pd245 Dec16-Jan17 web_Neat

NDOoecvctoebmebre2r0210616 - January 2017 VOLUME 1. ISSUE 245 $11.95

paydirt

front and back cover
supplied seperately

More Resolute:

Welborn strengthens pack

• Exclusive interviews: Nick Holland, Mark Cutifani, Peter Steenkamp
• Danakali: East Africa’s potash frontrunner
• Full Indaba preview

ISSN 1445-3436
11

9 771445 343007



CONTENTS

PAYDIRT (ISSN 1445-3436) 7 OPINIONThere are mixed signals coming out of
Published by
Paydirt Media Pty Ltd. Ghana for foreign investors. While Gold
A.C.N. 063 985 133 Fields is committing more than $US1 bil-
lion to expansion of its Damang operation,
Head Office: AngloGold Ashanti continues to struggle
Suite 9, 1297 Hay St, West Perth with illegal miners and a lack of govern-
Western Australia 6005 ment support at its mothballed Obuasi
P.O. Box 1589, West Perth mine in the country. Brendan Ryan looks
Western Australia 6872 at the divergences
Phone: (+61 8) 9321 0355
Facsimile: (+61 8) 9321 0426 8 NEWSGold Fields has increased its presence in 22
[email protected] 30
www.paydirt.com.au the West Australian gold sector by striking 46
a JV agreement with Gold Road Resourc-
Editorial: es over the latter’s Gruyere gold develop-
Editor: Dominic Piper ment. Gold Fields will pay $350 million to
Deputy editor: Mark Andrews secure 50% of an asset heralded as the
Journalist: Michael Washbourne, best gold discovery made in Australia this
Jonathon Daly decade. Dominic Piper reports
Graphics: Marian Noonan
Contributors: 22 COVER
Keith Goode (Sydney), Brendan Ryan Resolute Mining has undergone a reinven-
(Johannesburg), Ross Louthean tion since John Welborn joined the compa-
ny as chief executive 18 months ago and
Advertising: the company is now on a growth trajectory
Advertising manager: Tony Mwarey which will see it become a genuine mid-tier
Subscriptions: Mitchelle Matambo gold miner. Michael Washbourne travelled
Phone: (+61 8) 9321 0355 to Mali with Welborn to find out how the
Facsimile: (+61 8) 9321 0426 company has transformed itself

Pre-press and printing: 30 INDABA PREVIEW
Vanguard Press 26 John St,
Northbridge WA 6003 Africa’s largest resource conference,
Member of: Investing in African Mining Indaba, returns
to Cape Town in February. Ahead of the
Paydirt Media conference, Paydirt looks at the issues,
Executive chairman: Bill Repard debates and emerging stories to be
Finance manager: Giovanny Jefferson followed in the Mother City, including ex-
Accounts/administration: clusive interviews with Nick Holland, Mark
Heather Melling Cutifani and more
Conferences: Melita Fogarty,
Namukale Nakazwe-Msiska, 46 DANAKALI
Christine Oelschlaeger The Danakil Basin’s rise to prominence as
the world’s next world-class potash prov-
Cover image: Resolute Mining chief ince appeared to have been halted when
executive John Welborn at the com- several Ethiopian projects were put on
pany’s Syama operation in Mali, West hold earlier this year. However, across the
Africa border in Eritrea, Australian junior Danakali
could be about to prove a feasible pathway
to development. Dominic Piper visited the
project in the small East African nation

Member of:
Australia-Africa Minerals & Energy Group

Registered by Australia Post PP 643938/0071.
No pages or articles in this publication may be
reproduced in any form without the consent of
the publisher. This includes photographs either
taken by Paydirt Media staff or provided by other
parties

Simandou: From pin-up to
let-down of African mining
As what appears to be the final chap-
ter in Rio Tinto Ltd’s Simandou saga At this stage, despite the Government intervention, Simandou
plays out with the sacking of energy and was still a model African resources project; the kind every Afri-
minerals chief Alan Davies and legal can government hoped would be built in their country as a result
and regulatory affairs group executive of the commodity super-cycle, bringing investment, infrastruc-
Debra Valentine, the affair seemingly ture, jobs and tax revenue for generations to come.
encapsulates the entire African re-
sources sector. However, the global economic downturn began to quickly
Simandou is one of the world’s great erode the value of the project. As iron ore prices plummeted and
untapped iron ore deposits and is located in a country, Guinea, risk appetite dried up, Simandou’s $US6 billion price tag made
seemingly keen to use natural resources to fuel economic de- investment less palatable.
velopment.
During the height of the commodities boom, it became a sym- By now, Rio Tinto’s expanded Pilbara operations were hum-
bol of the vast potential and opportunity in Africa, a continent ming along among the lowest operating costs in the world.
with more than 40% of the world’s mineral reserves but less
than 15% of its output. Now, it serves as a warning as to just how Simandou couldn’t compete. Where the Pilbara operations
badly things can go wrong. had existing infrastructure, stable regulatory and fiscal frame-
How could it go so wrong that Rio Tinto chose to walk away works, and high productivity, Simandou was located in a region
from the project in October, pocketing just $US1.3 billion from almost completely devoid of infrastructure with a government
JV partner Chinalco for its 50% share? which had already shown signs of inconsistency and a largely
The project was originally discovered in the mid-1990s and unskilled workforce.
following the granting of a mining concession in March 2006,
Rio Tinto drilled nearly 100,000m in building a JORC-compliant The recent revelations regarding bribery and corruption alle-
resource of 2.25bt but with a much larger non-JORC resource gations against senior Rio Tinto management have further tar-
of 8-11bt of hematite. Speaking at the 2008 Mining Indaba, then nished the project’s reputation. It will send alarm bells to inves-
Minerals and Energy chief executive, Preston Chiaro, described tors who have lifted their expectations of corporate governance
Simandou as “one of the best new iron ore projects in the world”. on the continent. The alleged actions of the Rio Tinto executives
At the time, the company was weighing up potential expansion could set both company and country back several years in the
of its Pilbara iron ore operations and Chiaro’s words put Siman- eyes of investors.
dou firmly on par with Rio’s biggest revenue stream.
“Guinea could be a major new iron ore province, it is not so The problems faced by Rio Tinto at Simandou are faced by
dissimilar to the Pilbara in the 1960s – underdeveloped and the mining industry across Africa. For all its mineral prospectiv-
highly prospective,” he said. ity, the numerous obstacles to development of Tier 1 projects
It was not long after that the first trouble started. In 2009, the mean the continent remains just short of being a fully-fledged
Guinean Government – frustrated by Rio Tinto’s slow progress preferred investment destination.
in its development of Simandou – stripped the company of half
of its concession. Blocs 1 and 2 of Simandou were picked up by The infrastructure gap is immense – increasing the cost of
little-known junior BSG Resources, a company owned by Israeli building projects on the continent – but progress is being made,
diamond trader Beny Steinmetz. particularly in the crucial area of power. Similarly, the issue of
BSG declared it would use its newly acquired asset to be- governance in many African countries may be a case of “two
come the fourth largest iron ore miner in the world. Less than a steps forward, one step back” but there has been incremental
year later, it had sold its half of the project to the world’s largest progress during the last decade.
iron ore miner, Vale SA.
Rio Tinto took both BSG and Vale to court but remained oth- Once solutions to these two challenges are achieved, invest-
erwise undeterred and continued to plough development capital ment will become more palatable and industry will find ways to
into Simandou despite having its expansion plans under way in bridge the infrastructure gaps and raise productivity among its
the Pilbara. workforce.
In 2010, it brought one of its largest customers, Chinalco, in as
JV partner for the project and it eventually paid $US700 million African governments, communities and industry leaders
to secure the reduced mining concession. should remain optimistic about the future of mining on the conti-
By 2011, Rio Tinto was still proclaiming the merits of Siman- nent and what it can bring.
dou, saying the 95 mtpa mining operation, 670km railway line
and four-berth port facility represented the largest public-private Africa wasn’t quite ready for the last commodities boom but
partnership project in Africa. It was estimated the project would the lessons learnt and the advances made mean many of its
provide 4,000 direct and 40,000 indirect jobs during full opera- countries will be better prepared as the next wave of opportunity
tion with more than 90% of the workforce expected to be Guin- washes up on the continent’s shores.
ean.
[email protected] @DominicPiper

PAGE 4 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT

NEWS

Iron ore off the ropes

Iron ore players were afford-
ed some respite in 2016 by
way of improved prices.

Twelve months ago, iron

ore had bottomed out at

$US40/t, further distinguish-

ing Rio Tinto Ltd, BHP Bil-

liton Ltd and Vale SA as the

world’s premier low-cost,

high-margin iron ore produc-

ers.

Prices have since rebound-

ed and while the “big three”

continue a merry dance, the

companies on the rung be-

low, led by Fortescue Metals

Group Ltd, are starting to feel

better about their position in

the sector.

Fortescue in particular has

performed exceptionally well

by paying down large sums

of debt and maintaining cost

discipline which will see it

shave another $US2-3/wmt

off C1 costs in FY2017.

In FY2016, Fortescue

shipped 170mt of iron ore,

produced in the range of Nev Power

$US15.43/wmt, and ended

the financial term with net debt of $US5.2 matically where China, instead of making is coming on the market, Vale has said

billion. 800mt [steel], makes a lot less; that can that is going to happen over four years

Shareholders were returned a dividend also occur. and I think it is going to be 70 mtpa or

of 12c/share and they would also be en- “Alternatively, we can get a lot of new thereabouts. I think they are flagging

couraged by Fortescue’s share price of supply coming into the market to expand even more of that might be replaced and

$5.83c/share and chief executive Nev and push these higher cost producers we know that Roy Hill has some ramp-up

Power’s view of the iron ore world. out of the market and then the price will capacity as well as a few others.

“Power said it was perplexing that settle.” “But, there’s any amount of capacity in

some people believed iron ore the supply curve to absorb that

would tank again in 2017/18, ...the only thing I can see is without a significant decrease
with some forecasters pre- that they must be expecting in price. I am not sure what
dicting prices in the vicinity of they are forecasting to get to
$US40/t. Chinese demand to fall dramatically. those prices, but the only thing
It needs to fall a long way to get
Post the US election in No- I can see is that they must be
vember, iron ore topped a expecting Chinese demand to
near two-year high of about fall dramatically. It needs to fall

$US80/t as incoming Repub- to $US40/t. We don’t think that is a long way to get to $US40/t.
lican President Donald Trump going to happen completely. We don’t think that is going to
reaffirmed promises to deliver happen completely,” he said.

and improve infrastructure in – Mark Andrews
the country.

At the time of print, iron ore was trad- Power is bullish that China’s demand

ing at $US72/t and Power didn’t see any for imported iron ore will remain strong,

dramatic fall occurring in the near future. with infrastructure developments picking

“[If we get] to $US40/t we are going to up, the housing market performing sol- FEATURE ALERT
have maybe 200-250mt of supply that idly and the auto industry on an upward
will be in a cash loss position,” he told a curve in the country. See Australia’s Paydirt February
media pack on a tour of the company’s 2017 edition for a feature length
Solomon Hub operations. “It is possible that Chinese demand will
come off, but there are no real indicators story on Fortescue

“We think that is unsustainable, the that that is going to happen,” Power said.

potential is that demand decreases dra- “In terms of new supply, we know S11D

AUSTRALIA’S PAYDIRT DECEMBER 2016 - JANUARY 2017 PAGE 5

NEWS

IGO, Sheffield united in Fraser

First concentrate from Nova was produced ahead of schedule in November. Underground operations at Nova will deliver an average
26,000 tpa contained nickel and 11,500 tpa contained copper at average AISC of $1.83/lb nickel over an initial 10-year mine life

Independence Group NL has swooped JV with Sheffield Resources Ltd over four BFS on Thunderbird in the near future,
on more prospective ground in Western tenements. with construction planned for early 2017.
Australia’s Fraser Range by entering a
The deal with Sheffield was an- Therefore, with mine development at
nounced shortly the forefront, the JV with Independence
after Independence allows Sheffield to retain exposure to the
moved to compul- nickel-copper potential it has identified
sory acquisition of in the Fraser Range, particularly at Red
Windward Resourc- Bull, 21km south of Nova.
es Ltd; the Mark
Creasy-backed There is no better partner to have in
company which has the Fraser Range than Independence
more 3,000sq km of which is in the box seat to understand the
tenure in the Fraser geology of the region given it has the ad-
Range. vantage of seeing the rocks underground
Sheffield and In- at Nova.
dependence will
jointly explore Red Independence also has the balance
Bull, Big Bullocks, sheet to undertake meaningful explora-
Bindii and one oth- tion in the Fraser Range, where it also
er tenement under acquired the right to buy a 90% interest
the JV, whereby in Buxton Resources Ltd’s Zanthus and
$500,000 will be Widowmaker tenements for $1.5 million
paid upfront by the cash in mid-2016.
latter for a 51% in-
terest in the tene- Prior to the acquisition of Sirius Re-
ments. sources for Nova, Independence had
Independence minimal presence in the Fraser Range.
can take its stake
to 70% by spend- With one project under way, Independ-
ing $5 million over ence has delivered on its strategy to ex-
five years, while pand its land position in a region where,
Sheffield contin- to date, juniors have lacked the financial
ues developing its and technical capacity to unearth Nova
Thunderbird min- Mark II.
eral sands project in
WA’s north. – Mark Andrews
Sheffield is ex-
pected to deliver a

PAGE 6 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT

BUSH TELEGRAPH

AngloGold in limbo at Obuasi

One man’s meat is another man’s by illegal miners – now in its ninth
poison runs the adage. Ghana
is turning out to be a classic exam- month – remained an extremely un-
ple of this where Gold Fields Ltd has
announced plans to invest $US1.4 fortunate and inexplicable anoma-
billion but AngloGold Ashanti Ltd is
involved in a bitter legal struggle ly across AngloGold’s portfolio and
with the Ghanaian Government.
hoped authorities would be able to
In May, AngloGold announced
it had actually taken the Ghanaian resolve the situation soon.
Government to the Washington-
based International Centre for Set- So, given those developments,
tlement of Investment Disputes (IC-
SID) asking for an urgent order to who would invest in mining in
force the Government to, “amongst
other things, re-instate military se- Ghana anytime soon? Short an-
curity and restore law and order to
the Obuasi mine”. swer is Gold Fields which is about

The Obuasi mine was mothballed to spend $US1.4 billion to extend
last year – and the entire workforce
retrenched – while AngloGold man- the life of its Damang mine by eight
agement assessed a new strategy
to develop the remaining deep-level, years following the negotiation of
high-grade reserves at the mine.
a development agreement with
But Obuasi was overrun by thousands
of illegal miners in January this year and the Ghanaian Government which
they are still there despite repeated re-
quests from AngloGold to the Govern- has reduced taxes to be paid by
ment to remove them. Perversely, the
Government showed a deep understand- Damang and flagship sister mine
ing of the mine’s predicament when it
sent in police to remove the illegals who Tarkwa.
tried to get into the high-grade deep level
zones, which hold the key to the future of You have to ask if this is the
the mine.
same country? How does it hap-
But government has done nothing
about the thousands of illegal miners now Srinivasan (Venkat) Venkatakrishnan pen that one major gold group can
occupying the rest of Obuasi’s lease.
have such a harmonious relation-
AngloGold chief executive Srinivasan
(Venkat) Venkatakrishnan commented ford them. He then turned to Randgold ship with the authorities whilst the other
in August: “This is a jurisdiction where
there has never been a problem with the Resources Ltd chief executive Mark Bris- is in an effective state of war?
maintenance of law and order. Now, all of
sudden, there is.” tow with the kind of JV offer that a chief According to Alfred Baku – executive

Venkat should know. His involvement executive dreams of getting – 50% of vice-president for Gold Fields’ West Af-
in Ghana predates that of AngloGold
because he was chief financial officer Obuasi for the cost of working up a viable rican operations – the answer lies in
of the former Ashanti Goldfields which
AngloGold took over in 2003 to create feasibility study over the mine’s future. policies of constant engagement with
AngloGold Ashanti and acquire Obuasi
in the process. But Bristow backed out of the pro- government and continuous education in

Obuasi, at the time, was Ghana’s flag- posed JV in December 2015. He said terms of what the company is doing so
ship gold mine and it’s understood the
Ghanaian Government insisted on vari- little at the time, but subsequently cut they know what is coming or is not com-
ous conditions regarding the mine and its
future before agreeing to the takeover of loose at a press lunch held in Johannes- ing.
Ashanti Goldfields.
burg where he took aim at the Ghanaian AngloGold’s reply to that was that they
As a result the mine was kept going
for years despite making hefty losses Government. already followed the same approach.
until Venkat threw in the towel in 2014
declaring his group could no longer af- Bristow confirmed the main reason According to Bailey, AngloGold is in dia-

he walked was concern about the illegal logue on an on-going basis with its host

mining situation in the country (Obuasi governments and communities in the

was invaded in January about six weeks nine countries they operate regarding

after Randgold opted out) and cited a day-to-day operations and future plans.

