It’s crunch time for the Bissett underground gold mine in Manitoba as the South African-based owner appears to be running out of patience.
Although it accounted for just 2% of
Higher maintenance costs due to breakdowns, combined with increased propane and hydroelectric costs resulting from extreme winter temperatures, caused the mine to report an operating loss of US$654,000 for quarter ended Dec. 31, 2000. It essentially broke-even in the previous 3-month period.
Although milled tonnage increased to 62,000 tonnes from 59,000 tonnes for the quarter, the recovery grade was lower, at 5.31 grams gold per tonne, versus 5.98 grams in the quarter ended Sept. 30. The company believes it can boost the overall grade, as tonnage in the higher-grade upper levels and the Deep West zones becomes available.
“We expect all our operations, including Bissett, to make decent returns on capital investments and ultimately make decent profits at operating levels,” states Bernard Swanepoel, Harmony Gold’s chief executive officer. “It has to perform according to our standards, or otherwise we need to . . . move on.”
Harmony bought the Bissett mine in mid-1998 for $14.3 million from the receivers handling the bankruptcy of Rea Gold. Rea had spent US$59 million to return the former underground mine to production at a planned rate of 80,000 oz. per year. The mine reopened in the summer of 1997, but not for long. Rea filed for bankruptcy and closed Bissett in December of that year, after failing to reach an agreement with NM Rothschild & Sons regarding US$23 million in outstanding debt.
Upon taking possession of Bissett, Harmony carried out extensive drilling and development on the lower portion of the mine to confirm reserve estimates and increase stoping flexibility in the higher-grade D shaft area. The 1,000-tonne-per-day mill was commissioned in October 1998.
“Bissett initially was of strategic significance,” says Swanepoel. “It was almost an R&D project, to see if we could operate outside of South Africa, that is, if the Harmony way could work in Canada. I think we have achieved what we set out to do at that level, and now it’s just an asset that has to must make us a return.” If it does not, Swanepoel warns, “we’ll have to deal with it accordingly.”
During the financial year ended June 30, 2000, Bissett produced 38,131 oz. at a cash cost of US$339 per oz. At the end of that year, minable reserves stood at 2.1 million tonnes grading 6.67 grams, equivalent to 450,000 contained ounces, based on a gold price of US$275 per oz. Resources totalled 2.9 million tonnes grading 8.65 grams, or 820,000 oz.
Depreciated rand
For the quarter ended Dec. 31, Harmony posted earnings of US$14 million (or US14 per share), compared with US$15 million (US15 per share) in the previous 3-month period. A record cash operating profit of US$24 million, up 20% over the previous quarter, was largely a reflection of the depreciation of the South African currency (1R equals US13).
Gold production for the December quarter was 520,809 oz., down from the 534,956 oz. in the previous quarter. Cash operating costs fell to US$227 per oz. from US$245 per oz. in the September quarter. The Free State, Evander, Randfontein and Kalgold operations, all of which are in South Africa, returned improved cash operating profits, with Bissett the only bad apple in the bunch.
The company reported the loss of nine employees as a result of fatal accidents during the report period.
On Dec. 19, 2000, Harmony announced it had reached an agreement-in-principle with
Elandsrand contributed 354,000 oz. at a total cash cost of US$281 per oz. during fiscal 2000, whereas Deelkraal produced 175,000 oz. at US$294 per oz. Both operations incurred an operating loss: US$5.6 million for Elandsrand and US$7 million for Deelkraal. AngloGold estimated than a capital investment of R730 million will be needed in the two mines over the next six years. Swanepoel says Harmony needs to address these capital needs soon and come up with its own estimates.
Harmony has said the mines would benefit from integrated systems, hence the new name “Elandskraal.”
“The upfront cost savings over the next six months will make this a smart investment,” states Swanepoel, who estimates that the immediate savings from a leaner structure will be between R50 and R60 per tonne. The combined workforce at the mines is currently 9,100, though this could be reduced by 10-15%.
Harmony prides itself on its ability to turn around abandoned and hitherto unprofitable operations. “Clearly there is a difference in the approach Harmony takes to mining in South Africa, and that does result in a different cost structure,” says Swanepoel.
A key component of the “Harmony Way” is the shifting of responsiblility and accountability from the managerial level to the operational level, the objective being increased productivity. A multi-disciplinary management team is placed at each individual shaft, non-core activities are outsourced, a no-frills policy is adopted, and non-essential staff are reduced.
Harmony has completed about 15 acquisitions during the past five years, and, in the process, has grown into a multi-million-ounce-per-year producer from a marginal 580,000 oz.
The company has secured commitments from a group of banks to provide the necessary debt financing for the purchase of the Elandsrand and Deelkraal mines, as well as the A$54.3-million cash bid made last December for Australian-listed
New Hampton bid
In Australia, Harmony has launched a hostile A26.5-per-share bid for New Hampton Goldfields, the country’s ninth-largest gold producer, after locking up a 19.9% position held by
New Hampton produced 259,000 oz. gold in calendar 2000 from its Jubilee and Big Bell mine operations in Western Australia. Ore reserves total 19.1 million tonnes grading 2.1 grams, equal to 1.2 million oz. In addition, the company has an extensive exploration portfolio in the Kalgoorlie region.
New Hampton reported earnings of A$2.7 million for the December 2000 quarter, and a profit of A$8.2 million for 6-month period ended Dec. 31. Cash and bullion on hand was A$6.1 million. The company has 205 million shares outstanding, or 327 million fully diluted, and currently trades at A30.5.
“We see an opportunity for us to establish a production base in Australia . . . to participate in the consolidation of the Australian gold mining industry,” Swanepoel says.
New Hampton’s board of directors believes the proposed offer is inadequate and significantly undervalues the fundamental worth of the company. The board expects to make a formal response by early March.
Harmony’s offer hinges on acquiring a minimum 50.1% acceptance. The bid will remain open until at least March 15.
On the exploration front, Harmony has made a promising early-stage platinum-palladium discovery while conducting rotary-air-blast (RAB) drilling in the Kalgold region in the North-West province. The near-surface mineralization occurs within intrusions into the Kraaipan greenstone belt. Six separate zones of mineralization have been identified over lengths varying from 500 to 1,000 metres. Mineralized widths range from 25 to 45 metres with averaged grades of 1-2.5 grams combined platinum-palladium in a 1-to-1 ratio.
Drilling to date has been limited to widely spaced bore holes at depths of about 80 metres. Harmony is currently evaluating the economic potential of this project. Preliminary indications are that the platinum group metals are generally fine and sulphide poor, which will depress recoveries by conventional flotation. Detailed metallurgical tests continue.
The company is exploring the appointment of advisors to assist in identifying a strategic partner to take this project forward. An estimated R7.5-8 million will be spent on the project in the coming quarter.
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