| Thu 14 Feb 2008, 8:00 | | MVL - Mvelaphanda Resources - Reviewed interim results for the six months |
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MVL
MVL
MVL - Mvelaphanda Resources - Reviewed interim results for the six months
ended 31 December 2007
MVELAPHANDA RESOURCES LIMITED
(Registration number: 1980/001395/06
Incorporated in the Republic of South Africa
Share code: MVL
ISIN number: ZAE000050266
Reviewed Interim Results for the six months ended 31 December 2007
FEATURES
- Major Transactions with Anglo Platinum and Northam announced;
- Market volatility and operational issues impact negatively on results;
- Lower attributable loss of R237 million compared with R1 billion in previous
corresponding period; - Fundamental outlook for precious metals and diamonds
positive
GROUP BALANCE SHEET
As at
R`000 Notes Reviewed Restated Restated
31 December 31 December 30 June
2007 2006 2007
ASSETS
Non-current assets
Investment in associate
companies 792,381 838,402 866,863
- Northam Platinum
Limited 740,509 779,062 788,411
- Trans Hex Group 51,872 59,340 78,452
Limited
GFI-SA loan 2 4,846,000 6,100,000 5,273,000
Trans Hex Group
Limited forward
purchased shares 3 151,390 166,599 208,342
Non-strategic
listed investments 4 8,903 469 380
Goodwill 75,869 75,869 75,869
Deferred taxation 39,109 12,394 30,473
Property, plant and
equipment 577 855 857
Total non-current
assets 5,914,229 7,194,588 6,455,784
Current assets
Pre-paid taxation 6,459 - -
Inventories - 255 255
Accounts receivable
and prepayments 37,871 3,880 5,662
Cash and cash
equivalents 1,708,949 217,180 1,503,326
Total current assets 1,753,279 221,315 1,509,243
Non-current assets
classified as held
for sale
Booysendal Platinum
project 315,892 315,892 315,892
TOTAL ASSETS 7,983,400 7,731,795 8,280,919
EQUITY AND LIABILITIES
Share capital
and reserves 5,586,721 5,172,606 5,814,376
Total share capital
and reserves 5,586,721 5,172,606 5,814,376
Non-current
liabilities
"A" ordinary shares 700 - 700
Senior bank
loan (GFI - SA) 69,946 384,894 230,736
Mezzanine finance
(GFI - SA) 5 & 9 1,727,108 1,524,295 1,622,208
Provision for
employee long-term
incentive costs 6 19,254 44,142 29,620
Deferred taxation 7 & 9 102,515 272,952 156,120
Total non-current
liabilities 1,919,523 2,226,283 2,039,384
Current liabilities
Accounts payable
and accruals 42,998 17,475 17,283
Provision for
employee long-term
incentive costs 6 119,209 25,674 107,538
Short-term portion
of Senior bank loan
(GFI - SA) 314,949 289,284 301,688
Current taxation
payable - 473 650
Total current
liabilities 477,156 332,906 427,159
TOTAL EQUITY
AND LIABILITIES 7,983,400 7,731,795 8,280,919
GROUP INCOME STATEMENT
R`000 Notes Reviewed Restated Restated
6 months to 6 months to 12 months to
31 December 2007 31 December 2006 30 June 2007
INCOME
Earnings from
associate companies 92,636 136,727 272,275
- Northam Platinum
Limited 94,993 138,438 272,955
- Trans Hex
Group Limited (2,357) (1,711) (680)
Interest earned
on GFI-SA loan 218,703 218,703 437,405
Interest earned on
cash and cash
equivalents 81,318 8,310 43,383
Other income 201 649 905
Total income 392,858 364,389 753,968
OPERATING EXPENSES
Exploration and
project development
Costs 6 (5,735) (46,993) (67,564)
Corporate expenses (13,898) (19,038) (35,421)
Share-based
incentive costs 6 (9,388) (32,785) (129,060)
Finance costs (165,643) (165,901) (330,346)
- Senior bank
loan (GFI-SA) (28,060) (42,668) (77,605)
- Mezzanine finance
(GFI-SA) 9 (137,583) (122,969) (252,474)
- Other - (264) (267)
Total operating
expenses (194,664) (264,717) (562,391)
PROFIT BEFORE
OTHER EXPENSES 198,194 99,672 191,577
OTHER EXPENSES
Impairment
(write-down)/
write-back (2,835) - 17,312
Loss on
revaluation of
financial instruments (483,952) (1,274,015) (2,059,272)
- GFI-SA loan (427,000) (1,300,000) (2,127,000)
- Trans Hex Group
Limited forward
purchased shares (56,952) 25,985 67,728
Costs associated