“complete lack of government support So what’s going on? The answer may

over proposed plans for Obuasi’s future”. be buried deep in the political machina-

He added that corruption was a major tions ahead of the elections in Ghana

problem in the country. scheduled for December 7. Even though

“We have made many attempts to in- Venkat has denied suggestions the trou-

vest in Ghana and we have always been ble at Obuasi is the result of political fall-

rattled by the intervention at the political out from the decision to close the mine.

level for big investments which is quiet Both he and Bailey stress AngloGold

aggressive,” Bristow said. received all the necessary authorisations

That was, arguably, Obuasi’s best to close Obuasi and retrench the work-

chance of resurrection. Venkat said it force while they add the group’s Iduapri-

was very difficult to speculate over what em mine – also located in Ghana – has

is going on and explain the Govern- been operating normally throughout.

ment’s actions, while AngloGold senior To quote Alice in Wonderland: “Curi-

vice-president of investor relations Stew- ouser and curiouser”.

art Bailey has described the situation as Brendan Ryan is a Johannesburg-based

being like something “out of a novel by mining writer

Franz Kafka”.

At the time of print, AngloGold was still

waiting for ICSID to respond to its urgent

application.

Bailey said the invasion of the mine

AUSTRALIA’S PAYDIRT DECEMBER 2016 - JANUARY 2017 PAGE 7

NEWS

Gold Fields secures slice
of Gruyere

Gold Fields Ltd is set to pay $US350 while still allowing them to participate in
million to get its hands on half of the Gruyere’s development. He said Gold

Gruyere gold project in Western Aus- Fields’ proven track-record in mining and

tralia; effectively solidifying its position as its supply chain management and great-

Australia’s most dominant gold miner and er purchasing power would prove “signifi-

confirming the project as the country’s cant competitive advantages” during the

next major mine. construction phase.

Gold Fields and incumbent owner Under the terms of the JV, Gold Fields

Gold Road Resources Ltd announced will acquire a 50% interest in Gruyere for

the deal on November 7; just weeks after a total purchase consideration of $350

the ASX-listed junior released a positive million payable in cash and a 1.5% royal-

DFS for the project. ty on Gold Fields’ share of production af-

That DFS confirmed a $US370 mil- ter total mine production exceeds 2 moz.

lion capital investment could deliver The cash consideration will be split,

a 270,000 ozpa operation at AISC of with $250 million payable at completion

“$US690/oz, NPV of $US355 million and and $100 million payable according to an

a 24% IRR. It was the cul- Ian Murray agreed construction cash

mination of a remarkable This deal enhances our portfolio call schedule.
growth period for Gruyere Gold Fields will take over

– part of its Yamarna gold and expands our exposure to management of the project
project 450km north-east of a new and emerging goldfield in WA development – following a
Kalgoorlie in Western Aus- six-month handover period

tralia. The discovery hole and Gruyere will add life, margin and – with most of Gold Road’s
was only drilled three years project team joining the
cash flow into what is already a strong South African gold major.
ago but the deposit has

since grown into a 6.2 moz region for Gold Fields. “Under the JV, Gold
Tier 1 asset. Fields will manage the pro-

“We believe that this is an ject development and min-

exceptional deposit in terms of both size across the project portfolio,” Murray ing with the Gold Road project team re-

and grade continuity with really good said. “This financial flexibility may also tained,” Murray said.

visual controls on mineralisation,” Gold allow the company to consider capital Gold Fields’ senior vice-president cor-

Fields chief executive Nick Holland said. management and growth initiatives far porate development, strategy and plan-

Gold Road had been investigating both quicker than if we had gone down the ning, Brett Mattison, said Gold Road’s

JV and debt finance avenues for project debt/equity route,” Murray said. set-up of the project had “been phenom-

funding. Chairman Ian Murray said the “The project is now de-risked with a enal”.

Gold Fields deal had now de-risked the partner and Gold Fields will support any “They have got the people, all the per-

project from a financing perspective. debt transaction. There is no need to mitting and the Native Title agreement

“Gold Road is in a very strong finan- raise new funds.” Scoping study on Central
Bore, Attila South and
cial position; fully-funded for develop- Murray said the deal delivered a
“significant premium” for shareholders Alaric deposits estimates
ment and exploration a 190,000oz, four-year Auger drilling
operation with capex of programme
Lists on the ASX Maiden resource
of 595,000t @ 7.9 $62.8 million; NPV of $47 identifies
as Eleckra Mines Ian Murray Central Bore g/t for 150,300oz million and IRR of 42% 2km-long gold
discovery gold announced anomaly near
Ltd with Yamarna appointed confirmed for Central Bore
over 400m the Dorothy
tenements as the executive Hills area

cornerstone of chairman

the portfolio

October 2007 September November August 2011 May 2013
2008 2010

July 2006 May 2008 October 2009 March 2011 September July 2013
2012

Ian Murray joins Eleckra announces Eleckra changes its Gold Road wins Sumitomo Metals
board as non-ex- maiden resource name to Gold Road Best Emerging Mining agrees to
ecutive director for the Thatcher’s Company award spend $8 million
Soak uranium pro- Resources Ltd over three years
ject on Yamarna at Diggers & to earn 50% of the
Dealers South Yamarna

tenements

PAGE 8 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT

in place,” he said. “We don’t see a “The other satellite deposits of

huge obstruction.” around 400,000oz are all within

While the JV covers the 144sq 20km radius and they have not

km of ground on the Gruyere been factored in [the feasibility

project – including several other study]. We think there is quite a

deposits and prospects – Gold lot of potential there too. So we

Road will retain 100% interest in think that this is a robust deal.”

the North Yamarna project and its Holland acknowledged the

50% interest in the South Yamarna Gruyere transaction was a de-

JV with Sumitomo Group. parture from Gold Fields’ objec-

The new JV will also pursue tive of acquiring in-production

expansion at Gruyere with both ounces but said the opportunity

Murray and Holland extolling the was compelling.

potential of the Gruyere property. “We see this as something that

“Both companies are very keen will add significant life and also

to expand exploration, particu- reduce the costs. We think… this

larly around the Attila deposit and certainly is something that we

Gruyere Deeps,” Murray said. “We believe Gold Fields should grab.

will determine a budget in the next It is a very good deposit in

few weeks which will be shared terms of its continuity and struc-

50/50 with Gold Road managing ture being a porphyry system –

it.” this is something we felt would

Holland said Gruyere’s wider be exceptional over the life of the

potential was particularly attrac- Australian region.

tive. “It certainly doesn’t in any way

“In addition to the reserve, we detract us from making sure the

have a significant resource and existing asset portfolio of Aus-

the orebody remains open at tralia is optimised or impact our

depth,” he said. “This deal enhanc- quest to look for other opportu-

es our portfolio and expands our nities out there that might be in

exposure to a new and emerging production.”

goldfield in WA and Gruyere will Asked during a conference call

add life, margin and cash flow into why the company hadn’t pursued

what is already a strong region for a more complete deal, Holland

Gold Fields. After acquiring 50% of Gruyere, Gold Fields will continue and Mattison both said it was
“We are excited about partner- the exploration push at the project “the deal which was on the table”.
“This is a deal that has been
ing Gold Road and are hopeful

that this is the start of a multi-decade We continue to see brownfields explora- structured between the parties,” Holland

mutually beneficial relationship.” tion at that sort of level being a key input said. “It allows Gold Road to maximise

Gold Fields has already committed into the Australian region for years to the potential of the remaining 50% in

$95 million to brownfields exploration in come. So, this is not to try and shore up their hands. I think this is the start of what

Australia next year but Holland said that anything else. This is seen as an addi- could be a long-term relationship in time.

budget wouldn’t be affected by the acqui- tive. We believe in the circumstances this is

sition of Gruyere. “The indication is that particularly the optimal deal structure which suits

“The strategy on our existing Austral- given that this is a porphyry system with both parties.”

ian operations remains unchanged,” very good grade continuity there is good – Dominic Piper
Holland said. “We will continue to spend potential for this deposit to get bigger

that [$95 million] as in line with the pro- certainly beyond the reserve envelope.

grammes that have been set out. Gruyere scoping study Awarded Gruyere resource Gold Fields
points to capex of Gold Mining increased to 6.2 Ltd pays $350
Maiden Gruyere Journal 2015
resource of $360 million, NPV of moz gold million for a
$550 million and an- Explorer 50% stake in
96.93mt @ 1.23 nual average produc- of the Year
g/t for 3.84 moz tion of 190,000 ozpa Gruyere
gold is announced award

October 2013 January 2015 May 2015 February 2016 October 2016

August 2014 January 2015 January 2016 April 2016 November
2016
First RC holes hit
52m @ 1.23 g/t Gruyere Gruyere PFS confirms Gruyere feasibility study
and 40m @ 1.16 g/t resource long life mine with a approved showing
gold confirming the grows to capex of $455 million,
Gruyere discovery 5.51 moz 12-year mine life and capex of $507 million
more than $1 billion in and pre-tax cash flow of
gold pre-tax cash flow $1.2 billion. NPV is $486

million and IRR 24%

AUSTRALIA’S PAYDIRT DECEMBER 2016 - JANUARY 2017 PAGE 9

NEWS

ASX calls new entry rules

Companies looking to list on the ASX Rule changes to ASX listings
will need to consider new listing rules.
As of December 19, subject to regula- • Increasing the requirement for profit test entities to have consolidated profits for the
tory approvals, ASX entrants will need to 12 months prior to admission from $400,000 to $500,000
comply with listing standards that provide
a certain degree of investor confidence • Increasing the net tangible assets test from $3 million to $4 million
within a framework the exchange deems
to be “contemporary and aligned with • Increasing the market capitalisation test from $10 million to $15 million
evolving market trends”.
• Introducing a 20% minimum free float requirement
The new admission requirements
come after a review of the consultation • Creating a single tier spread test of at least 300 security holders each holding at
paper and proposed requirements in least $2,000 of securities
May 2016.
• Requiring asset test entities to disclose to the market two full financial years of
The objectives of the changes are to audited accounts and any significant entity or business that it has acquired in the
ensure that principles of integrity and 12 months prior to applying for admission or that it proposes to acquire in connec-
quality are met by listed entities and that tion with its listing
the ASX remains internationally com-
petitive, without burdening start-ups with • Standardising the $1.5 million working capital requirement for those admitted un-
additional barriers to tap into the market der the assets test
place.
ing standards on the market and future ASX chief compliance officer Kevin
Poor commodity prices have seen the capital raisings. In view of the economic Lewis said this new policy addressed
number of new resources and energy conditions prevailing in the mineral ex- market integrity concerns about ensuring
stocks coming to the ASX dry up in re- ploration sector, AMEC had recom- an informed market for investors, “while
cent times, but as the tide appears to be mended that it be treated separately and providing a clear set of guidelines for
turning anything in the listing process ‘carved’ out of any changes to the ASX the disclosure needed to enable trading
that threatens to dampen investment Listing Rules. Unfortunately, that has not to resume once a backdoor listing is an-
would serve as another blow to the sec- occurred,” AMEC said in a statement. nounced”.
tor.
In regards to back door listings, a pol- AMEC has arranged a special infor-
However, it remains to be seen what icy giving companies the option of com- mation session for members at which the
effect the new rules will have, not only plying with additional disclosure require- ASX will be launching its Interim Guid-
on the mining and energy sector but the ments and have their securities resume ance relating to the Reporting of Scoping
technology space which the ASX identi- trading after the disclosure, or to go into Studies. The new listing rules will now be
fied as a key concern. suspension until they have re-complied included within that member information
with the admission requirements, has session
The number of backdoor listings in the been introduced.
technology sector triggered many of the
proposed changes in the consultation
paper.

Association of Mining and Explora-
tion Companies (AMEC) chief executive
Simon Bennison said the amendments
made by the ASX were a clear attempt to
find a balance in the listing process.

“AMEC will continue to monitor, in liai-
son with the ASX, the impact of the list-

20 October 2016 The CD-Rom of the 2016
Pan Pacific Perth Australian Nickel Conference

is available

CD-Rom for conference delegates – $60 (inc.GST)
CD-Rom for non-conference delegates – $85 (inc.GST)
Phone (+61) 8 9321 0355 or email [email protected]

PAGE 10 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT

Case histories of discovery

The world’s pre-eminent
gold exploration event

$A181aE,vA2aa9ruill5agy.bu0Bls0etiruid2nn0crt1.ai7lGteST

Pan Pacific Perth 7
November 14-15

www.newgengold.com

Early acceptances:

Alturas (Chile) – Barrick Gold Limited
Hot Maden (Turkey) – Mariana Resources Ltd/

Lidya Madenulik Sanayi ve Ticaret A.S.
Nyanzaga (Tanzania) – OreCorp Limited/

Acacia Mining PLC
Yaramoko (Burkina Faso) – Roxgold Inc
Yaouré (Côte d’Ivoire) – Perseus Mining Limited

Gross (Russia) – Nordgold N.V.

