| Mon 7 May 2012, 8:16 | | VIL - Village Main Reef Limited - Report for the quarter ended 31 March 2012 |
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VIL
VIL
VIL - Village Main Reef Limited - Report for the quarter ended 31 March 2012
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 ENDED 31 MARCH 2012
Key Features
- Earnings per share of 7.19 cents for Q3 compared to 16.57 cents for Q2.
- Net cash flow from operations of R73.2m, a 58.2% decrease from R175.1
million in Q2.
- Realised average gold price R419 810/kg in Q3 down from R 435 677/kg in Q2.
- Gold production of 1 237kg down from 1 388kg in Q2.
- Cash costs per kg reduced by 5.4% to R236,734/kg at Tau
- Antimony production of 909 tons achieved in Q3, up 8.6% from Q2
- A good quarter from a safety perspective with overall improvements.
- Filed all required Competition Commission documentation in relation to the
potential acquisition of Blyvooruitzicht Gold Mining Company ("Blyvoor")
from DRD Limited ("DRD").
- Current CFO Marius Saaiman appointed as joint CEO and appointment of new
CFO.
- Received a R85 million conditional offer for the Weltevreden project.
CEO, Bernard Swanepoel comments: "The Group`s continued focus during this
seasonally weak production quarter was on reducing costs whilst creating ore
body flexibility at our operations. This we did by investing in development and
opening up pay areas. These initiatives will assist us to build sustainable
mines and mitigate some of the risks associated in a commodity price downturn.
Looking ahead, we are confident that combined with our investment in the
business optimisation process, we should see higher volumes from all our
operations for the rest of the year.
I am personally very proud and pleased with the appointment of Marius Saaiman as
joint CEO and also with the appointment of Sandeep Gandhi as CFO). Both of these
individuals strengthen our board and management team with appropriate skill and
experience".
Quarterly production summary
Quarterly performance data
GOLD Mar Dec ANTIMONY Mar Dec
Quarter Quarter Quarter Quarter
2012 2011 2012 2011
Tau Buffels TOTAL TOTAL Cons Cons
Lekoa Murch Murch
Tons milled - 257 750 111 862 369 612 362 972 Tons 54 670 54 399
underground milled
Recovered grade - 3.27 3.32 3.16 3.63 Recovered 1.48 1.25
Au g/t grade -
Au g/t
Gold produced 866 303 1 169 1 319
underground - kg
Recovered 1.04 0.88
grade -
Sb %
Gold produced - 27 840 9 750 37 590 42 406 Gold 2 212 2 219
total oz produced
- oz
Gold produced - 866 303 1 169 1 319 Antimony 909 837
total Kg produced
- tonnes
Realised gold 419 810 435 677 Realised 38 460 55 842
price - R/kg antimony
price -
R/t
Cash cost - R/kg 236 734 459 585 293 543 282 631 Cash cost 1 033 1 414
- R/ton
Notional cost - 264 395 519 422 315 832 303 808 Notional 1 255 661
R/kg cost -
R/ton *
* - excludes gold credits
Q3 vs Q2 operational profit variance analysis
Tau Buffels Cons Total
R`m R`m R`m R`m
Volume (13) (54) 0 (67)
Price (13) (4) (24) (41)
Working costs 19 10 10 39
Total impact on profit (7) (48) (14) (69)
Prospects
Production volumes are traditionally higher during the June quarter than those
achieved during the March quarter, and we expect all our operations to follow
this trend. Together with our continued investment into our mines, our
expectations are that production volumes for June will be more in line with
volumes achieved during the December 2011 quarter. Costs during the June quarter
are usually higher than those achieved during the summer quarters as a result of
the increased electricity tariffs during the winter months. That being said, we
anticipate that unit costs at Tau will remain at current levels.
Management is pleased that the Blyvoor acquisition is still on track for Part A
completion during Q4. As indicated above, the competition submission was filed
at the end of March 2012. Both Village and DRD agreed to waive all remaining
conditions to the transaction on 4 May 2012, resulting in certainty of deal
completion subject to receiving Competition approval on terms acceptable to both
parties.