with the Afripalm
Transaction - - (543,700)
Other expenses - (7,025) -
Total other expenses (486,787) (1,281,040) 2,585,660)
LOSS BEFORE TAXATION (288,593) (1,181,368) (2,394,083)
TAXATION 50,762 177,690 295,333
- Normal (11,479) (16,828) (34,093)
- Deferred 7 & 9 62,241 194,518 329,426
ATTRIBUTABLE LOSS (237,831) (1,003,678) (2,098,750)
(LOSS)/EARNINGS
PER ORDINARY
SHARE (cents)
- Basic (114) (600) (1,193)
- Headline 8 (a) (112) (600) (1,203)
- Diluted (114) (600) (1,193)
- Adjusted 8 (b) 85 55 107
GROUP STATEMENT OF CHANGES IN EQUITY
R`000 Total
Restated balance at 30 June 2006 6,129,537
Attributable loss for the period (1,003,678)
Equity compensation reserve 43,566
Equity accounted portion of share-based
payments of associates 995
Equity accounted portion of foreign currency
translation reserve 1,572
Equity accounted portion of fair value
adjustment on available-for-sale financial assets (71)
Unrealised profit on revaluation of listed investments 448
Equity accounted cash flow hedges of associates (1,139)
Unclaimed dividend forfeited 1,376
Restated balance at 31 December 2006 5,172,606
Attributable loss for the period (1,095,072)
Equity compensation reserve 224,501
Net proceeds from shares issued 1,182,767
Share-based discount to Afripalm 1 - Ordinary shares 328,000
Equity accounted portion of share-based
payments of associates 1,508
Equity accounted portion of foreign currency
translation reserve (389)
Equity accounted portion of fair value adjustment
on available-for-sale financial assets 105
Unrealised loss on revaluation of
listed investments (89)
Equity accounted cash flow hedges
of associates 1,139
"A" ordinary shares reclassified as
non-current liabilities (700)
Restated balance at 30 June 2007 5,814,376
Attributable loss for the period (237,831)
Equity compensation reserve 2,452
Net proceeds from shares issued 9,895
Equity accounted portion of share-based
payments of associates 1,974
Equity accounted portion of foreign
currency translation reserve (119)
Equity accounted portion of fair value adjustment
on available-for-sale financial assets (49)
Unrealised loss on revaluation of
listed investments (3,977)
Balance at 31 December 2007 5,586,721
ABRIDGED GROUP CASH FLOW STATEMENT
R`000 Reviewed Reviewed Audited
6 months to 6 months to 12 months
31 December 2007 31 December 2006 30 June2007
Net cash generated
by operating
activities 184,924 109,285 237,802
Net cash generated by
investing activities 158,334 68,713 195,330
Net cash (utilised in)/
generated by financing
activities (137,635) (135,446) 895,566
Net increase in cash
and cash equivalents 205,623 42,552 1,328,698
Cash and cash equivalents
at beginning of
the period 1,503,326 174,628 174,628
CASH AND CASH EQUIVALENTS
AT END OF
THE PERIOD 1,708,949 217,180 1,503,326
* A detailed cash flow statement is available on the company`s website:
www.mvelares.co.za
ABRIDGED GROUP SEGMENTAL RESULTS
R`000 Reviewed Restated Restated
6 months to 6 months to 12 months to
31 December 2007 31 December 2006 30 June 2007
Net profit/(loss)
after taxation
- Gold (319,419) (1,113,618) (1,798,780)
- Platinum 92,383 135,374 272,855
- Diamonds (56,596) 16,362 68,142
- Other 45,801 (41,796) (640,967)
ATTRIBUTABLE LOSS (237,831) (1,003,678) (2,098,750)
* A detailed segmental income statement is available on the company`s website:
www.mvelares.co.za
NOTES
1. Basis of preparation
These condensed consolidated financial statements have been prepared
on the historical cost basis, except for financial instruments that
are fair valued, in accordance with the group`s accounting policies
which are consistent with those adopted in the financial year ended
30 June 2007 and which are compliant with International Financial
Reporting Standards ("IFRS") and in accordance with IAS 34: "Interim
Financial Reporting", the South African Companies Act, 1973, as
amended, and the JSE Listings Requirements.
