| Tue 24 Aug 2010, 8:30 | | SIM - Simmer & Jack Mines Limited - Report to shareholders |
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SIM
SIIF
SIM - Simmer & Jack Mines, Limited - Report to shareholders
for the quarter and 3 months ended 30 June 2010 (Q1 FY2011)
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")
REPORT TO SHAREHOLDERS FOR THE QUARTER AND 3 MONTHS ENDED 30
JUNE 2010 (Q1 FY2011)
Salient Features
- Total cash costs down 4% to R216.1 million (Q4FY2010:
R225.3 million)
- Gold production down 27% to 556kg, from 763kg in
Q4FY2010 mainly due to mine accident at Buffelsfontein
Gold Mine during May 2010
- Revenue down 21% to R161 million (Q4 FY2010:R204
million)
- Cash operating loss of R55.2 million compared to R21.3
million in Q4 FY2010
- Capital expenditure of R16.8 million in Q1 FY2011
versus R27.6 million in Q4 FY2010
- Cash and cash equivalents of R598 million (R633 million
at 31 March 2010)
- Simmers participates in C$172 million First Uranium
Corporation ("FIU") Recapitalisation Programme ("FIU
Recapitalisation Programme")
- Stake in FIU reduced from 37.24% to 34.35% as a
consequence of FIU issuing 14 million common shares to
Gold Wheaton Corporation
- Marius Saaiman, formerly head of Macquarie First South
Advisors` resources mergers and acquisitions team,
appointed CFO and financial director
- iThemba Governance and Statutory Solutions (Pty) Ltd
appointed Company secretary
Operational Developments:
At Buffelsfontein Gold Mine ("Buffelsfontein"):
- Mine closed for 19 days following fatal accident on 4
May 2010
- Gold production down 24% to 547kg, from 716kg in Q4
FY2010
- Revenue down 17% to R158.4 million (Q4 FY2010: R191.4
million)
- Cash operating loss of R52.7 million compared to loss
of R12.8 in Q4 FY2010
- Total cash costs up 3% to R211 million (Q4 FY2010: R204
million)
- Unit cash costs of R385 801/kg (US$1 587/oz) compared
to R285 200/kg (US$1 178/oz)
- Capital expenditure of R16.8 million in Q1 FY2011
versus R20 million in Q4 FY2010
At Tau Lekoa Mine ("Tau Lekoa"):
- Tau Lekoa mining rights executed following the
successful funding of the environmental rehabilitation
liability
- Pre-feasibility study for Weltevreden project on track
for Q3 FY2011
At Transvaal Gold Mining Estates ("TGME"):
- Operation still on care and maintenance
- Gold production of 9kg as a result of residual gold
from Elandsdrift heap leach pad
Post Period-End:
- Tau Lekoa mining rights transferred from AngloGold
Ashanti Limited ("AngloGold Ashanti") to Buffelsfontein
- Initial R450 million paid to AngloGold Ashanti as
settlement for the Tau Lekoa acquisition; remainder of
purchase price to be settled by 30 September 2010
- First ore from Tau Lekoa Mine treated at Buffelsfontein
Gold Mine
- R100 million of the R220 million-RMB Bridge Loan repaid
STATEMENT BY INTERIM CHIEF EXECUTIVE OFFICER
It was with deep regret that the Company reported on 4 May
2010 that a fall of ground at the Buffelsfontein Gold Mine
had claimed the lives of three employees. The Company
extends heartfelt condolences to the families and friends of
mine overseer, Johannes Hendrik Naude of Klerksdorp and
shift bosses Adriaan JP Zietsman of Orkney and Steven
Grobbelaar, also of Klerksdorp. The men were engaged in a
routine inspection on 27 level of the mine`s number five
shaft at the time of the incident. This tragic event once
again puts safety in the spotlight and the Board has
allocated some R12 million to boost spending on safety-
related capex in order to ensure safe working conditions as
far as reasonably practicable.
Subsequent to the event, the mine was closed for 19 days to
undergo an intensive safety inspection, and the impact of
this extended closure on our first quarter results is only
too apparent. Following the accident the mine introduced a
task team to reduce the number of section 54 notices issued
by the DMR for transgressions relating to health and safety
issues.