First Uranium Corporation ("FIU") has indicated that the shareholders meeting in
relation to the proposed disposal by FIU of its Ezulwini operations to GoldOne
Limited and its Mine Waste Solutions (Pty) Ltd ("MWS") operations to AngloGold
Ashanti is set for 13 June 2012. Should FIU shareholders approve the proposed
transactions. At that time Village will receive some R393 million in lieu of its
investment in Mine Waste Solutions Rand Denominated Secured Convertible Notes,
as well as approximately R20m for its remaining 5.7% equity interest in FIU.
Village has consistently indicated that the bulk of these funds will be returned
to its shareholders.
Village has consulted with its legal advisors who have confirmed that the MWS
Rand Notes are well secured over the assets of FIU in case the shareholders
block the proposed transaction.
Village received an unsolicited binding offer for its Tau operations, from the
Tannous Investment Group to the value of R1 billion (R1 000 000 000). Village is
in the process of appointing an independent financial advisor to evaluate the
offer. Based on the financial performance of Tau since acquisition, the view of
the Village Board is that the amount offered for Tau is well short of the
Company` own valuation of Tau.
Village also received a non binding offer of R85 million (R85 000 000) for its
Weltevreden assets. This offer remains subject to completion of a due diligence
and other conditions customary to transactions of this nature. The board has
previously indicated its support for the disposal of this project.
Appointment of joint Chief Executive Officer, Chief Financial Officer and
Company Secretary
Village is pleased to announce that in line with its statement to all
stakeholders since the acquisition of the Simmers assets in June 2011, the Board
has confirmed the appointment of Mr Marius Saaiman as joint CEO, with Mr Bernard
Swanepoel. Mr Saaiman resigned as Chief Financial Officer with effect from 4 May
2012 and Mr Sandeep Gandhi, a qualified chartered accountant, was appointed CFO,
effective the same day. Mr Gandhi joined Village from Johnson Matthey in March
2012.
Mr Saaiman will focus on the strategic issues like acquisitions and disposals,
shareholder relations as well as all other corporate matters, enabling Mr
Swanepoel to apply his extensive operational skills on the integration of our
recently acquired operations.
Ms Charlene Venter was appointed to the position of Company Secretary. Ms Venter
was previously with AngloGold Ashanti and prior to that with Harmony.
Statement by Chief Executive Officer
Village`s operating performance over the third quarter of FY2012 was marginally
lower than we anticipated, largely as a result of lower production at our
Buffels and Cons Murch operations. Notwithstanding this, we have delivered an
operating profit of R65 million, which equates to 7.19 cent per share and of
R73.2 million from operations, in what is historically a challenging quarter for
the gold mining industry, due to the down time in production over Christmas and
New Year.
We produced 1 169kg (37 583oz) of gold in Q3 from our two gold operations,
Buffels and Tau which was 11% lower than the previous quarter. The combined
effect of a slow start up after the Christmas break and the hoisting problems
experienced at the high grade 2 shaft at Buffels contributed to the lower
volumes during the quarter and also resulted in an overall reduction in gold
yield. The hoisting problems have been addressed and we should see volumes at 2
shaft, as well as overall gold yield at Buffels improve. At Tau we have
benefited from cost control initiatives with a cash cost per kg reduction of
5.4% quarter on quarter. Overall performance at Tau was in line with our
forecast. The business improvement programme implemented at Tau should also see
the current gold per kilogram cash costs sustained. Gold revenue was lower due
to a more subdued gold price with the realised gold price during the March
quarter reducing by some R15 867/kg compared to the record highs from the
previous quarter.
