Canadian mining company, Placer Dome's large investment into the South African mining sector is the first significant foreign investment since the ANC government came to power in 1994. Priscilla Ross explains the implications.

The Canadian major, Placer Dome certainly made waves in the African mining industry in 1998 and looks set to become a permanent feature of the underground landscape. It was announced recently that Placer had entered into a 50:50 joint venture to operate and develop the Western Areas gold mine, including the new South Deep section in South Africa.

Placer will pay Western Areas $235m in cash plus an annual payment of 1.75% of Placer's share of production for the life of the mine.

Placer Dome operates 14 mines in five countries and is one of the world's largest gold mining companies. The company's operations globally produce more than 2.5m ounces of gold a year.

The real significance of the deal is that it is the first sizeable foreign investment into the South African mining industry since Nelson Mandela and the African National Congress were elected to power in 1994. This is exciting stuff and bodes well for the future of foreign investment in the South African mining industry.

Chairman and non-executive director of Western Areas, Professor Wiseman Nkuhlu commented that the proposed deal represented a great advance for South Africa's only black economic empowering group in the gold mining sector. "We are delighted with it - it shows that Western Areas is a world-class asset, worthy of a world-class partner," he said.

The cost of bringing major ore bodies to account means very often joint venturing is the solution to spreading the financial burden and lowers each partners financial risk to a particular project. Western Areas deputy chairman Brett Kebble said that by pooling their managerial and technical expertise, the joint venture partners expected to achieve a significant improvement in the mine's long-term production life and cash operating costs. Placer Dome has extensive experience in mechanised mining of underground ore bodies that will facilitate the optimal exploitation of South Deep.

Western Areas was established in the Westonaria region of South Africa's Witwatersrand Basin in 1959 and since then has produced some 19.7m ounces of gold. Its merger with South Deep in 1995 essentially transformed the mine, giving it an expanded resource base which includes the massive Elsburg reef package generally acknowledged as one of the most exceptional ore bodies in the world.

Western Areas' first expansion came through a merger of operations with the neighbouring Elsburg Gold Mining Company in 1974. Elsburg had been formed to exploit the same reefs directly to the south and contiguous to Western Areas. In 1990, Western Areas acquired a stake in the South Deep Exploration Company and subsequently sold its stake to shareholders to raise funds for restructuring its mining operations. In recognition of the contiguous nature of the ore body and the benefits that would arise from the sharing of underground and surface infrastructure, Western Areas and South Deep merged in 1995.

After making operating losses between 1988 and 1992, Western Areas embarked on a major efficiency-improvement exercise. The workforce and infrastructure were rationalised and a mix of mining methods designed for more efficient exploitation of the ore body was developed. Its subsequent return to profitability is largely due to the improved mining efficiencies and cost controls. An extensive exploratory drilling programme and sophisticated computer modelling techniques were used in the mine design process.

Western Areas' ore body contains a mineable ore reserve of over 58m ounces. The current development of South Deep will create a Western Areas which by 2003 will be producing some 750,000 ounces of gold a year.

The grand entrance of Placer Dome into gold mining production in Southern Africa is all the more poignant as it withdrew from a joint venture exploration project with junior Etruscan Resources in Niger in June this year but was promptly replaced by the South African major Anglo American.

Placer Dome explained its reason for withdrawing from the Tiawa concession in Niger with Etruscan Resources on the grounds that Placer has a policy objective of searching for deposits with resource potential of four to 5m ounces.