Capral courted for Kurri Kurri - pratclif.com

The recent buoyancy in the aluminiummarket after a prolonged period ofdepressed prices has done no harm,whatsoever, to Capral Aluminium Ltd’schances of selling its Kurri Kurrismelter in New South Wales. Capral(formed in 1994 following the decisionby Canadian aluminium producerAlcan to sell its 73.3%-ownedAustralian division) intimated lastNovember that the smelter would besold when it announced plans to split itssmelting and downstream businessesinto separate operations (MJ,November 19, 1999, p.417). The saledecision was confirmed in Sydney thisTuesday when the Capral boardannounced that it was exploring thepossibility of a sale as part of a corpo-rate restructuring plan, adding that ithad received expressions of interest inKurri Kurri from a number of potentialbuyers.

The 150,000 t/y capacity smelterlocated in the Hunter Valley was ear-marked for a A$250 million, 50,000 t/yexpansion but the plan was shelved lastyear, partly because of uncompetitiveelectricity prices. The facility purchas-es its electricity needs under short-termcontracts and the uncertainty aboutfuture electricity prices could impactadversely on the sale price. On the posi-

tive side, a five-year alumina supplycontract has been reached with KaiserAluminum & Chemical Corp., effectiveas from January 1, next year. Analystsestimate the value of Kurri Kurri atabout A$350 million. Capral hasappointed the investment bank ABNAmro to advise it on its corporaterestructuring, and for those partiesinterested in purchasing the smelter,the company expects to provide adetailed memorandum on the opera-tions later this month.

Capral has declined to name suitorsbut a number of big aluminium produc-ers are believed to be in contention,including Alcoa Inc. of the US andPechiney of France. Both companiesalready have significant aluminiuminterests in Australia, althoughPechiney is regarded as a less likelybuyer by analysts who suggest it mightbe more inclined to increase its existing36% interest in the nearby 380,000 t/ycapacity Tomago smelter. The Frenchcompany has been in talks with CSRLtd which is intending to divest its alu-minium interests. CSR owns 70% ofGove Aluminium which holds a 36.5%stake in Tomago.

Confirmation that Capral intends tosell Kurri Kurri and focus on its down-stream fabricating and distribution

activities was well received in the mar-ket place and the company’s share pricejumped by seven cents during earlytrading on Tuesday, to reach a high ofA$2.13. ■■

JOURNALLondon,February 4, 2000Volume 334No. 8568

Established 1835ISSN 0026-5225

Capral courtedfor Kurri Kurri

http://www.mining-journal.com

Inside• Gold deposit survey (p.76)

• African issues (p.79)

• BHP hit by injunction (p.91)

• PGM jockeying forposition (p.94)

• JCI Gold merger off (p.99)

No worriesfor nickel

The latest news from Western Australiaon the progress of the new generation oflateritic nickel deposits, which employpressure acid leaching technology totreat the ore, should do little to under-mine the current strength of the nickelmarket. Technical problems havedelayed the various Australian projectsfrom reaching their design capacitiesand the shortfall in expected output ispartly responsible for pushing the cur-rent nickel price to a 4E-year high aboveUS$8,900/ t (this issue, p.94).

The biggest of these operations,Anaconda Nickel’s A$1.03 billionMurrin Murrin project, is designed toproduce 45,000 t/y of nickel and 3,000t/y of cobalt at a cash operating cost ofUS$1.14/lb. Initial output began lastMay, five months behind schedule, and

in the most recent quarter it stillmanaged to produce only minimalamounts of high-grade nickel andcobalt. However, during the monthof December output did improve,

Africa is certainly ‘elephant country’ forexploration although the targets are not alwaysobvious. To coincide with the Indaba Conferencein Cape Town, the ‘focus’ articles in this week’sMining Journal address African issues.continued on p.76

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MJ

Corruption in the international miningindustry is a bit like adultery: we allknow it happens but it is seldom dis-

cussed in public. Those that campaignagainst corruption argue that it is preciselythis lack of willingness to air the issue,albeit perhaps from a misguided desire toprotect an industry’s collective reputation,that allows the practice to flourish. In themining sector, the consequences for thehost country could include the awarding oflicences, contracts etc., on less than opti-mal terms, and the circumvention of the nor-mal conditions designed to serve the inter-ests of the population, such as environmen-tal safeguards, labour practices and propertaxes. The main consequence for the law-abiding majority in the mining industry is ashort-term competitive disadvantage fromrefusing to participate.

Although cases of corruption are exposedin the media, it seems a fair assumption thatthe majority go unnoticed. One way for theanti-corruption campaigners to bring theissue more generally into the open, withoutmaking allegations that could end in thecourts, has been to publish league tables ofcorruption. These have in the past tended tofocus on countries where taking or demand-ing bribes is rife, partly to shame govern-ments there into acting.

Recognising, that every bribe taker needsa payer, Transparency International (TI)*, anon-governmental organisation based inBerlin, has this year added a bribe-payers’survey to its five-year-old corruption percep-tions index (bribe-takers’ survey). TI derivesthe bulk of its funding from governmentalinstitutions and foundations, but alsoreceives donations from the private sectorand includes several mining and relatedcompanies, such as Rio Tinto, Placer Dome,BHP, Bechtel and IAMGOLD, among itsmany supporters.

The bribe-payers’ index was compiledfrom research conducted by GallupInternational with 779 business executivesand other professionals in 14 selectedemerging-market countries. The survey con-cerned only serious corruption (ie not pettycorruption at airports etc.), and concentrat-

ed on the interviewees’ perceptions of bribepaying by companies from 19 leadingexporting countries in their dealings in the14 countries surveyed. The intervieweeswere also asked the sources from whichtheir perceptions were formed; 79% citedpress and media reports, 67% conversationswith colleagues and friends, and 56% per-sonal experience.

The ‘cleanest’ foreign investors (of the 19countries about which the intervieweeswere asked) are to be found in Sweden, fol-lowed by Australia and Canada. At the footof the table are Taiwan, South Korea andChina. The most corrupt industry sector ispublic works and other construction; fol-lowed by arms; power (including energy);and general industry (including mining). Theleast corrupt sector is agriculture.

The author of the bribe-payers’ survey,Fredrik Galtung, reports a high degree ofstatistical correlation between the inter-viewees with regard to the averages onwhich these rankings are based. However,Mr Galtung does concede that the industryrankings are partly a function of the 14countries in which the survey was conduct-ed. The industry rankings are also affectedby the structure of the industries and thepattern of foreign investment: sectors inwhich high-value deals with large up-frontpayments are common, and in which offi-cials have high discretionary powers aregenerally more prone to bribery.

The survey also includes a section onunfair, as opposed to illegal, business prac-tices, such as using diplomatic pressure insupport of an exporter, or tying deals to aid.Unfair is defined as anything that mightinfluence a contract to be awarded otherthan the contract’s merits (even if the recip-ient country gains in other ways). Here, theUS scored decisively worst, followed byFrance and Japan. The least prone to unfairpractice is Switzerland. TI ascribes theseresults mainly to the political clout of theworst-scoring countries and, in the case ofthe US, to firm legislation against bribe-pay-ing causing resort to other means.

*TI International Secretariat. Tel: (+49 30) 34 38 20 0.Fax: 34 70 39 12. E-mail: [email protected]

Change High- Year’son week Low Max/Min

Share Indices Feb 2 (%) (%)FT 30 3,711 –1.1 33 4,148-3,491US Dow Jones 11,003 –0.3 77 11,551-9,177FTSE Gold Mines 831 –0.2 24 1,232-702Australian All Mining 704 n/a 69 771-558South African Gold 1,102 0.4 53 1,358-807Toronto Met/Min 4,141 1.1 68 4,749-2,862Nikkei Dow 19,579 2.4 100 19,579-13,404Hang Seng 15,790 2.3 94 16,249-9,076

Commodity Prices Feb 2Gold (London) $285.25 –0.1 45 $324-254Copper (LME) $1,784.50 –1.9 82 $1,877.50-1,361Aluminium (U.S. prod.) 64.50c 0.0 59 69-58Brent Blend (dated) $27.06 –0.6 99 $27.25-9.83

LEADING INDICATORSChange High- Year’son week Low Max/Min

HSBC Indices Feb 2 (%) (%)(100 on 31/12/88 except*†)

Global Mining 132 –2.3 76 146-88Global Diversified Mining 172 –4.9 73 198-102Smaller Mining Companies 53 –1.4 67 59-42Global Base Metal 184 1.1 80 204-104North American Base Metal† 425 3.0 82 489-136Global Gold 55 –1.4 4 78-54Global Gold Ex S Africa 58 –1.4 0 85-58North American Gold 65 –1.2 0 97-65Global Coal Mining† 152 –4.2 26 195-137Other Metals/Minerals† 265 –1.3 97 271-96Latin American Mining* 272 –5.1 91 286-120Latin American (Ex CVRD)* 176 –2.2 92 184-90*100 on 31.12.89 †100 on 31/12/85

74 Mining Journal, London, February 4, 2000

75Mining Journal, London, February 4, 2000

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Gold prospects – aglobal survey

Arizona-based Mining Investment Service(MIS) has recently published a 112-pagereport* on worldwide gold exploration inwhich it considers 970 greenfield golddeposits distributed in 88 countries. Theprospects are in various stages of explo-ration but in most cases there are sufficientdata to establish a resource estimate. Foreach prospect, MIS has examined location,tonnage, grade, contained gold and owner-ship.

North America ranks first among regionsin terms of the number of identifiedprospects, with 301 deposits dividedbetween the US (126) and Canada (175).Australasia ranks second with 282 deposits,followed by Latin America with 195.Compared with a survey conducted by MISone year previously, Australasia has postedthe biggest rise in the number of prospects,with an increase of 17. Australia is the mostimportant country in this region, with 168deposits. Other significant countries in theregion include the Philippines with 25deposits, Indonesia, with 24, China (15)and Papua New Guinea (12).

Elsewhere, the European region boasts100 prospects whilst Africa has 92. WesternAfrica has shown the most robust growth inrecent years within the African region, withGhana contributing 19 prospects, BurkinaFaso 10, Mali eight and Ivory Coast four.

The MIS report examines the tonnage foreach prospect and considers this against aworld average size of deposit, calculated tobe 26.6 Mt. On this basis, Latin Americaeasily outstrips all other regions with anaverage of 50.6 Mt. The average tonnage forEurope is 27.7 Mt, whilst the Australasianaverage is 23.4 Mt. North America has anaverage of 19.4 Mt and Africa just 8.8 Mt.Amongst individual deposits, NewmontMining’s Batu Hijau deposit in Indonesiapossesses the largest tonnage identified inthe study, at 1,495 Mt followed by theAldebaran deposit in Chile, with 1,000 Mt.The smallest tonnage identified in the sur-vey is the Santa Rosa deposit in Cost Rica,with a little over 4,000 t.

A more important criterion is the amountof contained gold. On this measure, which isa simple combination of tonnage and grade,MIS finds the European region in first placewith a deposit average of 3.2 Moz. The aver-age for Latin America is nearer 1.2 Moz,almost twice the average for North America(0.72 Moz). MIS estimates the world aver-age at 1.05 Moz.

The MIS analysis of ownership throws upsome interesting pointers. Examining

North America-based companies it findsthat, compared with its previous surveys,US-based Homestake has become a partici-pant in far more gold prospects (13), largelyas a result of its acquisition of PlutonicResources in Australia, and Argentina Goldin Latin America. Barrick Gold Corp. ofCanada is also well represented, especiallyin Latin America, and is mentioned 13 timesin the survey’s project listings. MIS alsopoints out that Barrick is one of the fewinternational mining companies currentlyexploring in China. Placer Dome ranks inthird place with 11 deposits currently beingexplored and MIS believes that recentmoves suggest that Placer is strengtheningits position in Southeast Asia. NewmontMining Corp., with 11 explorationprospects, is also in the top tier, and thesefour companies have been joined by TVXGold, with nine direct prospects and twoindirect interests.

Outside North America, the AngloAmerican group, the world’s biggest goldproducer, is directly exploring 13 goldprospects and Rio Tinto ranks near the topwith 12 prospects. Normandy Mining ofAustralia is identified as a significant new-comer, with 10 prospects. In Africa, AshantiGoldfields of Ghana has been identified asthe front-runner with 11 prospects althoughRandgold Resources has become a “worthycompetitor” in the region.

The MIS report profiles 38 significantgold companies accounting for output ofsome 39 .1 Moz (in 1998), almost 50% oftotal world gold production in that year.MIS says it is noteworthy that many of thecompanies identified are increasinglyadopting a global perspective when it comesto gold exploration. ■■

No worries for nickel

reaching 600 t of LME-grade nickel and 53 tof high-grade cobalt, and Anaconda says itexpects the project to “commence cash posi-tive operations during the current quarter”.The company also says that the ‘robustness’of the process has been demonstrated andthat plans for a rolling expansion to 100,000t/y continue.

There is better news from Centaur con-cerning its Cawse project, where output thisyear is scheduled to reach full capacity of10,000 t/y of nickel and 2,500 t/y of cobalt.In the December quarter, processing was11% above forecast, with production of1,237 t of nickel and 272 t of containedcobalt representing gains of 43% and 39%respectively compared with the Septemberquarter. Centaur reports that cash operat-ing costs fell 17% to US$1.64/lb after cobaltcredits of US$13.12/lb.

At the third project, Preston Resources’Bulong operation, December quarter nickelproduction reached 1,329 t, more than 100 t

ahead of target, with output in Decemberreaching 537 t. At design capacity, Bulongshould produce 9,000 t/y of nickel, and theprojected output for 2000 is around 8,000 t,plus 700 t of cobalt.

Meanwhile, Heron Resources, one of sev-eral second-generation lateritic nickel pro-ducers, says it intends to produce up to 500 tof nickel this year from ore mined from itsGoongarrie lode, which will be run throughthe nearby Cawse processing plant on atolling basis. Heron envisages annual pro-duction of 12,000 t beginning in about threeyears’ time.

The prevailing strong nickel prices aregiving all producers a strong incentive toraise output and to re-examine operationspreviously closed because of poor marketconditions. This week, Australia’s biggestnickel producer, WMC, said that it hasraised annual production above 100,000 t,and that it will make a decision within thenext month or so on whether or not toreopen mothballed operations which havebeen idled over the past two years at thecompany’s Kambalda operations. Thesecould add a further 10,000 t/y and raiseKambalda’s combined annual output to20,000 t. The five small, but high-grade,mines under review are Wanaway, Blair,Otter-Juan, Long/Victor and Mariners.

Last year, as a result of a major failure atits Kalgoorlie smelter, WMC’s nickel out-put fell back to an annualised 78,000 t/y. Amajor rebuild at the smelter was necessaryand, according to Peter Johnson, WMC’sgeneral manager for nickel and gold, theopportunity was taken to install a newhearth and to complete a new hooding pro-ject on the converters – in the past, air pol-lution from the smelter has periodically ledto its temporary closure. Commenting onnickel prices, he said that “everywhere inthe world is profitable at the moment, eventhe socialist producers are making money”,but Mr Johnson cautioned against over-whelming the market by rushing in withmarginal production. ■■

Western Australia’sindustrial minerals

Best known as Australia’s most importantproducer of iron ore, nickel, gold and dia-monds, Western Australia is also a very sig-nificant producer of industrial minerals.The state includes 29 commodities in thiscategory and has relaxed the strict defini-tion of industrial minerals (all non-metallic,non-fuel minerals extracted and processedfor industrial end-uses) to include gallium,tantalum, titanium minerals, vanadiumand zirconium.

As a contributor to world production, thestate supplies 34% of diamonds (byweight), 29% of zircon, 27% of rutile and15% of ilmenite. At the end of 1998, themerger of RGC and Westralian Sands to

MINING WEEK


Continued from p.73

*Further details of the study can be obtained from MiningInvestment Service, 6336 Oracle Road, Apartment 326-386,Tucson, Arizona 85704, US. Tel: (+1 520) 575 8467. Fax: 2196430.

Mining Journal, London, February 4, 2000 77

form Iluka Resources Ltd established thelatter as the world’s second biggest producerof titanium minerals, accounting for rough-ly one third of the global market.

According to Western Australia’sDepartment of Resources Development(DRD) in its recently published 1999review of industrial minerals, in 1998 thesector contributed A$2.1 billion, or morethan 10% of WA’s total revenues from min-erals and petroleum, far in excess of SouthAustralia (A$245 million), Queensland(A$221 million in 1997/98) and New SouthWales (A$196 million in 1997/98).

Despite the onset of lower prices for anumber of mineral commodities during1998, record values were achieved forexports of industrial minerals such as salt,tantalite and mineral sands, whilst ArgyleDiamonds posted a 48% jump in sales toA$622 million. Gypsum is reported asanother success story, with a fivefoldincrease in sales to A$18.3 million.

The DRD regards the prospects forindustrial minerals as remaining “extreme-ly positive”, and it highlights the potentialof WA’s first vanadium project, atWindimurra, near Mt Magnet, where con-struction of the processing plant was com-pleted last October. There are other vanadi-um projects under consideration, byTanganyika Gold and Dominion Mining atBalla Balla in the Pilbara region, byGreater Pacific Gold at Gabinatha, and byAustralian Gold Resources at its Youanmideposit near Windimurra.

In July last year, the world’s leading tan-talite producer, Sons of Gwalia, commis-sioned its Wodgina plant upgrade at a costof A$1.5 million. This will boost annualcapacity to 300,000 lb (136 t) of containedtantalum pentoxide. The company is alsoconsidering expanding its Kemerton silicasand mine from 400,000 t to 700,000 t/y.

Feasibility studies into the Mt Weld rareearths and tantalum projects have beencontinued by Ashton Mining and LynasGold, and Lynas is funding the next stage ofthe studies, spending A$3.2 million to earn a35% stake. The A$75 million project couldbe operational by 2001, and could supply10% of the world’s rare earths requirement.

WMC Resources, meanwhile, is con-structing an A$11 million, 45,000 t/y capac-ity talc mill at its Three Springs operationin the southwest of the state, with initialproduction due in March. In the far north,near Port Hedland, Sovereign Resources isconsidering a A$78 million manganese pro-ject which would produce both electrolyticmanganese dioxide and manganese sul-phate.

