Cost of new platinum mine to rise to R12bn – Wesizwe

4th May 2012 By: Martin Creamer - Creamer Media Editor

The capital cost of building of the new Bakubung platinum mine, now under construction on the western limb of the Bushveld Complex, is expected to escalate to R12-billion.

So says Wesizwe CEO Jianke Gao, who was speaking to Mining Weekly in Johannesburg through his interpreter and Wesizwe communications adviser Haiyao Zheng.

South Africa’s JSE-listed Wesizwe agreed a financing deal with Jinchuan, of China, and the China-Africa Development Fund (CADFund) in May last year, when the China-Africa Jinchuan Investment consortium paid $227-million for 45% of Wesizwe and undertook to provide $877-million in funding for the former Frischgewaagd-Ledig project, which has since been renamed the Bakubung platinum mine project.

At that stage, the project price tag was given as R6.6-billion. However, Wesizwe has just revised its new ‘in real terms’ capital budget estimate (CBE) to R7.9-billion, which, with anticipated inflation and cost escalation, is expected to rise to R12-billion to render the mine fully operational at 350 000 oz/y by 2023.

Wesizwe reports that the current R7.9-billion CBE is only marginally higher than the previous inflation-adjusted estimate and the company expects that the cost constraint is likely to be derived from redesign and continuous process improvement on the concepts.

“This number is quite reasonable given the expected inflation and cost escalation anticipated in South Africa,” Gao tells Mining Weekly in an interview at the company’s offices at Melrose Arch.

Wesizwe shareholders will not be called upon to provide further funding or be subject to dilution because the Chinese consortium has undertaken to provide the additional funding needed to reach oper-ational completion.

This funding will be sourced directly from either Jinchuan and CADFund or through the provision of third-party funding on terms similar to those of the funding to be provided by the China Development Bank.

A facility of $650-million with the China Development Bank is in the process of being set up and the company is committed to a fee of 1% on the additional funding when it is actually received in cash.

In the 12 months to December 31, capital expenditure for mine development totalled R305-million.

Bulk electricity and water supplies are on schedule and the necessary supporting guarantees have been provided for the 850 m-deep, 35-year life-of-mine project.

Although first production is scheduled to take place in 2018, Wesizwe is hoping to bring the date forward.

There is already considerable activity on site. Earthworks and civil engineering are at an advanced stage.

More than a third of the workers on site have been recruited from the local Bakubung-Ba-Ratheo community.

While no agreement has as yet been struck for the offtake of concentrate, Jinchuan has the right to first refusal for most of the concentrate.

“But Jinchuan will not be taking the concentrate out of South Africa,” Gao assures.

Jinchuan is in the process of studying the economic feasibility of building a smelter in South Africa or collaborating with another company to build a smelter jointly.

No thought has as yet been given to taking platinum-group metals further downstream and locally manufacturing products like fuel cells and autocatalytic converters, as JSE-listed platinum miner Pallinghurst is con-sidering in partnership with the State-owned Industrial Development Corporation.

Bakubung, which is situated directly adjacent to the western side of the Royal Bafokeng Platinum’s Styldrift project and immediately north of Maseve’s Project 1, will have a twin vertical shaft system made up of a main shaft and a ventilation shaft which will also function as the second escape route, and a process plant.

The main shaft is planned to have a hoisting capacity of 230 000 t of ore plus 40 000 t of waste a month.

Initially, the Merensky reef ore will be mined at a rate of 180 000 t/m and the upper group two (UG2) ore will make up the balance of 50 000 t/m.

Once the Merensky has been depleted, the full 230 000 t will be generated from UG2 ore.

The Merensky reef will be mined using conventional stoping methods and the UG2 using semimechanised, hybrid methods.

Crushing will be done underground from where the reefs will be separately conveyed to stockpiles at the concentrator plant. Options for collaboration in developing a joint concentrator plant with neighbour Maseve are being investigated to exploit benefits from economies of scale and sharing capital infrastructure costs.

Basil Read company TWP Projects has been appointed engineering, procurement, construction management contractor and Aveng Grinaker-LTA the shaft-sinking contractor.

Power supply of 8 MW – which is sufficient for shaft sinking to the end of 2018 – is scheduled to be available from September 2012 when the mine will convert from presink to slow sink.

The power supply will increase to 60 MW to accommodate the move towards full production and processing through the concentrator plant.

Wesizwe has secured temporary water supply of 200 000 𝓵 a day to the end of shaft sinking and a process is under way with the Magalies Water Authority for the supply of six-million litres a day at full production.

Wesizwe has appointed a housing programme specialist who will advise the company on the construction of housing for employees.

