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Construction at Burnstone project expected to start in July
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Gold-development company Great Basin Gold (GBG), of Canada, is ready to proceed with initial development of the R1-billion Burnstone gold project, near Balfour, in Mpumalanga, and is awaiting only the necessary permits from the Department of Minerals and Energy (DME) before proceeding to first blast.
Located in the South Rand area of the Witwatersrand Basin, Burnstone is situated on portions of 34 farms, 80 km on a main road from South Africa’s golden capital, Johannesburg. The basin was first identified in 1887 and the Burnstone property has been drilled intermittently since the 1970s. But more intense interrogation only truly began after the prospect’s acquisition by GBG in late 2002. Since January 2003, a total of 125 090 m of core has been drilled from 261 holes into the resource area. This process has unearthed a proved initial resource of 15,1-million tons, grading at 4,61 g/t.
The priority now, though, is to move more aggressively toward construction and production, with high-profile South African mining personality and former Harmony Gold marketing director Ferdi Dippenaar having been recently appointed CEO to drive this programme.
He is prioritising the assembly of a high-calibre team to deliver the project and tells Mining Weekly exclusively that he is optimistic that project work will get under way sometime in July.
Accelerating development
Dippenaar sees his main role as that of accelerating the development of a prospect now viewed as a company maker. He says the deposit has been well interrogated, pointing out that a technical report and final feasibility study was completed in May. In addition, funding for the project is available, with the Toronto Stock Exchange (TSX)-listed company having raised C$35-million (about R200-million) earlier in the year. Dippenaar says this money should be sufficient for the first two years of development and will facilitate the start of decline construction and take the project to first intersection.
Burnstone is envisaged as a typical long-life South African gold mine, with its geology reportedly mirroring that of Harmony’s Evander mine, a few kilometres away. In fact, a toll-treatment relationship is being considered with Evander in order to moderate surface- infrastructure costs. It is anticipated that, in the first phase, the mine will produce about 214 000 oz/y over a life-of-mine of 14 years. The cash costs are estimated at $254/oz and total costs at $314/oz.
Its main distinguishing feature, though, is that GBG plans to start mining from a decline at 250 m below surface, which, in South Africa, is extremely shallow. Another big advantage lies in the fact that it is virgin operation, allowing for the latest innovations, technologies and people structures to be introduced, a factor that the company is keen to maximise.
Funding in hand, JSE listing seen as strategic
Various further funding options are under review, including the deployment of cash flows from its Ivanhoe project, in Nevada, which is now under development. The project is a high-grade, short-life joint venture on the famous Carlin Trend, in the US, where the company is anticipating costs of around $150/oz.
Dippenaar stresses that, during construction, risk or equity funding will be GBG’s preferred financing route, as debt financing would inevitably result in hedging commitments. “Shareholders have not had the full value of their investment, and to hedge away the future upside is probably not the way to go,” says Dippenaar, who was part of the rabidly antihedging core while at Harmony. “We are on the realising-value curve as we begin developing the mine, so we do not want to dilute shareholders, especially since we don’t need the funding.” This desire not to dilute shareholders will be sustained even as the company pursues a secondary listing on the JSE, being tackled in light of significant interest from South African retail and institutional investors. “We also had some interest from European companies that traditionally trade on the JSE,” reports legal and compliance VP Willie Beckmann, who joined Dippenaar from Harmony earlier this year. For now, the JSE listing will provide a further funding mechanism through which GBG can structure and fund opportunities in Burnstone, thereby facilitating growth. “But it must be emphasised that the listing will not include an invitation to subscribe for shares in GBG. It will merely be the introduction of GBG into the ‘gold mining’ sector of the JSE,” Beckmann explains, admiting that it could be a significant future funding vehicle. Interestingly, GBG’s listing preparations are being supported by JP Morgan, a company employed by Gold Fields in 2004 to aggressively fend off the hostile advances of Harmony, which had been orchestrated, in part, by Dippenaar. In an unrelated, but also somewhat ironic twist, it appears, too, that the Burnstone project is subject to a sliding-scale royalty payable to Gold Fields itself. But this may be circumvented by South Africa’s new minerals regime and the impending royalty legislation.
Beckmann is optimistic that the listing process will culminate in Great Basin’s entry to the South African gold board sometime in late June or early July. He says the listing process has been smoothed by dint of the company’s listing on the TSX, whose compliance criteria are compatible with those of the JSE.
Prelisting documentation is reportedly being finalised and even though it involves listing as a foreign entity and the foreign-exchange issues that are conjured up, it is not expected that the South African Reserve Bank will raise any serious impediments.
Dippenaar believes the secondary listing will, ultimately, add liquidity to the company, whose TSX and Amex shares are attracting renewed investor interest. In the last five months, the company has traded an average of 700 000 shares a day, which is about 0,5% of its market capitalisation.
This said, GBG would need to be creative in ensuring that there are indeed some shares available for the South African investment community. It is, thus, considering a simultaneous American Depository Receipt programme, while talking to South African shareholders who hold the shares offshore and who might prefer to have the shares on the JSE.
