Interview with Michael Quinert, Chairman of West Wits Mining (ASX:WWI)

West Wits Mining

We spoke with Michael Quinert, Chairman of West Wits Mining (ASX:WWI), on the company’s recent Definitive Feasibility Study (DFS) for Qala Shallows, the first stage of the Witwatersrand Basin Project (WBP) in South Africa.

This project now encompasses 3.5 million ounces of gold. The study outlines a 17-year mine life that would recover 663,000 ounces at an All-In Sustaining Cost of US$1,144 an ounce.

West Wits Mining‘s project had a pre-tax NPV of A$205m on a 7.5% discount rate.

 

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Transcription

 

Stuart: Hello and welcome to Stocks Down Under. My name is Stuart Roberts and I’m one of the founders of our publication. And with me today is Michael Quinert joining me from Melbourne, he’s the Chairman of West Wits Mining ASX:WWI. Michael, thanks for taking the time.

Michael: Thanks for having me, Stuart.

Stuart: It’s the 9th of September today. Now, Michael West Wits has had a long development history. In fact, I can trace it back to 2007 on ASX filings in terms of where it’s come from. You’ve now got about 3.5 million ounces in resource in the western part of the waterfront basin in South Africa. And you pretty much start mining that resource now on a DFS you published I think it was last week.

Michael: That’s right, Stuart. It’s been a long haul. This particular lease we’ve actually been working on for about six years. We weren’t working on it for the first part of the company’s listing. But yeah, it’s still been an interesting journey. But we’re right at the threshold now starting, so it’s a very exciting time for the company.

Stuart: Yes. So you go back in time, it was a tailings retreatment operation that you inherited from Durban Roodepoort Deep and a little company called Mintails.

Michael: Yeah, it’s a mixed-up deal. It came through a company that was operating on tailings and one of the tailings dumps on the properties. And effectively this company was a spin-out out of both DRDGOLD and the old Mintails. But they didn’t want the underground resources we did. And we’ve converted the leases to take the underground resource, so yes. But there are still tailing dumps in the area, which will be reclaimed at some point by DRD or another company in the area.

Stuart: Yes. Now, we wrote about West Wits back in April. And the issue at the time was that some of your environmental approvals were being held up at the regulatory end. And you were hoping that the minister would rule on that. Obviously, you had a favorable ruling on that score?

Michael: We did. We always were very confident, but it’s one thing to be confident and, you know, it’s nothing better than getting the result. And yes, interested and affected parties have an automatic right to internally appeal these things. And that was appealed. We were confident we had done things correctly and the process was right. Our lawyers were very confident, our environmental consultants were very confident. And after a full review of the matter and a detailed decision, the Minister for Environment overturned the appeal and the mining right was therefore reinstated.

Stuart: Right. You’ve since gone on and completed a pretty exciting definitive feasibility study, just tapping a fraction of the resource there in the west part of the Rand. We’re talking all in sustaining costs over a 17-year mine in the order of only about $1,000 an ounce and $150 million net present value at a 7.5% discount rate. So it’s quite a lucrative project that you’ve got started with.

Michael: Yeah, it’s a robust project, which is not really surprising, given the structure of the ore body there and how it’s been mined for so long and it’s so well understood. But the nature of the lease and the way the ore bodies present, it lends itself to stage development. And so this…what we call Qala Shallows. Qala means in the local language, beginning, new beginning. So this Qala part, or Qala Shallows part of the project is really about 40% of the project, but it lend itself to doing the DFS by stages. So we’ve done that to at least show that it’s justifiable as a mine on its own. But what will come in afterward is as we progressively open up other shafts in the area and tap out of the reefs is that the whole project will grow. And it’s actually got over, we think, a 23-year life of mine on the current mine plan that we’ve also issued as part of a scoping study,

Stuart: All right. And we’re talking about 50 million in capital costs for Qala Shallows. And obviously, that’s a pretty modest beginning for what could be a large project. What are we thinking about in terms of funding that?

Michael: Well, it’s modest in the sense because we’re not having to build a plant. There’s a substantial overcapacity of production in the area given the history of mining, and I think there are probably more gold mines in our vicinity per square mile than anywhere in the world. So that’s why the capital cost is lower. We think the plans, the DFS has shown it’s a robust bankable project, and therefore, we’ll be looking to supplement a fair chunk of that through debt. And we’re talking to about four or five parties at the moment about how to progress that. I mean, the DFS has only come out three or four weeks ago, so it’s early days, but we think we can get that sorted out in the next couple of months. And obviously, there’s always room for equity debt. We’ve had streaming proposals. We’re looking at all forms of funding, but I think it will be a mix

Stuart: Sure. Now, some people who know this story might have been confused. As I understood, it was a 4.4 million ounce resource, we’re now down more like 3.5. And that’s because of the way in which you had to cut the deal in order to get the mining license credit.