2. GFI-SA Loan
R`000 Reviewed Reviewed Audited
31 December 2007 31 December 2006 30 June 2007
Loan advanced
to GFI-SA 4,139,000 4,139,000 4,139,000
Unrealised fair
value adjustment
at end of the period 707,000 1,961,000 1,134,000
GFI-SA loan at fair
value 4,846,000 6,100,000 5,273,000
The value of this investment is sensitive to the following key drivers:
- Rand/dollar exchange rate;
- US dollar gold price; and
- Gold Fields share price
The fair valuation of this investment takes into account the change
in the value of the Gold Fields investment
according to the formula and impacted by the above-mentioned drivers,
and the difference between the present value of the future interest
payments from GFI-SA until March 2009 and the present value of the
estimated future dividends foregone over the same period.
The decrease in the value of the GFI-SA loan to R4,8 billion from
R5,3 billion (30 June 2007) is primarily
attributable to a 10% decrease in the Gold Fields share price during
the six month period to 31 December 2007. The number of Gold Fields shares
attributable to the group was calculated at 46,9 million
(30 June 2007: 47,4 million.)
3. Trans Hex Group Limited forward purchased shares
This represents the fair value of 16 million Trans Hex Group Limited
forward purchased shares for delivery on 5 March 2008. The fair
value is based on the market price of Trans Hex Group Limited shares
as at 31 December 2007 net of the contingent liability at that date
, of R8,6 million (31 December 2006: R27 million and 30 June 2007:
R18 million) relating to the debenture coupon.
4. Non-strategic listed investments
Included in non-strategic listed investments is 592,424 shares in
Etruscan Diamonds Resources Inc. attributable to the group`s share of the sale
of Tirisano.
5. Mezzanine finance
R`000 Reviewed Restated Restated
31 December 2007 31 December 2006 30 June 2007
Loan advanced
to Mvela Gold 1,086,000 1,086,000 1,086,000
Net interest
capitalised at
beginning of
the period 536, 208 346,889 346,889
Net interest
capitalised during
the period 104,900 91,406 189,319
Mezzanine finance
at fair value 1,727,108 1,524,295 1,622,208
The mezzanine finance was advanced to Mvela Gold in March 2004 by a special
purpose vehicle company(SPV), on a back-to-back arrangement (the same
arrangements which are applicable to the SPV are applicable to Mvela Gold) and
all costs incurred by SPV are fully recoverable from Mvela Gold. The Mezzanine
finance is repayable in March 2009. Refer to note 9 on the prior year
adjustment.
6. Share-based payment costs
The provision for employee incentive costs relates to share appreciation rights
that could potentially be exercised any time in the next ten years from grant
date. These cash-settled share appreciation rights are valued at the fair value
of the rights at each balance sheet date, with any changes in fair value
recognised in profit and loss over the vesting period of the rights.
Equity-settled share options are valued at grant date, and the cost is spread
equally over the vesting period of the options. The resulting credit is
accounted for in shareholders` equity.
The contract with Gold Fields for exploration in Africa expired in February
2007. Included in exploration and project development costs for 31 December
2006: R40 million and R56 million for 30 June 2007, is the cost of the Gold
Field`s warrants.
