| Wed 8 Dec 2010, 14:30 | | KEH - Keaton Energy Holdings Limited - Reviewed interim condensed group results |
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KEH
KEH
KEH - Keaton Energy Holdings Limited - Reviewed interim condensed group results
for the six-month period ended 30 September 2010
KEATON ENERGY HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2006/011090/06)
JSE share code: KEH ISIN: ZAE000117420
("Keaton Energy" or "the Company" or "the Group")
Key features
- Vanggatfontein Project fast-tracked
- 24% increase in coal reserve to 32.2Mt
- R255 million credit-approved offer of project finance for completion
- first Phase 1 5 Seam metallurgical coal mined, processed and dispatched to
domestic buyers
- first production of Phase 2 steam coal for Eskom in second quarter 2011
- Sterkfontein Project moves towards feasibility stage
REVIEWED INTERIM CONDENSED GROUP RESULTS
for the six-month period ended 30 September 2010
Condensed Consolidated Statement of Comprehensive Income
Six months to Six months to Year to
30 Sep 30 Sep 31 Mar
2010 2009 2010
R`000 Note (Reviewed) (Reviewed) (Audited)
Revenue 3 - 9 853 21 957
Cost of sales 3 - (9 413) (21 191)
Gross profit - 440 766
Other income 277 1 779 2 023
Administrative and other
operating expenses 4 (7 618) (7 744) (13 220)
Mining and related expenses 4 (4 708) (5 671) (11 452)
Share appreciation rights
(expense)/income 5 (856) 4 521 4 346
Impairment and net
realisable value losses 6 - (5 926) (7 813)
Operating loss before net
finance income (12 905) (12 601) (25 350)
Net finance income 10 711 15 493 29 107
Net (loss)/profit before
taxation (2 194) 2 892 3 757
Income taxation benefit/
(expense) 7 712 (3 891) (7 279)
Loss for the period (1 482) (999) (3 522)
Total comprehensive income
for the period (1 482) (999) (3 522)
Loss and total comprehensive
income for the period
attributable to:
Owners of the Company 2 509 3 883 5 974
Non-controlling interest (3 991) (4 882) (9 496)
(1 482) (999) (3 522)
Number of shares (`000)
Weighted average (basic) 144 841 143 552 144 173
Weighted average (diluted) 144 841 143 587 144 173
Earnings per share (cents)
Basic 8 1.7 2.7 4.1
Basic diluted 8 1.7 2.7 4.1
Condensed Consolidated Statement of Financial Position
30 Sep 31 Mar
2010 2010
R`000 Note (Reviewed) (Audited)
Assets
Non-current assets 9 331 909 129 698
Current assets 10 208 342 343 710
Total assets 540 251 473 408
Equity and liabilities
Total equity attributable to owners
of the Company 459 483 456 118
Non-controlling interest (5 759) (1 768)
Total equity 453 724 454 350
Non-current liabilities 11 23 005 -
Current liabilities 12 63 522 19 058
Total equity and liabilities 540 251 473 408
Condensed Consolidated Statement of Cash Flows
Six months to Six months to Year to
30 Sep 30 Sep 31 Mar
2010 2009 2010
R`000 Note (Reviewed) (Reviewed) (Audited)
Cash flows from operating
activities (12 883) 2 973 9 916
Cash flows from investing
activities 16 (131 815) (11 055) (48 533)
Cash flows from financing
activities - - -
Net decrease in cash and
cash equivalents (144 698) (8 082) (38 617)
Cash and cash equivalents
at the beginning of the period 335 081 373 698 373 698
Cash and cash equivalents
at the end of the period 190 383 365 616 335 081
Condensed Consolidated Statement of Changes in Equity
Share- Retained
Share based earnings/
capital and payment (Accumulated
R`000 premium reserve loss)
Balance at 31 March 2009 (Audited) 432 780 4 550 (141)
Total comprehensive income
for the period - - 3 883
Share-based payment transactions 17 300 (4 521) -
Non-controlling interest resulting
from acquisition of a subsidiary - - -
Balance at 30 September 2009
(Reviewed) 450 080 29 3 742
Total comprehensive income
for the period - - 2 092
Share-based payment transactions - 175 -
Balance at 31 March 2010 (Audited) 450 080 204 5 834
Total comprehensive income for
the period - - 2 509
Share-based payment transactions - 856 -
Balance at 30 September 2010
(Reviewed) 450 080 1 060 8 343
Total equity
attributable to Non-
owners of controlling Total
R`000 the Company interest equity
Balance at 31 March 2009 (Audited) 437 189 - 437 189
Total comprehensive income
for the period 3 883 (4 882) (999)
