| Thu 16 Feb 2012, 8:30 | | VIL - Village - Report for the Quarter and Six Months ended 31 December 2011 |
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VIL
VIL
VIL - Village - Report for the Quarter and Six Months ended 31 December 2011
Village Main Reef Limited
(formerly known as Village Main Reef Gold Mining Company (1934) Limited)
(Registration number 1934/0057034/06)
Share Code: VIL
ISIN: ZAE000154761
("Village")
REPORT FOR THE QUARTER AND SIX MONTHS ENDED 31 DECEMBER 2011
Highlights
- Record profits and strong cash generation for the quarter
- Earnings per share of 16.57 cents per share for Q2 compared to 1.21
cents for Q1
- Net cash flow from operations of R175.1m, a 26.7% improvement quarter on
quarter compared to cash generated of R138.2 million in Q1
- Stable gold production of 42 407oz from both Buffels and Tau Lekoa
("Tau"), down 2.7% or 1 210oz lower than in Q1
- Village and DRD Limited ("DRD") jointly announce the potential
acquisition by Village of 74% of Blyvooruitzicht Gold Mining Company
Limited ("Blyvoor") from DRD for a total consideration of R150 million,
which consideration is to be settled through Village issuing 85,714,286
Village shares to DRD at an equivalent price of R1.75 per share
- A successful shallow drilling program at Lesego Platinum ("Lesego"),
consisting of an additional 18 boreholes concluded during December 2011.
The additional holes confirmed economic intersections of Merensky and
UG2 Chromite at depths between 350m and 700m. Borehole LES049
intersected Merensky Reef at 204m below surface
- Lesego completes a positive pre-feasibility study meeting all criteria
set by the Industrial Development Corporation ("IDC") enabling Lesego to
drawdown the remainder of the IDC funding of R54 million which will
fully fund the Definitive Feasibility Study ("DFS")
Events after quarter end
- Village announces that a binding agreement has been concluded with DRD
in relation to the acquisition of DRD`s entire interest in Blyvoor. In
terms of the agreement the acquisition will close in two parts, the part
A sale and the part B sale. As part of the part A sale, Village will
acquire all amounts owed to DRD by Blyvoor and as part of the part B
sale, Village will acquire the entire 74% equity interest in Blyvoor
held by DRD. Both the part A and part B closure remain subject to
certain conditions, as set out in the transaction announcement of 13
February 2012.
- DRD announced a Section 189 process, intended to shut down the loss
making operations at its 4 and 6 shafts, in order to ensure Blyvoor`s
financial viability at current gold prices.
- Mr Keith Scott a non-executive director announced that he will resign to
pursue personal interests. The Board thanks Mr Scott for his valuable
contribution to Village and wishes him all the best in his future
endeavours.
- FIU announced on 14 February 2012 that it is in negotiations to dispose
of all or some of its assets. Village reminds its shareholders that it
remains the owner of 5,7% of the ordinary equity of FIU, as well as 392
874 well-secured Mine Waste Solution Rand Notes ("MWS Rand Notes") with
a face value of R392,8 million. In the event that a transaction is
concluded by FIU, this will result in the value of the equity investment
as well as the investment in the MWS Rand Notes being crystallised by
Village. Village has consistently indicated that it would distribute the
bulk of the proceeds from this realisation to its shareholders by way of
a special dividend.
Quarterly production summary
GOLD Dec Sept ANTIMONY Dec Sept
Quarter Quarter Quarter Quarter
2011 2011 2011 2011
Tau Buffels TOTAL TOTAL Cons Cons
Lekoa Murch Murch
Tons 252 749 110 223 362 972 360 715 Tons 54 399 64 676
milled - milled
under-
ground
Recovered 3.54 3.85 3.63 3.76 Recovered 1.25 1.13
grade - grade -
Au g/t Au g/t
Gold 895 424 1 319 1 357
produced
under-
ground -
kg
Recovered 0.88 1.7
grade -
Sb %
Gold 28 774 13 632 42 406 43 617 Gold 2 219 2 366
produced - produced
total oz - oz
Gold 895 424 1 319 1 357 Antimony 837 1 448
produced - produced
total Kg - tonnes
Realised 435 677 390 593 Realised 55 842 41 517
gold price antimony
- R/kg price -
R/t
Cash cost 250 347 331 834 282 631 283 141 Cash cost 1 414 1 173
- R/kg - R/ton
Notional 282 007 349 395 303 808 311 607 Notional 1 661 1 450
cost - cost -
R/kg R/ton (1)
(1) - Excludes gold revenue credits
Prospects
The table below provides some guidance as to the expected performance of the
operations for Q3 FY2012.