7. Deferred tax
The deferred tax provision mainly relates to the fair value adjustment on the
GFI-SA loan. The deferred tax asset relates to the provision for employee long-
term incentive costs
8. Loss per ordinary share is calculated as follows:
Reviewed Restated Restated
31 December 2007 31 December 2006 30 June 2007
(a) Headline loss
per ordinary
share (cents) (112) (600) (1,203)
R`000
Attributable loss (237,831) (1,003,678) (2,098,750)
Impairment
write-down/
(write-back) 2,835 - (17,312)
Headline loss (234,996) (1,003,678) (2,116,062)
Weighted average
number of shares
in issue 208,893,109 167,214,243 175,866,989
(b) Adjusted
earnings
per ordinary
share (cents) 85 55 107
R`000
Attributable loss (237,831) (1,003,678) (2,098,750)
"Other expenses"
per income statement 486,787 1,281,040 2,585,660
Taxation relating
to "other expenses" (70,608) (185,093) (298,594)
Adjusted
earnings 178,348 92,269 188,316
Weighted average
number of shares
in issue 208,893,109 167,214,243 175,866,989
9. Prior year adjustment
The mezzanine finance was advanced to Mvela Gold by a special purpose vehicle
company (SPV), on a back-to-back arrangement (the same arrangements which are
applicable to the SPV are applicable to Mvela Gold) and all costs incurred by
SPV are fully recoverable from Mvela Gold.
During the period under review it was identified that certain costs incurred by
the SPV were not recovered from and accrued for by Mvela Gold. These costs have
now been accrued for in full and the prior year results were restated where
applicable. The impact was as follows:
R`000 6 months to 6 months to 12 months to
31 December 2007 31 December 2006 30 June 2007
Income statement
- Increase in
finance costs
- Mezzanine finance
(GFI - SA) (5,605) (4,884) (10,111)
- Decrease in
normal tax 8,311 - -
- Increase/
- (decrease)
in deferred
- taxation (6,686) 1,416 2,933
Net increase in
attributable loss (3,980) (3,468) (7,178)
LOSS PER ORDINARY
SHARE (CENTS)
- Basic (2) (2) (4)
- Headline (2) (2) (4)
- Diluted (2) (2) (4)
- Adjusted (2) (2) (4)
R`000 31 December 2007 31 December 2006 30 June 2007
Balance sheet
- Increase/
(decrease) in
non-current liabilities
- Mezzanine finance 34,267 23,430 28,657
- Deferred taxation - (6,795) (8,311)
- Decrease in current liabilities
- Current
taxation liabilities (9,937) - -
10. Post balance sheet events
Northam Platinum Limited declared an interim dividend of 145 cents
per share to be paid on 10 March 2008. This translates to a cash
inflow of R75 million for the Mvela Resources group.
11. Audit Review opinion
These financial results have been reviewed by the group`s auditors,
PricewaterhouseCoopers Inc., and their unqualified review opinion is
available for inspection at the company`s registered office.
REVIEW OF RESULTS
CORPORATE ACTIVITY
The Anglo Platinum and Northam Transactions
On 4 September 2007, Mvela Resources, Anglo Platinum and Northam
("the parties"), announced concurrent transactions, which, subject to
the relevant approvals being obtained, would result in Mvela
Resources acquiring 53.1 million Northam shares and 50% of the
Booysendal Platinum Project ("Booysendal") from Anglo Platinum for R4
billion (funding of which has been secured; R1.5 billion from current
cash reserves and a R2.5 billion preference share facility with
Nedbank), and Northam acquiring 100% of Booysendal from Mvela
Resources for a consideration of 125 million new Northam shares.
On 31 January 2008, the parties jointly announced that due to
reinterpretation of possible geological losses in the southern part
of the property as part of Northam`s independent due diligence study,
the initial 112 million 4PGE oz resource could not be confirmed and
the parties agreed to amend the original transaction as follows:
* The northern boundary of Booysendal will be extended by 1.3km on
strike adding about 9 million 4PGE oz from outcrop to depth, although
total resources for Booysendal were estimated to have fallen to 103
million 4PGE oz.
