JOHANNESBURG (miningweekly.com) – In the next few weeks, Shallow Reefs Gold is hoping to be able to announce what it describes as a fairly significant capital raise out of North America after being very active in the capital markets.
The target pipeline of the company that is intent on mining shallow deposits of South Africa’s historic Witwatersrand Gold Basin is focused on five initial projects.
An initial planned capital raise of $21-million seed money will allow the company to finalise the definitive feasibility study (DFS) on the first projects for at a start-off production of between 50 000 oz and 80 000 oz a year from those projects out of the five that are selected to go ahead.
“We’re incredibly bullish,” said Shallow Reefs Gold's Mark Gilbert, who spoke to Mining Weekly in a Zoom interview. (Also watch attached Creamer Media video.)
The five project assets are all on the eastern and western portion of the Wits Basin bar one, which is in the Pilgrim’s Rest/ Barberton greenstone belt area.
Shallow Reefs Gold has picked those assets with good drill data and close proximity to infrastructure. From a regulatory point of view, they are properly approved, with mining rights and water licences in place and prospecting rights granted.
Interestingly, the company is able to report that some very high-grade gold mineralisation has been discovered that was not apparent to the old-time miners, who were very used to mining the traditional Wits conglomerates.
Built will be mines and not plant owing to the surplus of plant capacity available in the Wits. There is also no need to build tailings dams as the tailings material generated is wanted by established surface mining concerns.
“It’s almost a perfect storm,” said Gilbert, who reports a very bullish precious metals investor base that he does not see changing any time soon.
As reported by Mining Weekly in November, the company is targeting 200 000 oz of gold production a year over the next decade.
Involved is a collective 21-million-ounce-plus resource at 4.7 g/t all above 1 200 m, and most of it National Instrument (NI 43-101) or Samrec compliant, with one of the assets having a nigh two-million-ounce proven and probable reserve at 4.3 g/t.
Gilbert, who is CEO of the mining and environmental law firm NSDV, is a former MD of Macquarie Bank in both South Africa and Europe.
Shallow Reefs Gold, which is viewing Wits gold through the lens that sees value in one-million-ounce-plus mineable gold deposits that companies the world over list on, has former Mineral Resources Minister Susan Shabangu and former Exxaro chairperson Sipho Nkosi on its board, as well as former Department of Mineral Resources DG and former Council for Geoscience CEO Dr Thibedi Ramontja as a key member of the team.
Shallow Reefs Gold is planning a primary listing in Toronto followed up by a probable secondary listing in Johannesburg a year to two years later.
Mining Weekly: Can you give us an update on how things are going with Shallow Reefs Gold since Mining Weekly's report last November?
Gilbert: We’re in an incredibly exciting phase right now. We’ve been very active in the capital markets and I’m hoping that in the next few weeks we’ll be able to announce a fairly significant capital raise out of North America into Shallow Reefs Gold. In many respects we have the curse of plenty in South African gold mining. We’ve been so used to these 60-,70-, 80-million-ounce ore deposits in the gold and platinum sector that we tend to view smaller deposits of a million ounces, two-million ounces, three-million ounces, as not worthwhile. Yet if you go anywhere in the rest of Africa, if you were in Ghana, for example, and you found a two-million-ounce gold deposit, you’d have a listed gold mining company. What’s transpired over the last few decades is the majors have a huge amount of capital committed to these ultra deep-level mines and it, of course, makes commercial sense to continue those. But we are literally blessed with this plethora – and I use that word – across the entire Witwatersrand basin, of these smaller deposits and we’re looking for mineable resources of a million ounces upwards. To put that in perspective, there are only a few hundred gold-mining companies in the world with a million-ounce deposit or bigger. We saw one in Nevada the other day – a 400 000 oz gold deposit – listed as a $200-million company. We are progressing very well; the capital raise is progressing. We have some very significant backers out of North America. Our target pipeline has been sharpened a fair bit over the last while. There are five initial