| Thu 8 Oct 2009, 13:00 | | SIM - Simmers - Simmers Production And Project Update For The Second Quarter |
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SIM
SIIF
SIM - Simmers - Simmers Production And Project Update For The Second Quarter
Ended 30 September 2009
Simmer & Jack Mines, Limited
(Incorporated in the Republic of South Africa)
(Registration number 1924/007778/06)
Share code: SIM
ISIN Code: ZAE000006722
("Simmers" or the "company")
SIMMERS PRODUCTION AND PROJECT UPDATE FOR THE SECOND QUARTER ENDED 30 SEPTEMBER
2009
For the release with pictures and schematics, please refer to the company`s
website: www.simmers.co.za
KEY EVENTS
At Buffelsfontein Gold Mine:
- Gold production up 5%
- Two key capital projects aimed at boosting production completed on time and
within budget
- Multiple operating shaft rationalisation programme on track
- Section 189 staff restructuring process initiated
- Cost cutting synergies identified with Tau Lekoa Mine
- Integration of Tau Lekoa Mine progressing well
At Transvaal Gold Mining Estates:
- Fatality-free quarter
- Rationalisation process completed; September pay-roll reduced by 53%
- Underground production operations temporarily suspended in favour of mine
development
- Permitting of new heap leach projects at various stages of approval
At Tau Lekoa Mine:
- Potential to cut costs by up to ZAR100 million per annum due to synergistic
benefits with BGM and lower Simmers corporate costs
- Unconditional approval received from the Competition Commission for the
acquisition
- Scoping report and conceptual study for the Weltevreden Project indicates
potential to more than double Tau Lekoa`s life of mine production
- Permission to de-water the Weltevreden twin decline system received;
pumping commenced
- Permits to drill reserve conversion exploration holes received; drilling
and core sampling of initial reef intersections are well advanced
- Pre-feasibility study on Phase One of Weltevreden Project due in November
2009
BUFFELSFONTEIN GOLD MINE LIMITED (BGM)
The second quarter saw an improvement in all underground production metrics,
with a slightly lower grade, and the commissioning of two key production
expansion capital projects ahead of schedule and on budget, namely the
completion of the Number 5A sub vertical shaft refrigeration project and the
commissioning of the Mini Float project to retreat surface rock dumps. As
announced on 31 August 2009, a formal rationalisation process was initiated to
counter the negative effects of the weak rand per kilogram gold price and
unprecedented increases in the cost of mining consumables, fuel and energy. This
includes the rationalisation of off-shaft overheads which aims to reduce total
cash costs while suspending production from unprofitable stopes. The
optimisation process combined with the integration of Tau Lekoa Mine post
January 2010 will provide flexibility as BGM builds up to optimum production
levels over the next three years.
Table 1 - Summary of salient Production metrics for BGM
BGM UNIT Q2 FY2010 Q1 FY2010 VAR %
Face length m 1 694 1 688 0%
Face advance m 11.04 10.12 9%
Stoping m2 broken m2 56 137 51 229 10%
Development m 1 734 1 814 (4%)
Opening up m 5 208 3 844 35%
Tonnes milled U/G t 243 396 216 215 13%
Average recovery grade g/t 3.45 3.69 (7%)
Gold produced kg 839 798 5%
oz 26 967 25 658 5%
Tonnes milled Surface t 335 775 318 447 5%
Average recovery grade g/t 0.37 0.38 (3%)
Gold produced kg 124 122 2%
oz 3 994 3 913 2%
Tonnes milled Total t 579 171 534 662 8%
Average recovery grade g/t 1.66 1.72 (3%)
Gold produced kg 963 920 5%
oz 30 961 29 571 5%
Operational Overview
Higher production, mainly from the lower grade shafts, resulted in a 13%
increase in underground tonnage which helped to offset the impact of lower than
expected grades and contributed to a 5% improvement in gold recovered.
As part of the shaft rationalisation process aimed at reducing overhead costs,
the Numbers 9 and 12 shafts were closed and activities previously associated
with these shafts are now routed via Number 10 shaft. In Q3 FY2010, the low-
grade Number 8 shaft and low-grade areas of the Number 7 shaft will also be
closed. These measures, combined with the higher volumes from the high grade
Number 5 shaft are expected to improve underground grades by up to 20%, and
eliminate previously profitable mining areas that are now unprofitable, towards
the end of the third quarter.
The impact of the Mini Float project which was commissioned in the second
quarter is evident by the 5% increase in tonnage milled from surface sources and
the 2% increase in gold recovered.