* The consideration due from Northam for 100% of Booysendal would be reduced
from 125 million shares to 121 million shares.
Should shareholders approve the transactions, Mvela Resources`
shareholding in Northam will increase from 22% currently, to 63%,
making it the controlling shareholder. Northam will in turn, be the
largest, black owned, fully independent PGM producer in the South
African platinum sector with significant organic growth potential in
Booysendal and become one of only four producers in the South African
platinum industry to have control of its entire metal pipeline, from
mine to market.
Crucially, the parties have also reached agreement on the ancillary
assets and services which are required to ensure the sustainability
of Booysendal. These include:
* Power; access of up to 16MVA from the existing Mototolo substation.
* Water; an allocation of 7 megalitres per day from the existing
Lebalelo pipeline, thereafter additional resources from the
proposed De Hoop dam.
* Tailings dam sites; suitable sites to be identified on either Der
Brochen or Booysendal in agreement with Anglo Platinum, the owners
of Der Brochen.
* Access; traversing rights over Der Brochen if needed.
The amendments and ancillary asset agreements significantly enhance
the robustness of the Booysendal project and will ensure the
accelerated development of the project. A pre-feasibility study for
an operation accessing the northern 7.5km extent of the 14.5km strike
length is due by mid-2008, with a bankable feasibility due by mid
2009. While conceptual studies indicate the potential for an
operation treating a minimum of 400,000tpm and producing
approximately 430,000oz 4PGE per annum at a total capital cost of
around R7.1 billion to depth, in the north and additional potential
to realize value in the south, these parameters will be refined as
part of the feasibility study process.
Mvela Resources and Northam anticipate posting circulars to
shareholders in March 2008, with the shareholder vote scheduled for
April 2008 and conclusion of the transaction in May 2008.
FINANCIAL COMMENTARY
Balance Sheet
Mvela Resources` R1.7 billion cash balance at 31 December 2007 was
significantly higher than the R217 million reported at 31 December
2006 as a result of the Afripalm Transaction which was concluded in
the second half of the 2007 financial year. Approximately R1.6
billion (including transaction costs) will be used to fund part of
the R4 billion cost for 53.1 million Northam shares and 50% of
Booysendal currently being acquired from Anglo Platinum. The R2.5
billion balance will be funded through a preference share facility
that has been secured with Nedbank, which bears interest at 68% of
prime.
In line with the financing structure associated with the GFI-SA
Transaction, the long term portion of the Senior bank loan fell from
R385 million as at 31 December 2006 to R70 million as at 31 December
2007. Interest payments from GFI-SA on the R4.1 billion loan made
from Mvela Gold service the Senior Bank Loan such that it will be
zero by the time Mvela Gold is able to exercise its right to acquire
15% of GFI-SA in March 2009. In contrast, interest on the Mezzanine
loan (also related to the GFI-SA funding structure) is capitalized
over the same period, increasing the mezzanine debt balance from R1.5
billion on 31 December 2006 to R1.7 billion on 31 December 2007.
Mvela Resources will be required to repay or refinance an amount of
some R2 billion in Mezzanine debt when the structure matures.
Mvela Resources 50% interest in the Booysendal Platinum Project
continues to be valued at historic cost of R316 million. On
completion of the transactions with Anglo Platinum and Northam
(pending the necessary approvals), the value of this investment will
increase significantly. Associated with the Transaction has been
a meaningful increase in Accounts receivable and prepayments and
Accounts payable and accruals, which is primarily a result of
capitalized transaction costs relating to the Transaction.
Income Statement
Earnings for the six months to 31 December 2007 were again largely
driven by the revaluation of Mvela Resources` investment in GFI-SA.
Despite the rand gold price rising 24% to about R183,000/kg over the
period, Gold Fields share price, driven by negative market sentiment
fell 10% during the six months to 31 December 2007, resulting in a
negative unrealized fair value adjustment of approximately R400
million.
