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Western Areas lops 18% off South Deep reserve
Brendan Ryan
Posted: Sun, 28 Aug 2005
[miningmx.com] -- THE size of the South Deep gold reserve could be chopped by 18% to 45 million ounces from the previous estimate of 55,8 million ounces.
The news was contained in the Western Areas’ June quarterly results which were released late on Friday night without the expected accompanying statements concerning the fate of CEO Brett Kebble and the details of the R730m rights offer.
These have been held up because of questions raised by the JSE, according to Western Areas spokesman Brian Gibson.
The quarterly report also reveals that Canadian heavyweight Placer Dome is now playing “hardball” with Western Areas over US$13m owed on South Deep which is a 50/50 JV between Placer Dome and Western Areas.
Significance of the announcement is that it must reduce the value of South Deep which is the only real asset owned by JCI/Western Areas.
The reason investors like
Allan Gray – which holds 25% of Western Areas and JCI – have been prepared to back Brett Kebble until now is because of the size and quality of the South Deep reserve which is one of the largest gold reserves left in the world.
South Deep is still a great gold ore body but its nominal value has just taken a knock of around US$4,3bn (around R28bn) assuming a gold price of US$430/oz.
That’s bad news for JCI/Western Areas but also for Placer Dome because South Deep accounts for nearly half its total gold reserves. At the end of 2004, Placer Dome stated its total gold reserves at 59,9 million ounces of which 27,8 million ounces were contained in South Deep.
That means its 5 million ounce share of the drop at South Deep could knock 8% off Placer Dome’s total reserve base.
Placer Dome put the 55,8 million ounce estimate on South Deep’s reserves in July last year following work done by consultants SRK but SRK qualified its estimate saying additional geological
modelling at South Deep was advisable.
Placer Dome said that work would be carried out and it expected to make a further announcement by the end of 2005.
According to the Western Areas announcement; “an updated mineral reserve statement, which incorporates recent seismic data and certain revised modifying factors, is due for release at the end of 2005.
“Preliminary indications are that the mineral reserves will be of the order of 45 million ounces, representing a reduction of approximately 10 million ounces on the previous published estimate. The latter reduction in mineral reserves is predominantly a function of the redesign of the regional pillars in the Phase 1 and Phase 2 areas, but primarily Phase 2.”
The statement adds; “The reduction in mineral reserves is partly mitigated in the case of Western Areas by the interest it has in the contiguous mineral rights and their associated mineral resources. This issue is a complex one which involves the
distinction between reserves and resources. Further particulars will be provided in the rights offer document.”
Western Areas also advised that Placer Dome has initiated “a formal process” to get Western Areas to meet its funding obligations to South Deep.
Western Areas is US$13m in arrears which Kebble has refused to pay linking this to alleged mismanagement at South Deep by Placer Dome. Since July last year Kebble has been threatening to claim damages from Placer Dome running into hundreds of millions of rands.
Western Areas chairman Mafika Mkwanazi now says “a letter was sent to Placer Dome at the beginning of June 2005 requesting information that would enable Western Areas to submit a quantification of its claim for poor planning, execution of work and other issues during the period that Placer Dome was responsible for management of the mine. “
Mkwanazi adds; “Placer Dome has not responded to the request. The Western Areas board will escalate
the matter.”
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