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Afgem - Preliminary Audited Annual Results For The Period Ended 31 March 2005
African Gem Resources Limited
(Incorporated in the Republic of South Africa)
(Registration number 1998/007292/06)
JSE code: AFG ISIN: ZAE 000025540
(`Afgem` or `the Company`)
to be renamed Afgem Limited
PRELIMINARY AUDITED ANNUAL RESULTS FOR THE PERIOD ENDED 31 MARCH 2005
In December 2004 the Company changed its year end from December to March,
accordingly these results are for the fifteen months ended 31 March 2005 for
Afgem and Afgem Diamonds (Pty) Ltd, its wholly owned subsidiary company
(collectively `the Group`). Comparative figures reflect the nine month period to
31 December 2003. Afgem sold its tanzanite assets and business to Tanzanite One
SA Limited at the end of May 2004; as such these results incorporate the results
of the tanzanite business for the five months to 31 May 2004.
CORPORATE DEVELOPMENTS
It was announced in August 2004 that Afgem had, subject to the fulfillment of
certain conditions precedent, entered into an agreement with the Canadian listed
company, Rex Diamond Corporation Limited (`Rex Corporation`) and its
subsidiaries in respect of an acquisition by Afgem of the entire issued share
capital of and claims on loan accounts against Bellsbank Consolidated Diamond
Mine (Proprietary) Limited (`Bellsbank`), Loxton Exploration (Proprietary)
Limited (`Loxton`) and Rex Diamond Corporation (Proprietary) Limited (`Rex
Diamond Mine`) (collectively the `Mining Companies`), as well as a management
and loan agreement the details of which are as follows:
MANAGEMENT AGREEMENT
Afgem entered into an agreement with Rex Corporation and certain of its
subsidiaries to manage its mining companies, which hold the licence to mine
various kimberlite-fissure properties near Barkley-West in the Northern Cape
Province. The management agreement is ongoing and Afgem charges a management fee
of R1 million per month in terms of this agreement. Accordingly, these annual
financial statements include management fees earned for the eight months to end
March 2005;
LOAN AGREEMENT
Afgem entered into an agreement with, inter alia, Rex Corporation to lend R5
million to Rex Mining Corporation Limited (`Rex Mining`), a wholly-owned South
African subsidiary of Rex Corporation.
To facilitate the acquisition, a Scheme of Arrangement in terms of Section 311
of the South African Companies Act, No 61 of 1973, was proposed by Afgem between
Loxton, Bellsbank, Rex Diamonds, Rex Mining and their creditors. A scheme
meeting was held on 31 March 2005 and was subsequently sanctioned by the High
Court in April 2005. To this end, Afgem has committed to settle all creditor
claims against the abovementioned companies to the extent of 20 cents for every
R1, 00 owed. A payment of 30 cents will be made to certain preferential
creditors. The first settlement of these liabilities was paid in April 2005 and
the additional 10c in the Rand to preferential creditors is payable in April
2006.
In terms of the sale of shares agreement with Rex Corporation, the entire issued
share capital of and claims on loan accounts against the Mining Companies will
be acquired for a consideration of approximately R60 million. The purchase
consideration will be discharged as follows:
- R2,5 million thereof in cash, which shall be set-off against R5 million of the
amount that is owed to the Company by Rex Mining in terms of a loan agreement.
The loan is interest free and repayable on 5 days notice only after 2 August
2005;
- R25 million thereof through the issue of 50 million ordinary shares in the
Company at an issue price of 50 cents each; and
- the balance by paying Rex Mining four percent of the gross revenue on rough
diamond sales by the Mining Companies for the period commencing on 1 January
2006 and ending on 31 December 2021, to which a net present value of
approximately R32,5 million has been attributed using a discount rate of 12,5%.
