JSE-aspirant Galaxy Gold has spent this whole week in the UK on a road-show to convince investors of the efficacy of investing in the junior gold company that wants to turn to account a constellation of 21 virtually virgin orebodies beneath the skirt of the forgotten old Agnes gold mine in Barberton, the heart of South Africa’s discredited greenstone gold belt.

The golden galaxy of 21 orebodies might have been consigned to oblivion were it not for mining veteran Peter Skeat and his project- savvy partner, Wayne Hatton-Jones, who have introduced a new approach that could result in the old lady of Barberton having the last laugh over her now-depleting deep-level Witwatersrand kin.

The Galaxy orebody, which has given the company its name and which is the biggest of the 21 deposits, has a 1 200-m strike, a 35-m to 45-m face and an average grade of 4,6 g/t.

A Biox plant has been built and is operating to prove that the sulphide content of the ore can be dealt with, and upcoming is Australian-style trackless mining.

The R250-million to R400-million needed to achieve the surprise upside is still being raised in a process that has taken the road-show from Cape Town to London and it may also go to the US.

The mine is coming about at a time when returns on dollar and euro investments are poor; gold exchange-traded funds have unin- viting gearing; the share prices of large gold majors are not rising with the gold price; and the share prices of even large marginal gold mining have already benefited from the gold price rise and will fall if the gold price falls.

Against that background, junior gold- mining companies with projects that can have significant upside are attracting the attention of investors, but some of those have been burnt by their earlier investments in South African junior gold-mining companies and are now cautious.

The Galaxy Gold team is having to overcome that caution and convince investors as it goes about raising capital in a book-build exercise, ahead of the company’s expected August 18 listing on the JSE.

At the 40 capital-raising meetings held to date, the level of investor interest has been high, says René Hochreiter, of Allan Hochreiter, which is the sole book, runner and lead manager.

“We have taken massive risks to bring this project to the market and we put our money, sweat and tears on the line, because we are confident that we are going to make this work,” Skeat tells Mining Weekly.

One year after the 2009 meltdown, Galaxy is going ahead with the highly regarded project when the gold price is sound, but in the wake of disappointing performance by some of the gold juniors that have gone before it.

If it fails, and the company receives investments of less than R250-million, it will revert to private equity.

Should that fail, and the worst comes to the worst with Galaxy even unable to raise the minimum R250-million, it will continue to mine at the current 18 000-t/m rate, and wait for a better time to achieve the mine’s potential upside.

The old Agnes mine, which was bought at an auction sale, is already the scene of massive mechanised mining, with large-scale cut-and-fill under way, which is being carried out in wide 35-m to 40-m Galaxy reefs that contain 4,6 g/t gold along a 1 200-m strike length.

“It dispels the greenstone myth that you are forever searching,” Skeat tells Mining Weekly.

Galaxy is a formerly ignored orebody within the old Agnes gold mine that was historically characterised by vein chasing through small holes.

Now, the new approach at Agnes is akin to mining underground in an opencast manner, minus the expensive overburden.

“When you talk about the Barberton area, they raise eyebrows, but, after hearing the story, they realise that there is gold that can be bulk-mined and that Biox overcomes the sulphide issue.

“The biggest issue that we’ve had to overcome is the greenstone misnomer.
“There is vein chasing through small adits when the cutoff is 6 g/t and you have to look for a grade of 10 g/t. But when your cutoff is 3 g/t and you are looking for 5 g/t, there is a big difference. When the cutoff goes to 1 g/t, it is a big difference,” says Skeat.

The get to the level of mining 53 000 t/m, the Agnes mine’s Galaxy orebody will contribute 25 000 t/m, the Princeton orebody will chip in 15 000 t/m and the remaining 13 000 t/m will be from Woodbine, Giles and Golden Hill.

“That’s very modest, given Galaxy’s huge face of 35 m to 45 m, which tells you that we’re not pushing our luck. People will tell you that getting 53 000 t/m out of a greenstone orebody is insanely optimistic, but we should do so with ease. We’re really understating. Only the people who have seen the Galaxy face realise that what we’re promising is eminently achievable,” Skeat tells Mining Weekly.

In normal market conditions, Galaxy would have gone for nothing less than R400-million, but postrecession, it arrived at R250-million as the minimum that would avoid cancellation of its plans.

Galaxy’s ideal is R340-million, but if it succeeds in attracting R400-million or more, it can drill more, bring in more orebodies and up the tonnage still further.

Entrepreneur Skeat, who is both a civil engineer and a mining engineer, is an experienced earthmover and opencast miner.