projects that we’re looking at where we’ve been in very positive conversations with the owners. Some of them are the majors, as one would expect. What’s becoming apparent to us, most excitingly, is that South Africa is literally the cheapest place on the planet right now to buy gold assets. You cannot find gold deposits of the quality we have here in South Africa, at the prices that we’re seeing. That, of course, is a double-edged sword. There is a lack of capital coming into the South African market although I’m very, very pleased to say that we’re seeing that trend changed. We’ve been part of transactions over the last little while. We've seen very significant amounts of foreign capital coming into South Africa. Even more excitingly, we are starting to discover, which will all be announced in due course, some very high-grade mineralisation in the shallow Wits that was not apparent, let’s call it, to the old-time miners, who were very used to mining the traditional Wits conglomerates. Once we discover gold in the Wits conglomerate, we could literally just follow it and we have. We’ve followed it all the way to four-and-a-half kilometres underground now. But much like South Africa discovered the Carbon Leader in the 70s and 80s, as a very high-grade reef, we started to find some very interesting shallow reef deposits of similar mineralisation, which are unbelievably exciting. So I think you will find us at the opposite end of a lot of people in South African mining right now. We’re incredibly bullish. We’re very, very excited about South Africa. We have a focus on South Africa and we’re not looking at a diversification strategy out of the country. We have an incredible portfolio target list of assets that, again, it’s just mind-boggling the price at which one can acquire them at and we’ve got some very large development capital coming behind us who want to build a junior gold producer here in South Africa. The last two key pieces of the story, which we discussed last time, still hold true. We have an enormous surplus of plant capacity sitting in the Wits, which is available. We’ve been tolling at one of our mines with one of the majors very successfully, very cost-effectively. We’re in conversations with two of the other majors right now about tolling arrangements. They are incredibly open to it. We do know tolling arrangements have their challenges but we’ve got a fair bit of experience in that space now. And then, the most exciting bit for us is the liabilities, or the rehabilitation. All the dumps have been swallowed up by DRDGold and Mine Waste Solutions and those companies actually want our material. What we will be producing in time will be insignificant compared with the dumps that they are sitting on, but two of the biggest challenges for mining companies in Africa are tailings deposition and the liability associated therewith and infrastructure, and both of those we have ready built, for lack of a better word, in close proximity to the assets we’re looking at, which further reduces the cost of getting these assets on to the balance sheet. And finally, we’ve been working very hard with our mining team and building their competency. The quality of skills in this country is just absolutely phenomenal. It truly is. We are blessed. You need an electrical engineer to come and resolve a problem on your compressor, you literally pick up a phone, and the guy just jumps in his car and he’s in his bakkie and he’s there in an hour or two. Whereas, if you’re in the Congo or Ghana, the guy has to board an aeroplane from Johannesburg or Europe, and it’s four days. We think the pessimism scale has swung way too far too the negative. Again, to the old Warren Buffett analogy, ‘be fearful when others are greedy and greedy when others are fearful’, and we're very much in the greedy phase right now. We’re very, very bullish on gold mining and precious metals mining in South Africa. Recent results from the listed gold companies and platinum group metals (PGMs) companies back that up. They are quite literally printing money at the moment across the board. We’ve got a skilled labour force here with surplus labour, a weakening currency in a hard-currency asset and we’ve seen precious metals price appreciation. It’s almost a perfect storm, and we’re really trying to drive hard that the narrative needs to shift in South Africa. Yes, of course we know it’s hard. We're not naïve but having tried to buy a mine in Congo, that’s hard. It’s no harder here than it is there, I promise you.
Have you been able to get mining licences and environmental approvals?
