Professional Documents
Culture Documents
RBC visited several South African PGM and gold projects around the Indaba
Conference. A common theme we discerned was a need to raise funds for
projects; on pages 3-4, we summarise our estimates of each company's
requirements.
Event
Companies Visited
Aquarius Platinum .....................................................................................................................................................................................5
Eastern Platinum ........................................................................................................................................................................................7
Jubilee Platinum.......................................................................................................................................................................................12
Platinum Australia ...................................................................................................................................................................................16
Platmin.....................................................................................................................................................................................................18
Sylvania Resources ..................................................................................................................................................................................19
Central Rand Gold ...................................................................................................................................................................................21
DRDGOLD..............................................................................................................................................................................................24
Gold Fields...............................................................................................................................................................................................27
Gold One International ............................................................................................................................................................................29
Great Basin Gold .....................................................................................................................................................................................33
Pan African Resources.............................................................................................................................................................................35
Jubilee Platinum
(Jubilee)
Platmin
Funding Not Required - We do not currently anticipate Aquarius requiring any external funding unless a
significant acquisition is made.
Internal Funding Possible - Crocette, Spitzkop and Mareesburg could be funded from internal cash flows,
according to our model.
Favourable Environment Could Tempt Capital Raising - However, given the rise in Eastplats share price over
recent months, we believe Eastplats could well be tempted to come to the market to speed up Spitzkop and/or
Mareesburg. Should this be the case, we would expect a capital raise in excess of US$100 million.
Enlarged Scope Requires Funding - Jubilee currently has around R240 million in the bank, mostly raised in
2009 for a simpler Middelburg PGM toll smelter project. The projects scope has grown, however, and this
means that additional funds will be required.
Partner Could Contribute - We understand that Jubilee will either get its Middelburg partner (unspecified
major, which will be providing most or all of the feed) to contribute in return for some sort of interest or stake.
Market Alternative The alternative would be to come to the markets to raise the requisite funds, probably
around mid CY10. In our view, Jubilee would look to raise at least R400 million (equity and/or debt), but we
see a figure of R500 million or more as more likely, as Jubilee has other projects to fund.
More Furnaces Further Out Jubilee will have to fund 70% of the capex for the SmeltCo joint venture with
Sylvania. For the moment, we estimate that Jubilees share of plant establishment costs (including one
furnace) would be in the region of US$70 million, and that this funding would have to be raised around mid
CY11.
At the end of Q2-FY10, PLA had just under A$23 million of cash and was projecting an A$19.2 million cash balance for
Q3-FY10.
Small Raise Possible In CY10 - If all goes to plan at Kalplats, assuming Smokey Hills is sufficiently cash-positive
and assuming equity funding of 40% or less, PLA should not need to come to the market in CY10. However,
prudence would suggest a small capital raise (say US$5-10 million). A larger raise would likely be required if the
project scope is significantly enlarged.
Rooderand Raising in CY11, Possibly Even CY10 - PLA could come to the market to raise capital for the
construction of Rooderand in late FY11, or if there is sufficient investor appetite, possibly even in CY10. We
believe the project capex is likely to be around R0.8-1.0 billion.
PLA Might Raise 100% Of Rooderand Funding - PLA is earning into 65% on feasibility study completion, but
could earn a further 5% by arranging financing for the projects completion, which we interpret as meaning that
PLA will raise and lend the black empowerment partner 30% of the project capex.
Platmin is planning to raise capital, but we believe for acquisitions rather than for the Pilanesberg operation.
Sedibelo & Magazynskraal - We believe that that the Pallinghurst Consortium is trying to acquire Sedibelo, and
there is also a Bankable Feasibility Study (BFS) underway at Magazynskraal (jointly-owned by the Pallinghurst
Consortium and the Bakgatla tribe).
Vending Into Platmin Makes Sense - In our view, it would make sense for Platmin to raise funds externally to
purchase these projects from the Pallinghurst Consortium: there should be operational synergies, plus the
issue of equity to external parties would improve the liquidity of Platmins shares.
Many Variables To Funding Requirements Platmin already has three significant non-Pilanesberg projects on
backburner: Grootboom (which we believe is essentially ready to go), Mphahlele and Loskop. Platmin could
choose to develop them, or to dispose of one or more to reduce its funding requirements.
The amount(s) to be raised would therefore likely to be dependent on a range of variables: the purchase prices, scale
of project(s), whether Platmin decides to build a smelter at Pilanesberg and the proportions of debt and equity to be
issued. We expect that the total cost to Platmin will be at least several billion rand.