At Cons Murch, production of antimony was 8.6% higher at 909 tons in Q3 compared
to 837 tons in Q2. Production was however affected by a winder breakdown at our
high grade Athens shaft and mine wide safety stoppages midway through the
quarter. Our shaft deepening development activities at both the Monarch and
Athens shafts have intersected the antimony reefs which will result in improved
volumes and mine flexibility. Our new surface decline project (Gravelote
decline) will give us access to a shallow antimony-rich ore body. Site
establishment and Geotechnical drilling is completed and the box cut excavation
is in progress. We expect Gravelote to contribute to production by December
2012. Gold, a by-product from the antimony production was stable quarter on
quarter at 69kg (2 218oz).
At our Lesego platinum project, the definitive feasibility study is progressing
well. We are awaiting final assay results from the shallow and confirmative
drilling program and expect to provide the market with an updated resource
statement by end of May 2012.
Safety remains a key focus of management and we are very pleased to report an
improved safety performance over the March quarter.
We remain confident that our communicated strategy of creating self sustainable
operations in a socially responsible manner through the acquisition of higher
cost assets and positively impacting on the cost base of these operations will
create significant value for all our stakeholders. We continue to focus on
creating ore body flexibility, mining only profitable ounces from all our
operations and to engage pro-actively with all our stakeholders.
Financial review
The table below sets out the unaudited results of the operations for the quarter
ended 31 March 2012
VILLAGE MAIN REEF LIMITED Unaudited Unaudited Variance Unaudited
SELECTED FINANCIAL Q3 Q2 Q3 2012 9 months
INFORMATION FY2012 FY2012 vs. FY2012
Q2 2012
R`000 R`000 % R`000
Statement of Comprehensive
Income
Continuing operations
Revenue 543 289 693 382 (22%) 1 831 097
Total cash cost * ( 399 289) ( 446 024) 10% (1 248
067)
Total cash operating profit 144 000 247 358 (42%) 583 030
/ (loss)
Production-related ( 30 628) ( 28 217) (9%) ( 85 698)
depreciation
Rehabilitation expenses ( 712) ( 1 423) 50% ( 2 135)
Operating profit / (loss) 112 660 217 718 (48%) 495 197
from mining activities
Non-production related ( 1 542) ( 1 592) 3% ( 4 705)
depreciation
Other income 8 728 4 537 92% 30 351
Share options costs ( 5 261) ( 6 877) 24% ( 15 773)
General administrative and ( 46 596) ( 48 246) 3% ( 125 428)
overhead expenditure **
Profit / (loss) from 67 990 165 541 (59%) 379 642
operations before interest
and taxation
Fair value adjustments *** 16 019 32 721 51% ( 117 821)
Impairments and ( 1 909) ( 8 992) 79% 3 435
environmental
rehabilitation adjustments
Profit/(Loss) from equity- - - 0% -
accounted investment
Profit from partial - - 0% 51 299
disposal of investment in
associate
Restructuring Costs ( 1 463) 16 272 109% 12 095
Profit on non-current - - 0% -
assets held for sale
Realisation of foreign - 7 257 (100%) 32 462
currency translation
reserve
Gain on bargain purchase - - 0% -
Foreign exchange gains / 76 ( 34 728) 100% ( 34 652)
(losses)
Business optimisation ( 28 000) ( 14 000) (100%) ( 42 000)
project
Aberdeen dispute settlement - ( 73 129) 100% ( 73 129)
expense
Net finance income / 12 140 46 151 (74%) 35 338
(charges)
Profit / (loss) before 64 853 137 093 (53%) 246 669
taxation from continuing
operations
Loss from discontinuing - 8 640 (100%) ( 55)
operations
Profit / (loss) before 64 853 145 732 (55%) 246 614
taxation
Statement of Financial
Position
Total assets 2 986 564 2 963 191 1% 2 986 564
Cash and equivalents 332 403 309 600 7% 332 403
Financial assets 389 828 390 047 (0%) 389 828
Current liabilities (472 740) ( 514 647) 8% ( 472 740)
Non-current liabilities (477 200) ( 478 234) 0% ( 477 200)
Total equity (2 036 (1 970 3% (2 036
624) 310) 624)
Comments
* - 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.
