RESERVE AND RESOURCE PICTURE, 2003 AND 2008

According to the 2007 edition of the South African Chamber of Mines' publication “Facts and Figures”, South Africa's “mineable reserve” contains a total of 6,000 mt (192,904,200 tr oz) of gold and a “resource base” of 36,000 mt (1,157,425,200 tr oz) of gold. The country still ranks as first in the world in both categories with 14% of the reserves and 40% of the resource.

RESERVES

The table below is a company and ore mining type breakdown of 2008 “proven and probable” reserve tonnages and grades for the four companies included in the production values of the previous section with the addition of Simmer and Jack Ltd. and Pamodzi Gold. The included mines in this table were responsible for 90 pct of total SA production in 2008. The combined underground and surface ore tonnage and grade is 1,838,750,000 mt grading 2.95 g gold/mt. Not surprisingly, the total contained gold in the reserves compiled in this table (5,415.9 mt) is 90.3 pct of the Chamber of Mines' “mineable reserve” estimate of 6,000 mt cited above. Also, as mentioned previously, notice that the contained gold in surface mineable reserves is only 6.7 pct of the 5,415.9 mt total, yet the companies in 2008 were using this material for nearly 50 pct of their ore treatment...absurd!!

COMPANY

GOLD PRICE BASIS**

UNDERGROUND ORE TONNAGE (MILLION MT)

UNDERGROUND ORE GRADE (G/MT)

SURFACE ORE TONNAGE (MILLION MT)

SURFACE ORE GRADE (G/MT)

Anglogold Ashanti

R194,000/kg gold

142.78

9.79

121.04

0.5

DRD

R208,500/kg gold

30.35

5.88

179.92

0.38

Gold Fields

R150,000/kg gold

300.7

6.81

21.8

0.76

Harmony

R180,000/kg gold

186.1

6.79

811.7

0.26

Simmer and Jack

R195,000/kg gold

29.17

6.12

10

0.5

Pamodzi Gold

R131,318/kg gold

4.55

3.28

0.7

5.06

TOTALS:


693.65

7.28

1145.1

0.32

TOTAL CONTAINED GOLD:



UNDERGROUND = 5,051,120 kg = 5,051.1 mt


SURFACE = 364.790 kg = 364.8 mt

** Anglogold Ashanti as of Dec 31, 2008; equivalent to $720/tr oz at 8.67 R/$. DRD as of June 30,2008; equivalent to $853/tr oz at 7.86 R/$. Gold Fields as of June 30,2008; equivalent to $650/tr oz at 7.2 R/$. Harmony as of June 30, 2008; equivalent to $750/tr oz at 7.46 R/$. Simmer and Jack as of Nov. 30, 2007; equivalent to $757/tr oz at 8 R/$. Pamodzi as of late 2007, unsure of equivalency ($500/tr oz at 8.2 R/$??).

A similar compilation of 2003 “proven and probable” reserves (done for the “2004 revisit” study) included all of the operations in the above table except for the Pamodzi Gold operation. For comparison, the results of the 2003 compilation were:

UNDERGROUND = 1,010,392,000 mt at 7.3 g/mt (7,375.9 mt contained gold)

SURFACE = 308,452,000 mt at 0.61 g/mt (188.2 mt contained gold)

TOTAL = 1,318,844,000 mt at 5.75 g/mt (7,564.1 mt contained gold)



Again, for comparison purposes the gold price basis for the 2003 company estimates were: Anglogold Ashanti -- about 80,000 R/kg gold (equivalent to $350/tr oz at 7.0 R/$), DRD – 96,500 R/kg gold (equivalent to $400/tr oz gold at 7.5 R/$), Gold Fields – 95,000 R/kg gold (equivalent to $400/tr oz at 7.39 R/$), Harmony – 93,000 R/kg gold (equivalent to $400/tr oz gold at 7.23 R/$), South Deep Project (now with Gold Fields) – 62,000 R/kg gold (equivalent to $275/tr oz gold at 7.0 R/$).

Subtracting an estimated 170,000,000 mt of underground ore production for the five years of 2004-2008 (34,000,000 mtpy level) and another 64,000,000 mt of downgraded reserves at the South Deep Project still leaves an additional 82,000,000 mt decline in underground ore reserve tonnages at other operations. This despite much higher (around double) gold prices. Imagine if the gold price was still at $400/tr oz?