Michael: Yeah, it was just a practical pragmatic decision in terms of the commercial way forward to expedite the grant of the mining right. There were some property developers and community development in the northern part of the old prospecting right that we held, it was an area that was going to be difficult to mine, most of it was looking at small open-cut mining. So we made the election as part of the application process to drop some of the footprint.

And when the mining [inaudible 00:05:39] was granted and everything dropped under [inaudible 00:05:41] affected the areas, we’ve tried to explain it, it’s difficult to explain in the southern area that was dropped can actually be reapplied from. We have, in fact, reapplied for it, it’s not yet granted, and subject to that being granted, a big chunk of that that we lost will come back. So that’s something we are pursuing. And in addition to that, I’d say remind people that the historic resource on here from a JORC state of resource in 2000, which DRDGOLD issued on the ASX was 12.8 million ounces.

So there’s a lot of gold still sitting under our feet. And what we’ve done is focus on the really available gold, you know, the commercial gold that we can convert quickly to reserves. But there’s a lot of gold in the area and new prospects over the journey of this lives of mine to actually develop and bring back onto the books those resources is big. You know, I mean, a lot of people keep looking…we know the resource is there, we’re in an unusual position, we actually know it’s there. It’s only a matter of what time we bring it back on and how we bring it back on.

Stuart: That sounds like a great trade to me. Give up 900,000 ounces and get back about 9 million. I’ll do that trade any day.

Michael: Well, it’s a nice way of looking at it. Yeah.

Stuart: All right. So the beautiful part about Qala shallows is you can get started now. Like a lot of the stocks are available, and you’ve got the capital to start the early works to get ready for the actual mining, which can probably start to get you first gold middle of next year, I’m guessing.

Michael: Yeah, there’s an existing box-cart added in place that was being used 20 years ago which won’t take much refurbishment. We’ve actually been down there on safety inspection visits. We started bush-clearing this week with the contractors and we’re having people underground next week to further those tasks. So we think in the next four or five months we’ll have that all up to speed. So we’ll start extracting ore from the old workings that were left when they stopped the mine. They stopped the mine in a matter of 2 weeks 20 years ago. So there is a lot of random ore sitting around at the shallow levels. That’s not part of our formal DFS, but it’s there. So we’ll start extracting that around, we think, January, February and sending it off for toll trading. So we should be getting the ore process by, you know, first quarter next year.
Stuart: Right. Now, a lot of critics, and I think they’re uninformed critics, think that South Africa has sovereign risk issues associated with that. And you know, I tell those people, it’s not just my friends of WWI, you’ve got other companies like Theta Gold Mines that are operating quite successfully there. How have you found the regulatory environment in the years you’ve been working in South Africa?

Michael: Yeah, look, I’ve been a lawyer for 35 years in Australia. And I’ve worked around the world with various companies in various sectors. And I must say, I’m not trying to talk my own book. But, you know, South Africa has been given a terrible reputation, a lot of which it doesn’t deserve in terms of its constitution, its democratic institutions, its court system, its media are very free and independent. It really operates pretty much in line with the developed Western country. But it seems to have this African tag.

And I think there’s a lot of… We don’t need to get into analyzing why, but I think there’s a lot of people left-South Africa, and sometimes they tend to badmouth or attack them there. But if you can certainly compare it to most other jurisdictions in Africa, I mean, it shines well and above in terms of proper objective assessment, but it seems to have, you know, a deleterious reputation. But, you know, even on things like people invest in West Africa and Central Africa, there’s coups quite regularly. There’s never been a coup in South Africa. When you tell people that, they’re sort of surprised. There’s never actually been a democratic country for years. But you know, I do think it’s very overegged. There are some issues and the bureaucracy can be a bit slow at times, like in a lot [crosstalk 00:09:16]

Stuart: Like it can be here sometimes.

Michael: Yeah, exactly. Look, so, you know, I’ve been involved in mining in Victoria here in Australia. And I can tell you, it takes a long time to get approvals for the drill holing. So you know, and in New South Wales, it’s the same thing. West Australia is probably more friendly, probably a very good jurisdiction. I suppose also Australians are used to West Australia, which is one of the world’s best jurisdictions to mining. There’s no doubt, they’re very used to it. They’re good at it. But I think South Africa, generally, every time, whenever we’ve had an issue there, we’ve had reports to the court, we’ve got remedies, you know, and we’ve been very impressed with the system.

Stuart: Now, to that point, obviously, the black empowerment system has been in place for a long time, how do you go about finding your partners in order to satisfy the black empowerment needs under the existing South African system?

