On May 4 at the South Deep gold mine, a loaded skip and its hoist rope fell 1,600 metres from the middle to the bottom of the production shaft. There were no injuries and the mine was evacuated. The preliminary investigation revealed that the rope ends pulled free from the clamping devices on the hoist drum. The shaft will need repairs after the 6,700-metre-long rope is removed.
The mine set a production record last year, at 461,119 oz of gold. That won’t happen this year, as production will probably be halved for the remainder of the year.
I mention this incident that occurred near Johannesburg, South Africa, because it will affect the joint venture partners in markedly different ways.
Half the venture belongs to BARRICK GOLD of Toronto, which added South Deep to its portfolio when it took over Vancouver’s PLACER DOME earlier this year. For Barrick, which produced 5.46 million oz of gold last year at a total cash cost per ounce of US$227, the loss of its share of South Deep output is not going to bankrupt the company. The loss equals approximately 115,000 oz.
For Johannesburg’s WESTERN AREAS, its 50% interest in the South Deep mine is its principal asset. The loss of half its annual income is going to be felt on the bottom line and has already reflected in downward pressure on the share price: it dropped roughly 20% on news of the accident and has yet to recover. The company has hedged its sales, and now faces the prospect of buying gold for more than it can sell it. Barrick has offered some relief, but Western will still have to buy gold on the spot market to meet its forward sales commitments.
As one of my favourite writers, Mark Twain, said, “Put all your eggs in the one basket and WATCH THAT BASKET!”
Unfortunately for Western Areas its basket appears to be headed nowhere but down.