Review of the year
Review of operations: South Africa (PDF - 848 KB)
Review of operations
In South Africa, AngloGold Ashanti operates seven underground mines located in two geographical regions on the Witwatersrand Basin. These are:
The group’s surface metallurgical reclamation operation, Ergo, near Johannesburg in the province of Gauteng, ceased production in 2005, and is currently being closed in terms of environmental legislation, a process that is expected to take some years to complete.
As anticipated, gold production from the South African operations, excluding Ergo, declined by 6% to 2,676,000 ounces in 2005, as both volumes and yield continued to decrease.
Geology of the Witwatersrand Basin
The Witwatersrand Basin comprises a 6-kilometre-thick sequence of interbedded argillaceous and arenaceous sediments that extend laterally for some 300 kilometres north-east/south-west and 100 kilometres northwest/ south-east on the Kaapvaal Craton. The upper portion of the basin, which contains the orebodies, outcrops at its northern extent near Johannesburg.
Further west, south and east the basin is overlain by up to 4 kilometres of Archaean, Proterozoic and Mesozoic volcanic and sedimentary rocks. The Witwatersrand Basin is late Archaean in age and is considered to be around 2.7 to 2.8 billion years old.
Gold occurs in laterally extensive quartz pebble conglomerate horizons or reefs, which are generally less than 2 metres thick, and are widely considered to represent laterally extensive braided fluvial deposits. Separate fan systems were developed at different entry points and these are preserved as distinct goldfields.
There is still much debate about the origin of the gold mineralisation in the Witwatersrand Basin. Gold was generally considered to have been deposited syngenetically with the conglomerates, but there has been a move towards an epigenetic theory of origin.
Nonetheless, the most fundamental control to the gold distribution in the basin remains the sedimentary features, such as facies variations and channel directions. Gold generally occurs in native form often associated with pyrite and carbon, with quartz being the main gangue mineral. Further detail on the specific geology of the South African operations appears below.
Total cash costs rose by 2% to $291 per ounce as a result of the decline in gold production by 6%. This was partially offset by cost savings initiatives implemented in the region. In local currency terms, costs decreased to R59,343 per kilogram. The major cost-saving project undertaken in the region led to savings of $76 million, primarily as a result of operational efficiencies (81%), improved procurement practices (15%) and restructuring (4%).
A two-year wage agreement was reached with South African labour unions in August 2005 following a threeday strike, the first industry-wide wage strike since 1987. The settlement reached entailed:
Capital expenditure in 2005 amounted to $347 million, with expansion capital taking up 40% of this, and the balance being spent on ore reserve development (49%) and stay-in-business expenditure (11%). Major components of the expansion capital were projects at Moab Khotsong ($62 million), Mponeng ($5 million) and TauTona ($39 million).
Description: The West Wits operations – comprising the Mponeng, Savuka and TauTona mines – are located near the town of Carletonville in North West Province, south-west of Johannesburg, straddling the boundary with Gauteng. Savuka and TauTona share a processing plant, while Mponeng has its own processing plant.
Geology: Two reef horizons are exploited at the West Wits operations: the Ventersdorp Contact Reef (VCR), located at the top of the Central Rand Group, and the Carbon Leader Reef (CLR) near the base. The separation between the two reefs increases from east to west, from 400 metres to 900 metres, owing to non-conformity in the VCR. TauTona and Savuka exploit both reefs, while Mponeng only mines the VCR. The structure is relatively simple, with rare instances of faults greater than 70 metres.
The CLR consists of one or more conglomerate units and varies from several centimetres to more than 3 metres in thickness. Regionally, the VCR dips at approximately 21 degrees, but may vary between 5 degrees and 50 degrees, accompanied by changes in thickness of the conglomerate units. Where the conglomerate has the attitude of the regional dip, it tends to be thick, well-developed and accompanied by higher gold accumulations. Where the attitude departs significantly from the regional dip, the reef is thin, varying from several centimetres to more than 3 metres in thickness.
At Mponeng, during 2005, overall face values were up and the yield rose by 12% to 9.15g/t. As a result, gold production increased by 17% year-on-year to 512,000 ounces. This increase reflected the positive impact of the below 109 level project. This improved production profile will be sustained over the next six years, reaching a peak of 517,000 ounces annually by 2007.