Also acquisitive
“What we could also do is to use the listing here to issue shares in pursuing black economic empowerment or other potential mineral-rights transactions,” Dippenaar discloses, revealing that the company is interested in several acquisitions, mostly on the African continent. Exploration manager: Southern Africa Gernot Wober, a Canadian geologist who claims to have been prospecting since the age of 16, is optimistic about the company’s prospects in South Africa and the rest of Africa, hinting at the Democratic Republic of Congo as a likely priority.
At present, Tranter Investments, headed by well-known black mining personality Sipho Nkosi, is the company’s empowerment partner. The deal with Tranter gives it an option to participate in Burnstone on completion of the bankable feasibility, itself concluded in May. “We are finalising the details of the participation, and hope to make an announcement soon,” Dippenaar reports.
In addition, Dawie Mostert, also previously from Harmony and now vice-president of human capital, is looking at employment and empowerment solutions that involve communities surrounding Burnstone. He tells Mining Weekly that GBG is looking to introduce modern labour practices at the mine, which could ultimately employ as many as 2 000 people. The plan, as currently envisaged, is to source labour from the surrounding communities and immediately integrate them into a modern work-practice environment. “The big advantage here is that we will institutionalise future work methodology, using known best practices as we can truly start with a clean slate. We will also be drawing lessons from Nevada, in terms of shift structures.” Interestingly, Dippenaar reports that the mine will not embrace current conops practices, which were so controversially deployed at Harmony during the last months of his tenure. “We will have two specific full production shifts, optimising the service delivery and ‘off’ shift arrangements. From Nevada we are learning a few technical lessons as well as some tips on people productivity,” he states. Mostert is to be supported by Boniface Ngarachu, who is a specialist in organisational-effectiveness, having facilitated change leadership techniques with companies throughout Africa and in a diverse range of industries.
R1bn full capital commitment expected
As for the harder issue of project implementation, the team is relying on COO Johan Oelofse and Josiah Mashigo. Mashigo, a mining engineer, previously had leadership positions at the giant Kloof and Driefontein mines, while Oelofse, previously of Anglovaal and instrumental in the establishment of the ultramodern Nkomati nickel mine, has returned to South Africa after participating in mining projects in Uzbekistan and Kazakhstan, China, Tajikistan, Indonesia and the DRC.
The full capital commitment is likely to be about R1-billion, with R800-million for construction and R223-million for life-of-mine expenditure. The bulk of the capital will be spent in the first five years, hereafter expenditure decreasing to a level of maintenance capital.
The main items of expenditure over the life-of-mine are the construction of the decline (R105-million), associated underground development (R699-milllion), metallurgical plant (R160-million), a tailings facility (R37-million) and the main water supply (R15-million).
Current thinking is to work on the decline as soon as the permitting has been completed, with the R105-million anticipated cost including the purchase of the farms on which the infrastructure will be constructed. Great Basin plans to develop the decline itself, in alliance with suppliers of equipment and consumables.
Wober is enthused by the geological potential of the greater South Rand Basin, arguing that the resource is shallow compared to the rest of the Wits Basin, starting at 250 m in the initial area, the subject of a bankable feasibility study, and falling to around 800 m.
“But even though the project involves the sinking of a decline, which is shallower and simpler than a conventional vertical shaft, it still takes time. But we are looking at creative ways to shorten the time taken to get the process under way,” Oelofse reports.
Loose ends being tied
Outstanding is the issuing of the prospecting rights, but Beckmann says that the company has submitted all relevant applications in accordance with the relevant legislation and has so far been granted one by the department. The major right, which would facilitate the start of construction, is reportedly near finalisation and an outcome is anticipated soon.
“We applied for the conversion of the old-order prospecting rights relating to Burnstone in 2005 and these have been accepted by the DME. But, as from March, we intensified the effort to ensure that our applications are given the necessary attention within the required DME processes,” Beckmann reveals.
Dippenaar, who initially became aware of the project when Great Basin requested access to Harmony’s Evander mine in a bid to gain a better understanding of the Burnstone orebody, is clearly anxious to get the process moving.
“GBG is at a unique stage of its development. It has two projects, which have progressed to the extent that production from them is more of a reality than what it was a few months ago. The project in Nevada is actually ahead of schedule and we are intersecting the high-grade gold and silver vein systems that we were expecting. The Burnstone feasibility study has been completed, and we hope to get the project under way, as soon as we have the permitting process completed. That will see the transition of GBG from an exploration and development company, to a gold producer,” he avers, adding that the strategy is to bring the two projects into production as quickly as possible.
“They are robust and, as a base, are probably not bad to start the further growth of the company,” he adds, stressing that he would like to develop GBG into a “complete gold-mining company”, unashamedly borrowing the phrase from former rival Gold Fields.
He has no intention, however, of turning GBG into a so-called “bottom feeder”, stressing that its acquisitions will eschew marginal opportunities and focus, instead, on projects that are similar or better than the two under development. “We would be looking at increasing the diversity of the assets portfolio of GBG,” he reports. But for now, Ivanhoe and, more particularly, Burnstone are being given priority attention. “Burnstone is extremely important. It has a huge, shallow resource, which can be turned to account with a relatively modest capital budget. In addition, the project still has huge exploration potential, that we will be unlocking over the next 12 months. We then see Burnstone forming the base of GBG’s production profile for the next 12 to 16 years,” Dippenaar concludes.
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