We’re incredibly fortunate there. We have a partner law firm, NSDV, which is a specialist mining and environmental law firm. NSDV have taken a very different strategy to normal and to regulators in South Africa. For too long, and I’m very critical of the industry now and I’ll be vocally critical, you have heard the same people saying the same thing the whole time: 'we need policy certainty'. At some point we have to say you’re not going to get it. So now, what are we going to do? Do we abandon ship or do we figure out how to play within the realm we’re operating in? NSDV have set themselves up in a very different way to the other law firms. They pride themselves in the relationship they have with the regulators. There are a lot of competent people in the regulators. They are hamstrung, they are under-capitalised, under-resourced and, to be frank, they’re tired of being beaten up with the big stick. Very often mining companies, in our view, win the battle but they lose the war, because these are human beings at the end of the day and after they’ve been hit enough, are you surprised that your Section 11 takes six years to process. NSDV pride themselves in holding those relationships and literally sit with the regulator, discuss the issues, ask the regulator for advice, and to be honest, so far, we find it to be an incredibly productive approach. We have not seen any challenges. The quick answer is, yes, we are getting our applications, we’re getting our water use licences, we’re getting our prospecting rights granted. Is it as quick and efficient as it should be? Of course not but the risk-reward differential is so heavily stacked in our favour now as a country, when you look at, again, the price of assets that we can acquire. That’s no longer a hindrance. It’s a hassle and it’s stuff you’ve got to slog through and, again, it’s easy to say it’s stuff we shouldn’t have to do, well, at what time do you stop complaining and start to turn the narrative? In our opinion, we’re in the early stage of a commodity super cycle. We’ve seen unbelievable price increases across large portions of the commodity basket over the last 12 months, in a recession. You’re starting to see inflation ticking up in the US aggressively. I think their last print was 5.8%, which is above ours, which is pretty radical, if one thinks about it. So we’re a mineral-rich blessed country, we have a deeply functioning court system and legislative environment. The rules are changing and, yes, it’s frustrating, we accept that. There are ways of protecting oneself in that contractually, and we’ve started to do that so that we can create structures that if there are change of law events you have the capacity to restructure your ownership deal, for example. Instead of saying it’s a massive problem say well how do we solve the problem. So we’re in the midst of going into a commodity super cycle, that’s very much our in-house view. Were blessed with highly skilled labour when it comes to underground mining – rock drillers, engineers, load haul dump operators etc. We've got unbelievable technical skills across the entire spectrum of engineering and others. We've got phenomenal mineral resources, processing capability. So the one thing everyone complains about is policy certainty. If I look on the check list of things on needs to start a mining company, and that’s my biggest headache, bring it on. I was looking at the Kibali mine owned by Barrick up in the Congo. They had to build a 1 800 km road to Kinshasa port to bring their materials in. It takes two weeks. You don’t see them complaining, ‘well, there’s no roads here’. You build the roads. Again, we’re just unbelievably excited about where the sectors going, seeing capital flowing into the sector, seeing foreign capital flowing into the sector, which is a wonderful thing. We phoned our investors during the riots and said heads up, are you aware of what's going on. They asked ‘are the mines affected? No, that’s fine, let’s go’. That stuff puts pressure on the rand, it improves mining. When you look north of the border at Zimbabwe – an economy destroyed. What’s still operating? Well, their mining industry. They’re mining diamonds, gold, PGMs, chrome. So, we just do not understand the doom and gloom from the South African mining industry. It’s a boon for us because people are offloading assets that, in our opinion, they just shouldn’t be selling. But one has to be savvy. The vast bulk of the capital coming is foreign capital so that if you don’t have strong hooks into foreign capital networks, you’ve got to work with people who do, the right corporate finance advisers to access domestic capital markets. On the debt side, it’s fine. You can raise plenty of debt here from the banks and others, it’s the equity cheques that are challenging, and almost all of that, from what we’re seeing right now, is coming out of Europe and North America. But huge amounts of support. I mean the commodity market is absolutely booming and you just follow the money, the old adage. Seventy-five per cent of the world mining capital comes through Toronto, so if you’re not talking to the Canadians, you’re missing three-quarters of the global capital flows, which is where most of our capital is coming, interestingly enough. It's out of Canada.
Is the JSE still out of the question as a listing destination?
I’m going to give you the typical Afrikaans saying, ‘ja-nee’. We will be listing in Toronto as the primary listing. We will certainly secondarily list in South Africa. Again, it’s a great shame for South African mining. We’ve lost all of our early-stage capital investment. There’s just no one who will back someone like us, notwithstanding the skill of team, the history, the knowledge. But where the South African pension funds and asset managers do come in is when you’ve got a two- to three-year track record., and we’ve seen significant investment. I think Allan Gray is a 25% investor in Pan African Resources, which is heavily exposed to South African gold mining. Underground, they’re building Evander gold mine right now but they’ve got that track record. So no one’s willing to back the early stuff which South Africa was unbelievably well-known for in the early 1900s. We were the destination for mining capital as a country. But, yes, one does need to be listed on the JSE so we will list on to the JSE when appropriate. It probably won't be in the first year or two because the first year or two of these assets is really bringing them up to definitive feasibility stage. That’s the first two years of the project and then it’s the production capital. We will definitely list on the JSE but not as a primary source of capital. It will become a big secondary source of capital once we’re up and running. We hope so.
