Here's a recent interview with DROOY MD with some info on the Argonaut project:
moneyweb.co.za
Interview with MIKE PRINSLOO - Monday, 26 April 1999
AH: Welcome now to tonight's featured guest, Mike Prinsloo. He's the managing director of the gold mining group Durban Roodepoort Deep -
the company behind the ambitious Argonaut Project, which is a planned mega-mine under the city of Johannesburg. Mike, let's start off with
your announcement today, and the most intriguing part of it is that you've now specified that you're looking to build a company in Australia
that can produce somewhere between 400 000 and 500 000 ounces of gold a year. Now, that is a pretty big operation in its own right. When
did you decide to move into the Australian market?
MIKE PRINSLOO: When we started Durban Roodepoort Deep two years ago, we had an expansion strategy in mind, and the South African
operations produce about 650 000 that will grow, and we think that we'll pitch it at 800 000 ounces a year, and we felt that a second leg in
Australia would be a good strategic opening up for Durban Deep.
AH: Why Australia though, Mike? Why there, of all the places in the world?
MIKE PRINSLOO: Well, we've identified the bottom third of the market, the niche that we operate in, and we see a lot of opportunity in
Australia in terms of depth extension. A lot of their mines are open-cast or shallow underground mines - so, for them to grow, or to extend
their life, they have to go deeper, and that's where our technical skills lie in Durban Deep, and we think that's a growth opportunity.
AH: Now today's announcement, 13% of a company called Hargraves Resources that you've bought. What was so attractive about Hargraves
Resources, this Australian-based company?
MIKE PRINSLOO: Well, Hargraves is one of those mines that functions in the bottom third of the market. It's about a 70 000 ounce producer
a year. It's an underground mine, it's got huge tenements and exploration tenement surrounds. It's got depth extension to it, so it's one of
those typical assets that we are chasing down.
AH: It's only 13% that you've got - or that you are going to be buying of this company. What will give you the right to manage it?
MIKE PRINSLOO: Well, we've taken two stakes, we've bought a 14,9% in Diversified Mineral Resources as well, and Hargraves is out on a
Part A on DMR - and with the two stakes …
AH: Part A - what does that mean?
MIKE PRINSLOO: That Hargraves targeted DMR, and they've taken up an unconditional option to purchase all the shares.
AH: So you're buying your stake in two ways. If you put it together, what percentage would it be?
MIKE PRINSLOO: About 19%.
AH: And does that give you enough to be able to say, "We want to manage this company"?
MIKE PRINSLOO: Yes, that gives us management control and gives us the board seats that we require.
AH: Now you did try and go into Australia once before, a company called Emperor. I saw a lot of reports coming out of Australia - very
negative towards Durban Deep.
MIKE PRINSLOO: I think we took a few bloody noses along the way. I think it was our first foot into Australia, and where we went into it as a
friendly deal, it turned unfriendly and hostile from Emperor's side, and we took a lot of negative press. The Australians aren't very keen for
South Africans to come and invade their space but, more so, we went in with a paper bid, and I think they didn't find that keen, and this time
we've gone with cash, and it's been a very friendly process, and it's been a friendly deal.
AH: And so far, what has the reaction been from the Australian investors, because Hargraves is listed on the Australian Stock Exchange?
MIKE PRINSLOO: The feedback we've had today and most of the phone calls we've taken today have all been positive. It's been positive from
Durban Deep's perspective in that, yes, we're in, and we've secured an asset, and we've put our money where our mouth is. Our whole intent
for the last six months, and the strategy that we embarked on, was one to grow. And I think a lot of people thought, we'd gone a bit
amateurish at the start with the Emperor negative feedback that we got in the Australian press. I think now we've settled that. We've learnt,
and we'll learn further as we go along. If you don't try, you are not going to succeed.
AH: How much cash is involved here, Mike?
MIKE PRINSLOO: The exact transaction amount is within $100 000, but on the DMR stake, it's roughly AU$ 3,9 million, which is about - four
times that - R16 million..
AH: Any problems in getting the money out of South Africa?
MIKE PRINSLOO: No, we had prior Reserve Bank approval to transact the deal, and then the Hargraves stake will show up that amount -
about AU$ 3,9 million - which is another R15-16 million.
AH: There's about R30 million. Not huge, but the management of the mine, I guess, is where the real key lies.
MIKE PRINSLOO: Well, it also gives us an opportunity to get in there, and show what we can bring to the Australian market, or specifically
to that asset, that gives us an opportunity to learn the market and how one operates in the Australian market - in the legal system and in the
other systems - and I think in the next three or four months we'll do a lot of learning and then we'll look at the next asset.
AH: We're talking to Mike Prinsloo, the managing director of Durban Roodepoort Deep. We've just been touching on what Durban Deep is
doing in Australia. Interesting developments there - but we are also going to be talking, in a little while, about the new mega-mine that has
been planned for Johannesburg, [which is] in progress. It's called The Argonaut Project. It really is a HUGE development. Mike will tell us all
about that. If you've got a question for him … Mike, let's take a call from Mick in Johannesburg.
