“Having received very positive results from our pre-feasibility study in March 2007,” says Wesizwe chief executive Michael Solomon, “we have commissioned our bankable feasibility study (BFS), and in parallel we are conducting a 3D Geoseismic survey. The two surveys are going to cost us about R39 million,” he reveals in an exclusive interview with Mining Review Africa.
The BFS remains on-track, and the accelerated drilling programme has achieved 43 932m of core, 41 boreholes and 89 deflections since the last mineral resource estimates dated end December 2006.
“Meanwhile, we have appointed and signed a contract with CGG Veritas of France to handle the 3D Geoseismic survey, which will commence in June and is due for completion in August 2007,” adds Solomon. “The full interpretative report will be given to Wesizwe three months later in November 2007.”
The survey has been commissioned to further increase the levels of confidence in the structural model of Wesizwe’s ore body on the Frischgewaagd-Ledig complex. It is being conducted concurrently with, and will be incorporated in, the BFS, which is scheduled for completion in the last quarter 2007. Final BFS results will be released in the first quarter 2008.
This will provide the company’s geologists with very detailed information about the stratigraphy and structural geology of the ore body. This information will be tied in to existing drilling and geophysical data derived from the exploration programme to date, and will significantly enhance the understanding of the structural geology of the proposed mining area.
“Apart from moving ahead with these two projects in parallel, we have also started preparing for capital construction, and we have tied down our principal contractor for the project,” Solomon reveals.
CONSTRUCTION CONTRACT SIGNED
“We have signed a managed services contract with Murray & Roberts Cementation (MRC) to act as principal contractor for the capital construction project, which is due to commence during 2008, provided the BFS results do not delineate any fatal flaws,” he explains.
“MRC will work in conjunction with TWP Consulting (Pty) Limited, who are the design engineers and project managers for the shaft-sinking and capital construction project,” Solomon adds. “MRC will participate fully in and provide appropriate inputs into the design phase.”
The contract provides for the provision of cost-plusbased managed services with performance-related incentives and penalties in line with FIDIC Silver Book guidelines. Solomon describes the signing of these contracts as “the next significant milestone in the short history of Wesizwe. We are already a full year ahead of schedule,” he points out.
The independent engineers’ report — commissioned in June 2006 and made public in Oct 2006 — demonstrated that while there had been a considerable increase in the capital expenditure required, Wesizwe was still in the game and definitely had a project.
“Very soon after that,” says Solomon, “we decided — in terms of what we now knew about the mine design and capital expenditure — that we would start our pre-feasibility study when we had enough of the resource in the indicated category to support project payback.
We hit that target at the end of September 2006, and commenced with the pre-feasibility study in November 2006,” he adds. The pre-feasibility results were delivered in March 2007 and revealed a wide range of possible project capital expenditure, depending on which scenario would be used.
COST BETWEEN R3.5 AND R10 BILLION
Looking first at the total resource base and a full mining programme — but at a base case of commodity prices and economic parameters (US$950/oz for platinum, US$350/oz for palladium, US$600/oz for gold and US$3 500/oz for rhodium, and at a R7 / US$1 exchange rate) — a conservative estimate of capital expenditure for the entire project would be in the vicinity of US$ 500 million (R3.5 billion). The same exercise based on spot prices at that junction would amount to about US$1.4 billion (almost R10 billion). As things stand in terms of current prices, Solomon estimates that the project could cost out at about US$860 million (R6 billion).
“In terms of raising project capital at the outset of this project, we were unsure initially of the level of support we could expect from the South African financial services sector, because we were the first platinum exploration junior to list in South Africa,” Solomon admits. “All the others — and there were about 16 at that stage — were Canadian, Australian or AIM listed, primarily Canadian,” he says.
“We had a back-up plan, and were prepared to do a secondary listing offshore if necessary, but it never was,” he says. “We raised R115 million in private venture capital before our first listing in December 2005, and also had good support from our capital raisings in 2006 and early 2007 where we raised some R300 million,” Solomon reveals.
“Current available funding will see us through to end of the BFS, but we are already hard at work on funding the capital construction costs,” he adds.”
“Our fundamental premise was that, provided we remained within the technical, economic and commercial parameters of our original target, we could assume that we would mine,” states Solomon.
“Looking at the current resource base, we are now showing 12.8 million ounces for the project against our original estimate of 6.7 million, and we are at a target of 73 million tonnes against our original 47 million, so we have almost doubled that base of critical mass, and our grades are better than anticipated as well,” he contends.
“There is therefore no reason for us not to build a mine, and this gave us the confidence to go ahead and appoint contractors and order long lead items, even though the BFS has not been completed,” says Solomon.