On a disappointing note, the beginning of1999 saw the closure of a major mineralsands operation, BHP’s Beenup mine,where commissioning had only begun in1997. The mine had been expected to pro-duce 600,000 t/y of ilmenite plus 20,000 t/yof zircon, but was closed because of poor

production levels and tailings managementproblems. There was a more positive devel-opment, however, with news early last yearthat a Japanese titanium minerals compa-ny, ISK, had finalised a joint venture withItochu Australia to develop a mineral sandsmine at Dardanup, with a planned produc-tion of 100,000 t/y of ilmenite plus minorrutile and zircon.

Colin Barnett, WA’s Minister forResource Development, says that industrialminerals are important, both for the invest-ment opportunities that they provide andfor the jobs that the sector generates –about 4,800 people are employed directly,often in remote areas, and many more areemployed in support services across a widerange of business areas. ■■

South African reviewThe latest ‘South African Minerals Review’(1998-99) has been published by theMinerals and Energy Policy Centre*. Theauthor, Magnus Ericsson from Stockholm-based Raw Materials Group, notes thatmore than five years after the ANC came topower, the final uncertainties about theSouth African mineral policy seem to havedisappeared and a new mineral legislationcould soon be promulgated. However, heconcludes that the changes will probablynot be as dramatic as initially expected.

The most important part of the new min-erals policy is the announced change to asystem of state-held mineral rights. TheANC government is clearly in the interna-tional political mainstream in setting as itslong-term objective to have “all mineralrights vested in the state for the benefit andon behalf of all the people of South Africa”.The proposal has naturally met with manyangry and nervous protests from the currentmineral rights holders. It is clear, accordingto Mr Ericsson, that government will treatthis contentious issue with great care. Themost recent policy document and signalsfrom the government discussions certainlysuggest a more cautious approach than wasexpected, one that is more pro-industry thanthe political statements made prior to thefirst democratic elections in 1994.

The review notes that a second phase ofrestructuring of the South African miningindustry has started, with new participants,both local and foreign, entering the stage.The first phase of structural change in theSouth African mining industry came to anend in early 1999 when Anglo Americanmoved its headquarters to London. Mostcorporate restructuring had been completedby then and the internal structures over-hauled. Mr Ericsson says that it is surpris-ing how little discussion the loss of themajor companies has provoked in South

Africa, particularly in the case of Anglo,which has long been the symbol of SouthAfrican economic power.

New companies have profited from thosedeposits which were too small to interest themining houses. Kalahari Goldridge (nowmerged with Harmony) and the AfrikanderLease operation are prime examples.Among the more senior companies isMetorex, with a base metals, coal andindustrial minerals portfolio which hasattracted Canadian capital and grownrapidly.

South African investment abroad hasaccelerated and AngloGold, having com-pleted its major internal restructuring,made an offer for Australian gold producerAcacia. Mr Ericsson concludes that moreaggressive bids can be expected from Anglo.Some of the smaller South African compa-nies are also making their debut on the inter-national scene. Examples are Harmony buy-ing into the Canadian gold mine Bisset,Metorex taking a share in Chibuluma inZambia, and Durban Roodepoort Deep’slong fight for Australian gold producer,Hargraves Resources.

The shifting focus of the South Africanmining companies will not leave a vacuumat home. The empty space is being filledboth by emerging local juniors (particularlywith black entrepreneurial participation)and by gradually more and more estab-lished and senior international mining com-panies. A second phase of restructuring,after the first major entrants Placer Domeand Xstrata (active in ferroalloys), willprobably be new players coming in andforming alliances with the emerging localcompanies, whether owned by the new blackelite or by white entrepreneurs.

The review concludes that, provided theannounced policy changes are carriedthrough with caution, it is probable thatforeign investors will more than make up forthe spread of South African mining inter-ests around the world. Paradoxically one ofthe most important safeguards of stabilitywill be the quickly growing new class ofblack mining entrepreneurs. They will notwant to see their emerging empires lost. Butall new investors will be highly sensitive toeconomic and political changes, and the roleof South Africa’s ‘new foreigners’, Angloand Billiton, will remain crucial.• The South African Code for Reporting ofMineral Resources and Mineral Reserves(SAMREC Code) has now been producedafter more than two years of deliberation bythe SAMREC Committee under the aus-pices of the South African Institute ofMining and Metallury (SAIMM), chairedby Ferdi Camissani. Essentially the same asthe highly regarded revised AustralianJORC Code, the SAMREC Code has beenformally recognised by the JohannesburgStock Exchange which is enforcing it withinthe JSE reporting rules. The code will be onsale from the SAIMM by mid-March. ■■

MINING WEEK

*Available for US$250 from: Minerals and Energy PolicyCentre, Johannesburg, South Africa. Tel: (+27 11) 403 8013.Fax: 403 8023. E-mail: [email protected]


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AFRICA FOCUS

In addition to its normal circulation,this week’s Mining Journal is being dis-tributed to delegates at the Investing in

African Mining (Indaba) conference beingheld at the Cape Sun IntercontinentalHotel, Cape Town, South Africa onFebruary 8-10, 2000. The following com-ments are drawn from some of the papersbeing presented at this annual event.

Setting the scene for delegates, as usual,will be David Williamson*, with a paperentitled ‘An Optimistic Start to the NewMillennium’. In his presentation, MrWilliamson will note that, until recently,most metal markets have been experiencinga period of prolonged price weakness which,at the low point of the cycle, reduced realprices to their lowest levels in decades. Thisprice weakness followed a period where met-al production growth coincided with theeconomic crisis in Asia. Inventories rose sig-nificantly, thereby allowing consumersto perceive, correctly, that there would beno immediate metal supply shortages.However, Mr Williamson believes that met-al prices, including gold, might now be setfor an extended period of price strength.

The reasons for Mr Williamson’s predic-tion go back ten years to the collapse of theFormer Soviet Union (FSU). He notes that,although now a distant memory, there was atime when the Soviet Union was a super-

power producing and consuming significanttonnages of all the major metals requiredfor the sustenance of such a large, albeitinefficient, economy. However, between1989 and 1998, the FSU’s demand for cop-per and aluminium fell by 83%, and fornickel and zinc by 73% and 75%.

Yet, in its desire to earn foreign exchange,almost at whatever cost, production fromthe FSU has declined only modestly in thecase of copper and aluminium, whilst it hasrisen in the case of nickel. As a result, theFSU turned from being just a moderateexporter of these metals to becoming a sub-stantial exporter immediately after theSoviet Union collapsed. In the case of cop-per, exports from the FSU increased by700,000 t/y, for aluminium by 2 Mt/y andfor nickel by about 115,000 t/y.

Compared with the decade prior to itscollapse, Mr Williamson calculates thatduring the past decade the additional metalexported by the FSU to the West amounted

to over 7 Mt of copper, 20 Mt of aluminium,0.9 Mt of nickel and 2.5 Mt of zinc. All thisadditional metal has had to be absorbed byWestern markets. Also, in its desperatesearch for foreign exchange, the countryexported significant quantities of scrap andstockpiled metal, which simply added to themetallic surge swamping the markets atthat time. The FSU also sold some 2,000 t ofgold in the early part of the decade.

Unfortunately, immediately after thedemise of the Soviet Union, the world econ-omy went into recession, further adding tothe glut of metals on world markets.Industrial production in the US remainedvirtually unchanged from 1989 to 1992, anddid not really advance strongly until 1994.The same is true of Germany, whilst Japanis still experiencing industrial productionlevels little changed from a decade earlier.Hence, because of the fundamental changesin the FSU, combined with the recession inthe early part of the decade, industrial con-sumers were allowed the luxury of knowingthat there were no real metal shortages.This was reflected in the metal markets,where prices declined in the early 1990s andremained subdued to 1994. At that time, inanticipation of a global recovery, metalprices recovered dramatically.

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However, just as the mining industrygathered strength on the back of declininginventories, the global economy was againshaken by the Asian crisis, not to mentionthe continuing economic stagnation inJapan. The shock that this caused to theworld economy, and in particular to percep-tions regarding the knock-on effect of thecrisis, caused metal prices to plummet onceagain as demand faltered and productioncontinued to climb. As it happens, the actu-al effect of the Asian crisis was not as greatas originally feared and was mitigated bythe driving strength of the US economy,where growth in demand countered thereduced demand from the former SouthEast Asian ‘Tiger’ economies.

In his paper, Mr Williamson notes that,as if this was not enough, the mining sectorsuffered in early 1997 the psychologicalshock resulting from the Bre-X scandal inIndonesia. This gigantic fraud decimatedthe junior mining sector and virtually elimi-nated that market for exploration funding.

However, as the industry enters a newmillennium, the outlook for metal marketsappears exceptional. Mr Williamson notesthat, for the first time in years, all the majoreconomies are enjoying strong growth, andthis rare coincidence of positive economicfactors should stimulate metal demand forthe foreseeable future.

Implication for AfricaAs noted in the Mining Journal Emerging

Markets supplement of October 22, 1999,the Asian financial crisis of 1997 had a dra-matic effect on the economies of most devel-oping countries. It played havoc in south-east Asia and Russia throughout 1998, setback the progress achieved in LatinAmerica and, in the most seriously affectedcountries, wiped out the fruits of decades ofeconomic growth. In its wake, growth in thedeveloping world slowed from almost 6% in1996 to less than 2% in 1998, and for thefirst time in ten years growth in the develop-ing countries was less than in the developedcountries.

With this depressing scenario for theeconomies of developing countries, thefinancial pump-priming role of mining com-panies is enhanced. Because their choice ofinvestment location is limited by the distri-bution of mineral deposits, mining execu-tives are perhaps less likely to be influencedby current market trends than companyexecutives in other industries.

This relatively robust outlook was evi-dent from the fourth Mining Journal surveyof emerging countries, published in theEmerging Markets supplement threemonths ago (see box below). Despite the

economic malaise in the region, LatinAmerica again emerged as the recipient ofmost mining interest, with five countries inthe top six. Moreover, Africa managed acreditable four countries in the top ten. Themining executives did register concern overAsia, however, with Indonesia being the solerepresentative from the continent in the topten rated emerging mining countries.

The South American bloc found itselfcompeting with an African bloc consistingof South Africa (ranked 5th), Ghana (7th),Tanzania (8th) and Namibia (10th posi-tion). South Africa has moved up in theexecutive ranking from 7th position in 1998,9th in 1997 and a lowly 15th in 1996. Ghanahas remained in a remarkably stable 7thposition for the past four years. The rankingof Burkina Faso (13th), Cote d’Ivoire(14th) and Botswana (15th) emphasises thestrengthening interest in Africa. Angolawas ranked 17th overall but the opinions ofthe executives polled were sharply dividedover the country’s mining potential.

Mining Journal canvassed the chief executives of the majormining corporations, asking them to rank the top tenemerging countries (out of a list of 50) which they, personal-ly, believed offered the best opportunities within the nextfive years for the development of profitable mines. In theirevaluation they were asked to consider geological potential,current property values, ease of doing business, the operat-ing environment and individual countries’ political stabili-ty.


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Risk managementOne of the reasons for differences of opin-

ion over a country’s mining potential is thatof the perception of political and businessrisk in the region. This increasingly impor-tant element of mining companies’ opera-tions will be addressed at the Indaba confer-ence in a paper by Tara O’Connor#. Shenotes that a hundred years ago minerswould happily take enormous personal risksto explore in hostile environments – some-times with spectacular rewards – but this ismore or less impossible in the increasinglyregulated and accountable world of the 21stCentury. Only the most foolhardy will enterinto a new enterprise without first properlyweighing up the consequences.

Yet risk is a notoriously difficult conceptto define properly. Ten individuals will allhave different perceptions of what riskmeans to them, and how risk should beapproached. In the business sense, risk isperhaps a threat that a company will notachieve its corporate objectives – though, ofcourse, not all risks are equal in their impactand importance to a particular company.

Traditionally, businesses have focusedtoo much on market, financial and credit

risk; too few companies have adopted aholistic approach, considering the entirerange of risks, from the market to economic,political, operational and, increasingly, rep-utational.

Of course, the other side of the risk ‘coin’is reward, or opportunity, and companiesthat successfully link the two are often suc-cessful in their enterprises. All enterprisesmust take risks to stand any chance ofmaking money, and an entirely risk-aversefirm is very unlikely to be profitable.Appreciation of risk will help understandthe returns, while an awareness of risk willassist board members and senior manage-ment to plan and allocate resources effec-tively.

Ms O’Connor notes that many firms areoperating in environments where nationalauthorities are at least beginning to recom-mend clear standards on risk assessmentand management and, in some cases, torequire them. In the UK, for example, areport produced in 1999 by the TurnbullCommittee on corporate governancerequires all companies listed on the LondonStock Exchange to report annually on pro-cedures for risk identification, evaluationand risk control from 2000. The reportspecifically sets out that such reviewsshould cover all relevant risks – not just nar-rowly defined financial ones.

The implications of the Turnbull Reportare potentially far-reaching. Many non-UKbased companies will be forced to complyowing to their London listing. Already, theEuropean Union has shown interest inproposing similar guidelines elsewhere inEurope. Australia and New Zealand haveco-operated to produce what is probably themost comprehensive code for risk identifica-tion, evaluation and management.

An effective methodology to identify,evaluate and manage risk is crucial to min-ing companies if they are to ensure properrisk control. There are literally hundreds ofmethodologies to choose from: quantitative,qualitative, subjective, objective, academic,software-based and instinct-driven. There isnot one that will fit all corporate cultures,however. Each company has its very ownspecific tolerances, capabilities and atti-tudes towards risk. The most effectivemethodologies are those that are easy tounderstand, straightforward to use, widelyapplicable, and with clearly useful outputs.Hard-pressed country managers are muchmore likely to use a more straightforwardprocess that allows for a relatively highdegree of experience and subjectivity, than ahighly complex, ‘scientific’ approach.

To meet this need, Control Risks has pro-duced its own methodology. This has beendeveloped from its own 25 years experience#Regional manager, Africa, Control Risks Group Ltd.


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as well as benchmarking best practice fromrisk management around the world. It isdesigned to be used when focusing on a spe-cific project, but can be applied to a widerbusiness, or even a country. A summary ofthese risks in Africa is contained in theadjoining article (this issue, p.84).

Most companies’ ultimate objective intheir risk management processes is to knowand understand all the risks that are facedby a particular business. While this is clear-ly well beyond the remit of most analysis,this process can be replicated on a smallerscale. Many companies organise large-scaleworkshops and brainstorming sessions tocollate a wide range of internal views aboutthe risks that a business faces, and question-naires and checklists of risks are usuallypart of this process.

However, a detailed checklist called the‘Basic Menu of Risks’ is the foundation ofthis process in Control Risks’ methodology.The main benefit of using a checklist is topromote the spread of a common under-standing about business risk, as anyattempt to generate a consolidated pictureof risk will be frustrated if agreed terminol-ogy is not recognised by all.

The menu document comprises eight fun-damental categories of risks that could real-istically impact upon a project. Each riskcategory includes around 10-20 risk eventsor processes; some appear under more thanone category. The categories also include acolumn of ‘Actors’ (such as criminals, ter-rorists, business partners, vested interests,corrupt officials, regulatory bodies, and soon). A third column comprises the Channelsor Causes of a risk taking place (eg, socialproblems, political crisis, mismanagement,fraud and nepotism in the legal system).

The main elements are:1. Identification. A workshop team compris-ing country risk analysts and other consul-tants uses Control Risks’ eight-sectionBasic Menu of Risks to identify the risksthat could realistically impact upon a pro-ject. Ideally, additional risk areas such asmarket risk and credit risk are added, givinga comprehensive overall picture. 2. Evaluation. The team then measures theimpact of a risk on a project (in terms offinancial and operational impact), againstits likelihood of occurring, using anImpact:Likelihood Matrix. This stage willhighlight the risks that need detailed assess-ment and management.3. Assessment. Next, a detailed writtenreport or briefing, focusing on significantrisks identified and evaluated in the firsttwo stages, is produced. This typicallyincludes a section on the essential political,security and operational contexts, anddetailed discussion of how and why the vari-ous risks could impact on a project. 4. Recommendations. Lastly, recommenda-tions on priorities for immediate manage-ment and longer-term strategy are given.

Project financeAnother paper being presented at the

Indaba conference is by Alex Panko+, enti-tled ‘Back to basics – the re-emergence ofmining project finance’. Mr Panko notesthat mining project finance has sufferedalong with the industry itself in the pastthree years, which has witnessed the Bre-Xscandal; the Asian and Russian financialcrises; a slump in basic commodity prices;a marked decrease in global explorationspending; a wave of industry consolida-tions, mergers and acquisitions; and contin-uing political crises in a number of emergingmining regions.

Some banks have concluded that miningis all together too risky, and that the onlymining projects that would get financed inthe future would be those undertaken by thevery largest mining companies, with termsand conditions reflecting their balancesheets and credit ratings. All of this putspressure on banks worldwide to focus onreturn on equity, rather than market shareand, as a result, the mining project financemarket has indeed contracted. Mr Pankobelieves that there are probably fewer thanten ‘serious’ mining banks left.

Mr Panko argues that, because mining isa capital intensive business, and the sectoritself is highly cyclical and anything butstable, it makes sense to deal with bankswhich thoroughly appreciate the miningindustry, and have the size, experience, andsufficiently flexible approach to share theburden – and not just be good to you whencommodity prices enable everyone to makea decent living.

Whilst those companies with sufficientresources and critical mass will continue togrow and finance new projects through acombination of cash-flow and cheap creditlines, there will always be circumstances forcompanies such as these to seek projectfinance for the development of a new mine,and, of course, project finance is likely toremain the main vehicle for smaller andmedium-sized mining companies to expandand develop.

The true definition of project, or non-recourse, finance is that the borrowing is onlyrepaid from project cash-flows, and the pro-ject assets represent the only security avail-able. Thus it is important to emphasise that:

First, lenders will be effectively sharingproject and political risks with the sponsorfor, once the project has been fully con-structed and has passed a number of perfor-mance (or completion) tests, the bank willno longer have any financial recourse to theproject sponsor.

Second, as project finance is tailored tothe characteristics and lifespan of a particu-lar project, it can be available for longerrepayment terms than simple corporateloans. For the right project and sponsor,transactions involving a commitment (from

the date of signing until the end of thescheduled repayment period) of ten years orsometimes more are available, even forthose in certain emerging markets.

