Placer Dome partner Western Areas raises South Deep funds

Vancouver – Placer Dome’s (PDG-T) South Deeps partner, Johannesburg Stock Exchange listed Western Areas, has come up with a plan to raise its portion of funds to advance development of the monstrous South African gold deposit.

Western Areas is floating a rights issuance to raise 635 million Rand (US$97 million). The financing is being back-stopped by Western Areas’ 39% shareholder JCI, a large mining finance company. JCI 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) with all major shareholders indicating they will fully participate in the offering.

In conjunction with the large financing, Western Areas CEO Brett Kebble will be stepping down from his post along with Sello Rasetheba, a non-executive director.

The joint venture relationship between Placer Dome and Western Areas has recently 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 South Deeps development. With the South African company owing US$13 million, Placer announced 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 funding shortfall.

In a parting shot, outgoing Western Areas CEO Brett Kebble elaborated on the inter-company tensions, attributing the two-year delay in the commissioning of the South Deep Twin Shaft complex to “management failures on the part of Placer Dome.”

The two companies are pushing forward with a significant expansion to the South Deeps gold project, located about 45 km southwest of Johannesburg in the Witwatersrand Basin. The main thrust of development has been 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 (almost 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 50 degrees Celsius. A large portion of the reserve blocks lie beneath the current working levels, particularly in the 3,000 to 3,300-metre levels, indicating further substantial development on the horizon.

The mine is expected to produce about 430,000 oz. of gold in 2005. Proven and probable reserves, as of the end of 2004, stood at 220 million tonnes grading 7.8 grams gold per tonne (55.6 million contained oz.); although a recent Western Areas report cites a reserve revision due out by the end of 2005 with an expected reduction of at least 10 million oz. due to redesign of regional pillars.

Once the new infrastructure is fully up and running, South Deeps is expected to produce an estimated 750,000 oz. of gold annually over a 70-year mine-life.