How much capital are you required to raise?
The first raise is $21-million, so let’s call it R300-million. That’s the seed round. What that allows us to do is to finalise the definitive feasibility study on the first five projects. Again, we’re not naïve. Not all five projects will reach satisfactory conclusion, although as the gold price keeps ticking up that becomes more and more likely. That is the first round out of our investors. We’re then looking at the development capital on the various projects because remember, unlike the big mines, we’re not building one big mine. We’re going to be running a portfolio of three or four or five smaller mines. We’re looking at production of between 50 000 oz and 80 000 oz per annum. Again, quite different from the mines currently in existence. Almost all of them are trackless decline, which has been very well deployed on the Bushveld Complex by the PGM miners. There is one asset with an existing shaft in it and the orebody is at 340 m below surface so that works very well. But the capex for putting the trackless decline in is dramatically lower than a vertical shaft. You’re looking at roughly 30%, with the additional benefit that as you're sinking your decline, you’d have access to the orebody. You can start mining, unlike a vertical shaft, which you have to put all the way down, pull all your haulages out, put your cables up. We won't be the first gold mine doing trackless decline mining. Modder East is the poster child for that, run very successfully initially by Neal Froneman (current CEO of Sibanye-Stillwater) and now under Gold One control. So we’re copying that model. The capex per project is going to vary. We’re largely only building the mine. We’re not building the plant and tailings. We’re building in proximity. So we’re looking at capex cheques in the order of $40-million to $60-million to put a mine into production. If you look at that and go and look at any global scale, there is almost a stunned silence at the other end of the phone as though ‘you’re sure, you’re not missing something here?’ And the answer is no, again because I’m not sinking a billion rand into a new plant and building a tailings facility which is going to take you three or four years to license. Depending on the outcome of the DFS, we’ll look to put the first mines into production and then probably be looking, with two or three of them going into production, a $100-million to $150-million raise, and that’s total capex. The equity cheque is a smaller portion of that, let’s assume half – $75-million equity and the rest would be on project finance. We’ve been in extensive conversations with the lenders in South Africa. There is a lot of appetite for the lending of the equities there, which makes sense. We’ve got a trapped pool of rand capital as a result of exchange control, that needs to be deployed, so the debt is really not a concern. We see quite big debt facilities going into mid-size mining companies right now.
You call yourself a junior and also refer to yourself as being mid-size.
It’s always that wonderful debate. Where does junior end, and where does major start? Our target, and it’s an ambitious target, is to be a 200 000 oz/y gold producer in time. That’s really what we’re setting ourselves up for. Our initial asset base will give us somewhere in the order of 20-million ounces of gold drilled and, again, that’s the huge benefit of these projects is that most of them have been completely drilled. There’s very little about the Witwatersrand Gold basin that’s not understood, to the extent that on the one asset a shaft was sunk and it as operated by a major for a period of time. So huge amount of data. What am I as a 200 000 oz/y gold producer? Juniors tend to talk to that development exploration story. Maybe an Orion pre-production. Where would you put a Bushveld Minerals? I don't think they’re quite a junior anymore. They’re a material player in the global vanadium markets. A midtier producer, I think. The naming conventions, we’re still not quite clear on them and I don't think anyone is.
In how many provinces are the five assets scattered?
