| Tue 19 Feb 2008, 9:38 | | SIM - Simmer And Jack - Report to shareholders for the three months ended 31 |
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SIM
SIIF
SIM - Simmer And Jack - Report to shareholders for the three months ended 31
December 2007.
SIMMER AND JACK MINES, LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1924/007778/06)
("Simmers" or "the company")
Share code: SIM
ISIN: ZAE000006722
Simmer & Jack Mines, Limited
Report to shareholders for the three months ended 31 December 2007.
Key features of Q3 F2008 for the Group:
* Grew revenue 5.3% from R207 million in Q2 to R218 million.
* Recorded a 368% jump in profit from mining activities of R10.8 million
compared to a loss of R4.0 million in Q2, as a result of improved
recoveries at TGME and higher gold prices achieved during the quarter.
* Decreased loss per share by 14% from 5.06c per share in Q2 to 4.36c per
share in Q3.
* Commissioned two new value-adding projects, namely the new Kemix CIP plant
at Buffelsfontein Gold Mine while First Uranium`s MWS saw the new 10.5km
pipeline and monitoring station come on stream in the quarter under review.
* As previously reported, gold production increased 16%, compared to the
equivalent period in F2007, but showed a 1.9% decline against the previous
quarter owing to the lock-up of 151kg as a result of the commissioning of
the new CIP plant at Buffels. This `lock-up` of gold is common when
commissioning new plant and milling equipment and refers to gold that goes
through the system but is locked as a temporary inventory within the new
processing plant. It can be accessed when the plant is cleaned or
decommissioned at a later stage.
* Group unit cash costs increased marginally by 1.2% per kilogram from R156
396/kg in Q2 to R158 190 /kg in Q3.
* Overall production costs for the group decreased by 1.9% in Q3
* Ended the period with cash on hand of R1.7bn.
* Added 1 090 new employees and contractors to the Group during the quarter
bringing the total to 8 565 new jobs created by the Group since the
beginning of 2005.
* Recorded a 38 % increase in attributable gold Reserves and a 519% increase
in attributable uranium Reserves as a result of an updated reserve
declaration on First Uranium`s Buffelsfontein Tailings Recovery Project
(BTRP), operated by MWS.
* First Uranium acquired the remaining 10% of Ezulwini Mining Company (Pty)
Limited (EMC), from the Waterpan Mining Consortium, in consideration for 6
141 009 common shares in First Uranium. As a consequence, Simmers` holding
in First Uranium reduced from 65.47% to 62.4% and EMC became a wholly-owned
subsidiary of First Uranium.
Buffelsfontein Gold Mine Limited (Buffels or BGM)
* Produced 938.68 kg of gold at a cash cost of R161,919/kg compared to 1
041.59kg in Q2. The reduction is due to the lock-up of 151kgs as a result
of the commissioning of the mine`s new Kemix plant. Had the plant been
operating under normal circumstances, i.e. without the lock-up coming in to
play, Buffelsfontein would have reported a 4.6% increase in production
against the second quarter.
* Achieved 376 334 fatality-free shifts.
* Increased face length by 4% from 1 763 m (Q2) to 1 841m in Q3
* Completed an initial technical assessment of the Strathmore project. The
study conducted by TWP Consulting, indicates that the Strathmore project
has the potential to treble the mine`s current gold and uranium resources.
Transvaal Gold Mining Estates Limited (TGME)
* Frankfort Mine achieved 959 fatality free shifts during Q3 F2008.
* Lost time frequency rate improved by 15%.
* Gold production up 81%.
* Revenue up 98.2%.
* Costs per kg reduced by 39.4%.
* Improved net loss by 35%.
* Determined metallurgical solution to refractory nature of underground ore
that will allow TGME to execute and bring its significant underground
resources to account.
* Added 9 588 ounces to bring the total compliant surface resource to 133 312
ounces.
First Uranium Corporation - comprising the Ezulwini Mining Company and
Buffelsfontein Tailings Recovery Project (BTRP), of which the operational entity
is Mine Waste Solutions (MWS).
* Toll-treated 27,951 tonnes of ore from the Ezulwini Mine at a recovered
grade of 5.6 grams of gold per tonne, producing 5,055 ounces of gold at a
Cash Cost of $348 per ounce.
* Started drilling specific targets related to the possible expansion of the
existing Ezulwini Mine.
Completed construction of the pump station at MWS and the 10.5-kilometre
pipeline to the MWS gold plant at a total cost of $11.7 million.
Completed the clean up and processing of the remaining tailings of the MWS
No.2 tailings dam and commenced hydraulic mining and pumping of material
from the Buffelsfontein No.2 dam to the MWS gold plant for processing
during mid-December.
