| Thu 3 Feb 2005, 8:37 | | Unaudited Group Interim Results |
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Mvelaphanda Resources Limited - Unaudited Group Interim Results
MVELAPHANDA RESOURCES LIMITED
(Registration number 1980/001395/06)
(Incorporated in the Republic of South Africa)
(Share code: MVL ISIN number: ZAE000050266)
UNAUDITED GROUP INTERIM RESULTS
for the six months ended 31 December 2004
Directors:
TMG Sexwale (Chairman), PC Pienaar* (Acting CEO), C Johnson*,
BR van Rooyen*, LN Angel, M Beckett (British), O Mabandla,
E Molobi, M Mtshotshisa, P Ncholo, R Ramaite, MJ Willcox,
MSM Xayiya
*Executive Directors
Issued share capital: 166 403 140 shares
HIGHLIGHTS
Terms of Gold Fields Exchange Agreement finalised post reporting date. A minimum
of 45 million shares and maximum of 55 million shares in Gold Fields on
exchange, provides a value underpin for Mvelaphanda Resources, while retaining
upside leverage.
Full production at the Tirisano mine expected in the first quarter of calendar
2005. Capital costs are well under initial estimates, enhancing the returns of
the project.
Despite the squeeze on operating margins arising from the strong rand, income
from associate companies remains positive and exceeds expenditure on growth
projects.
Headline earnings of 25 cents after adjusting for the non-cash, mark-to-market
change in the value of financial instruments. Including changes in the value of
financial instruments, the company posted a headline loss of 208 cents.
The balance sheet remains robust - R190 million cash on hand.
UNAUDITED GROUP INCOME 6 months to 6 months to
STATEMENT 31 December 31 March
2004 2004
Notes R`000 R`000
Income
Earnings from associate companies 8 913 19 397
- Northam Platinum Limited 5 704 14 970
- Trans Hex Group Limited 3 209 4 427
Interest earned on GFI-SA loan
advanced 218 703 18 526
Interest earned on cash and cash
equivalents 7 809 3 037
Dividend received from non-strategic
investments 2 5
Amortisation of negative goodwill
relating to investment in associates 8 053 8 053
TOTAL INCOME 243 480 49 018
Expenses
Exploration and project development
costs 3 578 7 475
Corporate expenses 9 915 8 464
Finance costs 2 165 680 15 390
- Senior Bank Loan (GFI-SA) 68 449 5 889
- Mezzanine finance (GFI-SA) 95 105 6 964
- Standard Corporate Merchant Bank 1 946 2 520
- Other 180 17
PROFIT BEFORE OTHER EXPENSES 64 307 17 689
Other expenses 392 238 35 331
GFI-SA transaction costs - 4 224
Participation rights purchased from
Mvelaphanda Holdings - 59 925
Amortisation of goodwill arising on
reverse acquisition 3 437 3 437
Net loss/(gain) on revaluation of
financial instruments 388 801 (32 255)
- GFI-SA loan advanced 4 231 000 50 000
- Trans Hex Group Ltd forward 5
purchased shares 12 801 (66 875)
- Trans Hex Group Ltd share options 5 - (15 380)
- Mezzanine finance 7 145 000 -
Loss before taxation (327 931) (17 642)
Taxation (12 707) (14 040)
- Normal (15 940) (6 543)
- Deferred 3 233 (7 497)
NET LOSS (340 638) (31 682)
Basic loss per ordinary share (204,78) (39,93)
(cents)
Headline loss per ordinary share
(cents) 3 (207,56) (45,74)
Diluted loss per ordinary share
(cents) (204,78) (39,45)
Dividend per ordinary share (cents) - -
Adjusted headline earnings per
ordinary share excluding `Other
expenses` (cents) 3 25,03 3,90
UNAUDITED GROUP BALANCE 31 December 30 June
SHEET 2004 2004
Notes R`000 R`000
Assets
Non-current assets
Investment in associate companies 512 745 538 077
- Northam Platinum Limited 389 379 417 150
- Trans Hex Group Limited 123 366 120 927
