Post by Sapphire Capital on Jul 14, 2008 1:47:51 GMT 4
PERTH - July 13, 2008
The past few months have produced some ugly stories on the Australian gold scene highlighted by last week's decision by Monarch Gold Mining (ASX & Dubai: MON) to place itself in administration. There was also a big hole put in leading bank Macquarie Capital when it was forced to take up an 89% shortfall in a $A120 million ($US113.4 M) capital raising for Western Australian producer St Barbara Mines (ASX: SBM).
A prelude to the St Barbara raising bomb was the failure of Beadell Resources Ltd to buy the Cracow gold project in Queensland from 70% partner Newcrest Mining Ltd and 30% holder Lion Selection Group (ASX: LSG). The plug was pulled on July 4 due to tough market conditions. The Newcrest stake was going to cost $A200 M ($US189 M) and Lion's share was $A65 M ($US61.42 M) made up of $A15 M ($US14.17 M) in cash and shares.
What happens from now is anyone's guess. It was not a key asset for Newcrest which has an option to purchase Lion's interest for $A80 M ($US75.6 M) by October 31. The mine produces about 100,000 oz per annum.
Australian gold bulls are being overshadowed by the nervous nellies, while there are now more analysts worried about the high operating costs of low grade open cut and some low-to-medium grade underground operations.
The nervousness has not been helped by the fact that gold exploration is playing about fourth fiddle to iron ore, nickel (not laterites) and copper and that is being shown by the number of drill rigs on long term contracts for those three commodities.
The gloss on Australian gold mining that rose dramatically in the early 1980s with the then rising gold price, new processing technology that brought oxide ore into play remained strong into mid 2007 when several factors were showing up in cash operating costs:
Many mines are going into lower grades.
Diminishing skilled and professional manpower was being lost to other mining sectors, fuel and equipment costs were rising and are showing no sign of abating.
Many good greenfield targets are locked up in protracted native title claims and only now are there signs of government stewardship to resolve what have been largely questionable land claims.
The cost of maintaining fly in, fly out workforces is growing through several factors, including aspects already detailed.
The future of Monarch depends largely on the tall figure of Michael Kiernan, who took over as managing director recently to take a firm grip on the helm after the company had to close its loss-making Davyhurst mine north of Kalgoorlie.
The company has loans to Territory Mining, a company Kiernan stepped down from this month, and it has the challenge ahead of completing the buy-out of the Mount Magnet gold operations from exiting South African miner Harmony Gold Mining.
Kiernan appointed Pitcher Partners as administrator, the same company that about two years ago took over the handling of troubled gold miner Croesus Mining into which Kiernan had taken up the helm to try and rescue it - a bid that looked set until a Japanese bank surprisingly rejected new terms for repayment that were accepted by all other bankers party to the matter.
The Norseman mine and other assets of Croesus were sold and the cleaned out company is now a cleanskin looking for a new mining life, and has high profile Perth prospector Mark Creasy as one of its shareholders.
One new face in mining is Avoca Resources (ASX: AVO) which this month poured its first gold from the Trident mine at Higginsville, between Coolgardie and Norseman. Its development time was more long-winded than originally though for a variety of factors including staffing and the protracted time it now takes to get laboratory results in Australia.
In Avoca's favour is the grade for initial open cut mining over and near old workings, and a broking house supporting its advance is RBC Capital Markets which said the project is now on target to build up to annualised production by 2010 of 183,000 ounces.
"Higginsville is the first new gold project in Western Australia since 2001," said RBC Capital. "Sadly this is indicative of the lack of success in the industry."
Australia has slipped from third ranking to about sixth in global production and its ability to stop the rot is largely dependent on two large WA projects - the Boddington gold mine south of the Perth metropolitan area which will be a huge project, possibly costing $A4 billion ($US3.78 B) - owned by Newmont Mining and Barrick Gold -- and the advancing studies on the huge Tropicana project in the eastern goldfields owned by AngloGold Ashanti and Independence Group NL (ASX: IGO).
South Australia, always a Cinderella in gold mining, will become a major contributor when BHP Billiton presses the button for the multi-billion dollar expansion of the Olympic Dam copper-uranium-gold mine and that could see that world class mine lifting gold output in less than a decade to 600,000 oz pa.
