Gold Fields' West Africa bonanza

Allan Seccombe | Thu, 20 May 2010 16:44

[miningmx.com] -- The flow of positive news for Gold Fields out of West Africa must hearten shareholders but at the same time it puts pressure on underperforming regions like South Africa to improve or break up the assets to unlock value.

Gold Fields has two mines in Ghana, Tarkwa and Damang, and a promising exploration play in Mali, which management reckons is more than likely to become a sizeable mine within the next five years and ensure the company reaches its target of one million ounces of annual gold output from the region.

Not that it’s all easy in Ghana. There are difficulties. One of these is power costs. The price of electricity could rise by 50% or even double from $0.10 per kilowatt hour, the management of the Damang mine said during an analyst and media visit to the operations this week.

The prospect of a rising power charge was immediately battered down by Peter Turner, executive vice president in West Africa, who said there were no indications from the Ghanaian government that tariffs would change in the next six months.

At Damang, which is a series of open pit mines strung like beads on a long string of mineralisation, there appears to be an ongoing tussle with artisanal miners on Gold Fields’ concessions. One of the geologists joked that they made a useful exploration tool, with their uncanny ability to seek out high-grade ore deposits.

But on the whole, the news is good out of West Africa. Very good, in fact. Damang has been given a new lease on what was a very short remaining life, with a switch to mining and processing fresh hard rock instead of relying heavily on soft oxidised material.

This switch, which entailed the installation of a $12m crushing plant, means that management is looking at an operation with a life running to 2025 and beyond. The mine was seen winding down around 2018 originally.

There is talk now of creating a super pit, linking a string of pits into a three kilometre long mine, folding in intervening blocks of ground and extending other pits that were mined out as drilling programmes and the renewed focus on fresh rock changed the way the ore body is viewed.

The hard-rock crushing plant, with its bank of three crushers, will raise the percentage of higher-grade fresh-rock material fed into the mills to 95% from 63%, bringing an extra 40,000 oz a year. Damang will be a 240,000 oz/year mine. The kicker will be seen in the September quarter as the mill feed is switched over.

The increase in gold output comes from the grade rising to 1.6 grams/tonne (g/t) from 1.3 g/t as the proportion of higher-grade fresh rock is increased. The volumes through the mills will remain flat.

SILVER BULLET

“Running on oxidised ore was pushing us down a road we didn’t want to go down. This is the silver bullet for us,” Turner said of the switch to fresh-rock mining and processing.

The tweaking of the crusher plant was still underway during the visit, but the indications are the semi-autogenous grinding (SAG) mill and ball mill “enjoy this product”, engineers said.

Tarkwa, which produces more gold than Driefontein, the biggest Gold Fields mine in South Africa, is looking at increased output at between 180,000 and 190,000 oz per quarter. It produced 172,000 in the March quarter.

Tarkwa is a mix of a milling and carbon-in-leach process as well as heap leach pads to treat low-grade ore. Gold Fields is testing a technology called high pressure roller grinding (HPGR0 to fracture hard rocks to better expose the trapped gold to the cyanide solution dripped onto the heaps of ore.

The HPGR technology could be applied to retreating the old South heap leach pads, which have an estimated 400,000 oz of gold that will be extracted towards the end of Tarkwa’s life in 2022.

There is little prospect Tarkwa following the ore body underground. The argument is that not enough material could be generated from shafts to feed the 12 million tonnes per month CIL plant and the 10 million tonnes needed each year for the heap leach pads. Tarkwa is a high-volume, low-grade mine and this effectively rules out an underground option.

There is a natural extension to Tarkwa, but it is owned by AngloGold Ashanti’s Iduapriem mine next door. Talks have been going on for some years about how to unlock that patch of ground but there is no immediate prospect of resolution. Gold Fields is keeping a close eye on what other junior exploration groups are doing in the area. It has a hungry plant and it would be a logical player in any consolidation activity.

The third bit of good news comes from Mali where Gold Fields is preparing a scoping study into the Yanfolila exploration prospect for the end of this year.

Turner sounded an extremely upbeat note on the prospect, saying work could start on building a mine there within three years if studies proved the area to be as prospective as initial indications show.

VERY EXCITING PROSPECTS

Gold Fields bought out its partner Glencar in November 2009 for 28 million pounds, acquiring a number of exploration projects and some 1.25 million ounces of inferred and indicated resources. It is snapping up concessions and is looking to tie up some juniors operating in the area in joint ventures.

Early work has shown shallow deposits that can be dug out without the expense of explosives and drilling. There are no “nasties” that will make extracting gold from the ore difficult, Turner said. There is a good road and a nearby hydro power plant adding to the attractiveness of the prospect.

“I’m very excited about these prospects,” he said, adding the project could be built up incrementally, first using low-cost heap leach pads to generate good margins and then install a processing plant.

This is the kind of news to make shareholders look hard at the effect of the deep-level, expensive, difficult South African mines on the group. The three established mines have underperformed in recent quarters and the fourth, South Deep, the future of Gold Fields in South Africa, is in ramp up.

“Indeed, it is our clear view that if management cannot deliver the potential that the published reserves for Dries and Kloof promise (and that management keeps highlighting), the group should be broken up into smaller more manageable entities,” JP Morgan Cazenove analyst Allan Cooke said in a note after the March quarter results.

“If these assets continue to act as a sheet anchor, and Gold Fields remains structured as it is, we fear shareholders may grow old waiting for the value in this group to be released, and believe the onus is on management to demonstrate that it can turn around Dries and Kloof.”

CEO Nick Holland has made it crystal clear that this is the make-or-break year for South Africa’s gold industry in which productivity has to be improved or shafts will be shut and thousands of jobs lost.

Gold Fields is in talks with unions to add a sixth working day to the week, something Holland has said will make all the difference to productivity levels at Gold Fields’ mines. This combined with the drive for safer mining, which will mean fewer shifts lost to safety-related shutdowns, are critical for Gold Fields.

The unions are demanding higher wages for the additional day worked and it is likely that Gold Fields will accede, with the additional throughput offsetting a higher labour bill.

Gold Fields has also engaged the Department of Mineral Resources about easing up on the severity of mine shut downs when there is a fatal accident. The word is the DMR has agreed to temporarily suspend work in localised area of the incident rather than shutting the entire shaft. Miners have long argued that approach was counterproductive, making work areas more dangerous because of reduced maintenance.

* Allan was hosted by Gold Fields in Ghana.