Pan Pacific Perth 7
November 14-15

For all enquiries about exhibiting or attending please contact Melita Fogarty
on (+61) 8 9321 0355 or email [email protected]

NEWS

Bureaucracy choking
migration system: CME

Chamber of Minerals and CEDA chief executive Ste-
Energy Western Australia phen Martin said migration was

chief executive Reg Howard- a significant driver of Australia’s

Smith has called on the Aus- economy and finding the right

tralian Government to be more mix was essential.

flexible with its migration poli- Martin said it was important

cies. Australia stuck to its skills-based

Speaking to Paydirt on the approach to migration, which is

sidelines of a forum address- considered world leading.

ing the economic imperative “But that’s not to say Aus-

behind importing skills, How- tralia’s migration programme is

ard-Smith said Australia’s min- problem-free,” Martin said.

ing sector and other industries “A focus on skilled migration

were becoming increasingly has served Australia well and

frustrated by the hurdles in that is why we need to make sure

front of companies attempting that if we are bringing in skilled

to bring people down under to Australia can no longer rely on its ‘sun, sand, surf’ labour it is to meet genuine skills
work. campaign to attract workers shortages, which is why we are
recommending a more robust
“It has to be more agile,” he

said. “I have spent a lot of time in Canber- rely on its “sun, sand, surf” promotion to evidence-based model be put in place

ra, particularly around the labour market entice skilled workers to the country, as for the 457 visa occupation shortages

testing which has been introduced. That people were now choosing better oppor- list.”

bureaucracy has increased to the point tunities over lifestyle. It was found that Australia could ab-

where it is choking the system. I think She also said Australia needed to stop sorb a greater migration intake, subject

for many of the occupations relevant to assuming that people wanted to come to to key issues relating to the consequenc-

the mining sector you could really have Australia to work and needed to realise es of population growth, infrastructure

a risk-based assessment and have fewer that competition for human capital was provision, urban congestion and environ-

issues which will pro- on and it was only going mental degradation being addressed.

vide a much more nim- to get hotter. The report also recommended a uni-

ble process for bringing Paterson said a versal points test for permanent skilled

people to the country whole - of- government migrants and tightening entry require-

than what the applica- approach was needed ments relating to age, skills and English-

tion process is today.” to fine-tune the visa sys- language proficiency be implemented.

Accessing skilled la- tem to accommodate Martin said the right policy settings

bour was a dilemma fast changing work ar- would be crucial in ensuring that migra-

for companies during rangements and recruit tion continues to drive economic growth

Australia’s last mining prospective talent. in Australia.

boom, and there was “Australia needs a Howard-Smith said the industry itself

great debate about the more responsive 457 needed to place greater emphasis on re-

issuing of 457 visas or Reg Howard-Smith visa programme,” Pater- engaging with the people who left mining
temporary work visas son said. “I’d encourage following the recent commodities bust.

for skilled migrants and [Australia to adopt] an “There are many seasoned profession-

the time taken to process such docu- agile, balanced and bold migration pro- als that aren’t working in the sector at the

ments. gramme.” moment; we need to bring them back”,

It is estimated the waiting time to be is- According to the recent Committee he said.

sued a 457 visa in Australia is currently for Economic Development of Australia “Some of the younger people, I think

about 8-9 weeks. (CEDA) report Migration: the economic regrettably, will be turned off [the min-

Similar visas in countries such as Sin- debate, annual permanent migration ing sector] particularly those with little

gapore (24-48 hours) and the UK (4-5 could be doubled in Australia over the experience who went to university and

weeks) are issued far quicker, while there next 40 years. may not be employed in the sector right

are greater incentives being offered for Significant per capital economic ben- now. Some of those people have headed

Chinese and Indian nationals to stay and efits could result if there was a greater overseas, we need to get them back to

apply their skills on home soil. focus on the impact of migration on ser- Australia and we need a combination of

Alex Paterson, co-managing partner of vices and infrastructure in major cities, thinking to make that happen.”

immigration services provider, Fragomen while tightening of permanent skilled mi- – Mark Andrews
Worldwide (Australia & New Zealand) gration tests and 457 visas were major

said Australia could no longer afford to talking points emanating from the report.

PAGE 12 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT

SUBSCRIBE TODAY

Exclusive offer for Indaba delegates only

Receive 3 bonus months when you subscribe to
Australia’s Paydirt & Gold Mining Journal

+

FREE access to the digital magazine

Quote “Indaba” when subscribing

NEW

NEWS

Ton up for Twigger’s PCF

Northern Star Resources Ltd’s sale of The Syama gold mine in Mali was PCF Capital’s first sale back in 2004
the Plutonic gold mine to Canada’s
Billabong Gold Pty Ltd in August marked “Randgold had further aspirations in for 70 transactions over the last seven
an important milestone for PCF Capital Africa, but wanted to manage the legacy years, having launched with a $500 pay-
and its digital subsidiary MinesOnline. of a failure in Mali. They didn’t want [Sy- wall for subscribers/buyers and a $1,200
ama] going to a group that didn’t know fee per sales post.
It was the 100th mining project sale fa- what they were doing and wanted to
cilitated by PCF since the corporate advi- be able to hold their head high and say “Selling mines through the internet is
sory firm was established in 2004. they’d passed the asset on to another all about getting eyeballs on the website,
group who would look after the commu- so we removed the paywall so it’s free
“You don’t think about it at the time, but nity, the environment and make a suc- for everyone to access,” Twigger said.
100 mine sales across five continents is cess of the operations. Resolute ticked “We’ve taken an eBay-style approach
a great achievement and the total dollar every one of those boxes.” with the fees and so there’s a 3% com-
value is probably up around $1.3 billion,” mission on any sale. However, if you
PCF managing director Liam Twigger Among the most memorable deals don’t want to pay the 3% it’s a $6,000
told Paydirt. Twigger and his team have facilitated fixed fee.

“We’d argue we dominate that space. were those involving the “We now have over 5,000 users from
We’re the biggest trader of mines, cer- Kerry Stokes-backed over 100 countries and we’ve got at least
tainly in Australia, and arguably the Iron Ore Holdings and 40% success rate/clearance rate. The
globe. To herald from Perth and to domi- its mix of “stranded” as- key point with MinesOnline is we’re not
nate a niche market is certainly some- sets in the Pilbara. dealing with millions of people, we’re
thing we’re very proud of.” generally dealing with Australian, Ca-
“We did five transac- nadian and UK-listed companies. We’re
Plutonic, a former Barrick Gold Corp tions for $100 million in providing a platform for them to market
asset, was picked up by Northern Star in the space of about 18 their projects and get good value for
late 2013. It was the first of four major ac- months and it really set them.”
quisitions for Bill Beament’s then-emerg- that company up for the
ing gold company over a six-month pe- downturn before they The impending sale of Barrick’s 50%
riod. ended up merging with interest in the Kalgoorlie Super Pit – al-
BC Iron [Ltd],” Twigger though not a PCF-facilitated deal – is just
However, Plutonic proved to be a trou- said. one reason why Twigger’s near-term out-
bled asset in an otherwise sparkling port- Liam Twigger “There was a level of look for the mining sector is positive.
folio for Northern Star, with production cynicism around wheth-
costs hitting $1,700/oz in FY2016 before er we could deliver, but we pitched to the “We have got more deals on our books
the Chris Bradbrook-led Billabong took board a strategy around their stranded at the moment than we have ever had
control. assets – we turned that around and in our life and if that’s a signal of what’s
called them ‘satellites’ – and it resonated ahead, I’m very, very upbeat,” Twigger
Coming up with a sales pitch to help with the market at that time and we were said.
companies offload unloved assets has able to get $100 million for them.”
become one of PCF’s PCF launched MinesOnline in 2009 to “Gold stocks are pretty well valued,
major skills. join the digital revolution but also open lithium stocks are highly priced and now
the door for smaller projects to change people are looking for the next big thing,
“A key qualification of hands. and that will be nickel, copper and lead-
our marketing is selling MinesOnline has been responsible zinc, sure as eggs.”
hope,” Twigger said. “As
it turns out, geologists – Michael Washbourne
are very receptive to
messages of hope and
potential.

“To come up with a
sales pitch and strategy
that can deliver value
for a company is a chal-
lenge, but we enjoy
those challenges. Gen-
erally, the most exciting
deals are the ones where you’ve been up
against it.”

PCF’s first sale back in 2004 was the
Syama gold mine in Mali. Resolute Min-
ing Ltd bought the asset which had pre-
viously been operated by Randgold Re-
sources Ltd and BHP before that.

“Syama was a challenge because it
had come out of the hands of BHP and
failed, then Randgold had a go and it
failed,” Twigger said.

PAGE 14 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT

The year of lithium

There is no doubting 2016 was full of Ken Brinsden which is the key thing; I don’t think there
surprises and perhaps the biggest of are any surprises in who got up and go-
all in the commodities sector was the rush surprise was the actual run they [lithium ing who hasn’t,” Keane told Paydirt.
of companies taking to lithium. companies] had. If you look at it now,
we’re probably 18 months into the cycle, “There are over 100 ASX-listed bud-
On the ASX alone, over 100 compa- ding juniors saying they have lithium in
nies hold hopes of being the next ma- their backyard, which is surprising.”
jor player in providing lithium to battery
manufacturers, fuelling a new generation Keane expects lithium to remain a hot
of electrical vehicles and energy storage commodity, however, it is anticipated
components. there will be a tapering off in the number
of opportunistic explorers looking to capi-
The surge in lithium activity can be lik- talise on momentum in the sector.
ened to the buzz graphite players have
created in the market over the past few “You always get that run-up and you
years. always have companies that switch from
one commodity to another,” Keane said.
It has taken time for the market to de-
termine the genuine graphite hopefuls “Economic-bearing lithium pegmatites
from the rest of the pack, a scenario the are rare and also resources of lithium
lithium sector is now faced with. are behind where the market demand is
heading. I think we are going to fill that
Argonaut Ltd analyst Matthew Keane, with the next wave of producers and I
who has covered the likes of Portugal-fo- think we are at the point where resources
cused lithium company Dakota Minerals have caught up to demand. The market
Ltd, said there has been some rationali- knows who they are willing to invest in
sation in the sector after a hectic start to now and down the curve it is going to be
2016. less appetising for both retail and institu-
tional investors.”
“It was truly astounding, it was quite
astonishing and probably the biggest Pilbara Minerals Ltd has been a stand-

LATIN ‘This blood and guts ‘A former soldier’s odyssey
treasure hunt of a memoir in search of the precious
AMERICA is a rollicking, funny read with metal is now a riveting old-
fashioned adventure yarn.’
shades of Wilbur Smith.’ Courier Mail, Brisbane
The Bookseller, UK

29-30 May 2013, Sydney

The CD-Rom of Paydirt’s 2016 Ideal corporate gift $32.95
Latin America Down Under Conference
Available from Fremantle Press
ORDER NOW! and all good bookshops

CD-Rom – $80 (inc. GST) AUSTRALIA’S PAYDIRT DECEMBER 2016 - JANUARY 2017 PAGE 15
Phone (+61) 8 9321 0355 or email [email protected]

NEWS

Pilbara Minerals and Altura Mining’s respective Pilgangoora projects are about 120km from Port Hedland

out lithium player in the Australian space First DSO deliveries are targeted for with Shandong Ruifu for supply of spo-
and in late 2016 took another step to- July 2017, with the agreement including dumene concentrate.
wards financing and development of the a pre-payment of $US10 million by Shan-
Pilgangoora lithium-tantalum project, dong Ruifu and off-take fixed at an at- Earlier in 2016, Pilbara did a deal with
120km from Port Hedland, Western Aus- tractive US dollar price per metric tonne General Lithium Corporation for the de-
tralia. of ore supplied by Pilbara. livery of 140,000 tpa of spodumene con-
centrate from Pilgangoora.
Pilbara announced an off-take agree- The pre-payment will help with some
ment with Shandong Ruifu Lithium Com- of the early construction and mine start- A DFS released on Pilgangoora in
pany Ltd – a lithium carbonate producer up costs for Pilgangoora. 2016 indicated $214 million would be re-
in China – for 1.9mt of ROM 1.5% lithium quired to build the 2 mtpa for 314,000 tpa
over two years. At the time of print, Pilbara was still ne- @ 6% spodumene concentrate (44,000
gotiating a separate off-take agreement tpa lithium carbonate equivalent (LCE))
and 3210,000 lbpa tantalite project.
Chile keeps a check on lithium
Life-of-mine revenues of $9.2 billion
Chile is sticking to its policy of limit- ga and Pedernales salt flats in the first and after-tax cash flows of $2.6 billion,
ing the exploitation of its vast lithium re- quarter of 2017. based on an average life-of-mine spo-
serves, the country’s mining minister told dumene price of $US537/t CFR, was
Reuters in November, despite a surge in The Government has also signed a estimated from Pilgangoora, which is
prices for the battery and electronics in- deal to allow US firm Albemarle Corp to on track for commissioning of 6% spo-
gredient. increase output. dumene concentrate by the end of 2017.

Battery-grade lithium prices tripled to However, it said earlier this year that Pilbara managing director Ken Brin-
more than $US20,000/t in top consum- it would not change the way lithium is sden said the agreement with Shandong
er China over the summer as demand administered, leasing out the rights to its Ruifu allowed for the mobilisation of the
surged, but Chile continues to consider exploitation and restricting the amount mining fleet, acceleration of development
the mineral as “strategic” and limits its produced via quotas. of the open pit, construction of the tail-
production. ings facility and preparation of ore stock-
Williams said Chile had no preference piles to be delivered ahead of schedule.
Private investors, desperate to cash in as to what type of company Codelco
on the demand-fuelled boom for lithium, partners with, nor does it have any front “With DSO shipments targeted to com-
used in many electric vehicles, have criti- runners to date. mence in July next year, this will provide
cised Chile’s policy of limiting production us with the opportunity to generate early
of a mineral no longer really used in nu- “We think Codelco, one of the world’s revenue – well ahead of our original time-
clear applications. largest mining companies, can create table – which should deliver important
the business model to [explore and mine strategic benefits as we complete the
“What we are saying is lithium is in the lithium],” Williams said. “It’s a [business] construction, commissioning and ramp-
hands of the State,” Chilean Mining Min- model that’s been tried and tested.” up of the concentrator,” Brinsden said.
ister Aurora Williams told Reuters on the
sidelines of the LME Week industry con- By 2035, some 140 million lithium-us- “Importantly, the delivery of early run-
ference in London. ing electric vehicles will be on the road of-mine ores will not impact the delivery
versus just 1 million now, global miner of the overall 2 mtpa ore processing and
Chile, which has one of the world’s BHP Billiton Ltd told investors at an LME spodumene concentrate plant, as pre-
most plentiful supplies of lithium, is push- Week event. sented in our recent DFS study release.
ing ahead with new policies to develop Pilbara remains on track for commis-
those reserves, with state copper miner Major global lithium producers include sioning of the full mine site facilities from
Codelco expected to decide on a partner Chile’s SQM . late 2017, establishing the company as a
to develop lithium assets in the Maricun- leading low-cost supplier of spodumene
– Maytaal Angel and concentrate to global markets.”
Amanda Cooper, Reuters
Pilbara’s agreement with Shandong

PAGE 16 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT

Pilbara Minerals resolved to issue Mineral Resources about 104 million shares (9% of the issued capital or $50 million) for the
latter’s 2.5% royalty and right of first refusal on sales from Pilgangoora

Ruifu is subject to regulatory approvals in cently executed a subscription and co- where Dakota was. I’d like to see them

China and, among other things, final in- operation agreement with Shaanxi J&R merge, but logic doesn’t always prevail.”

vestment decision and project go-ahead Optimum Energy Co. Ltd to raise $41.6 Edney agreed and added that while the

at Pilgangoora. million. idea of entering the lithium game seems

The company will also need to secure The funds will help Altura secure the like a good idea now, participating in it is

access to the Utah Point export facility at 324-man Rail 2 camp from Roy Hill, as not straightforward.

