The acquisition of the Petrex mines in South Africa is expected to provide
On Feb 14, 2003, Bema completed its merger with EAGC Ventures to acquire the Petrex gold mines in East Rand, South Africa. Bema issued close to 63 million shares on a 1-for-1 basis to acquire all of the outstanding shares of EAGC Ventures in a deal valued at US$69 million. The company has assumed some 25.4 million EAGC share purchase warrants and exchanged 1.2 million stock options for a like number of Bema options. Currently Bema has 284 million shares outstanding.
The mining operations of Petrex comprise eight underground shafts and three open-pit operations in the East Rand Goldfield of the Witwatersrand basin, 40 km east of Johannesburg. The Petrex holdings cover 282 sq. km and include the former operations of Nigel Gold Mining, Consolidated Modderfontein Mines (Consmodder), and Grootvlei Proprietary Mines.
EAGC had purchased the Petrex gold mining assets from Petra Mining in October 2002 for US$67 million. To fund the acquisition, EAGC arranged a US$35-million loan facility and a US$5-million working capital facility from Standard Bank London. In addition, the company raised US$40 million through Griffiths McBurney & Partners, BMO Nesbitt Burns and Canaccord Capital by selling some 45 million units priced at C$1.40 apiece.
Petra Mining consolidated its position in the East Rand Goldfield by acquiring the Grootvlei and Consmodder operations from Harmony Gold Mining at the end of 1998.
For the year ended June 30, 2002, the Petrex operations produced 137,180 oz. gold from 1.5 million tonnes of ore at a total cash cost of US$218 per oz. Open-pit and surface clean-up operations accounted for 39,030 oz., or 28.5% of the total production.
To the end of July 1, 2002, the Petrex mining properties held 2.7 million oz. in a measured and indicated resource of 17.5 million tonnes grading 4.72 grams gold per tonne. Inferred resources account for another 757,000 oz. in 8.1 million tonnes grading 2.92 grams.
SRK Consulting completed a technical review of the Petrex assets in October 2002. The review estimated a proven and probable reserve base of 15.5 million tonnes grading 3.19 grams, equivalent to 1.6 million oz., based on a rand gold-price equivalent to US$393 per oz. Open-pit reserves hold 175,000 of the ounces in 1.9 million tonnes grading 2.9 grams. The underground mining operations of Petrex are contracted out to JIC Mining Services, whereas pit-mining operations are under contract with Trollope Mining Services.
The Grootvlei metallurgical processing complex is the only operating plant for the Petrex mining operations and is at the Grootvlei No. 4 shaft. Originally built in the 1930s, the processing plant was replaced in the 1970s. An additional circuit was commissioned by Petra Mining in the third quarter of 2002 in order to increase plant capacity by 38% to 185,000 tonnes per month.
The commissioning, however, did not go well. Operating results in the fourth quarter of 2002 revealed production problems with grinding, thickening, leach retention time, carbon handling, water balance, excessive spillage and other related issues.
A detailed review by Bema determined that significant design modifications were required to take the plant from daily levels of about 140,000 tonnes to the target rate of 185,000 tonnes, while improving gold recoveries to 90% from 82-85%.
Bema spent US$800,000 on mill modifications at Petrex during the first quarter. The company is making improvements that will change the basic flow sheet and take advantage of the existing equipment. Major mill upgrades include modification of the grinding circuit from single- to 2-stage grinding, the addition of an 18-metre-diameter thickener, the addition of seven carbon-in-leach (CIL) tanks and the conversion of the existing leach tanks to a 2-line parallel CIL system, replacement of the tailing line and pumps, four additional linear screens, a new carbon handling system, and instrumentation improvements.
These plant upgrades are proceeding on schedule and should be completed by the end of July. The plant is on-track to reach the increased capacity target of 185,000 tonnes per month by August 2003, says Bema President Clive Johnson.
Once these operational improvements are made, Bema expects that the Petrex mines will be capable of achieving 200,000 oz. per year over a 10-year mine plan at a projected operating cash cost of US$230 per oz., based on an exchange rate of 10 rand to one U.S. dollar.
During construction and ramp-up, cash costs are expected to be higher than they will be in the second half of 2003 and beyond. Total operating costs for 2003 are budgeted at US$250 per oz.
Stronger rand
From Feb. 14, 2003, until the end of the first quarter, the Petrex operations produced 18,083 oz. at a total cash cost of US$393 per oz. Cash costs would have been more or less in line with the company’s budget of US$304 per oz. if it were not for the strength of the Rand against the U.S. dollar. The Rand appreciation added US$76 to cash costs for the quarter.
“Obviously, a weaker Rand is better for us going forward, but we do have a lot of hedging in place to cover some of our Rand exposure,” says Marc Corra, vice-president of finance.