In March 2005 the Company announced that it was in negotiations with certain
black economic empowerment parties to acquire a significant stake in the
Company. Subsequently, the Company reached agreement with the trustees of a
trust formed specifically for the purpose of empowering the Company (`the BEE
Trust`). The BEE Trust will, after the acquisition discussed above, represent
26% of the total issued share capital of the Company. The beneficiaries of the
BEE Trust will initially include Afgem`s historically disadvantaged employees,
the bulk of whom are employed in Barkley West, and Simeka Mining Consortium
(`Simeka`). Simeka has been mandated by Afgem to procure the establishment of a
BEE Consortium, which will acquire a significant beneficial interest in the BEE
Trust. The BEE Consortium will represent a broader grouping of historically
disadvantaged South Africans.
In order to provide further funding to conduct and develop the mining operations
at the Mining Companies, Afgem has secured an equity line of credit to the
extent of US $1million. The equity line of credit has been provided by Firebird
Asset Management, a US based fund manager, who at 31 March 2005 was a 12.4%
shareholder of Afgem.
So as to facilitate the issue of shares necessary to effect the acquisition,
theempowerment transaction, the equity line of credit and enable the Group to
acquire new assets or raise new capital in future, it has been proposed to
shareholders that the authorised share capital of the Company be increased from
250 000 000 ordinary shares of 0,001 cent each to 500 000 000 ordinary shares of
0,001 cent each by the creation of 250 000 000 new ordinary shares of 0,001 cent
each.
The issues outlined above are the subject of a meeting of shareholders to be
held on Friday 17 June 2005. The results of this meeting will be published on 20
June 2005.
OPERATIONAL DEVELOPMENTS
In August 2004, Afgem assumed management control of the Mining Companies. Of
these only Loxton is operational; whereas Bellsbank and Rex Diamonds are on care
and maintenance. The Loxton mine is located along a six kilometre kimberlitic
fissure formation and is presently mining at depths of nearly 500 metres. When
Afgem took over management control, Loxton was operating two of its numerous
shafts; namely du Plessis and Ardo. In August 2004, the winder at the Ardo Shaft
was condemned and production subsequently ceased at that shaft, as personnel
could not be conveyed down the shaft. A refurbished winder was sourced and is
due to be delivered to the mine by end-June 2005. New civils have been laid in
advance of this and work has commenced on the winder house. It is planned that
the Ardo Shaft will be fully re-commissioned by mid July 2005.
By 31 March 2005, Loxton participated in two rough diamond auctions and has sold
3 026 carats of diamonds recovered from underground ore, previously stockpiled
material and tailings at an average price of US$ 153/ carat. Recent sales have
yielded significantly higher prices. Grade increased in the last three months of
the period as increasing quantities of material from underground sources are
treated at the expense of older, more diluted stockpiled material. This trend is
expected to continue in the forthcoming year.
Bellsbank and Rex Diamonds remain on care and maintenance and Afgem has not
undertaken any further work on these assets. The licenses of these properties
are in the process of being upgraded to new order licences, whereupon, assuming
conversion, geological exploration programmes will start with a view to re-
commencing mining operations.
In March 2005 an agreement was reached with the National Union of Mineworkers to
change the working hours at the mine to two ten-hour shifts. This change is
progressing well and will be reviewed in September 2005.
A major cost cutting programme was implemented during the period under review.
Despite moderate increases in salaries being granted to certain sectors of the
workforce, costs have been reduced considerably. Prior to August 2004, the
operating costs of Loxton were approximately R3 million per month. By March 2005
these had been reduced to approximately R2 million and it is anticipated that
operational costs will stabilize at approximately R1.5 million per month.
NOTIFICATION OF CHANGE OF REGISTERED ADDRESS
Shareholders are hereby notified that the Company`s registered address has
changed, with immediate effect, to 381 Ontdekkers Road, Florida Park Ext 3,
Roodepoort, 1709. The Company`s physical address remains unchanged.
ANNUAL FINANCIAL STATEMENTS
STATEMENT OF COMPLIANCE
The consolidated annual financial statements have been prepared in accordance
with International Financial Reporting Standards (`IFRS`) and its
interpretations adopted by the International Accounting Standards Board
(`IASB`). These are the Group`s first consolidated annual financial statements
prepared in terms of IFRS and IFRS 1 has been applied. In the past, the Group
has prepared annual financial statements in terms of South African Statements of
Generally Accepted Accounting Practice (SA GAAP). No significant differences
between IFRS and SA GAAP were identified during the conversion process
AUDITED RESULTS
The preliminary results for the 15 months ended 31 March 2005 have been audited
by the Company`s auditors, KPMG Inc. Their audit report is available for
inspection at the Company`s new registered address and its physical address.
