| Thu 19 Nov 2009, 7:06 | | SIM - Simmers - Interim Results For The Six Months And Quarter Ended 30 |
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SIM
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SIM - Simmers - Interim Results For The Six Months And Quarter Ended 30
September 2009 A Strong Rand And Higher Electricity Tariffs Impact Margins
Simmer & Jack Mines, Limited
(Incorporated in the Republic of South Africa)
(Registration number 1924/007778/06)
Share code: SIM
ISIN Code: ZAE000006722
("Simmers" or the "Company" or the "Group")
INTERIM RESULTS FOR THE SIX MONTHS AND QUARTER ENDED 30 SEPTEMBER 2009
A STRONG RAND AND HIGHER ELECTRICITY TARIFFS IMPACT MARGINS
Commenting on the results Simmers CEO Gordon Miller said: "The first six
months of the 2010 financial year from 1 April 2009 to 30 September 2009 were
characterised by further dramatic increases in the costs of power and mining
consumables and a volatile gold price. The Group remains vulnerable to high
cash costs by virtue of being in a development cycle and not yet at steady
state production levels."
He added: "We have acted swiftly to mitigate the threats posed by the ongoing
strength of the Rand and rising electricity tariffs. Rationalisation
programmes were instituted at both Buffelsfontein Gold Mine (BGM) and
Transvaal Gold Mining Estates (TGME) to control costs and work our way down
the cost curve until such time as the increased volumes which we expect out of
these development operations are forthcoming."
Key financial points:
- Production increased 5% to 66,295 oz or 2,062 kg (FY2009: 62,880 oz or
1,956 kg)
- Total cash costs rose 17% to ZAR542 million (FY2009: ZAR464 million)
- Revenue up 16% to ZAR499 million (FY2009: ZAR428 million)
- Operating loss ZAR65 million
- Cash and cash equivalents of ZAR787 million (excludes ZAR160 million
credit facility granted to First Uranium)
Operational developments:
- Rationalisation process completed at TGME and BGM
- Two key capital projects completed on time and within budget at BGM
- Cost-saving synergies with Tau Lekoa quantified
- Scoping study on Weltevreden complete
Post period end:
- Rehabilitation of BGM`s high grade No. Five shaft complete
- Production ramp-up commences
- Pre-feasibility study on Weltevreden to be completed
- DMR grants amendment to second surface project at TGME
Commenting on the outlook for the second half Gordon Miller said: "At BGM,
which currently accounts for 93% of Simmers` production, the advent of Tau
Lekoa is expected to boost production profile by 130,000 ounces next year. The
development and opening up of the No. Five shaft towards the high grade ore
body will add 20% to BGM`s annual production over the next three years. This
amounts to an additional 19,000 ounces per annum for FY2011, growing
thereafter to reach an additional 50,000 ounces per annum by FY2016."
The Group
Simmers is in the process of developing its two wholly-owned gold operations:
Buffelsfontein Gold Mine (BGM) in the North West Province and Transvaal Gold
Mining Estates (TGME) in Mpumalanga. In February 2009 Simmers entered into an
agreement to acquire the Tau Lekoa mine and expects to complete this
acquisition in early 2010. Weltevreden, which was acquired as part of the Tau
Lekoa transaction, is currently the subject of a pre-feasibility study.
Simmers holds a 37.24% stake in Toronto Stock Exchange-listed and JSE-listed
First Uranium Corporation (First Uranium) which has two projects: the Ezulwini
gold and uranium mine in Gauteng, and Mine Waste Solutions (MWS), a tailings
re-treatment operation that neighbours BGM. Simmers` holding in First Uranium
dropped below 40% at the end of Q1 FY2010, triggering a change in accounting
disclosure. Accordingly, this quarterly and interim report focuses on Simmers`
wholly-owned gold operations. A detailed discussion of First Uranium`s results
for the period can be found at www.firsturanium.com.
Overview
Despite a 5% increase in gold production, mounting cash costs impacted
negatively on operating margins in this half. We have acted swiftly to
mitigate the fall in the uranium spot price, the continued strength of the
local currency, above CPI increases in the cost of mining consumables and
ongoing issues around power supply to ensure the long-term sustainability of
the Company.
In June this year we instigated rationalisation programmes at BGM and TGME
which are now complete. The new life of mine plans for BGM and TGME are in the
process of being independently signed-off to meet the SAMREC and NI 43-101
requirements.
On the project and production front, Simmers achieved several critical
operational milestones, chief among them being the long-anticipated completion
of the rehabilitation of BGM`s No. Five shaft. The ambitious repair project
took 31 months to complete at a capital cost of ZAR60 million
Financial Overview
Gold production was up 5%, from 62,880 oz to 66,295 oz which translated into a
16% increase in revenue from ZAR428 million to ZAR499 million. Total cash
costs rose 17% from ZAR464 million to ZAR542 million. The operating loss
widened from ZAR35 million to ZAR44 million.
As at 30 September 2009, Simmers reported total assets of ZAR4.2 billion,
total liabilities of ZAR590 million, shareholders` equity of ZAR3.6 billion,
cash and cash equivalents of ZAR787 million, compared to ZAR1.02 billion at
the end of Q1 FY2010. Cash and cash equivalents exclude the ZAR160 million-
loan to FIU which was granted in Q2 FY2010.
Financial results for YTD 2009 and YTD FY2010 are not comparable given the
change in relationship between Simmers and FIU from that of subsidiary to
associate company which took place at the end of Q4 FY2009.