Post the accident, 16 inspections were conducted by the DMR
resulting in only two section 54 notices being issued,
neither of which affected production.
The highlight of the quarter was undoubtedly the execution
of the Tau Lekoa mining rights on 3 June 2010, followed,
post-quarter-end, by the registration of the mining rights
from AngloGold Ashanti to Buffelsfontein Gold Mine. The
conclusion of the acquisition, which has been some 15 months
in the pipeline, is the first step in creating a stable
platform from which to consolidate and grow the Company into
a mid-tier gold miner.
During the period under review the Company also finalised
the details of its participation in the First Uranium
Recapitalisation Programme. While this served to create
stability within First Uranium, it meant parting with R76
million of our cash reserves and incurring debt in the form
of a bridge loan from RMB, which was intended to be
underwritten by a rights offer. The Board subsequently
decided to follow alternative funding options which would
preclude a dilutive rights offer. Post quarter end, the
Company announced that the RMB Bridge Loan had been
restructured and would be paid by a combination of the sale
of a portion of the First Uranium Rand Notes and the sale of
Domestic Medium Term Notes ("DMTN"). The first payment of
R100 million was made on 31 July 2010 in terms of the
restructured RMB Bridge Loan.
The obligations to settle the RMB Bridge Loan combined with
continued cash losses at the operations has substantially
reduced the Company`s available cash resources, requiring it
to fully utilise the funding available to it under the DMTN
Programme. In addition, the Company is also considering
alternative debt funding mechanisms.
Going forward, the focus is on the successful integration of
Tau Lekoa into Buffelsfontein Gold Mine in a safe,
responsible manner and ensuring that the anticipated cost
savings are realised. By leveraging off the benefits of
shared metallurgical processing and services costs, we are
targeting a cost saving of R100 million over the next 12
months, which will contribute significantly towards
returning Buffelsfontein to profitability.
Group selected financial information
Table one
SELECTED FINANCIAL INFORMATION
Q1 FY2011 Q4 FY2010 Var Q1
vs. Q4
R`000 R`000 %
Statement of
Comprehensive Income
Revenue 160 853 204 000 (21%)
Total cash cost (216 070) (225 265) 4%
Cash operating loss (55 217) (21 265) (160%)
Production-related (6 135) (10 306) 40%
depreciation
Rehabilitation (187) (12 278) 98%
Expenses
Operating loss (61 539) (43 849) (40%)
from mining activities
Non-production related (1 630) (1 699) 4%
Depreciation
Other income 4 841 3 449 40%
Share options costs (4 330) (6 770) 36%
Exploration costs - (19 483) 100%
General administrative (31 888) (45 210) 29%
and overhead expenditure
Loss from operations (94 546) (113 562) 17%
before interest and taxation
Fair value adjustments 32 7 381 (100%)
Impairments - (267 049) 100%
Loss from equity-accounted (127 629) (144 569) 12%
investment
Restructuring Costs (1 251) (620) (102%)
Loss on non current assets
held for sale - (230) 100%
Net finance income/(charges) (8 120) 16 407 (149%)
Loss before taxation (231 513) (502 242) 54%
Statement of Financial Position
Total assets 3 776 108 3 685 026 2%
Cash and equivalents 598 127 632 798 (5%)
Investments in 1 767 857 2 001 030 (12%)
and loans to associates
Current liabilities (465 049) (135 407) 243%
Non-current liabilities (456 540) (433 384) 5%
Total equity (2 854 519) (3 116 235) (8%)
Notes to Table one:
Total cash costs are costs directly related to the
physical activities of producing gold and include mining
costs, administrative costs, royalties, on-mine drilling
expenditures that are related to production and other direct
costs. Sales of by-product metals are deducted from the
above in computing cash costs. Cash costs exclude
depreciation, depletion and amortisation, corporate general
and administrative expenses, exploration costs, finance
charges, and pre-feasibility costs and accruals for mine
reclamation but include central costs such as human
resources and technical services.
