SouthernEra re-invents itself as PGM miner

Once attached exclusively to diamonds, SouthernEra Resources (SUF-T) has turned its attention to platinum group metals — in particular, the advanced Messina project in South Africa.

SouthernEra made the switch to PGMS in 2000, when it grabbed a 70.4% interest in Messina and 54.4 sq. km of surrounding ground. The property covers 16 km of strike length of the UG2 and Merensky reefs, two of the world’s largest repositories of PGMs.

Resting on the eastern limb of the Bushveld igneous complex, Messina was partially developed in the late 1980s during a brief rally in platinum prices. However, after prices soured, then-owner Impala Platinum all but abandoned the mine, until SouthernEra entered the scene early last year.

The project is divided into two sections, Voorspoed and Doornvlei. (A third, dubbed Zebediela, hosts an inferred resource of 19.6 million tonnes averaging 5.04 grams PGMs plus gold but never saw any development and has therefore been placed aside in favour of the other two.)

A feasibility study on Voorspoed concludes that reserves are sufficient for 17 years of production. The 26.4-million-tonne deposit, which averages 6.30 grams PGMs plus gold, is expected to yield 159,000 oz. precious metals annually at a cash cost of US$150 per oz.

More recently, SouthernEra initiated an accelerated production program to take advantage of robust metal prices. Mining will focus on a secondary shaft so as not to impede development of the main shaft, which will be used starting in 2003.

By August, Messina is expected to begin churning out 20,000 tonnes of concentrates monthly, or one-quarter that of full production. The concentrates are expected to generate US$1 million in cash flow, which will help offset the depletion of reserves at the Marsfontein diamond joint venture, about 25 km to the north.

Along with robust economics, Messina boasts some unusual geological and metallurgical characteristics for the Bushveld. For instance, the deposit is steeper than most, it requires only one concentrator for both reefs, and it has a higher ratio of palladium to platinum.

Metallurgical tests indicate that the elimination of a rod mill at the plant will result in considerable savings. Consequently, overall capital costs have been reduced by 25% to US$60 million, about half of which is to be covered by debt.

Recent efforts are also focusing on sinking the shaft an additional 75 metres, to 425 metres below surface. A new loading level is to be established on the 400 level, and the shaft eventually will be deepened to 625 metres to provide access to deeper ore.

SouthernEra also plans to refurbish the Doornvlei section and process bulk samples in the proposed startup plant for Voorspoed. Indicated resources at Doorvlei are pegged at 15.2 million tonnes averaging 5.81 grams PGMs plus gold, and both it and Voorspoed contain appreciable material in the inferred category.

Although SouthernEra now considers itself a platinum company, it has not abandoned its roots. To facilitate development, the company merged its Klipspringer property with the adjoining Marsfontein joint venture and optioned 33% of its 65% stake in the Camafuca project in Angola.

At Klipspringer, partners De Beers Consolidated Mines (DBRSY-Q) and an associated Black Empowerment Group are covering the re-maining US$6.6 million in development costs in return for a half-interest. The revised deal also saw SouthernEra’s stake at Marsfontein raised to 50% from 40%.

The underground development program is expected to take two years to complete and pay for itself in another 1.5 years. Monthly production of 28,000 tonnes will yield 150,000 carats per year from a processing plant, which has already been built.

Reserves are pegged at 3.6 million tonnes averaging 47 carats per 100 tonnes. The estimate is based on a 3,865-tonne sample taken last year and on various exploration programs since the discovery of the fissure system five years previously.

Production is expected to continue for 13 years, over which time US$166 million in revenue and US$26.2 million in after-tax cash flow are expected to be generated.

At Camafuca, SouthernEra has dealt Wellox, a member of the Leviev group of companies, an option for a 33% interest. For its stake, Wellox financed a feasibility study and is to provide another US$18 million for development. The remaining interest in the property is divided between a state-owned company and private Angolan interests.

The feasibility study, completed in late 2000, envisages a 5-year dredging operation in the southeastern corner of the Camafuca pipe. This portion of the pipe carries 6.13 million cubic metres, averaging 0.18 carat per cubic metre, of its overall resource of 209.5 million cubic metres.

Ore would be pumped in slurry form to a land-based dense-media-separation plant. Costs for the dredge and processing plant are pegged at US$16 million. Operating costs are forecast at US$55 per carat, based on a diamond evaluations of US$117 per carat. Development is expected to last nine months.

Camafuca is expected to generate US$40 million in cash flow and an internal rate of return of 185%. Payback is anticipated in one year.

SouthernEra lost $23.9 million on 2000 revenue of $25.9 million, compared with losses of $24 million on $48 million in 1999. However, cash flow was a healthy $19.2 million, though this too is down significantly from 1999.

The 88-per-share loss largely reflects a $20.4-million writedown on Klipspringer to reflect the new ownership structure, with the decrease in revenue reflecting the depletion of the M1 kimberlite pipe. A similar, $22.6-million writedown against Camafuca accounts for the 90-per-share loss incurred in the previous year.

Marsfontein cranked out 436,660 carats, fetching US$121 per carat, versus an average of US$113 per carat for 1999 production of 882,412 carats. Diamondiferous gravels and diabase stockpiles are sufficient for several more months of production.