In total, BGM produced 30 961 ounces (963 kg) of gold in Q2 FY2010, a 5%
increase on the 29 571 ounces (920 kg) produced in Q1 FY2010.
Outlook
In Q3 FY2010, BGM expects to produce between 27 000 (840kg) and 28 000 ounces
(870kg) due to the shaft rationalisation process described above. It is however
difficult to gauge the impact of the restructuring exercise implemented in terms
of Section 189A of the Labour Relations Act, 1995 (Act 66 of 1995) on staff
morale and production. Despite the fact that the company has been able to offer
alternative employment at Weltevreden and First Uranium Corporation Limited`s
("First Uranium") Ezulwini Mine and thereby limit the number of retrenchments,
this remains an unpleasant and traumatic experience with associated disruptions
to production. Costs will however be correspondingly lower, with average cash
costs for the third quarter of around US$956/oz and ZAR242 857 per kilogram,
assuming an exchange rate of ZAR7.90 to the US dollar. The full impact of the
rationalisation process as well as the integration of Tau Lekoa will only be
felt in the latter part of the fourth quarter with cash costs of between ZAR202
000/kg (US$795/oz) and ZAR212 000/kg (US$834/oz) expected for Q4 FY2010,
declining to under ZAR200 000/kg (US$787/oz) in the final month of the fourth
quarter (March 2010), assuming an exchange rate of ZAR7.90 to the US dollar.
BGM CAPITAL PROJECTS
Mini Float project (surface rock dump retreatment)
The first phase of the Mini Float Project was commissioned three months ahead of
schedule in July 2009, and came in at ZAR6.1 million, against a capital budget
of ZAR6.5 million.
The project allows BGM to concentrate its low grade waste rock dumps resulting
in lower treatment costs and higher margins while at the same time allowing for
full utilisation of the mine`s milling capacity. Recoveries from surface sources
as a result of the implementation of the Mini Float project exceeded
expectations and at current production rates this project has a life of 10.4
years.
Number 5 shaft ore handling project
The introduction of an efficient ore-handling system is a key component of the
success of the Five Shaft Rehabilitation Project. To this end, significant
repair work was undertaken in the quarter under review and work in the Number 5
vertical shaft to facilitate hoisting is complete. The necessary requirements in
the Number 5A sub-vertical shaft to handle ore from the 71 level horizon were
completed during September 2009, on schedule and within budget.
The link between the Number 5A sub-vertical and the Number 5 main shaft however
has been delayed by an accumulation of ore in the final orepass of the ore
handling system on 29 level. Once this build-up has been removed, the final
repairs can take place and the box front installed. This link is expected to be
commissioned by the end of October 2009 whereupon the last of the constraints on
the ore handling capacity of this shaft will have been removed.
The total capital budget for the project is ZAR2.1 million and it is expected to
be completed within budget.
Number 5A sub-vertical shaft refrigeration project
The ability to increase output from the high grade Number 5 shaft has up till
now been impeded by high temperatures in the deeper, higher-grade areas. The
installation of a refrigeration plant on 72 level is designed to resolve this
issue and will allow opening-up, development and equipping work to commence. The
refrigeration plant was commissioned in mid-September 2009, two weeks ahead of
schedule and within budget of ZAR11 million. The completion of the Numbers 5 and
5A shaft projects will provide access to over 1.6 million ounces contained in
extensive higher-grade, long-life reserve blocks.
Number 10 shaft pumping project
Aligned to the shaft rationalisation process is the Number 10 shaft pumping
project which was commissioned in August 2009, with the aim of making the
pumping system more efficient and to reduce running costs. Prior to this, Number
9 shaft served as BGM`s main pumping shaft for extraneous mine water, this being
its sole purpose having been put on care and maintenance some years back. Number
10 shaft is now an efficient conduit for mining operations at the Numbers 9, 10,
11 and 12 shaft areas.
TAU LEKOA MINE
In February 2009, Simmers concluded a transaction to acquire the Tau Lekoa Mine
from AngloGold Ashanti Limited ("Anglogold Ashanti"). The merger of Tau Lekoa
and BGM was approved by the Competition Commission on 1 September 2009. The
transaction is scheduled to be finalised during January 2010, subject to the
transfer of the mining rights from Anglogold Ashanti to Simmers, whereupon the
increase in production ounces of some 130 000 ounces per annum is expected to
position Simmers as the fourth largest gold producer in South Africa.
