Mupane Gold buffers revenues ahead of closure

MBONGENI MGUNI
Staff Writer | Friday June 25, 2010 00:00

Mupane Gold Mine, a wholly-owned subsidiary of Australian giant IAMGOLD, is winding down due to a decline in reserves and resources. Generally, option contracts allow the seller of a commodity to negotiate set prices and enter into forward-looking agreements with buyers. Through such arrangements, Mupane Gold Mine hopes to buttress its revenues ahead of the planned mine decommissioning in two years' time.

Mupane Gold officials say option contracts will apply to a portion of the mine's approximately 50,000 ounce annual production. The options strategy was initiated during the first quarter of the year and designed to protect the mine's coffers.

'Due to Mupane's short life of mine and to secure its margin, the company initiated a strategy during the first quarter of 2010 to protect the gold price on a portion of the mine's production for 2010 and 2011' says one official. 'These option contracts are intended to support a positive operating cash flow from the operation.' Analysts believe last year's recession buttressed Mupane Gold's books as the gold price soared off investors' aversion to other asset vehicles. This year, gold prices have shot beyond US$1,200 per ounce, driven by a high investor appetite.

Even higher prices of the precious metal are expected this year, with investors wary of the emerging Euro zone crisis and unwilling to risk other assets such as currencies and equities. Gold has traditionally been viewed as a haven from risk, due to its price resilience over the decades and its intrinsic value.

Meanwhile, Mupane Gold Mine appears set to match last year's production, with an estimated 13,000 ounces recovered at the north-east operation in the first quarter. While it posted lower than expected figures for the corresponding period last year, the first quarter production puts the mine on track to achieve last year's 51 000 ounces.

Speaking at an Investor Day held in Toronto on Tuesday, IAMGOLD Executive Vice President (Corporate Affairs) Larry Phillips revealed that the mine experienced lower grades, but improved mill reliability and higher recovery during the first quarter of 2010. He said the production results lent themselves to positive operating cash flow at the mine. Mupane Gold's next two years of operation will tap into the 199,000 ounces of proven and probable mineral reserves.