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A junior mining company with exploration assets aspires to one thing: to become a producer as quickly as possible. South African gold company Wits Gold intends to do just that with its DBM project and is working to achieve production and growth quickly, writes Laura Cornish.

Like most juniors, regardless of commodity focus, taking an asset from exploration through to production is always the primary priority. Ensuring its Free State-based DBM project becomes operational as quickly as possible is undoubtedly Wits Gold’s priority, but is just one of a few the company is working on to change from exploration status to production.

The three-tiered approach

  1. Exploration: commercialise the exploration base through asset sale or joint venture partnerships to advance projects up the value curve.
  2. Project development: focus on shallow projects (less than 1 000 m depths) and establish strategic partnerships for deeper projects (more than 1 000 m depths).
  3. Acquisitions: focus on gold mines with a turnaround potential; industry consolidation will provide further opportunities.
Exploration and the development of DBM

“The combination of our assets positions us as the world’s fifth largest gold resource holder, which in total equates to 157.2 Moz of gold and 271 Mlb of uranium oxide, in what is still considered the premier gold location in South Africa,” outlines Wits Gold’s CEO, Philip Kotze. The company has 8.5 Moz of probable gold reserves defined within these resources.

Wits Gold’s four assets – DBM, Bloemhoek, Robijn and Beisa – are in the heart of South Africa’s gold mining territory and are surrounded by numerous operating mines, including Harmony’s Joel, Bambanani and Unisel mines, as well as Gold Fields‘ spin-off Sibanye Gold’s Beatrix mine. “The synergistic opportunities for us in the near future will be huge,” Kotze states.

DBM

DBM is Wits Gold’s most advanced project and is progressing well towards construction start-up, planned for next year. It comprises a triangular block measuring some 22 km², located between the main Welkom goldfield to the north, and the Beatrix and Joel gold mines to the south. The project area contains four gold-bearing conglomerates. These comprise the Beatrix, Kalkoenkrans, B and Leader Reefs, all of which occur at the relatively shallow depths of between 480 and 1 250 m below surface –and all well understood as a result of previous mining within the region.

Following the completion of the prefeasibility study (PFS) in July 2012, international consultants Royal HaskoningDHV (RHDHV) (formerly Turgis Mining Consultants) and MDM Engineering (MDM) were appointed to complete the final feasibility study for DBM. RHDHV is responsible for the detailed mine and associated infrastructure designs, while MDM will focus on the metallurgical plant and related design aspects. The detailed study is expected to be completed during the third quarter of 2013.

DBM will be a shallow underground mine comprising a vertical twin shaft system to 660 m – “extremely shallow in South African gold mining terms” – with average gold production expected to be 200 000 ozpa over an 18-year life of mine (LOM). Production is expected to peak at 246 777 oz at 5.5 g/t during year nine and first gold production is expected 47 months after shaft sinking commences. The PFS estimates production cash costs of US$628/oz (R5 526.34/oz) with peak capital funding of R2.37 billion.

The final feasibility study will refine certain aspects identified in the PFS, aiming to improve mining efficiencies by introducing safer, semi-mechanised mining equipment and down-dip mining methodologies. The PFS indicates that the semi-mechanised option will be the most cost-effective mining method for DBM.

The project has a total indicated resource of 7.5 Moz, which includes an indicated resource of 5 Moz at an average grade of 5.8 g/t from a high-grade, shallow zone that includes 3.1 Moz in total reserves to a depth of 1000 m below surface.

“If our expectations go according to plan, we will commence with shaft sinking and underground development in the first quarter of 2014 and the construction of the metallurgical plant two years later. We want to deliver first gold in 2018.” The company has already applied for the necessary mining right, which it is hopeful of being granted before middle of 2013.

Bloemhoek

“The Bloemhoek area constitutes what we believe to be a significant continuation of Beatrix mine’s reefs, indicating significant synergy and collaboration potential. This is a long LOM project containing the same reefs as its adjacent neighbours, and at similar depths and grades.”

The mine was declared economically viable in October 2009 following the completion of a PFS. It will be a ‘medium depth’ operation, of between 1 300 and 2 400 m. Wits Gold acquired additional properties in December 2011, which extends the southern high-grade resource channel at the Bloemhoek project.

Key statistics:

Reserve: 31.6 Mt at 5.34 g/t (5.4 Moz)

Total resource: 63.1 Mt at 6.9 g/t (14 Moz)

Average production: 224 000 ozpa

LOM: 23 years

Peak funding: R4.7 billion

LOM capex: R9.9 billion

Average cash costs: US$675/oz

Mine establishment period: five years plus a two-year ramp-up

An acquisition

It is no secret that Wits Gold is on the acquisition trail and the unsuccessful completion of purchasing Evander from Harmony Gold has not been a deterrent. “The market does not ascribe full value to our large resource base and we remain dependent on capital raising exercises from our shareholders for cash flow. A producing mine can assist us in funding our exploration pipeline, and as a producer, our shares will be rerated and increase in price accordingly.”

“We believe there are numerous acquisition opportunities in the market and right now we are looking at Great Basin Gold’s Burnstone operation, which is currently on care and maintenance,” explains Kotze.

Controversy regarding the reasons for Burnstone’s failure continues to circulate in the market – and its use of mechanised mining is at the forefront. Kotze, however, says the mine is aligned with Wits Gold’s strategy – owning and developing shallow mines in South Africa. “We understand the mine and we understand mechanised mining, and we believe that no company will be able to operate this mine as successfully as we will.” Kotze served on the board of Great Basin Gold for a short period of time and therefore has good insight into the property.

The acquisition of Burnstone would immediately change Wits Gold’s status – from explorer to producer – while raising its overall gold ounce targets. “We have good management capacity with a proven track record and have access to funding (US$100 million) to ramp the mine up to full production. However, we will not overpay for the asset, and have entered the bidding process set up by the owners of Burnstone. Our bid, based on a detailed due diligence currently in progress, will be based on getting the best returns for our shareholders.”

Burnstone (figures previously published by Great Basin Gold)

  • shallow, semi-mechanised mine
  • reefs start at 358 m below surface
  • proven and probable reserves – 6.4 Moz
  • measured and indicated resources – 12.2 Moz
  • average annual gold production of 160 000 oz at cash costs of US$650 over 25 years
  • 80% of capital spent to date – production ramp-up imminent
  • all mining licences secured
  • 100% ownership by Great Basin Gold at present
Unbundling – it’s a reality

Gold Fields has taken the step towards unbundling its South African assets from its international assets and the other gold majors are expected to follow suit, based on comments by international institutional investors. This means that the cash produced locally will have to be re-invested in local operations, and in so doing, extending their life, instead of being used to fund off-shore growth.

“It is only a matter of time before all the majors sell off their non-core assets. This will lead to substantial restructuring where remaining farm boundaries will be removed to take advantage of local infrastructure,” Kotze explains.

“This means the revival of single operations that are smaller, but more efficient and profitable without significant overhead costs. The result? A new listed mid-tier gold sector with vast investor opportunity – and Wits Gold is poised to be an active participant.”

At the opposite end of the scale, Wits Gold could sell certain of its exploration assets to the majors who may be looking to extend their mine’s lifespans, as the company’s project areas are strategically located adjacent to operating mines.

At the end of the day

“In the long term, we want to be a mid-cap producer.  The successful acquisition of Burnstone could be the start of this process for us. Unlike other juniors and developers, we have a multi-tiered approach to our growth plan and, as far as I am concerned, we are covering all areas through our focused strategy.”

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