Beyond Single Project

Currently occupying the thoughts of the Chinese management are the opportunities that will take Wesizwe beyond its current single-project status.

“It’s difficult to survive as a single-project company and we would like to see Wesizwe grow,” Gao tells Mining Weekly.

The Bakubung mine, which was officially launched in July 2011, settled its equalisation liability related to its minority shareholding in Maseve Investments 11 and the project being developed by Maseve, under the management of the majority shareholder, Platinum Group Metals (PTM), is expected to start production by 2014 and reach full production of 275 000 oz/y by 2019.

Besides owning 100% of the Bakubung project, Wesizwe also owns 26% of the Western Bushveld Joint Venture (WBJV) platinum mine, which has started construction, and PTM 74%.

Wesizwe is funded for the construction and the development of the WBJV, which has received an updated record of decision from the Department of Mineral Resources to proceed with the underground development and an application has been submitted for the full mining authorisation.

PTM and Wesizwe engineers have started investigations to maximise the operational synergies associated with the proximity of the two adjacent projects now in construction.

In addition to infrastructural collabor-ation proposals with neighbouring partner PTM, Wesizwe is also on the lookout for other opportunities, especially cash or near-cash opportunities that will enable it to realise the critical mass it sees as being appropriate.

The company will not let acquisition opportunities allow it to deviate from its main focus of delivering its core project on time and within budget, however.

In terms of the original mining plan, Bakubung will be employing 3 500 people when it reaches full production in 2023 and all the labour will be South African.

“At the moment, we have no plan to import any Chinese labour,” reports Gao, a mining engineer who has been working within the Jinchuan group for the past 28 years.

While technical staff may be brought in from Jinchuan in order to make use of Jinchuan’s 50 years of mining experience, that would be for a short duration and strictly technical. Currently, Wesizwe employs only four people from China.

Community Issues

Gao, who has worked in other African mining jurisdictions, finds South Africa a good mining destination, although he did not expect the intensity of local community issues and the black economic-empowerment (BEE) challenges.

The BEE shareholding is currently at about 17% and will be required to reach 26% by 2014.

The once-high Bakubung-Ba-Ratheo community shareholding in Wesizwe was exposed as being vociferously divided at the company’s placard-waving and often raucous extraordinary general meeting (EGM) in Johannesburg on December 17, 2009, where the temporarily dismissed founding CEO, Michael Solomon, narrowly won back his position by a slender 51,7% majority. Solomon faced down a 48,17% anti vote with 0, 059% abstaining.

A big post-EGM issue was the raising of the then R6.6-billion needed to turn the Bakubung platinum project to positive account, which the fountain of Chinese funding has laid to rest.

Although the shareholding of the com- munity in Wesizwe has declined significantly since that EGM, the community leadership issue has not gone away, which prompted Wesizwe to reiterate in its latest presentation of results that “challenges continue to be present in the community largely due to a long-standing leadership vacuum”.

Several steps have been taken to restore community confidence in Wesizwe, which sets store by the provincial and local governments to assist the community in sorting out its leadership problems.

The company itself continues to be committed to sustainable community development and empowerment and has conducted a community stakeholder perception survey to probe perceptions and assist with the formulation of future interaction and plans.

“We have had open days, stakeholder engagement forums and an office in the community, and we have already achieved quite a lot, but need still to work harder,” Gao reports.

Loss Position

Wesizwe recorded a before-tax loss of R372-million in the 12 months to December 31, compared with a profit of R304-million in the corresponding 12 months of 2010.

The results took into account the opera- tional cost of R69-million (2010 – R87-million), a net financial income of R45-million (2010 – R394-million) and the cost of R347-million related to equity financing (2010 – R3-million).

There have been a number of board changes brought about by the Jinchuan, CADFund, Micawber and China-Africa Jinchuan transaction, which brought in Gao, Dexin Chen, Jikang Li, Wenliang Ma, Lincoln Ngculu, Liliang Teng and Qiyin Zhang.

Peter Gaylard and Jacques de Wet resigned, with Solomon, Rob Rainey and Julian Williams stepping down during the course of the year.

Wiseman Nkuhlu and Robert Garnett have been appointed independent nonexecutive directors and, sadly, former CEO Arthur Mashiatshidi has passed away.

Gao, a mining engineer with 28 years’ technical and manage- ment experience, has held a number of positions within the Jinchuan group, including as deputy director of the company’s technical centre.

Jinchuan employs some 30 000 people in China and has fixed assets worth $2.4-billion, excluding underground resources, which include two-million tons of nickel and four-million tons of copper.