| Thu 17 Nov 2011, 10:38 | | VIL - Village Main Reef Limited - Report for the quarter ended 30 September |
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VIL
VIL
VIL - Village Main Reef Limited - Report for the quarter ended 30 September
2011
Village Main Reef Limited
(formerly Village Main Reef)
Gold Mining Company (1934) Limited)
(Incorporated in the Republic of South Africa)
(Registration number 1934/005703/06)
JSE code: VIL ISIN: ZAE000154761
("Village" or "the group")
REPORT FOR THE QUARTER ENDED 30 SEPTEMBER 2011
HIGHLIGHTS
- Net cash flow from operations improved quarter on quarter by 397%, from
a loss of R47.5 million to a profit of R138.2 million
- Production at all operations increased significantly, with average gold
produced from underground up by 18% or 7 075oz. Antimony production
from Cons Murch Mine ("Cons Murch") was also up 18% quarter on quarter
to 1448 tons, mostly as a result of improving antimony grades
- Village successfully disposed of 19.79% of its equity interest in First
Uranium Corporation ("FIU") to AngloGold Ashanti for R205 million
- Restructuring of Buffelsfontein operations ("Buffels") successfully
concluded during the quarter, with Buffels contributing positively at
an after capital cash flow level in September 2011
- Lesego Platinum ("Lesego") announced a 50% upgrade in its inferred
platinum resource base to 41.8 Moz
- Village approved a R24 million shallow drilling program at Lesego to
confirm and delineate the extent of the ore body at depths between 350
and 700 meters
- Settlement reached over long standing dispute with Aberdeen
International ("Aberdeen"), resulting in Village having to pay Aberdeen
US$9 million in full and final settlement
EVENTS AFTER QUARTER END
- Village and DRD Limited ("DRD") entered into an exclusivity agreement
in relation to the potential acquisition by Village of Blyvooruitzicht
Gold Mining Company Limited ("Blyvoor") from DRD. In terms of the
proposal, Village will pay DRD no more than R150 million, to acquire
DRD`s 74% equity interest, as well as DRD`s shareholders loan account,
in Blyvoor. The purchase price will be settled by Village issuing some
85,714,286 Village ordinary shares at the equivalent price of R1.75 per
share. The transaction will result in Village increasing its issued
share capital by approximately 9% whilst more than trebling its gold
reserve ounces from 2.1 Moz to some 7.4 Moz and increasing gold
resources by 115%. It is also anticipated that Blyvoor will add some
85,000 oz of gold production to Village per annum.
- At Cons Murch, an employee lost his life in a fatal accident on 7
November 2011. The Village Board and management extend their
condolences to the family and friends of our employee.
QUARTERLY PRODUCTION SUMMARY
September September September June Sept- June
Quarter - Quarter - Quarter - Quarter ember Quart
Q1 2011 Q1 2011 Q1 2011 2011 Quarter er
Q1 2011 2011
Tau Lekoa Buffels TOTAL TOTAL Cons Cons
Murch Murch
Tons milled 252 715 108 000 360 715 387 000 Tons 64 676 65
- milled 208
underground
Recovered 3.67 3.89 3.76 2.84 Recover 1.13 1.59
grade - Au ed
g/t grade -
Au g/t
Gold 928 428 1 357 1 152
produced
underground
- kg
Tons milled 0 0 0 218 000
- surface
Recovered 0 0 0 0.35
grade - Au
g/t
Gold 0 0 0 76
produced -
surface Kg
Recover 1.7 1.36
ed
grade -
Sb %
Gold 29 843 13 774 43 617 39 480 Gold 2 366 1 899
produced - produce
total oz d - oz
Gold 928 428 1 357 1 228 Antimon 1 448 1 222
produced - y
total Kg produce
d -
tonnes
Realised 390 593 326 817 Realise 41 517 45
gold price d 456
- R/kg antimon
y price
- R/t
Cash cost - 234 251 368 779 283 141 305 317 Cash 1 173 1 100
R/kg cost -
R/ton
(1)
Notional 262 950 391 237 311 607 366 524 Notiona 1 450 1 180
cost - R/kg l cost
- R/ton
(1)
(1) - Excludes gold
revenue credits
PROSPECTS
The table below, provides some guidance as to the expected performance of
the operations for Q2 FY2012.