Share-based payment transactions 12 779 - 12 779
Non-controlling interest resulting
from acquisition of a subsidiary - 7 727 7 727
Balance at 30 September 2009
(Reviewed) 453 851 2 845 456 696
Total comprehensive income
for the period 2 092 (4 613) (2 521)
Share-based payment transactions 175 - 175
Balance at 31 March 2010 (Audited) 456 118 (1 768) 454 350
Total comprehensive income for
the period 2 509 (3 991) (1 482)
Share-based payment transactions 856 - 856
Balance at 30 September 2010
(Reviewed) 459 483 (5 759) 453 724
Notes
1. The financial results are presented for the six-month period ended 30
September 2010. Comparable period figures represent the six-month period ended
30 September 2009, and comparable period figures to the notes have been included
in brackets below. Comparable period figures for the statement of financial
position notes represent 31 March 2010 figures. Although not required in terms
of IAS 34: Interim Financial Reporting, the comparative statement of
comprehensive income, statement of changes in equity and statement of cash flows
for the year ended 31 March 2010 have also been included.
The condensed consolidated results for the six-month period ended 30 September
2010 have been prepared in accordance with the recognition, measurement,
presentation and disclosure requirements of IAS 34: Interim Financial Reporting
and are presented in accordance with the South African Companies Act, 61 of 1973
(as amended) and the AC 500 standards as issued by the Accounting Practices
Board. The accounting policies applied are consistent with those applied in the
annual financial statements for the year ended 31 March 2010.
2. During the six-month period ended 30 September 2010 the Group generated a
profit attributable to owners of the Company of R2.5 million (R3.9 million). The
R1.4 million decrease is mainly as a result of a decrease in its externally
invested funds which resulted in lower net finance income of R10.7 million
(R15.5 million), but offset by a reduction in income taxation as a result of
deferred taxation benefit being recognised. The overall results for the period
remain characteristic of a company in the process of financing its exploration
and evaluation activities and developing its first major project, the
Vanggatfontein Project.
3. The Group`s only revenue generating asset to date was the Klip Colliery as
reflected in the comparative results. The Colliery sold all its coal during the
previous year and rehabilitation of the Colliery is nearly complete. No revenue
was generated at the Vanggatfontein Project for the period under review. First
coal sales were in December 2010. Also refer to Commentary.
4. Administration, other operational, mining and related expenses include:
- employee benefit costs (excluding the share appreciation rights expense) of
R5.2 million (R5.6 million);
- consulting, legal, audit and professional fees of R2.8 million
(R2.5 million);
- non-executive directors` fees of R1.0 million (R1.0 million);
- listing and investor relations costs of R0.9 million (R1.0 million);
- head office lease costs of R0.4 million (R0.4 million); and
- depreciation charges of R0.3 million (R0.4 million).
Note: Mining and related expenses included above mainly comprise that portion of
management and employees` time spent directly on exploration and production
subsidiaries, direct consulting fees by mining and exploration contractors (not
capitalisable under the Group`s accounting policy) and compensation for damages
paid to surface right holders. Administration and other operating expenses
included above mainly comprise the remainder of the employee benefit costs, non-
executive directors` fees, listing and investor relations costs.
5. During the period under review 3.8 million share appreciation rights with a
fair value of R6.1 million were awarded in terms of the Group`s Long-Term
Performance Incentive Scheme and Remuneration Policy approved at the July 2010
Annual General Meeting. This resulted in a share appreciation right expense of
R0.9 million being recognised. The comparative period included a share
appreciation right income of R4.5 million as a result of lapsed share
appreciation rights.