GFI-SA loan advanced 4 3 176 000 3 407 000
- Loan advanced to GFI-SA 4 139 000 4 139 000
- Fair value adjustment (963 000) (732 000)
Derivative financial instruments
- Trans Hex Group Ltd forward
purchased shares 5 228 501 241 302
Booysendal Platinum Project 315 892 315 892
Tirisano Joint Venture 11 174 -
Non-strategic listed investments
available for disposal 6 2 329 2 151
- AngloGold Ashanti Limited 288 288
- Shell Transport & Trading plc 2 041 1 863
Goodwill arising from reverse
acquisition 117 432 120 869
Property, plant and equipment 866 235
TOTAL NON-CURRENT ASSETS 4 364 939 4 625 526
Current assets
Cash and cash equivalents 189 816 218 716
Receivables and prepayments 4 486 6 718
TOTAL CURRENT ASSETS 194 302 225 434
TOTAL ASSETS 4 559 241 4 850 960
Equity and liabilities
Share capital and reserves 2 634 719 2 985 884
TOTAL SHAREHOLDERS` EQUITY 2 634 719 2 985 884
Non-current liabilities
Senior Bank Loan 7 940 004 1 064 432
Mezzanine finance 8 641 644 435 320
Deferred taxation 20 823 21 430
TOTAL NON-CURRENT LIABILITIES 1 602 471 1 521 182
Current liabilities
Accounts payable 14 241 9 034
Provisions 392 249
Interest bearing borrowings 244 431 281 443
- Short term portion of Senior Bank
Loan 244 431 234 374
- Standard Corporate Merchant Bank
sale and buy back of shares - 47 069
Booysendal Platinum Project accrual 9 38 000 50 000
Tirisano Joint Venture accrual 10 11 174 -
Current taxation payable 13 813 3 168
TOTAL CURRENT LIABILITIES 322 051 343 894
TOTAL EQUITY AND LIABILITIES 4 559 241 4 850 960
UNAUDITED Accu- Acquisition
GROUP Share Share mulated equity Other
STATEMENT
OF CHANGES capital premium profit adjustment reserves Total
IN EQUITY R`000 R`000 R`000 R`000 R`000 R`000
Balance 1 July 3 328 3 037 498 370 373 (421 947) (3 368) 2 985 884
2004
Share buy back
(Note 11) (153) (10 751) (10 904)
Unrealised
loss on
revaluation of
listed 179 179
investments
Equity portion
of foreign
currency
translation
reserve 225 225
Equity portion
of fair value
adjustment on
available-for-
sale
financial
assets (27) (27)
Attributable
loss for the
period (340 638) (340 638)
Balance 31
December 2004 3 175 3 026 747 29 735 (421 947) (2 991) 2 634 719
Balance 1
October 2003 690 86 115 467 637 (421 947) (2 662) 129 833
Scheme of
arrangement 690 792 794 793 484
Mvelaphanda
Holdings share
issue 51 59 874 59 925
Booysendal
Platinum
Project share
issue 185 224 814 224 999
Shares issued
for cash 1 556 1 788 443 1 789 999
Shares issued
for cash over
allotment
option 156 178 828 178 984
Share issue
expenses (93 370) (93 370)
Equity portion
of foreign
currency
translation
reserve (575) (575)
Equity portion
of fair value
adjustment on
available-for-
sale financial
assets (103) (103)
Unrealised
loss on
revaluation of
listed
investment (56) (56)
Attributable
loss for the
period (31 682) (31 682)
Balance 31
March 2004 3 328 3 037 498 435 955 (421 947) (3 396) 3 051 438
UNAUDITED GROUP 6 months to 6 months to
CASH FLOW 31 December 31 March
STATEMENT 2004 2004
R`000 R`000
Cash flows from operating activities
Cash (utilised in)/generated by operations (13 991) (19 737)
Exploration and project costs (3 576) (8 492)
Corporate expenses (10 415) (7 021)
Mvela Gold stamp duty - (4 224)
Interest received 226 512 3 338
Finance costs on external borrowings (97 564) (17)
Taxation paid (2 669) (658)
Net cash generated by/(used in) operating
activities 112 288 (17 074)
Cash flows from investing activities
Loan advanced to GFI-SA - (4 139 000)
Exercise of Remgro options on Trans Hex - (54 021)