Description Forecast Q2
Tau Lekoa and Tau Lekoa BGM Cons
Buffels Murch
Gold Produced - kg 920 420 Gold Produced - kg 70
Antimony produced Antimony produced 1 159
Tons milled 57 000
Cash cost / kg 248 149 309 280 Cash cost / ton milled 1 043
Pumping costs / kg - 35 717 Other cash costs / ton 3
milled
Capital expenditure 29 000 25 996 Capital expenditure / ton 174
/ kg milled
Notional cost / kg 277 149 370 993 Notional cost / ton milled 1 220
pre gold credit
Realised gold price 420 000 420 000 Realised antimony price / 45 000
R/kg ton
Cash flow pre debt 142 851 49 007 Gold credits / ton milled 500
/ kg
Debt repayment / kg 26 718 26 718 Free cash flow / ton milled 200
Free cash flow / kg 116 133 22 289
The above forecast numbers do not include the repayment to Aberdeen reached
under the settlement agreement, the anticipated repayment during the
December quarter will be some R56 million.
The above forecast information has not been reviewed and reported on by
Village`s auditors in accordance with paragraph 8.40 (a) of the JSE Listings
Requirements.
STATEMENT BY CHIEF EXECUTIVE OFFICER
This is the first quarter that Village has controlled the assets acquired
from Simmer and Jack Mines Limited ("Simmers") on 27 June this year, and we
are proud of our achievements during this short period. The restructuring at
Buffels was successfully concluded with a substantial reduction in its cost
base in September, in line with the plan that was approved by the Village
Board during June 2011. We wish to thank all our employees at Buffels for
the tremendous effort during a very trying time and look forward to
continued improvement from this operation.
Operationally it was a solid quarter with gold production from underground
increasing on average 18% from the previous quarter. Cons Murch achieved
record antimony production of 1 448 tons. The improved production, combined
with record high Rand/Kg gold prices has resulted in operating profit from
operations increasing by a healthy 337% to R146 million. Cash generated from
operations increased by some 397% to R138.2 million for the quarter.
Village disposed of 19.79% of its 25.5% interest in FIUto AngloGold Ashanti
Limited, realising R205 million from the disposal. This has gone a long way
in normalising the Village balance sheet.
As part of the Simmers acquisition, Village assumed liability for a loan
advanced to Simmers by Aberdeen in 2006. A settlement was reached with
Aberdeen in relation to the long standing dispute surrounding this loan. In
terms of the settlement, Village will pay Aberdeen a total of US$9 million.
Village settled the first US$4 million on the 10th of October, with the
remaining US$5 million to be settled over a 5 month period in equal
instalments.
The period did have a number of challenges, including a fatality at Tau
Lekoa , which resulted in a 7 day stoppage, as well as a loss of 17 shifts
at Cons Murch due to unprotected strike action towards the end of the
quarter. The loss of production shifts at Cons Murch will impact the
December quarter, where we expect antimony production to be materially
lower.
With the exception of the fatal accident at Tau Lekoa mine the operations
achieved these safety milestones during the quarter:
- Cons Murch: 1 800 000 fatality free-shifts
- Buffels: 500 000 fatality-free shifts
FINANCIAL REVIEW
The table below sets out the unaudited results of the operations for the
quarter.
VILLAGE MAIN REEF LIMITED SELECTED Q1 Q5 Variance
FINANCIAL INFORMATION FY2012 FY2011 Q1 2012
R`000 R`000 vs.