Port Hedland. it targets late 2017 for first spodumene “Simply because of the location I’d im-

“It’s quite interesting, they will get concentrate production from Pilgan- agine we’d see the likes of Pilbara and
“some pre-payment for their DSO ore and goora.
Altura merge eventually. They have at

some revenue from that least done the right thing

once they find a port to ...I think we are at the point where from the start and agreed
ship from. I’d imagine there to share some things,

may potentially be some resources have caught up to which would mean capital
capacity at Utah Point, but demand. The market knows who they is not wasted on some in-
I’m not sure of that,” Bal- frastructure items,” Edney

lieu Holst research analyst are willing to invest in now and down the said.
Warren Edney said about curve it is going to be less appetising “There are a lot of propo-
the situation at Utah Point.
nents out there, but there

Edney provides cover- for both retail and institutional investors. have been a few failures
age on Pilbara and like over time. Obviously, not

many market observers, everyone will receive the

believes consolidation of ridiculously high carbonate

lithium players in the region appears to There is capacity to expand Rail 2 to prices, with even the likes of Orocobre

be a no-brainer. accommodate 500 people. [Ltd] and Galaxy [Resources Ltd] having

Pilbara has demonstrated a willing- Aside from a joint development agree- some issues in the past, so not all pro-

ness to participate in such activities by ment to share some infrastructure items, jects are foolproof.”

acquiring Dakota’s Lynas Find project, there are few signs Pilbara and Altura Despite his caution, Edney said there

which covers the same lithium-rich peg- will form some sort of alliance at their re- was obvious demand for lithium, particu-

matite belt as Pilgangoora, for total con- spective Pilgangoora projects. larly with the likes of Chile holding firm

sideration of $8 million. “I think Pilbara are further advanced, on limiting exploitation of lithium in the

Also abutting Pilbara’s project is Altura but they are trekking their own path,” country and China reportedly restricting

Mining Ltd’s own Pilgangoora project. Keane said. “But logic would suggest the amount it exports.

Altura, like Pilbara, is eyeing 2017 as one facility there would make sense. Pil- – Mark Andrews
the year it hits production ranks and re- bara has soaked up the north-east end

AUSTRALIA’S PAYDIRT DECEMBER 2016 - JANUARY 2017 PAGE 17

OPINION

Base metals roar out of
LME week

Cautiously optimistic. That was the Tin was one of the standouts in the base metals sector in 2016. At the time of
consensus takeaway of the mood at print tin was trading at $US20,500/t
LME Week in November 2016, the annual
shindig of the industrial metals markets. group economist at the CRU research infrastructure and construction has, once
house. again, turned metals demand expecta-
Looking at the screens in the aftermath tions on their head.
of LME Week, you could well drop the It will be, he pointed out, the first ac-
word “cautiously”. celeration since 2014 but, and it’s an First stage beneficiaries have been
important but, “we’re still stuck in a slow- steel, iron ore and met coal. The flow-
The LME metals are on a tear. Zinc growth world”. through effects on second-stage metals
and tin have both recorded year-to-date such as copper are still being felt.
highs, nickel is close to doing so and So it’s all down to China. Again.
even out-of-favour copper has hit its The stimulus unleashed at the start of And the broad view is that the stimulus
highest levels since March. 2016 does, in hindsight, appear to have tail winds will only abate around the mid-
coincided with the low point of the LME dle of 2017.
True, this may be down in large part to base metals index in January.
the Trump effect. The US elections were Renewed economic pump-priming into After that, most analysts get a bit nerv-
a hot topic, with analysts near-unani- ous.
mous in their view that a Donald Trump
win trading strategy would be to buy gold “China is not out of the woods and I
and sell everything else. think real estate will start to soften in
Q2 and we could see lower prices in
But beyond the US political noise, there H2,” Ed Meir of INTL FCStone said.
was a feeling that the cycle low may have
passed for the industrial metals complex. Jim Lennon, consultant at Mac-
quarie Bank, agreed: “Storm clouds
China’s early-year stimulus has been are gathering for 2018”.
the big “bull” surprise of 2016 and the tail
winds are expected to carry through to “The further out you go, the more
2017. concerned you’ve got to be,” Gold-
man Sachs’ Max Layton said of Chi-
There is also a hopeful sense that nese copper demand.
Western investment money is starting to
flow again into commodities, joined this While the wheels of global eco-
time around by Chinese money. nomic growth still grind slowly, a dif-
ferent sort of cycle appears to have
Hey, and even if neither funds nor fun- passed an inflection point.
damentals are looking that great, there
is always the reliable fall back of diver- After several years of absence the
gence between individual metals to gen- heavy fund hitters are coming back
erate a little bit of trading excitement. to town.

Global growth is expected to accel- Barclays Capital estimates that
erate to 2.7% next year from 2.2% this $US62.3 billion of investment flowed
year, according to Grant Colquhoun,

PAGE 18 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT

into commodities in the first nine will suffer from a rising surplus,
months of this year, exceeding the
previous equivalent high seen in record high stocks and the in-
2009. (“The Commodity Investor
– Flow Analysis”, Oct 21, 2016) creasing forced release of those

Most of it has hit the precious stocks as financing metrics be-
and oil markets, in that order. But,
in September itself over 80% of come strained. Nobody rushed
flows, or around $US9.5 billion,
went into broad-based commod- to contradict him when he ex-
ity indices with a resulting trickle-
down effect on base metals. pressed that view at the LME

Outright price gains, a break- seminar.
down in correlations between
commodities and other parts of And as for copper, opinion re-
the financial universe and inflation
hedging are all in the mix. mains as polarised as ever with

Paul Crone, founder of Critine Goldman’s Layton and Citi’s Da-
Capital and speaking on the In-
vestors in Metals panel at the vid Wilson doing bear-bull battle
LME Seminar in early November,
agreed. during the Bloomberg seminar.

“Investor interest appears to be A more unusual take on diver-
turning”, particularly in the form
of indices “as a long play”, Crone gence was provided by Vanessa
said, although he added the ca-
veat that heavyweight funds are Davidson, director of copper at
increasingly looking for personal-
ised investment baskets. CRU, who argued that demand

Chinese money is also on the prospects for individual metals
move in the commodities space,
according to Li Gang, co-head were also potential drivers of di-
of market development at Hong
Kong Exchanges and Clearing, vergence.
speaking during the LME’s after-
noon Chinese seminar. The light weighting of vehi-

Thwarted by the authorities’ clamp cles has already benefited alu-
down on stock market trading and frus-
trated by the red-hot property markets in minium over other materials and
Tier 1 cities, many retail and not-so-retail
investors are now looking for a return in creeping electrification of the
commodities, he argued.
global automotive fleet will boost
Love them or hate them, and opinion
is equally divided in the metal markets, both copper and lead, the latter
fund money has a track record of being
ahead of the curve when it comes to thanks to stop-start engine tech-
spotting inflection points.
nology.
Its return has, therefore, been tak-
en as another positive sign the worst Zinc, by contrast, risks de-
might be over.
mand destruction if raw materi-
Divergence between individual met-
als has been an overarching theme als constraint feeds through to
this year and looks likely to continue.
ever higher prices with die-cast-
Supply has been the key differentia-
tor in 2016, with metals such as zinc ing and construction both at-risk
benefiting from raw materials famine
and others, particularly copper, strug- Uncertainty in the Philippines drove nickel prices sectors.
gling to cope with feast. through the $US11,500/t mark in November CRU’s conclusion was that
intensity of use becomes a key
Everyone agrees that zinc’s for-
tunes are beholden to Glencore, istration has suspended several nickel source of divergence in a slow-growth
which suspended 500,000t of mine
capacity this time last year. No one mines and threatened more with closure. global economy.
agrees, however, on when it will re-
verse those cuts. But given how low the nickel price has But then a more divergent commodity

Nickel’s fortunes depend largely on traded this year, many will agree with An- market, according to CRU director Paul
the Philippines, where the new admin-
ton Berlin, marketing manager at Norilsk Robinson, “is good for institutions seek-

Nickel, who told Bloomberg’s seminar ing portfolio diversification.”

in early November, that “there is only In other words, thank heavens the

one way to go, up, it’s just a question of funds are back!

when”. – Andy Home, Reuters
Aluminium, according to Jorge

Vasquez, founder of Harbor Aluminum,

AUSTRALIA’S PAYDIRT DECEMBER 2016 - JANUARY 2017 PAGE 19

NEWS

Oz ready for double
expansion in SA

Oz Minerals Ltd further en- tensions by drilling at current
trenched itself as South levels and at depth.

Australia’s most active miner Penall said a third decline,

last month, announcing an ex- set to be ready in the second

tension to the mine life at one half of 2017, would allow Oz

operation and a positive PFS to hit the 3.5-4 mtpa under-

for its next development. ground mining rate by 2019.

Oz sits behind only BHP “We will have up to 50-60

Billiton Ltd and its Olympic stopes from three production

Dam mine as SA’s largest areas. Over time, mining will

miner and the decision to progress to 900m below sur-

extend the life-of-mine at its face and 400m below the pit

Prominent Hill copper opera- floor,” he said.

tion and push ahead with a While Prominent Hill has

full feasibility study on its Car- Oz Minerals has managed to extend full use of its Prominent Hill pro- been given additional life,
rapateena copper-gold pro- cessing plant by a further four years thanks to a revised mining plan Carrapateena is being edged
ject in the State, will ensure it closer to starting its own op-

retains this position through to almost the forward, increasing production rates and erational existence following the comple-

end of the next decade. maximising the time of peak capacity at tion of a positive PFS on the project.

At Prominent Hill, Oz has both extend- the plant. The PFS – released on November 7

ed and expanded its underground mining The Prominent Hill processing plant – highlighted a $980 million copper-gold

plan out to 3.5-4 mtpa until 2028 and will currently runs at 10 mtpa but was sched- operation capable of producing a NPV of

now run the 10 mtpa processing plant to uled to reduce to 4 mtpa from 2019 fol- $820 million and IRR of 21% (based on

full capacity until 2023 when it will switch lowing the cessation of open pit opera- consensus pricing).

to 4 mtpa. tions. Penall said the new mining plan Cole said Oz would immediately move

Managing director Andrew Cole told would not only see Oz consider taking into a full feasibility study for the project.

a teleconference the move had been the open pit two benches deeper but also “The PFS confirmed it is financial ro-

precipitated by cost and productivity im- allow it to blend open pit stockpiles with bust and our confidence has increased

provements across the operation. underground ore to keep the plant filled. and the risk profile is shrinking,” he said.

“In the last few years we have been “The open pit stockpiles continue to in- “Having more than $500 million in cash

actively reducing costs and our $US1.80/ crease and will be blended with ore from means we can fund the development and

lb AISC number has been leveraged into underground to keep the plant at 10 mtpa continue to pay dividends.”

the new mine plan,” Cole said. “The new until 2023. From there we will reduce it to Although development will be funded

mining profile will see the plant remain 4 mtpa in line with the underground pro- internally, Cole said he expected the fea-

at the 10 mtpa rate until 2023 and then duction rate,” Penall said. sibility study to be completed to a bank-

underground mining will operate at 4 Cole said the company would likely able standard.

mtpa from 2019 until 2028. That will be rerate the plant’s capacity by removing Carrapateena project director, Brett

achieved in the bottom half of the cost one of the mills, rather than process on Triffet, said the project had changed lit-

curve.” a campaign basis. tle since the release of a scoping study

Cole said the efficiency improvements The company will pursue further ex- in May.

had allowed the company to “The sub-level caving model-

lower the breakeven cut-off ling found higher grade ore can be

grade in both open pit and un- mined so we have upped annual

derground operations. production to 61,000t copper and

Prominent Hill general man- 82,000oz gold but the mine life

ager operations, John Penall, stays at more than 20 years and

said the 40% increase in un- costs are in the bottom quartile.”

derground reserves – which He said with a lack of other major

now stand at 740,000t copper, developments, the current climate

1.4 moz gold and 7.1 moz sil- was “perfect time to be construct-

ver – had come about through ing a new project”.

a combination of underground Oz started the decline on time

diamond drilling, mine plan- at the end of October and had

ning and productivity improve- advanced it 120m by the time the

ments. Oz Minerals opened the Tjati decline at Carrapateena in Novem- PFS was released.

He said the planning team ber. A PFS has found Carrapateena to be financially robust and – Dominic Piper
had focused on bringing metal the company is now moving ahead with a full feasibility study

PAGE 20 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT

SAVE THE DATE

23 - 24 May 2017

Hilton Adelaide

Image courtesy of OZ Minerals

saresourcesconf.com

For sponsorship and exhibition packages please contact
Christine Oelschlaeger on (+61) 8 9321 0355 or email [email protected]

COVER

Resolute by name,
resolute by nature

PAGE 22 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT

After seven years of open-pit mining, Resolute is heading underground at Syama

It has been a whirlwind 18 months for Resolute Mining Ltd,
with the resurgent gold miner implementing a restructure
of its management team and answering questions about the
future of its cornerstone assets.

For managing director John Welborn the Ravenswood gold mine
– the “rugby-playing accountant” tasked
with leading a turnaround which recently in Queensland.
culminated in re-entry to the ASX 200 – it
is only the beginning of an “exciting” new Resolute was also look-
chapter for a company which first set foot
in Africa two decades ago. ing shaky financially after

“I remain as excited about Resolute posting a loss of $569 mil-
now as the day I joined, perhaps maybe
more excited,” Welborn told Paydirt dur- lion for FY2015, Welborn
ing a recent tour of Resolute’s flagship
Syama operation in Mali. began his tenure and the

Welborn stepped into the chief execu- new financial year with
tive’s role at Resolute on July 1, 2015 at
a time when the company’s stock had borrowings totalling $118
slipped to 30c/share as the market spec-
ulated on the next moves at Syama and million and net debt of $64

John Welborn million.

Fast-forward 12 months

and Resolute’s share price

was $1.28 and on the

rise, the company having

achieved a record net profit

of $213 million, generated

$555 million in revenue

from gold and silver sales, Resolute general manager mining Dave McGowan explains
$167 million in operational
the proposed box cut for the Syama underground mine
gross profit and a 129% re-

turn on equity. on each of the company’s three main

A year of operational excellence al- gold assets, including a restart of the

lowed Resolute to clear its outstanding mothballed Bibiani project in Ghana.

debts and close FY2016 with $102 mil- “Resolute did have significant balance

lion cash and bullion. Shareholders were sheet issues and there was an uncertain

rewarded with a 1.7c/share dividend on future in all three of our major assets at

the back of a new gold sales-linked pol- the time, but we’ve managed to turn that

icy which includes an option to receive around,” Welborn said.

dividends in physical gold. “We were in a very difficult gold en-

Perhaps most importantly, positive vironment, but if you’re going to be in

feasibility studies have been completed mining and tie yourself fundamentally to

AUSTRALIA’S PAYDIRT DECEMBER 2016 - JANUARY 2017 PAGE 23

COVER

“Current mining activities are focused on the A21 South satellite pit, about 6km north of the Syama processing plants
a volatile commodity, you’re Given the position we’re in now, seriously assessed from
going to have good times and it’s important we move beyond an economic point of view
bad, and it’s how you manage occupying all of our time focusing on until June when a DFS
those that result in the out- meeting the immediate challenges confirmed a low-cost 12-
come you desire, which in our year operation producing
case was an economic one. 250,000 ozpa.