shares
Proceeds on disposal of Trans Hex shares - 53 710
Capital repayment by associate companies 10 348 17 257
Dividends from associate companies
- Northam Platinum Limited 31 043 22 178
- Trans Hex Group Limited 1 106 506
Payment in respect of Booysendal Platinum
Project (12 000) (29 603)
Dividends received from non-strategic
investments 2 5
Property, plant and equipment acquired (658) -
Net cash generated By/(used in) investing
activities 29 841 (4 128 968)
Cash flows from financing activities
Shares issued for cash - 1 968 983
Loans raised in Mvela Gold - 2 449 360
Transaction costs - (117 542)
Purchase of Mvelaphanda Resources shares (10 008) -
Repayment of external borrowings Standard
Corporate Merchant Bank (46 649) -
Repayment of external borrowings Senior Bank
Loan (114 372) -
Net cash (used in)/generated by financing
activities (171 029) 4 300 801
Net (decrease)/increase in cash and cash
equivalents (28 900) 154 759
Cash and cash equivalents at beginning of
period 218 716 83 479
Cash and cash equivalents at end of period 189 816 238 238
NOTES
1. The financial information has been prepared in accordance with South African
Statements of Generally Accepted Accounting Practice and incorporate accounting
policies which are consistent with the previous year.
2. Finance costs have increased due to the commercial bank loans and mezzanine
financing referred to in paragraph 3 in the commentary.
3. Headline earnings per share and adjusted headline earnings per share are
calculated using the following:
6 months to 6 months to
31 December 31 March
2004 2004
a. Headline earnings per share
Net loss (R`000) (340 638) (31 682)
Net goodwill amortised (R`000) (4 616) (4 616)
Headline loss (R`000) (345 254) (36 298)
Weighted average number of shares 166 339 637 79 350 368
b. Adjusted headline earnings per share
excluding `Other expenses`
Net loss (R`000) (340 638) (31 682)
`Other expenses` per income statement
(R`000) 392 238 35 331
Amortisation of negative goodwill (R`000) (8 053) (8 053)
Taxation relating to other expenses
(R`000) (1 920) 7 497
Adjusted headline earnings (R`000) 41 627 3 093
Weighted average number of shares in
issue 166 339 637 79 350 368
4. Loan to GFI-SA
31 December 30 June
2004 2004
(R`000) (R`000)
Loan advance to GFI-SA 4 139 000 4 139 000
Fair value adjustment 31 March 2004 (50 000) (50 000)
Fair value adjustment 30 June 2004 (682 000) (682 000)
Fair value adjustment 31 December 2004 (231 000) -
Fair value as at 31 December 2004 3 176 000 3 407 000
A loan of R4 139 million has been advanced to GFI-SA by Mvela Gold. The loan
bears interest at 10,57% nominal annual compounded semi-annually over a five
year period, following which Mvela Gold will subscribe for 15% of the share
capital of GFI-SA. This loan is treated as a financial instrument for accounting
purposes and its fair value is determined by calculating the relative share of
Gold Fields` market capitalisation attributable to Mvela Gold, assuming
conversion of its GFI-SA shareholding as calculated using the method agreed upon
in the original transaction. This amount is adjusted by the present value of the
difference between the fixed interest income due from GFI-SA until March 2009
and the dividends forgone during that period.
The value of this investment is sensitive to the following key drivers:
- Rand/US Dollar exchange rate;
- US Dollar gold price; and
- Relative portion of Gold Fields Limited`s mark capitalisation attributable to
its South African mining operations.
