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Top Gold Mines show their mettle - Part 1

Pounded by low gold prices and market uncertainty, Australia’s leading gold producers have displayed remarkable resilience under adverse conditions.

Stephen Bell

 

The depressed gold mining industry in Western Australia has been greatly exaggerated. Against all odds, in the past couple of years, the state’s leading gold miners have had to contend with several obstacles including low average gold prices — of under $US300 per ounce — and native title and environmental constraints, and have managed to hold firm.

The low bullion prices, native title logjam and negative market sentiment have, of course, put huge pressure on gold mines in and around Kalgoorlie and Leonora/Laverton as well as taken their toll on junior explorers’ bank balances, resulting in major rationalisation across the board. This has seen consolidation or closure of operations, further efficiencies strived for in plant and processing capabilities, corporate takeovers and tenement reorganisation.

Photo Evan Collis.

However, WA’s top bracket of gold miners have excelled under this extreme diversity. They were instrumental in the industry achieving its fourth consecutive year of 200-tonnes-plus output and $3 billion-plus value of production.

Australia’s top five producing gold mines in calender 1999 were all from WA: Normandy Mining/Homestake Mining’s Super Pit at Kalgoorlie at number one, with total production of 593,000oz; Placer Dome/Delta Gold’s Granny Smith mine near Laverton was next with 523,000oz; then WMC’s Saint Ives operation near Kambalda with 409,000oz, Great Central Mines’ Jundee mine near Wiluna 385,000oz; and Newcrest Mining’s Telfer operation 314,000oz.

The top four are all in the state’s eastern and north-eastern goldfields, which suggests the traditional heartland of the Australian gold sector is still in reasonably good shape. WA’s total gold output eased 8% in 1998-99 (compared with the previous financial year) to 221t and the value of output was down 6.5% to $3.24 billion — the lowest (value) level since 1994-95. Exports were actually slightly higher at $3.25 billion (second behind iron ore’s $3.75 billion) because previously stockpiled refined gold stocks were drawn down.

Gold exploration spending, meanwhile, plummeted 28% to $331 million (based on the same fiscal year comparison) or a whopping $200 million from the peak of $531 million in 1996-97.

But the harsh operating climate has taken a much greater toll at the smaller end of town. A quick glance at the production tables of a couple of years ago shows that more than a dozen medium to smaller WA gold mines have bitten the dust.

The bigger mines, backed by larger companies with deeper pockets, appear to have weathered the storm, albeit in some cases with production having tapered off. Even Telfer, Newcrest’s ageing high-cost giant, is in the throes of a major expansion plan to stave off the long-heralded closure, while other mines have adopted various strategies to remain viable, ranging from changed mining methods, lower cost treatment and owner mining.

Australia’s Mining Monthly conducted exclusive interviews with the managers of these leading gold mines. Their answers demonstrate just how resilient the industry has been in the face of hard times.

Super Pit

For many years, the size of the Super Pit’s profits have been an economic barometer of the wider Kalgoorlie economy. When the pit sneezes, Kalgoorlie catches a cold.

The mine’s current general manager, John Shipp, has certainly presided over feverish times since his arrival in March 1998. Falling gold prices and rising costs prompted a major restructuring of the operation, culminating in the recent $100 million move to owner mining.

“We are down to 650 people compared to 985 a year-and-a-half ago,” he said. “So the restructuring has had a big impact. We’ve gone through all our major supply contracts, and worked with our suppliers to get a far better position for ourselves.”

Cash costs fell 16% in the December 1999 quarter, reflecting diminishing contractor penalty rates and further cost cutting. The mine is switching from blast hole to RC grade control drilling in order to generate a more precise ore boundary definition. Approval was also given last quarter for a $19 million upgrade of the Fimiston plant circuit designed to improve recoveries. In its latest quarterly, Normandy said the various improvements were expected to deliver increased gold production in the first half of this year.

“We’ve done a lot of hard work and I think we’re in good shape to handle the gold price as it is now, and whatever else it throws at us,” Shipp said.

He said the Super Pit’s main near-term objective was to “gain the maximum returns from the significant investments the owners have made in the last 10 years”

“We’ve got to make sure the switch to owner mining works to the absolute best,” Shipp added.

Last year, around 70 million tonnes of ore and waste were dug out of the giant hole. At current mill throughput rates of 12Mt per annum, the Super Pit has a projected remaining mine life of about 15 years.

Granny Smith

Granny Smith is regarded as Australia’s most profitable gold operation. With an average cash cost last year of $161/oz, the 500,000oz per annum mine is a licence to print money. In the year ended June 30 1999, Granny Smith earned $160 million for its owners.

“We’ve been fortunate to have the Sunrise deposit, which has had one of the lowest costs in Australia, but that hasn’t stopped us seeking out better efficiencies,” said Bill Plyley, Granny Smith’s resident manager.

“We’ve tried to gain productivity on the mining side of things, and we’ve had good co-operation from our contractors,” he said.

Granny Smith uses a mix of contractors — Wallis Drilling, Roche Bros for load-haul and Brambles for the 32km haulage from Sunrise to the treatment plant.

“A substantial part of our costs comes from that 32km haul, and Brambles have been helpful in putting the capital in to buy larger equipment and reduce our costs. They now have up to 205t-capacity trucks that can run about 60km-plus per hour fully loaded on the haul road.”

Placer/Delta’s major task is to keep costs under control while the new Wallaby deposit, 11km from the mill, is brought on stream. Some brokers have predicted the mine’s cash costs could swell to about $250/oz after Wallaby starts production in late 2001.

The total cost of launching Wallaby is still being finalised. Plyley said it would require a “fairly major capital influx”

“There is an expansion of the plant, and the possibility of running our own mining fleet — the mine life might justify that — and pre-stripping costs etc,” he said. “The big challenge is to maintain cashflow while we’re going through that process — to fill the gap between the decline in production from Sunrise and bringing Wallaby up to speed.”

There is a native title claim over Wallaby, but Plyley does not expect it to have any impact on the development schedule. “Our first native title negotiations have been drawn out over two years, but we’re now in the determination process. We need settlement of those issues and title granted over the next couple of months. We’re hopeful we might get some indications by March.”

 

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