| Thu 12 May 2005, 18:19 | | Western Areas Limited - Production Difficulties Ex |
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Western Areas Limited - Production Difficulties Exacerbate Tough Trading
Conditions For Western Areas
Western Areas Limited
(Registration Number: 1959/003209/06)
Share code: WAR ISIN No: ZAE000016549
ADR Ticker symbol: WARUY
CUSIP No: 957654304
(`Western Areas`)
PRODUCTION DIFFICULTIES EXACERBATE TOUGH TRADING CONDITIONS FOR WESTERN AREAS
Keeping company with the big four gold mining houses that have announced their
first quarter results, Western Areas Limited has reported a profit decline of
almost 200% for the three months to March 2005.
The company reported a loss of R186,8 million compared to a R189,9 million
profit for the quarter ended December 2004. A negative fair value adjustment of
R126,9 million (compared to a positive R187,9 million fair value adjustment in
the previous quarter) contributed to the loss of 158,2 cents a share (compared
to a positive 161,1 cents a share previously).
However, CEO Brett Kebble, said the major cause of the reversal this quarter was
a 452 kilogram decline in gold production from the 1891 kilograms for the
previous quarter (based on the company`s 50% interest in the South Deep Mine),
and the fair value adjustments.
This was mainly due to pump and water column failures in the old South Shaft
system that interrupted services for both the South Shaft and Twin Shaft
complexes for 10 days. Production problems were compounded by the loss of
working time during the January start-up and the Easter holidays.
Underground ore production for the quarter was supplemented by treating 112 000
tonnes of low-grade ore from surface stockpile material, but there was
nonetheless a reduction of 27 000 tonnes to 265 000 tonnes of ore milled.
Kebble indicated that the loss of production for the quarter would partially be
recovered by re-arranging working rosters of conventional stoping crews in
addition to the recovery of `lock-up` material from a clean-up of the old
processing plant.
`Although gross costs were contained, cash costs per kilogram increased from R71
513/kg in the December quarter to R87 278/kg, mainly due to the production
problems,` he said.
The average dollar spot gold price achieved (before hedging) decreased from
$435/oz in the December quarter to $427/oz. The benefit of a historically strong
US $ gold price was offset by a strong Rand which averaged R6.02/$ for the
quarter.
The average Rand price of gold thus declined only slightly from R83 976/kg for
the December quarter to R83 345/kg.
`Taking into account our hedge obligations, principally `out of the money` sold
call options, we realised an average gold price of only R58 193 /kg.`
`The encouraging news is that the commissioning of the Twin Shaft in the last
quarter of 2004 and the development on 100 Level has started to open up high-
grade VCR reserves and to provide access to the Elsburg Massives to the east of
the Upper Elsburg.`
Kebble said that South Deep management was on track to finalise a 25-year long-
term mine plan by July 2005. He was of the view that the plan could well
motivate accelerated development on 100, 105 and 110 Levels in support of an
increase in production to approximately 320 000 tons per month by 2010.
South Deep had stopped pumping water from the Randfontein Estates No. 4 Shaft
owned by Harmony.
`Independent experts have confirmed the integrity of the boundary plugs and
pillars separating No. 4 shaft from South Deep. The Department of Minerals and
Energy (DME) is currently evaluating the water barrier and have instructed
Harmony to continue pumping at the shaft until such time as a closure
certificate has been issued.`
Kebble says the Placer Dome Western Areas Joint Venture partners are confident
that South Deep has no obligation to dewater the neighbouring shaft but that
discussions continue with Harmony regarding the interim cost of pumping.
Discussions with underwriters were also under way regarding the insurance claim
arising from a fall of ground in the SV1 shaft in January 2004. Placer Dome Inc,
which administers the mine`s insurance, was optimistic that there would be a
`fair negotiated settlement`.
Discussions are progressing with the hedge banks to restructure the derivative
structure to `more appropriately match the South Deep production profile.`
Meanwhile Western Areas will proceed with a R800 million rights issue to finance
the capital expenditure needed to ramp-up production at South Deep and service
its hedge obligations.
Taking into consideration that the life of mine plan for South Deep is scheduled
to be completed by the end of 2005, refinancing of the Option Premium Payable
and the possible conversion of this obligation into a Rand denominated
obligation will be undertaken `as soon as practically possible` says Kebble.
Statement issued on behalf of Western Areas Limited by Brian Gibson Issue
Management (Contact Brian Gibson on 011 880 1510 or 083 253 5988)
12 May 2005
About Western Areas Limited
Western Areas is focused on investment in the African gold mining industry. The
Company`s principal asset is its 50% interest in the South Deep Joint Venture.
South Deep is a joint venture between Western Areas and Placer Dome SA (Pty)
Ltd, a subsidiary of Placer Dome Inc.
About the PDWA JV
The Placer Dome Western Areas Joint Venture (PDWA JV) was established on 31
March 1999. It is jointly controlled by Western Areas and Placer Dome SA. The
PDWA JV is administered and governed by a PDWA JV board in terms of a joint
venture agreement (JVA).
Western Areas and Placer Dome are each entitled to appoint three directors to
the JV board. The Placer Dome entitlement to appoint the chairman is dependent
on Placer Dome maintaining an interest in excess of 40% in the PDWA JV. The
chairman has the casting vote, except on a wide range of defined issues where
board decisions could have a material impact on the business, in which case the
decision must be unanimous.
About South Deep
South Deep is a joint venture between Western Areas and Placer Dome SA (Pty)
Ltd, a subsidiary of Placer Dome Inc.
Situated in the magisterial districts of Westonaria and Vanderbijlpark, some 45
kilometers south west of Johannesburg, the mine encompasses one of the world`s
largest gold mineral reserves, with an estimated 56.6 million ounces of gold in
the Proved and Probable Mineral Reserve categories. At its deepest, the mine
will be more than 3 300 metres below surface.
The South Deep Twin Shaft complex, built at a cost of some R4 billion, was
officially opened by the Deputy President of South Africa, Mr Jacob Zuma, on 4
February 2005.
Date: 12/05/2005 05:02:09 PM Supplied by www.sharenet.co.za
Produced by the JSE SENS Department