Note:
The valuation on the GFI-SA loan was done as at 31 December 2004 and is based on
the original agreements with Gold Fields. It therefore does not take into
account the exchange agreement announced on 31 January 2005 between Gold Fields
and Mvela.
5. Derivative financial instruments
Trans Hex forward Trans Hex Total
purchased shares options
R`000 R`000 R`000
Balance as at 1 July 2004 241 302 - 241 302
Fair value adjustment (12 801) - (12 801)
Fair value as at 31
December 2004 228 501 - 228 501
Balance as at 1 October
2003 306 332 65 309 371 641
Fair value adjustment (65 030) 15 380 (49 650)
*Exercised options - (80 689) (80 689)
Fair value as at 30 June
2004 241 302 - 241 302
The fair value is based on the market price of Trans Hex shares as at 31
December 2004 and the contingent liability relating to the debenture coupon.
Refer Note 12.
*The company had an option to acquire 5 million Trans Hex Group Limited shares
from Remgro Limited. These options were exercised at a strike price of R10,80
during the year ended 30 June 2004.
6. Non-strategic listed investments available for disposal
R`000
Balance as at 1 July 2004 2 151
Fair value adjustment 178
Fair value as at 31 December 2004 2 329
Balance as at 1 October 2003 2 192
Fair value adjustment (41)
Fair value as at 30 June 2004 2 151
7. Senior Bank Loan
The obligations under the Senior Bank Loan is secured by a cession of Mvela
Gold`s rights to the interest and capital under the GFI-SA loan.
8. Mezzanine finance
31 December 30 June
2004 2004
R`000 R`000
Balance at beginning of period 435 320 1 086 000
Capitalised transaction cost (6 792) (22 780)
Interest accrued during the period 95 105 51 512
Loan repayments made during the period (26 989) (15 412)
496 644 1 099 320
Unrealised fair value adjustment 145 000 (664 000)
Mezzanine finance - at fair value 641 644 435 320
The mezzanine finance, which includes the funds advanced to Mvela Gold as well
as the security with limited recourse against the Mvela Resources Group, is
treated as a financial instrument and is carried in the balance sheet at fair
value. The fair value is determined through the use of option pricing
methodology.
Mvela Gold`s right to receive the GFI-SA shares and Mvela Gold`s right to
exchange the GFI-SA shares for Gold Fields ordinary shares and a guarantee of
R200 million from Mvela Resources for the benefit of the Mezzanine Financiers
(other than GFL Mining Services) is secured by a cession and pledge of all the
ordinary shares in Mvela Gold in the event that amounts are still owed to Mezz
SPV after exhaustion of the security cession. Other than the Mvela Resources
Guarantee, there is no further recourse against the Mvela Resources Group.
9. Booysendal Platinum Project - refer to paragraph 2.1 in the commentary.
10. Tirisano Joint Venture - refer to paragraph 2.2 in the commentary.
11. Share buy-back
During the period the Group had a share buy-back of 762 039 shares at a cost of
R10 904 008 (average cost per share R14,31). These shares are treated as
treasury shares and have been deducted from shareholders` equity.
12. Contingent liability
The company has guaranteed the Trans Hex Group Limited debenture coupon payments
under the debenture issue agreement. The maximum potential contingent liability
as at 31 December 2004 is R59 498 595 (March 2004 R62 793 207). This amount
reduces to Rnil over the six-year term of the debenture, in accordance with each
semi-annual coupon payment made by Trans Hex Group Limited.