“Effectively, transition wasn’t and raise our ambitions to also focus When Paydirt visited
a decision, it was by necessity. on rewarding our shareholders. Syama in late October,
There was a need to revitalise. underground development

Looking back, I suppose ‘reso- had just begun and first ore

lute by name, resolute by na- was to be delivered during

ture’ is how to best describe it.” for some time, but the market was des- December, with stoping scheduled for

Mining of the Syama open pit had just perately seeking a much longer-term op- later in the month.

wrapped up when Welborn officially ar- tion for an operation which was looking at For the three months following the re-

rived at the company. Stockpiled ore its third mine plan in as many years. lease of the DFS on the Syama under-

and smaller satellite deposits would offer Underground mining at Syama had ground, Resolute’s share price climbed

feed for the sulphide and oxide circuits been considered previously, but never to $2.35 – its best since 2008.

“If I think back to when I started as

CEO, there were a number of strategic

objectives for the company, but the most

obvious was to prioritise the future of Sy-

ama because the future of Resolute rest-

ed with the ability to define and then im-

plement a new mine plan,” Welborn said.

“The decision to go underground and

not do a larger scale cutback of the open

pit was driven at the time by the gold

price. More recently, it’s been driven by

the most economically advantageous

outcome for our shareholders.

“You could say we’re on an operational

and cultural journey to having a far more

efficient, lower cost mine. That’s really

been the ambition of everyone who has

ever worked here at this mine.”

Resolute took control of Syama in

2004, becoming the mine’s third ma-

jor owner after BHP and Randgold Re-

sources Ltd unsuccessfully attempted to

Welborn and his Perth-based executive team with Syama staff outside economically mine and treat the difficult

the site administration building orebody.

PAGE 24 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT

Overcoming Syama’s various metal- Mining of the main Syama open pit concluded in May 2015
lurgical challenges will undoubtedly be
the legacy of the previous management
team, led by Peter Sullivan. For Welborn,
building on the company’s successful
history is just one aspect of the imprint
he hopes to leave at Resolute.

“We’ve got a skillset that allows us to
apply a level of expertise and I come
back to what I said about ‘resolute by
name, resolute by nature’ and having the
ability to handle tough times and focus
on survival at various times,” Welborn
said.

“I think, given the position we’re in now,
it’s important we move beyond occupy-
ing all of our time focusing on meeting all
the immediate challenges and raise our
ambitions to also focus on rewarding our
shareholders.

“At the end of the day it’s an economic
outcome we’re chasing and here at Sy-
ama we need to make sure the capital
we invest has the right return on equity.
There’s many demonstrable ways across
the company in which we’re changing
and adding value.”

With underground mining under way,
Resolute will continue to advance Project
85, which is targeting a 7% increase in
gold recovery in the sulphide treatment
plant, based on the feed grade of future
underground ore. Establishing a civil
contractor on site and early procurement
of long-lead items was keeping the com-
pany busy at the time of print, with com-
missioning set for October 2017.

In the coming months, Resolute share-
holders can expect to hear more about
over about two separate tailings projects
– Project Reprise and Project Phoenix –

Underground mine development had progressed about 60m deep when Paydirt visited Syama in late October
AUSTRALIA’S PAYDIRT DECEMBER 2016 - JANUARY 2017 PAGE 25

COVER

strength to go and have a look at some
interesting things and this new discovery
is certainly something we look forward to
following up on.”

Some deeper hits of 62m @ 6.71 g/t
gold from 651m and 28m @ 5.1 g/t from
708m have also indicated to Resolute’s
exploration team there is strong
potential for ongoing mine
life extensions at depth.

With Syama’s future
looking bright for at
least 12 more years,
Resolute sharehold-
ers also recently
took comfort from
the news Raven-
swood would

Peter Beilby has been Resolute’s chief operating officer for the past six years. Welborn
said Beilby’s proven record was one of the reasons why he joined the company

the company is working on in a bid to lift tailings is planned for the dry season.
gold recoveries. Exploration is another area Welborn

Project Reprise involves the reclama- is looking to revive, with further drilling
tion of deslime tailings from a dedicated planned to follow up two promising re-
storage facility and processing of them sults – 19m @ 2.57 g/t gold from 273m
through the roaster and sulphide plant, and 18m @ 3.02 g/t from 372m – inter-
while Project Phoenix is assessing the sected 250m south of the current mining
economic recovery of residual gold from reserve.
reclamation and treatment of stored
“For a mature orebody nudging 8 moz,
floatation tailings. Drill testing of the it’s exciting to think there might be others
in the region,” Welborn said.

“We now have the balance sheet

PAGE 26 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT

“A lot of success the Wallabies of
my era had was because of Rod’s
management style, not necessarily
because of his coaching style, and that

approach has been very much part of
everything I’ve done since…

remain in operation for another 13 years, swood plant increased Resolute continues to seek improvements
possibly longer. to 2.8 mtpa the follow- in gold recoveries at Syama
ing month. It is envis-
In contrast to Syama, operations at aged mill capacity will been at Mt Wright. We mined a 2.5 g/t
Ravenswood are returning to the surface be boosted to 5 mtpa orebody to almost 900m underground
after a feasibility study supported a lift in in FY2018. at a cash cost of $850/oz, which is a re-
production to 120,000 ozpa for life-of- markable achievement. If you put that in
mine AISC of $1,166/oz, based on mining Operations at the Mt a feasibility study to the market, people
of the Nolans East, Sarsfield and Buck Wright underground would doubt that was possible.
Reef West open pits. mine will continue until
mid-2017 before clos-
Resolute won plenty of market support ing. Sarsfield is due
following the release of the study, rais- to come online from
ing $150 million via a placement in just January, pending approval, and Buck
Reef West is slated for excavation in
over 24 hours to fund the pro- mid-2018.
posed expansion works.
First ore from Nolans “This is an asset which, 12 months
East was processed ago, the market thought we were shut-
in September and the ting – and to be fair – possibly inside the
processing capac- company we thought we were shutting,”
ity of the Raven-
Welborn said.
“It’s probably been unrecog-

nised by the market just how
successful we’ve

AUSTRALIA’S PAYDIRT DECEMBER 2016 - JANUARY 2017 PAGE 27

COVER

Attention will soon switch to the BA01 satellite deposits

Syama general manager Les Taylor inspects rather than development success and he was chief executive of Prairie Downs
that’s why we are delaying.” Metals (now Prairie Mining Ltd) after cut-
the latest batch of core from deep drilling ting his teeth as an investment banker in
Such is Welborn’s confidence in Reso- Perth.
“We’ve got a great team on the ground lute’s growth he has expanded the com-
and we’re now transitioning back to an pany’s management team from three to The 46-year-old is also well known
operation we ran before, but this time six, bringing in Paul Henharen (general for his professional rugby union career,
we’re going to be producing more gold manager project delivery), David Kelly pulling on the Wallabies jumper six times
at a very low cost and for a long time to (general manager corporate strategy) and making 63 appearances for the New
come.” and Vanessa Hughes (general manager South Wales Waratahs before joining his
people, culture and information) to work hometown Western Force’s inaugural
Welborn and his team hope Bibiani alongside long-serving trio Peter Beilby squad in 2006.
will become the company’s third operat- (chief operating officer), Greg Fitzgerald
ing mine in the next few years, however, (chief financial officer) and Bruce Mowat “It’s a much more friendly welcome in
there is no immediate rush to bring the (general manager exploration). countries like Mali than it was 20 years
former Noble Mineral Resources Ltd pro- ago against the Springboks in my first
ject online. Welborn is no stranger to Africa, hav- Test at Bloemfontein during that Invictus
ing previously served as managing di- period of South African rugby,” Welborn
Resolute completed a feasibility study rector of iron ore hopeful Equatorial Re- said with a wry smile.
on Bibiani in June, highlighting produc- sources Ltd for five years. Prior to that,
tion of up to 1.2 mtpa from long hole open Those who have followed Welborn’s
stope underground mining for life-of-
mine AISC of $858/oz. A majority of the Resolute has set aside $19 million for exploration across its whole portfolio
$72 million upfront development capital
is needed to refurbish and upgrade the
existing processing plant.

The feasibility study flagged a nine-
month timeline to production following a
decision to mine at Bibiani, which hosts
a reserve of 5.4mt @ 3.7 g/t gold for
640,000oz. The company will soon re-
start drilling in a bid to extend the mine
life beyond the current five years.

“We’d like to try and match the mine
life to the long-life operations we have at
Syama and Ravenswood,” Welborn said.
“And we’d like to build an even more ef-
ficient mine and make it our lowest cost
mine, but both of those things require us
to expand and understand the geology
better.

“Now that we’ve got the balance sheet
strength, we’re going to be able to fund
the exploration campaign we want. We
think our ability to develop the mine is go-
ing to be driven by exploration success

PAGE 28 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT

business career know he is not shy about

using rugby analogies in corporate pres-

entations and management meetings. In

fact, he openly admits his style of leader-

ship is based on that of his former Wal-

labies mentor, Rod Macqueen.

“A lot of success the Wallabies of my

era had was because of Rod’s manage-

ment style, not necessarily because of

his coaching style, and that approach

has been very much part of everything

I’ve done since, whether it’s been in

banking or with Equatorial Resources

and now with Resolute,” Welborn said.

“I’m a big believer in building teams

that are aligned with strong values and

are very much tied to an intended out-

come. In Rod’s case it was winning the

World Cup in 1999 and in our case here

at Resolute it’s providing reward for our

shareholders. So if there’s any consist-

ency between rugby and what I do now

it’s that focus on team work and the focus

on values.”

An ongoing challenge for Welborn re- Syama has separate sulphide and oxide circuits for treating the “difficult” Syama orebody

mains the security risk of operating in

Mali. Both he and Beilby were in Bamako be switched on at Bibiani, but Welborn in- bringing our production up, we’re moti-

in November 2015 when Islamist mili- sisted increased production was not his vated by making money and building a

tants killed 15 people and held another company’s main game. remarkable business that rewards share-

150 hostage in a mass shooting attack at “I think in the past mining companies – holders.”

“the Radisson Blu hotel. and Resolute particularly – have defined However, Welborn and his team are

“The security position in the country is themselves by how big their production already contemplating potential fourth

really difficult and that’s and fifth mines for the

a focus we don’t try and There are massive opportunities in company, with unde-
shy away from,” Welborn Africa, in areas we understand, to veloped exploration
said. “But it is also bal- projects at the front of

anced by the fact that discover and explore and find new deposits the queue.
Resolute and other well Resolute currently
and build great new Resolute gold mines. holds 27.4% of DRC-
credentialed miners like

Randgold, AngloGold focused, Canadian ex-

Ashanti [Ltd] and now B2 plorer Kilo Goldmines

Gold [Corp] with the Fekola mine are op- is,” he said. “We want to define ourselves Ltd and 18.9% of ASX-listed Manas Re-

erating successfully. by how much money we make for our sources Ltd, which is acquiring the Victo-

“Certainly, we have operated con- shareholders. We’re not motivated by ria gold project in Tanzania.

sistently and continually “There are massive op-

through the various politi- portunities in Africa, in

cal uprisings and security areas we understand, to

issues the country has had. discover and explore and

We’re in the south, close to find new deposits and

the Cote d’Ivoire border and build great new Resolute

we’re focused on making gold mines,” Welborn

sure our operations are ro- said.

bust and secure. “I would love for Res-

“In many ways Mali is a olute’s fourth and fifth

great country to operate in, mines to be exploration

from an endowment point of projects where there is

view and from a fiscal and that opportunity to use

regulatory point of view. our development skills,

The security challenges are predominantly in Africa

something we are manag- where we already have

ing and will need to contin- that skillset. So stay

ue to manage.” tuned on that.”

Resolute has outlined – Michael Washbourne
plans to become a 450,000

ozpa producer by 2020 Resolute general manager exploration Bruce Mowat is excited about a

when the power is tipped to potential new discovery outside the current Syama reserve

AUSTRALIA’S PAYDIRT DECEMBER 2016 - JANUARY 2017 PAGE 29

INDABA PREVIEW

Mining world heads for
blue sky Cape Town

With commodity prices rebounding in 2016, investors are beginning to
shed their cautious outlook on both resources and Africa

PAGE 30 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT

Amuch more sprightly re- continent. Randgold Resources Ltd has
sources sector is expected to set itself a target of building three new
arrive in Cape Town for the Min- operations over the next five years with
prospects in Cote d’Ivoire, Mali and DRC

ing Indaba in February compared being earmarked for development.
to 12 months ago, with evidence Gold Fields Ltd has committed $U1.4
that the African resources sector
billion to extending the life of its Damang
gold mine in Ghana and the likes of Aca-

is back on a growth trajectory. cia Mining plc and Newcrest Mining Ltd
have increased their exploration spend in

Resources development on the conti- the region this year.

nent stalled during the recent downturn However, in the main, the industry’s

after enjoying an unparalleled wave of majors still trying to mend their reputa-

investment in the first decade of the 21st After the despondency of 2016, delegates can tion with governments, host communities
Century. But with commodity prices re- expect a much brighter atmosphere at the and shareholders. It has therefore been
bounding in 2016 and investors begin- 2017 Mining Indaba in Cape Town left to the juniors to lead the charge.
ning to shed their cautious outlook on
Australian firms West African Resourc-

both resources and Africa, there is hope work is going to go and that clarity is criti- es Ltd and Cardinal Resources Ltd have

development can be kick-started. cal. The Government recognises this and announced big gold resources for their

The programme for the 2017 Indaba is working hard but there is still a lot of West African plays in recent months and

reflects the change in mood. While work to do and the uncertainty is a bar- Mark Connelly – the man who led the

2016’s forum focused on survival tactics, rier to additional investment.” successful developments and sales of

the new agenda features panel discus- South Africa is far from alone in chang- both Adamus Resources Ltd and Papil-

sions on issues of growth including how ing its mining policies and regulatory lon Resources Ltd – is preparing his lat-

to encourage greenfields exploration in- framework and Cutifani said uncertainty est company, Toro Gold Ltd for what is

vestment, sourcing alternative finance remained the single greatest barrier to rumoured to be a $250 million IPO on the

and which commodities African compa- further investment in African resources ASX.

nies will be focusing on. projects. Away from gold, it is the so-called bat-

Anglo American plc chief executive “There is still a lot of caution among tery minerals – lithium, graphite and co-

Mark Cutifani – who will be speaking investors,” he said. “There is concern balt – which are emerging as favourable

at the conference – remains optimistic around regulatory uncertainty and inves- investments.

about Africa’s future but warned that gov- tors are keen on jurisdictions where lead- In East Africa, a dozen Australian com-

ernments would have to show more con- ership is present and governments can panies are developing graphite projects

“sistency if the continent was to realise its show that regulatory framework will last designed to feed the burgeoning lithium-
massive development potential. more than one term of government.” ion battery market while in West Africa,

“For a continent with more than Birimian Ltd has turned its attention

40% of the world’s mineral re- For a continent with away from gold and onto the lithi-
serves, Africa is still behind the more than 40% of the um-bearing pegmatites its ground
eight-ball when it comes to issues hosts.

such as infrastructure and trust,” world’s mineral reserves, Africa Added to the enthusiasm for
Cutifani told Paydirt. “I think some graphite and lithium plays is the po-
is still behind the eight-ball
parts of Africa missed the boat dur- tential for in-country beneficiation

ing the last minerals boom because when it comes to issues such and downstream processing, a key
of both a lack of infrastructure and as infrastructure and trust. goal of the African Union’s African
a lack of coherent policy.” Mining Vision.

