[miningmx.com] — DO THOSE who run our gold mining companies ever stop and wonder whether it’s worth it? It certainly seems to be a particularly accident-prone industry.
The latest manifestation of this was the announcement on November 15 of the setbacks at Gold Fields’ much-vaunted Cerro Corona gold/copper project in Peru. These are twofold: a four-month delay in the start of production and, partly because of this, an $80m increase in capital cost to $421m, which includes a new additional contingency provision of $20m.
Treatment of ore, originally expected to start early in the new year, will now begin only around mid-April.
The delay is mainly due to slow progress on construction of the tailings management facility (TMF). This was caused by poor rock quality in the project quarries and inadequate material delivery rates, and underperformance in the past two months by contractors installing the concentrator.
A significant contribution
Proceedings at Thursday’s conference call were surprisingly and unusually brief, as many participants were keen to move on to the ensuing conference call at which Uranium One’s Neal Froneman went into that company’s latest travails.
But Gold Fields CEO Ian Cockerill did assure us that: “Cerro Corona remains a robust project and will make a significant contribution to the future of Gold Fields”. One has to hope that he’s right. At least production in the current financial year won’t be much affected, as little production was expected from Cerro Corona by financial year-end.
On the other hand, it follows from this that there will be an impact in FY2009, and a further, if minor, delay in reaching the group’s targeted international production.
On the positive side, Gold Fields confirmed that it’s still looking for cash costs to average $300-$330/oz for the first four years, after taking revenue from copper into account. So that still leaves a healthy profit margin.
In current volatile markets, one can’t read too much into short-term share price movements. But for what it’s worth, the Gold Fields share price was down about 1.7% on Friday, against a 1.5% dip in the gold share index. So the market doesn’t seem to be too spooked by the latest revelation.
Not that gloomy
While I’m on the topic of gold mining, I note that the results of Harmony’s initial study into Bernard Swanepoel’s much-hyped continuous operations, or Conops, aren’t as gloomy as acting CEO Graham Briggs’ recent remarks may have led us to believe.
According to the latest Harmony announcement, theoretically, Conops should result in increased production of 26% and a cost increase of 18%, leading to higher profitability.
The study found that productivity pre- and post-Conops improved by between 2% at Elandsrand and 18.5% at Evander 8. And all operations using Conops generally showed improved safety statistics.
Even though this is said to be a result of “different initiatives” implemented to improve safety throughout Harmony, that should reassure critics who argued that Conops is bound to lead to more accidents underground.
Harmony says it will look at Conops again in three months’ time and then phase it out on shafts where it’s not delivering on its objectives. So at least that’s a reprieve rather than what had sounded like preparation for summary execution, and supporters of Conops – which makes total business sense – have another chance to make it work.