13. Post balance sheet events
Northam Platinum Limited declared a dividend of 25 cents per share to be paid on
28 February 2005.
COMMENTS
1. CORPORATE ACTIVITY
1.1 Finalisation of Exchange Agreement with Gold Fields
On 31 January 2005, Mvelaphanda Resources and Gold Fields jointly announced the
final terms and basis for the possible exchange of Mvelaphanda Resources` 15%
stake in GFI-SA for shares in Gold Fields. It has been agreed that Mvela Gold or
Gold Fields will have the right to require the exchange for Gold Fields shares,
on an equivalent value basis, according to the valuation method agreed upon at
the time of the original transaction. To provide certainty regarding Mvelaphanda
Resources` ultimate shareholding in Gold Fields and to ensure the long term
sustainability of Gold Fields` relationship with its empowerment partner
Mvelaphanda Resources, Mvela Gold will be entitled to be issued with not less
than 45 million and not more than
55 million shares in Gold Fields, representing 8,4% and 10% of the fully diluted
issued share capital of Gold Fields respectively.
Provision has also been made to adjust the minimum and maximum number of shares
should any change be made to the share capital structure of Gold Fields, or
should any corporate activity or distributions potentially impact on the value
of Mvela Gold`s entitlement.
The agreement provides a significant value underpin for Mvelaphanda Resources`
investment in Gold Fields while allowing for upside leverage to a higher rand
gold price, and significantly reduces the risk profile of the company. Assuming
the minimum share exchange level of
45 million shares, Mvelaphanda Resources would require a Gold Fields share price
of only R48/share in order to meet its Mezzanine funding obligations (including
capitalised interest) in March 2009. Should the 55 million share level be
relevant at the time, this minimum share price reduces to R39/share, 19% lower.
1.2 Share buyback activity
During the week beginning Monday 13 December 2004, Mvelaphanda Resources
acquired 762 039 of its own shares in the market at an volume weighted average
price of R14,26 per share. Selling pressure on light volumes during the first
two weeks of December, caused the share price to fall over 20% and caused a
disconnect between the market price and the underlying fundamental value of the
company. Mvelaphanda Resources` most significant listed investments, Gold
Fields, Northam and Trans Hex outperformed relative to the Mvelaphanda Resources
share price over that time, resulting in Mvelaphanda Resources` discount to net
asset value widening to over 30%. The acquisition by Mvelaphanda Resources of
its own stock, reflects an efficient use of capital and another mechanism by
which shareholder value could be added. The purchased stock will be held as
treasury shares and shareholder equity has been adjusted accordingly.
2. GROWTH
2.1 Booysendal Joint Venture
Application for prospecting rights over certain state owned mineral rights
included in the Booysendal project area has been made to the Department of
Minerals and Energy. Granting of these rights will enable Mvelaphanda Resources
to proceed with the proposed sale of Mvelaphanda Resources` 50% share in the
Booysendal joint venture with Anglo Platinum, to Northam for 20,4 million new
shares in Northam ranking as fully-paid, 18 million deferred shares in Northam
(which will not rank for dividends until the fourth anniversary of their issue)
and R90 million in cash. The successful conclusion of the deal will result in
Mvelaphanda Resources becoming the largest shareholder in Northam, owning 34% of
the company, and provide Northam with significant growth potential outside of
its current mining lease area.
2.2 Mvelaphanda Exploration/Etruscan Diamonds
The first phase of the Tirisano project, the expansion of the existing mine near
Ventersdorp, is nearing completion. Trans Hex has assumed operational control
of the mine and full production capacity of 300tph is anticipated by the end of
March 2005. Indications are that the final capital requirement is likely to be
significantly less than the R41 million initially budgeted for the expansion.
This will enhance the returns on what was already an exciting project for Mvela
Exploration. Bulk sampling of the nearby Blue Gum deposit will begin shortly
after commissioning of the new plant. Mvela Exploration may earn a 50% interest
in the Blue Gum deposit by carrying out a bulk sampling programme and a
feasibility study and incurring capital expenditures on the properties estimated
at this stage at R190 million.
3. FINANCIAL REVIEW
The conclusion of the Gold Fields transaction in March 2004 and the change in
the financial year-end from September to June, makes direct financial
comparisons difficult. Basic earnings are also volatile as a result of financial
instruments arising from Mvelaphanda Resources` acquisitive growth in recent
years. In the opinion of management these are not reflective of the financial
status or the outlook for the company.
