| Tue 20 Nov 2001, 0:00 | | African Gem Resources Limited - Interim Results Fo |
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30 September 2001
African Gem Resources Limited
Isin Code: Share Code
Interim Results
for the seven months ended 30 September 2001
Highlights
- Group turnover up 58% to R18.2 million
- Income attributable to ordinary shareholders up 84% to R9.9 million
- Headline earnings per share up 54% to 7.64 cents
- Mine development plan finalised
- Supplementary drilling programme to 300m depth yields positive results
- Soft launch to Tanzanite Foundation
brand at Jewellex Trade Fair.
- Law suit struck off with costs
- 1.15 million reportable injury-free hours
7 months ended 6 months ended Year ended
30 Sept 2001 31 August 2000 28 Feb 2001
Unaudited Unaudited Audited
R'000 R'000 R'000
BALANCE SHEET
Assets
Fixed assets 60,264 40,550 51,091
Non current assets
Deferred taxation 256 1,534 30
Current assets
Inventory, accounts
receivable and cash 101,572 90,996 103,212
Total assets 162,092 133,080 154,333
Equity and liabilities
Shareholders' interest 143,845 118,389 133,770
Outside shareholders'
interest 2,870 3,322 3,197
Non current liabilities 8,313 5,317 6,025
- Deferred taxation 4,808 1,232 2,184
- Long term liabilities
- interest bearing 198 - 173
- non interest bearing 3,307 4,085 3,668
Current liabilities 7,064 6,052 11,341
Total equity and
liabilities 162,092 133,080 154,333
INCOME STATEMENT
Revenue 18,188 11,531 41,140
Cost of sales 7,594 1,600 6,935
Gross profit 10,594 9,931 34,205
Net foreign exchange
gain (loss) 4,665 (1,166) (647)
Other income - - 54
Pre-production
expenditure (1,868) (1,810) (2,604)
Operating expenses (4,985) (2,194) (7,831)
Operating income 8,406 4,761 23,177
Interest received on
cash and cash
equivalents 3,381 581 4,362
Pre-production
expenditure capitalised 1,868 1,810 2,604
Finance costs (19) (4) (30)
Net income before
taxation 13,636 7,148 30,113
Taxation (4,085) (1,535) (9,030)
Retained earnings after
taxation 9,551 5,613 21,083
Outside shareholders'
interest (327) 243 118
Income attributable to
ordinary shareholders 9,878 5,370 20,965
Retained income at
beginning of period 21,999 1,034 1,034
Retained income at end
of period 31,877 6,404 21,999
Weighted average no.
of ordinary shares
in issue (thousands) 129,349 108,536 118,778
Earnings per share (cents)
- headline & basic* 7.64 4.95 17.65
- fully diluted** 7.63 4.95 17.65
- adjusted for loss on
translation of foreign
subsidiary*** 12.22 7.19 21.53
* The headline earnings per share does not differ from the basic earnings
per share.
** The fully diluted earnings per share is based upon the dilutive effect of
197 500 shares issued to employees for cash at 100cps on 31 August 2001.
*** The group's earnings have been materially affected by an adjustment
required in terms of GAAP Statement AC112. The resulting loss on translation
has been charged to the Income Statement and does not reflect economic
reality. Had the subsidiary been treated as a foreign entity, the loss would
have been capitalised.
STATEMENT OF CHANGES IN EQUITY
7 months ended 6 months ended Year ended
30 Sept 2001 31 August 2000 28 Feb 2001
Unaudited Unaudited Audited
R'000 R'000 R'000
Share capital and share premium 111,968 111,985 111,771
Balance at beginning of period 111,771 22,025 22,025
Arising from share issue 197 95,616 95,616
Share issue expenses - (5,656) (5,870)
Retained income 31,877 6,404 21,999
Balance at beginning of period 21,999 1,034 1,034
Net income attributable to
shareholders 9,878 5,370 20,965
143,845 118,389 133,770
Number of shares in
issue (thousands) 129,520 129,322 129,322
Net asset value (cents) 111 92 103
CASH FLOW STATEMENT
Operating profit before
changes in working capital 9,967 7,824 27,705
Changes in working capital (6,184) (4,010) (7,463)
Cash generated by operations 3,783 3,814 20,242
Interest received 3,381 581 4,362
Finance costs (19) (4) (30)
Taxation paid (6,901) - (368)
Net cash inflow from operating
activities 244 4,391 24,206
Cash flow from investing
activities
- net additions to fixed
assets (13,533) (6,285) (20,477)
Cash flow from financing
activities
- long term liability repaid (877) - (593)
- net proceeds from issue of
shares 197 78,350 80,746
Net movement in cash and
cash equivalents (13,969) 76,456 83,882
Cash and cash equivalents at
beginning of period 86,988 3,106 3,106
Cash and cash equivalents at
end of period 73,019 79,562 86,988
Notes
The accounting policies adopted for the purposes of these Interim Results
comply, in all material respects, with South African Statements of Generally
Accepted Accounting Practice, as well as with applicable legislation. These
accounting policies are also consistent with those of the previous period.
