| Mon 26 Nov 2007, 7:10 | | SIM - Simmers` - Report to shareholders for the se |
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SIM
SIIF
SIM - Simmers` - Report to shareholders for the second quarter ended
September 30, 2007
PRESS RELEASE
Simmer & Jack Mines, Limited
(Incorporated in the Republic of South Africa)
(Registration number 1924/007778/06)
Share Code: SIM ISIN: ZAE000006722
("Simmers" or "the Group")
SIMMERS` REPORT TO SHAREHOLDERS FOR THE SECOND QUARTER ENDED SEPTEMBER 30, 2007
Key features of Q2 F2008 for Simmer & Jack Mines, Limited (Simmers, or the
Group):
* Grew revenue 26% from R164 million in Q1 to R207 million due to increased
gold production of 26%.
* Loss from mining activities reduced by 85.6%, from R27.9 million in Q1 to
R4.0 million in Q2.
* Reduced operating loss per share by 28.6%, from 6.64c per share in Q1 to
4.74c per share in Q2.
* Reduced Group cash unit costs by 3% per kilogram from R161 077/kg in Q1 to
R156 396/kg in Q2.
* Cash on hand of R2.1bn having raised net foreign proceeds of US$307.7m for
direct investment in South African mining development projects.
* Added 524 new employees and contractors to the Group during the quarter,
bringing the total to 7 475 new jobs created by the Group since the
beginning of 2005.
* Appointed EA Meyer as independent non-executive director with effect from
October 1.
Buffelsfontein Gold Mine (Buffels)
* Increased gold production by 10% compared to the previous quarter (Q1).
* Achieved 500 000 fatality-free shifts.
* Improved on the previous underground tonnage production record - set in Q1
- by 22%. Underground tonnes milled for Q2: 237 324 tonnes.
TGME
* On track for metallurgical solution to resolve the challenges of treating
refractory ore at TGME.
* Grew surface heap leach compliant mineral resources by 34 984 ounces to 123
724 resource ounces.
* Increased the original 15 surface heap leach exploration targets to 43 with
the inclusion of 13 000 surface soil geochem data points from historic
exploration.
First Uranium Corporation - FIU (Comprising the Ezulwini Mining Company and the
Buffelsfontein Tailings Recovery Project, incorporating Mine Waste Solutions)
* Mine Waste Solutions` produced 10 124 ounces of gold at a total cost of
US$527 per ounce in its first full quarter of production.
* Ezulwini Mine hoisted its first ore, which, subsequent to Q2, was shipped
to Randfontein Estates Limited`s Doornkop plant for toll milling.
* Received approval from the First Uranium board for a US$11.7 million
capital programme to install a reclamation station and pipelines at the
Buffelsfontein Tailings Recovery Project to increase the planned mining
rate from 500 000 tonnes per month to 630 000 tonnes per month.
* Defined and permitted initial underground and surface drilling targets
related to the possible expansion of the existing Ezulwini underground
uranium and gold mine.
* Entered into a uranium oxide sales agreement with Nuclear Fuels Corporation
of South Africa (Nufcor).
Subsequent to the end of Q2, First Uranium:
* was granted 6 843 hectares of new order prospecting rights contiguous to
the 3 717.5 hectare new order mining right at the Ezulwini Mine. The
exploration right is subject to the approval of the Environmental
Management Programme;
* entered into an interim off-take agreement with Nufcor whereby Nufcor will
purchase yellowcake from First Uranium from June 2008 until January 2009.
GROUP STRATEGY
The Company continues to pursue an aggressive growth and development strategy
with the aim of becoming a `tier one`, low-cost producer of gold and uranium
with a target production of one million ounces of gold by 2012 and 2.3 million
pounds of uranium by 2011.
Simmers` growth strategy comprises three aspects, namely: the organic conversion
of its current resource base; an advanced exploration programme and the active
pursuit of new business and acquisitions that fit the Simmers` profile.