Third, by going non-recourse, the debtobligation on a sponsor’s balance sheet canbe removed, thereby helping to free-up cred-it lines and borrowing capacity for otherthings, such as the truly huge mining deals;for acquisitions, when acting quickly canmean the difference between success andfailure; for reserving balance sheet capacityfor unforeseen opportunities; when needingto consider the financing position of fellowsponsors; or when the financing involves amining project as part of a much larger deal.

Fourth, project finance (by definition)has to involve a flexible approach fromlenders. This is because each individualfinancing is usually tailor-made for the indi-vidual project. Loan repayments have to beflexible, and are usually structured toreflect anticipated project cash-flows. Inaddition, ‘borrowing base’ mechanisms canlink the provision of additional funding tothe proving up of additional reserves.

Fifth, the workload involved in obtainingthe requisite finance can be shared with thearranger of a project finance facility. Forexample, a suitably qualified arranger orarrangers can save a sponsor the expense ofappointing a separate financial adviser,through balancing the desires of lenderswith the commercial realities of a project.

Sixth, a syndicated project financing,which is required for the larger project loans,can often open doors to new banks. In addi-tion, a strong syndicate of quality bankshelps give a project and its sponsor(s) a cer-tain degree of commercial acceptability.

Seventh, project finance can help savecosts, as construction will invariablyinvolve one or a number of fixed-price con-tracts with associated penalty and bonusclauses attached. This in turn helps ensurethat costs are realistically forecast andclosely adhered to.

Finally, in certain situations, projectfinancing can be structured to enable asmall sponsor to maximise ownership andminimise dilution. There will always be acertain price to pay for this, not least beingthe premium attached to a fixed-price con-struction contract with third party contrac-tors, and usually some form of additionalequity-based remuneration for the arranger.However, Mr Panko notes that small spon-sored projects will only get financed in thecurrent climate if the project economics areexceptional, political risk is fully covered,and the sponsor can clearly demonstrate ahighly visible means of coping with capitalcost overruns or construction delays.

In his paper to the Indaba conference, MrPanko observes that many potential inter-national investors are not so much hostile as

+Global sector co-ordinator (metals & mining), DresdnerKleinwort Benson.


AFRICA FOCUS

indifferent to Africa, and many mean SouthAfrica when they talk about the continent.Africa suffers generally from a shortage ofskilled workers, and an infrastructure whichis almost non-existent.

Moreover, after a gap of a few years, polit-ical instability in the region has once againignited, with chaos in the DemocraticRepublic of Congo pulling in many neigh-bouring countries. Angola’s civil war hasflared up, as have those in Ethiopia, andSierra Leone, Lesotho and Namibia havealso had their conflicts, and the relationshipbetween South Africa and Zimbabweremains frosty. All this has convinced inter-national investors that Africa is a dangerousplace in which to operate. Throw in theAIDS epidemic and the culture of corrup-tion, and potential investment looks evenmore unstable.

African low pointsMr Panko notes the failure of the Hartley

platinum project in Zimbabwe andAshanti’s hedging problems as being partic-ular low points during the past year for theAfrican mining industry. Hartley was thelargest single private sector investment inZimbabwe since independence in 1980, andthe withdrawal of BHP has shaken the

country and its mining industry. AlthoughHartley was a very difficult mine to run,analysts believe the political and economicclimate in Zimbabwe and the increasing ill-will and political interference by the govern-ment towards the company was the decid-ing factor in the withdrawal. Hartley’ssophisticated trackless mining technologyrequired skilled and experienced staff, anddelays in granting visas to experiencedexpatriate staff contributed to the failure.

Ghana had been the role model for emerg-ing African countries, and AshantiGoldfields was an indigenous company ofwhich black Africa could be proud. Thecountry’s enlightened economic climateattracted other mining companies, andcountries such as Tanzania looked to Ghanawhen drawing up legislation to encourageforeign investors to help them exploit theirown mineral wealth. Ashanti’s reported dif-ficulties are a sad development for Africanmining as a whole, especially as the prob-lems were not due to political risks attachedto doing business in Africa.

African high pointsMr Panko notes that, despite the contin-

uing bad press about Africa, mining projectfinancings are still being done, and coun-

tries are continuing to make foreign invest-ment more attractive. It is very encourag-ing to see numerous mining companiesusing project finance to develop a range ofmining and metals operations, with recentexamples being Barrick’s Bulyanhulu goldmine in Tanzania; Billiton’s Mozal alumini-um smelter in Mozambique; RandgoldResources’ Morila gold project in Mali;Goldfield’s Tarkwa gold mine in Ghana;and Avmin’s Chambishi copper-cobalt pro-ject in Zambia.

A golden opportunity for Africa has to bethe privatisation of state assets, withZambia’s ZCCM being the most obviousexample. It is also pleasing to seeMozambique, one of the poorest countriesin the world, inviting international energyand mining companies into the countrywith a regime that is highly business friend-ly (and a supplement on Mozambique is dueto be published with the Mining Journalshortly). Tanzania is also hoping to use itsgold-mining industry to prime the localeconomy. Although opinions on SouthAfrica remain divided, it will continue to bea beacon for the continent.

Investor opinion in the ‘West’ still tendsto view all of Africa as being too insecureand politically unstable for mining invest-ment, which experienced explorationists inAfrica know is generally not the case.


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Africa remains a difficult investmentenvironment for foreign companies.Across the region, levels of armed

crime continue to rise, while governmentefforts to control corruption are provingineffective. Few countries are makingmajor strides forward to improve theirinfrastructure and, although IMF andWorld Bank pressure is reducing the size ofpublic sector bureaucracy, this has yet totranslate to an improvement in policy-mak-ing and implementation. Many of theseissues were addressed by Charlie Weeks inthe December 1999 issue of Control RisksGroup’s Regional Risk Forecast. The follow-ing is an edited version of that article.

Governments may exercise formal con-trol, but in too many countries, companiesoperate in a shadowy zone between the for-mal state and the influence of ‘big men’, andlocal regional and ethnic tensions thatdetermine the stability of the operatingenvironment.

Investors will continue to look at hydro-carbons, minerals and agriculture as themain recipients of foreign direct invest-ment, though investment in power, waterand telecommunications facilities will alsoincrease.

Africa’s renaissance will depend on thesuccess of the region’s major economies.There have been a few positive develop-ments that could have a major impact onthe region over the next few years. The firstis the re-entry of Nigeria into the interna-tional community. Nigeria has its bestchance in many years of fulfilling its posi-tion as one of Africa’s two World Bank-designated strategic markets. The otherstrategic market – South Africa – has suc-cessfully managed the transition of poweraway from Nelson Mandela, and is embark-ing on the reform and consolidation of itseconomy. Economic harmonisation andgrowth in the franc zone also provides rea-son for optimism. If the conflicts inEthiopia and Eritrea and central Africa canbe resolved, this hope could fuel Afro-optimism.

Regional risksOver the next year the principal risks to

companies operating in Africa will be:

1. Security of contractsWhether investing in the private or publicsector in sub-Saharan Africa, breach of con-tract is a major threat to business activity.Investors may not be able to rely on localpartners to honour their commitments andmay face unsolicited demands for addition-al payments. In the worst cases, companiesmay find that contracts are arbitrarilyrevoked after they have invested significantcapital. Companies are often left with littlerecourse to arbitration. Contract delaysand disputes can be costly, as well as compli-

cated and time-consuming to resolve. Onlyin large-scale productions, where the projectis crucial to the economy (oil and miningsectors), are companies able to exercisesome influence over contractual issues.However, even in these sectors, some gov-ernment intervention in business activity isinevitable.

Companies will be at increased risk ofbreach of contract in countries where amajor change in government is likely. Keypartners in the venture may lose influenceor the new government may decide toreform policy in a sector and consequentlyrevise existing contracts and agreements.A number of companies which agreedcontracts with General AbdulsalamiAbubakar’s transitional government inNigeria, and paid up front, lost this moneywhen President Olusegun Obasanjo tookpower. Changes in government over the next12 months that could impact on contractsecurity are likely in Congo (DRC) andSierra Leone.

Another factor that threatens security ofcontract is inconsistency of policy decisions.This is most likely where the formal institu-tions are weak and political power is highlypersonalised, and therefore strongly depen-dent on a leadership’s whims. The countrieswhere these risks are greatest are Gabonand Liberia. In other countries, for exampleZimbabwe or Kenya, where the judiciary ismore independent and effective, the risks tocontracts are reduced. However, if contractdisputes emerge in these countries, govern-ment rulings on disputes can prove difficultto reverse.

In an environment where Africaneconomies are slowly deregulating butwhere ‘big men’ (such as Uganda’s formermilitary head and President YoweriMuseveni’s brother Salim Salek, and, inNigeria, former President IbrahimBabangida) dominate the political environ-ment, hostile local vested interests canblock contracts. This is a risk across theregion, but particularly for investors enter-ing sectors traditionally controlled bydomestic ‘big men’.

In the rapidly deregulating telecommuni-cations sector, control of GSM mobile tele-phone network licences and the local mobilephone market has often been given to thoseclose to the local ‘big men’. Existinginvestors may also face continued bureau-cratic problems and security issues as localplayers use underhand tactics to gaingreater influence in the domestic market.

Nationality can also have an impact.Non-French based companies entering

Francophone countries such as Gabon,Cameroon or Congo (Brazzaville) may facesignificant obstacles as French and regionalcompanies use their close contacts withexisting governments to make entry diffi-cult for others.

2. Security of personnel/assetsThe security environment is a major con-cern for investors and businesses operatingin sub-Saharan Africa. The nature of thethreat varies from direct attacks on compa-ny assets and personnel while operating in awar zone to kidnap and crime. A difficultsecurity environment disrupts businessactivity and makes it difficult to recruitskilled staff.

Crime (ranging from petty theft to armedrobbery) remains high across the region.Austere economic policies, rapid populationgrowth and slow economic developmentmarginalise large sections of urban popula-tions. Continued conflict increases the sup-ply of weapons, while governments fail toinvest in law and order. As such, crime posesa risk to most business activity in sub-Saharan Africa, and particular areas of riskto expatriates are major cities across theregion – Johannesburg, Nairobi, Lagos andAbidjan. Crime also pervades ports and air-ports, and is a primary concern on mine andfactory sites. It can seriously hamper busi-ness activity. However, on balance, even inextreme situations such as unloadingexports at Dar es Salaam or operating incentral Johannesburg, adequate precau-tions can reduce the risk from crime to a rea-sonable level.

Conflict undermines business operationsacross a vast swathe of Africa from easternUganda to Angola on the Atlantic coast.The impact of conflict on business activitydepends on the nature of the conflict and onthe specific project being undertaken.Although the oil and mining industries willcontinue to operate in Angola, they mayface increasing stress on their operationsfrom continued conflict. Oil companies inthe country have been little affected by theresumption of civil war but, during 2000,will remain wary of the threat of a UNITArebel attack on oil assets, either onshoreat Soyo or Cabinda, or against offshoreassets that are within range of artillery ormissiles.

In Congo (DRC) instability as a result ofregional Hutu/Tutsi tensions, the de factopartition of the east into Rwandan andUgandan spheres of interest and tensionsbetween Rwanda and Uganda as they com-pete for assets, such as diamonds and gold,mean that it is unlikely that major foreigninterests in the mining sector will be con-verted into realisable projects. Although theconflict has reached a stalemate, the with-drawal of Zimbabwean troops could funda-mentally alter the balance of power in thewar, enabling rebels to capture Mbuji-Mayiand Lubumbashi rapidly. Although they are

AFRICA FOCUS

Renaissancepostponed


unlikely to target foreign companies, per-sonnel and assets in the frontline would beat incidental risk.

The conflict between Ethiopia andEritrea will cause instability in Somalia,Kenya and Djibouti in 2000. Although themain conflict will end, hostility betweenEthiopia and Eritrea will lead them to sup-port opposition groups in the other country.Eritrea is likely to offer support, in particu-lar for the Oromo Liberation Front (OLF).Both countries are also likely to continue tosupport rival warring factions in Somalia’sanarchic struggle. Somalia is expected toremain off-limits to foreign business in2000. Foreign investors will have to takeincreasing note of zones of instability in theHorn of Africa that could threaten the secu-rity of assets and personnel.

The risk of kidnap is spreading acrossAfrica, but varies in terms of intensity,motive and security of personnel. There is agrowing awareness of the potential valueof taking hostages. In mid to late 1999 therewere high-profile kidnaps in Sierra Leone,Liberia, Nigeria, Uganda and SouthAfrica.

In war-torn areas, kidnaps are generallycarried out by rebel groups who want to putacross their particular message and to gainprovisions and supplies. In some areas, suchas Uganda, where groups such as the ethnic

Hutu Interahamwe operate, their limitedunderstanding of the potential value ofhostages can lead to hostages being killed.Four tourists were killed in the Rwenzorimountains (western Uganda) in August1998 and eight tourists were killed inBwindi National Park (south-westernUganda) in March 1999.

By contrast, in the troubled Niger delta,local communities have learnt how to usehostages to gain practical rewards and makepolitical points. Local communities regular-ly take local and foreign workers hostage forperiods of up to three weeks and hostagesare seldom harmed. In the past 18 monthsthe intensity and frequency of kidnaps haverisen to the extent that hostage-takingoccurs on an almost weekly basis.

In South Africa, a new phenomenon ofpurely criminal abductions derived fromthe Nigerian Advance Fee Fraud or ‘419’scam is emerging. Abduction will remain arisk to companies in all the current war, low-intensity conflict and high crime zones ofAfrica in 2000. Countries where rebels arelikely to kidnap foreigners in 2000 includeAngola, Liberia, Sierra Leone, Somalia,eastern Ethiopia and Congo (DRC).

3. Operational and economic obstaclesAside from contract difficulties and securi-ty of personnel and assets, the main risks to

companies operating in Africa are opera-tional. The principal problem is corruption,which increases production costs (by upto 50%) and delays production, while alsocontravening international legislation andputting company reputations at risk.

Incidents of corruption range from dailypayments to police at roadblocks, to facili-tatory payments to bureaucrats in returnfor speedy hassle-free completion of admin-istration procedures, to payment of highlyinfluential key players to arrange contractsand provide high level protection to pro-jects. Corruption also means that relianceon legal redress for commercial disputescan be problematic – companies will contin-ue to avoid African courts wherever possi-ble.

There is certainly a greater global aware-ness of the need to clamp down on corrup-tion. A number of countries are makinghigh-profile efforts to clean up their con-tract tendering procedures. In Kenya, CivilService Minister Richard Leakey is leadinganti-corruption efforts, in Nigeria PresidentOlusegun Obasanjo is undertaking a similarcampaign, and in Côte d’Ivoire revelationsof ministerial corruption involving EU aidare fuelling international pressure forreform.

These efforts should result in a marginalimprovement for companies operating in

AFRICA FOCUS


When it comes to resources...we thrive between a rock and a hard place

SYDNEY +61 2 9250 0000 PERTH +61 8 9322 1822

This announcement appears as a mattter of record onlyAugust 1999

This announcement appears as a mattter of record onlySeptember 1999

has sold its interest in the

Moura Coal Mineheld by BHP Mitsui Coal Pty Ltd

toPEABODY RESOURCES LIMITED

and

MITSUI COAL HOLDINGS PTY LIMITED

The consideration obtained byBHP Mitsui Coal Pty Ltd was

A$89,000,000The undersigned acted on behalf of BHP

A member of the Resource Finance Corporation Group

has acquiredthe NSW Coal Assets of

Rio Tinto Limited

together with the remining interestin the Howick Coal Mine from

Mitsubishi Development Pty Ltd

The consideration was comprisedmostly of Coal & Allied shares

and had a market value of

A$361,500,000

The undersigned acted on behalf of Coal & Allied

A member of the Resource Finance Corporation Group

COAL & ALLIED INDUSTRIES LIMITEDTHE BROKEN HILL PROPRIETARY

COMPANY LIMITED

BHP&C A

AFRICA FOCUS

HOTSPOTS IN 2000

these countries. However, in South Africathe corruption trend is on the way up as theinterlinking of organised crime and corruptbusiness practices criminalises business andpolitics. Companies will have to developtheir anti-corruption strategies and willneed to implement them when operating insub-Saharan Africa.

The oil and mining industries will remainthe sectors most vulnerable to reputationalrisks. These risks are triggered by humanrights abuses such as the use of child labour,major environmental damage, excessivecorruption charges and the use of contro-versial private security firms. They can leadto consumer boycotts in Western markets,punitive actions by Western governmentsand company morale problems. This alsomakes companies a target for local griev-

ances, such as in the oil industry in Nigeria.These risks are normally triggered by acombination of local and internationalmedia and non-governmental organisationactivity.

From a business point of view, exportersand investors will worry less about themacroeconomic risk to their projects andmore about the operational and securityobstacles to doing business in the region. Asmost investment is in the primary sector(agriculture and mining), the risk stems

from relations with governments becausethe governments control these sectors.

Economic risks could have an impact onthe general business environment and causedifficulties for foreign businesses. Over thenext 12 months, commodity, mineral and oilprices will remain the most importantdeterminant of economic prosperity.

The prolonged suspension of IMF aid (orprolonged negotiations with donors) fuelseconomic problems and can lead to a rise inpolitical and social tensions. When relation-ships with donors break down, governmentsare usually forced to implement politicallydifficult reforms designed to reduce public-sector deficits in order to restore favourwith donors. This can cause unrest.


AFRICA FOCUS


Investing in the mining sector in French-speaking Africa has been a rather chal-lenging endeavour in recent years. The

paradox of investors with a legal traditionso radically different from that of the hostcountries is difficult to tackle. Indeed, mostmining companies are established in coun-tries with a common law tradition. Theseissues were addressed in a recent report byStephane Brabant* and Natalie Stevens#,of which this is a heavily-edited extract.

These differences are true not only forAustralian, Canadian and American com-panies but also for South African andEnglish mining companies. While the latterhave a long tradition of mining in English-speaking Africa, they are often unfamiliarwith the conditions applicable to mininginvestments in French-speaking Africa.This has to do not only with a language bar-rier but, more fundamentally, with a differ-ence in legal tradition – a common law tradi-tion in the English-speaking countries and acivil law tradition in the French-speakingcountries. The fact that the same wordingcan be used with different meaning in thetwo legal regimes illustrates this difference.Another essential difference is the role of theState and the rules governing its relationswith the private investor. The nature of theState’s jurisdiction also affects the issue ofmineral ownership.