6. As reported in November 2009 the comparative period included a net realisable
value loss due to low quality stockpiles having to be written down by R4.9
million, and an additional impairment of R1.1 million resulting from capitalised
mine development cost at Klip Colliery.
7. Income taxation expense mainly comprises an income taxation expense of R1.7
million (R3.2 million), deferred taxation benefit of R3.7 million (R0.1 million)
and a secondary tax on companies of R1.3 million (R0.7 million).
8. The calculation of basic earnings per share is based on the profit for the
period (attributable to owners of the Company) of R2.5 million (R3.9 million)
and a weighted average of 144 841 293 (143 551 676) ordinary shares in issue
during the period.
The reconciliation to headline earnings is as follows:
Six months to Six months to
30 Sep 2010 30 Sep 2009
R`000 (Reviewed) (Reviewed)
Gross/Net Gross/Net
Profit for the period (attributable to owners
of the Company) 2 509 3 883
Add back: Impairment losses attributable
to owners of the Company - 1 035
Headline earnings for the period 2 509 4 918
Headline earnings per share (cents)
Headline 1.7 3.4
Headline Diluted 1.7 3.4
The calculation of diluted earnings per share is based on the same profit of
R2.5 million (R3.9 million) and headline earnings of R2.5 million (R4.9
million), with the weighted average number of ordinary shares not being adjusted
as the granted notional shares are anti-dilutive.
9. The increase in non-current assets of R202 million is mainly due to the
increase in mine development (R187 million) at Vanggatfontein Project, which
include:
- R71 million for plant, tailings and infrastructure development;
- R60 million for surface right and mining resource acquisitions;
- R22 million for environmental rehabilitation;
- R23 million for boxcut development; and
- R10 million for ramp-up costs.
The rest of the increase is mainly as a result of cash-backed guarantees
(restricted cash) being issued for surface right acquisitions of R8 million,
deferred tax asset of R4 million and further exploration and evaluation work
of R3 million at the Group`s Sterkfontein Project.
10. Current assets include:
- cash of R190.4 million (R335.1 million);
- trade and other receivables of R2.3 million (R6.4 million); and
- value-added tax recoverable of R15.6 million (R2.3 million).
11. Non-current liabilities include the Vanggatfontein Project environmental
rehabilitation liability which has been estimated to be R23 million at 30
September 2010. The liability will be recalculated in February 2011 to determine
the estimated environmental disturbances for the ensuing year. The R0.3 million
remaining environmental rehabilitation liability for Klip Colliery is included
in current liabilities.
12. Current liabilities include:
- trade and other payables of R49.6 million (R15.3 million);
- taxation of R5.6 million (R3.4 million). Included is a Secondary Taxation on
Companies (STC) accrual of R4.1 million which, under currently enacted
legislation, becomes payable as soon as accrued dividends have been declared.
The proposed new legislation provides for STC to be abolished and replaced with
withholding tax. The total R4.1 million (R2.9 million) STC accrual will be
reassessed in future years pending new taxation legislation; and
- a further liability for a surface right/mineral resource acquisition of R8
million.
13. Issuances of equity during the period:
Six months to Year to
30 Sep 2010 31 Mar 2010
R`000 (Reviewed) (Audited)
Number of shares (000)
Issued share capital
At beginning of period 144 841 142 841
Share-based payments - 2 000
At end of period 144 841 144 841
14. No dividends have been declared nor are any proposed for the period under
review (no change to the comparative period).
15. The net asset value per share at 30 September 2010 is 313 cents (314 cents).
16. The cash flows from investing activities represent mainly the capital
investments at the Group`s Vanggatfontein Project as discussed in note 9 above.