FUNDING FOR GROWTH AND DEVELOPMENT
In December 2006 First Uranium completed a public offering of 33,350,000 common
shares at Cdn$7.00 per share for gross proceeds of US$201.8 million. The
proceeds of the offering, net of underwriting fees and expenses, were US$177.7
million. The funds raised from the offering and a portion of the net proceeds
from the 3 May 2007 issuance of US$130.6 million of 4.25% senior unsecured
convertible debentures due 30 June 2012, net of underwriting fees and expenses,
are being used to: (i) reopen, develop and rebuild the Ezulwini Mine and (ii)
develop the Buffelsfontein Tailings Recovery Project, also referred to in this
document as Mine Waste Solutions (MWS).
In June 2007, Simmers raised R350 million through a share placement in order
to fund two accretive gold projects aimed at converting resources to reserves:
Of the R350 million, R170 million has been earmarked for the re-opening of
the high-grade Number Five Shaft at Buffelsfontein which has added 700,000
reserve ounces at a capital cost of US$33 per reserve ounce. Production at
Five Shaft will commence in the current financial year.
R130 million is being used to accelerate the Company`s exploration programme in
Mpumalanga by funding a feasibility study to confirm the findings of the
detailed conceptual study that has outlined the potential to define 1-million
ounces of resources by March 2009. The funds will be applied in three phases:
* Accelerate and complete the drilling programme to allow the Company to
evaluate the resource potential of the surface deposits;
* Complete a pre-feasibility study based on those drill results by March
2008;
* Construction of new heap leach pads to confirm cost and metallurgical
parameters for the bankable feasibility study due by March 2009.
THE VALUE DEBATE
The debate on how to value Simmers continued into Q2 where it became apparent
that the market viewed the Group primarily as a uranium player with
inconsequential gold operations. As a result, Simmers has not benefited from
the buoyant gold prices in Q2. Instead, the Simmers` share price has performed
in tandem with the uranium shares quoted on the TSX, linking the group`s
fortunes in the short-term to the uranium market. This sentiment is clearly
reflected in the company`s share price, where FIU continues to represent a
disproportionate percentage of the Group`s value. As at 21 November 2007, First
Uranium corporation (FIU) represented 106% of Simmers` value. This leaves a see-
through value of minus R337.1 million for the gold operations, which effectively
comprises the Buffelsfontein Gold Mine - an operational entity that has an
independently audited NPV of R2.7 billion. The advantage of this is that in the
context of the current gold market, Simmers would appear to be spectacularly
undervalued.
FOCUS ON DELIVERY
The Group`s strategy to correct this imbalance is to deliver on its accretive
gold projects, and to this end, key deliverables have been communicated to the
market. It is management`s view that a re-rating is likely once certain key
milestones have been achieved. These include:
* Buffelsfontein Gold Mine
* Commissioning of new CIP plant - October 2007
* Commissioning of the Seven Shaft refrigeration project - December 2007
* High grade Five shaft on stream - March 2008
* 140 000 ounces of gold at R147 500/kg for F2008
* TGME
* Metallurgical feasibility study for processing refractory underground
ore complete by December 2007
* Elandsdrift test pad - commissioning in March 2008
* Surface exploration pre-feasibility complete - March 2008
* Bankable heap leach feasibility study complete - March 2009
* Ezulwini Mine
* Mineral resource upgrade - due November 2007
* Drilling for expansion programme to commence November 2007
* Early gold revenue from stoping - commencing October 2007
* On site gold production - April 2008
* Uranium production - June 2008
* Buffelsfontein Tailings Recovery Project / MWS
* Expansion feasibility study complete - November 2007
* Pipeline from the Buffelsfontein No. 2 tailings dam to the MWS gold
plant complete - November 2007
* Uranium production - November 2008
FINANCIAL OVERVIEW
Simmers is in a growth and development phase that includes significant
exploration activity. Short-term results should therefore be viewed in the
context of a company gearing itself to optimally deliver into the future. The
emphasis remains on growing mineral resources and building infrastructure in
order to become sufficiently flexible to deliver on a sustainable, low cost
production basis well into the future.