Misunderstandings can occur when min-ing companies use terminology based ontheir understanding of their own legal sys-tem to fit a different system. This can beparticularly problematic when assessing thesecurity of the right to mine and of the legalrights over the minerals. Considering theincreasing role of project finance in mininginvestments, transparency in the title ismore necessary than ever, and it is the lackof such transparency that can make dealscollapse.

To illustrate the dangers attached to thebusiness vocabulary of the mining industry,consider the notion of mining title. For com-mon law mining investors, mining title andmining agreement are equivalent: a miningagreement generally constitutes a full min-ing title under common law, and concernsonly the exploitation of the minerals (asopposed to exploration). In civil law, miningrights have a dual nature. They are subjectto administrative and private law. Thismeans that, in these regimes, a miningagreement alone does not provide a validmining title. A mining agreement cannotestablish a mining right fully binding on theState but has to be supported by a miningtitle which, in a civil law system, involves a

distinct unilateral act of state grantingexclusive mineral rights to a party.

Furthermore in civil law countries, ‘min-ing’ and mines refer to a certain class of min-erals defined by law. These minerals are con-sidered to be of public interest. Their classi-fication is of a legal nature only and hasnothing to do with their geological charac-teristics. All other minerals which are notclassified as mines fall under the category ofquarries. Only the minerals qualified as‘mines’ are under the State’s jurisdiction,whereas the minerals classified as quarriesremain under the jurisdiction of the ownerof the surface.

Common law jurisdictions do not draw adistinction between private and public(administrative) law to anywhere near thesame degree as in civil law systems. In prac-tice this means that the State enters into acontract with the mining company and thatthis contract is subject to private law. Theapplication of private law is essential whenconsidering the rules governing the rela-tions between the two parties and possibleremedies.

In the civil law tradition, the State’sessential role is the protection and promo-tion of the public interest. This means thatthe State is not a legal entity subject to thecommon laws applicable to private parties(private law) but that it is subject to a spe-cific set of rules known as administrativelaw. Again, this distinction is of particularrelevance when considering remedies.Administrative law will be enforced byadministrative courts.

In practice, this means that the counsel ofthe mining company negotiating a miningagreement in French-speaking Africa mustverify the constitutionality of the agree-ment to reduce the risk of future challenges.

In recent years, with the increased inte-gration of French-speaking African nationsin the international business community,harmonised investment rules, such as thoseof the OHADA treaty or the ICSID conven-tion, have been adopted. This does notmean that national states are distancingthemselves from their prerogatives as publicauthorities but rather that they areacknowledging the need to define a levelplaying ground where the interests of pri-vate investors such as mining companiesand host states can meet.

Extractive industries were initially devel-oped by multinational enterprises with thesanction of the colonial power. With therecognition of Permanent Sovereignty overNatural Resources (UN GA Res 1803(XVII) 1982), newly independent statesaffirmed their sovereignty over naturalresources.

Most civil law countries define the State’ssovereignty over subsoil natural resources intheir constitution and legislation. The own-ership of the minerals is directly attached tothe State’s sovereignty.

The administrative nature of the rightsgranted by the State to private parties isjustified by the fact that the mineralsexploited are a matter of public interest.The most important consequence of theapplication of administrative law is thegranting of discretionary powers to theState. These State powers have an immedi-ate impact on the quality of the security ofthe mining rights and subsequently on therisk attached to the investment.

The stumbling block will be the grantingof discretionary powers to the State:• Decision to grant or refuse mineral rights.• Prior authorisation of the State is requiredfor the transfer of the mining rights to thirdparties or for any transfer of interest in theexploitation title. This can cause problemswhen using mining titles to secure loans.• Control of the mining activities: miningmust be carried out in an efficient manner.State even has the power to withdraw min-ing titles under certain circumstances.

Mining taxation has been a key feature inthe process of mining policy reforms in WestAfrica. While some countries in French-speaking West Africa adopted new miningtaxation legislation in the early or mid1990s, many are now considering simplify-ing their taxation systems. Governmentshave become aware of the increased interna-tional competition for mining investment astotal mining investment has fallen. Theyhave been advised to adopt tax systems thatare based on ‘ability to pay’, ie based onprofits. Resources have also been dedicatedto providing mining taxation systems thatare transparent and workable.

In conclusion, mining investors are con-fronted with the differences between civillaw and common law in all mining countrieswhich hold a historic tie with what used tobe a civil law colonial power, such asBelgium, France, Italy, Spain, Portugaland, to some extent, Holland. It is obviousthat a mining investment in countries suchas Australia, Canada or the US is a differentendeavour to a mining investment in Africain many respects. This difference is dueessentially to reasons of culture and, inFrench-speaking Africa (and other civil lawjurisdictions), it is accentuated by lan-guage, legal tradition and the role of theState, which is especially critical in the fieldof natural resources. ■■

French-speaking Africa:securing mining investments

*Partner in Paris office of Herbert Smith.# Consultant in London office of Herbert Smith.

Herbert Smith Herbert Smith20 rue Quentin Bauchart Primrose StreetExchange House London 75008 Paris, France EC2A 2HS, UK

Tel: (+33 1) 5357 7070 Tel: (+44 20) 7374 8000Fax: (+33 1) 5357 7080 Fax: (+44 20) 7374 0888

Email:[email protected]

Website: www.herbertsmith.com

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INDUSTRY IN ACTION


Exploration

AngloGold’sCanadian venture . . . AngloGold Ltd’s North Americansubsidiary has signed a letter ofintent with Vancouver-basedRubicon Minerals Corp. to option thelatter’s Red Lake gold property inOntario. Rubicon holds a large landposition in the Red Lake gold district,and is targeting the Dorion-McCuaigcorridor, a 2.5 km x 1 km zonebelieved to contain high-grade goldmineralisation (MJ, April 30, 1999,p.312).

In its first involvement north ofthe US-Canadian border, AngloGoldcan earn a 60% interest in theproperty by spending US$3 millionover five years, and will spendUS$300,000 in the first year.AngloGold can earn a further 10% bypaying Rubicon US$250,000 within90 days of earning its 60% interest.Rubicon will be the manager of thejoint venture until the first US$1million has been spent.

. . . and Alaskanventures AngloGold has also signed a letteragreement with Blue Desert MiningInc., covering the junior’s Gobi,Mojave and Sahara gold properties inthe Pogo area in Alaska. Blue Desertreports that the Gobi and Mojaveproperties together cover about 109km2 of ground immediately southwestof the Pogo property owned byTeck/Sumitomo (MJ, March 19,1999, p.192). An initial explorationprogramme has delineated twostream sediment geochemicalanomalies in gold, tellurium,antimony and bismuth. The Saharaproperty, east of Pogo, also contains astream sediment geochemicalanomaly in gold, antimony, telluriumand arsenic.

Under the terms of the agreement,AngloGold will spend US$750,000 oneach of the three properties and makecash payments to earn a 60% interestin each. Blue Desert reports thatformal agreements are in the processof being drawn up.

TNR agrees BarrickdealTNR Resources Ltd has signed aletter of agreement with Barrick GoldCorp. on several of its Argentiniangold properties. The deal covers LaOrtiga, El Fierro, Valle del Cura, LasCarachas, La Brea, Ranchillos, RioBlanco, Pena Negra and Cateo 23properties, some of which are thesubject of an earlier joint-ventureagreement with Orko Gold Corp.(MJ, January 22, 1999, p.37). Anexploration programme at Ortigaidentified two volcanic-hosted goldtargets, one silicified, and the other abreccia.

Barrick can gain an option toacquire an interest in the propertiesby buying 2 million shares in TNR fora total of C$800,000, 90% of theproceeds of which are to be used in theexploration of the properties by theend of this year. The option will be topurchase another 2 million shares inTNR for a total of C$1.4 million byJanuary 31, 2001, and to spend afurther C$1 million on La Ortigaand/or C$1 million on any of theother properties by the end of 2002 toearn a 60% interest.

The previous agreement betweenOrko and TNR has been dissolved,with TNR and Orko issuing andbuying shares in each other, and Orkoretaining a 4% net smelter return onthe relevant properties.

Billiton seals Mayaagreement Maya Gold Ltd of Canada reportsthat Billiton plc has signed formalagreements covering Maya’s ETriunfo copper-gold property inHonduras, outlined in a letter ofagreement signed last year (MJ, July30, 1999, p.81). William Green,Maya’s president, notes that thefinalisation of the deal “has takenlonger than expected”, but he ispleased to have established thepartnership with Billiton. Mr Greenexpects to be able to proceedimmediately with exploration at theproperty.

Spinifex continues atNyakafuru Continuing drilling operations at theNyakafuru gold property in Tanzaniaare returning more intersections ofgold mineralisation for 80%-ownerSpinifex Gold NL. The Australiancompany is investigating numerousmineralised structures in thenorthern portion of the tenement,with the following better recentresults:

Hole Interval Au(m) (g/t)

NPRC140 109-126 2.91NPRC143 72-79 20.99NPRC153 85-136 4.90NPRC157 82-106 6.11

The structures are shear zones,characterised by string foliation andprominent quartz and carbonatemineralisation. Gold occurscontained in sulphides. Spinifexgeologists report that drilling to dateindicates that mineralised quartzveins have a sygmoidal geometry. Theexploration effort to date has beenconcentrated mainly upon areasbeing worked by artisanal miners.

Spinifex last year revised its jointventure with Ashanti Goldfieldsconcerning Spinifex’Buckreef/Rwamagaza and Kitongoproperties (MJ, July 2, 1999, p.4),after Ashanti experienced difficultiescaused by its hedging book (MJ,November 5, 1999, p.361). Therevised deal allows Ashanti to earn

55% of Spinifex’ interest in theproperties by spending A$14 millionon exploration and paying A$15million over three years.

Nalunaqmineralisationextended . . . Crew Development Corp. reportsthat exploration last year at its 50%-owned Nalunaq gold property insouthern Greenland has extended thehigh-grade gold mineralisation foundin an outcropping vein system. Theproperty was the subject of a positiveprefeasibility study by MRDI lastyear (MJ, April 2, 1999, p.242), andthe company acquired Nalunaq in arecent takeover of Mindex ASA, theprevious operator (MJ, January 7,p.16). Nalunaq contains three definedmineralised areas, the Target,Southern and Upper blocks. A drillingprogramme completed last yearindicates that mineralisation in theTarget block continues beyond theexisting 300 m adit, and that in theSouthern block, high-grademineralisation exists, open alongstrike.

The outcrop of the mineralisedvein system extends for over 2 km,and channel samples returned goldgrades of up to 50.2 g/t over 0.91 m,at a 300 g/t Au cut-off. Nalunaq islocated 40 km from Nanortalik, and 6km from an ice-free, deep-water fjord.The balance of the property is held byNunaMinerals, a government-ownedcompany.

. . . Hwini-Butredrilling Crew Development Corp., 51%-owner of the Hwini-Butre goldproperty in Ghana, reports that arecent drilling programme hasoutlined significant goldmineralisation, which Crew regardsas having good potential forcommercial production. Crew’s joint-venture partner, St Jude Resources ofCanada, has been exploring at the 54km2 concession since 1997, andreported gold mineralisationintersections in the middle of lastyear (MJ, July 9, 1999, p.20). Three

gold zones have been delineated at theproperty, the Father Brown,Adoikrom and Dabokrom zones,which are partially linked.

The Adoikrom target has beendrill-tested over a 300 m strike-lengthand 225 m down-dip length, and hasan average gold grade of 4.1 g/t, overa 12 m thickness. The Father Brownand Dabokrom zones have also beensystematically drilled, demonstratingthat the two zones are joined, to givea total strike length of 800 m and a200 m down-dip extent. The majorityof mineralisation is in sulphides,although there may be some lateritemineralisation at Dabokrom. Hwini-Butre covers around 20 km of theAshanti gold belt, and is locatedabout 3 km from Takoradi-Sekondi.

Paradigm discoveryfor Goldfields Goldfields Ltd of Australia has founda new gold mineralisation zone at theParadigm prospect in WesternAustralia. Paradigm is part of theCarbine property, in turn part of theZuleika exploration programme, nearKalgoorlie. The Paradigm area lieswest of Paddington, where reverse-circulation (RC) and diamonddrilling (DD) intersected thefollowing better results:

Hole True thickness Au(m) (g/t)

CARC004 1.7 25.95CARC016 4.0 31.85CADD003 4.0 31.08CADD004 3.0 68.04

Mineralisation at Paradigm iscontained within three parallellaminated and brecciated quartzveins beneath 30 m of barrenoverburden, and is covered by asupergene gold-enriched blanket 2-11m thick at the base of the overburden.

Strathconadraws blankat Blackhawk International Gold Corp. (IGC)reports that its consultant, StrathconaMineral Services, has completed itsassessment of sampling and assay

Chinese polymetallicresults Minco Mining and Metals Corp. iscarrying out a drilling programme atthe White Silver Mountainpolymetallic property in China. Thediamond-drill holes are targetingmineralisation below current miningactivities, with results as shownbelow.

Samples are analysed in China bythe Institute of Geophysical andGeochemical Exploration, which

Minco notes is regarded as thepremier laboratory in China. Checkassaying is carried out by ChemexLabs Ltd of Canada.

Teck Corp. effectively took controlof White Silver Mountain last year,and has the option to earn a 70%interest in Minco’s interest in GansuGayin, a joint-venture company heldby Minco and Baiyin Non-FerrousMetals Co., the Chinese operator ofthe mines below which the WhiteSilver Mountain ground lies MJ, July16, 1999, p.42).

Hole Interval Cu Pb Zn Au Ag(m) (%) (%) (%) (g/t) (g/t)

XT6-08 347.1-348.9 1.89 4.38 18.73 2.64 223.66XT6-09 343.2-344.8 1.25 3.92 14.82 3.04 160.97

INDUSTRY IN ACTION


procedures carried out upon materialfrom the Blackhawk property inIdaho. IGC’s subsidiary, IntergoldCorp., reported remarkable drillingresults from the property last year,using a technique developedespecially for the Blackhawk samplesby AuRIC MetallurgicalLaboratories LLC. Subsequent testsby independent sample laboratorieswere unable to replicate the results,and Intergold commenced legalproceedings against AuRIC, and inaddition against Dames & Moore,which had evaluated the AuRICprocess.

The Strathcona audit usedLakefield Research and ActivationLaboratories to assay samples fromprevious core-drilling and surfacesamples collected by Strathconapersonnel at Blackhawk. Neitherlaboratory could find gold aboveminimum detection levels in thesamples, and Strathcona concludesthat gold and silver are not present ineconomic quantities in the rhyoliticlavas at Blackhawk. IGC additionallyretained Mineral Services in the UKwhich, using OMAC Laboratories Ltdand CSMA Consultants Ltd,confirmed the Strathcona results.Intergold has now ceased explorationat Blackhawk.

Devon goldintersected Minmet plc reports that its 78%-owned subsidiary Crediton Mineralsplc has intersected goldmineralisation at the Creditonproperty in Devon, England. A five-hole drilling programme, totalling106.5 m, intersected elevated goldvalues in basalts, as well as highergrades of mineralisation in carbonateveins. The company regards thecarbonate veins as the result of asecondary mineralisation phase thatremobilised gold in the host rock,depositing up to 1.39 g/t Au over 0.45m and 1.54 g/t Au over 0.27 m. Themineralisation was encounteredwithin 12 m of surface.

Crediton will now extend its searchto other sites within the CreditonTrough, although Jeremy Metcalfe,chairman of MinMet, emphasisesthat “this is still early days, and wehave a considerable amount of furtherexploration work ahead of us beforewe can draw any final conclusions”.

Development

Yanacocha raisesreserves by 60% The reserve estimate at Yanacocha inPeru, the largest gold mine in SouthAmerica, has been increased by 60%compared with the end-1998 figure, to32.9 Moz. The exploration and minegeology teams at Minera Yanacochadrilled over 165,000 m in 1999,bringing Cerro Quilish and El Tapadointo reserves from resources, and

expanding reserves at CerroYanacocha, Carachugo, Chaquicochaand La Quinia. The reserve baseincludes silver for the first time,estimated at 356 Moz, and including312.8 Moz from a remodelling of theCerro Yanacocha deposit. Reservecalculation used a gold price ofUS$325/oz; a US$300/oz price reducesreserves to 31 Moz.

Yanacocha produced 1.66 Moz ofgold in 1999, and plans are in place for1.75 Moz of production this year.Yanacocha is 51.35%-owned byNewmont and 43.65%-owned byBuenaventura, with InternationalFinance Corp. holding the remaining5%.

Lomas Bayasdevelopment The Lomas Bayas mine manager,Robert Bennett, is quoted in ElDiario as saying that the Fortuna deCobre project near the copper-goldmine in Chile is likely to beginconstruction next year. Fortuna deCobre, located 3 km from LomasBayas which is owned by Boliden, hasbeen undergoing feasibility studies formore than a year (MJ, May 15, 1998,p.382). The newspaper reports thatdevelopment of the deposit,estimated to contain 848 Mt at0.24% Cu, is expected to cost aboutUS$300 million, and is projected toproduce about 90,000 t/y of cathodecopper. The deposit possessesfavourable metallurgy, includingsignificant amounts of water-solublecopper, and has a stripping ratio of0.5:1 (waste:ore)

The mined material could betransported to the Lomas Bayasoperation for processing, or,alternatively, a new complex could bebuilt at Fortuna. Lomas Bayas beganoperations over a year ago (MJ, May8, 1998, p.361), with targetedproduction of 60,000 t/y of copper. Inits September 1999 quarterly report,Boliden noted that the complex wasoperating at an average 81% ofproduction capacity, with 14 daysabove 90% design capacity.

Codelco to investUS$600 million Chile’s Mining Minister, SergioJimenez, says that the governmenthas approved investment totallingUS$600 million for the country’smining industry. A large part of themoney will be spent on an expansionat state-owned Codelco’s RadomiroTomic copper complex, which isscheduled to cost US$220 million, andis designed to increase copperproduction from the current 180,000t/y to 250,000 t/y (MJ, September 24,1999, p.237).