Q5 2011
%
Statement of Comprehensive Income
Continuing operations
Revenue 594 426 480 310 24%
Total cash cost (1) (402 754) (452 633) 11%
Total cash operating profit/(loss) 191 672 27 677 593%
Production-related depreciation (26 853) (31 783) 16%
Rehabilitation expenses - 133 100%
Operating profit/(loss) from mining 164 819 (3 973) 4249%
activities
Non-production related depreciation (1 571) (481) (227%)
Other income 17 087 8 498 101%
Share options costs (3 635) (3 752) 3%
General administrative and overhead (30 587) 33 125 192%
expenditure (2)
Profit/(Loss) from operations before 146 112 33 417 337%
interest and taxation
Fair value adjustments (3) (166 561) 27 935 (696%)
Impairments and environmental 14 335 (24 040) 160%
rehabilitation adjustments (4)
Profit/(Loss) from equity-accounted - 57 303 100%
investment
Profit from partial disposal of 51 299 - 100%
investment in associate
Restructuring Costs (2 714) (38 660) 93%
Realisation of foreign currency 25 205 - 100%
translation reserve (5)
Gain on bargain purchase - 154 532 (100%)
Net finance income / (charges) (22 953) (112 043) 80%
Profit/(Loss) before taxation from 44 723 98 444 (55%)
continuing operations
Loss from discontinued operations (8 695) (796 922) 99%
Profit/(Loss) before taxation 36 028 (698 478) 105%
Statement of Financial Position
Total assets 2 562 468 2 976 685 (14%)
Cash and equivalents 307 634 170 299 81%
Financial assets 374 873 563 775 (34%)
Current liabilities (604 465) (593 752) (2%)
Non-current liabilities (495 244) (540 270) 8%
Total equity (1 457 030) (1 791 748) 19%
COMMENTS
(1) - 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.
(2) - General and administrative expenditure for the quarter was R24.1
million. Included under this heading is R6.5 million relating to the
contribution made by Buffels to the Margaret Water Company pumping costs for
the quarter.
(3) - Fair value adjustments mainly include an increase in the value of the
gold loans to Deutsche Bank of R78 million, as well as an increase in the
value of the perpetual royalty to Aberdeen of R42.6 million. These increases
were prompted by commodity price and exchange rate fluctuations. Also
included is the mark-to-market fair value downward adjustment in relation to
Village`s remaining 5.70% equity investment in FIU of R43.8 million.
(4) - Impairments and adjustments in environmental rehabilitation
adjustments include an impairment of the loans to Duff Scott Hospital and
Margaret Water Company amounting to R13.9 million. This impairment is
negated by a downward adjustment amounting to R28.2 million which relates to
the decrease in the Buffelsfontein tailings liability that has previously
been disposed to FIU, this results in a credit to the statement of
comprehensive income. The environmental rehabilitation adjustment is based
on FIU`s view of their rehabilitation plans for the Buffelsfontein tailings
dams.
(5) - As a result of the partial disposal of the equity in FIU to AngloGold
Ashanti, R25.2 million of the foreign currency translation reserve created
from past translations of the results of FIU, was released to the Statement
of Comprehensive Income.
Group revenue for the quarter was R594 million, whilst group cash costs were
R402 million, resulting in positive operating cash flow of R191.6 million.
After capital expenditure of R44.6 million, the group generated net cash
flow from operations of R138.2 million which is 397% higher than the June
quarter`s net cash loss from operations of R47.5 million. General and
administrative expenditure of R30.6 million for the quarter was lower than
the equivalent R37.6 million of Q5 2011, mainly due to a reduction in
transaction and related costs incurred during this quarter. Village
generated other income of R17.1 million during the quarter, through a
combination of interest on the Mine Waste Solution Rand Notes ("MWS Notes")
and the disposal of redundant assets. This income is included in the net
cash flow from operations number disclosed above.
OPERATIONAL REVIEW
TAU LEKOA
We are pleased to report that production at Tau Lekoa increased by 18% to
928kg quarter on quarter. The increase in total gold produced is
attributable mainly to an increase in overall gold yield to 3.67 g/t
compared to the 2.96 g/t achieved during the previous quarter. Average face
length mined over the quarter increased by 49 meters to 2 360 meters of
mineable available face length. Both tons milled and square meters mined
from underground decreased. This was due to the closure of a number of
panels for safety reasons related to seismic risk and seismic damage where
the fatal accident occurred. The affected production crews are being re-
allocated to other working places. Productivity improvement initiatives
with a key focus on face advance improvement and face time optimisation have
also been introduced.
