| Wed 28 Dec 2005, 15:18 | | Afgem - Consolidated reviewed interim results for |
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AFG
AFG
Afgem - Consolidated reviewed interim results for the six months ended 30
September 2005
Afgem Limited
(Formerly African Gem Resources Limited)
(Incorporated in the Republic of South Africa)
(Registration No. 1998/007292/06)
Share code: AFG & ISIN code: ZAE000067757
("Afgem" or "the Company")
Consolidated reviewed interim results for the 6 months ended 30 September 2005
Balance sheet
Audited Reviewed Audited Reviewed
31 Dec 2003 31 Dec 2004 31 Mar 2005 30 Sept 2005
R R R R
Non-current 105 126 599 2 826 360 2 693 384 119 279 018
assets
Property, plant 92 577 755 2 826 360 2 693 384 41 184 140
and equipment
Intangible - - - 77 494 155
assets
Long-term loans - - - 600 723
Deferred tax 12 548 844 - - -
assets
Current assets 94 086 545 34 072 026 35 471 913 16 437 175
Inventory 28 890 956 - - 246 132
Trade and other 12 956 481 5 890 033 229 078 2 352 156
receivables
Short-term - 18 233 084 32 128 401 8 909 505
loans
Income tax 3 026 501 - - -
receivable
Cash and cash 49 212 607 9 948 909 3 114 434 4 929 382
equivalents
Total assets 199 213 144 36 898 386 38 165 297 135 716 193
Equity
Share capital (1 423) (1 438) (1 438) (2 340)
Preference - - - (723)
share capital
Share premium (131 040 013) (1 622 673) (1 622 673) (37 953 034)
Retained income (31 334 969) (22 736 258) (27 230 376) (20 859 413)
Minority (159 815) - - -
interest
Non-current (26 690 271) (2 031 647) (1 910 737) (49 375 010)
liabilities
Long-term (16 744 099) (2 031 647) (1 910 737) (1 176 260)
liabilities
Royalties - - - (32 500 000)
payable
Environmental (544 450) - - (15 698 750)
rehab provision
Deferred tax (9 401 722) - - -
liabilities
Current (9 986 653) (10 506 370) (7 400 073) (27 525 673)
liabilities
Trade and other (9 986 653) (7 265 798) (826 397) (20 359 217)
payables
Short-term - - (667 645) (532 870)
loans
Income tax - (3 240 572) (5 906 031) (6 633 586)
payable
Total equity (199 213 144) (36 898 386) (38 165 297) (135 716 193)
and liabilities
Number of 142 256 182 143 797 717 143 797 717 233 968 155
shares in issue
Net asset value 114.14 16.94 20.07 25.14
per share
(cents)
Statement of changes in equity
Ordinary Preference
share share
capital Share capital Retained
premium income Total
Opening (1 438) (1 622 673) - (27 230 376) (28 854 487)
balance at 1
April 2005
Shares issued (902) (36 330 361) (723) (36 331 986)
Net loss for 6 370 963 6 370 963
the period
Closing (2 340) (37 953 034) (723) (20 859 413) (58 815 510)
balance at 30
September
2005
Income statement
Audited Reviewed Audited Reviewed
9 months 12 months 15 months 6 months
ended ended ended ended
31 Dec 2003 31 Dec 2004 31 Mar 2005 30 Sept 2005
R R R R
Revenue 72 659 236 - 36 771 497 2 461 033
Cost of sales 25 977 310 - 6 674 049 10 118 900
Gross 46 681 926 - 30 097 447 (7 657 867)
profit/(loss)
Other income - - - 17 340 134
Management fees - 7 000 000 11 464 005 3 000 000
received
Profit on Sale - - 90 225 852 -
of Business
Net foreign 8 203 809 (4 563 670) 621 021 -
exchange
loss/(gain)
Operating 30 437 300 1 051 158 32 727 656 18 546 454
expenses
Operating 8 040 817 10 512 512 98 438 628 (5 864 187)
income/(loss)
Net interest 1 120 616 (234 870) 41 548 (299 350)
paid/(received)
Net profit 6 920 201 10 747 382 98 397 080 (5 564 837)
before taxation
Taxation (5 269 815) 3 224 214 17 567 858 806 126
Net profit / 12 190 016 7 523 167 80 829 222 (6 370 963)