In Q2 F2008, Simmers generated revenue of R207 million compared to R164 million
for the previous quarter (Q1 F2008). The increase is mainly due to the increased
production at Buffels as well as increased gold revenues from Mine Waste
Solutions (MWS).
Group cash unit costs were reduced by 3% per kilogram from R161 077/kg in Q1 to
R156 396/kg in Q2. This was primarily due to the lower unit costs at Buffels,
which currently accounts for 79% of the Group`s gold production.
The total production cost increased quarter on quarter from R192 million to R211
million due to the inclusion of the MWS production costs (three months as
opposed to one month previously) which accounted for R28.6 million, compared to
R13.7 million for the previous quarter.
As at the end of the quarter Simmers had cash and cash equivalents of R2.1
billion compared to R2.3 billion for the previous quarter. This is due to
expenditure on capital projects at Buffels, Ezulwini Mine and TGME.
As at 30 September 2007 Simmers had total assets of R3.7 billion (R3.6 billion
for Q1); total liabilities of R1.4 billion (R1.36 billion for Q1) and
shareholder`s equity of R2.3 billion (R2.3 billion in Q1).
MATERIAL TRANSACTIONS
In Q2, the effect of the inclusion of MWS, acquired on 6 June 2007, became
apparent. The contribution in revenue and production costs for the full quarter
was R49 million and R41 million respectively.
The Group`s financial position was also affected by (i) the expenditure on the
approved capital projects at Buffels, TGME and at First Uranium amounting to
R318 million; and, (ii) share option costs with respect to the issuance of share
options to new employees as well as the costing of shares that vested during the
quarter which accounted for R17 million.
PERMITTING
An update of the Group`s permitting applications is provided below.
Ezulwini Mine
* An application to transfer the mining rights from Simmer & Jack Mines,
Limited to Ezulwini Mining Company Proprietary Limited, in terms of section
11 of the Mineral and Petroleum Resources Development Act was submitted in
December 2006 to the South African Department of Minerals and Energy (the
DME). The DME has informed the company that the valuation of assets has
been successfully completed; the implication being that the transfer can
now proceed. The Company is unaware of any further issues in this regard
and awaits Ministerial consent.
* Phase two prospecting right: The DME has granted the prospecting right for
20 km of strike adjacent to the Ezulwini Mine, subject to the approval of
the Environmental Management Programme (EMP).
Mine Waste Solutions (MWS)
* First Uranium has also applied for a prospecting right to process three
small additional tailings dams as part of the Buffelsfontein Tailings
Recovery Project. This has been accepted by the DME.
Buffelsfontein Gold Mines (Buffels)
* An application has been made to convert the existing old order rights in
favour of Buffelsfontein Gold Mines Limited to new order mining rights.
This was submitted to the DME on 22 November 2006. A letter of acceptance
from the DME has been received but since conversions do not have a time
limit within which they have to be approved or rejected, it is difficult to
estimate when this conversion will become effective. Once the conversion
has been granted, Simmers` Buffelsfontein Gold Mines Limited will cede the
new order mining right to First Uranium`s Mine Waste Solutions, the entity
responsible for treating First Uranium`s tailing dams for gold and
uranium. This will result in a reduction of the rehabilitation liability
for those tailings dams in the name of Buffels and the assumption thereof
by MWS. It is anticipated that once this is completed Buffels will have a
fully funded rehabilitation trust fund in place.
TGME
* The Group is awaiting the approval of the Social and Labour Plan (SLP) for
the Frankfort group of farms where current mining operations are taking
place and where the potential for further heap leach pads exists. The
mining rights have been granted subject to the final approval of the SLP.
Once the SLP is approved, the EMP can be amended to take into account the
proposed new heap leach sites. A revised SLP was submitted on 19 September
2007, following two workshops with representatives of the DME and
representatives of the Thaba Cheuwu Municipality, in an attempt to fast-
track the sustainable development process.
