flanked by younger felsic pyroclastics. The sequence is isoclinally folded and averages 500 metres in thickness. It is thought that the ridges likely form the limbs of a westward-plunging synform that later underwent major displacement along northwesterly trending shears. This area of the belt is cut by strong, regional-scale, northeasterly trending quartz-gabbro dykes of Proterozoic age and, to a lesser extent, by northerly and northwesterly trending dolerite dykes of Karoo age.
Gold mineralization occurs in the main BIF sequence on the crest of the ridges, as well as in the footwall and hangingwall felsic tuffs and close to the intrusive contacts. Shear-hosted mineralization can also occur in mafic volcanics of the lower Nyanzian.
Exploration work by a small Kenyan syndicate in the early 1930s led to the discovery and development of the Geita and Ridge 8 underground mines. Between 1938 and 1966, the Geita mine produced close to 1 million oz. from a milled 5.5 million tonnes averaging a recovered grade of 5.3 grams. The mine closed in 1966, owing to a combination of management problems, inadequate financing and the threat of nationalization.
In 1994, London-based Cluff Resources acquired the Geita East and West licences and initially focused its efforts on the past-producing Lone Cone and Prospect 30 areas. Cluff proceeded to outline a resource of 400,000 oz. at Lone Cone. In late 1995, the company was awarded the Geita Hill licence, before being taken over by Ashanti in a US$120-million deal that also included Cluff’s controlling interests in the Ayanfuri mine in Ghana and its Freda-Rebecca mine in Zimbabwe.
Nyankanga was discovered in May 1996 during the rotary-air-blast (RAB) drilling of a soil anomaly estimated to contain 200 parts per billion (ppb) gold. Initial reverse-circulation drilling started in mid-1996 and was accelerated in late 1997 following the discovery of the “1120” shoot and high-grade BIF-hosted mineralization at depth in the eastern part of the deposit.
Drilling in 1999 extended the Nyankanga deposit to a vertical depth of 500 metres below surface. Drilling during the fourth quarter yielded 88 metres grading 4.8 grams from 263 metres of depth, and 15.5 metres grading 12.9 grams at a depth of 251 metres. The Geita deposits all remain open at depth.
By the end of 1997, the resource base at Geita had expanded to more than 3.5 million oz. A positive feasibility study on a 2-million-tonne-per-year operation at Geita was completed by LTA Process Engineering in August 1998.
Enter Samax
Since 1995, Samax Gold had been exploring the Kukuluma and Bugalula licences, immediately northeast of the Geita deposits. The company followed up its reconnaissance soil sampling with trenching and RAB drilling. In June 1997, eight holes targeted an erratic 100-ppb soil anomaly that contained two artisanal pits. Five of the holes returned significant results in what is now the Kukuluma deposit. In early 1998, stepout RAB drilling led to the discovery of the Matandani deposit, 700 metres to the north.
In late 1998, Ashanti acquired Samax for a total consideration of US$140.1 million. The acquisition included a half-interest in the Golden Pride gold mine, also in Tanzania, which Ashanti later sold to Australian-listed Resolute for US$40 million.
With the acquisition of the Kukuluma and Matandani deposits, and additional drilling at Nyankanga, the project resource expanded to more than 6 million oz. and a feasibility study was completed by Australian-based Lycopodium for an enlarged 4-million-tonne-per-year project.
The positive study envisioned a mine capable of producing a total of 3.8 million oz. over a 9.5-year life at an average cash operating cost of US$175 per oz., or a total cost of US$239 per oz. The project has a base-case internal rate of return (IRR) of 23% at a gold price of US$300 per oz. Corporate taxation is 30%, and the government of Tanzania holds a net smelter return royalty of 3%. At a price of US$270 per oz., the IRR is 15%.
The Nyankanga, Lone Cone and Geita Hill deposits form a 5-km-long, semi-contiguous, northeast mineralized trend near the hinge of the principal west-plunging synform. The deposits are all northwesterly to westerly dipping and sub-parallel to stratigraphy. They occur on structures susidiary to the regional northwesterly trending shears.
Nyankanga
The Nyankanga deposit forms the southwestern limit of the Geita trend and is covered by up to 15 metres of barren ferricrete. The western and central parts of the deposit are hosted by a sub-circular granodiorite-diorite intrusive centred on a west-northwesterly fault. The northeastern part of deposit becomes increasingly interbedded with BIF and andesite, similar to that seen at Lone Cone and Geita Hill. The main ore-grade mineralization in the Geita trend is controlled by low-to-medium-angle structures dipping northwest and north, with numerous splays in the hangingwall.
High-grade shoots at Nyankanga plunge to the west and northwest, and are lithologically and fault-controlled. At Geita Hill, higher-grade shoots are controlled by fold noses in BIF dipping to the north.
Gold mineralization is associated with fine-grained pyrite and silicification. Free gold occurs as inclusions and in fractures of pyrite.
The Area 3 West, Kukuluma and Matandani deposits are related to a northwesterly trending horseshoe ridge of BIF called Bukolwa Hill. Kukuluma and Matandani occur on an ancient errosional plateau and are related to two, west-northwesterly and northwesterly trending shear zones, discordant to the local strike of the BIF sequence. There is evidence of a strong supergene component to the gold distribution. Primary gold mineralization occurs in two distinct assemblages: arsenopyrite-pyrrhotite-magnetite-chlorite associated with brecciated cherts; and pyrite associated with shaley banded ironstones. Area 3 West is likely the fault-displaced extension of the same mineralized trend and comprises thin, intermittent zones of high-grade mineralization occurring adjacent to a ridge in banded cherts and minor BIF.
With 60% of the Geita greenstone belt lying below a transported cover, Ashanti’s field geologists are confident of further discoveries. Regional exploration will be expanded to cover the area within which ore can be economically trucked to Geita, targeting a 60-km radius around the Geita plant.
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