INCOME STATEMENTS
for the period ended 31 March 2005
Group Company
Fifteen Nine Fifteen Nine
months months months months
ended ended ended ended
31 Mar 31 Dec 31 Mar 31 Dec
2005 2003 2005 2003
R`000 R`000 R`000 R`000
Revenue 48,236 72,659 11,760 6,466
Cost of sales (6,674) (25,977)
Gross profit 41,562 46,682 11,760 6,466
Operating expenses (31,590) (38,641) (4,705) (29,506)
Operating 9,972 8,041 7,055 (23,040)
profit/(loss) before
net financing
(cost)/income
Net financing (42) (1,121) 815 99
(cost)/income
Profit on sale of 88,467 88,467
tanzanite business
Profit/(loss) before 98,397 6,920 96,337 (22,941)
tax
Income tax (17,568) 5,270 (15,636) 4,773
(expense)/refund
Profit/(loss) for 80,829 12,190 80,701 (18,168)
the period
Attributable to:
Equity holders of 80,492 12,173
the parent
Minority interest 337 17
Profit for the 80,829 12,190
period
Basic earnings per 56,2 8,7
share (cent/share)
Diluted earnings per 56,2 8,4
share (cent/share)
Headline (1,5) 8,7
(loss)/earnings per
share (cent/share)
Diluted headline (1,5) 8,4
(loss)/earnings per
share (cent/share)
BALANCE SHEETS
at 31 March 2005
Group Company
31 Mar 31 Dec 31 Mar 31 Dec
2005 2003 2005 2003
R`000 R`000 R`000 R`000
Assets
Non-current assets
Property, plant and 2,693 92,578 1,033
equipment
Interest in 23,838
subsidiaries
Loans to Group 23,428 84,524
companies
Long-term loans 27,493 9,120
receivable
Deferred tax assets 12,549 4,773
Total non-current 30,186 105,127 32,548 114,168
assets
Current assets
Inventories 28,891
Income tax 3,026
receivable
Short-term loans 4,635
receivable
Trade and other 229 12,956 13 52
receivables
Cash and cash 3,115 49,213 3,351 5,170
equivalents
Total current assets 7,979 94,086 3,364 5,222
Total assets 38,165 199,213 35,912 119,390
Equity
Issued share capital 1 1 1 1
Share premium 1,623 131,040 1,623 131,040
Retained earnings/ 27,230 31,335 27,230 (13,121)
(Accumulated loss)
Total equity 28,854 162,376 28,854 117,920
attributable to
equity holders of
the parent
Minority interest 159,815
Total equity 28,854 162,536 28,854 117,920
Non-current
liabilities
Interest-bearing 1,461 16,744
borrowings
Provisions 544
Deferred tax 9,402
liabilities
Total non-current 1,461 26,690
liabilities
Current liabilities
Interest-bearing 450 3,359
borrowings
Short-term loans 668 668
payable
Income tax payable 5,906 5,819
Trade and other 826 6,628 571 1,470
payables
Total current 7,850 9,987 7,058 1,470
liabilities
Total equity and 38,165 199,213 35,912 119,390
liabilities
STATEMENTS OF CHANGES IN EQUITY
for the period ended 31 March 2005
Issued Share Retained Total Minority Total
share premium earnings equity interest equity
capital / attributab
(accumula le to
ted loss) equity
holders of
the parent
R`000 R`000 R`000 R`000 R`000 R`000
Group
Balance at 31 1 112,028 19,162 131,191 1,973 133,164
March 2003
Ordinary share 19,012 19,012 19,012
capital issued
Minority (1,830) (1,830)
interest
acquired
Profit/minority 12,173 12,173 17 12,190
interest for
the period
Balance at 31 1 131,040 31,335 162,376 160 162,536
December 2003
Ordinary share - 1,623 1,623 1,623
capital issued
Profit for the 80,492 80,492 337 80,829
period
Dividends (40,350) (40,350) (40,350)
declared on
sale of
tanzanite
business
Capital (131,040) (131,040) (131,040)
dividends
distributed to
shareholders on
sale of
tanzanite
business