Nowhere is the issue of trust The outlook for bulk commodity

more apparent than in South Africa projects in Africa is not so optimis-

where the mining industry is still strug- He claimed industry itself could be do- tic. The continent’s crippling lack of infra-

gling to find its place in a post-apartheid ing more to bridge the trust gap between structure continues to frustrate major de-

landscape. Industry and government the public and private sectors, pointing to velopment and even though coal and iron

continue to be wary of each other with the 2012 Marikana incident as evidence ore prices have rebounded in the second

a series of policy initiatives designed to of the need for greater engagement. half of 2016, new investment is unlikely.

spread the economic benefits of min- “Something like the Marikana incident In October, Rio Tinto Ltd sold its

ing instead causing investors to flee the was a manifestation of the mistrust in the Simandou iron ore project in Guinea to

country. relationship,” he said. “We have to be Chinalco for $US1.3 billion, having al-

Cutifani – whose company still gener- careful not to lay the blame at a single ready spent similar amounts on develop-

ates 44% of group EBITDA from South set of feet. The industry is not gener- ment so far.

Africa – said investors were nervous ally getting it right and we need a differ- The failure of Rio Tinto at Simandou is

about the inconsistencies in the South ent dialogue. You have to work at every a warning for industry and government

African Government’s approach. level and with every stakeholder on faith- across the continent that even the best

“The major risk is the uncertainty based communication.” quality projects will only be developed if

around the regulatory framework,” he So, where will the next wave of invest- the investment climate is right, regulatory

said. “Foreign investment in South Africa ment take place? Early indications are and tax frameworks are clear and stable

has dropped and the reason is investors that West African gold stories will be and companies operate in the correct

are not sure where the regulatory frame- the first to tempt investors back to the manner.

AUSTRALIA’S PAYDIRT DECEMBER 2016 - JANUARY 2017 PAGE 31

INDABA PREVIEW

Cutifani leads Anglo
into new phase

After a two-year process,
Anglo American plc ap-
pears to be nearing the end of
its restructuring efforts. Ahead of
his appearance at the 2017 Min-
ing Indaba, chief executive Mark
Cutifani explains the company
may be leaner but not necessarily
smaller as a result of the strategy.

Once the very definition of “diversified

mining house”, the Anglo American plc of

2016 is a much stripped down outfit, the

company having divested assets across

a number of commodity groups as it

looks to recover from the ravages of the

global commodity downturn.

The group is now focused on three The Anglo Platinum division will now be a cornerstone of the slimline
commodities – diamonds, PGMs and Anglo American group
copper – but while it holds dominant

global positions in each, chief execu- jects in Peru and Finland and organic de- crease in 2016, it is still down more than

tive Mark Cutifani is keen to reiterate the velopment opportunities in Chile which 50% from its super-cycle heights.

company will continue to display both could actually take us from number 10 in The fall precipitated Cutifani’s swinge-

capital and supply discipline in the years the world to number three. ing restructuring campaign and since

to come. “So, there are lots of things we can 2014 the company has closed or sold

“We have an additional 25% growth do to improve and grow the business more than 20 assets as it works to clear

capacity in De Beers but we will only but people still get shivers when we talk up the balance sheet and reduce net

bring that on if the market is supportive,” about growth and we have to emphasise debt.

Cutifani told Paydirt over the phone from we plan to keep to that capital discipline Anglo has completed sales of tarmac

London. “In our PGM business, we can we have shown.” operations in Africa and the Middle East,

more than double our output if the market Winning back investor trust is a deli- non-core copper assets in Latin Ameri-

can bear it but we won’t be doing any- cate process. Anglo shed more than 90% ca, niobium and phosphate divisions in

thing silly. In copper, we have new pro- of its market cap during the commodity Brazil, thermal coal assets in Australia

downturn and while it and its Rustenburg platinum business in

has responded with a South Africa.

commendable 294% in- The company had earmarked $US3

billion worth of sales

this year alone. It had

only raised $US1.9

billion through divest-

ments at the time of

print, however the im-

perative to force sales

has lessened thanks

to the turnaround in

iron ore and thermal

coal prices this year.

Anglo is now bank-

ing money from its

coal assets and Cuti-

fani said the company

– which saw nego-

Anglo intends to step up its marketing of PGMs, particularly tiations for the sale of

in the auto-catalyst sector Mark Cutifani the remainder of its

PAGE 32 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT

Australian thermal coal assets stall in visible. Anglo said it expected to deliver gins can improve further because of the

October – was no longer as desperate to cost and volume improvements in 2016 quality of the projects.”

complete deals. worth $US1.6 billion. Cutifani said the op- The result of the savings measures

“In the non-core commodities, we have erational restructure had already seen a was $US1.1 billion in attributable free

good assets but we are not in the top five 50% reduction in capital expenditure and cash flow in the first half of 2016.

global producers. We will continue to op- a 30% improvement in operating costs Cutifani is confident the chosen com-

erate them and will look at selling assets as the company increased its focus on modity mix will only enhance these fig-

but it has to be for fair value. If people only the best assets. ures with all three commodity groups

are willing to show value we are willing to “Those assets we have closed or sold forecast to have supply deficits in the

sell but we are also quite willing to keep were generally of a smaller scale and we coming decade.

them.” have actually increased production in “The market demand is very good for

Cutifani likened Anglo’s stance to that that period,” Cutifani said. “And, our mar- all three commodities and all three will

of Rio Tinto Ltd, which has simi- Cutifani’s garage sale have challenges in supply,” Cutifani
larly grouped together a group said.

of non-core, but solidly per- While its position in copper is un-

forming assets. He said it was likely to have a dramatic effect on the

unlikely the company would fol- supply-demand dynamic, the power

low the lead of BHP Billiton Ltd of its De Beers and Anglo Platinum

which chose to spin-out its non- divisions is such that prices in those

core assets into a new listed markets will be intrinsically linked to

company, South32 Ltd. Anglo’s own decisions.

“A spin-out wouldn’t have Cutifani said the company was

solved the net debt situation conscious of the need to focus on

and we want to go back to being marketing in both platinum and dia-

a dividend paying company. An monds.

unintended consequence of the In October, the Diamond Produc-

South23 spin-out was that BHP ers Association – which is made

Billiton was then unable to pay a Since taking the decision to restructure the company’s up of De Beers and six other ma-
dividend this year.” portfolio in 2014, Anglo American chief executive Mark Cuti- jor producers – launched its “Real
fani has overseen a series of divestments is Rare” advertising campaign. The
Net debt is still a major en- campaign is specifically targeted at
cumbrance for the company but

Cutifani said the health of An- 50% share of Lafarge millennials and its launch follows
Tarmac sold to Lafarge
glo’s balance sheet would con- July 2014 the release of De Beers’ Diamond
tinue to improve over the next for $US1.6 billion Insight Report 2016 which identified
15 months. that $US25 billion of diamond jewel-

“We are on target to reduce lery sales came from consumers in

net debt on the balance sheet Norte Copper sold for August 2015 the 15-34 age bracket.
to $US10 billion by the end of $US300 million Statistics revealed in the report
this year and $US8 billion next
also showed this generation to be

year,” he said. January 2016 Tarmac Middle East the largest consumer market for
Greater margins from its core businesses sold to diamond jewellery.
Colas SA (sale price
triumvirate will assist this pro- “There is a growing middle-class
cess. The reason for focusing confidential) across the world and millennials are
on diamonds, PGMs and cop- now the big buyers of diamonds,”

per is simple; Anglo still enjoys Dartbrook coal mine in December 2015 Cutifani said.
a preeminent position in each New South Wales sold In PGMs, Anglo’s marketing tar-
commodity. to Australian Pacific coal Completes sale of Fox-
leigh metallurgical coal get is the more prosaic but equally
“We have three globally com- August 2015 mine in Queensland to a promising catalyst market.
petitive businesses; diamonds consortium led by Taurus
and PGMs – we are the No.1 “The PGMs business has a ma-
producer in the world for each jor market in auto-catalysts but they
are also used as a catalyst in the

– and copper where we are cur- Fund Management (sale growing technology of fuel cells and

rently No.10 but have the poten- Closes deal to sell nio- price confidential) we have not done enough on that

tial to move to No.3.” bium and phosphates September 2016 marketing side,” Cutifani said.
The company’s June half- businesses in Brazil to Completes sale of There is a sense that despite the
China Molybdenum Co.
year results reflected how ro- Ltd for $US1.7 billion restructure, Cutifani realises An-
bust the retained operations are glo must continue to lift its game

but also just how competitive Callide coal mine in across marketing, operations and

the three divisions will have to October 2016 Queensland to Batch- corporate activities. If it achieves
be for Anglo to achieve its aims. fire Resources Pty Ltd the chief executive’s aims, the new
Anglo Platinum (sale price confidential) Anglo American may be in a much
EBIT for the half-year was completes sale of better position to take advantage of
$US1.38 billion, 27% down on Rustenburg opera- November 2016 the next upswing than its archaic
the corresponding period in tions to Sibanye Gold predecessor.
2015. Group revenue was also

down 20% to $US10.6 billion Ltd for R4.5 billion – Dominic Piper
but improvements were also

AUSTRALIA’S PAYDIRT DECEMBER 2016 - JANUARY 2017 PAGE 33

15 YEARS OF ADU

6 - 8 September 2017

Perth, Australia

For all enquiries please contact Christine or Namukale
on (+61) 8 9321 0355 or email [email protected] or [email protected]

africadownunderconference.com

INDABA PREVIEW

South Deep set to turn profit

The underperforming South Deep which has been active since 1997,
gold mine in South Africa’s West
Rand appears to have finally turned assessed four options for the long-
the corner after a decade of disap-
pointment for owner Gold Fields term future of the mine, including
Ltd.
care-and-maintenance and clo-
In August, the Johannesburg-
based major reported the operation sure, with the company electing to
was breaking even for the first time
since it was acquired for $US3 bil- continue operations while leaving
lion in 2006. A further $US1 billion
has been invested in the mine over the door open for potential expan-
the last 10 years.
sion.
Gold Fields’ ownership of the
world’s second largest gold ore- “We’ve pulled back to a much
body has been blighted by a dec-
ade of ongoing technical problems, smaller project which will mine
production and processing delays
and workplace accidents. about 1.6 moz – less than half of

Previous owners of South Deep the total resource in the area – that I
– JCI, Placer Dome and Barrick
Gold Corp – all tried and failed to think will get us to a situation where
make it profitable. Placer Dome
was once confident of producing we’ll make a reasonable return on
800,000-900,000 ozpa, but when Gold
Fields took over a reduced guidance of the money invested,” Holland said.
650,000-700,000 ozpa was flagged.
“We won’t have a massive cash
Gold Fields chief executive Nick Hol-
land said breaking even at South Deep outflow over the project period and
was a goal almost two years in the mak-
ing. it will enable us to preserve the up-

“It’s a project that is operating at a side because once we get down
small proportion of its total capacity, so
we’re carrying a lot of the costs but we’re there and we do this initial push-
not getting the associated production,”
Holland told Paydirt. back we can do a further pushback,

“The most important objective was both laterally and across the strike
to break-even. We were losing around
$US100 million a year, so we’re very Nick Holland of the pit.”
pleased to have in fact broken even in
the middle of this year. That’s been a big Holland said his company could
relief to us.”
Holland said a “back-to-basics” ap- pay back the capital invested on Damang
Production at South Deep was down
9% in the September quarter, primarily proach was behind South Deep’s turna- within four years and would likely gener-
due to the loss of 10 production shifts
following a fatal incident, but the op- round. ate “double-digit returns”, based on a
eration remained on track to churn out
289,000oz for 2016. “This is the only fully mechanised mine $US1,200/oz gold price.

“Our production is slated to go up in the South African gold space out of Tarkwa, also in Ghana, continues to be
about 50% this year and with the depre-
ciation of the rand against the US dollar, a total industry that employs 130,000 a solid performer for Gold Fields, produc-
we’re starting to see the benefits of that
in our gold price received,” Holland said. people and we didn’t feel we were do- ing 134,100oz for the September quarter,

“There’s a lot of work still to do and ing enough in terms of fully embedding a up 11% on the previous reporting period.
we’ve got to kick on from here. We would
expect production in 2017 to better and mechanised mining culture on the opera- “We should be seeing somewhere
we would hope to make some money
for the first time in 2017, albeit a modest tion,” Holland said. between 550,000oz and 560,000oz this
amount of money I would think. If prices
hold up, there’s a good potential for us to “I think our mining execution and disci- year and we believe we can repeat that in
be cash positive from here on.”
pline has not been as good as we would the years to come,” Holland said.

have liked it to have been. We have not “With the improved royalty and tax

necessarily mined all the stopes in line dispensation, this is well placed to be a

with the plan. We’ve either under-broken long-life asset in Gold Fields.”

or over-broken the stopes. Holland said his company was open

“We’ve gone back to change the cul- to further operations in West Africa, par-

ture, starting obviously with safety. We ticularly in Ghana where Gold Fields has

retrained the operators after assessing been present for 25 years.

them and we’re training up the artisans Although the company’s Australian op-

so we can get better at maintaining our erations led the way in 2016 and are ex-

fleet because our availabilities have been pected to contribute further following the

poor. 50% acquisition of the Gruyere project

“There’s a lot of basics we have to get (see page 8), Holland was full of praise

right still, and slowly but surely it’s been for the wider African mining sector.

improving over the last 18 months. Off a “With the gold price pick-up, it has cer-

low base we’ve got a long way to go, but tainly breathed new life into many parts

the important thing is the trajectory is up.” of Africa,” he said.

Meanwhile, Gold Fields has commit- “Our focus will continue to be around

ted $US1.4 billion to extending the life of that West African hub, which is probably

mine at Damang, Ghana, by eight years the centre of gravity for us at the mo-

to 2024. ment. And there are lots of opportunities

Over the revised life-of-mine, the com- for us up there.”

pany is expected to mine 165mt and pro- – Michael Washbourne
cess 32mt at 1.65 g/t for production of

1.56 moz at an all-in cost of $US950/oz.