Iranian zinc plant inoperationIran’s state radio reports that a zincsmelter has begun test production onthe island of Qeshm. According toReuters, the US$5 million first phase

of the facility has the capacity toproduce 5,000 t/y of zinc, and asecond production line of similarcapacity would be added in thefuture. Iran is in the process ofopening up its mining sector toforeign investment (MJ, October 22,1999, p.329).

Puthep phase 1begins Pan Australian Resources NL hasstarted the first phase of a feasibilitystudy of the Puthep copper projectnear Loei, in Thailand. The companysigned a joint-venture deal withPadaeng Industry last year (MJ,September 3, 1999, p.181), andcompleted due diligence towards theend of the year (MJ, December 10,1999, p.464). The first phase of thefeasibility study will involve infilldrilling and associated metallurgicalwork to elevate all of the presentmineral resource (116 Mt at about0.4% Cu in indicated and inferredcategories) to indicated status. Theproposed drilling programmecomprises 257 drill-holes, including42 diamond core holes and 215reverse-circulation holes. A drill-coreand drill-chip relogging programmehas begun, re-evaluating drillingcarried out between 1993 and 1995.

Pan Australian notes that thePUT 1 deposit, which contains aresource of 84 Mt at 0.42% Cu, lieswithin an area demarcated asForestry Reserve, under themanagement of the Royal ForestedDepartment (RFD) of Thailand. Anenvironmental impact assessment isan essential part of the feasibilitystudy, and all land access issues arereported to be progressing with theassistance of Padaeng and the co-operation of the Department ofMineral Resources and the RFD.

Jericho revalued Tahera Corp. reports that separaterevaluations of its Jericho diamondproject in the Nunavut territory ofCanada by its consultant WWWInternational Diamond Consultants(WWW IDC), and SRK Consultingand its associate, M.M. Oosterveld,have increased the estimated value ofdiamonds from the Jerichokimberlite. De Beers’ Central SellingOrganisation, in 1996/97, placed avalue of about US$65/ct on diamondsfrom Jericho, and in the recentstudies, WWW IDC put the value at35% higher, and SRK 14% higher.The prefeasibility study carried outby SRK Consulting for Tahera on theproject (MJ, December 3, 1999,p.450) used the CSO estimation, butrecommended that a revaluation bedone.

SRK and its associate MrOosterveld reviewed the revaluationcompleted by WWW IDC(US$84/ct), and recommends the useof an average value of US$74/ct forcalculations. Tahera notes that MrOosterveld was employed by DeBeers between 1961 and 1994,

evaluating kimberlites throughoutthe world.

Hearne kimberliteresource Mountain Province Mining Inc.(MPM) reports that its contractor,Monopros Ltd, a De Beers subsidiary,has completed a resource calculationand valuation of the Hearnekimberlite pipe, part of the AK/CJdiamond property in Canada’sNorthwest Territories (MJ, July 16,1999, p.42). A total of 856 ct ofdiamonds was recovered from 469 t ofHearne kimberlite, which comprisestwo parts, subdivided by internalgeological differences. The resourceestimate for the pipe at present is 6.86Mt at 1.71 ct/t, valued at US$65/ct.The value estimate is an increase overthe previous estimate of US$44/ct.

MPM notes that De Beers willcombine relevant values and gradeswith information from the 5034 pipeand results from current tests on theTuzo and Tesla pipes in order todevelop a deposit model. Any decisionto proceed to a feasibility study willbe dependent upon the model.Exploration drilling on other parts ofthe AK/CJ claims will begin afterresults of the 1999 samplingprogramme are assessed. Monopros isearning a 60% interest in theproperties.

Fimiston takes fullJulia Creek interest Fimiston Mining NL has increased itsholding in the Julia Creek vanadiumproperty in northern Queensland to100%, after issuing 6.33 millionshares to the vendors. The companypreviously held a 51% controllinginterest, and the deal cancels thefarm-in agreement completed inDecember 1998, and also cancelsFimiston’s liability to pay A$1.5million upon commencement ofcommercial production from thetenements.

Julia Creek is an oxide resource of80 Mt, containing 200,000 t of V2O5within 15 m of the surface, coveringan area 10 km x 2 km. Themineralised material is a limestone-clay (80:20) mix of marine sediments.Metallurgical testwork has produced99.9% pure Class A ammoniummetavanadate (MJ, July 23, 1999,p.58).

Remodelling raisesSigma resourcesMcWatters Mining Inc. reports thata revision of the deposit model at theSigma gold mine near Val d’Or inQuebec has resulted in an increase ofresources to 28.3 Mt at 2.19 g/t Au, ata 0.5 g/t Au cut-off grade. Thecompany has been working towards apredominantly open-pit operation atthe Sigma-Lamaque complex(previously underground) over thepast 12 months, and a revision of thedeposit model was undertaken with aview to bulk-mining. The company


describes as a breakthrough therecognition of vein patterns whichallowed a larger-scale model to beconstructed than the one used tocalculate resources last year (MJ,October 29, 1999, p.347).

The new model was confirmed bydrilling and continuing mining in theopen pits, and geostatistical work byGeostat International has furthersupported the model. McWatters ispresently examining the possibility ofapplying the Sigma model to theLamaque open pits.

Production

Injunction stops BHPcontracts The Australian Federal Court issuedan injunction on January 31 againstBHP, preventing the company fromoffering and entering into individualcontracts with members of its Pilbaraworkforce, employed by BHP IronOre (BHPIO). The company is toappeal against the decision, andstates that the injunction “would notimpact (upon) BHPIO’sdetermination to continue to seekchanges in work arrangements at itsPilbara operations.” The ruling waspassed after unions representingemployees at BHPIO submitted thatthere was a serious arguable case that“BHP had breached the law ... byinducing employees to leave theirunion ... and by breaching a term ofthe Contract of Employment whichprovides that BHP should honourcollective bargaining and not enterinto individual contracts”.

BHP rejects claims that it hasdiscriminated against employees, andalso rejects the argument that it hadsought to de-unionise the workforcethrough the offer of individual“workplace agreements”. Thecompany posted individual contractsto workers at its Pilbara operationslast year (MJ, January 21, p.42).

Tara mediationagreed Outokumpu Oy has agreed to afacilitation process for the resolving ofthe long-running dispute at the Tarazinc mine in Navan, Ireland. Theprocess is to start no later thanFebruary 5, and was requested by theMinisters for the Environment andLocal Government, Enterprise, Tradeand Employment, and Marine andNatural Resources. All threeMinisters recently met separatelywith local senior management andunion leaders. Outokumpu has agreedthat no further contract workers willbe engaged pending the completion ofthe facilitation process, and that onlytraining will be given to contractworkers previously due to begintraining and employment.

The workers at Tara last weekrejected a productivity plan putforward by management (MJ,

January 28, p.63). The two sides havebeen in dispute at Tara for some time(MJ, July 23, 1999, p.55).

22 feared dead inChinese mine China’s Xinhua news agency, togetherwith China Daily, reports that anaccident at the Xuzhou DahuangMountain coal mine in JiangsuProvince, eastern China, has probablykilled 22 miners. The tragedyoccurred on January 11, when waterbroke through a section 320 munderground. A total of 63 employeeswere trapped by the water, as it cut offescape routes. Rescue efforts hadsaved 41 miners by January 16, with14 reported killed, and a further eightstill missing. The likelihood of findingthe missing miners was regarded asslim.

Rio Tinto output Rio Tinto reports that refined copperproduction increased in the Decemberquarter, as well as for the 1999calendar year, although materialmined decreased. Refined output roseby 10% to 104,300 t compared withthe previous December quarter, andby 19% to 388,200 t for the year(compared with 1998). Mined outputdecreased by 1% to 211,800 t in theDecember 1999 quarter comparedwith the December 1998 quarter, andfor the year, a 3% drop to 859,800 twas noted. The company attributesthe decrease in mined output to anexpected fall in output from theGrasberg joint venture in Papua NewGuinea, which produced an“exceptional contribution” in 1998(MJ, October 23, 1998, p.329).

Aluminium production increasedby 9% in the December quarter andalso in the calendar year, comparedwith the relevant periods in 1998. Intotal, 143,600 t were produced in theDecember quarter, and 557,800 t inthe whole year. The companyattributed the rise to higherproduction at smelters, and thecompany’s increased stake inComalco. Bauxite production rose by29% in 1999 to 8.5 Mt comparedwith 1998, and in the Decemberquarter, a 12% increase was achieved,to 2.3 Mt.

HWE wins Jamaicanmining contract Henry Walker Eltin (HWE) ofAustralia reports that it has beenawarded a US$73 million bauxitemining contract in Jamaica. Thecontract, with Aluminium Partnersof Jamaica and Jamalco, will run forfive years, and is the first for HWE inthe Caribbean, and the first inbauxite. The contract will begin inApril, with a capital requirement ofabout US$10 million. Jamaica’sPrime Minister, P.J. Patterson,recently announced that the countryis to upgrade its alumina refineries,together with Alcoa (MJ, January 28,p.64).

Northparkes accidentdetails The death of four employees at NorthLtd’s Northparkes copper-gold minein New South Wales was caused by anair blast, not a partial mine collapsecaused by an air blast, as described inan earlier article in Mining Journal.The company has publishedpreliminary details of the tragicincident in its half-yearly report. Thein situ portion of the orebodysuddenly caved into the air voidbetween the broken material and theuncaved in situ ore. The event causeda rapid displacement of air in the voidup through the collapsing orebody,and through an exploration drive,which was connected to the maindecline, the ventilation shaft and thehoisting shaft. The air was forcedthrough these exits at extremely highspeed.

Two vehicles, containing the fouremployees, were destroyed by the airblast, killing the workersimmediately. Two of the employeeswere contracted, and two wereNorthparkes workers. The companynotes that a further 57 workers weresuccessfully brought to the surface bymine rescue units.

Kanowna Belle helpsDelta record The increase of ownership to 100% ofthe Kanowna Belle gold mine inWestern Australia (MJ, October 1,1999, p.264) helped Delta Gold Ltd toraise production to record levels forthe fifth successive quarter. Thecompany has now produced over 2Moz of gold in total. The Eureka goldoperation in Zimbabwe has completedcommissioning, and initial goldrecoveries are meeting targets. Themine produced over 9,000 oz in theDecember quarter, and is scheduledto produce 29,000 oz by the end ofJune. The company has announcedplans to open further new mines in theearly months of this year (MJ,December 24/31, 1999, p.503).

Mining ban backedby Sierra Leone The cessation of mining in SierraLeone, ordered by former rebel leaderFoday Sankoh last week, has beenendorsed by the government, after aperiod of uncertainty (MJ, January28, p.55). Information Minister,Julius Spencer, says that thedeclaration by Mr Sankoh was“definitely in consultation withthe President” (Ahmed TejanKabbeh).

Krasnoyarsk expectssteady output . . . Russia’s second largest aluminiumproducer, Krasnoyarsk, expects toproduce a similar amount this year tolast year’s output, despite aluminasupply problems. The companyproduced 841,039 t in 1999, but thefacility’s main supplier,

Mykolayivsky, has stopped supplyingfeed for the plant. Dmitry Checkin,Krasnoyarsk’s spokesman, says thatthe company has found new sourceswithin the former Soviet Union andalso from outside.

. . . Novokuznetskstopped fromexporting . . .Reuters reports that a Russianregional court has preventedNovokuznetsk Aluminium, thecountry’s fifth largest producer, fromexporting its products. The ruling ispart of insolvency proceedingsagainst the company, which hasoutstanding debts to a local energycompany. MIKOM, the companywhich controls Novokuznetsk, hashad its accounts frozen, but hasmanaged to persuade its suppliers tocontinue shipments to the smelter.Novokuznetsk has appealed againstthe ruling, and is continuingproduction.

. . . Nordural’s potproblems . . .The 60,000 t/y Nordural aluminiumsmelter in Iceland is experiencingmalfunctions in eight of its 120 pots.Nordural is a subsidiary of ColumbiaVentures Corp. Bjorn Hogdahl,Nordural’s managing director, saysthat the problems have affectedproduction, and extra costs are to beexpected.

Mr Hogdahl accepted that thepots, which were commissionedbetween 12 and 18 months ago, wouldnot normally be expected to go wrongso soon, and consequently the plantwas not prepared for problems. Thiswill mean that it will take longer thannormal to put the malfunction right.

. . . Venezuelanaluminium outputdropsThe Venezuelan state-run aluminiumcomplex produced 570,000 t in 1999,2.8% less than in 1998. Twoproduction lines at the Alcasa smelterwere shut down, and the largerVenalum smelter increased output,but not sufficiently to cover theshortfall.

The country has been trying toencourage foreign investment toupgrade the ageing facilities for sometime (MJ, August 20, 1999, p.142).

Birim-Ashanti dealsealed The agreement between BirimGoldfields Inc. and AshantiGoldfields Co. Ltd regarding Birim’sMampon gold deposit in Ghana,outlined last year (MJ, October 1,1999, p.263), has been completed.Ashanti will now assess the near-surface portion of the deposit formining and processing at its Obuasioperation.

INDUSTRY IN ACTION


INTERNATIONAL CONVENTIONAND TRADE EXHIBITION

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The Mining Industry has turned a corner. And in September the world’s major Finance and Mining Companies are sponsoring the Mining 2000 International Convention and Trade Exhibition.

● The largest mining conference and trade exhibition (900 booths) ever held in Australia.● Five thousand delegates expected from around the world.● Major mining houses, finance houses and Australian Government Departments in attendance.● The best opportunity to do business with Australian and International key decision makers.● A conference program, in five separate streams, that covers most commodities.● The latest technical innovations from exploration through development to closure.● Corporate presentations from Australia’s leading mining and exploration companies.

The Melbourne Exhibition Centre, September 19-22, 2000 (to coincide with the Olympic Games in Sydney)

Contact John Leskiewicz for conference or display information

ph +61 8 9485 1166 or fax +61 8 9481 8023 www.mining2000.com.au [email protected]

Register as a delegate now. Tear off and fax, or register on-line.Mr / Mrs / Ms / Dr / Prof Surname: First Name:Company: Position:Company Address:P/Code: State: Country:Telephone: Fax: Email:Early Bird Registration (by 31st May): Includes Olympic Game Football Ticket Incentive A$540Standard Registration: A$540Student Pass – Friday 22nd September: A$55Signature: Date:

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TECHNOLOGY TODAY

Although the technology forfingerprinting gold has been availablefor some time (MJ, February 28,1997, p.168), it is only more recentlythat the concept of finger printing hasbeen applied to emeralds. GastonGiuliani, a geologist at the Centre deRecherches Petrographiques etGeochimiques-CNRS in France, hasused the analysis of oxygen isotopesto pinpoint the origin of particularemeralds.

Mr Giuliani and fellow researchersat CNRS used an electron microprobeto test an emerald from a Romanearring, and four others from thetreasury of the Indian potentate theNizam of Hyderabad that were cut inthe 18th Century. The emeralds werebelieved to have been produced frommines in Austria, Egypt andPakistan. Comparisons with samplesfrom various emerald-producingregions around the worlddemonstrated that the Roman stonecame from the Swat-Mingora regionof Pakistan, and one of the Indianstones came from Afghanistan.However, the three other Indianemeralds appear to have originatedfrom Colombia. This, says theresearchers, demonstrates howquickly the high quality emeraldsfrom Colombia spread around theglobe once they were exploited by theSpanish conquistadores in thesixteenth century.

Centre de RecherchesPetrographiques et Geochimiques-CNRS, 15 Rue Notre Dame desPauvres - BP 20, Vandoeuvre-les-Nancy, 54501, France. Tel: (+33 3)8359 4213. Fax: 8351 1798. Website:www.crpg.cnrs-nancy.fr

YankuangchoosesHoneywellChina’s Yankuang Group hasawarded Honeywell Control Systemsa US$1.45 million contract to supplyan integrated monitoring and safetysystem at its Jining No. 3underground coal mine in ShandongProvince. The mine, which produces5 Mt/y of prime quality, low sulphurcoal, has elected to use Honeywell’sPlantScape SCADA system.

According to Honeywell, thesystem consists of a PlantScapeSCADA system with operatorstations and an engineering station.This interfaces with process logiccontrollers (PLCs) for theunderground and surface monitoringof temperatures, wind velocities, airpressures, remote gas sensors and

mine equipment status. PlantScape isbest described as a hybrid systemthat merges the best features ofdistributed process control andprogrammable logic controllers,integrating batch, sequential anddiscrete control functions includingSCADA, safety systems, building,security and access control in onesystem. Jining will use the system forreal-time data collection,transmission and analysis, as well asto display records of the mainproduction process, equipmentcondition, and process parameters ofthe entire mine.

Honeywell Control Systems Ltd,Honeywell House, ArlingtonBusiness Park, Bracknell, RG12 1EB,UK. Tel: (+44 1344) 656 000. Fax:656 240. E-mail:[email protected]: www.honeywell.com/uk

Seabedmicrobes formining?In April this year, scientists fromAustralia’s Commonwealth Scientificand Industrial Research Organisation(CSIRO) are to launch a pioneeringsearch for active volcanic vents on theseabed of the Manus Basin, north ofPapua New Guinea. They will besearching for some extraordinary lifeforms that can survive in boilingwater and which dine on mineralsthat contain copper, gold and nickel.The aim is to investigate whetherthese organisms can be utilised inmineral processing.

A team of biologists and mineralresearchers will sail from Cairns inQueensland in the CSIRO researchvessel Franklin. The seafloor searchwill be conducted in an eerielandscape of smoking underseachimneys – the vents for mineralfluids pumped from deep within theearth’s mantle, shattered mineralcolumns resembling ancient ruins and‘hills’ carpeted with bacteria andorganic hydrates – compounds whichcan only exist at the extremepressures of the deep sea.

The project has been initiated byDr Bruce Hobbs, chief of CSIROExploration and Mining, Dr RodHill, chief of CSIRO Minerals and DrDave Dekker of CSIRO Exploration& Mining. Dr Hobbs says the goal isto find particular microbes that canbe used to process minerals on dryland, and so develop more efficientand cleaner ways to win metals.“When times are tough in theminerals industry, the miners who

survive are the ones who can obtainpure minerals for the lowest cost ...This trip is all about prospecting –but in this case, we’re prospecting formicrobes rather than actualminerals”. Dr Hobbs says that theproject will be exploring exactly thesame sort of systems as those thatformed orebodies such as Broken Hilland Mt Isa.