* Processed a total of 832,208 tonnes of tailings through the MWS gold plant
at a recovered grade of 0.275 grams of gold per tonne, producing a total of
7,357 ounces of gold at a Cash Cost of $674 per ounce.
* Completed a pre-feasibility study of MWS incorporating higher average
uranium and gold price assumptions and increased capital investment, which
projected the project`s expected net present value (NPV) increasing by 71%
to $505 million and its internal rate of return (IRR) increasing from 69%
to 151%.
* Entered into an interim off-take agreement with a third party pursuant to
which the third party will purchase yellowcake from First Uranium from June
2008 until January 2009 at rates based upon the then prevailing spot
prices.
* Issued 6.1 million First Uranium common shares to Waterpan Mining
Consortium (Waterpan) in connection with the acquisition of the remaining
10% interest in Ezulwini Mining Company (Proprietary) Limited (EMC) which
owns and operates the Ezulwini Mine, resulting in EMC becoming wholly-owned
by First Uranium (the Waterpan Transaction).
* Ended the period with $215.2 million in cash and cash equivalents.
CHANGES TO THE BOARD
David Brown resigned as director with effect from 31 December 2007.
CHANGES TO THE MANAGEMENT TEAM
Subsequent to the end of Q3, the Group restructured its executive team to best
allocate the experience and strengths of management and position the Group for
future growth.
* Jim Fisher, formerly Chief Operating Officer for FIU moves to Executive
Vice President, Corporate Development in First Uranium`s Toronto office.
* Syd Caddy, formerly Simmers` Executive in charge of New Business
Development, joins FIU as Executive Vice President and Chief Operating
Officer, responsible for all FIU`s operating and exploration activities
* John Gould joins FIU as Vice President Exploration and Business Development
responsible for all FIU`s exploration, technical services and growth
projects and will report to Syd Caddy.
* Barry Smit, formerly part of the Simmers team, joins FIU as Consulting
Mining Engineer and will focus on FIU`s expansion project at the Ezulwini
Mine
* Wouter de Vos, previously GM of Buffelsfontein Gold Mine, joins FIU as
General Manager of the Ezulwini Mine, an underground uranium and gold mine.
* Mark Glasspool, currently GM at TGME, will replace Wouter de Vos, taking up
the reins at Buffelsfontein Gold Mine later this month. A replacement GM
for TGME will be announced shortly.
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 completing capital projects to
deliver on a sustainable, low cost production basis well into the future.
In Q3 F2008, Simmers generated revenue of R218 million compared to R207 million
for the previous quarter (Q2 F2008). The increase is mainly due to the increased
production at TGME and higher metal prices received.
Group cash unit costs increased by 1.2% per kilogram from R156 396/kg in Q2 to R
158 190/kg in Q3, notwithstanding the impact of the lock-up of 151kg of gold as
a result of the commissioning of the new CIP plant (the Kemix plant) at Buffels.
Had the lock-up not occurred, cash costs would have equated to R141 459/kg.
The total production cost decreased quarter on quarter from R211 million to R207
million. This excludes production costs from Ezulwini Mine that were capitalised
owing to the fact that this project is still in a pre-production phase. The
build-up of production at the Ezulwini mine during Q3 2008 resulted in the toll-
treatment of 27,951 tonnes of ore at a yield of 5.6 grams of gold per tonne,
producing 5,055 ounces of gold at a cash cost of US$355 per ounce. Production
during the first two months of Q3 2008 was negatively influenced by the lower
than planned grades, but this was more than offset in December, when Ezulwini
Mine`s production exceeded the planned rate due to higher than expected grades.
The Ezulwini production costs would have accounted for R11.6 million of the
total production cost.
As at the end of the quarter Simmers had cash and cash equivalents of R1.7
billion compared to R2.1 billion for the previous quarter. This is mainly due to
expenditure on capital projects at Buffels of R29.5 million, First Uranium of
R273.1 million and R28.4 million at TGME, as well as working capital and
operational requirements.
As at 31 December 2007 Simmers had total assets of R3.7 billion (R3.7 billion
for Q2); total liabilities of R1.4 billion (R1.4 billion for Q2) and
shareholder`s equity of R2.3 billion (R2.3 billion in Q2).
MATERIAL TRANSACTIONS
In Q3, Ezulwini Mine generated revenue of R27.7 million and production costs of
R11.7 million. These were capitalised owing to the fact that this project is
still in a pre-production phase.