Sylvania Resources
(Sylvania)
Grass Valley: A Lot Depends On Timeline - Assuming construction of Grass Valley commences on schedule (H1FY13), we anticipate Sylvania having to raise funds in FY12. Exactly how much will depend on how much cash
the SDO operations amass during that time, and the pace of 100 ktpm plant and 10 MW DC furnace rollouts.
Disregarding any cash on the balance sheet, we estimate that Sylvania would need to raise around R300-400
million to get the project started, including one 100 ktpm plant we assume for now that the remaining plants
can be funded out of cash flow. Sylvania would also have to fund 30% of the cost of the DC furnaces; for the
moment, we estimate that Sylvanias share of plant establishment costs (including one furnace) would be in the
region of US$30 million.
Everest North: Internal Funding Could Be Used For Grass Valley? We currently estimate capex at just under
R400 million, funded entirely from SDO cash flows, with construction starting in late FY11.
Clearly, if Everest North doesnt go ahead, or is delayed significantly, external funding requirements for Grass Valley
could be a lot lower. Of course, if both projects go ahead, Sylvania could opt to fund Grass Valley (mostly, on our
numbers) internally and Everest North externally.
DRDGOLD (DRD)
Fund Raising After CPR - A fund raising will then follow, currently envisaged at CRG to be in the vicinity of
US$25-35 million. This includes US$10 million for a pump station but does NOT include an optical sorter or CIL
upgrade.
Larger Raise Possible - Given trial stoping results to date, should trial processing prove successful, we would
be unsurprised to see the fund-raising figure rise to around US$45-50 million.
DRD is investigating potential synergies between Ergo and DRDs Crown operations. A R290 million pipeline linking the
two is being mooted; total project capex would be R345 million.
Aurora Sales Could Raise Significant Cash - This project was one of the motivating factors behind the sales of
60% of Blyvoor to Aurora for R296 million, and of the ERPM plant for R20 million.
DRD To Study Aurora Tailings - Aurora has paid R5 million towards the ERPM plant purchase and agreed to
allow DRD to conduct a feasibility study on Auroras Grootvlei and Marievale tailings dams near Ergo.
Cash Or Option? - DRD may choose to receive the outstanding R15 million in cash; alternatively, DRD could take
an exclusive 10-year option to retreat those tailings dams, which would require capex spend of R260 million.
Option Exercise Likely To Trigger Fund Raising - Should DRD exercise the Aurora tailings option, we believe
that DRD debt or equity financing will be required, given the companys December 2009 cash balance of R162
million.
Ergo Phase 2 Would Also Require External Funding - We believe that capex for Ergos Phase 2, which is at
feasibility study stage, would be in the order of several billion rand. Therefore, DRD would almost certainly
have to raise equity and/or debt financing should this project be given the go-ahead.
Gold Fields
Funding Not Required - We do not currently anticipate Gold Fields requiring any external funding unless the
company makes a significant acquisition.
Standby Debt Facility Being Arranged For Convertibles - Gold Ones convertible bondholders have a put
option exercisable on December 12th, 2010. Although GDO was already cash-flow positive in December 2009
(including capital - but not bond interest), we do not expect GDO to have generated sufficient cash in the
unlikely event that all (or a substantial portion) of bondholders elect to exercise. Prudently, GDO is looking to
arrange a debt facility to cover any funding requirements that should arise as a result, which could be up to
around US$60-64 million (depending on bond repurchases in Q1-CY10).
Ventersburg The Bankable Feasibility Study is currently expected in 2011. Ventersburg capex should cost
around US$200-300 million, some of which we expect will be funded by Gold Fields. We estimate that Gold One
would still have to raise around US$100-150 million (or more, depending on Area 1s proportional contribution
to the overall project) in 2011. This amount could be reduced somewhat via the spin-out or sale of Vlakfontein.
Funding Not Required - Great Basin should not require additional funds unless there are significant project
delays or the gold price falls significantly.
Pan African currently has around 4.2 million of cash on its balance sheet.
Barberton Cash Cow Barberton is essentially a self-funding cash cow that throws of excess cash (after capex)
of around 4-5 million annually, depending on the gold price.
Phoenix Could Be Funded Internally - The latest capex estimate is R100 million, or 8.5 million at R11.8/.