And then..... Wow! The surface mineable ore tonnage reserve increased a whopping 2.7 times. However (here we go again), that enormous ore tonnage increase only added 176.6 mt of contained gold (only about 2/3 of it recoverable)...not even a year's worth of total South African production. Again (am I sounding like a broken record?)..the small amount of contained gold in this surface material does not justify using even 30-40 pct of your milling capacity to process it....unless you are just trying to survive.

COMPARISON TO 1992 RESERVE/RESOURCE BASE ESTIMATES FROM SP 24-94

In the course of the analysis for SP 24-94 I estimated the “demonstrated reserve” for 33 major South African gold mining operations. The total underground ore estimate for these 33 operations was 3.21 billion metric tons of ore grading 7.13 g gold/mt ore as of Jan. 1991. This “demonstrated reserve” estimate was not technically a “reserve” estimate since much of the tonnage and grade was based on drilling information only. As such, it was a “mongrel” estimate... somewhere between the technical definitions of “reserves” and “resources” given in the Resources section to follow. Subtracting out estimates of .80 billion mt mined in 1992-2003, .17 billion mt mined in 2004-2008, .14 billion mt in operations closed from 1992-1997, and .08 billion in downgraded reserves at the South Deep Project would result in a total of about 2 billion mt of ore still left to mine—about 3 times the 2008 reserve total detailed above. I will note that in the 1992 estimate I tried to be as inclusive of all available mining areas and available mining reefs as possible. In a sense I was as optomistic/lenient as I felt I could be.

RESOURCES

Reserves (“proven” and “probable”) are those resources known to be economically feasible for extraction. The knowledge of the geology, mineralogy, metallurgy, mining plans, geotechnical/technical risks and sampling/assay information is solid, well-known and verifiable. This is required since reserves are considered as “bankable”. In contrast, resources (“measured”, “indicated” and “inferred”) are economic mineral occurrences where such detailed information is not available. “Indicated” resources are economic mineral occurrences which have been sampled (usually by drilling) to a point where an estimate of grade and contained metal can be made. They include “measured” resources which have undergone further sampling to a point that a “competent person” has declared them to be an acceptable estimate of the grade, tonnage and occurrence of the mineral occurrence. “Inferred” resources are a separate category which has the lowest level of information available...usually determined by inference only.

The following is a compilation of the 2008 measured, indicated and inferred resources (exclusive of proven and probable reserves) for the same six South African companies included in the 2008 reserves compilation presented above.

UNDERGROUND RESOURCE TONNAGE (MILLION MT)

UNDERGROUND RESOURCE GRADE (G GOLD/MT)

GOLD CONTAINED IN UNDERGROUND RESOURCE TONNAGE (MT GOLD)

SURFACE RESOURCE TONNAGE (MILLION MT)

SURFACE RESOURCE GRADE (G GOLD/MT)

GOLD CONTAINED IN SURFACE RESOURCE TONNAGE (MT GOLD)

1611

8.83

14237

919

0.35

318

The total shown in this table of 14,555 mt gold contained in measured, indicated and inferred resources plus the 5,416 mt gold in the proven and probable reserves presented previously is a grand total of 19,971 mt (642,081,620 troy ounces) of gold. Although large, it is still only 55 pct of what the Chamber of Mines, in it's Facts and Figures publications, claims as South Africa's “resource base” (36,000 mt of gold).

COMPARISON OF SOUTH AFRICAN, BARRICK GOLD AND NEWMONT MINING GOLD RESERVES AND RESOURCES

Barrick Gold (www.barrick.com) and Newmont Mining (www.newmont.com) are the world's number one and number two gold producing companies. Neither have mines in South Africa although they operate world-wide. Combined, the two accounted for 437.5 mt of gold production in 2008; nearly double South Africa's production. Below is a comparison of their 2008 reserves and resources to the compiled reserve and resource amounts for the six South African companies included in my compilations.


PROVEN AND PROBABLE RESERVES (MT CONTAINED GOLD)

MEASURED, INDICATED AND INFERRED RESOURCES (MT CONTAINED GOLD)

TOTAL, RESERVES AND RESOURCES (MT CONTAINED GOLD)

South Africa

5416

14555

19971

Barrick Gold

4307

3104

7411

Newmont Mining

2643

1028

3671



Graphic for Reserves/Resources table



Based on this comparison, I would have to say that, if there is any future at all for the gold mining business, then South Africa will still be a major player in the game for many, many years to come.



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