* Cash and cash equivalents includes the R450 million which
is restricted cash against the guarantee in favour of
AngloGold Ashanti for the purchase of Tau Lekoa - which
applies to both quarters under review - and a further R95.9
million held as guarantees for rehabilitation at Tau Lekoa
(R94.2 million) and at TGME (R1.7 million).
Summary of group salient features
Table two
Q1 FY2011 Q4 FY2010
Gold Produced - 556 kg 764 kg
17 879 oz 24 541 oz
Total Tonnes Milled - 613 226 712 511
UG Tonnes Milled - 106 602 147 294
Surface Tonnes Milled - 506 624 565 217
Revenue - R289 261/kg R266 905/kg
Total Cash Costs - R388 557/kg R294 726/kg
Notional Cash Expenditure - R418 856/kg R332 373/kg
Total Cash Costs - Total R352/t R316/t
Total Cash Costs - UG R653/t R855/t
Cash Operating Loss - (55 217 000) (21 265 000)
* Total cash costs are costs directly related to the
physical activities of producing gold and include mining
costs, administrative costs; royalties, on-mine drilling
expenditures that are related to production and other direct
costs. Sales of by-product metals are deducted from the
above in computing cash costs. Cash costs exclude
depreciation, depletion and amortisation, corporate general
and administrative expense, exploration costs, interest
costs, and pre-feasibility costs and accruals for mine
reclamation but include central costs such as human
resources, technical services etc.
Table 3 - Simmers` quarterly group variance analysis
Please refer to the report for the quarter ended 30 June
2010 (Q1FY2011) at www.simmers.co.za for the above table.
Q1 FY2011 v Q4 FY2010
Safety
Buffelsfontein Gold Mine was closed for 19 days for a safety
audit following the fatal accident on 4 May 2010, which
resulted in a loss of some 120 kg (3 858 oz). The accident
will continue to have an impact on production levels during
Q2 and Q3 of FY2011. Although the section 54 notice stopping
work at all the shafts was lifted on 25 May 2010, it will
take some time before face length and therefore production
is restored. The Board has approved an additional R12
million to be spent on capital designed to improve safety
levels, specifically in access ways and travelling ways.
Apart from the fatal injury frequency rate which remained
static at 0.34, all other safety indicators showed an
improvement. Dressing station cases per million man hours
improved by 28% from 13.13 in Q4 FY2010 to 9.4; the lost
time injury frequency rate fell by 33% from 12.46 in Q4
FY2010 to 8.40 in Q1 FY2011 and the reportable injury rate
dropped from 13.47 to 8.40, an improvement of 38%.
Production
Total gold production fell 27% from 24 541 oz (763 kg) in Q4
FY2010, to 17 879 oz (556 kg) in Q1 FY2011 as a consequence
of Buffelsfontein having been closed for 19 days which
resulted in a loss of some 120 kg (3 858 oz) and TGME`s
first full quarter of being on care and maintenance. This
translated into gold revenue of R161 million, compared to
R204 million in the previous quarter. Unit cash costs
increased 24% from R295 113/kg to R388 557/kg as a direct
result of lower production levels.
At Buffelsfontein, total gold production was down 24% from
23 011 oz (716 kg) in Q4 FY2010, to 17 599 oz (547 kg) in Q1
FY2011. The 19-day closure also affected mineable face
length and face advance which decreased by 18% and 25%
respectively. This resulted in a 12 637mSquared (38%)
decrease in square metres broken which in turn impacted on
the underground tonnage which decreased by 28%, quarter on
quarter. Underground grade remained stable at 3.43 g/t.
Cash costs at Buffelsfontein increased quarter on quarter by
3% from R204 million (US$1 178/oz) in Q4 FY2010 to R211
million (US$1 587/oz). This was due to a combination of
higher unit costs due to lower production levels, increased
labour costs of R1.5 million (1.6%) due to salary increases
which became effective in April 2010; and increased utility
costs of R10.3 million (33%) following the Eskom tariff
increase of 24.8% effective as of 1 April 2010. Electricity
costs for this quarter also reflect the start of the higher
winter tariffs. Consumables fell by R2.7 million or 6.6% and
contractor costs decreased by R2.6 million or 8.7%.
