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Simmers to close two Buffelsfontein gold-mine shafts
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29th June 2010
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JOHANNESBURG (miningweekly.com) – JSE-listed gold-and-uranium miner Simmer & Jack Mines (Simmers) has initiated the closure of two more shafts at its Buffelsfontein (Buffels) gold mine in North West province.

New Simmers CEO Nico Schoeman tells Mining Weekly that the closure of No. 10 shaft as well as the rest of No. 12 shaft is to ensure "profitable" future tonnage.

"We have to ensure that we limit, if not eliminate completely, non-profitable tons that are produced," Schoeman says of the company's shaft-closure plans.

The company has found No. 10 shaft's grade profile to be overly erratic and highly faulted.

"It's not a shaft that'll bring the stability we're looking for to support our business plan," Schoeman says.

Labour union Solidarity, which described Simmers' Section 189 announcement as " another retrenchment shock", gave Mining Weekly a copy of Simmers' notification to labour, which puts the official retrenchment estimate at 865, out of a total of 4 567 employees.

But Schoeman believes that 600 jobs are likely to be at risk, given the opportunity of the company to transfer some of the workers to the Ezulweni operation of First Uranium, a Simmers' associate company.

In his maiden presentation since taking over from current First Uranium CEO Deon van der Mescht, Schoeman announced a pre-tax loss of R736-million for the financial year (FY) to March 31, accompanied by a proposed "roadmap to profitability".

Four Buffels shafts will continue to operate.

Significantly reduced production guidance, of only 75 000 oz for the FY 2011 at a cash cost of $1 050/oz, has been given, largely as a result of the closure of the two shafts. The production guidance is a 40%-plus drop on the 129 376 oz (4 024 kg) that Simmers produced in FY2009.

Nineteen days of statutory safety closure because of a fatal mine accident on May 4 has been taken into account in arriving at the low projected production figure.

The main focus is now on No.5 shaft, where grades are high.

Reliance is being placed on No. 6 shaft for volume rather than grade, and 8 g/t has been set as the targeted grade for the business as a whole.

"It's up to us to start capitalising on what is a wonderful resource," says Schoeman, who adds that the company has received labour union backing in the Section 189 process.

"They're highly participative in that they've asked that we immediately initiate the process of voluntary retrenchment. Associated with that, we do offer employees the opportunity to be transferred to Ezulweni.

"The number of jobs presently at risk is an unknown. We will know what that number is once the process is completed, but it looks like being in the region of 600 people," Schoeman says.

He expects Buffels to be on a better footing going into the third quarter and anticipats the benefit of Tau Lekoa, the gold mine Simmers is buying from AngloGold Ashanti, in the coming quarter. Tau Lekoa mining right has been executed but not yet registered.

Labour union Solidarity estimates the proposed Simmers retrenchment as involving 20% of the employees.

"Simmers initiated a large-scale process of retrenchment at this mine over the past year," Solidarity spokesperson Jaco Kleynhans says.

He criticises Simmers for having not availing itself of the opportunity to reduce the 130 permanent employees, 222 contract workers and 565 labour hire employees that it laid off during its previous retrenchment programme, which began in August last year.

Kleynhans emphasises that continual retrenchment is putting employees under immense pressure.

"The employees work in extremely uncertain circumstances and, since the mine went into liquidation in 2005, they have not had long-term security, in spite of Simmers' takeover of the mine," Kleynhans says.

The union recalls that former Simmers CEO Gordon Miller had stated that the incorporation of Tau Lekoa would improve Buffels' risk profile and double group production.

"However, it appears that this asset was acquired at the expense of older assets at Buffelsfontein and the employees now have to pay the penalty for this acquisition," Kleynhans says.

"Bearing in mind the high gold price, it's time for gold producers to share in the prosperity, not get rid of skilled employees," he adds.

Simmers had to bear an impairment charge of R267,4-million in the 12 months to March 31, primarily as a consequence of its Transvaal Gold Mine Estates (TGME) in Mpumalanga having been placed on care-and-maintenance.

Simmers' operating loss widened from R255,7-million in FY 2009 to R274,8 million.

Comparable gold production was down 7% at 119 877 oz (3 729 kg) compared to 129 376 oz (4 024 kg) in FY 2009, mainly due to rationalisation.

Total cash costs increased by 7% to R998-million from R932-million in FY 2009.

Unit cash costs were up from R231 624/kg (U$812/oz) to R267 703/kgU$1 061/oz); gold revenue was down 5% from R989-million to R941-million; capital expenditure was up at R165-million compared with R156,3-million; and cash and cash equivalents was down at R633-million, compared to R843 million in FY 2009.

First Uranium production has been stripped out of FY 2009 for comparative purposes.

Growth prospects at Buffels include the development of the northwest block's 570 377 m2, which is estimated to contain 14 169 kg of gold.

The installation of a third mill to provide extra milling capacity to continue treating the mine's lucrative surface material after the Tau Lekoa acquisition and the conversion of the existing leach and carbon-in-pulp circuits in the south plant to a four-stage carbon-in-leach circuit, which is expected to increase gold recovery by 4,5%.

As soon as the registration of Tau Lekoa takes place, Buffels will begin treating ore from Tau Lekoa.

Tau Lekoa is expected to produce 125 000 oz/y of gold (or 3 888 kg) in FY 2011 at a total cash cost of $815/oz or R200 000/kg.

That is expected to generate an average, annualised free cash flow of R150 million.

The acquisition of Tau Lekoa also includes the Weltevreden resource, a shallow, up-dip extension of Tau Lekoa lying between 80 m and 300 m below surface.

Development of this 2,3-million ounce resource could extend the life of the Tau Lekoa operation.

This is currently the subject of a pre-feasibility study, which is due for completion in the third quarter.

TGME will remain on care-and-maintenance for the foreseeable future, at a cost of R500 000 a month.

TGME is viable at a sustainable gold price of R300 000/kg.

 

Edited by: Creamer Media Reporter

 

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Simmer & Jack CEO Nico Schoeman tells Mining Weekly Online’s Martin Creamer that two shafts are to be closed and 600 jobs are at risk. Cameraperson: Nicholas Boyd. Video Editor: Darlene Creamer
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Simmer & Jack CEO Nico Schoeman
 

Simmer & Jack CEO Nico Schoeman