The production for the Group would have been as much as 30% higher compared to
the equivalent period in F2007, were it not for the fact that Buffelsfontein
Gold Mine`s production for the third quarter was affected by the lock-up of
151kg of gold as a result of the commissioning of its new CIP plant.
Further material transactions disclosed are: (i) the expenditure on the approved
capital projects at Buffels, TGME and at First Uranium amounting to R331
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 R14.2 million.
POWER CRISIS
On 25 January 2008, Eskom, South Africa`s national power utility, declared that
it was unable to guarantee power supply to the country`s mining industry.
Mines were subsequently permitted to operate at 70% of their historical power
usage, sufficient to operate basic maintenance and safety functions. Following
discussions with industry, this was raised to 80%, with the promise that power
could be gradually increased to 90% provided the national grid remained stable.
In effect this means that while the Group`s operations are currently operating
at 90% power, there is no guarantee that this supply can be sustained. Eskom
expects the immediate power crisis to last between four and six weeks. Once the
situation has stabilised, mining companies will still only be permitted to use
90% of their historical power usage for the foreseeable future - probably until
2012.
Eskom has advised that historical usage will be based on the amount of power
consumed during September and October of 2007. The issue for Simmers is that
significant growth projects came on line post that period. By December 2007 the
Group had already exceeded its historical base load power as defined by Eskom,
and was preparing to ramp up power usage in line with the roll-out of these
growth projects.
In terms of consumption, 70% of a mine`s power demands are a base load for
essential services i.e. pumping of water, ventilation of working places, winding
operations for essential staff, the operation of fridge plants and lighting of
essential underground workings. A request to cut utilisation of electricity by
10% can reduce production capabilities by as much as 20% as the only power usage
that can safely be reduced is the portion devoted to operations.
As a Company committed to sustainable growth, to stop these development projects
in mid-stream is simply not an option. Simmers was created specifically as a
growth and development company and we are still in the very early phases of our
plans. The Company however is encouraged by statements from the Ministry of
Trade and Industry that the Eskom power crisis will not impact on growth and
development projects. To this end, Simmers is working closely with Eskom to cut
power where it can and to secure the power it needs to complete its projects.
These discussions are ongoing and the Company will review current production and
expansion plans as soon as assurances are forthcoming from Eskom.
In the interim, management has conducted a desk-top analysis on the possibility
of the Group generating its own power should Eskom be unable to accommodate its
growth targets.
The initial impact of the power situation on each operation is as follows:
Buffelsfontein Gold Mine
* Assuming Eskom`s calculation of the historical base load correlates with
management`s view of the base load required for this particular operation -
in this instance, 57 MVA* - the current mine plan will be able to go ahead
without significant changes to total production. To ensure that Buffels can
operate within 90% of this power target, the surface tonnages will be
curtailed in favour of underground operations. On this basis, operating at
90% power will result in a production variance of 6% of the current plan.
This has been achieved through extensive rationalisation of current
operations.
* 1 Megavolt Ampere = 1 Mega Watt at a power factor of 1.
* New growth projects: the successful commissioning of the new Kemix plant
paves the way for the introduction of the Mega Float Project designed to
treat some 29 million tonnes of old waste rock material at an average grade
of 0.52 g/t. The Mega Float Project has not been factored into historic
base load usage, so will require its own power supply in the short to
medium term. This is expected to require 5 MVA of power at an estimated
capital cost of R20 million. Despite this, the project economics
remain sufficiently attractive, and are expected to add an average of 63
kilograms of gold per month to Buffels` production profile for the nine
years of the project. The project also allows Buffels to bring
approximately 10 million additional tonnes of waste rock dumps that were
previously considered unviable, to account.
TGME
TGME currently comprises an underground mine at Frankfort, a gold plant at
Pilgrim`s Rest and a substantial exploration drilling project. While the
Frankfort mine and the drilling programmes are generator-powered, the plant has
felt the brunt of the power crisis as it has been subject to load shedding. With
the increasing stabilisation of the national grid these load shedding episodes
have become less severe, but it is unclear whether this is a temporary respite.
Simmers is monitoring the situation. Should it deteriorate to a point where it
has material effect on production levels, the installation of a 2.5 MVA
generator, with 6.6kV will be considered.
First Uranium
After a preliminary review of the feasibility of the Corporation generating its
own power, First Uranium`s Board has concluded that the Corporation`s two
projects are sufficiently robust to continue development as planned based on the
addition of power generation capacity.
The initial impact of this decision is as follows:
For the Ezulwini Mine:
* Given the uncertainty of power supply to a third-party gold plant which
toll treats the Corporation`s ore, the FIU Board has decided to postpone
the ramp-up of the underground production and to accelerate the shaft
refurbishment programme.