A recent strategic review of Damang,

PAGE 36 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT



INDABA PREVIEW

Diamond
fractures
offer junior
opportunity

These are unusual times for the African diamond industry. While Lucapa chief executive Stephen Weth-
demand continues to be volatile and the world’s established mines erall also has his company actively seek-
come under increasing cost pressures, a new generation of junior ing new opportunities.
producers is rising.
“We have been looking a lot and there
In recent years, companies such as said. “For many institutional investors, is great opportunity in the diamond space
Lucara Diamond Corp, Firestone Dia- the risk profile of single asset compa- but we have to remember the size of the
monds plc and Lucapa Diamonds Ltd nies is too high. If we had a number of company and our primary objectives,”
have emerged on investors’ radars with assets in the portfolio to diversify the risk Wetherall said.
small, but high value, assets but their it would encourage institutional investors
challenge is to make the leap from spec- to come onto the register.” Lucapa is mining alluvial gravels while
ulative junior stock to established mid- concurrently exploring for the kimberlite
tier diamond producer. It is a hurdle Lucara is attempting to source at its 40%-owned Lulo project in
overcome; Lamb confirmed the company Angola. The free cash flow coming from
TSX-listed Lucara is a leader of the had been actively hunting new opportuni- Lulo’s alluvials gives Wetherall confi-
new generation. Its Karowe mine in Bot- ties. dence the company can pursue other
swana has been producing for more than opportunities.
three years and following a recent spe- “There is not a diamond company we
cial dividend the company has returned haven’t looked at and asked if there is an “We can do a lot more now the balance
more cash to shareholders in dividends opportunity for a transaction,” he said. sheet is stronger and we have free cash
than it has ever raised on the market. “But management in diamond compa- flow,” he said. “There are assets which
nies is the biggest stumbling block to are falling out of other companies and
However, Lucara president William deals; getting them to agree to a deal can also some sizeable standalone assets.
Lamb recognised the need for the com- be almost impossible.” But it is still about managing cash flow
pany to adapt if it wants to win more insti- against opportunities.”
tutional investment support. Lamb believes it will be investors them-
selves who will push corporate deals. Wetherall admits Lucapa could begin to
“From an investor’s perspective we look like a takeover target itself if Lulo’s
look slightly different to others because “I think the junior diamond sector will kimberlite source is found.
of what we have achieved in a very short look different in a few years’ time,” he
space of time but there are certainly said. “When there are three new mines “The likes of Gem [Diamonds Ltd], Pe-
those who wouldn’t look at us because up and running, investors are going to be tra [Diamonds Ltd] and Lucara are all go-
we are a single asset company,” Lamb the ones driving M&A to eliminate that ing to be looking for additional resources,”
single asset risk.” he said.

On the demand side, the industry
hopes a growing global middle class and

PAGE 38 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT

the rise of the Millennial generation’s generation born between the early 1980s De Beers said in its report.

spending power will prove the main driv- and mid-1990s. In October, the Diamond Producers

ers of future demand after five years of “Millennials are now big buyers of dia- Association – which is made up of De

volatility in the market. monds,” De Beers chairman Mark Cuti- Beers and six other major producers –

“Rough diamond prices have been skit- fani told Paydirt. launched its “Real is Rare” advertising

tish over the last six years as campaign, the first ever to

the lingering effects of the I think the junior diamond specifically target Millenni-
economic downturn have als which number 220 mil-

combined with a bulge in the sector will look different in a few lion in the four major mar-
supply pipeline’s midriff. How- kets.
years’ time. When there are three new
ever, according to both Bank mines are up and running, investors The rise of the Millen-
of America Merrill Lynch and nials generation is part of
Morgan Stanley, diamond wider consumer changes

producers can expect to are going to be the ones driving M&A identified by De Beers in its
see annual price growth of to eliminate that single asset risk. report. The company found
around 4% out to 2021. demand in emerging econ-

In its Diamond Insight Re- omies would continue to

port 2016 – released in Octo- grow while customer pref-

ber – De Beers said the industry could According to De Beers, Millennials erences were also expected to change

expect volatility to be the new normal in spent nearly $US26 billion on diamond with an increased focus on design and

rough diamond prices. jewellery in the largest four markets – branded jewellery.

“Volatility is here to stay as global mar- US, China, India and Japan – combined Midstream players were identified as

kets are likely to continue to fluctuate, in 2015, representing 45% of the total the part of the supply chain likely to come

potentially increasing the diamond indus- retail value of new diamond jewellery ac- under most pressure with tighter lending

try’s inherent volatility,” De Beers said quired in these markets. and compliance standards, and the rise

in the report. “Consumer preferences The task for the diamond industry is of local beneficiation policies in southern

will continue to evolve, and innovation figuring out how to market to this notori- Africa, forcing diamantaires with outdat-

by global luxury brands and new online ously media-savvy generation. ed and unprofitable business models out

propositions will generate strong compe- “In order to unlock this potential the of the sector.

tition for the industry.” industry needs to find appropriate ways

Demand for diamond jewellery will in- to engage Millennials’ inherent need for

creasingly come from Millennials – the self-expression and interconnectivity,”

A new generation of junior diamond miners are finding opportunity in an increasingly fractured sector
AUSTRALIA’S PAYDIRT DECEMBER 2016 - JANUARY 2017 PAGE 39

INDABA PREVIEW

Lucapa offers diamond
investors a new chance

The Lulo diamond mine produced 8,853ct during the September quarter, a 154% increase on the previous quarter

Diamond exploration companies once Angola, investors were still wary of the quarterly report provided evidence of an
proliferated on the ASX but today longevity of the company’s nascent al- alluvial operation finding consistency.
there are few investors with an intimate luvial operations, its ability to repatriate Lucapa reported its 40%-owned Lulo
knowledge of what makes a strong dia- any subsequent profits and the chances mine in Angola produced 8,853ct dur-
mond company. Lucapa Diamonds Ltd of discovering the hard rock kimberlite ing the quarter, a 154% increase on the
may be halfway to changing that. source of the diamonds. previous quarter. Even more encourag-
ing was figures which showed the aver-
Following the recovery of a series Newly installed chief executive Ste- age diamond size recovered was 1.9ct (a
of high-value special diamonds, solid phen Wetherall went to the Lucapa board 62% increase) and recovery of 137 spe-
production from alluvial operations and with a strategic business plan which cial stones (a 219% increase).
available free cash flow, Lucapa is buoy- would increase alluvial production rates
ant. The success currently being enjoyed and enhance its exploration capabilities. Five weeks after those production fig-
is a world away from that which it was en- ures, Lucapa announced to the ASX that
during 18 months ago as its share price “The problem was we became frus- the Lulo JV – Lucapa (40%), state dia-
languished and the company toiled to trated in our goals because of a lack of a mond company Endiama (32%) and lo-
find a cornerstone investor. cornerstone funder,” Wetherall told Pay- cal partner Rosas & Petalas (28%) – had
dirt. “Twelve months on, we are doing completed an additional sale of alluvial
At the start of 2015, Lucapa was bat- exactly what we wanted to do in 2015.” diamonds, worth $8.2 million, achieved
tling hard to prove its credentials. Al- at an average price of $US2,222/ct. The
though there was little doubt about Just how successful Lucapa has been sale took Lulo’s total 2016 sales to $69.5
the prospectivity of the company’s was laid out over the course of three million.
40%-owned Lulo diamond project in announcements towards the end of the
year. First, the company’s September

PAGE 40 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT

“On an average per carat ba- 20,000 bank cubic metres (bcm)

sis, we are currently the best in per month. However, it is the

the world, and we are achieving proliferation of large, special

that consistently,” Wetherall said. diamonds – rather than merely

The chief executive said Lulo’s volume – which is providing the

alluvial operations had reached mine with most impetus.

a tipping point with all capital re- In February, Lucapa sold a

paid. 404ct diamond for $22 million

“Now, we are really focused on but the stone had only been

our cash flow generating ability recovered by luck when it got

and for the first time there is free jammed in the oversize screen.

cash flow from the operation,” Wetherall immediately ordered

Wetherall said. all oversize material to be stock-

It is a salient point. While in- piled and Lucapa brought in the

vestors may have believed the new XRT sorting technology al-

value of the alluvial operation, ready employed by Lucara Dia-

they have been sceptical about Lucapa chief executive Stephen Wetherall with a replica of the monds Ltd in Botswana. Lucara
Lucapa’s ability to transfer such 404ct diamond discovered at the company’s Lulo mine in Angola made headlines last year when
cash flow offshore. Wetherall it recovered the 800ct Constel-

pointed to evidence dismissing such no- vial operations while keeping funding for lation diamond and 1,109ct Lesedi La

tions. exploration going. Now we have actually Rona diamond in quick succession.

“We have already repatriated a divi- delivered on the alluvials and the cash Wetherall believes the XRT sorter –

dend of $8.5 million – in March – so we flow is coming, we have returned our fo- which uses Carbon 6 detection rather

have achieved an exit of funds,” he said. cus to delivering the primary objective; than the traditional fluorescence or lu-

“And, the alluvial cash flow is now above finding the kimberlite source.” minescence – will increase Lulo’s aver-

the alluvial operation’s requirements and Finding that kimberlite source relies on age value per carat even further as it can

we will be putting a proposal to the JV identifying pyroclastic kimberlite materi- pick up better quality but also larger dia-

board to declare a second dividend. If we al, an important indicator of the presence monds.

want to repatriate that we can apply as of kimberlite. While L259 hasn’t turned “The uniqueness of the resource

we are allowed under Angolan law but up such material so far, Wetherall hopes means there are a lot of large Type IIa

do we want to when we have so much the arrival of a new track-mounted Hanjin diamonds which are sometimes difficult
“kimberlite exploration we would like to D&B35 rig from Korea will allow Lucapa to pick up by traditional methods,” he
fund?” said. “The installation is worth

Wetherall’s comments point- They are the three big things $3 million in total so recovery
ed to the importance of the of one stone will pay that back

award of Lulo’s kimberlite li- investors have been looking but we haven’t picked it up to
cence, which would represent for; consistency from the alluvials, recover one stone.
the most concrete confirmation
“It will consistently process

yet that Lucapa can expect to JV company dividends and the the larger material because
generate cash flow from dia- we have this enhanced rate of
award of the kimberlite licence.
mond production for years to large diamonds. It will pay for

come. itself very quickly and pay for

“They are the three big itself many times over.”

things investors have been looking for; to pick up the pace of its kimberlite ex- The company has stockpiled 20,000

consistency from the alluvials, JV com- ploration. bcm of oversized material previously

pany dividends and the award of the kim- “We truly believe we have got the considered waste and will process it

berlite licence,” Wetherall said. “Some best diamond exploration ground in the through the plant once the wet season

of the big UK investors – because they world,” Wetherall said. “We have all the slows the mining rate.

are likely to invest more money – have indications for the kimberlite source and “In the first instance, the XRT sorter

been watching with cautious eyes but the everything is pointing to it being nearby. will allow us to treat run-of-mine ore and

licence will be the tipping point.” And, the bimodal populations of the dia- because there are no constraints on the

Despite the solid revenues coming out monds point to more than one source. plant, that means 60% more than cur-

of the mine, discovery of the kimberlite But, because there are kimberlites eve- rently,” Wetherall said.

source remains the key to longevity at rywhere we will take our time to methodi- It has been a remarkable growth peri-

Lulo. cally work through the targets. od for a junior company which was strug-

The company is already using a Sedi- “The new track-mounted rig will allow gling for market traction at the beginning

rig to drill its highest priority target – the us to get to other targets, even during the of 2016. However, with a consistent al-

L259 kimberlite pipe target – but Wether- wet season, so from January the level of luvial operation and an increasingly con-

all said the arrival of two more rigs would amount of information we will be generat- fident kimberlite exploration programme,

see exploration ramped up over coming ing will be unlike anything we have seen Lucapa could be about to buck a dec-

months. before.” ade-long trend of ASX diamond disap-

“Once we have three rigs on site we Assisting this kimberlite push is the pointments.

will be able to not only continue drilling prolific nature of Lulo’s alluvial opera- – Dominic Piper
L259 but also start testing other targets,” tions.

he said. “The company has spent the last Lucapa and its JV partners have

two years focusing on delivering the allu- now hit Phase 1 nameplate capacity of

AUSTRALIA’S PAYDIRT DECEMBER 2016 - JANUARY 2017 PAGE 41

INDABA PREVIEW

Lucara holds steady with Lesedi

The implementation of XRT sorting technology at its Karowe mine in Botswana has allowed Lucara to reduce the number
of process units to hand sorting from seven to one

Lucara Diamond Corp president William “Clients had to go back to the human company.
Lamb is not panicked by the recent analytical approach and there is obvi- “It has been a brilliant exercise,” Lamb
failure of the company’s 1,109ct Lesedi ously an associated level of risk attached
La Rona diamond to reach reserve at to that process.” said. “Every time we had a showing
auction. Instead, he believes achieving somewhere in the world, the share price
the “right” kind of sale will set the com- Lucara had taken the decision to mar- went up.”
pany on a strong marketing path for years ket the stone directly to end-users, in the
to come. process upsetting the diamond market’s Although the Lesedi La Rona is the
middle men, according to Lamb. largest diamond recovered at the com-
Lucara held a live auction at Sothe- pany’s Karowe mine in Botswana, it is far
by’s in London on June 29 but after the “The people in the midstream market from the only special diamond produced
Type IIa diamond – the second largest got upset and pretty much kyboshed the on the property. In May, Lucara sold the
ever discovered – failed to meet its re- entire process. Since then, we have ex- 812.77ct Type IIa Constellation diamond
serve price of $US70 million, Lucara an- plained to them that our focus is not to for $US63 million, the highest price ever
nounced it would retain ownership of the sell to someone who would otherwise achieved for the sale of a rough diamond
stone. buy from them but rather those peo- and there have been numerous other
ple who are buying it because it is the plus-100ct stones recovered since min-
Lamb told Paydirt the unique nature largest gemstone on the plant. There is ing began in 2013.
of the stone made it difficult to analyse, something unique about the Lesedi La
value and market along traditional lines. Rona and we didn’t want to sell it to be “This mine has produced more large
polished. Instead, we are speaking with diamonds in the last three years than the
“People are still not quite sure how to customers who see it as the equivalent of rest of the world combined has in the last
value the Lesedi La Rona,” Lamb said. a $US100 million Picasso or the like. The 10 years,” Lamb said.
“The market is aware that if you buy a difference is, unlike a Picasso, nobody
stone that could yield a 300-400ct pol- could replicate the Lesedi La Rona.” If the company can find a more suit-
ished diamond it could take 5-10 years able valuation process for the Lesedi
to realise a return from that and so it is Lucara has sent the stone back to Eu- La Rona, it will likely deliver benefits for
struggling to come to grips with the Lese- rope for further analysis and Lamb said years to come.
di La Rona.” potential clients are beginning to get a
better idea of how to value the stone. “Once we find that alternative avenue
The diamond is so large that modern At the very least, the global marketing for the ‘diamond-in-the-rough’ then may-
analytical equipment was unable to be campaign has itself proven useful to the be we can go back with another stone at
used. another time,” Lamb said.