17. Segment information:
Refer to the commentary below for a description of the projects (segments) of
the Group. The Group can be segmented as follows:
30 Sep 31 Mar
2010 2010
R`000 (Reviewed) (Audited)
Total segment assets
Keaton Mining (Pty) Limited
- Vanggatfontein Project 277 801 63 472
Keaton Mining (Pty) Limited/Labohlano
Trading 46 (Pty) Limited - Sterkfontein Project 65 080 62 374
Keaton Mining (Pty) Limited - Klip Colliery 1 339 3 286
Keaton Energy Holdings Limited
- Investments and cash resources 480 362 474 773
Total operating segments` assets 824 582 603 905
Assets not allocated to segments 5 003 5 172
Consolidation adjustments - investments in subsidiaries(289 334) (135 669)
Total assets 540 251 473 408
Six months to Six months to Year to
30 Sep 2010 30 Sep 2009 31 Mar 2010
R`000 (Reviewed) (Reviewed) (Audited)
Segment revenue
Keaton Mining (Pty) Limited
- Klip Colliery (all external customers) - 11 447 23 401
Keaton Administrative and
Technical Services
(Pty) Limited (inter-segment
revenues) 5 175 5 724 10 639
Total operating segments` revenue 5 175 17 171 34 040
Klip Colliery - damages claim
disclosed under other income - (1 594) (1 594)
Consolidation adjustments (5 175) (5 724) (10 489)
- 9 853 21 957
Six months to Six months to Year to
30 Sep 2010 30 Sep 2009 31 Mar 2010
R`000 (Reviewed) (Reviewed) (Audited)
Segment profit or loss
Keaton Energy Holdings Limited */** (5 388) (4 913) (9 302)
Keaton Administrative and
Technical Services (Pty) Limited * (20) 3 622 (118)
Keaton Mining (Pty) Limited * (5 625) (9 514) (14 704)
Amalahle Exploration (Pty) Limited * (259) (1 087) (3 231)
Labohlano Trading 46 (Pty) Limited* (429) - (1 160)
Other exploration subsidiaries* (14) (617) (335)
Total operating segments` results * (11 735) (12 509) (28 850)
Non-cash flow items (625) - (179)
Consolidation adjustments (545) (92) 3 679
(12 905) (12 601) (25 350)
* Operating (loss)/profit before net finance income and taxation.
** Excludes finance income of R10.7 million (R15.5 million).
18. The Group`s major capital commitments are:
(R`000) 30 Sep 2010
Exploration and mine development expenditure authorised
and contracted 160 083
Exploration and mine development expenditure authorised,
but not contracted 109 170
All contracted amounts will be funded both through the existing funding
mechanisms between the Company and its subsidiaries, and external debt finance
for the Group`s Vanggatfontein Project.
19. There was no change to the Group`s contingent liabilities during the
period.
20. Significant events after 30 September 2010 up to the date of this report
(also refer to Commentary):
On 9 November 2010 the Company declared a 24% increase in the coal reserve of
its 74%-held, Mpumalanga-based Vanggatfontein Project to 32.2 million tonnes -
22.3 million tonnes in the proved category and 9.9 million tonnes in the
probable category. The declaration is contained in an updated SAMREC- compliant
East Resource Block: Coal Reserve and Resource Statement, released by the
Company following further exploration drilling on the project and completion of
a feasibility update report. The updated gross tonnes in situ coal resource
estimate for the East Resource Block is 84.2 million tonnes.
21. KPMG Inc., the Company`s independent auditors, have reviewed the financial
information contained in this condensed interim report and have expressed an
unmodified conclusion on the condensed interim financial information. Their
review report is available for inspection at the Company`s registered office.
COMMENTARY
The period under review was marked by fast-track development of both phases of
the Group`s first major coal mining project, Vanggatfontein, near Delmas in
South Africa`s Mpumalanga province. Delivery of the first 400 tonnes of No 5
Seam metallurgical coal in terms of Phase 1, took place into the domestic market
on the afternoon of 3 December 2010.
Cash position
At 30 September 2010, the Group`s total available cash was R190 million, most
of which will be used for the continued development of Vanggatfontein. On 6
December 2010, Keaton Energy announced that its 74%-held subsidiary, Keaton
Mining, had secured a credit-approved offer of R255 million in project finance
from Nedbank Capital to complete the development of the project. First draw-
down, which remains subject to conclusion of legal documentations, is expected
in early February 2011.