Transvaal Gold Mining Estates
- Fatality-free quarter
- Production from loss-making underground operations suspended (Frankfort
mine)
- Surface production commenced at Vaalhoek
- Began loading additional material at Elandsdrift heap leach pad
Revenue increased 55% due to an increase of 1,649 oz (51 kg) in gold produced,
mainly due to the commencing of the surface operations and a decrease in
underground production due to the closure of the underground operations during
July 2009.
Total cash cost increased by 17% (ZAR9.5 million) as a result of an increase
in volume (ZAR18.9 million) and a decrease in cost/kg of ZAR9.4 million. Capex
for the first six months of FY 2010 was ZAR35 million (FY2009: ZAR26.8
million), of which, the bulk relates to the development of the Frankfort B
block.
Buffelsfontein Gold Mine
- Gold production up 5%
- Revenue up 2%
- Cash costs hit by higher Eskom tariffs
- Two key capital projects to boost production completed on time and within
budget
- Multiple operating shaft rationalisation programme on track
- Section 189 staff restructuring process initiated
- Cost saving synergies identified with Tau Lekoa
- Integration of Tau Lekoa progressing well
BGM generated gold revenues of ZAR455 million for the six months ending
September 2009 (2008: ZAR400 million). Total cash costs increased by 18% from
ZAR404 million (US$881/oz) to ZAR477 million (US$964oz). These were largely
due to increases in electricity and the standard tariff effective 1 July 2009,
a two year wage increase, as well as increases in overtime and contractor
costs.
As a result of cash costs rising to ZAR476 million and revenue increasing from
ZAR400 million to ZAR455 million, BGM`s operating loss widened from ZAR11
million to ZAR35 million. The current rationalisation programme is designed to
reverse this loss-making trend. Going forward BGM expects to produce between
27,000 oz (840kg) and 28,000 oz (870 kg) due to the shaft rationalisation
process, this with the full impact of the addition of Tau Lekoa will be felt
in the latter part of the fourth quarter.
Tau Lekoa Mine
The merger of Tau Lekoa and BGM was approved by the Competition Commission on
1 September 2009. The transaction is scheduled to be finalised during early
2010, subject to the transfer of the mining rights to Simmers, whereupon the
increase in production of around 130,000 ounces per annum next year, with an
average of 90,000 ounces per annum over the life of the operation, is expected
to position Simmers as the fourth largest gold producer in South Africa.
In addition to providing substantial free cash inflow to BGM over the next
three years, the acquisition also includes the Weltevreden resource, a
shallow, up-dip extension of Tau Lekoa. Development of this 2.3 million ounce
resource will significantly extend the life of the Tau Lekoa operation to
2024. Simmers has embarked upon a multi-staged approach to the development of
the Weltevreden resource. A scoping study on Phase One of the project was
completed in September 2009.
Shareholder dispute
Subsequent to the end of the period, on 13 November 2009, Simmers confirms
that it has received a notice from the joint provisional liquidators of
Xelexwa Investment Holdings (Pty) Limited (in liquidation) and a letter on a
Vulisango letterhead signed by the CEO of Vulisango, Mr Valence Watson (the
notice). The notice calls on Simmers to convene an extraordinary general
meeting of Simmers shareholders for the purpose of:
- proposing the appointment of eight new directors to the Simmers board of
directors; and
- removing four of the current six Simmers board members, namely Messrs
Brunette, Berry, Miller and Meyer.
The company is reviewing the notice and shareholders will be informed of any
developments in due course. Shareholders are referred to the announcements
released on the Securities Exchange News Service (SENS) on 21 September 2009
and to the `Chairman`s letter to shareholders` dated 2 October 2009, released
on SENS on the same day, all of which are available on the company`s website,
www.simmers.co.za, for further information.
Also, as part of the Group`s ongoing commitment to transformation, the Simmers
nominations committee is making good progress in identifying suitable
historically disadvantaged South African candidates to replace those directors
who resigned. It is important to note that only one of the directors that
Vulisango has nominated as replacement is a black South African.
Post period end
Throughout the next quarter Simmers aims to:
- Continue with integration plans for Tau Lekoa
- Seek nominations for new independent directors to the Simmers board
- The intention is for the majority of new directors to be
appropriately qualified, historically disadvantaged South Africans
- Publish new independent life of mine reports for BGM and TGME
- Complete Phase One of the Weltevreden pre-feasibility study
- Initiate newly permitted Pilgrim`s Trend surface project at TGME
Outlook
Looking to the rest of the financial year, the additional ounces coming from
BGM/Tau Lekoa, as well as the effects of the rationalisation programmes at
both TGME and BGM will provide the necessary antidote to a strong Rand and
help stabilise cash costs as we move towards our goal of becoming a
sustainable, long-life producer of gold.
For further information please visit www.simmers.co.za or contact:
Simmers
Gail Strauss (Communications) +27 82 936 8481
Nick Goodwin (Investor relations) +27 83 629 8605
Macquarie First South Advisers
Melanie de Nysschen / Thembeka Mgoduso +27 11 583 2000
Brunswick (on behalf of Simmers) +27 11 502 7400
Marina Bidoli / Byron Kennedy +27 11 502 7400
Johannesburg
19 November 2009
MACQUARIE FIRST SOUTH ADVISERS (PTY) LIMITED
Sponsor
Date: 19/11/2009 07:06:01 Produced by the JSE SENS Department.
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