DRDs mining plans could be stymied

DRDGold’s intentions of mining vast untapped gold deposits lying deep beneath Johannesburg’s streets could be stymied because this project needed deep pockets, an economist for the Chamber of Mines said on Friday.

Dick Kruger said the amount of capital that DRDGold would need before starting with the project was so huge that it could be cheaper to expand than to do deep-level mining.

It could cost between R5 billion and R10 billion to mine deep levels in an area that had been idle for a long time, he said. It could take the company 10 years before it realised financial returns on such mining.

It is not clear whether DRDGold can afford to run a mine for so long without financial returns. In the second half of 2005, South Africa’s fourth-biggest gold producer posted a marginal 7 percent rise in cash operating profit to R157.1 million.

At the time, the group said this reflected both a steady recovery of its South African operations after “radical, largely rand-induced, restructuring”.

The company also admitted at that time that its South African operations had faced some difficulties.

Other local gold mining majors have recently announced that they wanted to either expand existing mines or start new ones in order to ramp up production after the price of gold measured in local currency rose to a record high of R154 000 a kilogram in recent months.

This week DRDGold added its voice to the chorus, saying it was seeking an increase in an exploration concession it holds. It said it was trying to find the precious metal that lies 3km below Johannesburg.

DRDGold said it wanted to boost its Argonaut concession to 4 800ha, covering the land between downtown Johannesburg and Soweto, adding that it would spend R10 million drilling an exploratory shaft.

Kruger said: “The industry has known for a long time that there were vast amounts of gold lying there. We also knew drilling was needed and could boost our gold production significantly. But mining gold in this area was abandoned a long time ago because of financial problems related to this task,”.

Apparently DRDGold tried to mine gold in the area in the 1990s but had to put the whole process on hold. Kruger said this was due to financial constraints as the costs of doing so at the time would have been too high to even contemplate. The deep-level deposit is estimated to lie between 3.5km and 5km underground.

According to news agency Bloomberg, DRDGold once considered setting up a company to fund a mine on the deposit. In 2002 it said the deposit could contain 111 million ounces and again announced that it could build a R7.5 billion mine on it.

But there are great physical challenges that go with starting a new mine. Kruger said heat and rock mass behaviour were among other challenges the company would face.

He said the mining activity in the Johannesburg area could also disrupt water and electricity supplies, although he said he was confident that Eskom and Rand Water could handle any problems arising quite professionally.

But Ilja Graulich, DRDGold’s spokesperson, disagreed with Kruger, saying these were old fashioned views of someone who left the mining industry about 20 years ago.

“DRDGold is asking for prospecting rights. Once these are granted we will use the existing infrastructure to continue mining the area, which is next to our existing mines,” Graulich said.

Last week DRDGold said a public meeting would be held in Alberton on July 28 to discuss the environmental issues raised by prospecting.

If DRDGold does start mining the vast untapped gold deposits beneath Johannesburg, its returns may be boosted by a significantly higher bullion price.

Last week it was reported that a stronger gold price in the June quarter had set the stage for local gold mining houses to report an improvement on the March quarter’s profits if they maintained production volumes and grades. The average gold price surged 10.7 percent to $614 an ounce in the quarter, but in rand terms it rose by 16.4 percent.

Recently AngloGold Ashanti said no substantial new South African mines had been given the green light in the past two years, despite the strong gold price. Most recently approved projects were extensions to existing operations.

The higher gold price would allow it to consider expansions costing R3.4 billion at its mines.

Kruger said: “The economic activity of the country and Johannesburg would be increased as these companies would be spending the money right here.”

DRDGold’s shares fell 8.1 percent to R9.65 on Friday, while the gold sector lost 4 percent.

Source: www.busrep.co.za