1. Net foreign exchange gain (loss)
Profit on foreign
exchange - unrealised 16,354 2,047 7,349
Profit on foreign
exchange - realised - 6 14
Profit on translation of
foreign subsidiary 36 18 -
Loss on foreign
exchange - unrealised (2,789) (114) (1,427)
Loss on translation of
foreign subsidiary (8,936) (3,123) (6,583)
4,665 (1,166) (647)
2. Pre-production expenditure
Head office expenses
capitalised 1,868 1,810 2,604
Pre-production expenditure
capitalised 30,089 13,827 21,925
3. Taxation
South African normal taxation
- current 1,685 1,874 6,901
- deferred tax liability 3,601 951 2,129
- deferred tax asset (1,201) (1,290) -
4,085 1,535 9,030
4. Quality of earnings
The impact of the continued depreciation of the Rand against the US dollar
has resulted in a net foreign exchange gain of R4.7 million which is
included in operating income.
Review
of Operations
Shareholders are reminded that AFGEM's year end has changed from 28 February
to 31 March to coincide with calendar quarters. The interim period under
review refers to the seven months from 1 March 2001 to 30 September 2001.
The company's tanzanite mine is currently in a pre-production phase and as
the restatement of the previous interim results to a seven month period
would not result in any material difference from the six month period
reported, such restatement has not been affected.
Business Summary
AFGEM is a focused coloured gemstone business, vertically integrated through
exploration, mining, trading, beneficiation and wholesale marketing of high
value coloured stones found within sub-Saharan Africa. The marketing arm of
the business has been in existence for 10 years and has established itself
as southern Africa's foremost gemstone wholesaler. In 1999, AFGEM won the
bid for the mining licence of Block 'C' of the Merelani tanzanite mining
area. Tanzanite is an exceptionally rare violet-blue gemstone unique to the
Merelani area in northern Tanzania.
The Merelani Tanzanite Project is AFGEM's first vertically integrated
initiative, encompassing the mining, processing, beneficiation (cutting &
polishing) and marketing of tanzanite. Sales of polished tanzanite will
revolve around a unique brand: Tanzanite Foundation. Rough sales will be
conducted through an auction process that is currently being developed.
While tanzanite has enjoyed tremendous popularity in the United States, its
limited penetration of other markets offers significant potential.
Trials & Triumphs
During the seven months under review, AFGEM contended a difficult law suit
in Tanzania, filed by associations purporting to represent small scale
miners in the area. On 22 August 2001, in a unanimous decision of a full
bench of the High Court of Tanzania, the law suit was struck off in its
entirety with costs, endorsing Tanzania's commitment to the Rule of Law,
positioning it as one of Africa's premier investment destinations and
revalidating the Tanzanian government's commitment to nurturing foreign
investment in the mining sector.
The impact of this law suit directly caused as much as a six month delay in
AFGEM's initial mine development programme. This, compounded by the further
exploration required to finalise a revised mine plan, has postponed the
initiation of commercial production until the second quarter of 2002.
Exploration
During the seven months under review, the existing geological model was
revised in order to finalise the mine development plan, which encompasses a
new ore extraction method. A core drilling programme was undertaken to
determine the vertical extent of the ore body and has yielded positive
preliminary results, with indications that the ore body continues to a depth
of at least 300m: 150m deeper than was previously proven. The cores are
being subjected to a detailed petrographical, mineralogical and geochemical
interpretation by the Gemstone Research Centre at the University of
Stellenbosch. The final report and outcome of this investigation, as well as
the 3D modelling of the horizon, will be completed during December 2001. The
cost of the core drilling programme amounted to approximately R1 000 000.
Mining
During the period under review, exploration and development have been the
primary focus, with ore from development being processed, beneficiated and
sold.
Milestones
-Completion of advanced core drilling programme
- Extension and secondary development of main decline shaft (`JW Shaft'),
with total vertical depth at 116m
- Basic infrastructure and ore extraction system of second exploratory
incline shaft complete
- Processing plant commissioned and operational
- Fencing of mining area complete
- Low cost programme to repair past environmental damage initiated
Development Production from Main Decline Shaft (JW Shaft)
1 March 2001 - 1 March 2000 -
30 September 2001 31 August 2000
Tonnes 4,324 1, 214
Grams (Grade A+AB+B+C) 144,908 34,988
Grams/tonne 34 29
Carats/tonne (1g = 5 carats) 170 145
Tonnage has increased three fold during the period under review, with
improved grades achieved as a result of a better understanding of the nature
of the ore body. 6,378g of rough production was in stock as at
30 September 2001 and this stock has been valued at mined cost.
Safety
AFGEM had no reportable accidents during the period under review. Since the
initiation of mine development, AFGEM has experienced a total of 1.15
million reportable injury-free hours.
Beneficiation
AFGEM has expanded its Johannesburg Lapidary and refined its beneficiation
process. With 24 stations, a fully integrated monitoring system and a team
trained by industry experts, efficiencies in the Lapidary have improved.
