East Rand is still to yield many ounces, says junior

28th February 2003 By: marisa rodrigues

Although major South African gold-miners have moved out of the East Rand to the Free State, junior miners are still finding success in the region and believe that, contrary to the general perception, the reserves in this area are far from depleted.

Petrex, which mines about 90% of the eastern half of the Witwatersrand Basin, owning the Grootvlei, Consolidated Modderfontein and Nigel assets, expects to mine the area for at least another 12 to 15 years.

The life of mine could be extended further if the company can get access below the flooding level, which is currently at 740 m below surface.

Petrex was bought by Canadian company EAGC Venture corporation for $66-million from South Africa’s Petra Mining, in October last year.

The acquisition gave EAGC ownership of Petra Mining’s gold-mine assets (its first in South Africa), which are all located on the East Rand.

Another Canadian junior, Bema Gold, subsequently launched a scrip takeover bid for EAGC.

The offer involves Bema offering new shares to EAGC shareholders in a one-for-one share swap. Petrex’s management continues to run the operations for the Canadian company, while the previous holding company, Petra Mining, has been put into a cash shell.

Petra Mining started mining on the East Rand in 1996.

By consolidating 16 old mines into one operating company, Petrex was able to radically reduce overhead costs, making mining of the area feasible.

“Without consolidation, mining would not have been feasible as costs would have been too high, with each mine having its own management, plant, engineering services, administration and so on,” remarks Petrex MD PJ Nel.

The remaining reserves on the East Rand are readily accessible through infrastructure and highly-developed shaft systems built in the boom-times of South Africa’s gold history, when the South African majors mined the area.

The Petrex operations expect to produce over 200 000 oz of gold in the 2002/3 financial year at an average cost of $220/oz.

By 2006 this is expected to increase to 260 000 oz/y at cash costs between $176/oz and $174/oz.

The underground resources of these operations amount to 25-million tons at a grade of 4,5 g/t and opencast resources of 6,9-million tons at a grade of 3,3 g/t.

Nel believes government should step in to dewater the East Rand basin, as it presents a huge opportunity for job creation in an area that has high levels of unemployment and crime.

“As a mining company it is not our responsibility to dewater the mines.

“It is already costing us R3-million a month to maintain the mines at the 740 m level and it is beyond our means to dewater the mines further,” remarks Nel.

According to Nel the company receives no government subsidy to maintain the mines at the current water level, unlike ERPM mine (also on the East Rand), which he claims does.

If the water was to be pumped out, mining would be possible all the way down to about 1 500 m below the surface, making a sizeable number of additional reserves available.

The company’s open-pit mine, Skukuza (on the Consolidated Modderfontein property), which has been in operation since 1999, has proved successful.

“The only factor limiting us from undertaking further opencast operations is the fact that there is infrastructure, including highways and houses, on the mine area.

“We have to make financial decisions as to what we can afford to move,” comments Petrex financial director Martin Schermers.

Nel believes that junior miners have finally found a place in the South African industry in the last decade. With many of the major companies expanding into Africa and offshore since 1994 to investigate the major reserves, junior miners, both from South Africa and abroad, have been given the opportunity to pick up reserves that these large companies have perceived as being uneconomical.

“This not only allows us to generate a revenue, but ensures job creation, as we come in and fill the void left by the large mining houses.

“In the past, when companies did not have the same mobility to move out of South Africa, reserves were heavily guarded by the big mining houses and it was exceptionally difficult for the smaller companies to get a foot in the door,” explains Nel.

Junior mining also opens up opportunities for further black economic empowerment (BEE) in the mining sector.

All underground mining on the Petrex operations is undertaken by JIC Mining Services (part of the listed Rebserve group), chaired by Cyril Ramaphosa.

The company has also undertaken other initiatives to involve previously disadvantaged people in its operations. The company employees 300 to 400 people, predominately black women, to do reef picking on the waste dumps and on the opencast operations.

Altogether Petrex employs 3 800 people, of whom 2 500 work for JIC.