Gordon Miller, president & CEO, First Uranium
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» Power crisis strikes Simmers at a critical time
» Simmers to revisit restructure in March
» Simmers shows gold growth potential

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Simmers plans gold expansions
Brendan Ryan
Posted: Thu, 17 Apr 2008

[miningmx.com] -- Simmer & Jack Mines (Simmers) is planning capital expenditure totalling more than R860m on its gold operations over the next six years.

The money will be spread over its TGME operations near Pilgrim’s Rest in Mpumalanga, the Buffelsfontein mine near Stilfontein and exploration work on the deep-level Strathmore shaft project at Buffelsfontein.

Speaking on a conference call from Toronto, CEO Gordon Miller also said Simmers had shelved plans to restructure the group and separate its gold interests from its controlling 65% stake in First Uranium.

Miller had previously set March as the target date for a decision on this. Reason for the desire to restructure Simmers was Miller’s belief that the market was not putting a proper value on Simmers’ gold operations.

Instead, the company was being valued by investors purely as a uranium play based on the worth of Toronto-listed First Uranium.

In November, Miller had complained about the market putting a R377m negative value on Simmers’ gold assets.

Miller said today that; “the relative valuation performance of our gold business has improved significantly while our primary focus in recent months has been on the impact of the Eskom power situation on our operations.

“We continue to look at ways of unlocking value but we are not planning to restructure the group.”

The main impact of the Eskom power cuts is at the Buffelsfontein (Buffels) mine where a revised technical report has dropped the projected net present value (NPV) of Buffels to R2,24bn from R2,37bn previously.

Reason for the change is that higher electricity rates will add an extra R1bn to expected costs so diluting the benefits of the higher gold price and expected additional gold production.

That’s assuming Buffels can get the power it needs from Eskom. Miller said the revised technical report indicated that Buffels needs 69MW of power.

Eskom at this stage is prepared to supply only 49,5MW which is 90% of its base load calculation for the mine of 55MW.

Miller commented; “this is based on the mine’s power usage through the period October 2006 to September 2007 when the mine was still undergoing rehabilitation work and therefore not operating at peak production levels.

“ We are confident we have a compelling case to allow Eskom to grant us the power requested for this operation.”

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Miller added that Simmers had applied for the extra power to be allocated to Buffels from the 275MW extra quota Eskom said it had available for contracted mining clients.

Breaking the capex down shows Simmers will spend R156m on a “mega float” plant at Buffels to treat surface waste rock which will add 35,000oz of gold annually to Buffels production profile for the next seven years.

Some R40m will be spend on a 3-D seismic survey at the Strathmore shaft to be followed by R217m spent on a drilling programme over the next six years.

The aim of this work is to convert 35m “conceptual” ounces of gold in the project into “compliant resources.” According to independent consultants TWP this project has the potential to generate a NPV of R2,74bn.

At TGME, the plan is to spend R218m on building a BIOX treatment plant which will allow an expansion of the underground mining operations to peak at 82,000oz annually in 2015 in a project with an NPV of R340m.

Another R232m will spent over the next five years on the surface operations to develop a reserve of 540,000oz of gold which will be treated by four heap leach pads.

According to Miller the TGME operations are “largely unaffected” by the Eskom power shortage. The underground Frankfort mine is already running on diesel generators.

Plans are to install a 3MW generator at Pilgrim’s Rest and a smaller 500KvA generator for the first heap leach pad in case the current load shedding situation worsens.

The writer owns shares in Simmers.