Additionally, Pan African has agreed with International Ferro Metals (IFM) a fixed price of R80 million (6.8
million) for the Phoenix plant site and acquisition of IFMs 25% Net Profit Interest in the PGMs from tailings
arising from IFMs Lesedi property. Depending on timing, it may be possible for Phoenix to be funded out of
Barbertons excess cash flows, but a small capital raise (5-10 million) in H2-CY10 seems to us more likely.
Manica Too Assuming heap leaching testwork is successful and sufficient oxide resources can be obtained, a
feasibility study could be conducted in FY11. If construction commences in FY12 or later, Pan Africans share of
capex could potentially be funded by cash flows from Barberton and Phoenix.
A potential complicating factor is the level of dividends Pan African decides to pay (if any) dividends on the scale of
that paid in FY09 (2.8 million) would wipe out most of Barbertons free cash flow
Aquarius Platinum
Kroondal PGM Mine
RBC visited the Bambanani Shaft (formerly 3 Shaft) at Aquarius Platinums (LSE & ASX: AQP; Aquarius) Kroondal mine on
Thursday, February 4th.
About Kroondal
Kroondal, located around 120 km northwest of Johannesburg, is a 50:50 joint venture with Anglo Platinum. It comprises:
Two blocks of ground, Kroondal and Townlands, both immediately up-dip of Anglo Platinums Rustenburg.
Four decline sections: Kopaneng (previously: Central), Simunye (East), Bambanani (No. 3) on the Kroondal block, and K5 at
Townlands. Plans for a second shaft at Townlands, K6, were put on ice during the global downturn.
Two concentrator plants (K1 and K2) with a combined capacity of 570 ktpm; there is a life-of-mine offtake with Anglo Platinum.
In FY09, Kroondal produced 422 koz PGMs, of which 211 koz was attributable to Aquarius representing just under half of
Aquarius overall attributable production.
Mechanised Bulk Mining And DMS Processing - Keys To Kroondals Low Costs
Aquarius mines the UG2 reef at Kroondal Mine. On the property, the UG2 chromitite reef (Main Seam) is typically around 0.8m
thick and grades around 6 g/t (comparable to Anglo Platinums neighbouring Rustenburg property). Above, there is a chromitite
Leader Seam (or Triplets, around 30cm-thick, grading about 3.3 g/t) separated from the Main Seam by an essentially-barren waste
pyroxenite parting approximately 60cm thick.
On many similar properties, only the UG2 reef is mined, usually by conventional mining methods. This results in significant
dilution and high production costs. For example, at Rustenburg, the UG2 reef is typically 0.6m-0.8m thick, whereas the mining cut
is around 0.95m-1.05m, resulting in a reserve grade of around 3.6 g/t.
At Kroondal, the Leader Seam, Parting and Main Seam are all taken as a single package (1.8m average stoping width), via
mechanised bord-and-pillar mining (facilitated by a relatively-gentle dip of around 9). This results in a lower mining cost, but also
a lower head grade of around 2.7 g/t - which would misleadingly tend to suggest high processing costs.
In actuality, the Run-of-Mine (ROM) material is scalped underground (removing waste rock representing around 8% of mass)
before being conveyed to a surface Dense Media Separator (DMS) plant, which removes still further waste (around 30%-35% of
mass). Consequently, very little waste actually goes into the plant, resulting in low plant operating costs.
Kroondals costs are also helped by the fact that mining is shallow, to a maximum depth of around 400m-450m at present.
Downdip Expansion Potential Across The Borders
Intriguingly, all three recently-closed Rustenburg shafts are adjacent to Aquarius mining areas. Notably, Bleskop is downdip of
Kroondal and Brakspruit downdip of Marikana.
We believe there is potential for Aquarius to extend decline-based mechanised mining at Kroondal beyond 2018 by crossing the
mines boundary into unmined ground on the western portion of Anglo Platinums Bleskop shaft.
The deeper depth is likely to raise costs somewhat, but we believe Aquarius methodology should allow the company to maintain
costs far below that which was incurred by Anglo Platinum.
Exhibit 1: Bord-and-Pillar Mining at Kroondal. Note the width of the reef, parting and stopes (high enough to stand comfortably in!),
the cleaning by LHD and the initial underground scalping of waste via grizzly.
Eastern Platinum
Crocodile River Mine
RBC visited Eastern Platinums (TSX & AIM: ELR; Eastplats) Crocodile River Mine (CRM) on Tuesday, January 26th.