* The weekly operating plan to date has been to focus on mine development and
hoisting for three days and shaft rehabilitation for four days; henceforth
the intention is to focus entirely on shaft refurbishment until the
operation`s gold plant is commissioned.
* The first 50,000 tonne per month module of the gold plant remains on
schedule for commissioning in April 2008 using existing generator capacity;
should Eskom power not be forthcoming, the Ezulwini Mine has existing power
generating capacity of 13 MVA which will be utilized.
* The first 50,000 tonne per month module of the uranium plant remains on
schedule for commissioning in June 2008; a feasibility study of power
generating options is underway to reduce power reliance on Eskom;
* Commissioning of the remaining modules of the gold and uranium plant will
be deferred by approximately a year to January 2010 to coincide with the
corresponding mine development plan.
For MWS:
* The current MWS operation is presently unaffected by the Power Situation as
it has been drawing additional power from Buffelsfontein Gold Mine.
* Upgrading of the MWS gold plant to increase the design capacity to 630,000
tonnes per month remains on schedule for completion in Q4 2008.
* The expansion of the current operations, however, will require additional
power; a power generation feasibility study has been initiated with the
expected result that the expansion will be delayed by approximately three
months.
The decision to invest in generating its own power is a temporary measure until
the power situation has normalized. It is expected that the Group will be able
to monetise a significant proportion of this investment once the power crisis
has passed.
GROUP OUTLOOK
The power constraints come at a time when the Group is finally beginning to see
results at all its operations, after an intense period of investment in
development and construction.
The spot price for uranium ranged between $75 and $92 per pound during Q3 2008
and closed on $90 per pound at the end of December. This is well above the $50
per pound on which First Uranium has based its project economics for the next 20
years. 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.
In terms of production, Q4 will see Ezulwini Mine focusing full time
on the refurbishment of the shaft pillar, given that power concerns have
curtailed toll-treatment at the neighbouring plant. In this way, the
shaft refurbishment will now be complete 3 months ahead of schedule, to
coincide with the opening of the first module of the Ezulwini gold plant on
schedule in April 2008.
At MWS it will be business as usual in Q4, with the upgrading of the MWS gold
plant to increase the design capacity to 630,000 tonnes per month still on
schedule for completion in Q4 2008. The power generation feasibility study
required to expand the current operations has also been initiated.
At Buffels, production for Q4 will be impacted by safety stoppages and the
unexpected curtailing of production in the latter part of January. A fatal
accident on 24 January resulted in the mines` number two shaft closed for 5
days. This incident coincided with Eskom`s communique that it could not
guarantee power supply which resulted in three shifts being lost, amounting to a
loss of approx 500 ounces per day.
On the plus side, Buffels will be in a position to halve its CAPEX requirements
going forward, having been through a period of intense capital build up. This
excludes new ventures such as the Mega Float Project, for which board approval
for capital funding of R181-million, including power generation facilities, will
be sought in Q4.
Buffels also anticipates being able to access large ore blocks for the first
time since operations resumed at the mine in 2005. This is expected to have a
significantly positive effect on production in the next 2 to 3 quarters. The
full benefits of all the value-add projects completed in the last and current
quarter will also facilitate a continuous increase in production with the
associated decrease in unit costs.
At TGME, the BIOX project has been initiated and will progress to a final
process design which will incorporate acceptability trials on representative ore
samples from both Beta and Rietfontein Mine. TGME will seek board approval and
funding for BIOX expansion and underground mine development which includes
additional funding for the continuation of the surface heap leach exploration
project. While the Board has given its approval in principle that funds will
need to be raised for this project, this approval is subject to an independent
technical evaluation of the surface and underground projects, due out in March
2008. Approval will also rest on the requisite mining rights having been
granted.
SELECTED UNAUDITED FINANCIAL INFORMATION
The following table sets out selected, unaudited financial information relating
to Simmers for the quarter ended 31 December 2007 and year to date.
Selected Consolidated Financial Q3 Q2 Var YTD
Information 31 Dec 07 30 Sep 31 Dec 07
(in `000s of ZAR) R`000 07 % R`000
R`000
Income Statement
Gold revenue 218 135 207 160 +5.3 589,189
Production costs 207 319 211 197 +1.8 610 347
Profit / (Loss) from mining 10 816 (4 037) +367.9 (21 158)
activities
Amortisation & depreciation 11 422 14 608 +21.8 33 227
General administration & overhead 5 697 +83.7
expenditure 35 032 74 421
(Loss) from operations before (6 303) (53 677) +88.3 (128 806)
interest and taxation
Interest received 27 682 37 701 -26.6 100 832
Dividends received 1 2 615
-99.9 2 616
-
Finance charges 43 956 41 086 -7.0 104 380
(Loss) before taxation (22 576) (54 447) .+58.5 (129 738)
Balance Sheet
Total assets 3 743 327 3 738546 +0.1 3 743 327
Cash and cash equivalents 1 726 100 2 051472 -15.9 1 726 100
Current liabilities 321 704 275 483 -16.8 321 704
Non-current liabilities 1 146 831 1 180669 +2.9 1 146 831
Share capital 841 172 829 520 -1.4 841 172
Revenue
Increased production at TGME combined with higher metal prices received
contributed to the 5.3% increase in revenue, compared to Q2.