The company has hedged its exposure to the Rand by purchasing rand-denominated put options that cover about 70% of estimated production to the end of 2008. The put options give Petrex the right to sell gold at R3,000 per oz., which equates to US$400 per oz., based on an exchange rate of 7.5 rand to the U.S. dollar. If the exchange rate stays at 7.5-to-1, second-quarter cash costs are expected to come in at US$330-340 per oz., resulting in positive operating earnings.
The Petrex operations were reviewed by an independent consultant and found to be in compliance with all permits, licences and environmental regulations. Petrex’s water licence expired March 31, 2002, and a new licence with a 3-year term has been issued, but with the requirements that a 35-km-long water canal system and a 10-megalitre-per-day water treatment plant be constructed by September 2005. Installation of the canal system is part of a water management plan designed to prevent water ingress into the East Rand Basin.
Petrex had previously estimated the cost of the canal to be R39 million (US$4.5 million). The cost of the water treatment plant has been budgeted at R30 million (US$3.5 million). A feasibility study of the proposed canal, as well as other alternatives, was expected at around presstime.
Julietta
The 79%-owned Julietta mine, in Russia’s Far East region, completed its first full year of commercial production in 2002, producing 108,844 oz. gold and 1.4 million oz. silver at an operating cash cost of US$119 per oz. and a total cash cost of US$159 per oz.
The Julietta operation, which consists of a high-grade gold-silver mine underground and a conventional mill, is in the Omsukchansk district of the Magadan province. The mine is 250 km northeast of the port city of Magadan and 600 km south of
Bema acquired a 79% interest in Omsukchansk Mining and Geological Co. (OMGC), the Russian operating company that owns Julietta, by way of a merger with Arian Resources in June 1998. The remainder is held by Russian-based Nedra (11%) and Dukat Mining & Geologica (10%).
The Julietta deposit is a steeply dipping, low sulphidation, epithermal vein system hosted in Cretaceous felsic-to-mafic volcanics. It was discovered by the state-controlled Dukat Expedition in 1989 while following up on earlier anomalous regional stream-sediment samples. Initial exploration was state-funded and consisted of geological mapping, extensive trenching, diamond drilling and limited underground development. In 1995, the Julietta licence was
issued to OMGC, which was reorganized to include Arian Resources, a Canadian-listed junior mining company, as the controlling shareholder.
Bema spent US$51.4 million constructing the 400-tonne-per-day operation, based on an internally prepared, revised development plan that incorporated a feasibility-study reserve estimate commissioned by Arian in 1996. The study outlined proven and probable reserves containing 427,000 oz. gold and 7.1 million oz. silver to sustain an initial 4-year life. Bema was more than convinced it could add to the mine life by converting existing resources into reserves.
Development of the Julietta mine as an underground operation began in August 2000 with the collaring of the main portal. All veins are accessible from the main level through drifts, and spiral inclines and declines. The principal mining method is long-hole stoping; however, where conditions warrant, cut-and-fill methods are employed, and another, more selective method of stoping will be used where veins are particularly narrow.
The Julietta mill is a conventional crushing / grinding/flotation / concentrate / leach facility. It achieved commercial status in December 2001, and, since the second half of 2002, has been operating at an average rate of 400 tonnes per day.
Fourteen known mineralized quartz-carbonate veins or zones occur in a 1-by-2-km core area of Julietta. Individual veins have strike lengths of 250-500 metres, with widths ranging from 0.3 to 5 metres. The veins often branch and coalesce, and strike directions vary from northwest-southeast to east-west.
The main vein minerals are quartz and various carbonates, with minor amounts of hydromica and chlorite. The ore mineral assemblage comprises pyrite, chalcopyrite, galena, sphalerite, arsenopyrite, silver sulphides, various silver sulphosalts, and alloys of gold and silver.
Mine life extended
In 2002, Bema completed 123 surface and underground holes at Julietta, which amounted to 14,400 metres. Based on that drilling, the company has added two years of production to the current mine life. In early 2003, proven and probable ore reserves totalled 584,237 tonnes grading 21.6 grams gold and 308 grams silver, equivalent to 406,000 oz. gold and 5.8 million oz. silver.
“Our drilling to date has replaced the ounces that we have mined and added 200,000 oz. gold to our resource class,” says Thomas Garagan, vice-president of exploration.
Additional indicated resources of 332,437 tonnes grading 20.8 grams gold and 250 grams silver contain 222,000 oz. gold and 2.7 million oz. silver. Another 305,000 oz. gold and 3.6 million oz. silver are held in an inferred resource of 399,417 tonnes grading 23.7 grams gold and 278 grams silver.
Drilling is ongoing at Julietta, with at least 18,000 metres planned for the year.