MIKE: Very simple question here. With the gold price being depressed with the Bank sales, and the supposed world monetary fund sales, is
it not possible, maybe, to restrict supply from South Africa for maybe three months, in a similar way to what Opec has done with the oil?
Because Opec seems to have increased the price of oil by doing this - from about R12 to R18 dollars a barrel - very quickly?
MIKE PRINSLOO: Yes, I think there's definitely an opportunity for that, Mick. It just needs a co-ordinated approach from all the producers
and, towards the end of last year, there was an initiative that was led by Bobby Godsell from Anglogold to get all the big producers together
to actually look at ways of how one can control the gold price, rather than let the banks control the gold price.
AH: Well, at least, just to stop hedging or stop selling forward gold production, wouldn't that be a start? To actually not sell anything that you
produce, I guess, would not be that easy, you don't have the cash reserves to carry it for long, but this hedging story - that must affect you in
the long term?
MIKE PRINSLOO: No, definitely - that is one of the big reasons why the price stays depressed. As soon as the price spikes, then producers
would sell forward to gain that advantage, and I think that's because of the volatility we've seen in this consistent sort of depressed gold price
that has come from $420 down to $280, and now people are talking it down to $265 and $250, but sometime the shorts must turn, and the
risk must be that high to press it further down, and then it will turn around, and then all the reasons why they use gold as so negative now,
will just turn into positive, and rally it up and make a lot of money on the way up - just like they've made money on the way down.
AH: Let's hope that happens. It's well to remember that gold still accounts for 20% of our export earnings. Let's talk about the Johannesburg
project, the Argonaut Project. Tell us how this was born and what it is.
MIKE PRINSLOO: It's a very interesting project. It's really the depth extension of the old Crown and City Mines, that run across the central
Rand in Johannesburg, Durban Deep also has a depth extension, as well as ERPM, and Rand Mines - at the time when they investigated
that project, I think [it was] five or six times they looked at it - and every time it was priced it really made them not continue with the project.
When we went independent from Randgold we bought all the mineral rights from Randgold, and we chose the name the Argonaut Project for
it. It's really just the dept extension, and we started doing work, and recouping all the work from the Rand Mine stable and all the archives,
and we've put together a pre-feasibility document that really describes a project that is huge. It's got huge ounces in resource …
AH: You say "huge". What kind of numbers are involved?
MIKE PRINSLOO: Well, typically one would look at an Elandsrand mine as a biggish mine in South Africa, and a more modern one. It could
possibly be two Elandsrands or more.
AH: Number of ounces a year?
MIKE PRINSLOO: Well there are three paychute areas across the Central Rand - the main reef, and the two main reef leader paychutes.
You're talking anything from 15 million ounces, through to 48 million ounces.
AH: It's a massive project. How much will it cost to get it off the ground?
MIKE PRINSLOO: Our initial projections on capital estimates, about US$800 million, but that would obviously require a price to trigger a
project like this, but the big advantage of Argonaut is that you can do it in stages, and let the one main reef paychute fund the next one, and
then do the depth extension to that, and let that fund the next one - so it's not a total project in one slap. One can do it in phases, and that's
what makes it such an interesting project.
AH: Where in Johannesburg, exactly, is this mine?
MIKE PRINSLOO: It's basically just south of Johannesburg, on the ridge.
AH: Underneath Rosettenville?
MIKE PRINSLOO: Exactly, yes, and the old Crown and City Deep shafts …
AH: Near the Crown Mines golf course?
MIKE PRINSLOO: That's right, and the Crown gold plant, the City Deep gold plant, and the Knights gold plant - that's across that area, just
further down.
AH: When did they stop mining those old mines?
MIKE PRINSLOO: At different stages from … through 1939 through to '54 and even later, but really the guts of the old mines were mined out
in the sixties, seventies.
AH: When might you make a decision to actually go ahead and do that?
MIKE PRINSLOO: Well, we've done the pre-feasibility. We're spending money now on the 3-D seismic work that we've contracted Anglo
American Technical Services to do for us. We've also established drill sites, and we've gone out to tender for contractors to do the drilling - so
it's really all in place. We are basically waiting to see if there's any positive sentiment on the gold price, and then we'll trigger those two
stages, and get it to a bankable state. Once it's in a bankable state, I think, we have a project that a big partner might want to assist us to
exploit, and then we'd sell off part of that into the new company, and take on a partner.
AH: The gold price that would trigger it, Mike?
MIKE PRINSLOO: We've worked on a rand/kg price of about R70 000 a kilogram, which is not too far off. At today's exchange rate you're
talking $330, $340, but then a sustained $330 or $340.
AH: Well, exciting news indeed, if the gold price is to turn around and to start playing ball once again. Mike Prinsloo, managing director of
Durban Roodepoort Deep, enlightening us on the "supermine" for Johannesburg, or under Johannesburg - and earlier, as you heard, what
Durban Deep is doing in Australia. Thank you for your contribution to Business Today today.
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