The Morila mine in southern Mali is clearly a mine with a problem.
The operation, which poured its first gold in the last quarter of 2000 and its millionth ounce in mid-December 2002, enjoyed yet another superior quarter at the end of last year. It produced 325,000 oz. gold at a total cash cost of US$78 per oz., mining 6 million tonnes with an average recovery of 15.1 grams gold per tonne.
This leaves owners
Such is the bitter fruit of success; after an exceptional third quarter, a merely excellent one has the principals in the operation making apologetic noises. But AngloGold and Randgold, which each own 40% of the operation, and the Malian government, which owns 20%, have the small consolation of crying all the way to the bank: Morila made an operating profit of US$62.5 million in the quarter.
These two successive quarters of strong performance — catching, as they did, a rising gold price — have provided a well-timed inflow of cash, especially for Randgold. The company has not issued financials for the year-end yet, but in the third quarter it booked a profit of US$30.5 million on revenue of US$50.5 million. For the first nine months of 2002, Randgold was showing net earnings of US$39.3 million on revenue of US$87.3 million — a measure of the third quarter’s impact on the company’s finances — and its cash reserve grew to US$60 million at the end of September from US$11 million at the beginning of 2002, with about two-thirds of the increase coming from a US$32.5-million share issue and the rest from Morila’s earnings.
AngloGold, too, has posted strong earnings, though Morila’s impact on the larger company is not as obvious. Still, in the quarter ended Dec. 30, Morila was AngloGold’s lowest-cost operation and made the largest contribution to earnings (US$34 million) of all the company’s assets.
AngloGold turned a profit of US$90 million on revenue of US$502 million in the quarter, putting its year-end earnings at US$368 million on revenue of US$1.8 billion. In 2001, AngloGold made US$286 million on revenue of US$2 billion.
The company also declared a dividend of R6.75 per share (US80), bringing the 2002 dividend to R13, up from R9 last year.
While Morila had been expected to show good results in the last half of the year, the sudden bonus in head grade, which drove production to record levels, was a surprise. Grades had been ticking along just above 6 grams per tonne in the first half of the year, down slightly from the 2001 average of 7.5 grams; total cash costs had been a modest US$108 per oz. But a 10,000-metre program of reverse-circulation drilling in the mine’s Northern Pit turned up some unusually high grades, with one drill hole running 109 grams per tonne over a vertical depth of 39 metres. With mining moving into that area, the operators were aware grades would likely increase, but nobody predicted the quadrupling of head grade that actually happened.
Morila, however, has proved to be a company-maker for Randgold, which was spun off as a European-domiciled exploration and development company from the Byzantine corporate structure of South African house
Most of the properties were in the Birimian greenstone belts of western Africa, and the most advanced was the Syama project, in the extreme south of Mali near the border with Ivory Coast, which Randgold had bought from BHP. From the beginning, Syama was plagued with operational problems, and the deteriorating price of gold in the late 1990s only made matters worse. But at the same time that Syama was having its production problems, Randgold was drilling off a resource at Morila, about 140 km to the northwest, which had also come as part of the BHP package.
Morila was advanced to prefeasibility in 1998 and to feasibility in 1999. It sold half its 80% interest to AngloGold in May 2000, for US$132 million, and the mine opened in October of the same year, with reserves of about 28 million tonnes grading 5.5 grams gold per tonne.
Morila put slightly less than 3 million tonnes of ore, grading 7.5 grams per tonne, through the mill in 2001, producing 632,000 oz. that year. Unlike Syama, Morila had a plant that worked well from day one, and cash flow covered the project’s capital cost before the year was out.
Exploration work has indicated that the deposit’s high-grade zones — the ones that provided the past six months’ excellent results — may be controlled by a northeast-striking shear system about 200 metres wide. If that proves to be the case, Morila may surprise, pleasantly, again.
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