Gold Digger Turns Alchemist Chasing Billions Hidden in Waste

JOHANNESBURG, Capital Markets in Africa: With gold output in South Africa mired in a multiyear decline, the country’s biggest producer is turning to an overlooked and potentially cheaper source of supply: the dump.

About 6.5 million ounces valued at $8.5 billion is buried inside mammoth mounds of discarded mine waste at sites owned by Sibanye Gold Ltd. They’re leftovers from more than five decades of excavation west of Johannesburg. But there’s a catch. The traces are so small that the company will process rubble heavier than the Statue of Liberty just to retrieve an egg’s weight in gold. And the investment could take 18 years to pay off with the targeted 15 percent annual return.

Once Sibanye’s mines are depleted, the company faces huge cleanup costs at so-called tailing dams that contain toxic materials like uranium and sulfides, along with traces of gold. Removing those minerals at a profit can reduce the environmental liabilities while extending metals production for years. Getting the reclamation project going will cost 9.6 billion rand ($686 million), or a quarter of Sibanye’s market value, a sum it hopes to share with third parties.

“It’s easy gold, but the processing volumes are enormous,” said Grant Stuart, vice president of projects at Westonaria, South Africa-based Sibanye.

When gold mining migrated from east of Johannesburg to deep-level mines in the west in the 1960s, the rich ore was yielding as much as 30 grams for every ton of ore unearthed. It wasn’t worth the time or money to extract trace amounts from the rubble.

The waste piles have grown over the years, with some as much as a mile long and 80 meters high. There are about 400,000 people living near the dumps in Johannesburg, and they regularly complain of toxic dust storms and polluted rivers.

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While miners have been sifting through waste dumps for overlooked metals since the 1970s, Sibanye’s project in the West Rand region would take this modern-day alchemy to a whole new scale, which will make it more economically feasible to go after trace amounts. 

With about 0.3 gram of retrievable gold in every ton, the company would process 20 to 30 times more ore from the waste sites than it does at underground mines, which yield around 6 to 10 grams per ton. At its peak, Sibanye would process about 4 million tons of waste material a month. That’s twice the amount handled by DRDGold Ltd., the world’s biggest processor of gold tailings.

Output Boost
The project will add about 100,000 ounces of gold to Sibanye’s production, or 6.3 percent of its total forecast for 2016 at a cost of about $476 an ounce, compared with the company’s $908 cost of mining in the first half of this year.Gold rose 1.1 percent to $1,328.83 an ounce by 1:38 p.m. in London, taking this year’s gain to 25 percent.

“Once it’s up and running, it’s a money-printing machine,” said Rene Hochreiter, a Johannesburg-based analyst at Noah Capital Markets (Pty) Ltd. “But the big problem is the up-front capital costs. Ten billion rand sounds expensive.”

Sibanye plans to recover the project’s capital costs by focusing on four high-grade dumps for the first 18 years, which would generate an internal rate of return of about 15 percent annually, according to Stuart. After that, the project would generate “annuity income” for as long as 35 years as the company works through its remaining dumps.

But there’s risk involved, partly because the processes used to extract the gold and other minerals involves a complex mix of chemicals, which can vary depending on the characteristics of the ore. DRDGold said its Ergo reclamation plant struggled with different mineral mixes from the dumps it processed.

‘Very Conservative’
“We made the mistake of hitting the switch on the plant and throwing it at full capacity right from the word go,” said Niel Pretorius, the chief executive officer of DRDGold, which is based in Johannesburg. “Assumptions need to be very conservative about metallurgical efficiency.”

If Sibanye’s goals are reached, processing the waste dumps would give the company a new source of gold output that could last 30 years. Its mines are currently set to peak in 2019 and then begin a steady decline as its reserves are depleted during the next two decades.

There’s also 99 million pounds of uranium that can be extracted, along with sulfuric acid, which can be sold. Sibanye is negotiating with potential partners to handle those materials, in exchange for investments in the project that would reduce the company’s up-front costs. Stuart said he’s “90 percent sure” partners will come on board. If they don’t Sibanye will proceed just mining gold, and will process uranium and sulfuric acid at a later date.

Reclaiming the minerals also generates value by reducing Sibanye’s future environmental liabilities. The company has committed 3.8 billion rand in cash and guarantees for clean-ups once its underground mines close, which will occur in the early 2030s.

“One of the incentives behind this is once we remove that dump, we no longer have to provide for that closure cost,” Stuart said. “It’s also the responsible thing to do.”

Source: Bloomberg Business News