* Earnings excluding mark-to-market movements in the value of financial
instruments are positive.
* Mvelaphanda Resources` associate companies continue to contribute cash in the
form of dividends.
* The balance sheet is robust with limited liabilities at the centre.
* Together with its associate companies Mvelaphanda Resources` is well
positioned to grow, both organically and through acquisition.
The overriding feature of the 6-month period under review was again the strength
in the rand, which rose against most international currencies and significantly,
by 9% against the US dollar. The South African currency averaged R6,22/US$, 12%
higher than that of the corresponding period in 2003. While the impact on the
revenues of Northam and Trans Hex were partly mitigated by favourable gains in
the dollar price of platinum and diamonds, high global oil prices and wage and
steel price increases above the prevailing South African inflation rate,
continue to squeeze operating margins. Consequently, Mvelaphanda Resources`
share of earnings from associated companies was relatively low at R9 million.
Importantly though, despite the prevailing rand, both Northam and Trans Hex
remain profitable and continued to make a positive contribution. Dividends
received from Northam and Trans Hex amounted to R32 million, more than covering
Mvelaphanda Resources` organic growth requirements of
R3,6 million and corporate costs of R10 million.
Interest earned on the GFI-SA loan of R219 million reflects the full biannual
interest payment to Mvela Gold. The financing structure of the Gold Fields
transaction, whereby Mvela Gold, a wholly owned subsidiary of Mvelaphanda
Resources receives fixed interest payments from GFI-SA, provides revenue
protection from fluctuations in the gold price and the rand for Mvelaphanda
Resources.
Mvela Gold advanced R4 139 million to GFI-SA, a subsidiary of Gold Fields, which
owns Gold Fields` South African assets. Mvela Gold will receive interest on the
loan, paid biannually until March 2009. On redemption of the loan in March
2009, Mvela Gold will subscribe for 15% of GFI-SA. As a result, revenues will be
boosted by around R219 million in each reporting period until the subscription
date.
Cash expenses of R179 million, consist of R3,6 million for funding organic
growth, R10 million in corporate expenses mentioned previously and R166 million
in interest payments, mainly on commercial and mezzanine funding arising from
the Gold Fields transaction. Cash operating profit, after providing for organic
growth and transaction related debt repayments, therefore remains positive at
R64 million.
Other expenses of a non-cash nature are predominantly due to movements in the
mark-to market value of financial instruments. Fluctuations in the rand, metal
prices and underlying share price movements in Gold Fields and Trans Hex impact
on the value of these instruments and resulted in an adverse R389 million non-
cash expense. Together with a R3,4 million goodwill amortisation charge arising
from the reverse acquisition of East Daggafontein Mines Limited, the total non-
cash expense of R392 million led to a basic loss of 205 cents per share.
Excluding these non-cash movements, which will tend to be volatile and
unpredictable, Mvelaphanda Resources posted positive adjusted headline earnings
of 25 cents per share for the six months to December 2004.
Cash flow items of an unusual nature in this period include R12 million paid to
Khumama Platinum shareholders in respect of the Booysendal joint venture and
R10 million in share buyback costs following the acquisition of 762 039 shares
at a volume weighted average price of R14,26 per share in December 2004. Despite
these outflows, the balance sheet remains robust, with cash and cash equivalents
of R190 million.
4. OPERATIONAL REVIEW
4.1 Northam
The Board of Mvelaphanda Resources extends its deepest regret to the families of
the eleven Northam employees who lost their lives to mining related accidents
during the 6-month period to December 2004.
An underground fire in a conveyor decline caused the tragic death of nine
employees and led to the suspension of mining operations while an investigation
into the cause was underway. Production was halted for about a six-week period,
resulting in an 18% decline in metal in concentrate to 149 481oz (3PGE+Au).
Despite the suspension also affecting development, Merensky reserves rose from
15 to 20 months, although UG2 reserves declined to 16 months.