** - Amounts included in General and administration fees related to financial
consultants costs and to HR consultants costs. Salaries and other forms of
remuneration expenses make up the balance of these costs.
*** - Fair value adjustments relate to the 1% perpetual liability payable to
Aberdeen from all gold produced at Buffels, R16.5 million fair value gain; a
write up in the value of the Mine Waste Solution Rand Notes of R8.4 million to
account for the reduced period to maturity; an increase in the Deutsche Bank
Gold Forward liability of R6.7million; a mark to market loss in relation to the
remaining equity investment in First Uranium Corporation of R2.1 million.
* - This relates to the provision for rehabilitation liabilities over the
quarter at all of the Village operations.
** - 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.An amount of R 28 million was expensed during the quarter. A further
approximate R14expensemillionof will be incurred during the remainder of the
project.
Group revenue for the quarter was R543 million, whilst group cash costs were
R399 million. After capital expenditure amounting to R37.5 million in Q3 the
group generated net cash flow from operations of R73.2 million which is 58.2%
lower than the December quarter`s net cash flow from operations of R175.1
million. Cash generated from operations reduced in Q3 due to lower gold revenue
and volumes as compared to Q2. Significant cash payments made in Q3 comprised of
R36 million in respect of the Deutsche Bank gold loan, payment in relation to
the Tau improvement project of R28 million as well as working capital movements
amounting to R21 million.
Operational review
Tau
Total gold produced at Tau was 865kg (27 809oz) in Q3, which was 30kg (965oz)
lower than the 895kg (31 668oz) produced during Q2. The decrease is attributable
to a decline in overall gold yield to 3.27 g/t in Q3 from 3.54 g/t achieved
during Q2. This was mainly due to a significant portion of mining being moved on
a temporary basis for rock engineering requirements to an area where a drop in
grade was expected. The effect of the slow start-up after the Christmas break
also impacted negatively on production volumes.
Tau`s gold revenue decreased by 7% to R364 million in Q3 from R390 million in
Q2. The decrease is attributed to the lower realised gold price achieved during
the quarter, of R419,810/kg compared to R435,677/kg during Q2. The lower
realised gold price accounted for R13 million of the lower revenue while the
lower gold production also accounted for R13 million. Pleasingly, the management
team succeeded in reducing the total cash costs quarter on quarter to R205m in
Q3 from R224m in Q2. The cash cost per kg costs were also decreased to
R236,734/kg in Q3 from R250,347/kg in Q2. The reduction in unit costs at Tau is
mainly due to stringent cost control measures and positive results from the
initiatives implemented as part of the business improvement programme at Tau.
The team are confident that the reductions in costs achieved are sustainable.
Cash operating profit at Tau was 4% lower quarter on quarter at R158.6 million
in Q3 compared to R165.8m in Q2.
Tau remains a substantial contributor to the company and continues to receive
intensive management focus from the executive team, with various on-going
productivity improvement initiatives underway.
Buffels
Total gold production from Buffels was 303kg (9 741oz) in Q3 which was lower
than the 424kg (13 632oz) produced during Q2. The overall gold production was
affected by both volume and grade issues experienced during the quarter.
Underground gold grade at 3.32 g/t in Q3 was lower than the 3.85 g/t achieved
during Q2. The gold grade was negatively impacted due to hoisting problems
experienced at the high grade Buffels 2 shaft, which resulted in 2 shaft
contributing lower volumes than planned for. The hoisting issue at 2 shaft has
been addressed. Production volumes were further impacted by grade related
stoppages at some of the panels at 7 shaft. Management have subsequently taken
the necessary steps to address these challenges with attention and focus being
given to development and opening up pay areas to improve mining flexibility.
Gold revenue decreased by 31% to R127 million in Q3 compared to R185 million in
Q2. The decrease in revenue is mostly attributed to lower production, which
accounted for R 54 million with the reduction in gold price accounting for R4
million of the decrease.
