Gold Fields Announces a Delay and an Increase in Capital Cost for the Cerro Corona Project in Peru
November 15 2007 - 9:15AM
PR Newswire (US)
See Teleconference Details Below JOHANNESBURG, November 15
/PRNewswire-FirstCall/ -- Gold Fields La Cima, which is 80.72%
owned by Gold Fields Limited ("Gold Fields") (NYSE:GFI), (JSE:GFI),
(DIFX: GFI), today announced a four month delay and a revised
capital forecast for the Cerro Corona gold/copper project in Peru.
The construction costs for the project was previously estimated at
approximately US$343 million and the treatment of ore was scheduled
to commence early in the March quarter 2008. The construction costs
has now been revised to US$421 million, which includes an
additional contingency of US$20 million, and the treatment of ore
is now scheduled to commence towards the middle of the June quarter
2008. The delay is mainly due to two issues: - Deficient progress
on the construction of the tailings management facility (TMF)
caused by poor rock quality in the project quarries, and inadequate
material delivery rates required for the construction of the TMF
embankment; and - Underperformance over the past two months by
several contractors responsible for the structural and mechanical
installation of the concentrator. Commenting on the announcement,
Ian Cockerill, Chief Executive Officer of Gold Fields, said: "While
we are disappointed with the delay and the increased construction
costs, Cerro Corona remains a robust project and will make a
significant contribution to the future of Gold Fields. We have
thoroughly reviewed every facet of this project and I am confident
that the required steps have been taken to ensure completion within
the revised project schedule and budget." The first significant
cause of the delay is the recent poor progress in the construction
of the TMF, which was previously highlighted as the greatest risk
to the project cost and schedule. Clearing and preparation of the
embankment footprint was completed in June 2007 and construction of
the various zones in the embankment commenced in early July. The
materials required for the construction of the embankment, which
are sourced from quarries on the project site, must meet strict
geotechnical, geochemical and structural standards, some requiring
significant processing to generate proper size gradations. Two
crushing and screening plants have been erected on-site for this
purpose. Since the commencement of the construction of the
embankment in early July, production of acceptable construction
material has been substantially slower than anticipated due to poor
rock quality encountered in the quarries, and a slower than
expected ramp up in the optimization of the crushing and screening
plants. Both of these factors have now been incorporated into a
revised project schedule, leading to the delay in the completion of
the Project. The second contributing factor to the delay is poor
construction efficiencies achieved over the past two months by
several contractors responsible for the construction of the
concentrator. Despite an acceleration plan developed to complete
the construction of the concentrator in December 2007, certain
tasks were not timely completed in the last eight weeks,
particularly with regards to the completion of critical early
commissioning areas of the plant. This has led to knock on delays
to the electrical contractor, hence the overall impact on
completion timing. There are four main causes of the increase in
construction costs: 1. The delay in the completion of the Project
attracts significant additional costs in terms of management and
engineering personnel, as well as attendant indirect or support
costs such as the maintenance of the remote onsite camp and other
services such as bussing and meals. 2. An increase in the
construction costs for the TMF due to higher unit rates for mining
and crushing of construction materials. 3. Poor ground conditions
have been encountered in the construction of the various facility
platforms as well as mine and access road construction. This has
necessitated additional cut and fill activities to ensure the
stability of the various structures. 4. Continued escalation of
commodity based products, such as electrical cabling and power
lines as well as the piping and mechanical and electrical
components of the tailing management systems, has had a significant
impact on the overall cost of the project. The Cerro Corona gold
copper project is located 80km from the City of Cajamarca in the
highlands of northern Peru. A decision was taken to commence with
this project in January 2006 following approval of the
Environmental Impact Assessment in December 2005. The Project
involves the development of a single surface mine producing 6.2
million tons per annum (mtpa) of ore at a life of mine stripping
ratio of 0.58. This ore will be treated in a conventional milling
and sulphide flotation concentrator treating 6.2 mtpa of ore and
producing between 100,000 and 140,000 tons per annum of copper and
gold containing concentrate, which will be custom treated at
smelters in Japan, Korea and Europe. The Project currently has
reserves of some 3.2 million ounces of gold and 1,089 million
pounds of copper, equivalent in total to some 5.9 moz of gold
equivalent. Resources are 5.0 million ounces of gold and 1,869
million pounds of copper*. Average life of mine metal production is
projected to be some 140,000 ounces of gold and 27,000 tons of
copper per annum, though production levels will be somewhat higher
in initial years due to high grades encountered in the shallow
portions of the pit. Cash costs in the first four years of the mine
life are projected to be between US$300 and US$330 per gold
equivalent ounce in real terms and based on current market
conditions. The cost trends that have been seen in construction of
the TMF, discussed earlier, have been projected in the estimated
life of mine capital cost for this facility and are expected to
increase life of mine capital costs from approximately US$10 per
ounce to US$30 per ounce of gold equivalent production. Work
remains underway to develop alternative methods for managing the
tailing, with a view to improving this cost. *Reserves reported at
31 December 2006, using prices of US$500/oz gold and US$1.25/lb
copper and resources using prices of US$650/oz gold and US$1.75/lb
copper. Teleconference Details Slides available on website at
http://www.goldfields.co.za/ For Johannesburg: 16:45 For United
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