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Western Areas gold outlook slashed Posted: Wed, 10 May 2006 [miningmx.com] -- Damage to the main shaft at Western Areas’ joint venture South Deep mine will knock an estimated 50% out of planned capacity for about a year, financially crippling the JSE-listed gold miner. Last Friday (5 May) a loaded skip and 6.7km of rope detached from a winder and fell 1,600 metres from its mid-shaft position during a routine rope maintenance exercise. “Initial estimates are that the Main Shaft will be out of commission for 9-12 months,” Western Areas said on Wednesday in a note accompanying its first quarter results. “Production, albeit at a reduced capacity estimated at approximately 50% of the planned production, is continuing through the South Shaft,” it said, adding an insurance claim will be submitted to insurers. Western Areas shares fell nine percent to R39.50 on the JSE. South Deep would have been cash positive net of capital expenditure if the plan for the mine had continued and the gold price remained strong. This would have been important for Western Areas, which shares the mine with Barrick Gold. Before the incident, in which nobody was injured, Western Areas’ chairwoman Gill Marcus told Miningmx her company had a capital expenditure programme of R700m over the next three years at the mine and planned to issue shares to raise the money. Western Areas will issue 10% of the current issued share capital, comprising 154 million shares, for cash. Shareholders voted on the issue at an annual general meeting on Wednesday. It planned capital expenditure of R207m this year. At the end of the March quarter it had cash and cash equivalents of R133m. “The net cash from South Deep, due to the higher gold price, would also have partially funded the derivative obligations and would have given the board sufficient time to raise the required capital to fund the future long-term capital and derivative obligations,” it said. "Although the full extent of the impact on production cannot be established at this point in time, it should nevertheless be recognised that the reduced production rate arising from this incident will have a negative effect on the Company"s cash resources in the short term. "It is now critical that the Company raise additional capital to ensure that sufficient cash resources are available to meet its cash requirements," it said. Western Areas attributable gold output from South Deep, its only operating asset, was 15% lower from the previous quarter at 53,973 oz. Total production costs rose sharply to R104,161 per kg from R95,097 before. Despite the higher average gold price for the quarter of R111,196/kg, Western Areas achieved just R79,862 because of its burdensome hedgebook.
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