The past few months have produced some ugly stories on the Australian gold scene highlighted by last week's decision by Monarch Gold Mining (ASX & Dubai: MON) to place itself in administration. There was also a big hole put in leading bank Macquarie Capital when it was forced to take up an 89% shortfall in a $A120 million ($US113.4 M) capital raising for Western Australian producer St Barbara Mines (ASX: SBM).
A prelude to the St Barbara raising bomb was the failure of Beadell Resources Ltd to buy the Cracow gold project in Queensland from 70% partner Newcrest Mining Ltd and 30% holder Lion Selection Group (ASX: LSG). The plug was pulled on July 4 due to tough market conditions. The Newcrest stake was going to cost $A200 M ($US189 M) and Lion's share was $A65 M ($US61.42 M) made up of $A15 M ($US14.17 M) in cash and shares.
What happens from now is anyone's guess. It was not a key asset for Newcrest which has an option to purchase Lion's interest for $A80 M ($US75.6 M) by October 31. The mine produces about 100,000 oz per annum.
Australian gold bulls are being overshadowed by the nervous nellies, while there are now more analysts worried about the high operating costs of low grade open cut and some low-to-medium grade underground operations.
The nervousness has not been helped by the fact that gold exploration is playing about fourth fiddle to iron ore, nickel (not laterites) and copper and that is being shown by the number of drill rigs on long term contracts for those three commodities.
The gloss on Australian gold mining that rose dramatically in the early 1980s with the then rising gold price, new processing technology that brought oxide ore into play remained strong into mid 2007 when several factors were showing up in cash operating costs:
Many mines are going into lower grades.
Diminishing skilled and professional manpower was being lost to other mining sectors, fuel and equipment costs were rising and are showing no sign of abating.
Many good greenfield targets are locked up in protracted native title claims and only now are there signs of government stewardship to resolve what have been largely questionable land claims.
The cost of maintaining fly in, fly out workforces is growing through several factors, including aspects already detailed.
The future of Monarch depends largely on the tall figure of Michael Kiernan, who took over as managing director recently to take a firm grip on the helm after the company had to close its loss-making Davyhurst mine north of Kalgoorlie.
The company has loans to Territory Mining, a company Kiernan stepped down from this month, and it has the challenge ahead of completing the buy-out of the Mount Magnet gold operations from exiting South African miner Harmony Gold Mining.
Kiernan appointed Pitcher Partners as administrator, the same company that about two years ago took over the handling of troubled gold miner Croesus Mining into which Kiernan had taken up the helm to try and rescue it - a bid that looked set until a Japanese bank surprisingly rejected new terms for repayment that were accepted by all other bankers party to the matter.
The Norseman mine and other assets of Croesus were sold and the cleaned out company is now a cleanskin looking for a new mining life, and has high profile Perth prospector Mark Creasy as one of its shareholders.
One new face in mining is Avoca Resources (ASX: AVO) which this month poured its first gold from the Trident mine at Higginsville, between Coolgardie and Norseman. Its development time was more long-winded than originally though for a variety of factors including staffing and the protracted time it now takes to get laboratory results in Australia.
In Avoca's favour is the grade for initial open cut mining over and near old workings, and a broking house supporting its advance is RBC Capital Markets which said the project is now on target to build up to annualised production by 2010 of 183,000 ounces.
"Higginsville is the first new gold project in Western Australia since 2001," said RBC Capital. "Sadly this is indicative of the lack of success in the industry."
Australia has slipped from third ranking to about sixth in global production and its ability to stop the rot is largely dependent on two large WA projects - the Boddington gold mine south of the Perth metropolitan area which will be a huge project, possibly costing $A4 billion ($US3.78 B) - owned by Newmont Mining and Barrick Gold -- and the advancing studies on the huge Tropicana project in the eastern goldfields owned by AngloGold Ashanti and Independence Group NL (ASX: IGO).
South Australia, always a Cinderella in gold mining, will become a major contributor when BHP Billiton presses the button for the multi-billion dollar expansion of the Olympic Dam copper-uranium-gold mine and that could see that world class mine lifting gold output in less than a decade to 600,000 oz pa.