Total cash costs were reduced quarter on quarter by 7% to R139 million in Q3
from R149 million in Q2. Despite this cash cost increased to R459,585/kg in Q3
from R331,834/kg in Q2. Subsequently, Buffels reported a cash operating loss of
R12 million in Q3, compared to a cash operating profit of R36 million during Q2.
These challenges are being addressed by the management team and we expect some
improvement in the next quarter.
South Plant (Buffels plant)
Recoveries at South plant decreased slightly during the quarter to an average of
93% in Q3 from 94% in Q2. This was attributed to a feed of low grade surface
material during the Christmas break. South plant continues to operate well and
some initiatives are underway to further reduce operating unit costs.
Cons Murch
Antimony production quarter on quarter was 8.6% higher at 909 tons in Q3
compared to 837 tons in Q2. Cons Murch produces gold as a by-product. Gold
production for the quarter remained stable at 69kg (2 218oz) for Q3.
Antimony production was negatively impacted by lower volumes from the high grade
antimony shaft (Athens shafts) due to a winder breakdown at that shaft. This was
exacerbated by some mine-wide safety stoppages mid-way through the quarter. All
of these issues have been addressed and we believe that antimony production will
stabilise during Q4.
We are pleased to report that the on-going shaft deepening and secondary
development activities at both Monarch and Athens shafts have intersected reef,
which should positively impact on volumes and assist to create the mining
flexibility which has always been a key focus at Cons Murch. In addition, a new
underground dump truck and an additional remote controlled loader were
commissioned at Cons Murch which will improve mined volumes from underground. We
remain excited about our new Gravelote surface decline project which is
targeting a shallow antimony-rich ore body. We completed a number of key
activities, including site establishment, geotechnical drilling and support
design and excavation of the box cut during the quarter. The first blast of the
portal for the Gravelote is planned for the June 2012 quarter.
Lesego
Q3 saw the near completion of the final phase of drilling related the Lesego
Feasibility Study, as well as the incorporation of the results from the shallow
drilling programme into the resource. The Shallow Drilling programme resulted in
numerous Merensky Reef and UG2 Chromitite intersections at shallower depths than
previously stated allowing for the definition of a resource between the depths
of 350 m and 700 m. Additional drilling has resulted in 24% of the resource
classified in Measured, 43% in Indicated and 33% in Inferred Resource Category.
This resource includes the improvement on the previous declaration from a depth
of 700 m to 2,300 m.
The definitive feasibility study is progressing well and is scheduled for
completion in early 2013.
Sufficient information has been garnered to allow for the submission of a Mining
Right Application during this quarter, along with Lesego`s Social and Labour
Plan. An initiative to assist schools in the area is underway. The renovation
of Gwaragwara School using local labour and resources, in Nkotokwane, which will
in all likelihood be the mine`s nearest neighbour, is complete.
In Q3 2012 a total of R11.3 million was spent on feasibility activities compared
to R16.5 million during the previous quarter.
These costs continue to be capitalised to the project.
Contacts
Village CEO:
Bernard Swanepoel - bernard@villagemainreef.co.za - 082 303 9922
Media and Investor Relations - Louise Brugman - louise@vestor.co.za - 083 504
1186
North American Media and Investor Relations - dmorgan@umbono.com -
+1 (231) 421-8441
CEO Tele-conference call
7 May 2012
15h00 (GMT+1)
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) 0 800 200 648
Other Countries (Intl Toll) +27 11 535 3600
USA 1 800 860 2442
Playback Access Numbers code - 20532#
South Africa 011 305 2030
Other countries + 27 11 305 2030
UK (Toll Free) 0 808 234 6771
Canada and US playback number as 1-412-317-0088
Please note that a recording on the conference call will also be made available
on www.villagemainreef.co.za after the call.
7 May 2012
Sponsor
Java Capital
Date: 07/05/2012 08:16:01 Produced by the JSE SENS Department.
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