* At Elandsdrift, the site of the Company` first test heap leach pad, an
application for a Mining Right has been accepted by the DME. The scoping
document has been approved and interested and affected parties have had an
opportunity to comment on the Company`s EMP. A response to each of the
comments has been prepared and was submitted on 2 November 2007. Once the
EMP is approved, the pad can be commissioned. An interim rehabilitation
plan has been approved by the DME subject to the approval of a water user
licence by the Department of Water Affairs and Forestry.
A more detailed breakdown of permitting in relation to the construction of other
proposed heap leach pads can be found under the operational review for TGME,
which follows below.
SELECTED UNAUDITED FINANCIAL INFORMATION
The following table sets out selected, unaudited financial information relating
to Simmers for the quarter ended 30 September 2007 and year to date.
Selected Consolidated Q2 Q1 Var YTD
Financial Information 30 Sep 07 30 Jun 07 30 Sep 07
(in `000s of ZAR) R`000 R`000 % R`000
Income Statement
Gold revenue 207 160 163 894 + 26.4 371 054
Production costs 211 197 191 831 - 10.1 403 028
Loss from mining 4 037 27 937 + 85.6 31 974
activities
Amortisation & 14 608 7 196 -103.0 21 804
depreciation
General 33 692
administration & 35 032 + 4.0 68 724
overhead expenditure
Loss from operations 68 825
before interest and 53 677 +22.0 122 502
taxation
Interest received 37 701 35 448 + 6.4 73 149
Dividends received 2 615 - +100 2 615
Finance charges 41 086 19 338 - 112.5 60 424
Loss before taxation 54 447 52 715 -3.3 107 162
Balance Sheet
Total assets 3 738 546 3 643 065 + 2.6 3 738 546
Cash and cash 2 051 472 2 307 338 2 051 472
equivalents - 11.1
Current liabilities 275 483 247 007 - 11.5 275 483
Non-current 1 180 669 1 111 847 6.1 1 180 669
liabilities
Share capital 829 520 815 820 - 1.6 829 520
Consolidated results of Operations
Revenue
The increase in revenue is mainly attributable to the increase in gold
production at Buffels and Mine Waste Solutions. At Buffels, gold production for
the September 2007 quarter continued its upward trend, gaining 10% from 30 453
oz (947.18 kg) in Q1 to 33 488 oz (1 041.59 kg) at cash costs of US$667/oz (R152
708 /kg), compared to cash costs of US$714/oz (R163 204/kg) for Q 1. This is due
to an increase in underground production which resulted in a 17% increase in
underground gold recovered.
MWS produced 314.8 kg (10 124 oz) of gold for the full quarter compared to 106
kg (3 420 oz) in Q1 based on 25 days of production for Q1.
Production costs
At Buffels costs for the September 2007 quarter were negatively affected by
higher winter rates charged by Eskom to the amount of R4.1 million; higher
development costs of R1.5 million and increased labour costs of R7.5 million due
to increased production levels and wages
At MWS, production costs for the full quarter amounted to R41 million. In Q1,
MWS accounted for R13.7 million of the Group`s production costs which began with
the effective date of acquisition (6 June 2007) - i.e. just less than one month
before the end of the first quarter.
Loss from mining activities
The loss from mining activities decreased quarter on quarter by 85.6%, from
R27.9 million in Q1 to R4.0 million in Q2. In this phase of the Group`s growth
and development phase, operating losses are to be expected and will continue to
be a factor until such time as the capital projects begin delivering. The focus
on ramp up and construction brings cash flow closer, with gold operations
expected to be cash positive by end June 2008 (Q1 F2009). First Uranium is
expected to be cash positive by end March 2009 (Q4 F2009).
Financial Position and Liquidity
Cash and non-cash assets
Cash and cash equivalent balances at 30 September 2007 decreased from R2.3
billion in Q1 to R2.1 billion primarily as a result of the planned capital
expenditure at Buffels, Ezulwini Mine and TGME. Other increases in current
assets relate to gold-in-circuit and stockpile inventory increases at Ezulwini
Mine and MWS; increases in trade and other receivables comprising of value-added
tax for goods and services refunds.
Non-current assets increased from R1.2 billion in Q1 to R1.5 billion due to the
capitalisation of assets at Ezulwini, Buffels and TGME.