Regardless of how and when the

PAGE 42 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT

Lesedi La Rona is sold, Lucara appears Lucara Diamonds has restarted its marketing of the 1,109ct Lesedi La Rona diamond,
on track to continue its rapid ascension the second largest gemstone ever found
up the diamond producer ladder.
mediately and into the mega diamond do not fluoresce or luminesce.
While the company reported an under- recovery.” Lucara is installing four new XRT dia-
whelming $US3.8 million loss in Q3 – a
figure Lamb put down to a foreign ex- If Lucara can get its diamond-in-the- mond recovery units and the associated
change loss and paying of the full 42% rough marketing strategy correct, it could conveying and screening infrastructure,
tax rate for the entire year – it still man- be recovering and selling more rare large targeting the recovery of diamonds in the
aged to generate sales of $US332/ct stones. size range between 4mm and 8mm.
yielding a 55% operating margin.
“It will be to our benefit to recover a The project is forecast to cost up to $30
“The results still put us in the same ball 400ct stone earlier in the process than million and is expected to be completed
park as last year so the fundamentals of 150ct and 250ct stones after they’ve in Q4 2017. Lamb said XRT was already
the company don’t change. And, we still been broken later on because we believe showing cost benefits and undoubtedly
have a 300ct stone and a 1,109ct stone we can attract a premium of perhaps 20- represented the future of diamond recov-
in inventory,” Lamb said. 30% per carat on the single large stone.” ery technology

The company also paid $US137 million Not that Karowe’s economics are “In going down to 4mm on the XRT, we
in special and regular dividends following based on such large stones; according are actually cutting back the most expen-
the sale of the Constellation diamond. to Lamb, they are the icing on the cake. sive part of the flowsheet because we
Rather it is the 30-100ct bracket which don’t have to run the DMS,” he said. “And,
Lamb said the sale of the Constella- generates most value. on security, the traditional flowsheet has
tion allowed Lucara to reach a significant seven unit processes until hand sorting
milestone. “A lot of people get fixated on the 100ct but with the XRT, there is only one unit
stones but it’s a percentage of larger to hand sorting. It is definitely the future
“The sale of the Constellation allowed than 10.8ct where the real value lies. In regards both security and flow sheet and
us to pay another dividend which means one month we had more than 11% above while we thought there would be an in-
we have now paid out more in dividends 10.8ct, this is a very special deposit.” crease in costs, we have seen a $US4/t
than the company has ever raised on reduction in operating costs.”
market,” he said. As well as the large and mega dia-
mond recovery programmes, Lucara has – Dominic Piper
The income from such sales has also expanded its use of XRT sorting
also allowed Lucara to spend money technology. A replacement for the tradi-
at Karowe. The company is 70% of the tional DMS and x-ray process, the XRT
way through a deep drilling campaign circuit detects Carbon 6, allowing for bet-
designed to take the indicated resource ter detection of flawless diamonds which
from 40m depth to 600m.

“That will allow for a PFS into the un-
derground to be launched at the begin-
ning of 2017 which could extend the mine
life by up to 10 years,” Lamb said.

“It is not inexpensive mining down
there. There is mudstone, aquifers and a
lot of water but the value of the diamonds
does warrant it and you can offset the ex-
penditure against tax.”

However, it is the company’s recently
initiated mega diamond recovery pro-
gramme which could have most effect on
revenues.

A large diamond recovery programme
had already been successfully imple-
mented but now Lucara is altering its flow
sheet further in a bid to capture a greater
volume of exceptionally large stones.

The $US18 million programme will see
oversize material removed and separat-
ed immediately after the primary crusher,
avoiding the possibility of breaking larger
stones.

“If you look at the 374ct stone that was
part of the Lesedi, it was likely cleaved
off in the front end because there was
already a zone of weakness. This usu-
ally happens at the first major drop in the
plant which is immediately after the pri-
mary crusher.

“The purpose of the mega diamond
recovery programme is to get anything
over 250ct as early as possible. The
large material goes over the screen im-

AUSTRALIA’S PAYDIRT DECEMBER 2016 - JANUARY 2017 PAGE 43





SITE VISIT

Danakali finds fertile
nature of shallow basin

Containers from Nevsun Resources’ Bisha mine are unloaded at the Port of Massawa. Potash developer Danakali
plans to export its product from the under-utilised facility on the Red Sea coast

With global population growth driving the need for more pro- in the pipeline but also demonstrates
ductive agricultural practices, fertiliser projects have become its relative advantages,” Donaldson told
highly sought-after, with even the likes of BHP Billiton Ltd identifying Paydirt during a recent trip to the pro-
potash as a potential “fifth pillar” of its revised growth strategy if it ject.
can find an appropriate asset. However, the challenge for develop-
ers has been in finding projects capable of making a return. While in the same geological setting
as those deposits across the border, Col-
The last decade has seen the Danakil risk profiles increased to insurmountable luli’s points of difference are all advan-
Basin in East Africa rise to prominence levels. tages, according to Donaldson.
as potentially the next “world-class” pot-
ash province. But, the recent decision by Amid such deflation for the region, it “The resources are different, the coun-
Israel Chemicals Ltd (ICL) to withdraw could be assumed an ASX-listed junior tries are different and the infrastructure is
from its Allana potash project in Ethio- looking to develop its own potash pro- different and relatively Colluli is starting
pia – just 12 months after paying $US170 ject in the Basin would be left stranded. to shine against the Ethiopian projects,”
million for the asset – and similar sug- Instead, Danakali Ltd managing director he said.
gestions from other project owners in the Paul Donaldson believes his company’s
region has thrown doubt around the Ba- 50%-owned Colluli potash project in Eri- The task for Donaldson now is to prove
sin’s future. trea will benefit from the stalled develop- Colluli’s advantages to investors and fi-
ments over the border. nanciers.
In an industry associated with multibil-
lion dollar price tags, development in ge- “I think the failure of the Ethiopian pro- At first glance, it would appear a hard
opolitically sensitive jurisdictions can see jects is actually a positive for Colluli be- case to prosecute. Colluli is in the same
cause it not only makes it a clear leader basin as Allana (capex $US600 mil-
lion) and Yara Potash Inc’s Danakil pro-
ject whose elevated capex estimates
($US600 million and $US740 million re-
spectively) led to them being iced, yet it

PAGE 46 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT

is in a country with a far inferior interna-

tional reputation to Ethiopia – a current Asmara’s architecture still shows signs of the 100 years of Italian colonial rule

darling of the international community

and home of the African Union. have multibillion dollar price tags and world’s potash is extracted by under-

However, closer analysis supports so have a debt-to-resource ratio prob- ground or solution mining methods but

Donaldson’s argument. lem, particularly as the resource is usu- Colluli’s shallow nature – mineralisation

The technical aspects of the project ally very deep and it costs a lot to get starts at just 16m below surface – al-

are the easiest to assess. In December down to them. Colluli is the shallowest lowed Danakali to assume open pit min-

2015, Danakali released a DFS pointing known evaporite deposit in the world and ing in the DFS.

to a $US298 million development of the we have used the advantages that fact “While underground and solution min-

1.2bt Colluli resource being able to pro- brings to make it fundable,” he said. ing results in large portions of the re-

“duce a NPV of $US860 million and IRR The issue of depth means most of the source being left behind for support,

of 29% with an expected mine open pit mining using surface

life of more than 200 years. Potash projects usually have miners allows for extraction,
While the resource and stockpiling and processing of

mine life figures are impres- multibillion dollar price tags… the different salts and avoids
sive, it is the capex which Colluli is the shallowest known the brine chemistry complexi-
Donaldson believes makes ties of solution mining.”

Colluli most attractive in com- evaporite deposit in the world and The overall conversion of
parison to Allana ($US600 resources to reserves is 88%

million and Danakil ($US740 we have used the advantages that at Colluli compared to indus-
million). fact brings to make it fundable. try averages of 52% for un-
derground mining and 22%
“Potash projects usually

AUSTRALIA’S PAYDIRT DECEMBER 2016 - JANUARY 2017 PAGE 47

SITE VISIT

A laydown area has already been demarcated for Colluli product. With a port
expansion under way, authorities are keen to see potash production start

As well as the potassium-bearing salts, is preventing a further 1.5% of GDP tober, a laydown area had already been
Colluli contains potentially economic quan- growth – Colluli’s assumed production dedicated to Colluli and port manage-
tities of magnesium chloride, gypsum and, of 425,000 tpa sulphate-of-potash (SOP) ment reiterated its desire to host further
does not require the same scale of infra- exports.
as shown in this core sample, rock salt structure development as the high-profile
iron ore and coal failures of the last dec- Danakali is comfortable with Massawa
for solution mining, while the open pit ade. However, even projects of Colluli’s and Donaldson believes Colluli’s scale
method could deliver other advantages. size raise infrastructure questions, par- means there will be few logistical or in-
ticularly given the lack of international frastructure problems for the project.
“Evaporite deposits usually require investment in Eritrea.
getting through the lower value minerals “One of the key advantages of SOP is
such as rock salt and magnesium chlo- In announcing its decision to withdraw that it is a smaller product and therefore
ride but we can actually extract that ma- from Ethiopia, ICL cited that Govern- lends itself to containerisation and con-
terial as waste and stockpile it because ment’s “failure to provide the necessary tainers do move well through Africa,” he
we are not hauling it from great depths. infrastructures and regulatory frame- said. “The road between site and Mas-
It means there is potential to monetise work” for the project but Donaldson ar- sawa could be better but heavy goods
the non-potash materials we have – rock gues there is not a more accessible pot- are already moved along it and all of our
salt, magnesium chloride and gypsum ash project currently on the development studies to date have assumed no up-
– to further add to the economics of the table. grade to the road although upgrade work
project,” Donaldson said. has already started.”
“Colluli is just 180km along the coastal
Colluli’s location also brings other highway from Massawa, a port which is Donaldson also pointed to Nevsun
unlikely advantages, including infra- under-utilised and has excellent ship- Resources Ltd’s consistent shipment of
structure. While Africa’s development loading infrastructure and we are in ad- copper and zinc concentrates from Mas-
potential is often held back by its lack vanced discussions with the port authori- sawa as further evidence of the port’s
of infrastructure – the World Bank esti- ties,” he said. capacity and capabilities.
mates the continent’s infrastructure gap
When Paydirt visited Massawa in Oc- For Donaldson, the performance of
TSX-listed Nevsun and its Bisha gold-
The markets of Asmara showed indications of a good 2016 harvest copper-zinc mine – 150km west of the
capital, Asmara – is the best testimony
to questions about Eritrea’s suitability to
mining investment.

“Bisha is obviously the flagship for
Eritrea’s mining sector and Nevsun has
been comfortable enough here to ex-
pand its production capacity threefold
and its exploration tenure twentyfold and
it is happy to continue to invest,” he said.

Nevsun completed construction of Bi-
sha in 2010 and the mine has since pro-
duced 800,000oz gold and 377 mlb cop-
per. In the September quarter, it shipped
its first zinc concentrates having spent
$US140 million on the operation’s expan-
sion.

For Donaldson, Nevsun’s commitment

PAGE 48 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT

Danakali managing director Paul Donaldson, The sun sets over the Eritrean capital of Asmara
formerly site general manager at BHP Billiton Ltd’s

Area C iron ore mine in the Pilbara, has been with
the junior developer for three years

to its Eritrean investment – the Canadian stories which come out of the media,” Construction Group Co. Ltd (SFECO)

miner has spent more than $US420 mil- he said. “We find Eritrea a safe, easy to started production at the Zara gold

lion in building Bisha – and its ability to get around country and the government mine. SFECO acquired the project from

return funds to shareholders proves busi- agencies are very easy to get on with. ASX-listed Chalice Gold Mines Ltd in a

ness can be undertaken in Eritrea. “And, the successes in the country are $US114 million deal in 2012.

The country sits in relative isolation not just in mining. The Government has Colluli, Bisha and Zara are all held

“from the international community. It hasdone exceptionally well in meeting the in JV with the Eritrean National Mining

been in dispute over parts of its borderSustainable Development Goals with a Company (ENAMCO). Australian inves-
with Ethiopia since gaining in-
dependence in 1993 and is tors may have lowered their
currently subject to several UN
Security Council Resolutions We have always maintained averseness to African geopoli-
imposing various military and the relationship with the tics in recent years but it still
economic sanctions, in view of remains when it comes to legis-

Government and the JV is an lated state participation.
Donaldson admits the pres-
enabler of success for Danakali.
evidence that it has supported ence of ENAMCO in the project

armed opposition groups in the is a perceived stumbling block

disputed border region. This for investors but he argues the

comes despite it being Ethiopia which focus on spending in health, education opposite is in fact true in Colluli’s case.

has failed to accept the demarcation set and agriculture. There are new industrial “The reason people mostly sit on the

out by the UN’s Eritrea-Ethiopia Bound- projects being built, including food pro- sidelines really comes down to a lack

ary Commission. cessing and cold storage facilities and a of understanding of Eritrea and our re-

The ongoing dispute with Ethiopia has new port expansion at Massawa.” lationship with the Government and

also led to President Isaias Afworki’s Mining also continues to expand. Ear- the JV with ENAMCO in particular,” he

Government imposing mandatory and, lier this year, Chinese group Shanghai said. “We have always maintained the

in some cases, indefinite relationship with the Gov-

military conscription in the ernment and the JV is an

country which has drawn enabler of success for

the ire of Western human Danakali. They have al-

rights groups. lowed us to negotiate our

Eritreans now comprise way through a number of

the fifth largest group of government processes we

Mediterranean Sea arriv- perhaps wouldn’t have fully

als into Europe, according understood; having the JV

to the UNHCR, with esti- partner helps enormously.”

mates of many as 5,000 Under the agreement,

people fleeing the country the project is held 50/50

each month while the Eri- between Danakali and

trean Government puts the ENAMCO with the ASX-

figure closer to 1,000. listed company retaining

Donaldson argues Da- three of the five board po-

nakali’s experience in the sitions in JV vehicle Col-

country does not fit with luli Mining Share Company

western media reports. Danakali country manager Zeray Leake speaks with leaders of the local (CMSC)

“Our experiences don’t Afari community. The small community is situated 30km from Colluli The plan is to fund Col-

align with the negative and is the only village within 80km of the project luli on a 70:30 debt-to-

AUSTRALIA’S PAYDIRT DECEMBER 2016 - JANUARY 2017 PAGE 49

SITE VISIT

Unloading of containers at the Port of Massawa. Colluli is just 180km by coast road from the under-utilised port

equity ratio. The shareholder contribu- CMSC. Any shortfall in the 70% third- and for the repatriation of profits and divi-
tion is Danakali’s obligation where 50% party debt component will be underwrit- dends,” he said.
is contributed as equity in to CMSC and ten by Danakali on market terms with
50% through an interest-free loan from repayment and security consistent with Nevsun has reported five years of divi-
third-party debt. dend growth and has returned $US130
Colluli will produce a sulphate-of-potash million to shareholders during that time.
product which is ideal for high-value After CMSC’s third-party debt is ser-
crops such as fruit, coffee and nuts viced, 50% of the funds available for dis- “And, if you look at Zara, when Chalice
tribution will be preferentially repaid to sold it ENAMCO was instrumental in en-
Danakali to settle the loan with the other suring payments were honoured so there
50% distributed evenly. is a good track record in the country.”

It is a similar structure to the Bisha JV Debt repayment structures may be in
(although Nevsun holds 60% of that com- place but Danakali will first have to find a
pany) and Donaldson was quick to point provider of funding.
to the Canadian company’s ability to re-
turn profits to shareholders. The company has begun preliminary
discussions with a number of parties,
“There are provisions for sales rev- engaging Endeavour Finance to assist.
enues to go through offshore accounts Donaldson said the process would pick
up pace in early 2017 once the mining
licence was granted.

Evidence of a port city (the excavated building is a church) at the site of Adulis between Country manager Zeray Leake is among
Massawa and Colluli. Recent archaeological work here has identified four separate eras the most experienced geologists in Eri-
trea, having previously worked with the
of settlement at Adulis, dating back to 1AD
Eritrean Geological Survey

PAGE 50 DECEMBER 2016 - JANUARY 2017 AUSTRALIA’S PAYDIRT