  | |
| |
 |
|
| ||
Western Areas to dip into open market Posted: Mon, 17 Jul 2006 [miningmx.com] -- DISASTER struck for Western Areas in May when a routine maintenance procedure at its South Deep mine – its only operating asset – went badly wrong. White-faced, management explained that gold production would be halved while rescue teams attempted to remove some 6km of steel rope that had been lodged at the foot of a 3km shaft. The accident had international repercussions, partly because Barrick Gold, the world’s largest gold producer, owns 50% of South Deep, as well as operational control. (The two share the mine in a joint venture company). Barrick had also just become the mine’s new owner by dint of its acquisition of compatriot Canadian producer, Placer Dome. But while Barrick Gold could easily withstand the shock of less production from South Deep – owing to its many other sources of gold production - Western Areas was solely dependent on South Deep. It seems, however, that Western Areas has avoided financial meltdown. It raised R450m in a bridging loan earlier this month, enough to help pay for the R80m to R90m repair cost. More importantly, the loan also pays for the purchase of some 11,000 oz of gold from the open market, enough metal to deliver into Western Areas hedge book. The hedge book exists because Western Areas’ previous management agreed to sell future gold output to raise finance. Such was the pressure for funds at the time, however, that the terms of the hedge heavily favour the counterparty. Normally, delivery into the hedge book would have been from production, but the accident put a stop to that. According to Georges Lequime, an analyst for RBC Capital Markets, Western Areas will now only derive 125,000 oz of attributable gold production from South Deep in 2006, against a hedging requirement of 136,000 oz of gold. “There was never any question of Western Areas not meeting its obligations,” said Western Areas chairperson, Gill Marcus, of delivering into the hedge book. Lequime is also positive on repair work at South Deep which be believes could be complete by January. If so, that would make South Deep fully operational about four months earlier than forecast in Marcus’ worst case scenario. “The rehabilitation work is progressing better than expected, and the Twin Shaft Complex could be recommissioned as early as January 2007,” said Lequime in a report dated July 10. Marcus acknowledged repair work to the shaft was “proceeding well”, but stopped short of naming a date. “Work is progressing well and is slightly ahead of expectations. Whether this translates into an early commissioning is another thing,” she says. “It would be optimistic to say January as we have to ensure the shaft is repaired to the correct safety and standards, as if it were new,” she says. Lequime also feels insurance will compensate the Western Areas-Barrick Gold joint venture for the accident even though critics thought gross negligence could be proved. Again, Marcus is more conservative saying the insurance assessment was not yet complete.Free news alerts: click here to subscribe
| |||||||