As a result of cash costs at Buffelsfontein increasing from
R204 million to R211 million and revenue decreasing from
R191 million to R158 million, Buffelsfontein`s cash
operating loss increased from R12.8 million to R52.7 million
in Q1 FY2011.
TGME, which is on care and maintenance, produced 289oz (9kg)
of gold as part of the decommissioning of the Elandsdrift
heap leach pad.
It is common practice in South Africa to finance private
companies and subsidiaries of listed companies by means of
shareholder loans, these loans generally do not pay any
interest and have no fixed repayment terms, resulting in the
loans resembling equity characteristics rather than that of
a loan. As a result these intercompany loans have been
reclassified as equity resulting in the loan and equity
sections of the subsidiary financial statements not being
comparable on a quarter to quarter basis.
Capital Expenditure
Capital expenditure at Buffelsfontein decreased from R20
million in Q4 FY2010 to R16.8 million in Q1 FY2011. This
included R7.8 million on the integration of Tau Lekoa; R3.4
million for development and opening-up to increase
flexibility of mineable face length; R1.9 million towards
the development of the North West Block - a new capital
project which is estimated to contain some 14 000kg of gold;
and R1.1 million on additional support in access ways and
travelling ways.
The reduction in Simmers` total assets during Q4 F2010
resulted from a R267 million impairment charge following the
decision to place TGME on care and maintenance during that
quarter. Cash and equivalents reduced by R34.7 million in Q1
FY2011 primarily due to cash losses suffered from the
Buffelsfontein mine accident, capital expenditure of R16.9
million and funding requirements of the Tau Lekoa
environmental rehabilitation liability.
Corporate Activity
Simmers participated in the C$172 million First Uranium
Corporation Recapitalisation Programme ("FIU
Recapitalisation Programme") to the extent of R463.9 million
(C$62.7 million) funded as follows:
from own cash resources: R76 million
conversion of the First Uranium loan:
R167 million; and
bridge loan facility from Rand Merchant Bank ("RMB bridge
loan"): R220 million.
In return, Simmers received secured convertible bonds issued
by Mine Waste Solutions (Proprietary) Limited ("Rand First
Uranium Notes").
In Q1 FY2011, Simmers secured additional funding facilities
in the form of JSE Limited ("JSE") approved domestic medium
term note programme ("DMTN Programme") whereby the Company
has the facility to issue rand-denominated notes up to an
amount of R250 million. The first draw-down of R100 million
was made in June 2010 to fund the cash-backed rehabilitation
provision for the Tau Lekoa mining rights.
As a consequence of the RMB Bridge Loan and the issuing of
the DMT Notes, current liabilities increased by 243% from
R135 million during Q4 FY2010 to R465 million.
Restructured RMB Bridge Loan
On 6 July 2010 Simmers announced that RMB had agreed to
restructure the repayment terms of the R220-million bridge
loan ("Restructured Bridge Loan") following the Simmers
Board`s decision not to proceed with a rights offer. The
first R100 million was re-paid on 31 July 2010 through a
combination of issuing a further R55 million DMT Notes and
through the sale of a portion of the Rand First Uranium
Notes. The balance of the funds will be paid as follows:
R15 500 000 due on 30 September 2010 and payments of R30
million on 29 October 2010; 30 November 2010 and 31 December
2010.
Changes to the board
Mr Valence Watson was appointed non-executive director
following the resignation of Messrs Kevin Wakeford and Peter
Surgey who resigned to take up positions on the First
Uranium board. Post quarter end the board and the executive
were strengthened by the appointment on 1 July 2010, of Mr
Marius Saaiman as CFO and financial director, followed by Dr
Namane Magau who was appointed independent non-executive
director with effect from 12 July 2010. On 27 July 2010 non-
executive chairman, Mr Vusi Khanyile, announced that he
would not make himself available for re-election to the
board at the annual general meeting ("AGM) to be held on 10
September 2010, having achieved what he set out to do. Mr
Bernard Swanepoel, currently the deputy chairman, has
accepted the post of chairman post-the AGM.