Having suffered a fatality during the quarter at Tau Lekoa and also post
quarter end at Cons Murch, the management teams and employee representatives
have reaffirmed their commitment to the principle of zero harm, and are
working hard to ensure that every employee is safe at work and not harmed in
performing their daily tasks. Further measures including engaging outside
specialists in relation to risk management were carried out during the
quarter and their recommendations are being implemented.
Tau Lekoa`s gold revenue increased by 40% from R258 million to R360 million.
It is pleasing that this increase is not only related to the higher gold
price received during the quarter of US$1 712/oz (US$ 1 495/oz Q5) a 19%
increase in the Rand basket price to R390,470kg, but also to the production
increase which contributed R56 million.
Total cash costs increased quarter on quarter by 8% from R201 million (US$ 1
167/oz) in the previous quarter to R217 million (US$ 1 021/oz) for the first
quarter. The increase in cost was as a result of wage increases agreed with
organised labour effective 1 July 2011, as well as the impact of higher
electricity tariffs due to the winter tariff structure. Royalties payable to
AngloGold increased by 37% as a result of the higher gold price and the
improved production volumes. Notwithstanding the increase in absolute costs,
the cash cost per kilogram of R234,251 k/g is 8% lower than that achieved
during Q5.
Cash operating profit at Tau Lekoa was 153% higher quarter on quarter at
R142.9 million.
BUFFELS
The team at Buffels has made excellent progress in implementing the
restructuring plan announced during June 2011. The announced labour
reductions were concluded during August 2011 and the resultant cost savings
were evident during September. It is especially pleasing that underground
production at Buffels increased by 18% during this disruptive period and was
ahead of the planned gold production of 130kg per month communicated to the
market during June.
Total gold production from Buffels was 428kg which was slightly lower than
the 438kg produced during Q5, however, after adjusting for gold previously
produced from surface material (76kg in Q5) underground production was 18%
higher, at 13 774oz. The increased production is mainly attributable to
continued improvement in face advance of 17%, with a resultant increase in
square meters broken. The focus on ore reserve management to address the
decrease in underground gold grade experienced during Q5 has paid dividends
and underground gold grade improved from 3.02g/t in Q5 to 3.89g/t during
this quarter.
A number of safety improvement initiatives are in progress and the
operational re-structuring has resulted in concentrated working places which
means better management focus and control. Buffels achieved 500 000 fatality
free shifts during the quarter.
Gold revenue increased by 19% during the quarter to R170 million compared to
R143 million the previous quarter. The increase in revenue is mostly
attributed to a 21% increase in the rand gold price per kilogram achieved
during the quarter.
Total cash costs decreased quarter on quarter by 4% from R173 million in Q5
to R167 million this quarter. Overall costs were well controlled with some
reduction in labour costs materialising during the quarter, although offset
by the higher winter electricity tariffs.
Buffels made a cash operating profit of R2.8 million, compared to a cash
operating loss of R30.1 million during Q5.
SOUTH PLANT (BUFFELS PLANT)
As reported during the previous quarter, the South plant was reconfigured to
treat only underground ore from both Tau Lekoa and Buffels, using surface
waste rock only as grinding media. The changes to the plant have resulted in
a much steadier operating environment, with improved recoveries being
maintained throughout the quarter.
CONS MURCH
Nothwithstanding the unprotected strike action towards the end of the
quarter, Cons Murch mine performed better quarter on quarter with an 18%
increase in antimony production to 1,448 tons (1,221 tons in Q5) and a 23%
increase in gold production to 74 kg. This was on the back of stable volumes
and improved grades. The production impact of the unprotected strike action
was a loss of 17 production days which will impact the December quarter
hence the anticipated lower production.
