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Western Areas to raise R1.2bn
David McKay
Posted: Wed, 23 Mar 2005
[miningmx.com] -- WESTERN Areas is to restructure its hedge book and issue convertible preference shares in an effort to inject R1.2bn into South Deep, a gold mine it shares with Placer Dome. The preference shares and restructured hedge book will be used partly to finance an acceleration of gold production from South Deep, a mine with a 700,000 oz gold/year capacity.
Brett Kebble, Western Areas CEO, said in the company’s fourth quarter review, that convertible preference shares would be raised against an R800m unrealised gain. The gain was incurred from 2001 after the company hedged gold when the South African rand was trading at R11.05 to the dollar. As a result, the rand gold price would have been much higher than its current level of R84,000/kg.
“This will lock in the unrealised foreign exchange gain of some R800m achieved on the dollar liability over the last three years and
ensure a robust financial position for the company,” Kebble said.
“It was anticipated that some R1.2bn would be raised to ensure that a funding buffer existed for the ramp-up of production at South Deep,” he said. “An additional aim of the funding structure would be to increase the liquidity of the Western Areas share,” Kebble said.
An analyst said Western Areas’ counterparties had probably agreed to repay the R800m loss they had suffered by buying the convertible preference shares.
Expansion plans under consideration at South Deep were an increase in mill capacity to 330,000 from 220,000 tons/month, and accelerated development on three levels of the mine. “Should the joint venture board approve an expansion plan later in the year, a ramp-up in production to more than 700,000 oz/year by the end of the decade is possible,” said Kebble. South Deep is managed jointly by the Western Areas-Placer Dome Joint Venture.
Some three million ounces of gold
contained in the older sections of the South Deep mine could also be brought to account sooner, Kebble said.
Plans to create South Deep’s first empowerment partner were also unveiled.
Contiguous mineral rights could be incorporated into an “extended mining authorisation”, Kebble said. Some 17 million ounces of inferred resources had been discovered on certain mineral rights in which Western Areas, and its associates, had an interest. “An interest in these rights was being transferred to a black economic empowerment entity, Orlyfunt, Kebble said.
“This will facilitate increased BEE participation in South Deep and also prevent the possible sterilisation of the defined resources, which otherwise cannot be exploited economically,” Kebble said.
Orlyfunt was created in December after Randgold & Exploration and JCI sold a chunk of assets, valued at R1.4bn, into the entity in return for a 40% holding. Orlyfunt might be listed on the JSE Securities
Exchange, the companies said at the time.
The possibility of exploiting areas peripheral to South Deep, regardless of farm fences, would also be a continued focus for the year ahead, Western Areas said.
Creating empowerment at South Deep has been a controversial topic, particularly for Placer Dome. It argued recently that it would like acknowledgment for the risk it took in investing in post-Apartheid South Africa. "We're not expecting absolution, but we would like some acknowledgment of the chance we took on South Africa," Joe Danni, Placer Dome spokesman, said recently.
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