The Wits runs over Gauteng, North West, Free State, I think it touches on Natal, running up to Mpumalanga, Limpopo. The assets at the moment are largely Gauteng and North West. They are all on the eastern and western Wits bar one asset, which is up in the Pilgrim’s Rest, Barberton greenstone belt that we’re finding quite interesting, where the Pan African guys are operating at the moment. As long as it ticks all the boxes, we expect to be a Wits gold player. That’s really where we see the bulk of the deposits. Our list is now at 17 additional targets we’ve compiled over the last decade. We’ve picked five assets that from a regulatory point of view are properly licensed, with mining rights in place, good drill data and proximity to infrastructure. We went through a selection process of weeding out. We won't end up with the resources that the majors have got of 100-million ounces and 200-million ounces but I think those that are ascribed that by the market these days is relatively small. A lot of it is deep and difficult to get to. A 20-million-ounce resource of which a substantial portion will be convertible into mining reserve over time, is a very attractive proposition. At 10-million ounces, mined 200 000 oz a year, gives a 50-year life-of-mine. It’s beyond any cash flow modelling that any investor is going to do, with some decent upside optionality on the gold price. The investor base is very bullish on gold. We’re seeing the sentiments turning very, very bullish on gold and PGMs right now and I don’t see that changing any time soon.
Will you take your ore to concentrate and then give it to different gold plants?
It’s the perennial toll-treatment challenge. Most of the gold plants are big. Most of them are 160 000 t to 300 000 t a month, which is way in excess of what we’ll be producing. We’re looking at our mines producing 40 000 t to 50 000 t a month. But they are set up with a bunch of different milling circuits. The crushing circuit and the milling circuit are often in parallel with four, five, six circuits, and those big SAG mills have a 30 000 to 40 000 t a month capacity. So what we really would like to do is to get a dedicated mill at one of the plants. The benefit of that is that the only material going into that is yours and what comes out of the mill into the underflow thickener is an homogenous ultrafine material that can be sampled very accurately. And then it gets co-mingled with the rest of the material going into the plant. But from a metal accounting point of view, we’ve got a very accurate measure of the gold that we pushed into the plant. We are doing this with one of the majors right now and they are fantastic. We’ve got good visibility of metal accounting data. We do suffer the plant recovery factor and it does fluctuate, depending on the material they’re putting in, but for the most time, it’s running up in the early to mid 90% recoveries, which may be marginally worse than what you would get building your own gold plant, but the benefit of not having to spend that capex and converting that entire cost into an operating cost is just orders of magnitude more valuable to us. Depending on the location of the assets, in the fullness of time we may actually look to buy one of the plants. Gold is hydroscopic, it follows water, so over a long period of time the gold leaches into the foundations and they become super enriched with gold. So one of the nice things that the mining companies do when they tear down the gold plants is that they strip out, sell it for scrap, effectively break up the concrete, crush, mill and put the material through another gold plant, which is another reason these plants haven't been thrown away yet. But if they are going to scrap it, you can actually drill the contents in the walls and generate a resource statement, in the same as you would on a reef. You can pay the company for the embedded gold and the scrap metal and effectively you own the plant, because that’s really it’s only value to them. So you’re looking at buying huge plants built 40, 50 years ago and in today’s money cost R3-billion to build and you’re picking them up now for a few hundred million. There are just so many more benefits to that. The plant has bedded down. These plants are organic things. It’s a mechanical plant but it’s got its own heart beat and ebb and flow. Not every gold plant works in exactly the same way so to be able to buy a plant fully licensed, powered and bedded in, so to say, is an enormous advantage again. The older plants are really valuable. All the teething problems have been kinked out and all the guys who ran those plants are still available. We spend quite a bit of time with the older generation in retirement now and the experience and knowledge of those guys is massive. It’s just incredible. It’s like sitting and listening to a history book at times.
And finally, will you refine at the Rand Refinery?
We shall. Once our gold leaves the mill, it clearly then gets co-mingled with the gold of the major or the plant owner and all of them sell their gold to Rand Refinery. Even if we owned our own gold plant, we’d sell our gold to Rand Refinery. That system works so unbelievably well in South Africa for two reasons. One is that the refining costs are negligible. Rand Refinery doesn’t charge you for refining as a mining company. They really make their money on stamping coins, memorabilia and things like that. Their second big business is custody, holding gold in vaults. The reason Rand Refinery is so well guarded is that it is one of the bigger gold depositories in the world. It is part of the London bullion market so there’s a huge amount of bullion at Rand Refinery. But because they are part of the LBMA, your refining costs are low, they sell the material into the LBMA and you get paid in 48 hours.