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Precious Metals  
25 January 2008

GEITA RECOVERING

Situated 80km south-west of the town of Mwanza in the north-west of Tanzania, Geita is the largest of AngloGold Ashanti Limited’s eight open-pit mines in Africa. AngloGold Ashanti is one of the world’s top gold producers with 21 operations located in ten countries on four continents. The company is listed on the New York, Johannesburg, Ghanaian, London and Australian stock exchanges, as well as the Paris and Brussels bourses.

Nyankanga1

An aerial view of the Geita
mine complex in Tanzania

“Three main factors combined to slash Geita’s gold production in half from 613 000 ounces in 2005 to 308 000 ounces in 2006,” explains AngloGold Ashanti executive officer: Africa open pit mines, Fritz Neethling, in an exclusive interview with Mining Review Africa.

“First of these was the expense of being compelled to change from contract to owner mining,” he says. “We found immediately that the equipment and infrastructure was wholly inadequate to produce the 600 000 ouncesplus targeted for 2006. The resultant capital cost of taking over and repairing the contractor’s equipment, upgrading the truck and excavator fleet, building new infrastructure and workshops, and purchasing certain new equipment in 2005 and 2006 amounted to a total of some US$120 million (R850 million),” he adds.

Geita gold mine is situated on a structural system in which the Nyankanga pit is the main source of highgrade ore supply; then there are other satellite pits, and finally there are reserves to the west which will be mined in due course. Nyankanga is being mined in successive cutbacks, and having reached cutback four, the amount of waste that has to be stripped before reaching the ore body is quite significant. “For the entire 2006 we had to rely on the lower grade ore from the satellite pits, as we could not get down to the higher grade ore in Nyakanga pit”, Neethling explains.

Nyankanga2

The Nyankanga pit footwall –
on December 30, 2005,
before the slope failure

“Geita’s life of mine grade has been around 4 g/t ever since 2001, and then in 2006 it dropped dramatically to 2 g/t for the last three or four months of the year,” he reveals, “hence our reduction in production to only 308 000 ounces last year.”

FIRST DROUGHT, THEN FLOODS
The second contributing factor last year was the significant drought situation in the area during January and early February, which reduced the capacity to pump water from Lake Victoria to supply the processing plant. Then, just as all the pumping systems had been upgraded, the third factor struck in late February, March and April. It started pouring to the extent that the truck fleet was being bogged down, and that impeded the rate at which the overburden could be stripped. “Having spent a substantial amount of money for our planned recovery in 2007, we set ourselves up to move into the new year ready to compensate for our poor 2006 production profile,” Neethling recalls. “In January we reached the high-grade ore in cutback four (double-digit grades), and then came our footwall failure,” he laments.

Neethling points out that the aim had been to double last year’s performance, moving back above 600 000 ounces again in 2007.

Nyankanga3

The Nyankanga pit footwall –
on January 3, 2006,
after the slope failure

“Having picked up movements in the footwall, we installed an early warning system of ground penetrating radar to watch the footwall 24 hours a day,” explains. “So we were well aware that there was a risk of slope failure, but when it occurred on the 2nd of February, it affected a much bigger area and covered the fresh high-grade ore that we had just exposed, and which was going to give us our 600 000 ounces for 2006,” Neethling contends.

“The effect that it has had is that we see ourselves producing 400 000 ounces this year rather than 600 000 – that’s a 33% increase as opposed to our intention of doubling production.”

The positive side, according to Neethling, is that the cutbacks following number four would have taken out the portion that failed — so the ore that was covered by the failure has not been lost, but simply delayed until later.

BACK TO 600 000 OUNCES BY 2010
“It is certainly going to take us longer to get to the 600 000-ounce profile that we had in mind,” he believes. “It will take us this year plus 2008 and 2009, and we are looking at a 400 000 to 450 000-ounce profile for all three years,” he estimates.

Nyankanga4

Geita has purchased nine of these
240-metric-ton capacity
Terex MT4400 trucks

“So the intention is to get as close as we can to the 600 000-ounce level by 2010, but I cannot guarantee that this will happen — we will certainly get above 500 000 ounces as we see it at the moment, but how far above I can only say once we have completed detailed re-planning later this year,” he points out.

At 400 000 ounces the operation pays for itself and will make a marginal profit, according to Neethling, but obviously not as much as the shareholders would expect. “So, all things being equal, Geita will be back in the black before the end of 2007 in terms of cash flow and profit,” he confirms. “Only marginally so, but at least it will not be a cash drag on the company, and the situation will improve further as recovery from the footwall failure spills into the next two years,” he adds.

Nyankanga5

The new Geita workshop complex

“This has caused us to make a small operating loss in 2006,” Neethling admits. AngloGold Ashanti has had to sustain the operation, but it will carry itself going forward with marginal profit in 2007. “By 2008 we will be well out of the red, because the capital expenditure will be behind us,” he reveals. “There will of course be ongoing capex in terms of replacing equipment, but no expansion and purchase of large trucks and other equipment — just normal, sustained business expenditure,” he adds.

“We are, of course, constantly planning and trying to see how we can improve on our performance,” Neethling emphasises. “Our published resource and reserve statistics for Geita at the end of 2006 revealed mineral resources of 14.7Moz, and ore reserves 8.5Moz,” he confirms. “Producing between 500 and 600 000 ounces a year (with a reserve of 8.5 Moz) gives us a life of mine of at least 15 years — so we regard it as one of our long-life assets,” he says.

UNDERGROUND FUTURE FOR GEITA
“I certainly would not be surprised if we have a life of 20 years plus, because we have not taken blue sky resources into account in these calculations, and obviously we are also busy converting resources to reserves,” Neethling continues.

Nyankanga6

The new O&K RH340 excavator
purchased for Geita

There are two issues to bear in mind in terms of Geita’s future. Firstly, current mining in the pit is about 240m from the surface, and the company is studying the situation to determine at what point it would become economical to go underground.

“Often when you have geological structural problems in the pit, they drive the operation underground,” Neethling contends, “so we may be faced with an underground situation here quicker than the norm because of the structural features we have to combat. I personally feel there is an underground future for Geita, but exactly when that will be we cannot predict yet.”

To conclude, not only is Geita going back into the black later this year, but it appears to have a pretty solid and long future ahead. It is actually seen by some to be one of the future cornerstones of the company.

“This is why we were prepared to spend the additional US$120 million (R850 million) in capital expenditure over the past two years to set the mine back on track,” Neethling points out.

Initial capital when Geita started in 1999 was US$165 million (close to R1.2 billion). Since then additional capital has gone into various extensions, taking the plant from a capacity of 3.5Mtpa to its current 6Mtpa and pushing total expenditure to the end of 2004 to well over US$250 million (about R1.8 billion). The change from contract to owner mining over the past two years has cost US$80 million (more than R560 million); and the mine’s new upgraded fleet cost US$40 million (almost R300 million).

Nyankanga7

This shot of the new excavator’s
bucket puts into perspective
just how huge it is

“This, plus expenditure to recover from this year’s footwall failure and stay-in-business capital, raised total capital investment in Geita over the past eight years to US$435 million (more than R3 billion),” Neethling calculates. “Ongoing stay-in-business capital will continue at a rate of between US$40 million (almost R300 million) and US$60 million (close to R450 million) per annum,” he adds.

“This is a big investment, but bear in mind that we are expecting production of more than 500 000 oz pa over a mine life of more than 20 years,” Neethling concludes, “and this makes it a very worthwhile investment.”

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