Disposal of (44,247) (44,247) (497) (44,744)
subsidiaries
Balance at 31 1 1,623 27,230 28,854 28,854
March 2005
Company
Balance at 31 1 112,028 5,047 117,076 117,076
March 2003
Ordinary share 19,012 19,012 19,012
capital issued
Loss for the (18,168) (18,168) (18,168)
period
Balance at 31 1 131,040 (13,121) 117,920 117,920,
December 2003
Ordinary share 1,623 1,623 1,623
capital issued
Profit for the 80,701 80,701 80,701
period
Dividends (40,350) (40,350) (40,350)
declared on
sale of
tanzanite
business
Capital (131,040) (131,040) (131,040)
dividends
distributed to
shareholders on
sale of
tanzanite
business
Balance at 31 1 1,623 27,230 28,854 28,854
March 2005
CASH FLOW STATEMENTS
for the period ended 31 March 2005
Group Company
Fifteen Nine Fifteen Nine
months months months months
ended ended ended ended
31 Mar 2005 31 Dec 31 Mar 31 Dec
2003 2005 2003
R`000 R`000 R`000 R`000
Cash flows from
operating activities
Cash generated by 3,131 16,125 3,804 (2,866)
/(utilised in)
operations
Net financing (42) (1,120) 815 99
(cost)/income
Taxation (5,581) 3,157 (5,043) 1,178
(paid)/refunded
Dividends paid (13,772) (13,772)
Net cash (utilised (16,264) 18,161 (14,196) (1,589)
in)/generated by
operations
Cash flows from
investing activities
Cash proceeds on sale 4,495 4,495
of subsidiaries
Proceeds on disposal 153 152,503
of property, plant
and equipment
Net acquisition of (1,831) (19,013)
subsidiaries
Acquisition of (984) (23,580) (68)
property, plant and
equipment
Net cash from 3,511 (25,258) 4,427 (18,860)
investing activities
Cash flows from
financing activities
Proceeds from the 1,622 19,012 1,622 19,012
issue of share
capital
Loans to subsidiaries 14,780 2,061
Long-term loans paid (598)
Long-term loans (27,493) (9,120)
granted
Short-term loans 668 668
received
Short-term loans (4,635)
granted
Repayment of interest- (2,909) (450) (101)
bearing borrowings
Net cash from (33,345) 18,562 7,950 20,972
financing activities
Net (46,098) 11,466 (1,819) 523
(decrease)/increase
in cash and cash
equivalents
Cash and cash 49,213 37,747 5,170 4,647
equivalents at
beginning of period
Cash and cash 3,115 49,213 3,351 5,170
equivalents at end of
period
The calculation of headline earnings per share at 31 March 2005 was
based on a headline loss of R2,155,884 (headline earnings of
R12,172,687 - 31 December 2003) and a weighted average number of
ordinary shares outstanding during the period ended 31 March 2005 of
143,361,169 (139,951,637 - 31 December 2003), calculated as follows:
Group Group
31 Mar 31 Dec
2005 2003
R`000 R`000
Reconciliation of earnings to headline
earnings
Profit attributable to ordinary shareholders 80,492 12,173
Adjusted for:
Profit on sale of (88,467)
tanzanite business
Taxation effect on profit on sale of 5,819
tanzanite business
Headline (2,156) 12,173
(loss)/earnings
Weighted average number of shares
Effect of ordinary shares in issue at 142,256 129,581
beginning of period
Effects of shares issued during the previous 10,371
period
Effect of shares issued on 14 April 2004 193
Effect of shares issued on 14 May 2004 912
143,361 139,952
For and on behalf of the board
KA Rayner MR Summers
Chairman Group Financial Director
Johannesburg
15 June 2005
Sponsor
Java Capital (Proprietary) Limited
Independent reporting accountants
KPMG Inc.
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