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» Gold Fields shows hand on South Deep
» Gold Fields ups Western Areas stake
» Harmony reconsiders splitting firm
» Aflease role in Western Areas' future
» Harmony talks up Western Areas deal
» It's a material incident - Gill Marcus, Western Areas chairperson
» Western Areas gold outlook slashed
» Western Areas in financial meltdown


Market forgives Western Areas failure
Allan Seccombe
Posted: Thu, 03 Aug 2006

[miningmx.com] -- WESTERN Areas posted a disastrous set of financial results for the June quarter after it sold gold at less than half the spot price.

Horrifyingly, the price achieved was $285/oz against an average spot price for the quarter of $605/oz. Cash costs spiralled to $602/oz from $422 the previous quarter.

But analysts and shareholders passed off the performance as temporary when set against the long life of the orebody.

"This is an orebody that has 40 to 50 years of life so it doesn't make sense to worry about one or two quarters," said Ian Cockerill, CEO of Gold Fields which has an 18.9% stake in Western Areas. Cockerill was speaking on the Moneyweb Power Hour, a week nightly radio programme broadcast in Johannesburg.

Western Areas owns half of South Deep, a 30 million oz in reserves mine on the west rand of Johannesburg, which suffered an underground accident on May 4 seriously denting gold output.

In fact, Western Areas total attributable gold output fell 35% to 36,578 oz, 92% of which went into servicing its hedge book. In the previous quarter, 62% of gold production went into servicing the hedge book that runs until 2014.

And yet the stock hardly moved on the JSE suggesting that investors have already priced in the bad news and are holding the stock for putative corporate action. Western Areas gained 1.1% to close at R44.50 on August 3, a 4.5% improvement since the beginning of the month.

"It's not like we didn't know," said Cockerill. "We are not looking at this as a short-term investment," he said.
results like these don’t come as much of a surprise
Western Areas was already feeling the weight of the hedge book before the May 2006 incident when a skip and rope detached from the winder during routine shaft maintenance and fell down the shaft, damaging infrastructure.

“When you lose a skip down a shaft, results like these don’t come as much of a surprise,” said gold analyst David Davis with Credit Suisse Securities.

Other analysts said the quarterly results didn’t really matter because Western Areas was likely to be involved in a takeover in the future. Harmony has a 29.2% stake in the company and has proposed reversing its quality assets into it.

Earlier in the day, Cockerill said South Deep represented an opportunity to replace ounces at Driefontein, a 1 million oz/year producer.

“Gold Fields will have to replace ounces at a mine like Driefontein. South Deep could play a role in such a replacement,” he said. Asked by an analyst to clarify whether South Deep could provide replacement ounces for Driefontein, Cockerill said: “Absolutely yes.”

Western Areas has diverted ore hauling to an older shaft some distance away, which put upward pressure on costs.

A smaller tonnage was hauled out of the mine, which was added to low-grade surface material to put through the mill. Nearly a third of the mill’s throughput in the quarter came from surface material.

The repaired Main Shaft will be commissioned early in 2007, building up to 200,000 tonnes/month by June. The cost is estimated at R70m.
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The limits of using the older South Shaft Complex will be felt at the plant, where underground ore feed will average 85,000 tons/month and 30,000 tons/month of low-grade surface material.

The head grade of underground ore in the June quarter averaged 7.69 grams/ton, up slightly from 7.53 g/t in the previous quarter. This was offset, however, by the surface material, which brought the overall grade down to 5.61 g/t.

Trying to find a positive in the down time of the Main Shaft, the company is training 800 of its employees to increase their skills.

Western Areas has a short-term loan with Standard Bank and Investec Bank for R450m that will see it through to early 2007 in its operational and hedging obligations.