The integration of Tau Lekoa into BGM is progressing as planned and Simmers, in
co-operation with Anglogold Ashanti, is shadow-managing operations. The
company`s prime objective is to ensure that Tau Lekoa achieves a cash profit of
ZAR150 million by December 2009, which, in terms of the acquisition agreement
with Anglogold Ashanti, is deductable from the purchase price of ZAR600 million.
The integration team has also been tasked with leveraging the synergistic
benefits of running Tau Lekoa through BGM. This is expected to reduce total
costs at Tau Lekoa by approximately 20% - roughly ZAR100 million per annum.
Significant work has been done over the past eight months to quantify the impact
of the synergistic benefits on Tau Lekoa and an updated Life of Mine plan for
the project is almost complete. For the fourth quarter, from January to March
2010, Tau Lekoa expects to produce between 31 508 ounces (980 kg) and 32 472
ounces (1010 kg) at cash costs of US$715 per ounce (ZAR170 000/kg) and US$778
per ounce (ZAR185 000/kg) assuming an exchange rate of R7.40 to the US dollar.
In addition to providing substantial free cash inflow to BGM over the next three
years, the acquisition also includes the Weltevreden resource, a shallow, up-dip
extension of Tau Lekoa lying between 80 and 300 metres below surface.
Development of this 2.3 million ounce resource will significantly extend the
life of the Tau Lekoa operation to 2024.
Weltevreden
Simmers has embarked upon a multi-staged approach to the development of the
Weltevreden resource in order to minimise upfront capital requirements and to
limit the need for external funding by progressively funding development from
internal cash resources. A scoping study on Phase One of the project was
completed in September 2009. For the first phase, it is estimated that by using
a semi-mechanised approach, it is possible to achieve cash costs of less than
ZAR560 per tonne and ZAR128 000 per kilogram, or US$416 per ounce at a weighted
average exchange rate of ZAR9.58 to the US dollar over the Life of Mine for
Phase One. Over the full Life of Mine, this equates to a capital investment of
US$105 per ounce and cash costs of US$454 per ounce assuming a weighted average
exchange rate of ZAR9.76 to the US dollar for 1.2 million ounces over a mine
life of 14.5 years.
Key aspects of Phase One are the de-watering of the twin decline system
(established by Gengold in 1990 over a distance of approximately 1 400 metres)
and a drilling programme to upgrade confidence levels in the mineral resources
in support of a pre-feasibility study, and mineral reserve estimate, which is
due for completion in November 2009. If positive, development of Phase One of
the Weltevreden resource will begin in April 2010 with a Life of Mine of 73
months (six years).
The requisite permission to proceed with drilling and de-watering was obtained
and a budget of ZAR31.9 million was approved by the Simmers board for this
purpose. There are significant advantages to be gained by de-watering the twin
decline system given that the deeper portions of Weltevreden can also be
accessed from Tau Lekoa, via 900 and 1 050 metre levels, which would obviate the
need for additional infrastructure and allow working costs to be shared across
both properties.
Dewatering commenced at the beginning of September 2009 and is on track and
under budget to be completed at the end of October, a month ahead of schedule.
Basic equipping of the mine site is currently in progress.
The exploration programme comprises a 46-hole drill campaign, of which the first
19 holes are expected to be complete in November 2009 as part of the Phase One
pre-feasibility study. The balance of the holes is expected to be completed by
January 2010. The pre-feasibility report will be followed by a South African
Mineral Resource Committee ("SAMREC") and National Instrument 43-101 ("NI 43-
101") compliant Technical Report. The Technical Report will declare updated
Mineral Resources for Phase One and convert Mineral Resources to Mineral
Reserves based on the Phase One drilling programme.
The geological structures in the Phase One area have already been confirmed by a
3D seismic survey, conducted by Anglogold Ashanti.
Key time lines for the development of Phase One of Weltevreden, assuming a
positive outcome to the pre-feasibility study, are as follows:
Dewatering of twin decline system - October 2009
- 19 drill holes - November 2009
- Phase One pre-feasibility study complete - November 2009
- Development commences - April 2010
- Stoping production commences - October 2010
- Steady state of 35ktpm attained by December 2011
- Phase One LOM - 73 months, ends in December 2014.