Total Liabilities
As at 30 September 2007 Simmers had total liabilities of R1.45 billion (June 07:
R1.36 billion). The increase is as a result of trade payables on capital
commitments for the refurbishing of the Ezulwini shaft and the increase in
environmental provisions for MWS and deferred tax for FIU
GROUP OUTLOOK
The Group`s focus on delivery for the past two quarters is paying off. Gold is
now being produced at both of First Uranium`s properties: at the acquired MWS
gold plant which is now part of the Buffelsfontein Tailings Recovery Project;
and from the Ezulwini Mine, which ore is being toll milled. In view of the
buoyant gold price, the earlier than anticipated production at both these
operations will make a solid contribution to the Group`s cash flow. The focus
remains on advancing production at both projects and First Uranium is on
schedule at the Ezulwini Mine to commission its own gold plant in April 2008 and
a uranium plant in June 2008. At MWS, board-approved construction to double
the existing gold plant capacity begins in November 2007, with the first module
of the uranium plant scheduled to come on line by November 2008.
Although the spot price for uranium, which reached $136 per pound at the end of
June, softened initially to $75 per pound, this is well above the $50 per pound
which First Uranium has based its project economics on for the next 20 years.
As of 1 November 2007, the spot price for uranium was $85. As concerns persist
that the supply of uranium might not meet near- to mid-term demand, the Group
raised its expectations for the average price of uranium for the life of its
projects from $40 per pound to $50 per pound. First Uranium Corporation has
entered into short-term non-fixed delivery spot market uranium contracts but has
not yet signed any contracts that have defined commitments to supply uranium and
does not expect to do so until it is nearer production in June 2008.
At Buffels the concerted efforts to increase production face length are paying
off with improved volumes at lower cash costs. The inclusion of Five Shaft from
March 2008 and the access to the higher-grade ore blocks at Seven Shaft means
that this trend should continue. The commissioning of the new Carbon In Pulp
(CIP) plant is also expected to lead to better recoveries.
At TGME the feasibility study for the treatment of the underground refractory
ore at Frankfort is scheduled for completion in December. This will allow the
company to make an informed decision as to the future of TGME`s considerable
underground resources. In terms of surface potential, the drilling required to
complete the pre-feasibility study is on track for completion by March 2008.
The Group will also continue to focus resources on the critical issue of safety,
where our high standards will not be compromised, notwithstanding that both
Buffels and the Ezulwini Mine are old mines.
Additional Information
A detailed Management Discussion and Review (MD&A) for the quarter can be found
on the Company`s website at www.simmers.co.za under the heading `Latest Results`
on the Simmers home page. The full MD&A for First Uranium Corporation is posted
on www.firsturanium.com
Conference call
Simmers will conduct a conference call with investors to discuss the Company`s
second quarter results for the 2008 financial year and related matters at 11h00
Johannesburg time on Monday 26 November 2007. The conference call will be
available simultaneously to all interested investors and the media at South
Africa on 011 535 3600, or toll-free on 0800 200 648 (South Africa only).
An announcement regarding toll free numbers for the USA, UK and Canada as well
as playback details is available on the company`s website on www.simmers.co.za
Cautionary language and forward-looking Information
This report for the quarter ended 30 September, 2007 contains certain forward-
looking statements concerning Simmers` operations, economic performance and
financial condition as well as plans and expectations. These statements,
including without limitation , those concerning the economic outlook for the
gold and uranium industry and market, expectations of gold and uranium prices,
production, the start and completion of certain exploration and production
projects, may contain certain forward-looking views. Such views involve both
known and unknown risks, assumptions, uncertainties and other important factors
that could materially influence the actual performance of the Company. No
assurance can be given that these will prove to be correct and no representation
or warranty express or implied is given as to the accuracy or completeness of
such views or as to any of the other information contained herein. Simmers`
future results may differ materially from past or current results and actual
results may differ materially from those projected in the forward-looking
statements.
Date: 26/11/2007 07:10:34 Produced by the JSE SENS Department.
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