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Mangalisa Project

South Africa

Superior Mining International is currently focusing on the Mangalisa Project, its flagship property in South Africa, where the company was granted exploration rights to explore for Witwatersrand Basin-hosted gold mineralization in the Free State of South Africa.  The Mangalisa property is located in the eastern part of the Free State (or Welkom) Goldfield. This goldfield is located in the south-western end of the Witwatersrand Basin (see map of the Witwatersrand goldfields and simplified geology).

South Africa is the continent's biggest economy and it is blessed with the world's largest natural resources of gold, platinum group metals, chrome ore and manganese ore, and the second largest resources of zirconium, vanadium and titanium. The country's mining sector accounts for about one-third of the country's GDP. The country also has well-developed financial, legal, communications, energy and transport sectors, together with modern infrastructure.

Historically, South Africa has been the largest producer of gold in the world, with 98% of the country's gold believed to have been produced from the goldfields located in the Witwatersrand Basin. The gold is recovered from ancient sedimentary conglomerate bands or "reefs" found mainly in the Central Rand Group in the upper Witwatersrand. 


South Africa and the Witwatersrand Basin

Although there were isolated reports of alluvial gold and some gold-mineralized quartz deposits in South Africa as early as 1853, just after the Californian and Australian gold rushes, the really significant discovery of South Africa took place in February 1886, when George Harrison found an outcrop of the main reef of gold-bearing conglomerate on Langlaagte Farm near Johannesburg. In this area gold is recovered from the pyrite-rich quartz pebble conglomerates formed from ancient alluvial fans and the bottom sediments of large, braided rivers nearly 3 billion years old.

The key difference between this field and the earlier Californian and Australian gold discoveries was that it was not an alluvial deposit which thousands of freelance gold diggers could work, but the tip of lower-grade reefs, most of which could be mined only at depth and at great initial capital cost. What outcropped on Langlaagte Farm was one of a crescent of gold reefs around the whole of the Witwatersrand Basin. These reefs dip at an angle of 25 degrees or more, sloping inwards towards the centre of the basin, to depths of at least 5,000 m. Indeed, some have not yet 'bottomed out'.

Since this first discovery, around 42% of the world's gold production and 98% of South African gold have been mined from the Witwatersrand goldfields. This is the equivalent of more than 1.8 billion oz of gold, or over 61,000 tons, at an average grade of 8.12 g/t.

These gold-bearing conglomerates, usually grading no more than 15 g/t and often much less, stretch from 65 km east of Johannesburg to 145 km west, then swing down south-west to the Free State 320 km away. Much later, another goldfield, Evander, was discovered 130 km south-east of Johannesburg, outside the main Witwatersrand system. Current mine head grades in the Witwatersrand vary from 6 to 10 g/t gold.

The Witwatersrand reefs were deposited between 2.7 and 3 billion years ago. The reefs vary widely, but the majority are conglomerate, with pebbles of quartz and chert in a matrix of quartz grains, silicate and various sulphides, mainly pyrite. They range from thin, small-pebble reefs, often with great lateral extent, to very thick conglomerates.

Many reefs are the product of reworking by fluvial agencies, while others have features compatible with formation on beach-like surfaces typical of lake and marine environments. These were all formed under shallow water. See the Geology page for a more detailed description of the geology, geological history, formation of the reefs and gold mineralization in the Witwatersrand Basin and at Mangalisa. A large number of different reefs are mined, including the Main Ventersdorp Contact, Kimberley, Carbon Leader and Basal reefs.

Gold mining in South Africa is currently carried out either at the surface as open-cast mining or, more typically, as underground mines recovering gold ore from the conglomerate reefs located down to maximum depths of around 4,000 m. However, most of the underground production is located at depths that do not exceed 3,000 m. In the underground mines the gold-bearing reefs, averaging 20 to 30 cm thick, are extracted from stopes around one metre high at planned depths, not unlike extracting a thin slice of meat from a sandwich. The narrow stoping widths and mining of hard rock reefs at extreme depths have given the South African gold mining industry its unique character.

Gold production in South Africa started to decrease in late 1994. However, the country remained the top gold producer in the world until 2007, when it was surpassed by China and then. later in 2008, by the United States. This decrease is attributed to a period of low gold prices, coupled with very low level gold exploration expenditure and the consequent poor expansion of the reserves base, depletion of known mining reserves and reduction of grade in many mines, mainly because of high grade reserve stripping, plus political stresses for a number of years during the early post-Apartheid era rise to power of the ANC. The political scene under the ANC has since stabilized, but the rise in the price of gold has outstripped rising mining costs within only the last few years. Therefore, Witwatersrand gold and uranium exploration has only just started to resume and it has a high potential to increase known resources.

South Africa's major gold mines have been developed within the Witwatersrand Basin in clusters located generally along basin boundary faults and close to the outcrop or sub-crop edge of the known Witwatersrand Basin. The mine clusters are located in six major goldfields: Evander, East Rand, Central Rand, Carletonville, Klerksdorp and Free State, where Superior Mining's Mangalisa property is located.

Only recently has a structural tectonic control of Witwatersrand gold and uranium mineralization been recognized (see Geology page), and, significantly, much of the basin still remains unexplored along structural target lines. There remain many high-potential gold exploration areas with the possibility for new discoveries of significant gold deposits.

The Witwatersrand Supergroup demonstrates evidence of significant over-thrusting along basement contacts, for instance, over the Johannesburg Dome. The Witwatersrand Supergroup has also been subject to three phases of "egg box" style folding, regional faulting, and to low-grade metamorphism.