Description Forecast Q3
Tau BGM Cons Murch
Tau and Buffels
Gold Produced - kg 860 370 Gold Produced 73
- kg
Antimony produced Antimony 1 200
produced
Tons milled 62 820
Cash cost / kg 244 549 361 492 Cash cost / 1 117
R ton milled
Pumping costs / kg - 40 543 Other cash 1
costs / R ton
milled
Capital expenditure / 26 658 35 039 Capital 202
kg expenditure /
R ton milled
Notional cost / kg 271 207 437 074 Notional 1 320
cost / R ton
milled pre
gold credit
Realised gold price 420 000 420 000 Realised 44 180
antimony
price / R ton
Cash flow pre debt / kg 148 793 (17 074) Gold credits 466
/ R ton
milled
Debt repayment / kg 30 227 30 227 Free cash 38
flow / Rton
milled
Free cash flow / kg 118 566 (47 301) -
The above forecast information have not been reviewed and reported on by
Village`s auditors in accordance with paragraph 8.40 (a) of the JSE Listing
Requirements.
Statement by Chief Executive Officer
This second quarter of FY2012 heralded a period of consolidation for Village
after the frenetic activity on operational and corporate level experienced
since the acquisition of the Simmer and Jack Mines Limited assets during June
2011. That being said, we announced the potential acquisition of a 74%
interest in Blyvoor from DRD, an asset which we believe will fit very nicely
within the Village stable.
As advised during the previous quarter, Cons Murch had a difficult quarter,
with production materially lower (42%) at 837 tons of antimony compared to
the record antimony production of 1 448 tons reported during the previous
quarter. Production at Cons Murch was negatively impacted during the early
part of the quarter due to a labour dispute, which resulted in Cons Murch
dismissing 849 employees with a resultant loss of 20 production shifts during
the period. The dispute with our employees was settled during October 2011
and all employees were re-employed. Production at Cons Murch was further
impacted by a fatal injury, the first such incident in 6 years, at the mine
during November 2011, resulting in a prolonged Section 54 stoppage of all
operations.
Production at our two gold operations was largely stable, with overall gold
production only 2.7% lower than that of the previous quarter. Notwithstanding
the above, record high Rand/Kg gold prices combined with stable production
from the gold operations have resulted in operating profit from operations
increasing by 9% to R160 million. Cash generated from operations increased by
some 27% to R175.1 million for the quarter. This equates to some 18.8 cents
per share.
At our Lesego platinum project we reached a substantial milestone with the
successful completion of the pre-feasibility study ("PFS"), which confirmed
an economically viable defined ore body between depths of 700 - 2000m below
surface. The PFS met all criteria set by both Village and the IDC, enabling
Lesego to drawdown the remaining R54 million required to complete the
Definitive Feasibility Study. Village also completed a shallow drilling
program which delineated additional Merensky Reef between depths of 204m and
700m below surface, with UG2 Chromitite intersected at depths between 470m
and 900m. The efforts continue to increase the value of Lesego, proving it up
into a large, shallow to medium depth, high grade ore body, with a current
inferred platinum resource in excess of 41 million ounces.
As reported in the September quarter, Village assumed liability for a loan
advanced to Simmers by Aberdeen International ("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 agreed to pay
Aberdeen a total of US$9 million. Village has settled US$7 million of this
obligation, and the final US$2 million is due to be settled during Q3 of
FY2012.
