JOHANNESBURG (miningweekly.com) - Modder East gold mine on South Africa's East Rand was set to be “unbelievably profitable”, the proposed Ventersburg mine in the Free State was “really promising” and the Tulo prospect in Mozambique could be a “company maker” for the new 500 000-oz/y-in-five-years Gold One, president and CEO Neal Froneman said on Thursday.

Froneman, who was morphing the JSE-listed Aflease Gold into Gold One in a reverse takeover of BMA Gold of Australia, said Ventersburg appeared destined to be a large mine.

“I don’t want to call it a megamine, but it’s probably going to do 200 000 t/m to 300 000 t/m,” he told Mining Weekly Online in an exclusive interview.

The simple, easy-to-mine, low-risk Modder East would pour its first gold before Christmas of 2009 at a low cost of below $300/oz and a profit margin above 100%.

Tulo, in the north of Mozambique on the Tanzanian gold belt, could be a “company maker”, the “official vision” of the company being to produce at a rate of 500 000 oz of gold a year in the next five years.

There was also the company’s Bothaville asset, drilled previously by Rand Mines and Gencor, which might become the first mine in the Bothaville Gap area, as well as Etendeka in Namibia, an iron-oxide-copper-gold deposit "very similar to Olympic Dam" in Australia, and having both uranium and thorium.

The new Gold One would need to raise an additional R120-million by mid-2009 to fund projects.

The company had cash-in-hand of R330-million, the remaining extent of last year's R600-million convertible-bond issue, but would require from R90-million to R100-million of the additional R120-million for its flagship Modder East near-operation development.

BMA would acquire all Aflease Gold's shares to form Gold One in a "complicated" transaction costing R35-million.

The proposed transaction would involve the inward listing of BMA on the JSE and BMA's subsequent acquisition of Aflease Gold, the enlarged BMA then being renamed Gold One.

"We are not under cash pressure right now, and we're well-advanced in securing a good slug of the R120-million that we need," Froneman said.

Part of the rationale of the deal was to raise the R120-million, which would be needed only by the end of June.

"We will not entertain debt at the moment. I don't believe that it is appropriate in our company at the moment and, not only that, I don't think that you will get debt. The markets are very tight," Froneman said.

However, Sean Chilvers, the MD of the advising company Macquarie, said debt could become available as the company progressed its production profile.

Chilvers added that the South African debt market had been less impacted on, but would agree that debt was not necessarily the most appropriate form of funding to consider right now, implying that equity woiuld be preferable.

Froneman said that the creation of the 550-million-share Gold One was part of a "strategic" transaction, which resulted in Gold One having primary listings in both Johannesburg and Sydney.

"This is not a primary and a secondary listing. Gold One will have a primary listing on the JSE and a primary listing on the ASX, and it will be one of the first companies to actually achieve that," Froneman said.

“When we raise larger amounts of money for Ventersburg, then we’ll really see the benefits of the Australian capital markets,” he added.

The Gold One deal had the unanimous support of both boards of directors and in-principle support of the major shareholders, Trinity in particular.

The court clearing of the transaction was expected on December 17 and operational approval on February 23.

BMA shareholders would hold 4,4% of the company and Aflease shareholders 95,6%.

The rationale for doing the deal stemmed from the desire to create an emerging mid-tier gold producer, which was currently still at development stage, but which filled a void on the ASX, where there was no midtier producer.

"We hope to fill that space and will be well-positioned to look at other transactions as well," Froneman said.

The company strategy was based on shallow, low-cost mining and low-technical-risk assets and the company was positioned to become a high-margin international gold producer.

The company had near-term gold production from its Modder East and Sub Nigel mines on South Africa's East Rand and gold exploration in Southern Africa and Australia.

The business had a resource base of more than 15-million ounces.

Current BMA Gold CEO Mark Wheatley would chair Gold One, former Sallies CEO Isak Marais was COO and the board would include former Anglo Platinum CEO Barry Davison. Former Randgold Resources executive Adrian Reynolds had been appointed vice-president projects.

Froneman said that Gold One had "strong rerating potential" as South Africa companies traded at a "distinct" discount to its peers.

"One way of reducing that discount is to make sure that you are listed in an appropriate jurisdiction," Froneman said.

As Aflease Gold was already one of the highest-rated South African juniors, there was insufficient headroom for the company to move up in South Africa.

"But when you stack us up against the Australian contingent, there is a lot of upside, and we are quite confident that we will see at least some of that uplift," Froneman added.

Listing on Canada's TSX had been considered, but the North American capital markets were found to be "absolutely shut", while the subprime and credit issues were not as acute in Australia, where Froneman was confident of access to capital, albeit "expensive" access.

As Gold One would be the fifth-largest gold resource inventory on the ASX, company "visibility" in Australia would be "significantly higher" than in Canada.

There were also many opportunities for consolidation in Australia.

Froneman was still intent on a future TSX listing, probably in the form of a dual listing on the TSX and the ASX.

"We have made it our business not to become a deep-level miner," Froneman said.

Since 2003, it had only developed and acquired only shallow assets, with the exception of Sub Nigel Six, which was deeper than 1 000 m, which was Gold One's cut off.