The seven individual known goldfields in the Witwatersrand Basin have historical production that varies up to over 450 million oz of gold with a historical minimum aggregate production of about 1.8 billion oz of gold. The average production is about 250 million oz of gold per goldfield, with the largest quantity of gold, 320 million oz, produced from the Free State Goldfield. Each of the Witwatersrand Basin goldfields is still being explored and has continued to be mined since its discovery.

Superior Mining chose to acquire the Mangalisa property because an exploratory borehole (PG1) drilled by Gencor on the Erfenis farm in 1987, which returned high gold and uranium grades, suggested there is good indication that it is possible for new goldfields to still be discovered in the Witwatersrand Basin and, in particular, in the under-explored adjacent sub-basins. This is because Witwatersrand gold and uranium reefs with values such as those interesected in PG1 seldom, if ever, occur in isolation.

Two drilling programs subsequently completed by Superior Mining in 2009 and 2010 intersected an unusually shallow reef at about 770 m depth with grades up to about double those of the average mining head grade of 4.93 g/t at Harmony Gold's Masimong Mine. The Masimong Mine is located immediately to the south of the Mangalisa property in an area or sub-basin east of the main Target trend of the Free State Goldfield, a trend, known as the Homestead trend, which has been under-explored.

Superior Mining's two drilling programs carried out thus far intersected a classic, small quartz pebble, carbon-rich and well-sorted conglomerate that is typical of reefs grading 6 to 10 g/t gold in the Free State Goldfield, thus having the potential of being a new discovery of a Witwatersrand "Elsburg" type gold deposit. Elsburg Reefs can have very high values. The Mangalisa project represents one of the last, remaining high-potential gold exploration properties within the Free State Goldfield.

As such, Superior Mining intends to advance the Mangalisa project by way a third drilling program as soon as possible. To faciliate the third drilling program, the Company has executed an Earn-in Agreement with Ibhubesi Capital (Pty) Ltd., a private family investment Company with interests in mineral resources, energy and real estate, based in Johannesburg, South Africa pursuant to which Ibhubesi can acquire  up to a 67% interest in the Company's Mangalisa project (see News Release). The Company currently holds (indirectly through subsidiaries) an 87% interest in the Mangalisa  project. The Earn-in Agreement is structured as a two-stage transaction. In the first stage, Ibhubesi has agreed to acquire a 26.8% in the project for US$1 million. 

Mining Regulations and Royalties in South Africa

The South African government strongly supports the gold mining industry and has, since about 2002, passed a number of mining laws and regulations that have improved the mining climate and brought mining legislation in line with recognized international standards.

Before the enactment of the Minerals and Petroleum Resources Development Act (Act No.28 of 2002 [MPRDA]), mineral rights in South Africa, including the right to prospect and mine, were held privately, or, in some instances, were owned by the state. Ownership of these mineral rights was effected through common law, whereby the mineral rights were vested with the surface owner of the land. The common law recognised the principle that mineral rights could be separated from the title to the land. Therefore, it was possible for ownership of the surface rights, the rights to precious metals and the rights to base minerals to belong to different persons. Registration of the title to the mineral rights in the Deeds Registry Office ensured that real rights were constituted.

The MPRDA came into effect on May 1, 2004, replacing the Minerals Act (Act No. 50 of 1991 - Minerals Act). The objectives of the MPRDA are to adopt the internationally accepted right of the State to exercise sovereignty over the mineral and petroleum resources within the country, and to abide by the principle of the state's custody of the nation's mineral and petroleum resources.

The enactment of the MPRDA has resulted in the transfer of South Africa's mineral rights and their administration to the state, subject to a number of transitional provisions. Under this legislation the state has the right to compel companies to relinquish non-core mineral rights or the rights to mineral properties that remain idle, however the MPRDA also provides that a mining right is valid for up to 30 years and can subsequently be renewed for periods of up to 30 years.

The Royalty Bill confirms gross sales as the tax base, but takes into account the cost associated with the process of beneficiation. That is, there are no royalties to be paid in South Africa, only taxes on profits based on a standard formula.

Mining costs

Mining cost data from the South Africa Chamber of Mines reveal that gold mining and production costs in South Africa vary, clearly as a function of a mine's circumstances. Very deep mines entail a much more expensive operation. The average production cost since 2005 varies from USD 227/oz to USD 657/oz as at the third quarter of 2009. The Chamber of Mines quarterly reports on Witwatersrand gold mining production for the third quarter of 2009 gave a median production cash operating cost, from a broad spectrum of Witwatersrand Basin gold mines, operating at various depths from surface to 4,000 m, of USD 657 per oz (converted from ZAR/kg), with a range of USD 989 per oz (Durban Roodepoort Deeps) to USD 525 per oz (AngloGold Ashanti). Harmony Gold reported in its 2011 annual report that its average operating cost at the Masimong mine was USD 788 per oz, although at some of its other mines costs are more than USD 1,000 per oz to as much as USD 1,297 per oz at the Joel Mine. Clearly, recovery of gold from the reefs in South Africa's Witwatersrand Basin continues to be a very profitable activity, and more so for a mine extracting gold ore from reefs as shallow as those encountered at Mangalisa's Erfenis reef.

Infrastructure

South Africa's transport and other infrastructure for supporting the mining industry are excellent. Large highways and paved roads as well as a good railway network provide good access to and within the goldfields. The Mangalisa project, for example, is located 270 km southwest of Johannesburg's Oliver Tambo Airport on paved roads through the N1 freeway to Kroonstad R34 to Welkom, and then another 25 km east of Welkom on paved roads. Electrical power to support mining operations is available from near Superior Mining's Mangalisa Project.

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