CRM Targeting 175 ktpm
Eastplats is aiming to maintain steady-state primary mine production at 175 ktpm (2010) at CRM, from H2-2012:
Zandfontein Section Zandfontein is already producing at 100 ktpm (120 koz 6E). The previous plan was to ramp up to 120
ktpm. However, such a rate could not be maintained consistently, which would have adverse plant processing effects; Eastplats has
calculated that it would be better to maintain a consistent 100 ktpm production rate.
Exhibit 2: Conventional Breast Mining At CRM. We travelled down Zandfonteins 450m-deep vertical shaft to visit a panel on 2-level
7-West. Working with stope widths of <1.5m, at dips of 17-18 is not easy, and we believe that the workforce is doing commendably
well.
Maroelabult Production is expected to be 35-40 ktpm (40 koz) for 2-3 years, before falling away (Maroelabult has around 10
years life-of-mine left at the moment).
Crocette Eastplats had just started sinking two declines at Crocette when the global downturn hit. Work was halted and the
declines put on care-and-maintenance. In January 2010, Eastplats decided to restart development, and the declines are currently
being dewatered. Development is scheduled to start in June 2010, with first development ore expected in November 2010. A 40
ktpm steady-state rate (50 koz) should be achieved in H2-2012. The capex for Crocettes development is expected to be around
R50 million and R150 million in 2010 and 2011, respectively.
Kareespruit Kareespruit could potentially double CRMs production to 400 koz 6E annually. However, it would require sinking
of deep shafts and new plant. Consequently, Eastplats views this as a long-term project, ranking lowest in priority of the various
projects in CRMs pipeline. There is potential synergy with Zandfontein, which itself will require a deep vertical shaft by 2018
(around 1.2 km deep) - a shared shaft system should save significant capex. Importantly, the shafts would be shallower than many
comparable Majors shafts (often 1.6-2 km deep).
Exhibit 3: Crocette Requires Dewatering; Should Be Completed In H1-2010.
In the short term, CRM production should be supplemented by dump retreatment - potentially 10-15 kg (4-6 koz) per year. CRM has
approximately 3 Mt of tailings, which at 80-100 ktpm should last for 3-4 years. The dump operations are making use of what had
originally been the CRM plants tertiary circuit.
already hit reef; the UG2 decline was three months away from reef.
Chrome Production
The spiral sections in CRMs plant are allowing concentrate chrome levels to be maintained at 1.8%-2%, resulting in relatively-low
chrome penalties.
The chrome spirals do not merely minimize chrome penalties they also generate handsome revenues and profits. CRM is currently
producing UG2 chromite concentrate at a rate of around 320 ktpa at the moment; revenues are around R450/t, versus production costs
of around R25-30/t(!).
We expect that Spitzkop-Kennedys Vale and Mareesburg should boast similar levels of chromite production and profitability.
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Exhibit 7: Chrome Spirals at CRM. Unusually, CRM has spirals incorporated into both primary and secondary circuits.
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Jubilee Platinum
Mintek 3.2 MV PGM Smelter
RBC visited Jubilee Platinums (AIM: JLP; Jubilee) 3.2 MW smelter at Mintek on Tuesday, February 2nd. Appropriately enough,
the weather was roasting hot...
What Is ConRoast?
The ConRoast process comprises the sulphur-free reductive smelting of PGMs into an iron-alloy collector in a DC Arc Furnace.
Conventional PGM smelters use AC technology (not DC) and smelt into a sulphide matte (as opposed to an iron alloy).
ConRoast can be thought of as comprising three discrete stages: roasting, smelting and refining. In our view, the first two can be
regarded as proven. Refining options are currently still being studied and finalised, but this final step is not absolutely crucial (see
below).
Exhibit 8: Top Row - Furnace Tapping; Bottom Row - Alloy Ingots, Crushed and Granulated.
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4) Material Containment - In AC furnaces, highly-corrosive superheated matte can burn through furnace walls, leading to smelter
runouts - in DC furnaces, there is no such danger as there is no need to subject material to temperatures that result in
superheating.
In overcoming these problems, ConRoast allows difficult high-chrome materials to be processed, e.g. UG2 concentrates and
smelter reverts. Additionally, PGM recoveries into UG2 concentrate can be increased as there would no longer be a need to try
to minimise concentrate chrome content (efforts at which tend to reduce PGM recoveries).
Juniors - Most Junior projects are based on UG2 reef and/or low-grade resources which yield low-grade PGM concentrates (the
processing of which would displace higher-grade concentrates at Majors furnaces, an opportunity cost). Given Majors smelting
issues, finding a home for concentrates from such sources could be a problem in future. Alternatively, or in addition, Majors could
impose more onerous tolling terms, and/or more punitive penalties where concentrate specifications are breached.