In local currency, cash costs were exceptionally well maintained at R57,084 per kilogram, 14% down on the previous year, as inflationary pressures were offset against the benefit of cost savings initiatives undertaken by the mine, and improved efficiencies as the labour complement declined. Total cash costs in dollar terms decreased by 13% to $279 per ounce.
Gross profit, adjusted for the effect of non-hedge derivatives, rose by 345% to $49 million. This was achieved by increased production and lower costs, combined with the higher gold price received.
Capital of $47 million was spent, a decrease of 24% compared with capital expenditure in 2004.
At TauTona, volumes mined declined as face advance was hampered by seismic activity and face length was lost as longwall panels mined out against mine boundaries and limits. This was as expected. The replacement of ground in the shaft pillar has been delayed following a fire and infrastructural commissioning, however, good progress has been made. The mine is expected to show steady improvement during 2006. At the same time, the yield fell by 12% to 9.62g/t with higher face values being offset by increased off-reef mining owing to geological constraints. As a result, gold production dropped by 12% to 502,000 ounces.
Total cash costs in local currency rose by 3% to R52,158 per kilogram primarily due to a decrease in gold production. In dollar terms, cash costs rose by 4% to $256 per ounce. In rand terms, total cash costs decreased to R815 million due to efficiencies and cost management interventions.
Despite the higher gold price received, gross profit, adjusted for the effect of unrealised non-hedge derivatives, decreased by 24% to $44 million – a reflection of the lower levels of production and increased amortisation charges.
Capital expenditure – at $74 million – was higher year-on- year, rising by 14%. This was mainly spent on the TauTona projects (see below).
Savuka: An accelerated closure plan has been adopted at Savuka, with final closure expected in March 2006.
As planned, overall production declined by 20% to 126,000 ounces. Volumes mined decreased in the first quarter as adverse ground conditions were experienced on the VCR, but a recovery was made thereafter on the introduction of a rationalised mining plan. This plan involved the cessation of mining of low-grade panels and non-critical development and the introduction of a significantly revised mining plan. Increased off-reef mining at the beginning of the year had an impact on grades, although an improvement in mining mix and a significant increase in face values in the second half of the year as a result of the revised mining plan, led to a reasonable recovery. The overall grade for the year was 6.80g/t, 10% up on the previous year.
Total cash costs were well maintained following the introduction of severe cost-saving initiatives and replanning of the mine. In local currency, cash costs decreased by 7% to R87,200 per kilogram; in dollar terms, cash costs were down by 5% to $430 per ounce.
Although Savuka recorded a gross loss of $8 million, after adjusting for non-hedge derivatives, the mine returned a profit in the fourth quarter. This allowed the loss for the year to be less than that incurred the previous year.
There was minimal capital expenditure, which at $6 million was down by 25% on 2004.
Mponeng shaft deepening project: This project involves the deepening of the sub-shaft system and the development of access tunnels to the VCR horizon on 113, 116 and 120 levels (from 3,172 metres to 3,372 metres below surface). The project is expected to produce 4.8 million ounces of gold over a period of 13 years to 2016. Total capital expenditure is estimated at $210 million (at closing 2005 exchange rate), with some $4.2 million (at closing 2005 exchange rate) remaining. The average project cash cost over the life of mine is expected to be approximately $231 per ounce in 2005 real terms. Stoping operations commenced in May 2004 and good progress continued to be made with the project in 2005.
TauTona: The CLR shaft pillar extraction project allows for stoping operations up to the infrastructural zone of influence. The project, from which production commenced in 2004, is expected to produce 545,000 ounces of gold over a period of six years (2004 to 2009), at a capital cost of $45 million (converted at the 2005 closing exchange rate). Of this, $38 million has been spent to date. The expected average project cash cost is $112 per ounce.
The VCR pillar project aims to access the VCR pillar area situated outside the zone of influence (top and eastern block). The project, from which production commenced in 2005, is expected to produce 162,000 ounces of gold over a period of eight years (2005 to 2012), at a capital cost of $19 million (at the 2005 closing exchange rate). Of this, $7 million has been spent to date. The expected average project cash cost is $129 per ounce.