Production costs
At Buffels total production costs (including depreciation for production
equipment and other non-cash production expenses) for the December 2007 quarter
improved by 3.5%, falling from R157.9 million for Q2 to R152.3 million. The cash
production element (only taking into account direct production costs) thereof
also improved by 4.4%. This was primarily as a result of lower summer tariffs
charged by Eskom during Q3.
An increase of 9.6% at TGME in the production costs of R21.3 million for Q3 was
reported compared to Q2. The increase is mainly due to production related
expenses that increased proportionately to the increase in production.
Ezulwini mine began producing gold this quarter and reported production costs of
R11.6 million, which have been capitalised.
Profit / (Loss) from mining activities
A profit from mining activities amounting to R10.8 million was realised during
Q3 compared to a loss of R4 million in Q2. This 368% increase relates mainly to
higher production at TGME linked with overall improved gold prices achieved. 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). This is based on
meeting production forecasts prior to the onset of the power crisis.
Financial Position and Liquidity
Cash and non-cash assets
Cash and cash equivalent balances at 31 December 2007 decreased from R2.1
billion in Q2 to R1.7 billion in Q3 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 R1.5 billion in Q2 to R1.8 billion due to the
capitalisation of assets at Ezulwini, Buffels and TGME.
Total Liabilities
As at 31 December 2007 Simmers had total liabilities of R1.4 billion (September
07: R1.4 billion).
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
third quarter results for the 2008 financial year and related matters at 16h00
Johannesburg time on Tuesday 19 February 2008. 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
Forward-looking Information
This MD&A and financial statements for the quarter ended 31 December, 2007
contain certain forward-looking statements. Forward-looking statements include
but are not limited to those with respect to the price of uranium and gold, the
estimation of mineral resources and reserves, the realization of mineral reserve
estimates, the timing and amount of estimated future production, costs of
production, capital expenditures, costs and timing of development of new
deposits, success of exploration activities, permitting time lines, currency
fluctuations, requirements for additional capital, government regulation of
mining operations, environmental risks, unanticipated reclamation expenses,
title disputes or claims and limitations on insurance coverage and the timing
and possible outcome of pending litigation. In certain cases, forward-looking
statements can be identified by the use of words such as "plans", "expects" or
"does not expect", "is expected", "budget", "scheduled", "estimates",
"forecasts", "intends", "anticipates", or "does not anticipate", or "believes"
or variations of such words and phrases, or state that certain actions, events
or results "may", "could", "would", "might" or "will" be taken, occur or be
achieved. Forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of Simmers to be materially different from any future results,
performance or achievement expressed or implied by the forward-looking
statements. Such risks and uncertainties include, among others, the actual
results of current exploration activities, conclusions of economic evaluations,
changes in project parameters as plans continue to be refined, possible
variations in grade and ore densities or recovery rates, failure of plant,
equipment or processes to operate as anticipated, accidents, labour disputes or
other risks of the mining industry, delays in obtaining government approvals or
financing or in completion of development or construction activities, risks
relating to the integration of acquisitions, to international operations, to
prices of uranium and gold. Although Simmers has attempted to identify
important factors that could cause actual actions, events or results to differ
materially from those described in forward-looking statements, there may be
other factors that cause actions, events or results not to be as anticipated,
estimated or intended. It is important to note, that: (i) unless otherwise
indicated, forward-looking statements indicate the Mines` expectations as at 28
January 2008; (ii) actual results may differ materially from the Mine`s
expectations if known and unknown risks or uncertainties affect its business, or
if estimates or assumptions prove inaccurate; (iii) the Mine cannot guarantee
that any forward-looking statement will materialize and, accordingly, readers
are cautioned not to place undue reliance on these forward-looking statements;
and (iv) the Mine disclaims any intention and assumes no obligation to update or
revise any forward-looking statement even if new information becomes available,
as a result of future events or for any other reason.
Date: 19/02/2008 09:38:27 Produced by the JSE SENS Department.
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