1) Installation of DC technology at Majors operations would circumvent the chrome issue (see above). As mentioned above,
PGM recoveries into UG2 concentrate can be increased as there would no longer be a need to try to minimise concentrate
chrome content. However, where chrome spirals have been installed, this could mean little or no UG2 chromite concentrate
produced. Clearly, companies would have to balance higher PGM recoveries against reduced chromite sales revenues;
hypothetically, if chromite prices rose enough, it might be better to sell more chromite and less PGMs.
2) The establishment of alternative junior toll smelters (e.g., Jubilee) promises an alternative home for low-grade concentrates.
That said, capacity could be limited - this would be dependent on how many furnaces Jubilee builds, or licences others to
build. Limiting DC capacity (own or out-licensed) could actually be advantageous to Jubilee in potentially allowing Jubilee to
extract higher tolling or price participation terms (e.g., Jubilee could well pay Junior companies <80% of the contained metal
value in their products if the Junior companies are desperate). Consequently, ConRoast is by no means a complete panacea for
Junior PGM companies.
Upstream And Downstream Choices
Roasting Not Always Necessary - Roasting is not required if the furnace feed has little or no sulphide content (e.g., PCM
concentrates derived from retreated chrome tails). Consequently, if it is known that a furnaces feed will comprise such materials,
build capex savings can be achieved by deferring or not installing the roaster.
Downstream Choices Aplenty - The other key choices are to do with route and degree of refinement (if any) of the smelter
product. A DC smelter can opt to sell untreated PGM-containing iron alloy, or (semi-)refined products. Generally, the more refined
the final products, the better their payability; also, the more potential customers for a particular product type, the better terms are
likely to be.
Two Main Downstream Routes - There are two main refining routes: pyrometallurgical or hydrometallurgical. The former is
simpler, using existing converter technology; the resulting semi-refined product can be further processed in existing base metal
refineries. The latter is more complicated, requires more development work (there are two major sub-routes) and more expensive
but could potentially yield more and cleaner products, attract a more diverse range of clients and boast better payability.
We stress that the fact that development work is still on-going on the hydrometallurgical route is not the hurdle or problem that some
might suggest. As pointed out above, the absolute worst case scenario is that smelter matte is sold on to refiners at a steeper discount.
More likely, converting will be used in the short-term, and converter matte is in fact an attractive product for existing PGM refineries.
In short, whether roasting is installed is dependent on what materials a DC furnace is intended to treat. Meanwhile, refining choices
will depend on progress in developing hydrometallurgical refining options and on customer demand for (semi-)refined products.
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Platinum Australia
Rooderand PGM Project
RBC visited Platinum Australias (ASX: PLA; AIM: PLAA) Rooderand project on Saturday, January 30th.
PLA Earning Into 70%
In May 2009, PLA announced a deal with Bakgatla-related BEE company Atla Mining Resources (Atla) on Portion 2 of farm
Rooderand 46JQ (Rooderand). Rooderand is located just to the north of the Pilanesberg Alkaline Complex, immediately adjacent to
Platmins Tuschenkomst open-pit.
PLA earned an initial 30% interest by paying R13.5 million (A$2 million) after a New Order prospecting right was issued to Atla.
Another 35% will be earned by completing a Definitive Feasibility Study (DFS; funded by PLA).
A further 5% can be earned by PLAs arranging financing project for project construction.
Exhibit 9: Note Heavy Faulting At Tuschenkomst (Yellow Triangle) and Platmins Portion of Rooderand (Bottom); Pink Oblong
Roughly Denotes PLAs Portion 2
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Platmin
Pilanesberg Platinum Mine
A View From The Fence
Platmin (TSX & AIM: PPN) is not entertaining visitors at the moment, focusing on righting issues plaguing the ramp-up at
Pilanesberg.
There has been much market chatter about the exact nature of the underlying problem(s), but most appear to concern the DMS.
One line of speculation has been that new CEO Tom Dale has commanded the halting of bulk (low-grade) siliceous mining,
focusing on high-grade material and cutting out the DMS.
On Saturday Jan 30th, we passed the Pilanesberg plant. The Merensky, UG2 and DMS plants all appeared to be operating normally,
so the above contention would appear to be incorrect, in our view.