Graph 1: Phase One Tonnage Profile over Life of Mine of 73 months
For the release with pictures and schematics, please refer to the company`s
website: www.simmers.co.za
Graph 2: Phase One Recovered Gold and Grade Profiles over Life of Mine of 73
months
For the release with pictures and schematics, please refer to the company`s
website: www.simmers.co.za
The estimated production and financial metrics for the Phase One scoping study
are summarised in the table below.*
Table 2 - Summary of salient Production and Financial metrics for Phase One
PHASE ONE UNIT AMOUNT
Area mined m2 521 875
Average grade mined cmg/t 933
Primary development metres m 16 220
Secondary development metres m 5 975
ROM tonnes broken t 2 192 003
Tonnes milled t 1 872 631
Au kg recovered kg 9 779
Au recovery grade g/t 5.22
Exchange rate range ZAR/US$ 7.70-10.45
Gold price range US$/oz 778-983
Cash cost ZAR/kg 127 602
Cash cost ZAR/t 557
Cash cost US$/oz 416
Engineering Capex ZAR 337 929 087
Development Capex ZAR 102 823 555
Total Capex ZAR 440 752 642
Capex per ounce US$/oz 148.64
Peak funding (Month 16) ZAR 220,962,456
Revenue per tonne ZAR/t 1 192
Cost per tonne ZAR/t 557
Profit per tonne ZAR/t 635
Capex per tonne ZAR/t 235
Life of Mine Phase One@12,000m2/mth Months 73
Monthly average Au recovered at steady state kg 220
Monthly average Au recovered at steady state oz 7 073
Monthly average Au recovered during build up period
kg 70
Monthly average Au recovered during build up period
oz 2 250
Steady state peak monthly tonnage t 35 000
Steady state achieved December 2011
The industry accepted accuracy associated with the Weltevreden Scoping Study is
at a 60% level of accuracy. The level of accuracy will be improved to 75% for
the Weltevreden pre-feasibility study which will be independently verified.
Conceptual Life of Mine model
In addition to the Phase One scoping study, a conceptual Life of Mine model was
run to determine the viability of the greater Weltevreden Project. It was
conducted on the hybrid trackless method, as the majority of the mining beyond
Phase One could take place via stoping directly from the on-reef declines and
return airways.
Areas with values above 400 cmg/t were discounted by 20% to allow for selective
mining with a corresponding 10% upgrade in value. Output numbers from the
desktop Life of Mine are provided in Table 3 below. Based on a conceptual Life
of Mine model, around 1.2 million ounces of gold are expected to be recovered
during the 14.5 year Life of Mine at cash costs of approximately ZAR600 per
tonne. Depending on the outcome of the Phase One pre-feasibility report, the
conceptual model will progress to a scoping level study, and assuming the
outlook remains positive, to a pre-feasibility report covering the remaining
four stages.
Table 3: Conceptual Life of Mine Production and Financial parameters - Phases
One to Five*
PHASE ONE TO FIVE UNIT AMOUNT
Area mined m2 2 012 706
Average grade mined cmg/t 886
Primary development metres m 37 133
Secondary development metres m 19 060
Run of Mine tonnes broken t 8 098 090
Tonnes milled t 7 250 915
Au kg recovered kg 35 721
Au recovery grade g/t 4.93
Exchange rate range ZAR/US$ 7.70-10.45
Gold price range US$/oz 778-983
Cash cost ZAR/kg 143 536
Cash cost ZAR/t 607
Cash cost US$/oz 454
Engineering Capex ZAR 804 250 225
Development Capex ZAR 274 819 845
Total Capex ZAR 1 079 070 069
Capex per ounce US$/oz 105
Peak funding (Month 16) ZAR 220 962 456
Revenue per tonne ZAR/t 1 232
Cost per tonne ZAR/t 607
Profit per tonne ZAR/t 625
Capex per tonne ZAR/t 149
Life of Mine @ 13 000m2 /month Years 14.5
Monthly average Au recovered at steady state kg 230
Monthly average Au recovered at steady state oz 7 400
Monthly average Au recovered during build up period
kg 70
Monthly average Au recovered during build up period
oz 2 250
Steady state peak monthly tonnage t 45 000
Steady state achieved November 2012
* Numbers are indicative and have not been independently verified.
TRANSVAAL GOLD MINING ESTATES (TGME)
As previously announced, underground operations at TGME were temporarily
suspended in July 2009 as a result of the unusual and sustained strength of the
South African Rand, compounded by unprecedented increases in electricity costs
and mining consumables. Having been effectively run as a trial mining project
for the past 24 months, the underground operations lacked the volumes to
withstand the combination of a strong rand and rising costs.
The labour force was subsequently restructured with 90% of the affected staff
offered alternative employment at First Uranium`s Ezulwini Mine, although only
26% of staff accepted the offer.