Safety, health and the environment
The Group`s safety performance in the period under review was satisfactory, with
231 559 hours worked with no lost time injuries recorded. The Group experienced
no material health or environmental issues in the period.
Corporate governance
John Wallington and Zelda Mostert resigned as directors on 31 May 2010 and 31
July 2010 respectively. Paul Sadler was appointed as an independent non-
executive director on 1 October 2010.
Subsequent to Routledge Modise Inc, practicing as Eversheds, giving notice of
closure of its corporate governance department and tendering its resignation as
company secretary with effect from 30 September 2010, Michelle Taylor was
appointed as company secretary to the Group with effect from 1 October 2010.
Activities during the reporting period
During the period under review, the Group`s activities have been focused on the
following:
Vanggatfontein Project, Delmas
An updated SAMREC-compliant coal reserve and resource statement for
Vanggatfontein was declared after the reporting period, on 9 November 2010,
reflecting a 24% increase in coal reserves to 32.2 million tonnes
- 22.3 million tonnes in the proved category and 9.9 million tonnes in the
probable category.
Phase 1: 5 Seam Project: Development of this phase has been fast-tracked since
access to the site was secured in May 2010. With first No 5 Seam coal dispatched
into the domestic market on 3 December 2010, production and sales will continue
to increase until January 2011 when full-scale plant operation at a rate of 50
000 run-of-mine tonnes per month (tpm) is expected.
Phase 2: 2 and 4 Seam Project: Development of this phase, to deliver steam coal
into the seven-year supply contract to Eskom announced in July this year, is
well advanced. Production is expected to begin early in the second quarter of
2010 at a rate of 50 000tpm, rising to 200 000tpm by July 2011.
Further development at Vanggatfontein is possible, particularly if the domestic
market for the project`s mid- and low-volatile coal continues to strengthen in
the medium- to longer term.
Sterkfontein Project, Bethal
The second phase of the Sterkfontein Extension drilling programme, comprising 56
holes totalling over 9 000 metres of drilling, was completed during the
reporting period, and an updated SAMREC-compliant resource statement will be
released in due course. The Sterkfontein Project is now approaching feasibility
stage and capital estimates for its development are expected in Q2 of 2012.
Looking ahead
With Vanggatfontein Phase 1 scheduled to reach full production early in the new
year, the Group is well placed to benefit from expected continued improvement in
demand - and thus pricing - for high-quality metallurgical coal in the domestic
market. As Phase 1 beds down to steady state, our focus will shift increasingly
to the commissioning of Phase 2 and servicing our long-term supply contract with
Eskom. Simultaneously, we expect to take our Sterkfontein Project to the next
level - feasibility - with entry to a recovering export market envisaged in the
longer term.
Shareholders are referred to the cautionary announcement released on 7 October
2010, and renewed on 18 November 2010 and are advised that the negotiations
referred to in those announcements are still ongoing.
Accordingly, shareholders are advised to continue exercising caution when
dealing in the Company`s securities until a further announcement is made.
On behalf of the Board
David Salter Paul Miller
(Chairman) (Managing Director)
8 December 2010
Registered office Transfer secretaries
Ground Floor, Eland House Computershare Investor Services
The Braes, 3 Eaton Avenue South Africa (Pty) Limited
Bryanston, South Africa Ground Floor, 70 Marshall Street
(Postnet Suite 464 Johannesburg, South Africa
Private Bag X51, Bryanston, 2021) (PO Box 61051, Marshalltown, 2107)
Auditors
KPMG Inc.
1226 Schoeman Street, Hatfield, Pretoria
Directors
Dr J D Salter (Chairman)*++, P B M Miller (Managing Director), A B Glad,
L X Mtumtum++, P Pouroulis**+, O P Sadler++, J G Schonfeldt, A P E Sedibe+,
P C C H Snyders
*British **South African/Cypriot +Non-executive, ++Independent non-executive
Telephone: +27 11 317 1700
Telefax: +27 11 463 4759
Email: info@keatonenergy.co.za
www.keatonenergy.co.za
Date: 08/12/2010 14:30:01 Produced by the JSE SENS Department.
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