Exhibit 10: DMS Clearly Operating
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Sylvania Resources
Samancor Dump Operations
RBC visited the Millsell and Mooinooi plants of Sylvania Resources (AIM: SLV; Sylvania) Samancor Dump Operations (SDO)
on Monday, February 1st.
Background
Sylvanias 74%-owned SDO recovers PGMs from chrome tailings and current arisings from Samancor Chromes mines on the
Bushveld Complexs Eastern and Western Limbs.
Essentially, Sylvania produces (at least a minimum amount of) chromite concentrates for Samancor at cost, and takes the PGMs as
payment.
SDO started with two plants, Millsell and Steelpoort, which came into production in FY08. These were followed by two further
plants in FY09, Lannex and Mooinooi. Two more are in the works: Doornbosch and Tweefontein.
Mooinooi Ramping Up
Mooinooi, located at Samancors Western Chrome Mines some 30 km east of Rustenburg, was commissioned in December 2009. It is
currently in ramp-up, with design production to be reached in late Q3-FY10.
Feed sources potentially include the Mooinooi, Elandsdrift and Buffelsfontein tailings dams, and current arisings from Samancors
Mooinooi plant. Mooinooi will also receive ROM feed from the Buffelsfontein Mine and Mooinooi shaft.
The 37 ktpm plant receives feed at an average feed grade of 1.2 g/t 4E, and planned production is currently around 6.8 koz 4E @
<US$350/oz 4E.
Sylvania is planning to install bead mills in the near future. It appears column cells will be unnecessary, due to the coarser nature of
the chrome here Sylvania expects to be able to produce concentrates grading >160 g/t with <3% chrome.
The Mooinooi dump rights were actually purchased from Lonmin in a recently-concluded transaction. Consequently, Lonmin has first
right of refusal on PGM concentrates from Mooinooi. However, given Lonmins problems with its No.1 furnace and Merensky
shortage, we believe Lonmin is unlikely to take up its rights. Indeed, we understand that Mooinoois concentrates are currently being
toll-treated by Anglo Platinum.
Exhibit 11: Mooinooi Plant.
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Trial Stoping Just Started But Mining Already No Longer The Key Concern
CRG has started trial mining in Trial Stoping Block #1 (Block 1), a longhole stope intended to test the new geotechnical
support system (Cemented Aggregate Fill, or CAF); longhole stoping in Trial Stoping Block #2 (Block 2) intended to test
the mining itself is to be conducted in February 2010 (10 days from today), although the strike gullies have been prepared.
One panel in Block 1 has already been blasted and filled with CAF. Although still early days, Snowden (and CRG) was already
happy that this demonstrated that longhole stoping and the CAF system generally works.
Furthermore, although the panel was taken in a single blast, Snowden is of the opinion that two-blast resue mining will not be any
more problematic.
Strike gully development also demonstrated CRGs ability to develop through areas where the Main Reef Leader (MRL) hanging
wall had come down.
We caution that work still needs to be done on the geotechnical side (mainly to demonstrate that CAF pillars will survive blasting
of panels in between) and on stoping parameters such as dilution and ore modifying factors.
Trial mining should be completed by the end of Q1-CY10.
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DRDGOLD
ErgoGold
RBC visited DRDGOLDs (JSE: DRD) ErgoGold (Ergo) operations on Thursday, January 28th.
Ergo was founded to retreat up to 1.7 billion tonnes of surface tailings near Benoni, Springs and Brakpan (all located to the east of
Johannesburg), primarily to recover gold.
Over 2008-2009, DRD acquired Mintails 50% in Ergos Phases 1 and 2 for R277 million, giving DRD full ownership of Ergos
Brakpan plant, doubling available capacity and providing DRD full exposure to Phase 2s uranium and sulphuric acid potential.
Exhibit 14: Ergos Brakpan A Giant-Scale Gold Plant.
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Ramping Up Phase 1
Steady-state production from the gold-only Phase 1 is to be 1.2 Mtpm at an average head-grade of 0.32 g/t and at a cost of R30/tonne.
In Q2-FY10, gold production rose >80% to 9.45 koz, reflecting a 34% throughput build-up to 3.124 Mt (or 1.04 Mtpm) and a 29%
improvement in average yield to 0.09 g/t.
This resulted in cash costs falling 33% to R223,224/kg.
Exhibit 15: Mining The Elsburg Tailings Complex.
Benoni Dump Continues To Be Troublesome, But Not For Too Much Longer
Volumes from the L29 (Benoni) dump have been satisfactory, but recoveries (as low as 0.02 g/t at the start!) have not.