(loss) for the
period
Weighted average 139 951 637 143 797 717 143 361 169 187 178 454
number of shares
Earnings/(loss) 8.70 5.23 56.20 (3.40)
per share
(cents)
Headline 8.70 5.23 (1.50) 4.15
earnings/(loss)
per share
(cents)
Cash flow statement
Cash flows from
operating
activities
Cash generated 16 125 024 (12 254 372) 3 130 801 14 470 558
by /(utilised
in) operations
Net interest (1 120 616) (104 602) (41 548) 299 350
(paid)/received
Taxation refund 3 157 495 (5 880 682) (5 580 712) (78 571)
received/(paid)
Dividends paid - (171 389 599) (13 771 996) -
Net cash flows 18 161 903 (189 629 255) (16 263 455) 14 691 337
from operating
activities
Cash flows from
investing
activities
Additions to (4 567 720) (5 937 020) (983 859) (68 678)
property, plant
and equipment
Proceeds on 152 503 157 009 829 - -
disposal of
property, plant
and equipment
Cash proceeds on - - 4 494 415 -
sale of
subsidiaries
Group loans - - - (43 636 433)
acquired
Investment in (1 830 662) - - (59 717 907)
subsidiary
Company
Net cash flows (6 245 879) 151 072 809 3 510 556 (103 423 018)
from investing
activities
Cash flows from
financing
activities
Long term (450 309) (2 329 940) (2 909 225) (759 004)
liabilities
repaid
Proceeds from - 1 622 688 1 622 688 36 331 986
shares issued
Increase in - - - 32 500 000
royalties
payable
Movement in - - - (9 750)
rehabilitation
provision
Movement in - - (3 967 691) 23 084 120
short term loans
receivable and
payable
Loan repayments - 34 020 926 (597 981) -
received
Loans granted - (34 020 926) (27 493 065) (600 723)
Net cash flows (450 309) (707 252) (33 345 274) 90 546 629
from financing
activities
Net increase/ 11 465 715 (39 263 698) (46 098 173) 1 814 948
(decrease) for
the period
At the beginning 37 746 892 49 212 607 49 212 607 3 114 434
of the period
At end of the 49 212 607 9 948 909 3 114 434 4 929 382
period
Reconciliation of Earnings to Headline Earnings
Earnings (6 370 963)
Impairment of Rex Mining loan 11 619 701
Amortisation of mining right 2 525 108
Headline earnings 7 773 846
Highlights
Financial- Strong balance sheet with reasonable cash resources- NAV per share of
25.1 cents per share- HEPS of 4.2 cents per share
Operational- Refurbished winder successfully installed at Simolotse No 2 shaft,
final commissioning imminent- Completion of link up of No 1 and No 2 shafts at
Simolotse; a key development- Development work in place for production ramp up
in 2006
Corporate- Acquisition of three diamond mines successfully concluded-
Empowerment deal entered into- Board restructured to reflect transformation
Review of Operations
SafetySimolotse Mine won an award in 2005 for the most improved underground mine
in the Northern Cape from the Department of Minerals and Energy ("DME"). Afgem
continues to place great importance on all aspects of safety and management is
pleased to report that there have been no fatalities since management control
was obtained in August 2005. Since the beginning of this financial year, there
have been 180 000 fatality free shifts.
MiningMining at Simolotse Mine over the last six months has been focused on
increasing future levels of production. Drive development at the 1500 level is
complete, linking No 1 and No 2 shafts. This link up has greatly improved
flexibility and ventilation and has provided early access to unmined kimberlite
fissure material. No 2 shaft is in the process of being re-equipped and cleaned
in anticipation of resuming mining there in the near future.