“As a matter of fact,” he explains, “we are looking at the independent engineers’ report, the pre-feasibility and the BFS as critical decision points rather than exercises in their own rights. They are really no more than checkpoints to confirm that we are still on track” he emphasises.
CONSTRUCTION IN EARLY 2008
With the BFS results due in early 2008, an immediate start could then be made on actual construction. The shaft-sinking process will take approximately two years, which means that production would commence towards mid-2010. The ramp-up to full production will take another three years to mid 2013.
“At that stage the mine will be generating a throughput of 180 000 tonnes per month, which will deliver 280 000 ounces per annum of PGM, of which 200 000 ounces will be platinum, during a 20 to 25-year life of mine,” Solomon confirms.
“We are not concerned primarily by commodity prices,” Solomon insists. “The various studies on the platinum market all indicate that the metal will remain strong, and we believe this will be the case for the critical period of the mining operation over the next five or ten years,” he adds.
“The problem we have is that South Africa is part of the international skills shortage in mining,” Solomon claims. “In addition we have a contracting shortage, with our contractors servicing not only our growing local industry, but other projects in Africa — particularly in places like Zambia, the Democratic Republic of Congo, Angola, and also in former Soviet Bloc countries such as Kazakhstan.”
These shortages are a serious concern, according to Solomon. “It’s all very well going through exploration programmes and completing feasibility studies, but you don’t want to discover at that late stage that you do not have the skills or contracting resources to actually handle the job,” he points out.
“So we want to bring our mine into production as soon as possible,” Solomon reasons. “With a large number of projects on the way there will be competition for skills and capital, which is why we decided to prepare for capital construction, although the BFS has not been completed,” he says. “We are already placing orders for long-lead items (such as hoists, mills and other critical equipment) that have a typical two-year lead time,” he adds.
The early appointment of the contractor in a managed services contract was a very important development, as it avoids the tedious tendering process.
Typically in a mining project, you complete the BFS; if that looks positive you finalise your engineering designs; then you compile your tender documents and issue them; you have to give the contractors a couple of months to do their sums and return the documentation, because of the size of the project; tenders then have to be adjudicated and awarded; and finally the successful party has to mobilise. All of this takes up to a year or more.
“What we have done is we have appointed the contractors and they will be incorporated as part of the design teams for the BFS, so that by the time we get to the end of the BFS, provided that it is positive, we can move directly into capital construction,” Solomon explains.
WELL AHEAD OF SCHEDULE
“We are already a year ahead of our original project schedule, and avoiding the tendering process cuts out another year which — in the case of a project which will probably cost out at a minimum R3.5 billion, and quite possibly as much as R6 billion — is very significant,” he contends.
From a processing point of view, we will operate like all the other juniors,” says Solomon. We’ll mine, we’ll crush, we’ll mill and we’ll float — and we will have to sell our concentrates on to another party (either Anglo Platinum or Impala Platinum — that decision has not been made yet).”
Wesizwe still intends conducting ongoing exploration, primarily aimed at developing the core project to upgrade resources from inferred into indicated and measured. “So we are now moving from this critical stage of exploration into actual mining,” Solomon states.
“The project economics are phenomenal — our weighted average basket price is at the moment around R310 000/ kg,” Solomon calculates. “Costs are around R90 000/kg, so you’re looking at around a R200 000/kg margin, which makes for a very low, robust project,” he says.
“We have over-delivered on our targets, we are well within our original budget, and we are a year ahead of schedule — so the company has performed, and I think that that has been recognised in the market place,” he claims.
“The next step is to complete our BFS,” Solomon contends, “and then to continue with our resource upgrading process from inferred to indicated to measured; to strengthen our corporate and technical team, which we are growing rapidly; and to continue the focus on mergers and acquisitions within our operational areas.”
Looking to the future, Solomon emphasises the fact that because the Wesizwe property is intertwined and overlaps with other valuable properties such as those of Anglo Platinum-Bafokeng and the Western Bushveld Joint Venture, this presents a certain strategic opportunity.
“In a sense we already have a deal going with the Western Bushveld Joint Venture (WBJV) through our purchase of the 26% shareholding of Africa Wide,” he states. “We will reach a point where we need to start talking to Anglo Platinum and Bafokeng about their project as well. It would make sense to draw these properties together under a single mining regime,” Solomon believes.
“Conventional wisdom tells you that it is ludicrous to have three neighbouring mines, each with its own shaft, offices and concentrator,” he contends. At least one could consider having a common surface infrastructure and mine management. If that were to come about, it would probably be the last major world-class mine on the Western limb, and it would be a 500 000 or 600 000 oz/pa mine,” he calculates.
“If for some reason this does not happen,” he points out, “at least we would still be in the comfortable position where our core project is good on its own. Time will tell, but I feel the other companies will also want to do what is finally in the best interests of their shareholders,” he concludes.