Johannesburg, South Africa — This country’s third-largest gold producer,
The project involves extending the lives of the Elandsrand and contiguous Deelkraal mines. The mines are part of the larger Elandskraal operation, which Harmony Gold CEO Bernard Swanepoel describes as the “hidden jewel” in his company’s portfolio.
Harmony acquired the mature mines from
Under Harmony control, operations recovered to 476,063 oz. gold produced from 3.3 million tonnes of ore during the financial year ended June 30, 2002. Net earnings were R286 million and capital expenditures amounted to R247 million.
For the last three months of 2002, the mine poured 98,000 oz. gold at a cash cost of about US$250 per oz., resulting in a cash operating profit of R70 million. In December, production fell to 21,000 oz. produced at about US$260 apiece, and on a rand-per-tonne basis, costs soared to R582.
“December was as bad as this mine has done,” says Swanepoel. “Costs of R582 per tonne are not where we come from; generally we come in on the order of R480-R500. R582 was a snapshot of a bad month on a volume basis.”
Swanepoel expects costs to improve to around R436 per tonne as tonnage milled and productivity increase.
In acquiring Elandskraal, Harmony also inherited a R1.4-billion shaft-deepening project at Elandsrand. At the time, R751 million worth of work remained. Harmony immediately began re-engineering the plan and quickly cut R141 million off the price tag.
During the past year, the company has switched from mechanized to conventional mining methods to shave off another R10 million, reducing the remaining capital requirement for the deepening to R600 million.
By the end of January, Harmony had spent R214 million, leaving R386 million to be spent by June 2008, when ledging is slated to begin on the new mine’s lowest level.
Other major changes introduced at Elandsrand include the following:
q changing the direction of levels 105, 109 and 113 to save around 1,400 metres of capital development;
q reducing development size to 14 sq. metres;
q using the backfill shaft for service columns;
q re-engineering the mine’s ventilation and refrigeration systems to exclude a 9-MW refrigeration plant and third dam and settler. (A refrigeration plant to chill water underground will be added after the mine is fully operational.)
Harmony’s shaft-deepening will provide access to the Ventersdorp Contact Reef (VCR) via four new levels. Crews will exploit the western high-grade block at Elandsrand, while providing for exploration of the eastern area and the higher-grade western portion of the Western Ultra Deep levels area.
Gus Christie, Elandsrand’s mine manager, says crews are mining at a depth of 2,800 metres, adding: “We plan to go down to about 3,100-3,200 metres for the new project. Essentially, it’s a narrow, tabular orebody generally around 35-40 centimetres wide, so we’ll use fairly conventional mining methods.”
The proposed mining rate of 27,500 sq. metres per month translates into about 134,000 tonnes of reef material. At that rate, monthly gold production is pegged at 38,000 oz. at a cash cost of US$150 per oz. Christie says there is limited potential to increase the mining rate.
Development is expected to progress at 1,500 metres per month as the company works to create new reserves within the current workings. The deepening project calls for 500 metres of development per month, including 260 metres of access and 240 metres of infrastructure development.
Christie admits that in terms of development, the company has had some flexibility problems. In particular, it is slightly short of its 1,500-metre-per-month goal, but these problems are being addressed.
Most of the capital expenditures are being applied to the current phase, which includes the transition to conventional mining and accelerated development to access the reef. Expenditures for the year are pegged at around R130 million.
Elandsrand comprises a twin mineshaft system that leads to twin sub-shafts. The deepening program will add four working levels; the current mine employs 10.
Harmony intends to begin ledging on the 102 level this summer, after the first raise is completed. By December 2003, the 105 level is expected to hit reef, with the first raise slated for completion in October 2004. Level ledging there will begin by the end of 2004.
Level 109 is expected to intersect the VCR in June 2005, and ledging will begin in the summer of 2006. A year later, level 113 is expected to cut the reef, with ledging planned for June 2008.
Beginning in 2003, production will comprise a mixture of existing and new reserves. By 2012, production will come exclusively from the “new mine.” Thanks to the higher gold grades of the new reserves, recovered gold should increase, even with a planned drop in the development rate to around 730 metres per month.
Says Christie: “The labour and the mining crews will migrate from the current workings down to the new workings. It’ll be a smooth transition. There’ll be no faltering in the process.”
Once all the new levels are operational, the mine will start producing 450,000 oz. gold annually. Overall production is pegged at 4.9 million ounces over 18 years.
At last count, Elandsrand’s reserves stood at 30.5 million tonnes grading 10.4 grams gold per tonne, equivalent to 10.2 million contained ounces. Total resources weigh in at 65.7 million tonnes grading 8.5 grams, or 17.9 million contained ounces.
Harmony says its plan adds around 7.1 million oz. of reserves and 12.5 million oz. of resources. The recovery grade is also expected to rise to 8.8 grams from the current 7.6 grams per tonne. At a gold price of US$300 per oz., the project delivers an internal rate of return of 33%; the net present value (at a 15% discount) is a shade more than R1.4 billion.
The shaft-deepening project will create 4,503 jobs directly plus 722 contractor positions. Swanepoel sees the labour intensity in South Africa’s mining industry as a “comparative advantage” and looks forward to employing more people and selling off Elandsrand’s trackless-mining equipment, though he concedes there is currently a glut of such equipment.
In the end, Swanepoel says, Anglo’s attempt to mechanize Elandsrand was a failure. He adds that conventional mining has so far proved successful.
Under the new plan, production per employee is expected to rise by about 33% as a result of re-engineering and concentrated mining efforts.
Christie notes that the backfill strategy is a major component of mining at Elandsrand. Using backfill close to the working face makes mining more productive and safer and allows for better control of ventilation.
At the time of acquisition, Deelkraal had a mine life of six months. Under the current cost structure, development on level 35 has resumed and added 156,000 ounces, which will be exploited over five years.
Harmony plans R14 million worth of development at Deelkraal during 2003, which should result in a net present value (at a 10% discount) of R136 million and an internal rate of return of 164%. Payback is expected in 28 months. Capital expenditures in 2004 are estimated at R4-5 million.
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