The Benoni dump has previously been re-mined and as a result contains an abnormally high amount of fine preg-robbing carbon.
In August 2009, production commenced from the Elsburg Tailings Complex (ETC) via the second 0.6 Mtpm feeder line. This
has been helping increase head-grade, recoveries and therefore gold production - DRD is essentially diluting Benoni material with
ETC material; a pilot plant was constructed to help determine the optimal blend.
In short, DRD has not been able to truly resolve the L29 problem, and head-grade and recoveries are likely to hit specifications
once Benonis retreatment is completed (around 11-12 months production left).
That said, DRD is continuing to investigate technologies with which to better re-retreat dumps such as Benoni. In addition to
improving current recoveries and profitability, such technologies could potentially unlock vast resources in the form of dumps that
DRD has retreated.
Exhibit 16: Ergo Pilot Plant.
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Gold Fields
South Deep Gold Mine
Gold Fields (JSE: GFI) South Deep is a developing, trackless mechanised mine situated some 45 km southwest of Johannesburg. It
has two shaft systems (the Twin shaft and South shaft complexes) and a single plant. The mine has been subdivided into above
current infrastructure (to 110 level; 2,888m) and below current infrastructure (to 135 level; 3,250m).
South Deep exploits the Ventersdorp Contact Reef (VCR) and the Upper Elsburg reef package (which subcrops against the VCR) at
depths of 1,575m-3,500m.
The mine is unusual amongst South Africas deep-level gold mines in being a fully-mechanised operation.
The Main Shaft currently has a 175 ktpm capacity; completion of the Vent Shaft will add 195 ktpm, for a total of 370 ktpm (330
ktpm reef).
GFI is intending that South Deep will be producing at 330 ktpm, or 750-800 koz annually, by mid-FY15.
RBC visited the 95 level (around 2,600m below surface) in the 3-West corridor at South Deep mine on Friday, February 5th. The scale
of mining and equipment was hugely impressive, particularly given the operating depths and despite that the visit (disappointingly)
did not include any long-hole stopes.
Exhibit 17: South Deeps Twin Shaft Complex. The Main Shaft boasts the worlds longest single-drop (2,995m); the winder is the
worlds largest.
Vast Reserves
South Deep has reserves of 29.5 Moz @ 6.1 g/t and resources of 63.8 Moz @ 7.2 g/t (excluding 14.6 Moz in the Uncle Harrys ground).
Life-of-Mine (LOM) is estimated at 43 years; i.e., the current reserves are scheduled to deplete around 2052.
The Upper Elsburg package comprises 93% of the reserves versus the VCRs 7%.
Mining Methods To Suit Orebody Characteristics
The Upper Elsburg package is a wedge that thickens towards the east (up to 130m). In the west, the entire package is being mined
(including internal waste partings). Towards the east, mining of selected reefs will become possible. Accordingly, a variety of mining
methods will be used as appropriate:
Longhole Stoping Cheapest mining method, applied to thickest portions of the orebody (>10 m cut, mainly to the east). Currently
responsible for 20% of tonnage; to reach 60% eventually.
Drift-and-Fill Thinner portions in the west.
Modified Drift-and-Bench Intermediate orebody thickness (5m-10m mining cut).
The Upper Elsburgs sit at around 2,500m-3,500m. Mining such wide cuts at such depths requires that in-situ rock stresses be reduced.
This is achieved by De-stress Mining, which involves mining and backfilling a 2m slice through the Elsburg package. A de-stressed
window of 50m-60 m above and below is created in which rock pressures are reduced from 80 MPa to 30-40 MPa (equivalent to
stresses at 1200m).
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Exhibit 19: Conventional Plant. Modder Easts plant essentially comprises a semi-autogenous mill, CIL circuit, and electrowinning
and smelting facilities. The oven shown below is in the plants laboratories, and is not the smelter.
Debt Facility Being Arranged - GDOs convertible bondholders have a put option exercisable on December 12th, 2010. Although
GDO was already cash-flow positive in December 2009 (including capital - but not bond interest), we do not expect GDO to have
generated sufficient cash in the unlikely event that all (or a substantial portion) of bondholders elect to exercise. Prudently, GDO is
looking to arrange a debt facility to cover any funding requirements that should arise as a result.
Favourable Outlook
Things appear to be going swimmingly for GDO at the moment.
Modder East is ramping up production at a time of high gold prices, and possesses potential production and life-of-mine upside.
A second mine is being lined up in the form of Ventersdorp; there are a number of other projects at various stages in the pipeline.