The introduction of the most technologically advanced computerised shaping
machine (`Robogem') has improved recoveries (the percentage retained between
rough and polished tanzanite) by 8% (from an average of 25% to an average of
27%) during the period under review. The Robogem was acquired and installed
at a cost of approxiamately R500 000.
A Tanzanian cutting and polishing facility is now in its initial phase of
development, with three stations installed and a training programme
underway.
Marketing
Described as `1000 times rarer than diamonds' and accepted as a `geological
phenomenon', tanzanite's unique selling features have been sufficient for it
to offer aggressive competition to sapphire, ruby and emerald in recent
years.
Whilst the current global economic situation is not conducive to strong
sales of luxury goods, AFGEM's primary challenge during the period under
review has been supply generation rather than demand stimulation. The
establishment of consistent supply has been impeded largely by the delay in
mine development. In order to take advantage of prevailing market
conditions, AFGEM bought in rough tanzanite from outside mines through its
buying operation to supplement its own development production. The resultant
lower gross margins are due to the higher cost of outside purchasing,
compared to the relatively low cost of mining. These margins are in line
with management's previous estimates.
A significant portion of the group's resources has been directed at the
development and soft launch of the Tanzanite Foundation: AFGEM's brand for
premium quality polished tanzanite. Centred around quality assurance and a
guarantee of the highest standards of ethics and integrity, the brand and
its elements were well-received at South Africa's premier gem trade fair:
Jewellex. To date, R1.5 million has been spent on the brand and its
elements, all of which has been expensed to the Income Statement. A further
R2 million has been budgeted to complete the development of the brand.
Corporate Affairs
Dematerialisation
The share capital of African Gem Resources Limited was transferred to the
electronic STRATE (`Share Transactions Totally Electronic') environment on 5
March 2001. Trading for electronic settlement commenced on 26 March 2001. In
terms of the JSE Securities Exchange South Africa's revised listings
requirements, AFGEM's move to STRATE was obligatory and will ensure
participation in a sophisticated settlement process that is on par with
international best practice.
Board Appointments
AFGEM appointed Ambassador Ami Mpungwe as a non executive member of its
board on 23 August 2001. Ambassador Mpungwe is chairman of AFGEM's Tanzanian
subsidiary and has been integral to its establishment and development.
Ambassador Mpungwe has an Honours degree in International Relations and
Political Science and a diploma in International Law. He spent 25 years in
the diplomatic service, including seven years as Tanzanian Ambassador to
South Africa, after which he became involved in businesses, holding
directorships at numerous companies.
Mr Dean Cunningham resigned from the board of directors on 10 August 2001.
Special Options
In accordance with that stated in AFGEM's listing prospectus, on 31 August
2001, 197 500 shares were issued to AFGEM staff for cash in terms of share
option agreements entered into prior to the listing of the company on 8
August 2000. No executive director was a recipient of shares in terms of
this issue or any other issue during the period under review and/or since
the listing.
American Depository Receipts Programme (`ADR')
AFGEM is in the final stages of submitting all relevant documentation
relating to the company's Level 1 ADR programme. ADR's will create more
diversified investor exposure and, together with an aggressive equity
marketing strategy, will enhance the international image of the company. It
is anticipated that the programme will be registered in the USA during the
first quarter of 2002.
Corporate Governance
AFGEM is committed to maintaining the standards of integrity, accountability
and transparency advocated in the King Report on corporate governance and
will continually endeavour to adopt further relevant corporate practices.
AFGEM has maintained an Audit Committee and a Remuneration Committee, both
chaired by non executive directors. Executive directors have received no
increases in salaries or benefits since the listing of the company on 8
August 2000.
Dividend Policy
The board has decided not to declare an interim dividend due to the cash
requirements of continued mine development, establishment of tanzanite
trading operations and the development and international launch of the
Tanzanite Foundation brand. Should a cash surplus develop beyond the
requirements of the group, the dividend policy will be reviewed.
Outlook
In light of recent terrorist tragedies and the pressures faced by the
world's markets, AFGEM has reaffirmed its focus on its core business. The
company has made a firm commitment to analysing and reducing any extraneous
overheads and to allocating resources to the activities that add value.
After a challenging start to its second financial year, AFGEM approaches the
third and fourth quarters with a solid foundation. The group has R73
million in cash, current liabilities of R7 million, R25 million budgeted for
the completion of mine development, R 5 million budgeted for marketing and
an allocation of the remaining funds for the group's tanzanite trading
operation. With the Tanzanian government's commitment reaffirmed, community
and media relations in Tanzania on a sound footing and a finalised mine
development plan, AFGEM is financially and strategically well-positioned to
achieve its short and medium term objectives.
By order of the board:
M J Nunn - Chairman & Chief Executive Officer M Shein - Financial Director
20 November 2001
Directors: M J Nunn (Chairman & CEO), M Shein, A Mpungwe*, A Bekker*, S
Mkhize*, C Boulle* (*non executive)
Transfer Secretaries:
Computershare Services Limited
First Floor Edura, 41 Fox Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Company Secretary & Registered Office:
J D Hill & Company
93 Bedford Avenue, Benoni, 1501
PO Box 492, Benoni, 1501