The term ‘extremophiles’ has beencoined for the microbes being soughtbecause they live at the very upperend of the temperature and pressureconditions under which life is able tosurvive. They thrive in extremesituations, and Dr Peter Franzmannof CSIRO Land & Water says thatbecause they operate at very hightemperatures they are extremelyefficient at what they do – whichincludes extracting minerals likecopper, gold, zinc, nickel, manganeseand lead from the mineral-richfluids emanating from thehydrothermal vents. The aim of theproject is to see whether the microbescan be used in large-scale miningoperations as part of a process toextract metals from sulphide ores. DrHobbs believes the microbes mightenable Australia’s miners to exploitlower grade ore deposits, extractmetals more cheaply, clean up wastestreams and even improve minesafety.

Moxy winsdesign awardThe Norwegian design council hasawarded Moxy Trucks’ MT36articulated haul truck a Good DesignAward, its highest honour. In makingthe award, the design councilconsiders the design, function andergonomics, materials used,construction and production, form,marketing communication andgeneral impression.

The MT36 can carry a 33 t payloadin its specially designed sloping body.It features a permanent six-wheeldrive and a free-swinging rear tandembogie which ensures the best possibleground contact in all conditions. Theunit is powered by a Scania DSI 12,water-cooled, direct-injection dieselengine that generates 272 kW andcomplies with US/Californianemission regulations.

Moxy Trucks As, N-6440Elnesvågen, Norway. Tel: (+47) 71268500. Fax: 7126 8550. E-mail:[email protected] Website:www.moxy.no

Integrated beltweigher forsurface minerChile’s Atacamas Mineras hasselected two surface miners fromWirtgen to meet the challengesposed by mining a 1.5 m thickcaliche deposit in northern Chile.Prior to the development of theproject, Atacamas made anassessment of the profitability ofmining the deposit with surfaceminers, and Wirtgen supplied thecompany with a 2100SM unit forwhich the conveyor belt had beenfitted with a belt weigher suppliedby Pfreundt GmbH & Co. KG. Theassessment on a 250 m x 50 mportion of the deposit demonstratedthat the surface miners were themost appropriate method of miningthe deposit.

The fitting of a belt weigher offeredAtacamas Mineras a number ofadvantages over a volumetriccalculation of the conveyed quantitiesbased on mining width, depth andspecific weight. The specific weightsof the mined material vary and thebelt weigher provided the operatorswith precise measurements displayingthe weight of material mined intonnes or as a rate of tonnes per hour.The use of the belt weigher alsoprevented the overloading of trucksand allowed an accurate gauge ofmaterial moved should contractors beused to transport the material fromthe surface miner. In addition, the useof the belt weigher allowed theoperator to optimise mining depth aswell as auger drilling and powerconsumption. As a result of the test,Atacamas Mineras plans to use two2100SMs to produce 5,000 t of calichea day.

Pfreundt GmbH & Co. KG,Ramsdorfer Strasse 10, D 46354Südlohn, Germany. Tel: (+49 2862)98070. Fax: 980799.

Emeraldfingerprinting

Moxy’s award-winning MT36


MINERAL MARKETS

It was a close race between platinum andpalladium to the US$500/oz mark thisweek. Despite being neck and neck it waspalladium’s continued good form – buildingon strong industrial demand and supplyuncertainty – that allowed it to take thelead and clear the barrier first. Platinumclosely followed, and as Mining Journalgoes to press both seem to have paused forbreath and are running neck and neck atUS$502.50/oz.

While at first sight the strength in bothmetals may be viewed as a result of similarfactors – erratic supplies from Russia,strong demand from automobile manufac-turers and a sprinkling of speculative inter-est – the lease rates for platinum and palla-dium are markedly different. The platinumone month lease rate is well in excess of 60%at present, indicating an extremely tightilliquid market. According to PreciousMetals Monthly Monitor the platinum leaserate has risen steadily since the middle of1999; in June it averaged 5.6% (averageLondon fixing price US$356.80/oz) and byOctober it was 51.2% (average London fix-ing price US$421.10/oz). The same cannotbe said for palladium; in June 1999 the one-month lease rate averaged 3% (averageLondon fixing price US$336.70/oz) and inOctober it spiked to 13.2% (averageLondon fixing price US$386.9/oz). It hassince fallen to the current rate of around9%, indicating that palladium’s price is areflection more of supply and demand fun-damentals than of a tight market.

In addition to being aided by worries overfuture Russian supplies, palladium fromRussia is still very scarce on the spot mar-ket. For platinum, Norilsk chairman YuriKotlyar says that the company expects toreceive its export quotas sometime betweennow and the middle of February. ■■

Nickel to targetUS$10,000/t?

A boom in stainless steel demand, fallingLME stocks, a slowdown in Russian exportsand continued problems with the Australianlaterite projects may propel the nickel priceto over US$10,000/t by the end of March,says Macquarie Equities in a recent report.In the meantime the price has risen to itshighest level for over four years, with fundbuying being a major force in the currentrally.

Stainless steel accounts for around two-thirds of primary nickel demand and

Macquarie says that its latest stainless steelproduction figures indicate that globalstainless steel output in the final quarter of1999 rose by 13.2% and was over 15% year-on-year higher in November and December.A recent report from HSBC points to thistrend continuing. It forecasts that stainlesssteel demand may rise by 15% in 2000, andsays that rapid rises in stainless steel pricesindicate a recovery in end-use demandrather than stock building. Demand fromother less important sectors also continuesto be strong. Inco has recently decided toinvest in its special products group toincrease its output of special nickel products

that have applications in rechargeable bat-teries, catalysts and capacitors.

Total stocks of nickel are now at theirlowest levels since about 1990, a time whenthe price was around US$5.00/lb. HSBCpoints out that, with stocks at such low lev-els and demand being so strong, supply dis-ruptions could trigger a rapid rise in price.

On the supply side, Macquarie notes thatRussian exports of nickel have shown amarked slowdown. The bank says thatRussian exports from January to November1999 were 190,100 t, a year-on-year fall of3.2%. However, Norilsk has said that itsoutput was up by 1.8% in 1999. This, saysMacquarie, may point to a recovery indomestic demand.

Further support for the price, at least inthe first half of the year, is being lent by thecontinued teething problems being experi-enced at the Australian lateritic nickel pro-jects (this issue, p.73). Additional supportmay be provided by potential labour prob-lems at Inco’s Sudbury operation, when itslabour contract expires in May, and inAugust by the expiry of Falconbridge’slabour contract. ■■

Sound fundamentalsfor zinc

Over the past month the three-months zincprice has slumped. After closing 1999 atUS$1,235/t it has gradually slipped loweruntil last week, under the weight of long-liq-uidation by traders and funds disappointedby the market’s failure to breach the keyresistance level of US$1,245/t, it fell toUS$1,150/t on Friday and has continuedlower this week. The situation was nothelped by rising LME stocks, particularlyin Singapore where Chinese material hasbeen placed on warrant, and in Triestewhere, according to Macquarie Equities,metal from Kazakhstan and controlled byGlencore has been placed on warrant.

Despite these factors, the outlook for zincin the longer term remains sound. Despitethe recent increase, to 290,775 t, zinc stockson the LME remain at relatively low levelsas do producer and consumer inventories.Furthermore, the metal is being supportedby solid demand. According to London-based metal broker Brandeis, demand isexceeding its base case level of 2% and isparticularly strong from the European gal-vanising sector. In the US, Brandeis saysgrowth remains firm despite a forecast of asharp slowdown in growth to 1%.

One cloud on the horizon is China. In thepast it has exerted a major influence overthe zinc price with its numerous producersrapidly increasing exports to take advan-tage of any price strength and effectivelyproviding a cap for the market. In 1999,China’s ability to produce zinc metal wasboosted by a ban on the export of concen-trates in July and metal exports rose by


Platinum pippedto the post

LME PRICES & STOCKS

Prices (a.m.) Feb 3 Jan 27Tonne basis Buyers Sellers Buyers SellersCOPPER Grade ACash....................... $1,789 $1,790 $1,818.5 $1,819.5Three months ......... $1,826.5 $1,827 $1,856.5 $1,857TINCash....................... $5,790 $5,795 $5,765 $5,770Three months ......... $5,825 $5,830 $5,825 $5,830LEADCash....................... $453 $454 $463 $464Three months ......... $471 $472 $479.5 $480ZINC Special high gradeCash....................... $1,101 $1,101.5 $1,126 $1,127Three months ......... $1,120 $1,121 $1,150 $1,151ALUMINIUM Higher gradeCash....................... $1,720.5 $1,721 $1,716 $1,717Three months ......... $1,700 $1,700.5 $1,712 $1,712.5AlloyCash....................... $1,375 $1,380 $1,395 $1,398Three months ......... $1,415 $1,420 $1,435 $1,437NICKELCash....................... $8,920 $8,930 $8,480 $8,490Three months ......... $8,940 $8,950 $8,520 $8,525SILVERCash....................... $5.08 $5.12 $5.16 $5.21Three months ......... $5.18 $5.22 $5.26 $5.31

London Metal Exchange official averagesfor January were:

Cash Three months SettlementCOPPER Grade A $1,843.59 $1,880.98 $1,843.98

TIN $5,924.75 $5,960.75 $5,927.75

LEAD $471.71 $487.89 $472.08

ZINC Special high grade $1,178.43 $1,199.43 $1,178.80

ALUMINIUM HG $1,680.28 $1,688.03 $1,680.70Alloy $1,387.39 $1,430.41 $1,389.13

NICKEL $8,309.50 $8,383.00 $8,313.75

SILVER $5.10 $5.20 $5.13

LME warehouse stocks on February 2and turnovers for the month of January

Stocks Stocks Turnovers(t) (Jan 26) (t)

COPPER 804,125 812,500 36,329,925

TIN 10,335 10,315 818,645

LEAD 189,575 187,025 6,703,850

ZINC SHG 291,975 290,150 17,808,875

ALUMINIUM HG 793,200 781,150 58,310,575Alloy 83,980 82,800 1,175,840

NICKEL 42,210 42,786 2,907,324SILVER 45,000oz 45,000oz 115,000oz

MINERAL MARKETS


37.7% to 527,142 t in 1999. This alreadyhigh level of imports limits China’s abilityto cap the price. In addition, the start-up ofseveral galvanising lines in China will helpboost domestic demand for zinc which hasin the past lagged behind growth in output.

As a result of these and other develop-ments, Brandeis remains confident that thezinc price will average around US$1,213/t in2000, with the market largely balanced formuch of the year. Macquarie is more opti-mistic, forecasting a 2000 average ofUS$1,268/t with the market showing asmall deficit for the year. ■■

Seleniumsparkles

With the exception of selenium and to alesser extent gallium, most minor metalssuffered during January. The expectationhad been that the Chinese would withdrawfrom the market in the run up to their NewYear holidays in early February and it wasin anticipation of this that many buyers hadstocked up with metals during December.Unfortunately the opposite happened andthe Chinese made aggressive offers, particu-larly for metals already in warehouseRotterdam, or for materials soon to arrive,so that they could turn the metal into cashbefore the New Year holiday. As a result allthe metals of which China is a majorexporter slipped in price.

Antimony was the typical example, withprices at the end of December having movedfrom the lows of around US$1,100/t, back upclose to US$1,300/t. However, theannouncement that Chinese exports of anti-mony products were likely to remainunchanged in 2000 at 40,000 t disappointedthe market. It had been hoping that theChinese antimony industry would reduceexports and so give some much needed sup-port to prices. The Chinese export figureincludes concentrates and trioxide and ifconfirmed in February it would deny themarket any chance of establishing a pricerecovery. Certainly most Chinese sellerswere keen to off-load material and offerswere soon back down below US$1,200/t,although it was expected that during theactual Chinese holidays in early Februarythe market would at least stabilise owing toa drop in Chinese activity. The outlook forthe rest of the year, however, does not lookgood.

Bismuth prices continued their downwardspiral on the back of lower-priced offersfrom China. Producers elsewhere appearedto be competing with each other for con-sumer business, offering around US$3.60/lb.Those traders caught with material werealso forced to drop their offering price. As aresult of the large quantities already in themarket there was little interest to take upthe additional material from China and by

the end of the month offers were in theUS$3.20-3.30/lb range.

Production problems at Mexico’sIndustrias Peñoles, the world’s largest bis-muth producer, which had caused the sharpincrease in prices during 1999 appeared tobe over as the company confirmed that out-put was expected to return to levels similarto 1997 when Peñoles produced 1,028 t.

Cobalt was quiet following the Christmasholidays although as with other metalsthere had been some interest for promptmaterial around the year end, particularlyfor high-grade cobalt, with sales as high asUS$15.00/lb being reported. So far thisyear, prices have remained relatively stable,perhaps easing a little towards the end ofthe month despite indications that pricescould go higher in the near term. Russiangrades were available at just belowUS$13.00/lb with Zambian 99.6% puritypriced at around US$13.00-13.50/lb.

The continued availability of cobalt fromthe US Defense Logistics Agency (DLA)appears to be a factor in holding prices atmore stable levels. The DLA has authorityin fiscal year 2000 to sell 6Mlb of cobalt andin January the offering was for 649,459 lb ofgranules and rondells in an unusually nar-row and uniform grade range when com-pared with most solicitations in the past.All of the cobalt on offer was between99.301% and 99.375% in purity. Earlier inthe month the DLA announced that for thefirst time in two years negotiated bid salesof cobalt will be held in coming months. Thefirst of these bids will be in March with oth-ers scheduled in June and September. Thenegotiated bids will offer 1 Mlb in eachmonth compared with the usual 600,000 lbto be offered in the rest of the monthly sales.

Gallium prices were firmer as consump-tion is still increasing while stocks of metalhave fallen over recent years after de-stock-ing encouraged by stagnant prices throughmost of 1999.

The growth in demand from semi-conduc-tor and other electronic applications showsno sign of slowing. Demand is increasinglybeing focused on the higher quality 6 & 7Nquality metal for which prices are now in therange US$550-570/kg. Use in light emittingdiodes and microwave components of mobilephones is particularly important. Galliumnitride diodes have also had promising trialsfor use in street lights. This has led to a nearabsence of commercial grade 4N quality forwhich prices are now established close toUS$500/kg.

Selenium is the other metal improving inprice, largely as a result of increasedChinese consumption. From historicallylow levels seen during 1999 of aroundUS$1.50/lb, prices have been moving steadi-ly upwards in the last few months and asurge in interest early in January pushedprices through the US$3.00/lb level.

Copper production cuts and the increaseduse of solvent extraction/electro winning

(SX/EW) technology have resulted in lowerselenium production. For nearly three yearsselenium has been an unprofitable commod-ity and several producers and toll refinershave stopped treating tank-house slimes.Union Minière ceased making commercialgrade selenium and its stocks are now near-ly depleted. Phelps Dodge reportedly is pro-ducing 50% of its normal output whileAsarco’s production has dropped by about25% because of the shutdown of the elec-trolytic tank house at Amarillo, Texas.Noranda lost a month’s worth of productionbecause of the strike at Kidd Creek last Julyand stoppages for maintenance.

Traditional copper-smelting operationsare also expected to produce less seleniumbecause of the ore feeds. Noranda projectsthat its selenium production this year willbe only 70% of 1999 levels given its refineryand feed estimates. Those companies thatstopped producing selenium altogether arenot likely to restart. On the demand side theoutlook is positive. Demand from automo-tive and architectural glass sectors hasincreased and new applications are beingdeveloped. Most importantly, China’s sele-nium requirements have improved and withlittle domestic production the country isdependent upon imports particularly fromJapan. ■■

LONDON PRICES

Metals Feb 3Aluminium (US producer) 63.00-66.00 c/lb d/dAntimony $1,150-$1,200/t cifArsenic (Rotterdam 99%) $0.30-$0.40/lbBismuth Bismuth $3.20-$3.60/lb cifCadmium (99.99%) $0.15-$0.20/lb cif

.. (99.95%) $0.13-$0.18/lb cifChrome (UK 99%) $10.00-$11.00/lbCobalt (99.8%) $13.50-$14.00/lb net

.. (99.3%) $13.00-$13.50/lb netGermanium $610-$660/kgGold £175.14($286.50)/oz Indium $150-$170/kgIridium (J Matthey price) $415/ozMagnesium (Norsk Hydro Euro. prod.) e2.45/kg*

.. (US Free mkt, 99.8%) $2,400-$2,480/t*Manganese

metal (99.7%) $940-$1,020/tMercury (99.99%) $128-$138/flaskNickel $4.05-$4.06/lbOsmium $400-$450/ozPalladium (J Matthey price) $507.00/oz

.. (Free market) $502.00-$507.00/ozPlatinum (J Matthey price) $505.00/oz

.. (Free market) $500.00-$505.00/ozRhodium (J Matthey price) $1,975/ozRuthenium (J Matthey price) $62/oz cifSelenium $2.50-$3.00/lb cifSilver $5.26/ozTellurium (UK lump & powder

99.95%) $4.00-$6.00/lb netTin (Kuala Lumpur) RM21.78/kg

Ore & Oxides Feb 3Antimony (60%) $8.50-$9.00/t unit, cif nom*Beryl (10% BeO) $75-$80/s ton unit BeO cif*Chrome (Transvaal, Friable 40%) $50-$70/t, fob*

.. (Turkish, concs 48%) $65-$70/t fob*Columbite (min. 65% comb. oxides) $3.00-$3.80/lb cif*Ilmenite (54% TiO2) A$95-A$110/t fobLithium ores (Petalite 4.2% Li2O) $250/t fob*

(Spodumene>7.25% Li2O) $385-$395/t fob*Manganese ore (48-50% Mn,

max. 0.1% P) $1.81-$1.90/t unit fob*Molybdenum

oxide (conc 55-57%) $2.55-$2.60/lbRutile (Aust. 95-97%

TiO2) A$725-A$800/t fob (bulk)Tantalum oxide (60% cif N. Euro port) $26-$32/lbUranium (Nuexco unrestricted/restricted

U3O8) $7.60/$9.40/lbVanadium (98% V2O5) $1.60-$1.70/lb cifWolframite (65%) $40-$45/t unitZircon sand (std 66-67% ZrO2) A$500-A$600/t fob (bulk)

* Source: Metal Bulletin


MINING AND METALS REPORT

FOR RUSSIA/CIS

Interfax Russian News Agency has established a reputation asthe leading information source for Western companies involved in themining and processing of metals and minerals across the former SovietUnion. The Interfax Mining and Metals Report provides the informationneeded to successfully monitor critical operational issues for yourventures in the former Soviet Union.