On the whole, these projects are relatively-shallow and relatively-low technical-risk.
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The plant site has been prepared; plant construction proper should commence in February. Mill refurbishment was reportedly 88%
complete.
The permanent winder house is already being built and should be completed in February 2010; commissioning of the refurbished
winders should occur in April 2010.
The waste rock dump should be completed in May 2009; GBG is already (temporarily) loading a portion with 60 kt of low-grade
development ore (ready for plant commissioning).
Power Coming
Great Basin currently has 2 MVA of grid power; it also has 12 MVA of generators on-site. GBG expects to receive 25 MVA of grid
power from Q2-CY10, and 52 MVA from Q3-CY10 (60 MVA capacity).
Company Expectations
First gold pour at Burnstone is scheduled for July 2010. This may or may not prove over-optimistic while we view GBGs
proposed timeline as tight-but-not-unachievable, we note that projects such as this have a tendency to slip by up to a few months.
Capex will be $118 million for 2010, and $52 million in 2011.
LOM average cash cost is expected to be $392/oz, with power comprising $25/oz or 7%. Should there be three years of 35% tariff
increases, the proportion of costs attributable to power could rise to 11%.
Lower Opex If Longhole Stoping Successfully Adopted
There is potential for still lower unit cash costs (15% lower; from lower dilution and processing efficiencies) if longhole stoping is
adopted successfully.
Capex would be higher, however, as would wages (fewer workers, but they would be more highly-skilled and highly-paid).
Consequently, total cost/tonne would be similar for both methods.
However, longhole stoping has another key benefit: vastly-improved safety (and therefore lower likelihood of economicallydamaging stoppages).
Exhibit 21: Winder House and Plant Site Being Prepared. Burnstones plant will be a conventional one, essentially comprising semiautogenous and ball mills, CIL circuit, and electrowinning and smelting facilities.
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36
Run-of-Mine (ROM) ore is treated at concentrators located at the respective sections; flotation concentrates are further treated at the
BIOX plant. Gravity and BIOX concentrates are smelted, and are sent for refining at the Rand Refinery.
Recovery at the flotation plants is around 92%-95%; the BIOX plant at Fairview recovers around 97% from the flotation concentrate
fed it. Overall recovery from all operations is around 91%-92%.
Exhibit 23: Ore Is Transported From Fairviews Shaft Head To The Plant By Cable Car.
Companies Mentioned
Aquarius Platinum (ASX & LSE: AQP - 3.57; Outperform, Above Average Risk)
Eastern Platinum (TSX & AIM: ELR - C$1.35; Outperform, Average Risk)
Jubilee Platinum (AIM: JLP - 0.34; Outperform, Speculative Risk)
Platinum Australia (ASX: PLA; AIM: PLAA - A$1.04; Outperform, Above Average Risk)
Platmin (TSX & AIM: PPN C$1.33; Outperform, Above Average Risk)
Sylvania Resources (AIM: SLV - 0.53; Sector Perform, Above Average Risk)
Central Rand Gold (LSE: CRND - 0.15; Outperform, Speculative Risk)
DRDGOLD (JSE: DRD R4.90; Sector Perform, Average Risk)
Gold Fields (JSE: GFI R93.85; Sector Perform, Average Risk)
Gold One International (JSE & ASX: GDO R2.09; Outperform, Above Average Risk)
Great Basin Gold (TSX: GBG C$1.76; Outperform, Average Risk)
Pan African Resources (AIM: PAF - 0.06; Outperform, Speculative Risk)
Impala Platinum (JSE: IMP; R196.20; Sector Perform, Above Average Risk)
Lonmin (LSE: LMI; 18.71; Outperform, Average Risk)
Nkwe Platinum (ASX: NKP; A$0.50; Sector Perform, Speculative Risk)
Northam Platinum (JSE: NHM; R49.00; Outperform, Above Average Risk)
Priced as of market close February 17, 2010 ET.
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Required Disclosures
Non-U.S. Analyst Disclosure
Yuen Low, Leon Esterhuizen, and Arnold van Graan (i) are not registered/qualified as research analysts with the NYSE and/or FINRA
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Distribution of Ratings
RBC Capital Markets, Equity Research
Investment Banking
Serv./Past 12 Mos.
Rating
BUY[TP/O]
HOLD[SP]
SELL[U]
Count
Percent
Count
Percent
590
533
67
49.60
44.80
5.60
180
123
9
30.51
23.08
13.43
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