The refurbished winder at the No 2 shaft has been cold commissioned and should
be operational early in 2006. This should allow Simolotse to increase fissure
production by another 150 to 180 tonnes per day.
Both shafts will be deepened from their current 1600 levels in order to access
additional ore reserves and management is evaluating the possibility of
upgrading the No 1 shaft winder for this purpose. This will improve the hoisting
speed and capacity and accordingly production will not decline, despite the
greater depths.
Drive development was a major initiative in the period, at times at the expense
of mining fissure material. Tonnes hoisted varied over the period but the last
three months to date have seen a steady increase. Tonnes processed however
exceeded fissure mined as stockpiled material and tailings were also treated.
Off fissure development is comfortably ahead of schedule and mining activities
will concentrate on fissure mining in early 2006.
Mineral ProcessingThe mobile Dense Medium Separation ("DMS") plant installed in
September 2005 has operated satisfactorily as numerous ongoing modifications
have been made to improve throughput and increase the robustness of the plant.
However, the mobile DMS does not have a tertiary crusher and the resultant
reject material is being stockpiled as a significant proportion is greater than
6 mm in size. A tertiary crusher is required to liberate the diamonds contained
in this remaining fissure and investigations are ongoing to source a suitable
crusher for this purpose.
The 50 tonnes per hour DMS plant that is on site was the subject of a legal
dispute with the manufacturers. This dispute has been resolved and plans are to
re-commission the plant in the first half of 2006. This will greatly improve
both the processing capacity and the recovery rate at Simolotse.
Grade recovered continues to fluctuate due to the inclusion of tailings and
stockpiled material. This should stabilise in the near future as the stockpile
declines and additional fresh stopes are mined.
Over the interim period, some 5000 carats of diamonds were sold for an average
price of $215 per carat. The market has remained strong and prices have risen
over the reporting period. The last sale in November 2005 achieved an average
price of approximately $280 per carat.
There appears to be no reason to believe that the strong demand for diamonds
will decline and we therefore believe that prices will remain strong for the
rest of the financial year.
Corporate DevelopmentsOn 17 June 2005, Afgem shareholders voted in favour of the
acquisition of the South African mining assets of Rex Mining Corporation Limited
("Rex Mining"), successfully concluding this transaction. These assets include
the following three underground fissure diamond mines:
- Simolotse Mine (previously Loxton Exploration) an operational mine, northwest
of Kimberley in the Northern Cape Province;
- Bokang Mine (previously Bellsbank Consolidated Diamond Mine) also northwest of
Kimberley in the Northern Cape Province; and
- Agisanang mine (previously Rex Diamond Mine) which is situated between Welkom
and Theunissen in the Free State Province, collectively the "mining assets".
At this same meeting the introduction of a Black Economic Empowerment partner
also received an overwhelming majority vote. As such Afgem now has a 21%
empowerment partner in Simeka Mining and previously disadvantaged Afgem staff
hold a further 3%. The Company announced on 4 August 2005 that Afgem"s board had
been restructured to reflect this transformation, with Robinson Ramaite of
Simeka Mining being appointed the new Chairman. Keith Rayner and Chris Boulle
resigned as Chairman and non-Executive director respectively as part of the
restructuring of the Board. Mike Nunn, the founder of Afgem has stepped down as
the CEO of Afgem but will remain on the board in a non-Executive position. He is
succeeded by Rodney Yaldwyn, as CEO and Lemogang Pitsoe as COO. After this
restructuring of the Board, Ian Blacher was appointed as a non-Executive
director on 22 September 2005.
A new order Prospecting Right has been applied for at Bokang Mine and is being
processed by the DME. Exploration at Bokang is expected to commence as soon as
this has been issued.