Michael: We inherited originally a BEE partner from the spinoff parties that spun the laces into our ownership. That partner was replaced now about seven years ago by a new partner who came along and was interested in our project. We met them at a conference in Cape Town, and they bought out the other partner, so they’ve paid real money to get in. They have an experience in mining in the area and have made good money mining. So they’re contributing on a practical level at that, and also very well politically connected and connected into the system. So we’re very happy with our BEE arrangements, and we think they’re actually a constructive contributor to the process. Have certainly helped us through the mining right process. A lot of people look at it and say, “Oh, you’ve done really well to get the mining right.” You know, it’s hard to do that. So a lot of that’s been down to the BEE team that have assisted us with that.

Stuart: Yeah. And a lot of people don’t understand, with BEE, the partners coming in actually have to pay for their stock. It’s not just given to them.

Michael: Well, you can structure it in terms of they pay back out of production and other things, but yes, it’s not given to them. There has to be a commercial arrangement to obtain it. Our BEE partners, we’ve struck a deal with them where, you know, all the money we’ve put in obviously gets paid interest on and we get that back first by way of debt reclaim, we have a very small trickle, what we call trickle dividend to them to give them some money for the…you know, to keep them interested in the project as we go along. But it’s much smaller than their equity position. But after when the mining gets going to full swing, yes, they will participate as a partner.

Stuart: Now it’s interesting that with Qala Shallows, you’re actually going after a different part of the ore body than what you initially intended. This is actually fresh rock, effectively, you’ll be digging into.

Michael: Yeah, it’s another thing that people don’t sort of appreciate. There’s a lot of gold still left there. I mean, this is a massive field, but the way the field presented was in concentric outcrops running from east to west, in north-to-south direction and the northerly or deeper reefs were the really rich reefs, you know, these are what we call the Main Reef later and South Reef, which really were the backbone for 100 years of the Witwatersrand Goldfield and those reefs were running at anything up to 25, 30 grams a ton. You know, there was very high-grade ore.

There’s reefs to the south, which we’re focusing on, more the Bird Reef and the Kimberley Reefs. We are doing some Main Reef in our second stage. But the Main Reef we’re focusing on is the backbone are the Kimberley Reefs. Now the Kimberley Reefs run at sort of 4 to 5 grams, a ton, 3 to 4 to 5 grams a ton. So they weren’t seen as attractive by the old-timers in South Africa. In fact, they built most of their infrastructure on top of it.

Stuart: And more on that, even the big discoveries in the 1930s that brought a lot of the West Rand into production. The Kimberley wasn’t even interesting to those guys back in the ’30s, right?

Michael: No, most of it was South Reef, Main Reef, stuff that they just kept getting deeper. I mean, these guys just kept…these things are open to debts. So they just kept going, you know, and they were getting down. I think next door to us, Harmony Gold and mining, I think 2500 to 3000 meters on the south of it.

Stuart: The famous Doornkop miners is your bedrock on the mine.

Michael: Twenty kilometers from there. Yeah.

Stuart: Right.

Michael: Yeah. Whereas we’re mining much shallower because these Kimberly Reefs are intact to surface, some of them, and they’re running at 3 to 4 grams a ton, which today and you know, in today’s language, 3 or 4 grams, a ton near-surface is grade stuff.

Stuart: I’ll take that any day of the week.

Michael: Yes, well, the South Africans didn’t think it was where… They literally built their sort of workers’ quarters, their infrastructure, their workshops was all built on top of this stuff. So now that that’s all gone, this is all available again. And they were starting to mine it, you know, the mine that was operating up until 2000, it was mining. They’re starting to mine these Kimberley Reefs, so…

Stuart: Right, one final question. And it might sound like a bit of a dumb question. It’s South Africa. How hard is it going to be to find the talent you need to develop this project? You’ve got Jac van Heerden in Jo’berg working with you as your managing director, but in terms of the talent that he needs, is it easy to get?

Michael: It’s certainly not a problem. I mean, you know, South Africa has a very rich mining history, both in gold, precious metals, platinum, there’s a wealth of mining experience, education, the university system there, the training shops. It basically is the mining service center for Africa. You know, so if you go to any project in Africa, you’ll generally find someone who was trained in South Africa, who went to university there or is relying on an engineering or some support system, geological consultants from South Africa. And we’re in Johannesburg, that’s the center of it. So we have no issues in terms of that.

Stuart: Okay, well, let me close by using an Afrikaans word that I discovered recently. At the moment you’re a “bokkie” company, “bokkie” meaning small and insignificant, but if Qala Shallows starts to develop, though, we’re not gonna be “bokkie” much longer. So Michael Quinert, well done, and what you and your team have achieved.

Michael: Thanks, Stuart. I’ll go to the native word, “Qala,” which means new beginning. So that’s what we’ll go with.

Stuart: Okay, thank you.