Neal Froneman, CEO Aflease Gold
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» Afgold to decide on Sub-Nigel soon
» Froneman's track record a decider
» Mvelaphanda buys into Aflease Gold
» Aflease plots 500,000 oz gold strategy
» Aflease wraps up funding of flagship gold project
» AfGold bid "completely off the table" for Great Basin


Afgold to miss first year gold target
Allan Seccombe
Posted: Tue, 24 Jun 2008

[miningmx.com] -- AFLEASE Gold will substantially undershoot its 100,000 oz first-year target at its Modder East project, but CEO Neal Froneman urges a look at the bigger picture ahead of plans to raise a further $50m over three years.

Froneman also played down a 20% escalation in capital costs at Modder East to R814m, pointing out that in the current input costs inflation environment Afgold was doing relatively well compared to other companies developing projects where the over runs have been of a larger magnitude.

“We’ve had delays that we are addressing and they are factors beyond our control, but it’s the name of the game in mining,” Froneman told Miningmx.
the Don King of mining juniors
“If you look at it in one-year intervals it is a big difference, but if you look at the project overall, the increased costs, the changes in the gold price and exchange rate, this is still an excellent project,” he said.

The net present value of Modder East at R1.4bn is higher than Afgold’s market capitalisation of R1.25bn at Tuesday’s prices.

Afgold has risen close to 15% since Wednesday’s close of R2.10.

“Aflease has got the master promoter at the helm. Froneman is the Don King of mining juniors,” said Paul Theron of Vestact.

Froneman said Afgold was applying the lessons learnt at Uranium One, where there had been a case of over promising and under delivering. A much more conservative approach was being practiced at Afgold and the latest cost and production forecasts would be met if there were no geological or market surprises.

Modder’s first-year production forecast for 2009 fell by 80% to 20,000 oz because of the large amount of water encountered while putting in a decline and return airway. This meant slower development to seal tunnels.

Second-year output will rise to 140,000 oz and then hit a steady state level of 180,000 oz from 2011.

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Afgold will raise $50m over the next three years to complete the funding of Modder East, for which it has already raised R600m, and to bring Sub-Nigel 1 into production as well as fund its exploration programme at Ventersburg in South Africa and Etendeka in Namibia.

Froneman brushed aside concerns there could be an impediment to raising funds from his track record as CEO at Uranium One, where he was largely seen as having driven the share price up hard by bullish comments on the company’s prospects, particularly those in South Africa, which fell well short of projections.

“The market gives you absolutely no benefit for setting tough targets. The market is only concerned if you under- or over-deliver, which is something we’ve factored into today’s announcement,” Froneman said.

“We have put in place targets that we know we’ll over deliver on,” he said. “We’ve independent opinions on timing and so on and our forecasts are a lot more conservative than opinions.”

Afgold is going ahead with the R29m phase one Sub-Nigel mine plan, which will begin production at the end of the year, building a stockpile of ore that will be fed into the Modder East processing plant, due to be completed in April 2009.

A second phase at Sub-Nigel entails the building of a smallish processing plant at a cost of some R50m, but this falls outside the $50m Afgold plans to raise.

Froneman declined to be drawn too much on how and when the capital will be raised, but he said the company was looking closely at the Uranium One model, which entailed a reverse listing onto the Toronto bourse.

“It’s all part of the strategy. To attain the appropriate premium in our share price we need to be a dual-listed company and that would open doors to other capital markets,” he said. The strategy would be clear over the next six months.