This amount was significantly lower than in the six month period to
31 December 2006, when a R1.3 billion fair value adjustment was made
and as a result, headline earnings were 488 cents per share higher
year on year from a restated loss of 600 cents to a 112 cent loss.
Mvela Resources` associated companies experienced difficult operating
conditions in the six month period to 31 December 2007. Protracted
production interruptions resulted in Northam in particular losing 23
production days, which, together with challenging mining conditions
on the Merensky Reef, resulted in a R43 million fall in earnings
attributable to Mvela Resources to R95 million. Adjusted earnings per
share, which exclude other expenses (largely non-cash items) rose 55%
from 55 cents per share to 85 cents per share, due mainly to higher
interest earned and lower exploration and project development costs.
This was partly offset by an increase in interest income from R8
million in the six month period to 31 December 2006 to R81 million in
the six month period to 31 December 2007, due to the sizable cash
balance resulting from the Afripalm Transaction coupled with
increasing interest rates over the period.
The expiry of the exploration agreement with Gold Fields in February
2007 has resulted in a decline in exploration and project development
costs. Mvela Resources share of these costs (largely Essakane in
Burkina Faso) was settled by issuing Mvela Resources warrants to Gold
Fields and the cost thereof was previously included in exploration
expenditure.
In October 2007, Mvela Exploration sold its 50% interest in the
Tirisano Diamond mine project to Etruscan Diamonds Resources Inc., in
consideration for a cash payment of R25 million and R25 million worth
of Etruscan Resources Inc. shares. Mvela Resources received its
attributable share thereof, being cash of R12.5 million and 592,424
Etruscan Resources Inc. shares. Accordingly, the impairment provision
previously recognised on Tirisano was reversed by R20 million, and
this was offset by an impairment adjustment of R23 million against
the Trans Hex investment, resulting in a net impairment write-down of
R3 million for the six month period ended 31 December 2007.
Cash flow remained solid despite the difficult operating conditions,
with both Northam and Trans Hex declaring higher final dividends
year-on-year. Dividends from associated companies were 70% higher
than in the corresponding six month period to December 2006, at R145
million.
Prospects
While difficult operating conditions at the underlying companies are
likely to persist in the coming period, compounded by the power
shortages being experienced across South Africa, record platinum and
gold prices and a weakening rand will continue to support revenues.
The average rand gold price and rand platinum prices in the current
reporting period are already 25% and 24% higher respectively on the
previous six months and the outlook for both metals is positive in
our view. Even with anticipated operations issues and continued cost
increases, the rate at which these prices have increased recently
will be significantly boosting industry coffers.
While the South African gold shares in particular have
underperformed, we believe it is only a matter of time before the
leverage to the rising metal price becomes evident in their results
and there will be some rerating in the shares, despite the difficult
prevailing conditions.
We continue to believe that the quality and size of the Booysendal
ore body and the numerous options available to extract value from the
resource are compelling reasons for shareholders to approve the
transactions. Beyond the organic growth options provided by this
massive deposit, the strategic benefits of the Transactions we have
entered into with Anglo Platinum and Northam will become increasingly
apparent in future.
for and on behalf of the board
PL Zim PC Pienaar
Chairman Chief Executive Officer
Sponsor
JP Morgan
14 February 2008
Johannesburg
Full details of our results are available at: www.mvelares.co.za
Contact Details
James Wellsted
Investor Relations Officer
Tel: +27 (11) 325 5323
Fax: +27 (11) 325 5324
email: james@mvelares.co.za
Directors
PL Zim (Chairman); PC Pienaar* (CEO); NS Ntsaluba* (FD); KB Mosehla*;
Z Mtshotshisa (alternate); TMG Sexwale; BR van Rooyen*; ME Beckett
(British); P Buthelezi; CK Chabedi; R Moonsamy; NE Mtshotshisa; MJ
Wilcox; MSMM Xayiya
(* Executive Directors)
Transfer Secretaries
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Date: 14/02/2008 08:00:15 Produced by the JSE SENS Department.
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