Ex­pec­ta­tions for South Deep shrink even fur­ther

Finweek English Edition - - IN THE NEWS - BY DAVID MCKAY

There’s a grow­ing sus­pi­cion that South Africa’s last great gold mine, the South Deep project on the West Rand, may prove to be its most dis­ap­point­ing af­ter Gold Fields ac­knowl­edged that it – like the project’s pre­vi­ous own­ers – would fail to have it de­liver on its pro­duc­tion prom­ises.

Since its ear­li­est devel­op­ment to its cur­rent po­si­tion now, the de­posit has re­fused to yield its trea­sures in a way its own­ers ex­pected and promised. In the process, it has ab­sorbed bil­lions of rand of in­vest­ment; yet, two decades on, “the mine” is still just “a project”.

JCI, then a limb of a sprawl­ing An­glo Amer­i­can, started South Deep. It was then taken over by the late Brett Keb­ble when he ran JCI in com­bi­na­tion with his West­ern Ar­eas. Half of the project was sold to Placer Dome in the hope that North Amer­i­can know-how and cap­i­tal would help bring South Deep to life and get it pro­duc­ing 800 000 to 900 000 ounces per year. But to no avail.

The as­set t hen switched hands, with an­other North Amer­i­can owner, Bar­rick Gold, at­tempt­ing to wrest gold eco­nom­i­cally from South Deep un­til it too sold the project to Gold Fields for about $1.5bn (R18bn) in an ex­pen­sive game of pass the par­cel.

More than eight years on, and with the mu­sic def initely stopped, Gold Fields CEO Nick Hol­land was moved to com­ment on 7 May that in re­spect of South Deep, he was now fo­cus­ing on “in­puts, not the out­puts”.

It, there­fore, looks like the 650 000 to 700 000oz tar­gets iden­ti­fied by Hol­land are now the sub­ject of spec­u­la­tion again. This must be a bit­ter pill for share­hold­ers, who have al­ready ab­sorbed the 50 000oz/ year climb down in South Deep’s planned out­put an­nounced by Gold Fields some two years ago.

“We be­lieve South Deep could end up be­ing a much smaller mine than pre­vi­ously guided and could take much longer to break even than the com­pany’s guid­ance,” said Gold­man Sachs in a re­port fol­low­ing Gold Fields’ March quar­ter fig­ures.

Said Hol­land: “There is a tar­get by the end of next year for the project to be cash f low pos­i­tive.” But it’s hard to be­lieve the fore­casts when Gold Fields ac­knowl­edges that the im­port of skills from Australia – sup­posed ex­perts in mech­a­nised min­ing – had been a failed ex­per­i­ment.

Speak­ing in Fe­bru­ary, Nico Muller, vice-pres­i­dent of Gold Fields’ SA op­er­a­tions (South Deep) since late 2014, de­liv­ered a wither­ing as­sess­ment of how South Deep had not pro­gressed un­der Aus­tralian guid­ance. He de­scribed the op­er­a­tion as “dys­func­tional” – a view with which Hol­land con­curred even though this was al­lowed to hap­pen un­der his watch.

“He’s not the first per­son to have said this,” said Hol­land when asked by Finweek for his view of Muller’s as­sess­ment of South Deep. “The com­ments he made mir­ror my own,” he said, adding that im­port­ing ex­pat skills had failed be­cause “it was dif­fi­cult to get them en­gaged with the cul­ture of South African min­ing”.

Now t he ap­proach i s to source mech­a­nised min­ing skills from within SA. “Lo­cal is lekker, there is no doubt. It took time to at­tract Nico, but we per­suaded him to come. I would say he has got a bet­ter ap­pre­ci­a­tion of the prob­lems and so we’re break­ing it [South Deep’s devel­op­ment] down into smaller projects,” said Hol­land.

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