As owner of the Afrikander Lease opencast gold-mining operation, the application of his earthmoving technology helped to take the share price from 20c a share to R5 a share – a 25-fold uplift.

He left that after five years, amid a public spat with the late Brett Kebble, and became part of the team that took the ASX-listed Mintails share price from 50c a share to R5 a share.

Nonexecutive chairperson Ian Watson has given notice that he will be working strictly in accordance with the King 3 rules of corporate governance.

“I’ve had two less-than-perfect experiences, but, in both cases, shareholders made a lot of money,” Skeat says.

He sold out of Mintails ahead of the uranium price crash, and is now applying his big earthmoving expertise, coupled to Biox technology, in his third major project.

When the trackless mining and Biox are added to the 21 orebodies, Galaxy is able to move the cutoff from 3,5 g/t to 1 g/t and end up with a 100 %-plus profit margin.

“Never in my 30 years of mining have I had a margin like that. The old daddies of the mining industry will tell you that, if you can double your costs and halve your grade, and your mine still works, you have the best 10% mine in the world.

“Well, our cutoff is 0,97g/t. Doubling that becomes 1,8 g/t. If you halve our grade of 5,3 g/t, you get 2,6 g/t. Even if you halve the grade and double the cost, you still have a 40% margin,” says Skeat.

Galaxy is going the mechanised mining route. Instead of a tonnage-limiting train and skip, the company has built a roadway for R1-million – a tenth of the R10-million quoted – which leads to the two new Golden Hill and 22 Level adits, which will be large enough to take heavy trucks.

“I am pretty sure that we’re going to raise the money that we need to raise,” says Hochreiter.

He says that first prize would be to raise the R400-million or more. “We will accept everything that we get, despite the dilution.”

Raising R340-million is the ideal plan, and R250-million will allow mining at 53 000 t/m, but very little else.

“Even if private equity falls away, there is R35-million in the bank and we can carry on for another year at 18 000 t/m and then look at the market once again.

“Generally, the listed route does allow a greater supply of capital and more money in difficult times, and we are expecting that. But, in this case, if, for whatever reason, the listing does not contribute the large volume of money we want, and we have to go the next best route, which is private equity, we’ll do it.”

Skeat concedes that private-equity investors will generally negotiate a harder deal, structure and work the company for several years, and then go to the market.

While Galaxy is in the process of building a book at between R5 and R7 a share, for listing on the JSE at R6 a share, private equity might squeeze that down to considerably less than R5 a share, and probably come in at around the R200-million level.

“Private equity is jumping all over itself to get into this project and, if it comes up with what a listing can do, we can talk more. Private equity has money, but too few places to invest, so they are having to up the offer,” says Skeat.

Hochreiter says that Galaxy has also had a great reception from South Africa’s institutional investors “because there is a dearth particularly of new mining projects”.

Anglo Rand Securities’ Louis Venter, who was among the many fund managers, potential investors and analysts who visited the mine, is positive about the project.

“They’re cash flush, they’ve got no debt, and they’re going to pay dividends from the outset, which the market is going to like. Very few gold juniors are in that position,” Venter tells Mining Weekly.

“As far as the operations are concerned, I am taking them at their word and I will just follow, as time goes by, to see whether they are making progress according to the plan or not,” Venter says.

Operationally, Venter does have queries about the level of mine ventilation, which he expects will improve once the large Golden Hill and Level 22 adits have been completed.

He also has underground support queries, but is aware that the company is receiving advice from rock mechanics.

“But, basically, I like what I see and hear,” Venter tells Mining Weekly.

Galaxy intends a reverse listing into the dormant JSE cash shell Wesco, the company of the late auto pioneer Albert Wessels. Wesco will acquire 100% of Skeat’s Agnes gold company for up to R336-million and issue shares at R3 a share, which will result in Agnes shareholders owning some 92,22% of Wesco.

Geology director Dale Richards says that a 1,1-million-ounce resource has been firmed up and additional exploration is targeting four-million ounces by 2014. Hillson Drilling CEO David Hill has been brought in to affirm the four-million ounces.

The company is fully funded to operate at its current 18 000-t/m level and the additional capital it is attempting to raise is to enable it to mine at a rate of 53 000 t/m by December 2011. As soon as it can thereafter, it expects to go to 100 000 t/m and beyond, which would put it on a similar tonnage level to some of the depleting Witwatersrand gold operations.

Two new adits are being established to accommodate the large new trucks, which will travel on a spiral ramp. The Golden Hill adit will provide access to a gold grade of 8 g/t-plus, double the 4-g/t average, and the 22 Level adit will link all 21 gold deposits, which could take total future tonnage to 250 000 t/m, using a five-truck system.

