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Australians to dig Gold Fields out of trouble

Westonaria - Down under the South African earth, Australian accents are leading a drive to unlock the wealth one of the world's largest gold reserves.

Gold Fields [JSE:GFI] has brought in a crack Australian engineering team to help overcome one of its most daunting challenges: Ramping up production on its mechanised South Deep mine, its last and troublesome South African asset.

"With the improved operating skills that we'll get, particularly with the Australian team, we think we can make it," chief executive Nick Holland told journalists and analysts on Tuesday during a visit to the mine just west of Johannesburg.

He was referring to the South Deep target of full production of 700 000 ounces a year, which has been a moving one to the annoyance of investors, shifting from 2014 under previous owners to 2016 and now the end of 2017.

South Deep descends to 3km and South Africa, with the world's deepest mines, has over a century of experience when it comes to extracting ore far below the surface with a large, unskilled workforce.

But mechanised mining is virgin territory in South Africa's gold reefs, from which a third of the bullion ever mined in recorded history has been produced, while the Australians have been doing it for 60 years.

South Deep, which sits atop a mammoth 40-million ounce reserve worth over $50bn at current spot prices, is one of the few gold mines in South Africa where mechanisation is possible, because the seam is so big - 120 metres wide in some places, which makes it suitable for big machines.

"The Australians know how to do mechanised mining but we have never really done it on our gold mines," said Peter Major, a fund manager at Cape Town-based Cadiz Corporate Solutions.

"We probably have the most uneducated labour force in mining and those guys who do mechanized mining, half of them have college degrees," he said.

Major said one of the problems at South Deep was that it has had endless teams of consultants come through but no proper mining team with mechanised experience - until now.

"Now you have a mining team at South Deep, 15 guys who know each other and have done this before. It's fair to say that if they can't do it, no one can do it," he said.

Gold Fields' executives and analysts have also said productivity has been constrained by worker unhappiness with the introduction of a new shift system based on four twelve-hour days followed by four days off.

High stakes

A lot is at stake for Gold Fields and Holland.

South Deep was supposed to be the jewel in Gold Fields' South African crown after it spun off most of its operations in the country last year into a new company, Sibanye Gold.

That split seemed obvious: Sibanye would focus on the labour-intensive operations, where men still work with hand-held drills, in Gold Fields' old South African stable, while it could focus on mechanised mining at South Deep and abroad.

But South Deep's moving production targets have raised concerns about a project that churned out around 300 000 ounces last year, less than half its full capacity target, and is costing almost $1 400 an ounce at the moment against a spot price of around $1 320.

Gold Fields' has also sunk $4bn into South Deep, $3bn to buy it in 2007 and the rest in investment.

Engineering hassles aside, South Deep has also spawned legal problems with a deal to bring black investors into the operation the subject of a US Securities and Exchange Commission probe. Gold Fields has a US listing and so it also answers to regulators there.

The probe hinders Gold Fields' access to debt markets and is a major worry to investors.

Destressing the rock

The legal issues are for the lawyers. The Australians have come to apply their engineering expertise.

Garry Mills, the recently appointed Australian General Manager at South Deep, said the "transition into mechanised mining needs some tweaking" which includes a huge training facility on site including simulators of the massive drills and other equipment moved.

At South Deep, a system is being employed called "destress mining" in which horizontal cuts are made into the rock in such a way that a lot of the "stress" that can cause rock bursts underground are removed.

Mills explained that when the "destress" cuts are made, for example at three kms down, it relieves the stress levels to the equivalent of what they would be at a depth of one km - which among other things makes it much safer.

Ore can then be removed from around the cuts.

At 2.4km below the surface, visiting journalists watched as massive drills, operated from a hulking bulldozer like machine, bore into the side of a tunnel - the first push into a new "destress" cut.

"It's quite dynamic, it's like a laboratory. This destress mining with mechanisation is the first in South Africa at these depths," said Fred Cawood, the head of the School of Mining Engineering at Johannesburg's University of the Witwatersrand.


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