Apart from the fatal accident at Cons Murch, Buffels also had a serious
accident on 11 December 2011, with one of the seriously injured workers
subsequently dying. The Board and management wish to convey their condolences
to the friends and family of the deceased.
Financial review
The table below sets out the unaudited results of the operations for the
quarter.
VILLAGE MAIN REEF LIMITED
SELECTED FINANCIAL INFORMATION Q2
Q2 Q1 Varian Reviewed H1 Reviewed 9
FY2012 FY2012 ce Q2 FY2012 months
R`000 R`000 2012 R`000 FY2011
vs. Q1 R`000
2012
%
Statement of
Comprehensive
Income
Continuing
operations
Revenue 693 382 594 426 17% 1 287 808 948 361
Total cash (446 024) (402 754) 11% (848 778) (872 446)
cost1
Total cash 247 358 191 672 29% 439 030 75 915
operating
profit /
(loss)
Production- (28 217) (26 853) 5% (55 070) (43 283)
related
depreciation
Rehabilitation (1 423) - 0% (1 423) -
expenses
Operating 217 718 164 819 32% 382 537 32 632
profit /
(loss) from
mining
activities
Non-production (1 592) (1 571) 1% (3 163) (3 984)
related
depreciation
Other income 4 537 17 087 (73%) 21 624 12 085
Share options (6 877) (3 635) 89% (10 512) -
costs
General (48 246) (30 587) 58% (78 833) (146 706)
administrative
and overhead
expenditureSqu
ared
Profit / 165 540 146 113 13% 311 653 (105 973)
(loss) from
operations
before
interest and
taxation
Fair value 32 721 (166 561) (120%) (133 840) (16 400)
adjustments3
Impairments (8 992) 14 335 (163%) 5 343 (4 581)
and
environmental
rehabilitation
adjustments4
Profit/(Loss) - - 0% - (224 144)
from equity-
accounted
investment
Profit from - 51 299 (100%) 51 299 -
partial
disposal of
investment in
associate
Restructuring 16 272 (2 714) (700%) 13 558 (8 060)
Costs 5
Profit on non- - - 0% - -
current assets
held for sale
Realisation of 7 257 25 205 (71%) 32 462 -
foreign
currency
translation
reserve 6
Gain on - - 0% - -
bargain
purchase
Foreign (34 728) - 0% (34 728) 4 759
exchange gains
/ (losses) 7
Business (14 000) - 0% (14 000) -
optimisation
project 8
Aberdeen (73 129) - 0% (73 129) -
dispute
settlement
expense ?
Net finance 46 151 (22 953) (301%) 23 198 (9 611)
income /
(charges)
Profit / 137 092 44 724 207% 181 816 (364 010)
(loss) before
taxation from
continuing
operations
Loss from 8 640 (8 695) (199%) (55) (13 825)
discontinuing
operations
Profit / 145 732 36 029 304% 181 761 (377 835)
(loss) before
taxation
Statement of
Financial
Position
Total assets 2 963 191 2 562 468 16% 2 963 191 3 644 334
Cash and 309 600 307 634 1% 309 600 161 247
equivalents
Financial 390 047 374 873 4% 390 047 315 054
assets
Current (514 647) (604 465) (15%) ( 514 647) (297 551)
liabilities
Non-current (478 234) (495 244) (3%) (78 234) (597 338)
liabilities
Total equity (1 970 (1 457 030) 35% (1 970 310) (2 749 445)
310)
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 includes an abnormal cost of R11.6
million in relation to costs incurred as a result of the strike action at
Cons Murch. Included in general and administrative expenses is the Buffels
contribution in relation to Margaret Water Company pumping costs amounting to
R4.3 million for the quarter. Actual administrative expenses for the quarter
were R32 million.
3 - Fair value adjustments relate to the contingent liability in relation to
the 1% perpetual liability payable to Aberdeen from all gold produced at
Buffels, R3.8 million fair value loss; a write up in the value of the Mine
Waste Solution Rand Notes of R22.3 million to account for the reduced period
to maturity; a decrease in the Deutsche Bank Gold Forward liability of R19.2
million; a mark to market loss in relation to the remaining equity investment
in First Uranium Corporation of R5 million.