US dollar weakness and continued strong demand, particularly from China, boosted
the metal basket price 21% in dollar terms to US$665/oz. Continued rand strength
offset the bulk of these gains however, resulting in an average rand basket
price of R132 645/kg, only 8% above that of the previous reporting period.
Concentrates purchased in order to optimise smelter efficiencies, drove cash
operating costs up 23% to R119 742/kg. An interim insurance recovery boosted
sundry revenue, but profit attributable to shareholders declined 40% to R63
million.
Northam declared an interim dividend of 25 cents per share compared with a 45
cents interim dividend in FY2004.
4.2 Trans Hex
Trans Hex reports interim and final financial results for the financial periods
ending September and March respectively. The rand has had a significant impact
on the profitability of the company, and despite a steady build-up in production
in Angola, and higher US dollar prices for its high quality South African gem
stone production, attributable income for the six-months to September 2004 fell
29% to R80,6 million.
Total diamond production was up 12%, compared to the six month period to
September 2003, but a 2% decline in revenue resulting from the strong rand and a
25% increase in costs, as its Angolan operations continued progress to full
production and maintenance work was carried out on capital equipment,
pressurised earnings.
The dividend declared in the period was maintained at 20 cents per share, which,
following Mvelaphanda Resources decision to exercise its option to purchase
shares from Remgro in early 2004, resulted in Trans Hex contributing R1,1
million in cash.
4.3 GFI-SA
Gold Fields` South African operations, Driefontein, Kloof and Beatrix posted
better results for the second consecutive quarter, to end calendar 2004 on a
positive note. A focus on cost cutting and the revision of the groups previous
`marginal mining` strategy introduced under the high rand gold price environment
in 2002, has begun to show results, with a significant rise in profitability
across the operations, despite the prevailing low rand gold price.
Revenue from the South African operations fell 4% to R5 650 million compared to
the first half of calendar 2004. This largely due to a 3% decline in the rand
price of gold, and despite an improvement in underground yield and tons milled
at the operations and a consequent rise in production, to 68 336 oz.
5. DIVIDENDS
Further acquisitive and organic growth opportunities are likely to arise for
Mvela Resources in the coming period. As such, the Directors have elected not to
pay an interim dividend for the six-month period to December 2004.
6. DIRECTORS
As announced on 15 December 2004, Ms Nthobi Angel resigned as CEO of the company
but remains a non-executive director.
Mr Richard Shead resigned as a director of the company on 1 February 2005.
7. PROSPECTS
Market consensus, based on the strength in the South African economy and
continued concern about the outlook for the dollar, currently reflects a view
that the rand will remain strong in relative terms for at least the next two
years. It has taken some time for this reality to be accepted and South African
mining companies have only recently begun to plan for the new reality. While a
strong rand will impact on Mvelaphanda Resources` earnings, the company strategy
is focussed on growth and is not driven by earnings.
Corporate activity in the South African mining industry, and particularly with
respect to empowerment, slowed in 2004 as margins were squeezed, companies
seeking empowerment partners have refrained from pursuing the sale of assets
while the rand was strong and the investment banks drew back from funding
empowerment transactions, or raised the cost of debt to capture the higher risk
nature of the sector.
The reality is that the Mining Charter is a finite period, with just over four
years remaining in which to meet at least the initial 15% empowerment equity
target, and corporate activity in the sector will need to pick up if many
existing companies are to qualify for new order mining licences. Mvelaphanda
Resources, with its robust balance sheet, still positive cash flow from
associates, low risk financing structure relating to the Gold Fields transaction
and credit history, believes it is well positioned to continue to grow as an
inclusive empowerment mining entity, to a point where it can make a meaningful
contribution to the industry from within.
For and on behalf of the board
TMG Sexwale PC Pienaar
Chairman Acting Chief Executive Officer
Johannesburg
3 February 2005
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Date: 03/02/2005 08:30:51 AM
Produced by the JSE SENS Department
