This info. is from Mining MX, a daily e-mail service on the mining business. PDG's problems at South Deep have been going on for a few years. A high cost mine in an economy with rising prices is not exactly the optimal investment, IMHO. Hope this helps.
-----

Placer overstates SA reserves
David McKay
Posted: Mon, 18 Jul 2005

[miningmx.com] -- PLACER Dome had overstated its gold reserves at its South Deep mine in South Africa by about 30%, according to a report by RBC Capital Markets. Placer Dome SA, the South African subsidiary of the Vancouver headquartered gold firm, refuted the claim.

RBC Capital Markets analyst, Stephen Walker, said there was no economic plan for the second phase of the South Deep mine, an operation Placer Dome shares in joint venture with Johannesburg listed Western Areas. As a result, the resources contained in this section of South Deep – estimated at 17.8 million ounces – could not currently be mined.

It would cost $1.2bn in new capital over an eight-year period to develop the second phase of South Deep if it were done by its current partners, Placer Dome and Western Areas. “As such, without demonstrating the economic viability of the South Deep reserves below the existing infrastructure, we believe Placer Dome's 2004 gold reserves are overstated by 17.8 million ounces or 29.7%,� Walker said in a report dated July 15.

However, the development of Cerro Casale by Placer Dome would replace about 12.9 million ounces of the company's gold reserves lost from South Deep, Walker said.

At the end of 2004, Placer Dome estimated proven and probable gold reserves of 59.9 million ounces, down slightly from 60.5 million ounces reported at year-end 2003. A long-term gold price of $350/oz was used in this estimation except at South Deep where a $325/oz gold price was applied to reflect a rand/dollar assumption of 8.75. About 46% of Placer Dome's total gold reserves are contained in South Deep.

An alteration in South Deep's gold reserves has interesting implications for Placer Dome, according to Walker. Firstly no value is given to the second phase of South Deep because it would have negative cash flow. Secondly, Placer Dome's adjusted market capitalisation per ounce of gold reserves increases to $155/oz against an industry benchmark of $124/oz. And thirdly, Placer Dome and Western Areas would probably have to deal with Gold Fields if the second phase of South Deep were ever to be unlocked.

heads, again
David McKay
Posted: Thu, 28 Jul 2005

[miningmx.com] -- THE troubled relationship between Western Areas and Placer Dome has taken another bad turn after the Canadian firm said it would consider docking its partner gold from their South Deep project in lieu of a $13m capital shortfall. Western Areas CEO, Brett Kebble, said the shortfall was ultimately related to Placer Dome's inability to complete the project on time.

“The $13m relates to additional losses suffered by us in the first quarter of this year because of production problems that can be traced directly to a lack of preventative maintenance while Placer Dome was managing the mine,� he said in a statement today. He added that the matter would “form part of an expanded arbitration proceeding�. Placer Dome is expected to assess its options at a board meeting of the Placer Dome-Western Areas Joint Venture scheduled for Friday, July 29.

Earlier today, Placer Dome said in notes to its June quarter figures that Western Areas: “has not fully contributed its 50% share of cash calls to the joint venture�.

“As of July 27, Western Areas had outstanding cash call obligations to the joint venture in the aggregate amount of approximately $13m. Placer Dome is considering steps necessary to enforce its remedies,� the company said. “These remedies include effecting the cash call sale provisions which require the joint venture to arange the sale of Western Areas' share of gold production,� Placer Dome said.

Peter Tomsett, Placer Dome CEO, said that Western Areas' failure to contribute its share of capital expenditure had led to "... lower working capital levels than we would like," according to a report by Bloomberg News.

Kebble said, however, that Placer's mismanagement of the project had cost the company “a small fortune�.

“We are simply not prepared to keep on paying for their mistakes. These matters will dealt with in the expanded arbitration process,� Kebble said.

The South Deep mine, about 70km from Johannesburg, will produce 468,000 oz of gold in 2005 and is forecast to increase output to about 700,000 oz/year by 2007.

It has already taken R1bn and nine years to develop to its current stage.