• • complete coverage of the ferrous, non-ferrous, precious, and base metals industries ••

• • updates on joint venture activities •• tender anouncements ••

• • laws and regulations •• exploration and development ••

To order a FREE sample Mining and Metals Report,call +1 (303) 825-1510, or fax your request to +1 (303) 825-1513.

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Denver, CO 80202, USAtel +1 (303) 825-1510fax +1 (303) 825-1513

www.interfax-news.com

(Incorporated in the Republic of South Africa)(Registration Number 59/03209/06)

REPORT FOR THE QUARTER ENDED 31 DECEMBER 1999

Quarters ended 18 months

ended

31.12.99 30.09.99 31.12.99

Ore milled - metric tons (000) 157 200 1 627

Yield - grams per metric ton 8.11 7.04 7.90

Gold production - kilograms 1 274 1 408 12 846

Ore milled - short tons (000) 173 220 1 793

Yield - ounces per ton 0.237 0.205 0.230

Gold production - ounces 40 960 45 268 413 008

Cash costs of production

- per metric ton milled R343.55 R329.00 R370.33

- per kilogram produced R42 336 R46 732 R46 904

- US$ per ounce $215 $238 $240

Rm Rm Rm

Profit from gold 19.1 7.0 646.0

(Loss)/Profit before tax and

exceptional items (1.4) 9.3 489.2

(Loss) after tax (28.9) (152.5) (54.6)

As forecast the Joint Venture has begun to realise the benefits

of the restructuring which was completed in September 1999.

Cash costs reduced to R 42 336/kg from R 46 732/kg in the

previous quarter ($215 from $238 per ounce). Attributable gold

production decreased from 1 408 kg to 1 274 kg (40 960 oz.)

due to a marked decrease in low grade surface tonnage

milled. Overall grade therefore increased from 7.04 g/t to

8.11 g/t. The average spot gold price for the quarter rose to

R 59 961/kg (R 51 370/kg), contributing to an increase in

attributable profit from gold to R 19.1 million from R 7.0 million.

Joint Venture management has been able to significantly raise

productivity by 65% in terms of grams of gold per employee

from the previous quarter, and it is expected that these levels

will be maintained.

During the quarter the hedge book was restructured at a net

cost of R 58.4 million.

Johannesburg 3 February 2000

All figures are unaudited. The quarterly report has been mailed to shareholders.

Copies of the report may be obtained from the London Secretaries,

JCI (London) Limited, 6 St James's Place, London SW1A 1NP.MJ

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The Australian-based natural resourcesgroup North Ltd recorded a sharp fall inoperating earnings (before interest and tax)for the six months to December 31, 1999, toA$189.6 million, 29% less than in the corre-sponding period in 1998. Around half of thefall in the total was due to the sale duringthe period of North’s Warman pumps busi-ness to Weir of the UK (MJ, September 17,1999, p.223) and the group’s 50% interest inthe Kanowna Belle gold mine to Delta GoldNL. Sales revenue fell by 24%, to A$833.5million.

The balance of the fall in North’s operat-ing earnings for the first half of the currentfinancial year was due to a deterioration inthe operating earnings of the group’s ironore operations and its Northparkes copper-gold mine in New South Wales. The lattersuffered a fatal accident towards the end ofthe period (this issue, p.91), and reopenedon January 20. The uninsured losses havebeen fully taken into the first-half accounts.

These adverse factors were partially off-set by a firm move into profit by the 25%-owned Bajo de la Alumbrera copper-goldmine in Argentina, and smaller gains fromNorth’s uranium (68.4%-owned EnergyResources of Australia) and zinc operations.The latter, 100%-owned Zinkgruvan in

Sweden, benefited from higher prices andgreater throughput, offsetting lower grades.Part of the improvement from Alumbrerawas due to the recoupment of amortisationcharges made in 1998/99, following a write-down in the value of North’s investment,along with those of the other partners, afterthe ore reserves were restated (MJ, August27, 1999, p.165).

Exploration, development and corporateexpenses were reduced by 23%, to A$38.4million, and interest charges were morethan halved, to A$13.8 million, reducing thefall in pre-tax profit. The lower interestcharges were the result of the application ofthe proceeds from the Warman andKanowna Belle sales to the repayment oflong-term debt, which fell by 56% duringthe six months, to A$462.1 million. Netprofit was A$334.0 million, a more thanfour-fold rise, owing to abnormal gains(post tax) of A$234.3 million from theWarman sale, A$14.2 million fromKanowna Belle and a A$28.2 million taxcredit from the restatement of deferred taxfollowing the change in the corporate taxrate.

North describes its 65%-owned RobeRiver iron ore operations in WesternAustralia as the group’s “powerhouse”, and

this asset contributed A$70.5 million tooperating earnings during the six-monthperiod, representing 37% of the consolidat-ed total (North’s 65% joint-venture inter-est falls to 53% when minority interests arededucted). These operating earnings fromRobe River were 27% lower than in the firsthalf of 1998/99, as sales fell by 6% to 9.5Mt. Lower prices were exacerbated by thestrength of the Australian dollar. Thegroup’s 56.1%-owned subsidiary Iron OreCo. of Canada (IOC) contributed A$33.7million (100% consolidated basis), a fall of41%. IOC’s sales of concentrate fell by 14%to 2.6 Mt but pellet sales rose by 20% to 5.4Mt.

The outlook for iron ore sales volumes atboth divisions “continues to be strong”,with IOC’s sales book full for the 2000 cal-endar year, but earnings have been adverse-ly affected by lower prices. The deteriora-tion in operating earnings was reduced atRobe River in the second quarter of the firsthalf and IOC recorded higher earnings com-pared with the December quarter of 1998,as higher sales volumes and cost controlstook effect. Nevertheless, the iron ore oper-ations continued to receive pressure fromlower prices, down by 13% at Robe Riverquarter-on-quarter. North notes that cur-rent price negotiations feature suppliers“seeking pre-Asian crisis rates” andJapanese customers “pursuing pricedecreases”.

Subsequent to the end of the reportingperiod, seven Japanese steel mills issued let-ters of intent to purchase Marra Mamba orefrom Robe River’s West Angelas project.The deal covers 8 years, starting at 5 milliondry long tons (1 long ton = 2,240 lb) in2002/03, rising by 1 million long tons peryear to 8 million long tons in year four. Theproduct mix will be one third lump, twothirds fines. Construction of the WestAngelas mine and rail-link will take 27months from the receipt of final approvals,with existing port facilities at CapeLambert also being upgraded to handle theadditional exports.

The levelling out of iron ore operatingearnings in the December quarter wasreflected in the operating earnings of thewhole group, which fell by just 13% com-pared with the corresponding quarter in1998, to A$95.6 million (before interest andtax). Quarterly earnings before tax, minori-ty interests and abnormal items rose by7.5% to A$73.1 million, as the cuts in inter-est charges and overheads took effect.

The asset sales have helped to positionNorth to build its core business. The groupcurrently has no drawings under its US$735million debt facility, and plans to raise up toA$700 million through the issue of debtsecurities in the Australian market. Thegroup states that its “growth focus will con-tinue to be in iron ore”, where it believesthat it has a competitive advantage and theskills “to continue adding value”. ■■

MINING FINANCE


North relies oniron ore volumes

Alcan Aluminium (C$) ..... 3 8.5 00.00 00Alcoa ($) .......................... 00.00 0.0 00.00 00Anglo Amer. Plat. (R)....... 00.00 0.7 00.00 00Anglo American (£)..........AngloGold (R) ................. 0.0 00.00 00Anglovaal Mining (R) ...... 00.00 0.0 00.00 00Antofagasta Holdings (£)Arch Coal ($) ................... 00.00 0.0 00.00 00Ashanti Goldfields ($) ......Ashton Mining (A$) ......... 00.00 0.0 00.00 00Asturiana de Zinc (e)....... 00.00 0.0 00.00 00Barrick Gold (C$) ............ 00.00 0.0 00.00 00BHP (A$) ........................ 00.00 0.0 00.00 00Billiton (£) ......................Boliden (C$) .................... 00.00 0.0 00.00 00Cameco (C$).................... 00.00 0.0600 00Cleveland-Cliffs ($) .......... 00.00 0.0 00.00 00Cominco (C$) .................. 00.00 0.0 00.00 00CVRD (BR) .................... 00.00 0.0 00.00 00De Beers (Linked Uts) (£) 00.00 0.0 00.0010,244Emp. Min. Mantos Blancos (ChP) 00Eramet (Eur)...................Falconbridge (C$)............Freeport-Mc. C&G ($) ..... 00.00 0.0 00.00 00Gold Fields Ltd (R).......... 00.00 0.0 00.00 00Grupo IM Mexico (MP)... 00.00 0.0 00.00 00Hindalco (Rs) .................. 00.00 0.0 00.00 00HZL (Rs)......................... 00.00 0.0 00.00 00Iluka (A$)........................ 00.00 0.0 00.00 00IMC Global ($) ................ 00.00 0.0 00.00 00Impala Plat. (R) .............. 00.00 0.0 00.00 00Inco (C$) ......................... 00.00 0.0 00.00 00Industrias Peñoles (MP) .. 00.00 0.0 00.00 00Iscor (R) .......................... 00.00 0.0 00.00 00KGHM (Zt) ..................... 00.00 0.0 00 00Lonmin plc (£) ................. 00.00 0.0 00.00 00MIM Holdings (A$)......... 00.00 0.0 00.00 00Minsur(PS)...................... 00.00 0.0 00.00 00Mitsui Min. & Smlt. (¥)... 00.00 0.0 00.00 00Newmont Mining ($)........ 00.00 0.0 00.00 00Noranda Mining(C$) ....... 00.00 0.0 00.00 00

Norilsk Nickel (Rb).......... 74.66 13 00.00 00Normandy Mining (A$) ... 00.00 0.0 00.00 00Norsk Hydro (NK) .......... 00.00 0.0 00.00 00North Ltd (A$) ................ 00.00 0.0 00.00 00Outokumpu ‘A’ (e) ........... 00.00 0.0 00.00 00Pasminco (A$) ................. 00.00 0.0 00.00 00Pechiney ‘A’ (e)................ 00.00 0.0 00.00 00Phelps Dodge ($).............. 00.00 0.0 00.00 00Placer Dome (C$) ............ 00.00 0.0 00.00 00Potash Corp. of Sask. (C$) 00.00 0.0 00.00 00PT Tambang Timah (Rp) 00.00 0.0 00.00 00Reynolds Metals ($) ......... 00.00 0.0 00.00 00Rio Algom (C$)................ 00.00 0.0 00.00 00Rio Tinto plc (£) ............. 00.00 0.0 00.00 00RJB Mining (£) ............... 00.00 0.0 00.00 00Sumitomo Met. Min. (¥) . 00.00 0.0 00.00 00Teck ‘B’ (C$) ................... 00.00 0.0 00.00 00WMC (A$) ...................... 00.00 0.0 00.00 00Xstrata (SF) .................... 00.00 0.0 00.00 00

Share prices and exchange rates are intra-day Wednesday.100 in the high/low column indicates that the share is tradingat a high, 0 that it is at a low, based on local prices over thepast 52 weeks.

Currencies February 2Value of £ $(US)$ (US) ................................................... 0.057 —$ (Australian)........................................ 0.2.51 0.00$ (Canadian) ......................................... 0.00 0.00Ringgit (Malaysian) Fixed official rate ..Franc (Swiss) ........................................ 0.00 0.00Krona (Swedish) ................................... 0.00 0.00Yen ....................................................... 0.00 0.00Rand (SA) ............................................ 0.00 0.00e (Euro) ............................................... 0.00 0.00Markka (Finnish) ................................. 0.00 0.00Franc (French)...................................... 0.00 0.00Deutschmark ........................................ 0.00 0.00Source: Bloomberg

SHARE PRICES AND EXCHANGE RATES

Company Feb 2 Change Local US$ mill.Local 5-day % % hi-lo Mkt cap.

Company Feb. 2 Change Local US$ mill.Local 5-day % % hi-lo Mkt cap.

57.9572.13

193.0036.20

314.0051.50

4.308.692.750.78

10.8023.5018.80

3.174.40

20.1527.3830.0047.0017.2210.2553.8025.8017.4425.6052.40

852.0013.70

3.7617.25

276.0029.0025.5026.5529.50

7.211.436.58

578.0019.8818.25

–1.0–0.34.3

–2.80.3

–1.9–6.3–3.50.0

–4.9–8.5–1.5–3.35.61.12.0

–2.511.5–1.3–0.1–6.8–5.65.7

–1.1–3.2–1.12.5

–3.2–2.30.76.23.83.40.2

–1.36.8

–2.7–3.8–4.52.6

–0.3

72719653448086

20

6641

270717810

4809178867890684384633040319764298993997063512645

8,72026,427

6,65923,716

4,911883

1,313332309169423

6,41921,27510,865

325800303

1,77110,50610,690

3131,2603,1532,7581,8523,4401,456

133535

1,9752,9043,6351,0701,0811,3891,8491,556

1182,8763,3313,102

1009

605266388355

240

2674556

713397796

1,4931,121

10,6151,5371,5611,0705,7064,4032,8782,848

2504,288

80619,766

701,398

9435,8741,210

1.612.522.336.102.66

14.09174.15

10.061.65

1.001.571.453.801.668.77

108.446.261.03

e1=Mk5.94573e1=FF6.55957e1=DM1.95583

8.6–2.9–4.1–2.2–4.40.05.10.4

–4.5–3.8–7.92.24.6

–2.10.0

–10.20.4

–1.80.5

228.401.013.293.16

12.901.49

72.0058.8812.8076.15

3775.0067.8119.2511.60

0.30265.00

12.708.00

1728.00


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Randfontein Estates Limited(Incorporated in the Republic of South Africa)

(Registration number 01/00251/06)(“Randfontein”)

REPORT FOR THE QUARTER ENDED 31 DECEMBER 1999

Quarters 18 Monthsended ended

31.12.99 30.09.99 31.12.99

Ore milled - t’000 1 926 1 839 13 329

Gold produced - kg 7 124 6 194 39 228

Gold price received - R/kg 55 511 58 875 57 740

Cash operating costs - R/kg 49 689 51 164 50 343

Gold sales 395 459 364 670 2 265 022

Cash operating costs 353 981 316 909 1 974 837

Profit before tax 14 583 (2 226) (281 709)

Net earnings after tax 7 195 (5 184) (177 489)

Bid for Randfontein Estates LimitedOn 6 January 2000, Harmony Gold Mining Company Limited(“Harmony”) made an offer for Randfontein. Harmony’s initial offerwas revised upwards to ensure that the transaction was supportedand recommended by Randfontein’s previous Board. The first closingdate of the offer is 14 February 2000. All commercial conditionsrelating to Harmony’s bid have been fulfilled, with only regulatoryapprovals being awaited. To date 34.9% of the Randfontein shareshave been acquired by Harmony.

Change of managementA new board of directors was appointed on 14 January 2000 andHarmony took management control of Randfontein the following day.Other than the changes noted in the commentary hereafter, Harmonyhas had no input into the operational results reported. Therefore itdeems it inappropriate to comment thereon.

Management agreementThe consulting management agreement entered into between JCIGold Limited and Randfontein was cancelled by the previousdirectors of the company, retrospectively from 1 July 1998 for aconsideration of R140 million.

Evaluation of hedgebook as at 31 December 1999In accordance with IAS an amount of R336.6 million has beenaccounted for, for the mark to market unrealised losses ofcertain speculative gold derivatives, held by the company at31 December 1999.

Restructuring of the hedgebook since 15 January 2000The new Randfontein Board, having concluded a detailedinvestigation of all the gold hedging positions of Randfontein, havefound them to be completely inappropriate for the company. Of the2.7 million ounces of gold that were committed to forward sales andcall options, 1.7 million ounces were unencumbered at a total cost ofUS$10 million. There are no remaining forward sale contracts or calloptions for the calendar years 2000 to 2001.

Change in accounting policyThe results for the current quarter have been prepared on the basisthat no recognition is given to gold in process before the concentratestage. The results for the prior period have been restated accordingly.

Capital ExpenditureDuring the quarter capital expenditure amounted to R27.7 million(September 1999: R35.8 million).

Johannesburg 27 January 2000

Copies of the report may be obtained from the London Secretaries, JCI (London) Limited, 6 St James's Place, London SW1A 1NP

Franco-Nevada’sbuying power tops

C$1 billionThe Toronto-listed royalty specialist andgold producer Franco-Nevada MiningCorp. Ltd achieved net earnings of C$22.0million in the three months to December 31,1999, 35% more than in the correspondingperiod of 1998. This brings the total for thefirst nine months of the company’s currentfinancial year (to March 31) to C$75.3 mil-lion, a gain of 56%. Revenues for the nine-month period were C$166.8 million, an 81%improvement, and cash flow was up by34%, to C$102.3 million, boosting workingcapital and other liquid assets to just overC$1.0 billion. Franco-Nevada remains freefrom debt.

The gains over 1998/99 were achieveddespite a slightly lower realised gold price,which affected revenue from the wholly-owned Ken Snyder mine in Nevada. Themine produced 185,000 oz of gold and equiv-alent during the nine months. Franco-Nevada benefited from “strong operatingperformances” from the mines in which ithas its main royalty interests.

Subsequent to the end of the period underreview, Franco-Nevada took advantage ofweakness in the share price of AberResources Ltd to increase its interest to14.3% from the 9.6% acquired at the startof last year (MJ, January 29, 1999, p.67).The recent price dip was caused by permit-ting problems with respect to Aber’s 40%-owned Diavik diamond project (MJ,January 28, p.55).

