| Wed 4 May 2005, 11:27 | | Shareholder Update |
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Aflease Gold and Uranium Resources Limited - Shareholder Update
Aflease Gold and Uranium Resources Limited
(Formerly The Afrikander Lease Limited)
(Incorporated in the Republic of South Africa)
(Registration number 1921/006955/06)
Share code: AFL ISIN: ZAE000061461
(`Aflease`)
Shareholder Update - May 2005
Introduction
Shareholders are advised that the Company will present a full strategic update
to coincide with the completion of its reserve and resource declaration. This
release serves as an interim update on the Company`s progress over the last
several months.
Annual financial statements and annual general meeting
The Company`s detailed financial statements for the year ended 31 December 2004
will be posted to shareholders by the end of May and the Company`s annual
general meeting will be held during the month of June.
The financial statements will contain the company`s updated and audited reserve
and resource statement. This will include information pertaining to both the
uranium and gold assets.
The exploration expenditure referred to in the abbreviated financial statements
released on March 31, 2005 is expected to result in a material increase in the
company`s gold reserves and resources.
North American capital markets
The Company`s shareholder profile continues to undergo significant change.
Shareholders outside of South Africa now hold more than 75% of the Company`s
ordinary shares. As a result, it has become increasingly clear that it is
necessary to improve the Company`s international profile.
To that end, shareholders are advised that the Company has appointed BMO Nesbitt
Burns, a major Canadian-based investment dealer, as its global financial
adviser. BMO Nesbitt Burns is a leading Canadian investment bank, with global
reach and capability in the energy and natural resources sectors, among others.
BMO Nesbitt Burns will advise and assist the Company in expanding its
international profile and shareholder base and in increasing its access to
international capital markets, particularly in North America. The Company looks
forward to working with BMO Nesbitt Burns and will keep shareholders informed of
developments in this regard as BMO Nesbitt Burns` mandate proceeds.
The Macro-economic environment
(i) Uranium
The fundamentals of the global uranium market continue to be strong, with the
uranium long term contract price having recently risen to $28/lb and the spot
price having moved to $26.25/lb. Demand is strongly underpinned by continued
international environmental pressure to produce clean energy and continued
strong Asian economic growth. As a result, an additional 127 new nuclear
reactors are now being constructed, planned or considered, representing an
increase of nearly 30% of current installed global capacity. Supply remains
constrained with secondary supply and inventories having peaked. Only a few new
uranium producers, Aflease among them, are expected to be in a position to
deliver product to the market within the next few years.
(ii) Currency
In 2003 the Company took a number of actions to cope with the effects of the
strong rand. The early implementation of our strong rand strategy has served us
well, giving us the strength to prosper in an environment which has proven
difficult for the South African mining industry. Our relative share price
performance against our South African gold peers clearly demonstrates this.
Expert opinion suggests that the strong rand environment which has prevailed
over the last several years may be about to change. For example, the Royal Bank
of Canada and the Bureau for Economic Research at Stellenbosch University have
both recently released research which forecasts that the rand will weaken in the
next few years. The Bureau is bullish on the rand price of gold in step with
its currency forecast.
These forecasts bode well for the Company`s business over medium to longer term.
The Company remains confident, however, that its business will continue prosper
even in the event that the recent period of rand strength persists.
Aflease Uranium.One
(i) Dominion mine planning
Our mine plan for the Dominion uranium mine is on track for completion later in
June 2005. Management remains confident of delivering uranium to the market
early 2007.
Our ongoing planning work confirms the following:
Cash costs of uranium production are anticipated to be between $15 and $18 per
pound (after gold by-product credits)
Capital costs are expected to be in the order of $100 million
Production is still expected to grow to 4 million lbs of U3O8 within 5 years
Gold by-products should amount to approximately 90,000 oz`s per year
Rapid production build-up will be facilitated by the use of declines with
mechanized development and multiple ore body access points
The mining design incorporates conventional narrow reef stoping resulting in low
dilution and mining costs.
Uranium processing technology will consist of a pressure leach circuit,
resulting in higher recoveries than atmospheric leaching.
The use of existing infrastructure will be maximized; the Klerksdorp CIL gold
plant will form the basis of the metallurgical complex; crushing, milling,
tailings disposal and utilities will be shared
.
While we are still in the early stages of assessing the economic potential of
the rare earth elements in the Dominion ore body, initial indications are that
the Company can produce a rare earth chloride, which could potentially be
credited to costs. None of the rare earth potential has been included in any of
the financial numbers or modeling yet.
The access methods and mining methods of the Dominion uranium project will be
the same as those being implemented at the Bonanza South gold project
immediately adjacent to the Dominion ore body. Our experience at Bonanza will
accordingly be a valuable proxy or test case for Dominion, helping us to confirm
both the cost structure and project scheduling.
(ii) The Harmony uranium transaction
The Company is in the process of completing its initial due diligence work on
the Harmony dumps. If we are satisfied with the initial due diligence, we will
enter into the second phase of the transaction. Phase 2 will require a upfront
payment of R50m in Aflease scrip to Harmony, which will entitle us to conduct a
more detailed six month due diligence. This would consist of further
geological, metallurgical and process design work. Should the results from that
phase be acceptable, the Company would enter into Phase 3 by paying a further
R150 million in Aflease scrip. During that phase we would have the right to
commence mining of certain dumps.
The Company will provide a further update on the progress of this transaction
after the completion of Phase 1 due diligence, which is expected shortly.
Aflease Gold
(i) Gold strategy
In line with our stated strategy of creating a focused uranium company, we have
taken the decision to separate, at the appropriate time, our pure gold asset,
Modder East, from the uranium-bearing assets in the Klerksdorp area. Obviously
the Dominion gold by-products remain with the Dominion assets. Bonanza with its
related uranium by products will also remain with Dominion uranium assets.
Modder East is a high quality, shallow, low risk gold asset with a reserve in
excess of 700,000 ounces and cash cost structure of $200/oz. We see this asset
as the cornerstone of a new gold entity in which we would have at least a
controlling interest. This strategy has been identified as the most value-
accretive for Aflease shareholders. In the longer term, the newly formed entity
may also pursue a listing on a North American and/or European exchange.
The new gold entity will be grown through the acquisition of assets of similar
profile. In this regard we have conducted and are conducting a number of
investigations into similar assets. Shareholders will be kept abreast of
developments in this regard
(ii) Bonanza development
Development of the Bonanza South mine is still on schedule and under budget,
with the first gold production scheduled for June 2005. Underground stoping has
commenced and the metallurgical plant is in the process of being re-
commissioned.
Black Economic Empowerment
Black economic empowerment is a necessary requirement under the Minerals and
Petroleum Resources Development Act and is a pre-requisite to the obtaining of
the prospecting permits and mining licenses which Aflease received on the 26th
of April of this year. As per the announcement of the 28th of April, we were
awarded prospecting permits over 16,200 hectares, which covers both the Dominion
and Bonanza ore-bodies. Aflease is one of the first South African mining
companies to be awarded such permits. This approval validates our approach to
empowerment and signifies the confidence that the government has in Aflease to
bring these assets to account
The company has made significant process with regards to the implementation of
its empowerment transaction. The transaction is subject to shareholders`
approval and a detailed announcement and a circular to shareholders will be
distributed in due course.
Conclusion
We are excited by our present and future business and business prospects. The
Company is strategically well positioned to take advantage of the current strong
uranium and gold market fundamentals and we look forward to continue to build
shareholder value across the spectrum of all of our assets.
4 May 2005
Sponsor
Nedbank Capital