4 - This relates to the normal increase in the provision for rehabilitation
liabilities over the quarter at all of the Village operations.
5 - This relates to a reversal of an over provision in relation to
restructuring costs for the Buffels restructuring. Total employees affected
by the restructuring was lower than initially anticipated. Restructuring
costs were accounted for in full during Q5 and Q1 periods.
6 - Realisation of the remainder of the foreign currency translation reserve
in relation to the accounting for the investment in FIU as an investment in
associate, with the disposal of the majority of the Village shareholding in
FIU to AngloGold, the investment was reclassified as a financial asset held
for sale.
7 - Foreign exchange gains and losses are incurred on the repayment of the
Deutsche Bank forward gold agreement, as well as the Aberdeen royalties. An
amount of R20,8 million relate to foreign exchange losses incurred during Q1,
which was disclosed as finance charges, the disclosure was changed during Q2
and the actual charge for Q2 was R13,9 million.
8 - Village has embarked on a business optimisation process at Tau. The
process is aimed at increasing gold production and will be completed towards
the end of June 2012. A further approximate expense of R42 million will be
incurred during the remainder of the project.
9 - Village reached settlement with Aberdeen in relation to the loan portion
of the Aberdeen agreement. In terms of the agreement, Village will pay
Aberdeen US$9 million. Village paid US$7 million during this quarter and the
remaining US$2 million will be settled during Q3.
Group revenue for the quarter was R693 million, whilst group cash costs were
R452 million, resulting in an improved positive operating cash flow of R241.6
million. After capital expenditure of R43.5 million, and accounting for other
income and general and administrative expenses, the group generated net cash
flow from operations of R175.1 million which is 26.7% higher than the
September quarter`s net cash flow from operations of R138.2 million. Cash
generated as disclosed above, was reduced by the following items, R56 million
payment to Aberdeen under the settlement agreement; R14 million payment to
consultants in relation to the business improvement project at Tau;
instalments under the first and second gold forward agreement entered into
with Deutsche Bank R44.6 million as well as Villages` pro-rata funding in
relation to the shallow drilling program at Lesego R22 million.
Operational review
Tau
Total gold produced at Tau decreased by 4% to 895kg from 928kg produced
during the previous quarter. The decrease is attributable to a decline in
overall gold yield to 3.54 g/t compared to the 3.67 g/t achieved during the
previous quarter. Tons milled from underground decreased by 3%.
Tau`s gold revenue increased by 8% to R390 million from R360 million in Q1.
The increase is attributed solely to the higher realised Rand per kilogram
gold price achieved during the quarter, of R435,677kg compared to R390,470kg
in the previous quarter.
Total cash costs increased quarter on quarter by 3% to R224 million (US$
960/oz) from R217 million (US$ 1 021/oz) in the previous quarter. The
increase in cost was as a result of accounting for a release of gold
inventory over the Christmas period, where gold released from inventory is
accounted for at the prevailing gold price at the time of release and not at
cost of production; as well as higher royalty payments to AngolGold Ashanti
as a result of the higher Rand per kilogram gold price. The increase in cash
costs were partially offset by the decrease in electricity costs due to the
lower summer tariffs.
Cash operating profit at Tau was 17% higher quarter on quarter at 165.8
million.
Buffels
The team at Buffels maintained production at levels achieved during the
previous quarter with monthly production averaging 140kg of gold. Total gold
production from Buffels was 424kg which was slightly lower than the 428kg
produced during Q1. Underground grade decreased from 3.89 g/t in Q1 to 3.78
g/t in Q2.
Gold revenue increased by 9% during the quarter to R185 million compared to
R170 million the previous quarter. The increase in revenue is mostly
attributed to a 10% increase in the rand gold price per kilogram achieved
during the quarter.
Total cash costs decreased quarter on quarter by 11% from R167 million in Q1
to R149 million in this quarter. Overall costs were well controlled with some
reduction in labour costs materialising during the quarter as well as lower
summer tariffs.