Revenue from antimony sales of R60.1 million (Q5:R56.0m) and gold revenue of
R31.6 million (Q5:R16.5m) was achieved during the quarter. Total cash costs
of R75.9 million (Q5:R71.9m) was slightly higher than that of Q5, mostly as
a result of increased power costs due to winter tariffs. Cons Murch achieved
a cash operating profit of R17.3 million for the quarter, a significant
achievement.
Good progress was made on the on-going capital projects, particularly at the
processing plant, where most projects are due to complete by the end of
November 2011. A total of R18.2 million was spent during the quarter on
capital to improve recoveries at the plant and to provide more flexibility
in mining the ore body. Recoveries of both antimony and gold have already
improved and further improvements are expected in plant availability and
recoveries as the projects complete.
Shaft deepening and the related secondary development continued at both
Monarch and Athens shafts with a focus on creating flexibility and access
towards antimony rich areas. Following the completion of an internal
feasibility study, a new project to develop a surface decline around the old
Gravelotte shaft commenced in October. This is also a historically high
grade antimony area and is expected to lead to improvements in both volumes
and antimony grades.
Safety improvements were also realised during the quarter, with no
accidents/incidents during the month of September and the last lost time
injury having occurred in July 2011.
LESEGO
Situated on the Northern part of the Eastern Limb, the Lesego Platinum
Project continues to deliver excellent assay and recovery results confirming
the shallow, prospective nature of this ore body.
In particular, the extended shallow drilling program initiated in August
this year and aimed at extending the resource to between surface and 700m,
continues to obtain good intersections with very respectable grades (
6g/t)
and widths (
1.4m) between depths of 320 m and 700 m on both the Merensky
Reef and UG2 Chromitite. It is envisaged that this shallow drilling
programme should prove up an additional resource between 350m and 700m over
a strike length of 2 km, which will contribute additional high value ounces
to the current resource of 41.8 million ounces currently defined from 700 m
downwards. A revised resource statement incorporating the shallow drilling
is expected in Q1 2012.
In addition, the pre-feasibility studies on the Lesego Project are
proceeding well and should be complete by the end of the year. This will
lead to the 3rd and final drawdown of funding committed by the Industrial
Development Corporation funding, for completion of the Bankable Feasibility
Study between Q4 2012 and Q2 2013. Initial pre-feasibility trade off studies
indicate a mine optimised around a tonnage throughput of 300 ktpm, initially
using a long hole open stoping method on the steeper dipping parts of the
ore body and switching to conventional mining on the shallow dipping parts.
Initial metallurgical testwork performed by Mintek, and supervised by Eurus
Mineral Consultants and DRA, on reef material, totalling approximately
160kg, from 14 boreholes has shown that expected recoveries on the Merensky
Reef are in excess of 85% and between 82% and 87% on the UG2 Chromitite.
Standard tests and optimisation work using extra depressant has shown to be
beneficial to recoveries of the Merensky Reef and the UG2 is expected to
respond similarly. Concentrate grades are expected to lie between 125 g/t
and 210 g/t 3 PGE + Au.
A total of R17.6 million was spent on exploration activities during this
quarter, compared to R16.2 million during the previous quarter which
continue to be capitalised to the project.
CONTACTS
Village CFO, Marius Saaiman msaaiman@villagemainreef.co.za, 082 458 3420
Vestor: Media and Investor Relations; Louise Brugman; louise@vestor.co.za;
083 504 1186
Sponsor
Java Capital
CEO Tele-conference call
17 November 2011
14h00 (GMT+2)
Live Call Access Numbers
South Africa - Johannesburg 011 535 3600
UK (Toll-Free) 0 800 917 7042
South Africa - Johannesburg alternate 010 201 6616
South Africa - Cape Town 021 819 0900
South Africa (Toll-Free) 800 200 648
Other Countries (Intl Toll) +27 11 535 3600
Playback Access Numbers code - 19256#
South Africa 011 305 2030
Other countries + 27 11 305 2030
UK (Toll Free) 0 808 234 6771
Please note that a recording on the conference call will also be made
available on www.villagemainreef.co.za after the call.
Date: 17/11/2011 10:38:27 Produced by the JSE SENS Department.
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