syama gold mine, page-2

Syama has been a dismal failure for Randgold. It was previously owned by BHP, and Syama bought it thinking they could turn it around.

To be fair, they had external problems affecting the performance such as torrential rains resulting in delays and pitwall failures and in addition they had lots of power problems causing incessant delays to production as well. This all led to Randgold losing money hand over fist on Syama with cash costs going close to US$500 per oz at times, as there was low throughput of ore.

However, when there were no disruptions the cash costs did get to around the U$240 per oz mark, but such occurences were rare.

Previously, Randgold had suggested that Syama should be able to produce around 220k to 240k oz per annum.

It is possible that RSG could get this to work properly, but given Syama's very poor history, it appears they are being cautious by obtaining the option only, this will give them time to do some more due dilligence and to see if they can really turn this around. I suspect power infrastructure reliability assessment, quality and reliability of existing mothballed plant, looking at work flow practices, and possibly even work practices would be key considerations beyond the general geology of the resource.

Without knowing the strip ratio or the geological nature of the resource, a head grade of approximately 3 grams per tonne, and a current resource of 5 mill oz (more work required to convert these to reserves) should suggest a profitable project for RSG going forward, but for some reason Randgold coudn't get this firing and lost bucketloads on it. So much was lost, that Randgold had to sell a half share on the (what is now a very profitable) monster "Morila the gorilla" deposit nearby so as to be able to get the project to proceed as they were bled dry by Syama and as such just ran out of financial flexibility to fund it themselves.

In summary, theoretically Syama should work and be profitable, but its history leads one to be very cautious on this one. But it is possible that it was due to one unfortunate mishap after another that caused its problems as Randgold would suggest was the case.

In addition, the resource at Syama could be substantally increased through further drilling as it is still open at depth.

It would appear that RSG has given up on RBK. I suspect this is because the feasiblity study may have suggested not to use the mothballed Obotan plant, and as such RSG was looking at other options such as Northern Mining and now Syama. Market rumour has it that RSG was negotiating with Randgold over Syama since the beginning of February. You will recall RSG gave RBK fist right of refusal on its Obotan plant until the end of December last year.

If RSG end up exercising their option to buy Syama and get it to work properly (and theoretically it should be able to, but who knows), then this acquisition would be a substantially better buy than RBK, given its lower cost and lower price risk (partially royalty based), and potentially significantly larger resource.

The goings on at SPX and GGN are intriguing. The market has not warmed to the merger. Given RSG's stake in both companies, you would think that RSG must be considering taking over them after the merger is implemented. I suspect LSG (Lion Selection) might have such a plan in mind as they made a presentation suggesting they expect a third unnamed gold miner to be involved. On the surface, GGN looks a tad pricey given reserves of only 700k oz, but to what extent those reserves can be increased I do not know. However, SPX resources look quite exciting and make a lot of sense for RSG given their proximity to Golden Pride.

Oh well, only time will tell, what pans out. Certainly there will be very interesting times ahead for RSG shareholders. Let's just hope that they are very good times and not traumatic times.

Fingers crossed!

Disclaimer : I own lots of RSG, RSGO, RBK, SPX, and SPXO. Do your own research or seek advice from a professional adviser.