Five of the company’s 21 orebodies – Galaxy, Woodbine, Giles, Golden Hill and Princeton –will be mined to provide the 53 000-t/m volume.

Skeat, who is currently the biggest single investor in Galaxy, expects to bring cash costs well below the $500/oz level – possibly even to the $300/oz mark – using Australian trackless mining techniques.

The change in the fortune of the mine has come about by making it economically feasible to have a 1-g/t grade as the cutoff level.

Galaxy mining director Steve Venn explains to Mining Weekly that, historically, Barberton greenstone mining has been carried out with conventional jack-hammers and airlegs.

But, with Skeat’s new approach, the jack-hammers are giving way to jumbo drills, big trucks and large earthmoving haulers operating in large stopes, which is bringing down the pay limit.

As the orebodies do not have uniform linear grades, cutoffs are indistinct and characterised by mineralised halos, which Venn tells Mining Weekly has opened the way for mechanised mining, even in the narrower-vein areas.

With the gold price buoyant, profit margins are promising. “Even if the grade halves and the cost doubles, we’ll still have a 40% margin,” Skeat says.

Biox technology has made a nonissue of the sulphide ore that put the old-timers off, and tracks and locomotives are giving way to trackless vehicles.

Galaxy COO Hatton-Jones showed Mining Weekly the new modern R6-million variable-speed, skid-mounted mill, which is bidirectional to allow for a doubling of liner life. With the introduction of a roll crusher, the mill’s capacity can be brought in line with Galaxy’s 53 000-t/m tonnage target.

The milled material goes into a small flota- tion plant and the concentrate from that flotation plant goes to the Biox plant, which oxidises the sulphide material so that it can report to a conventional carbon-in-leach plant for gold extraction and supply to the elution plant.

The old plant will carry the operation until the new plant is built.

History

Galaxy’s mine captain for planning, Phil Wikberg, who knows the 127-year-old Agnes mine well, is convinced that Galaxy will be able to mine the vast tonnage planned.

Wikberg recalls that the Barberton pioneer, ‘French Bob’ – whose real name was Auguste Robert – discovered the mine on June 3, 1883. The gold deposits were discovered in the Moody’s, Sheba and Saddleback faults.

But the pioneers hardly scratched the surface of the mine’s full potential, interrupted as they were by the Boer War and the First World War. Later, the adit, through which Mining Weekly itself entered Agnes, was built, and mining ensued up to the Woodbine shaft, which has a capacity of a mere 14 000 t/m.

Even though the early miners could have done a lot more, the Barberton economy was given a shot in the arm by their pioneering activities, with the mining town supporting stock exchanges, music halls and canteens.

But miners started to look west when the bigger Witwatersrand goldfield caught the attention of the gold world and sulphides in the Barberton ore had diggers scratching their heads.

Now the activities in Barberton of Galaxy and also the JSE-listed Pan African Resources are resulting in eyes turning east once more.

BEE Proving Complex

Galaxy is negotiating with two prospective black economic-empowerment (BEE) partners and expects to conclude negotiations with one of them within three months. Thereafter, it expects to obtain new-order mining rights.

Skeat says that one of Galaxy’s prospective BEE partners does not want to be “locked in” and wants to be allowed to sell – which Mineral Resources Minister Susan Shabangu is opposed to. Although the other prospective BEE partner does not mind being locked in, he is already well heeled and the BEE transaction will not result in the desired redistribution of wealth, which also irritates govern- ment.

“We’re at a slight dilemma, where one BEE wants to put the money in, but not to be locked in, and the other does not mind it being locked in, but it will mean making the already rich even richer,” Skeat says.

While the 26% BEE equity requirement presupposes that the BEE partner pays for the equity, Skeat points out that some BEEs who raise their own capital want the freedom to sell, which, in turn, means that the company is empowered only up to the time of the sale.

“Poor communities want to come in and sell quickly, but then you are ‘unBEEed’, and the moment you are unBEEed, the Minister takes away your rights,” he adds.

He sees one way forward as being through vendor finance, which can achieve lock-in, but then the mine, and not the BEE, is really paying for the shares and it becomes a front, which is what the Minister says she is dead against. So it gets very complex.

“Entrepreneurs like us want to empower the masses, but it is difficult under the current regu- lations, so it can mean that you end up having to empower people who are already rich, which is not redistribution, and that irritates the government,” Skeat says.

To watch a video in which Galaxy Gold CEO Peter Skeat tells Mining Weekly Online’s Martin Creamer that he has debunked the perpetual-search myth associated with Barberton’s greenstone belt mining, click here.

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