Although Sub Nigel Six had five million resource ounces, it was not something that the company would consider developing because it fell outside of the 1 000 m-deep limit.

"That doesn't mean that we will not take the operation up the value curve and receive value in one way or another," he said.

"We are vastly different to the 3 000 m South African average. We are much shallower, and that is very conducive to making an entry into either North America or Australia," he added.

The company focused on rand-per-ton costing and not dollars-per-ounce costing, which came out of converting rand-per-ton costs, using the grade and various exchange rates.

Nevertheless, if the company's R236/t were converted, the cost would be below $300/oz, which positioned the company well.

Modder East would come into production late in 2009 and stoping would begin at Sub Nigel One early in 2009.

The Modder East gold plant, which would be completed in April, would be used to treat ore from Sub Nigel One.

Because Turnbridge and New Kleinfontein on the East Rand were "probably too small for us to develop", and the company would look to putting them into a vehicle more suited to small-scale mining, while retaining upside exposure.

Modder East had, he said, had been insufficiently marketed, but would receive more publicity in the first half of 2009 when the first reef would be intersected.

Situated 30 km from Johannesburg, Modder East had access to excellent transport, energy and water infrastructure.

Grootvlei previously mined the geologically-simple, 300-m-deep, unchannelised Modder East orebody.

Some 58 boreholes had been drilled into the shallow Modder East orebody, which had been worked on since 2003.

Modder East, which had gold reserves of 7,65-million ounces at 5,5 g/t, would have a throughput of 100 000 t/m and, by bringing the higher-grade areas forward, the net present value of the proposed operation was increased to $187-million (R1,4-billion) at a gold price of $800/oz and the internal rate of return to 49%.

The net present value related to Modder East alone and did not include any of the other assets.

"Our market capitalisation compared to net present value showed that the company is largely undervalued and therefore for people wanting to enter and buy shares in the company, this represents a very attractive opportunity," Froneman said.

Gold One did not have a dividend policy and was a stock that was being marketed on its potential capital appreciation, but dividends would become "an important consideration" as soon as the company had sustainable cash flows.

The company had 300 employees, of which 297 were in South Africa.

A "small value leak" would result from the company's black economic empowerment (BEE) transaction.

The BEE deal was structured at asset level and not at corporate level, which meant that the BEE partners owned a portion of the assets.

The BEE partners did not have funds for the development of the assets, which the company would fund entirely.

Once the assets started to generate cash, some of the cash would flow through to the BEE partners in the form of dividends and after two years, the BEE partners would have to begin paying for both the assets and the capital invested.

The price the BEE partners paid would be based on the net present value of the assets.

The gold plant was close to completion and the first gold pour was scheduled for the fourth quarter of next year

The eight-year first phase would have an output of 180 000 oz/y from 2011.

The primary access was through a decline and all the development, in competent but water-bearing rock, was mechanised.

The "expensive" R30-million paid for the transaction was "pretty close" to BMA's market capitalisation, but facilitated a deal that was "company transforming" from a strategic perspective. The only asset from BMA was the 195 000 oz Twin Hills in Central Queensland.

On the impact of the convertible debentures of the current transaction, Froneman said that it would have an effect only when the company came to renegotiate those terms.

The company did need to engage its convertible debenture holders, but currently the terms of the five-year bonds were at a "very attractive" 8,5% coupon rate.

However, the conversion price of R4,11 would have to be dropped in a balanced way that shareholders would support.

"We are looking at some clever things that don't relate to any further dilution, but some of the detail I just can't release yet," he said.

Questioned on his involvement in Uranium One and Uranium One's poor performance, Froneman said the Dominion project in Klerksdorp had been "disappointing" and "we have learnt a lot from that".

"But I look past Dominion and I see a very strong uranium company. If we can be half as successful as Uranium One, I'll be very happy," Froneman said.

While Modder East had not been developed as quickly as Dominion, that was because it had been developed in a more conventional way, accompanied by resource drilling.

The Dominion mine, by contrast, was fast-tracked in parallel with the development of the feasibility studies, and that came with a risk that as well understood at the time.

Modder East had now become a project with a much lower level of risk.

"We never put it on the back burner, it was just that it was very difficult to market because there was nothing to show but a decline. But now we've got infrastructure. The plant is being built," he said.

On his potential to develop uranium at Gold One's Namibia asset, Froneman said: "I am under a restraint of trade so there is nothing much I can do about uranium at the moment. But I find uranium as attractive as ever. My own belief is that you will see a very different uranium price in the future.

"Strategically, we will make those decisions at an appropriate time, but right now our focus is gold.

"Thorium, which is also a nuclear fuel, is something that is going to surpass uranium. The Indians have developed a fuel cycle for thorium. It is not something that is well-known," he said.

Thorium had its own fuel cycle and "I dare say, you will hear a lot more about thorium from an energy point of view in the not-too-distant future".

Most of the world's thorium was in India and "we have had results with very high grades of thorium at our Etendeka asset in Namibia. It's interesting".

The company had an exclusive prospecting licence over the 65 000 ha in the Outjo district of north-western Namibia.

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