Simmers puts Strathmore plan on ice
Allan Seccombe
Posted: Tue, 07 Oct 2008
miningmx.com
[miningmx.com] -- SIMMER & JACK, the South African gold producer, has put on hold plans for an expensive six-year exploration project to boost resources at its Buffelsfontein mine, but it has good news on low-cost production from heap leaching.
The R217m Strathmore pre-feasibility study to bring conceptual ounces lying deep at its Buffels mine has been shelved because turbulent financial conditions around the world have made it difficult to raise capital.
"The environment is very different now and we don't want to get too ambitious and embark on a project of this nature in the current circumstances," Simmers chief operating officer Deon van der Mescht told Miningmx in an interview.
"We've got other near-term projects that would make much more sense for us to pursue," he said. "That gold isn't going anywhere and when the right environment comes along again, which it will, then we will revisit it."
Simmers' share price was four percent down at 230c, off a session and 12-month low of 225c by midday on Tuesday, amid a strong pullback across all sectors on the JSE. Simmers recorded a year-high of 655c.
The Strathmore project was forecast to add 35 million resource ounces of gold to Buffels and increase its uranium resources by 120 million pounds.
A TWP Consulting study in January 2008 put the capital cost of the project at R9bn to produce 12 million oz of gold and 49 million lb of uranium.
Simmers has reopened Five Shaft at Buffels to complement its two other high-grade shafts - 2 and 12 – and this will boost its production to between 15 and 20% from 2.5%, raising the average delivered grade of the mine to 6 grams/tonne (g/t) from the current 4-4.5 g/t.
Simmers has a target of lifting output at Buffels to 250,000 oz by 2013. It produced 122,700 oz at a cash operating cost of $727/oz in its 2008 financial year.
The firm bought the mine from DRDGOLD in October 2005 after it had been put into liquidation following an earthquake which damaged the mine, particularly the high-grade Five Shaft, which is now delivering 8 g/t.
A project at Buffels called Mega Float, to treat 19 million tonnes of waste rock through a flotation plant to increase the amount of gold in a smaller volume of concentrate, is likely to be adjusted as well if one looks at the state of capital markets.
The $20m upfront capital cost could be a little steep for Simmers, which might cause the company to adopt a phased approach, sharply lowering the capital needed to kick it off.
The original Mega Float plan was to put the entire 19-million tonne dump through a flotation process.
This would have increased the grade to 2.3 g/t from 0.5 g/t, with an 80% reduction in superfluous rock, ultimately delivering gold for $530/oz. The dump was to have been treated over seven years.
Simmers has secured a water use permit, allowing it to finally pull the trigger on the first of four test heap leach pads in Mpumalanga, which will produce 80,000 oz over a four-year period at a total cash cost of $500/oz, including capital.
The R180m project, for which Simmers has already raised R130m and will internally fund the balance, has had a long and difficult gestation period in winning over public, government and non-governmental organisations' approval as well as securing the necessary permits.
Simmers had initially planned to bring the first heap into production around mid-2007. The mining right was issued in March 2008, but was contingent on the granting of the water permit, which was only procured in October.
"This delay had a significant impact on us. We had to tone down our exploration programme and we had to adjust our approach to costly test work at the Frankfort underground mine," Van der Mescht said.
Simmers is conducting a feasibility study to be completed in March 2009 into the construction of a Biox plant to deal with refractory ore from its Frankfort mine, as well as its Beta and Rietfontein underground projects.
Frankfort is in production, but is using conventional methods, which means low recoveries and high costs per ounce.
The first heap leach is the 300,000 tonne Elandsdrift project, which has a forecast total cash cost of $500/oz (including capital) and operating costs of $150/oz, bearing in mind that the scale of the project is tiny compared to full-scale heaps that normally run at tens of millions of tonnes.
"Those costs have the potential to come down quite a bit because of economies of scale," Van der Mescht said.
Elandsdrift is expected to deliver 6,173 oz over 14 months, with the first gold pour at Simmers' Pilgrim's Rest plant in December.
The travails of starting the first project have given Simmers a blueprint and timeline expectations for the rest of its test pads.
Simmers has started identifying spots for large heap leach operations for when its exploration work throws up a large resource that would justify such a project.
It is releasing fresh exploration data next week. "Watch this space," Van der Mescht said.
If something large does come up, Simmers will put it into production as quickly as possible, he added.
Simmers has measured and indicated resources for its Mpumalanga surface projects of 122,000 oz, but that will be increased as exploration continues. It wants to have 600,000 oz of reserves for its heap leach projects. |