The CLR reserve block below 120 level, known as the TauTona CLR below 120 level Project, is being accessed via a twin decline system into its geographical centre, down to 125 level. The project, from which production will commence in 2009, is expected to produce 2 million ounces of gold over a period of nine years (2009 to 2017), at a capital cost of $154 million. Of this, $44 million has been spent to date.
Expectations for 2006 are as follows:
Description: AngloGold Ashanti’s Vaal River operations – comprising three operating mines, Great Noligwa, Kopanang and Tau Lekoa, and one developing mine, Moab Khotsong – are located near the towns of Klerksdorp and Orkney in the North West and Free State provinces.
The Vaal River complex also has four gold plants, one uranium plant and one sulphuric acid plant. Although these operations produce uranium oxide as a by-product, the value is not significant relative to the value of gold produced.
Geology: In order of importance, the reefs mined at the Vaal River operations are the Vaal Reef, the VCR and the “C” Reef:
At Great Noligwa, volumes mined decreased, largely because of a slow start-up at the beginning of the year and after rock engineering and geological constraints forced crews to move to lower grade areas of the mine, thereby interrupting and reducing production. The yield declined by 10% to 9.3g/t, owing to lower face values despite a concerted effort to reduce underground lock-up. Consequently, total production amounted to 693,000 ounces, down by some 13% on the previous year’s total.
Total cash costs were up by 13% in rand terms to R53,868 per kilogram, largely as a result of lower production and a decreased by-product contribution from uranium. These were offset by cost-management interventions. In dollar terms, total cash costs rose by 14% to $264 per ounce.
Gross profit, after allowing for the effect of unrealised non-hedge derivatives, decreased by 26% to $87 million, a result of lower production and higher amortisation charges, despite the improved gold price received.
Capital expenditure, at $43 million, rose by 19% from the previous year, and was spent mainly on ore reserve development.
Kopanang delivered a good performance for the year, with gold production of 482,000 ounces, similar to that of the previous year. The yield at 7.4g/t was similar to that of the previous year.
Total cash costs, in rand terms, declined by 3% to R56,427 per kilogram thus reflecting savings made as part of the cost-cutting project, as well as higher production and improved efficiencies as total employee costs declined. In dollar terms, total cash costs declined by 1% to $277 per ounce.
Gross profit, adjusted for the effect of unrealised nonhedge derivatives, was $8 million higher as a result of lower costs and a higher received price for gold.
Capital expenditure of $41 million, was 8% higher than that for the previous year and was spent mostly on ore reserve development.
At Tau Lekoa volumes mined declined, with the implementation of a revised mining plan during the year that attempted to increase grade by reducing the mining of panels below the cut-off grade. Contract labour was moved from low-grade pillar mining to higher grade areas to mitigate the effect of this reduction. As a result, the yield rose by 2% to 3.96g/t. Gold production declined by 10% to 265,000 ounces as a result of the lower volumes.
Total cash costs increased by 10% to R83,885 per kilogram as a result of lower production but partly offset by cost-containment and cost-saving efforts. In dollar terms, total cash costs rose by 11% to $410 per ounce.
Gross loss, adjusted for the effect of unrealised nonhedge derivatives, increased to $14 million, up 133% on the previous year. A restructuring plan is presently being assessed for Tau Lekoa to restore this operation to profitability.
Capital expenditure at $15 million declined by 40%. This was spent on ore reserve development.
Moab Khotsong is the largest of the South Africa region’s current projects. Located in the Vaal River area, the project involves sinking, constructing and equipping the shaft systems to a depth of 3,130 metres below surface, providing access tunnels to the reef horizon on 85, 95 and 101 levels, and developing the necessary ore reserves. The project is expected to produce 3.6 million ounces of gold from 10 million tonnes of milled ore over 15 years. The project capital cost is estimated at $659 million (at 2005 closing exchange rate), of which $629 million has been spent to date.
The shaft was commissioned in March 2003 and stoping operations began in November 2003. Moab Khotsong is forecast to reach commercial production of 50,000 ounces in 2006 and full production, at an average of 495,000 ounces per annum, is expected by 2012. The average cash cost (2006 real terms) is expected to be $252 per ounce over the life of mine.
Moab Khotsong's 30,000 ounces of production for 2005 are not included in the region's production as revenue is capitalised against pre-production costs.
The projections for the Vaal River operations in 2006 are as follows:
South Africa > Argentina
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