Buffels made a cash operating profit of R36 million, compared to a cash
operating profit of R2.8 million during Q1.
South Plant (Buffels plant)
Recoveries at South plant improved slightly during the quarter to an average
of more than 94%. South plant continues to operate well and some initiatives
are underway to reduce operating unit cost further.
Cons Murch
As indicated earlier in the report, Cons Murch experienced a difficult
operational quarter, with 20 production days lost as a result of the
unprotected strike action during October 2011. A further 7 shifts were lost
as a result of a Section 54 issued following the fatality at the mine.
Antimony production quarter on quarter was 42% lower at 837 tons (Q1 1448
tons). Cons Murch produces gold as a by-product from its antimony production,
gold production for the quarter was 69 kg, some 7% lower than the 74kg
produced during Q1.
Revenue from antimony sales of R52.5 million (Q1:R60.1m) and gold revenue of
R31.6 million (Q1:R31.6m) was achieved during the quarter. Total cash costs
of R65.9 million (Q1:R75.9m) was some 13% lower than Q1 mostly as a result of
decreased power costs due to lower summer tariffs, as well as lower wage
costs resulting from the labour dispute. Cons Murch achieved a cash operating
profit of R19.4 million for the quarter, a significant achievement under the
difficult circumstances.
A total of R13.4 million was spent during the quarter on capital to improve
recoveries at the plant, to provide more flexibility in mining the ore body
and to develop a surface decline around the old Gravelotte shaft, a high
grade antimony area. Most capital projects related to the plant have now been
completed and recovery of both antimony and gold is expected to increase in
future.
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. Drill work in these areas has confirmed that
antimony grades are higher than current grades achieved. A feasibility study
looking at the potential to deepen the Beta shaft, in a similar manner to the
work undertaken at Monarch and Athens are currently underway.
Lesego
Q4 2011 saw the completion of the Pre Feasibility Study ("PFS") carried out
by DRA as the principle study consultant. This study confirmed that an
underground mining operation producing a combined total of 300ktpm of
Merensky and UG2 ore is economically viable. On the strength of these
findings the company made its 3rd and final drawdown of R54m, bringing the
total funding from the Industrial Development Corporation of South Africa
("IDC") to R142 million. The final tranche of funding will be used to
complete the Definitive Feasibility Study ("DFS"). The 3rd and final study
phase in the DFS process is set to kick off in April 2012 once the final
optimization studies have been completed and mine parameters finalised. These
parameters will include the results of the shallow drilling programme, which
appear to indicate that the ore body is economically viable from a starting
depth of around 350m, a significant enhancement on the 700m depth used in the
PFS.
Grades and widths continue to show consistency at resource averages of 6.61
g/t over 1.15 m. As previously reported the ore demonstrates good recovery
characteristics of between 84% and 86% resulting in concentrate grades of
between 112 g/t and 140 g/t for the combined Merensky and UG2 ores.
In Q4 2011 a total of R16.5 m was spent on feasibility activities compared to
R17.6m during the previous quarter which continues to be capitalised to the
project.
Contacts
Village CEO : Bernard Swanepoel; bernard@villagemainreef.co.za ; 082 303 9922
Vestor : Media and Investor Relations; Louise Brugman ; louise@vestor.co.za;
083 504 1186
Sponsor
Java Capital
CEO Tele-conference call
16 February 2012
15h00 (GMT+2)
Live Call Access Numbers
South Africa - Johannesburg 011 535 3600
UK (Toll-Free) 0 800 917 7042
USA (Toll) 412 858 4600
South Africa - Johannesburg alternate 010 201 6616
South Africa - Cape Town 021 819 0900
South Africa (Toll-Free) 0 800 200 648
Other Countries (Intl Toll) +27 11 535 3600
Playback Access Numbers code - 20078#
South Africa 011 305 2030
USA and Canada 412 317 0088
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: 16/02/2012 08:30:01 Produced by the JSE SENS Department.
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