HSBC investment bank reports thatFranco-Nevada has indicated that it mightconsider a friendly takeover of Aber,although the preferred option would be toconvert its interest to royalty. Franco-Nevada also earlier established, at relative-ly low cost, a significant profits interest inthe Voisey’s Bay nickel project (MJ,October 23, 1998, p.334), another majorCanadian mining development with a trou-bled permitting history. ■■

Glencar rights issue tocover Wassa shortfall

The Dublin-based junior gold producerGlencar Mining plc plans to raise net pro-ceeds of £4.5 million through a rights issueof 30.4 million shares at £0.16/share.Shareholders will be offered seven new ordi-nary shares for every 15 already held. Therights issue, fully underwritten by DavyCorporate Finance of Dublin and Williamsde Broë of London, is scheduled to be com-pleted by April 10. Some three quarters ofthe proceeds will be used to provide addi-tional working capital for Glencar’s 59.4%-owned Wassa gold mine, in Ghana, which

came into production at the start of lastyear. The balance will be used to fund explo-ration at Wassa and on projects in Ghana,Uganda and Ireland.

Wassa produced 87,000 oz between com-missioning last January and the end of1999, but gold recoveries from its heap-leaching solution have been lower thananticipated. The feasibility study envisagedoutput of 94,000 oz in 1999, and this fore-cast was later raised to 130,000 oz (MJ,November 27, 1998, p.430). Material minedduring 1999 is estimated to have contained185,000 oz. Test work has shown that thereare no metallurgical barriers to achievingthe gold-recovery levels originally forecast,and Glencar reports that the problem is oneof slow movement of the solution throughthe heaps. The ore mined during the firstyear has a higher clay content than the restof the orebody, and this factor has beencompounded by topographical constraintswhich have necessitated stacking heaps oneon top of another.

The phase 2 heap leaching area is expect-ed to be completed by the end of nextmonth, offering a greater spraying areawhich will allow a full primary, secondaryand rinse cycle to be used. This should inturn maximise the amount of gold in solu-tion delivered to the gold recovery plant.Glencar believes that the effects of thesepositive measures will bring gold recoveriesin line with the original forecasts “overtime”. ■■

PGM prices helpexpanding Stillwater

The recent excitement in the platinum andpalladium markets (this issue, p.94) cameafter the end of the December quarter forthe US producer, Stillwater Mining Co.Nevertheless, the strength in prices leadingup to this week’s records was well under wayduring last year, resulting in a more thandoubling of earnings for Stillwater for boththe three months to December 31, 1999 andthe full year. Stillwater received an averageof US$424/oz for palladium and US$440/ozfor platinum in the December quarter, com-pared with US$254/oz and US$357/ozrespectively in the corresponding quarter of1998.

Palladium and platinum production dur-ing the December quarter were down veryslightly (with the grade), at 83,000 oz and24,000 oz respectively for the quarter, butthe price rises more than offset this factor.Revenue rose by 50%, to US$45.7 million,and net profit was 142% higher, at US$13.4million.

The received prices were comfortably inexcess of the average spot prices for the peri-od, confirming that Stillwater has overcomethe problems it had in previous rallies whenearlier hedging at lower prices forced thecompany to miss out on the gains. The com-

pany’s current hedging position for 2000includes a put and call option collar on57,500 oz of palladium at US$326/oz andUS$418/oz respectively; a very minoroption position in platinum; and a forwardsales contract covering 20,000 oz of plat-inum at an average US$404/oz.

Capital expenditure for the three monthsamounted to US$60.1 million, bringing theannual total to US$194.3 million. Cash flowfrom operations in 1999 amounted toUS$67.8 million, and US$79.5 million wasdrawn from Stillwater’s US$175 millioncredit facility. This resulted in a reductionin Stillwater’s cash resources of US$47.0million, to US$2.8 million, over the courseof the year.

Development of the new East Bouldermine continued during the quarter, with thetunnel-boring machines working from theexisting operations achieving their bestmonthly total in December (945 m com-bined). Capital expenditure for the currentyear is forecast at US$200 million.Commissioning of the new mine remains onschedule for 2001. ■■

JCI Gold mergerabandoned

The plan to merge the various listed compa-nies in the JCI Gold Ltd group, prior tomoving its domicile to Toronto, was formal-ly cancelled this week. Vaughan Bray, theacting chief executive of Western Areas Ltd,which was to have been the merger vehicle,confirmed the withdrawal of the ‘schemes ofarrangement’ through which the mergerwas to have been effected. The decision fol-lows the successful takeover two weeks agoof one of the group companies, RandfonteinEstates Ltd, by Harmony Gold Mining Co.Ltd, an independent producer, amidst reve-lations of controversial defence tactics bythe then chief executive of Western Areas,Brett Kebble (MJ, January 21, p.33).

Mr Bray said that the board of WesternAreas had considered proceeding with themerger plan without Randfontein, but con-cluded that this option was not feasible.First, the new company would not have ade-quate “critical mass” (Randfontein was tohave provided the bulk of cash flow in theearly years while Western Areas’ SouthDeep project was developed). Second,Consolidated African Mines Ltd (CAM),the company through which the Kebblefamily controls the JCI group, had indicat-ed that it would not now support the acqui-sition by Western Areas of Randgold &Exploration Co. Ltd, in which CAM holds25%. Mr Bray said that it is too early togive a clear indication of Western Areas’future corporate strategy in the aftermathof the merger collapse.

The decision to abandon the merger coin-cided with the release of the initial findingsof the committee of independent directors

MINING FINANCE


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of Western Areas, chaired by Mr Bray,regarding the events leading up to MrKebble’s resignation. The committee dis-covered that Western Areas had provided atemporary loan of R111 million to DurbanRoodepoort Deep Ltd (DRD) (a companynot in the JCI group but chaired by MrKebble’s father Roger). At least part of thisloan was used to buy shares in the JCI-Randgold group, including Randfontein.The funding was arranged by Brett Kebble,without the knowledge of the rest of theWestern Areas board. Mr Kebble had noauthority to authorise this funding, and thecommittee concludes that this act was “aserious breach of corporate governance”.

However, the committee found no evi-dence of any undisclosed dealings inWestern Areas shares by any group compa-nies or executives (also the subject of a regu-latory probe), although Mr Kebble did buy66,000 shares during the offer period whichhe disclosed. Randgold & Exploration alsosold short 160,000 shares in Harmony,which sale was incorrectly booked to DRDby the stockbroker. Randgold told the com-mittee that this sale was made to hedge anyfall in value of Harmony options held byRandgold. (A sale could also have weakenedHarmony’s share price and could thus havereduced the premium value of the sharealternative in its offer for Randfontein.)

The committee was assisted by KPMG asits financial adviser, and has instructed thelatter to continue with a more detailedinvestigation into share dealings during therelevant period by JCI-Randgold groupcompanies and by any staff who had accessto inside information. KPMG is also toreview Western Areas’ structures for corpo-rate governance. The committee’s initialfindings noted a failure on the part of thosemembers of senior management whobecame aware of the DRD loan to questionthe authority to proceed without boardapproval or the purpose for which the fundswere to be used.

Meanwhile, Western Areas has reachedagreement in principle with DRD for therepayment of the unauthorised R111 mil-lion loan (plus interest), over the next threeto six months, and Mr Bray said that thecompany “does not expect to suffer anyloss” on the loan. However, the aborted JCIGold group merger has cost some R90 mil-lion, about half of which will be borne byWestern Areas and the balance by othergroup companies.

Western Areas also issued its results forthe three months to December 31, 1999 thisweek, posting a net loss of R28.9 million.The loss included a R58.4 million charge torestructure the company’s gold hedgingbook and exceptional charges of R51.4 mil-

lion for the aborted merger, partially offsetby a R31.3 million recoupment of foreignexchange losses. The restructuring of thehedging book, which now has a marked-to-market value of around minus US$50 mil-lion, was done to bring the programme inline with the company’s expected produc-tion and risk profile.

Gold production totalled 40,960 oz for thequarter, 9.5% less than in the Septemberquarter. However, cash operating costs fellby 9.7%, to US$215/oz, largely as a result ofproductivity improvements following amajor rationalisation, completed lastSeptember, including a 35% reduction inthe labour force (MJ, August 13, 1999,p.132). The company’s operating profitfrom gold amounted to R19.1 million, com-pared with R7.0 million in the precedingthree months.

Randfontein, now under Harmony’smanagement (MJ, January 28, p.65),recorded net earnings of R7.2 million in theDecember quarter, compared with a loss ofR5.2 million in the preceding three months,both periods including restructuring costs,and the operating profit totalled R27.5 mil-lion in the December period, a fall of 35%owing largely to higher amortisationcharges. Gold production rose by 15%, to229,100 oz, and operating cash flow totalledR41.5 million, a fall of 13%. ■■

MINING FINANCE


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In 2000 the Conference includes a new event -The Gold Show - featuring presentations fromexplorers and producers throughout Australia.

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SPCC receives lateboost from prices

Southern Peru Copper Corp. (SPCC),owned 54.3% by Grupo Mexico SA de CV,finished 1999 with a relatively strong earn-

ings performance in the December quarter.Net earnings totalled US$9.7 million, com-pared with US$3.4 million in the corre-sponding quarter in 1998, as sales revenuerose by 15% to US$172.1 million. Coppersales volumes were flat, at 200.9 Mlb(91,100 t), and the improvement was basi-cally the result of the higher copper prices.

The average spot price for the three monthswas US$0.79/lb, compared with US$0.70/lbin the December quarter of 1998. SPCC’sby-products also helped: a 6.3% rise in theaverage silver price, to US$5.23/oz, com-pounding a 9.5% rise in sales, to 942,000 oz,and an 8.4% rise in the average molybde-num price, to US$2.59/lb, boosted a neardoubling of sales, to 3.3 Mlb.

The metal price recovery came late in1999, and the average prices of all threemetals for the full year were lower than in1998, resulting in a 6.9% fall in sales rev-enue. Net earnings for the whole of 1999were 46% lower, at US$29.4 million. Coppersales in 1999 were fractionally lower, at749.9 Mlb, although mined production was12% higher, at 745.6 Mlb, reflecting thecompletion of the Cuajone mine expansionin the early part of the year.

Commenting on the expansion pro-gramme, Oscar Gonzalez Rocha, SPCC’snew general director appointed by GrupoMexico, said that the contribution from theCuajone expansion fell 80 Mlb short ofexpectations in 1999, as heavy rain in theMarch quarter and metallurgical problemswith the ore each took their toll. The expan-sion reached full production in the Junequarter. Meanwhile, the expansion of theToquepala solvent extraction-electrowin-ning facility was completed in theSeptember quarter, increasing its capacityby 26% to 124 Mlb/y.

However, Mr Gonzalez Rocha was lessspecific with respect to the modernisation ofthe Ilo smelter, where recent reports fromGrupo Mexico have indicated possible cutsin the US$875 million budget (MJ, January21, p.49). He merely reiterated the generalplan to “continue modernisation ... toimprove production through the implemen-tation of better technology, to comply withall environmental regulations”, noting thatthe strategy would make “the best utilisa-tion of (SPCC’s) financial resources”. ■■

Market newsGabriel Resources Ltd, listed on theCanadian Venture Exchange, is to make aprivate placing of 7.0 million commonshares at C$2.30/share, subject to regulato-ry approval. T. Hoare Canaccord will act asagent, for a commission of 6% of the grossproceeds of C$16.1 million, plus 350,000broker’s warrants, exercisable atC$2.30/share. The net proceeds will be usedmainly to help fund a bankable feasibilitystudy of Gabriel’s Rosia Montana gold pro-ject in Romania, and for exploration expen-diture on the company’s other projects.Gabriel received a positive prefeasibilitystudy of Rosia Montana at the end of lastyear (MJ, December 24/31, 1999, p.501).■ The Australian-based gold producerGoldfields Ltd has announced an all-cashtakeover offer for an Australian-listed

MINING FINANCE


“Holderbank” Management and Consulting Ltd,is the central services organisation of“Holderbank”, one of the world leadingsuppliers of cement, as well as aggregates(gravel and sand), concrete, employing 40,000 people in more than 60 countries.

Our group “Systems Engineering”, which isresponsible for the evaluation of raw materialsdeposits and their planning, has a vacancy foran experienced:

Mining EngineerApplicants should have practical experience inoptimised deposit exploitation and quarryplanning, as well as in mining software in theareas of industrial minerals and aggregates(surface mining). A proficient command ofEnglish is essential for daily operations in ourinternationally active company. Knowledge ofGerman, Spanish and French would be ofadvantage.

The successful applicant will manage and co-ordinate projects in the above mentionedareas, which will incorporate frequent travelabroad.

We offer you an interesting and responsibleposition.

If you are looking to enter an internationalplatform, and are interested in this demandingand diversified position, then we look forward to receiving your application to be sent to the following address:

Ms. G. Müller“Holderbank”Management and Consulting Ltd.5113 Holderbank, Switzerland

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exploration company, Gilt-Edged MiningNL. Goldfields will make the offer ofA$0.42/share through its 87.7%-owned sub-sidiary Goldfields Kalgoorlie Ltd. The offervalues Gilt-Edged at a total of A$34.6 mil-lion, and represents a premium of 17% overthe company’s share price immediately pri-or to the Goldfields announcement thisThursday. Goldfields’ move follows anincreased offer from Croesus Mining NL.Gilt-Edged has exploration properties inthe Eastern Goldfields, west and north ofKalgoorlie, which Goldfields argues wouldfit well operationally with its Kundana andPaddington mines. Goldfields’ offer is con-ditional on an acceptance level of at least50.1%, plus the usual requirements undersuch circumstances regarding the retentionof existing assets.■ The Australian-based natural resourcesgroup Broken Hill Proprietary Co. Ltd(BHP) has arranged a refinancing of rollingstock used by the Mt Newman joint ven-ture, an iron ore mining operation in thePilbara region of Western Australia. Thelease-back arrangement will release A$179million in cash, which BHP will use toreduce debt, and will also result in a bookprofit of A$31 million in its financialaccounts. Mt Newman is 85% owned byBHP, with Mitsui-Itochu Iron Pty Ltdholding 10% and CI Minerals Australia PtyLtd 5%.■ Eldorado Gold Corp., listed in Torontoand on the Canadian Venture Exchange,has completed a private placing of 9.5 mil-lion special warrants for gross proceeds ofC$8.5 million. Each special warrant com-prises one common share and half a share-purchase warrant, with one whole such war-rant entitling the holder to purchase anadditional common share for C$1.10 for aperiod of two years. The placing wasarranged by a syndicate which received acash commission plus an option to purchasecommon shares representing up to 5% ofthe placing. The net proceeds are to be usedfor exploration.

■ Australian-listed Union Capital Ltd hassecured agreement to place 14.4 millionordinary shares, at A$0.20/share, with anumber of European institutional investors.The proceeds will be divided betweenUnion’s information technology businessand its Mehdiabad zinc project in Iran(MJ, June 25, 1999, p.473). Last week,Union was listed on the Third MarketSegment (an over-the-counter market) ofthe Frankfurt Stock Exchange, and itsshares will be traded through the XETRAsystem. Union is already listed in Berlin.■ The boards of both Wheaton RiverMinerals Ltd and Kit Resources Ltd haverecommended that shareholders approvemerger of their respective companiesthrough a ‘plan of arrangement’. The merg-er, on the basis of one share in the new com-pany for every share in Wheaton River and0.408 shares in the new company for eachshare in Kit, was proposed at the end of lastyear (MJ, December 3, 1999, p.455). Therecommendations follow reviews by com-mittees of independent directors of bothcompanies, which conclude that theexchange ratios are fair to both sets ofshareholders.■ Irish-based Ivernia West plc, owner of a50% interest in the Lisheen zinc mine inCounty Tipperary (MJ, September 17,1999, p.213), has appointed RBC DominionSecurities to advise the company regardinga possible listing on the Toronto StockExchange. ■■

MINING FINANCE

Published by The Mining Journal Ltd, 60 Worship Street, London EC2A 2HD, England. Typeset and printed in Gt. Britain by Pensord Press Ltd, Gwent.Registered as a Newspaper with the Post Office.

FINANCE MANAGEROur client has an immediate requirement for a seniorfinance professional for their Zambian joint venture.Applicants should be available at short notice and havesignificant exposure to the mining industry, especiallyin the management of all financial aspects of operatingjoint ventures in developing countries. Employmentwill initially be on a short-term contract basis butshould lead on to employment on a long-term basis.Please send an up to date CV, quoting Ref No 4488 to: DennisThomas, Thomas Mining Associates, P.O. Box 2010, Lancing, WestSussex BN15 8HZ, UK. Tel: +44 1903 753511. Fax: +44 1903 753510.E-mail: [email protected]

Hunter Personnel Contracts Limited24 St Peters Road, Bournemouth, BH1 2LN, U.K.

Tel: +44 (0)1202 298322. Fax: +44 (0)1202 298383Email: [email protected]

Web: www.hunterpersonnel.com

MINING/GEOTECHNICAL ENGINEER to developcommercial opportunities. Permanent position, Australia.

MINE GEOLOGIST, Australia, temp contract 3-6 months.

SENIOR MINING ENGINEER for open-pit copper mine.Project management and mine planning skills required.

ELECTRICIANS AND FITTERS for immediate tempcontracts in the UK, must have recent Coal Board

certification.

VISIT OUR WEB SITE FOR CURRENT VACANCIES ANDTHE FULL RANGE OF SERVICES WE OFFER

COPPER SMELTERS AND REFINERIES METALLURGICAL AND COST ANALYSIS

We are seeking to recruit an outstanding metallurgist to join our multi-disciplinary team in Surrey UK under-taking technical and cost analyses of non-ferrous mining and smelting operations. You will primarily assistwith the preparation of our analysis of the copper smelting and refining industries and will be required to trav-el overseas.

You should have a degree in the extraction metallurgy or related discipline with a minimum of five yearsoperating experience in a copper smelter and/or refinery. You should be computer literate with experience ofMicrosoft Office products and should be competent at writing technical reports.

Further details can be found at our website www.brookhunt.com

Please send your CV with details of your current renumeration package to Mr Richard Wilson

B R O O K H U N T

WOBURN HOUSE45 HIGH STREETADDLESTONESURREY KT15 1TUENGLAND

TEL: +44 (0) 1932 855 198FAX: +44 (0) 1932 846 914e-mail: [email protected]

Crossword winnerOur congratulations go to L. M. Juckes,of North Yorkshire, UK, who wins a freeannual subscription to Mining Journal forsending in the first correct solution drawnon January 31.

TThe most accessed mininghe most accessed mininginfinforormamation site on the intertion site on the internetnet

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