OUTLOOK AND GROWTH PROSPECTS
Outlook Q2 FY2011
Production at Buffelsfontein Gold Mine is expected to
continue to improve over the next three quarters, with Q2
FY2011 showing an improvement on the 17 879 ounces produced
in Q1 FY2011. Tau Lekoa will be consolidated into the
Buffelsfontein results for 2 months during Q2 FY2011 period.
Tau Lekoa is expected to contribute some 17 000oz for the
two month period at a cash cost substantially lower than
that of Buffelsfontein.
The primary focus at Buffelsfontein in Q2 FY2011 will be the
successful integration of Tau Lekoa; obtaining average
underground recovered grades in excess of 4g/t and limiting
unplanned downtime as a result of safety and maintenance
issues.
Buffelsfontein began treating ore from Tau Lekoa at its gold
plant on 1 August 2010. The full benefit in terms of free
cash flow will only be evident from September 2010 onwards
given the need to account for a gold lock-up in the first
month due to the change in grade of the material being put
through the plant.
Growth Prospects at Buffelsfontein
A number of growth opportunities exist at Buffelsfontein.
The commencement of the North West Block project forms part
of the approved capital expenditure for FY2011.
- North West Block
Good progress towards accessing the North West Block was
made during the quarter, Access to the area, which has an
indicated reserve of some 570 000 square meters, estimated
to contain some 14 000 kg of gold, involves the repair of
Number 6 shaft between 69 and 71 level, which is on
schedule. During the quarter, the Number 1 man-winder was re-
commissioned which will assist in accessing 71 level station
sooner due to both man-winders being available for shaft
repairs. Shaft steel work repairs are expected to be
completed by October 2010. The first stoping work is
expected to take place in the latter part of Q4 FY2011.
The following projects identified at Buffelsfontein remain
subject to Board approval and the availability of funding.
-Installation of a third `C` mill to treat surface sources
The Company continues to assess the viability of installing
a third 65 000 tpm mill at Buffelsfontein Gold Mine`s South
plant to provide extra milling capacity to continue treating
the mine`s lucrative surface rock dump material.
The installation of a third mill provides Buffelsfontein
with much needed flexibility and capacity in treating all
available ore resources.
With the installation of the third mill, the plant can
recover an additional 38kg of gold economically whilst
further reducing operating cost at Buffelsfontein and Tau
Lekoa. The total capital estimate for this third mill is R49
million.
-CIL Circuit
Buffelsfontein is also investigating the option of
installing an additional four stage Carbon in Leach (CIL)
circuit in the existing South plant. A CIL circuit is known
to largely negate the effect of preg robbing constituents
present in ores being treated for gold recovery. By
installing a four stage CIL circuit, gold recovery could
increase by approximately 4.5%, potentially recovering an
extra 10kg of gold per month. The total capital estimate
for this CIL circuit is R23 million.
INVESTOR CONFERENCE CALL:
A conference call to discuss the results for the first
quarter hosted by the interim chief executive officer and
the chief financial officer will be conducted at 15:00 SA
time on Tuesday 24 August 2010.
Dial in details:
Johannesburg (Telkom): 011 535 3600
South Africa Toll-free: 0 800 200 648
UK Toll-free: 0 800 917 7042
Australia Toll-free: 1 800 350 100
Canada Toll-free: 1 866 605 3852
USA Toll-free: 1 800 860 2442
Other: +27 11 535 3600
Replay numbers: playback code 2544#
Johannesburg: 011 305 2030
UK Toll-free: 0 808 234 6771
AU Toll-free: 1 800 091 250
USA: 1 412 317 0088
Other: +27 11 305 2030
Forward-looking Information
This shareholders report and financial statements for the
quarter ended 30 June 2010 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 Group`s` expectations as at 23
August 2010; (ii) actual results may differ materially from
the Group`s expectations if known and unknown risks or
uncertainties affect its business, or if estimates or
assumptions prove inaccurate; (iii) the Group 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 Group 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.
24 August 2010
For further information, please contact:
Nick Goodwin Investor Relations Executive
+27836298605
nick@simmers.co.za
James Duncan Russell & Associates
Mobile +2782 892 8052
E-mail james@rair.co.za
SPONSOR
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
Date: 24/08/2010 08:30:01 Produced by the JSE SENS Department.
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