While the suspension of underground production reduced gold output by 35%,
corresponding cash costs also declined. Monthly cash costs are expected to
decline by 40%.
Exploration development is continuing in the higher grade Frankfort B Block and
is on target for completion in April 2010. If previously drilled borehole values
are confirmed, stoping could commence in Q1 FY2011.
The production profile of the company is unlikely to be dramatically affected by
cessation of underground production given that TGME only represented 6% of total
Group production in the previous financial year.
TGME progressed to 2 837 fatality free shifts at the end of the quarter.
Surface
TGME previously identified the potential for treating near-surface mineralised
zones with low-risk, low-cost heap leach technology. During FY2009, extensive
research was undertaken to determine expected heap leach recovery rates and
significant technical work was undertaken to test the design parameters and
construction of the proposed test heap leach pads.
The success of the first pilot pad at Elandsdrift, commencing in December 2008
was a critical milestone for the surface project as it confirmed the laboratory
and technical work with respect to costs and execution of heap leach technology.
Gold production from Elandsdrift for Q3 FY2010 is estimated to increase from 610
ounces (19kg) in Q2 FY2010 to an estimated 1 190 ounces (37kg). In total, TGME
produced 2 340 ounces (73kg) for the quarter.
The Environmental Management Plan amendment for the Pilgrims Trend Deposit pad
in Pilgrims Rest was submitted to the Department of Mineral Resources in March
2009. Total estimated production over the 15-month life of this pad is 25 817
ounces (803kg) of which an estimated 20 000 ounces (622kg) is expected to be
produced during FY2011.
An X-Ray Transmission machine has been ordered to recover gold from a low grade
rock dump at Pilgrims Rest. Gold production of 771 ounces (24kg), worth ZAR5.7
million, is expected from this operation in the current financial year.
Production for Q3 FY2010 will be from surface sources only and is expected to be
between 2 890 ounces (90kg) and 3 215 ounces (100kg) at a cash cost of between
US$925 and US$945 (ZAR235 000/kg and ZAR240 000/kg), assuming an exchange rate
of ZAR7.90 to the US dollar.
Cash costs for Q4 FY2010 are expected to improve to around US$750 per ounce
(ZAR190 000/kg) as production from surface sources progressively increases on
the back of anticipated heap leach projects which are currently at various
critical stages in the permitting process.
Financial results for the second quarter ending 30 September 2009 are expected
to be announced on or about 16 November 2009.
CONFERENCE CALL
A conference call to discuss this production and project update will take place
at 16h00 Central African time (GMT +2), today, Thursday 8 October 2009.
Dial in details are as follows:
South Africa 011 535 3600 Toll-free 0800 200 648
UK Toll-free 0800 917 7042
USA 1 412 858 4600 Toll-free 1 800 860 2442
Canada Toll-free 1 866 519 5086
A transcript of the call will be available for 72 hours whereafter it will be
available on the Simmers website hosted at www.simmers.co.za. To access the
playback, please dial any of the numbers below, followed by the playback code:
2544#
South Africa & Other Toll +27 11 305 2030
UK Toll-free 0808 234 6771
USA Toll 1 412 317 0088
Cautionary Language Regarding Forward-Looking Information
This news release contains and refers to forward-looking information based on
current expectations. All other statements other than statements of historical
fact included in this release including, without limitation, statements
regarding processing and development plans and future plans and objectives of
Simmers are forward-looking statements (or forward-looking information) that
involve various risks and uncertainties. These forward-looking statements are
made as of the date hereof and there can be no assurance that such statements
will prove to be accurate. Such statements are subject to significant risks and
uncertainties, and actual results and future events could differ materially from
those anticipated in such statements. Accordingly, readers should not place
undue reliance on forward-looking statements that are included herein, except in
accordance with applicable securities laws.
For further information, please contact:
Nick Goodwin Simmers: Investor Relations Executive
Mobile +27 83 629 8605
E-mail nick@simmers.co.za
Gail Strauss Simmers: Group Communications
Mobile +27 82 936 8481
E-mail gail@simmers.co.za
Itumeleng Mahabane / Clemmie Raynsford Brunswick
Telephone +27 11 502 7400
Melanie de Nysschen / Thembeka Mgoduso Macquarie First South Advisers
Telephone +27 11 583 2000
Johannesburg
8 October 2009
Sponsor
Macquarie First South Advisers (Pty) Ltd
Date: 08/10/2009 13:00:01 Produced by the JSE SENS Department.
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