For the first three months of 2003, Julietta produced 24,853 oz. at US$155 per oz. and at a total cash cost of US$197 per oz. Despite an 8% shortfall in budgeted production during the first quarter, the company is confident it will meet its targeted projection of 116,000 oz. and 1.5 million oz. silver for 2003. Cash costs for the year are projected at US$110 per oz., with total costs averaging US$155 per oz.
Elsewhere in Russia, Bema has mobilized four drill rigs and a 60-man camp to the Kupol project in Chukotka, 940 km northeast of Julietta and 200 km east of the city of Bilibino.
The highly anticipated program will involve roughly 26,000 metres of drilling. The property comprises an 8-sq.-km licence and hosts a large epithermal gold-silver vein system that extends 4 km along strike and is up to 30 metres wide.
The high-grade vein system was discovered by regional geochemistry in 1995 and has been explored by a Russian operator using geological mapping, geochemistry, trenching, geophysics and diamond drilling. Thirty-five ditches and trenches have systematically tested more than 3 km of strike length, returning several bonanza intercepts from an 1,800-metre section highlighted by 11.8 metres of 183 grams gold and 2,557 grams silver, and 9 metres of 155 grams gold and 549 grams silver.
The previous operator completed 2,500 metres of drilling in 24 holes testing a 400-metre-long section to a maximum depth of 140 metres. Better results included 41.3 metres of 51.6 grams gold and 531 grams silver, 29.2 metres of 16 grams gold and 340 grams silver, plus 6.6 metres of 85.3 grams gold and 704 grams silver. The Russians calculated a resource of 519,700 tonnes grading 34.4 grams gold and 278 grams silver for a total of 575,000 oz. gold and 4.7 million oz. silver.
Kupol deal
Under a definitive agreement with the government of Chukotka, Bema can acquire up to a 75% interest in the Kupol project by making certain expenditures and cash payments. The company has paid US$8 million cash to earn an initial 20% interest by spending US$5 million on exploration before the end of 2003. It is required to make two more cash payments totalling US$22.5 million and spend a further US$5 million on exploration before December 2004 to earn up to a 40% interest. By completing a bankable feasibility study and paying US$5 per oz. for 75% of the gold defined as proven and probable, Bema can earn the final 35%. Upon a decision to begin mine construction, Bema will pay a further US$5 per oz. for 75% of the ounces identified as ore.
Bema’s management believes the Kupol project has the potential to host a multi-million-ounce deposit.
This year, Bema has exploration drilling programs involving close to 150,000 metres of drilling planned for six properties, including Julietta, the Petrex mines and Refugio, as well as Divisadero, a joint venture with
The Monument Bay gold project is a joint venture with
At the Refugio mine in Chile, Kinross recently completed 56,000 metres of drilling. “The results were good, extending the mineralization well below the previously predicted pit boundaries,” says Johnson. Bema and Kinross each hold a half-interest in Refugio, which has been dormant since June 2001, owing to the mine’s poor cost performance in 2000, the low gold price at the time, and and the need for significant additional capital to build more leach pads. Residual leaching has continued, with 16,950 oz. coming off the pads in 2002. Refugio was designed to produce 200,000 oz. annually.
At the end of 2002, reserves were estimated to contain 1.4 million oz. in 47.1 million tonnes grading 0.93 gram, based on a gold price of US$300 per oz. When mining stopped in 2001, Refugio had about four years of reserves left.
New estimate
The recently completed program was designed to increase the existing resources at Verde and Pancho, and to upgrade existing inferred resource. According to Kinross President Robert Buchan, the program was hugely successful and will “substantially change the character of this operation.” The results will form the basis of an updated reserve estimate, which will be completed in the summer. Kinross is also conducting a study for the restart of operations.
“We have not seen the new reserve estimates, but we think in our view Kinross has potentially doubled the reserve at Verde,” says Johnson. “Pancho also had some good results. It’s at a stage behind Verde and has a significant resource. It looks like there is potential to turn that resource into reserves.”
Given the improved gold price and the increased mine life at Verde, Johnson anticipates Refugio could be returned to production in the latter half of 2004. He estimates doing so will require US$40-45 million in capital.
For the first quarter ended March 31, 2003, Bema posted a net loss o
f US$1.2 million (or 0.4 per share) on revenue of US$12.1 million, versus a loss of US$1.5 million (0.9 per share) on US$9.1 million in revenue for the corresponding period of 2002. The company produced 42,946 oz. at a total cash cost of US$279 per oz. in the first three months of 2003, compared to 29,281 oz. at US$162 per oz. a year earlier.
Cash flow from operations was US$1.7 million, versus US$595,000 a year earlier. Bema repaid US$5.6 million of the Julietta project loans, reducing the balance to US$23.8 million, and US$5 million of the Petrex loan, reducing the principle to US$30 million. The company ended the quarter with just under US$25 million in cash and equivalents.
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