The Diamond Amendment Act ("the Act")As an empowered company, cognisant of the
needs of growing and developing the South African diamond industry, Afgem
totally embraces the spirit of the Act. However, as a marginal diamond producer,
it is critical that Afgem"s mines continue to obtain the highest diamond prices
possible. We believe that should the Act be promulgated in its current draft
form, the resulting lower prices could have a potentially disastrous effect on
the Simolotse Mine and numerous other marginal producers.
Review of ResultsThe interim results have been reviewed by the Company"s
auditors, Zeelie De Kock Chartered Accountants (SA). Their unmodified review
opinion is available at the Company"s registered office. In compliance with JSE
Listings Requirements, Afgem has prepared its consolidated reviewed interim
results in accordance with International Financial Reporting Standards ("IFRS")
for the six months to 30 September 2005.
In June this year the acquisition of the mining assets was concluded. Prior to
this, Afgem had been managing the mining assets on behalf of Rex Mining for a
management fee in anticipation of the acquisition. Accordingly, these interim
results for the six months to September 2005 reflect two distinct periods in the
acquisition process:
- For the months of April, May and June 2005 the management fee paid by Rex
Mining of R1 million per month was Afgem"s primary source of revenue; and
- For the three months of July, August and September 2005 the mining operations
were fully consolidated and diamond sales were the primary source of revenue.
The balance sheets of the various companies that hold the mining assets have
been fully consolidated as opposed to prior periods where they did not reflect.
For the reasons outlined above, comparisons with prior periods are not
appropriate.
Diamond sales of R2,46 million were achieved over three months from Simolotse
Mine. This compares to on mine costs of R10,12 million for the three months.
Included in these on-mine costs are non-cash items of R1,83 million inventory
write down and R1,75 million of depreciation, leaving a monthly on mine cash
cost of R2,1 million. Current on mine costs are disproportionately large
relative to the current levels of production at Simolotse as production levels
are expected to increase from their current levels of 4 000 tonnes per month to
more than double that with the No 2 shaft operational.
As part of the process of acquiring the mining assets, a Scheme of Arrangement
in terms of Section 311 of the Companies Act (Act no 61 of 1969) ("the Scheme")
was entered into with the creditors of the mining assets. The approval of the
Scheme resulted in the settlement of most creditors for 20 cents in the Rand.
The result of this was a net profit of R17,34 million which is reflected in full
under "Other Income" in the Income Statement and an impairment of a loan from
Rex Mining of R11,62 million which is reflected in full in "Operating Expenses".
The net effect is a profit on the Scheme of R5,72 million before tax.
The result is a net loss before tax of R5,56 million. The relatively small
positive tax charge is due to the capital gains tax incurred on the profit on
the Scheme.
Shares in issue increased by almost 50% during the period due to the acquisition
and further capital raisings; increasing the weighted average number of shares
in issue from 143 million to 187 million. Accordingly net loss attributable to
shareholders of R6,37 million equates to losses of 3.40 cents per share.
Headline earnings however, which exclude the impairment of the loan to Rex
Mining, show earnings of 4.15 cents per share.
Short-term loans on the balance sheet of R8,1 million relate to three separate
loans. The first was to an AIM listed diamond exploration company, Xceldiam
Limited of R2,99 million which was repaid subsequent to year end. The second is
to Rex Mining of R2,5 million, the repayment of which is imminent. The third is
a further loan to Rex Mining of R3,40 million which is secured against the
future royalties owing to Rex Mining in terms of the purchase price of the
mining assets.
Trade and other payables of R20,36 million relate predominantly to R11,62
million worth of creditors arising from the Scheme and ordinary creditors at
Simolotse of R6,04 million
28 December 2005
Melrose Arch
Sponsor: Absa Corporate and Merchant Bank - Corporate Finance.
A division of ABSA Bank Limited.
Reg no 1986/004794/06.
Date: 28/12/2005 03:18:11 PM Produced by the JSE SENS Department
