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WAR
WARA
Western Areas Limited - Unaudited quarterly results ended 31 December 2005
WESTERN AREAS LIMITED
Incorporated in the Republic of South Africa
(Registration number: 1959/003209/06)
Share code: WAR & ISIN No: ZAE000016549
ADR Ticker symbol: WARUY
CUSIP No: 957654304
("Western Areas" or "the Company")
UNAUDITED QUARTERLY RESULTS ENDED 31 DECEMBER 2005
A PATRIOTIC CAPITAL BASE PROUDLY COMMITTED TO TRANSFORMATION
PRODUCTION AND UNIT RESULTS
Quarter Quarter Quarter Year Year
ended ended ended ended ended
31.12.05 30.09.05 30.06.05 31.12.05 31.12.04
IMPERIAL
Loss Time
Injury per
200 000 shifts
Reef mined tons 256 256 241 947 888
(000)
Ore milled tons 301 275 306 1 174 1 241
(000)
Yield oz/ton 0.238 0.243 0.217 0.239 0.228
(underground)
Yield (incl. oz/ton 0.213 0.243 0.190 0.200 0.176
surface)
Gold produced oz 63 841 66 938 57 545 234 584 218 025
Gold sold oz 65 951 63 423 56 654 231 094 218 582
Cash costs US$/oz 354 324 364 367 373
Total US$/oz 451 377 434 448 449
production
costs
Gold price US$/oz 366 354 308 338 298
achieved
Average gold US$/oz 476 440 421 448 404
spot price
Average
exchange rate
achieved
Period end
exchange rate
Capital US$m 5 4 4 18 49
expenditure
Capital US$m 1 2 1 1 5
commitment at
end of period
PRODUCTION AND UNIT RESULTS (Contd)
Quarter Quarter Quarter Year Year
ended ended ended ended ended
31.12.05 30.09.05 30.06.05 31.12.05 31.12.04
METRIC
Loss Time 0.34 0.95 0.60 0.56 0.66
Injury per
200 000 shifts
Reef mined tonnes 232 232 219 859 805
(000)
Ore milled tonnes 273 249 271 1 058 1 119
(000)
Yield g/tonne 8.17 8.34 7.44 8.15 7.84
(underground)
Yield (incl. g/tonne 7.29 8.35 6.62 6.90 6.06
surface)
Gold produced kg 1 985 2 082 1 790 7 296 6 781
Gold sold kg 2.051 1 973 1 762 7 188 6 799
Cash costs R/kg 74 676 67 981 75 141 75 365 77 873
Total R/kg 95 097 79 191 89 561 91 822 93 750
production
costs
Gold price R/kg 77 212 74 352 63 561 69 371 62 289
achieved
Average gold R/kg 100 380 92 239 86 879 91 944 82 997
spot price
Average R/$ 6.5617 6.5328 6.4187 6.3837 6.5009
exchange rate
achieved
Period end R/$ 6.3275 6.3665 6.6540 6.3275 5.6600
exchange rate
Capital Rm 32 25 25 113 278
expenditure
Capital Rm 7 8 7 7 28
commitment at
end of period
ABRIDGED CONSOLIDATED INCOME STATEMENT
Quarters ended Years ended
31.12.05 30.09.05 30.06.05 31.12.05 31.12.04
Restated Restated Restated
SA Rand Notes Unaudited Unaudited Unaudited Unaudited Unaudited
million
Gold revenue 131.6 130.7 96.4 420.6 381.4
Gold sales 206.1 181.8 153.1 660.9 573.6
at spot
Reali- (74.5) (51.1) (56.7) (240.3) (192.2)
sation of
matured
options
Total (188.9) (164.8) (160.3) (670.0) (634.1)
production
costs
Production (148.3) (141.5) (134.5) (549.9) (528.1)
costs - cash
Production 1 (40.6) (23.3) (25.8) (120.1) (106.0)
costs - non
cash
Operating (57.3) (34.1) (63.9) (249.4) (252.7)
loss from
gold
operations
Other costs (7.9) (6.8) (3.6) (19.9) (6.9)
Adminis- (12.5) (4.9) (5.6) (28.3) (20.5)
tration and
other
expenditure
Operating (77.7) (45.8) (73.1) (297.6) (280.1)
loss
Present (11.2) (4.1) (43.3) (55.6) (69.8)
value
adjustment
for option
premium
payable
Fair value 2 13.4 70.1 (85.5) (128.9) 221.0
adjustment
Exchange 3 4.1 46.5 (63.5) (107.7) 151.2
gains/
(losses)
Impairment 4 (82.8) - - (82.8) -
of mining
assets and
investments
(Loss)/ (154.2) 66.7 (265.4) (672.6) 22.3
Profit
before
taxation
Taxation - 27.2 (37.9) 137.2 257.3 (14.4)
deferred
(Loss)/ (127.0) 28.8 (128.2) (415.3) 7.9
Profit for
the period
(Loss)/
Earnings per
ordinary
share
(cents)
-Basic (102.2) 24.4 (108.6) (347.2) 7.2
-Headline (35.7) 21.4 (107.7) (282.3) 5.7
-Diluted 5 (101.9) 24.4 (108.4) (346.6) 7.1
basic
-Diluted 5 (35.6) 21.3 (107.6) (281.8) 5.7
headline
Number of 154.0 118.5 118.5 154.0 118.5
ordinary
shares
issued
(million)
Weighted 6 124.2 118.0 118.0 119.6 110.3
average
number of
ordinary
shares
(million)
Determin-
ation of
headline
earnings:
Net (loss)/ (127.0) 28.8 (128.2) (415.3) 7.9
profit for
the period
Profit on (1.2) (3.6) 1.0 (6.1) (0.7)
disposal of
fixed assets
Unclaimed - - - - (1.1)
dividends
written back
Net profit 1.0 - - 1.0 0.2
on disposal
of
investments
Impairment 82.8 - - 82.8 -
of assets
Headline (44.4) 25.2 (127.2) (337.6) 6.3
(loss)/
earnings
ABRIDGED CONSOLIDATED BALANCE SHEET
Year Period ended Year
ended ended
31.12.05
30.09.05 30.06.05 31.12.04
Restated Restated Restated
SA Rand million Notes Unaudited Unaudited Unaudited Unaudited
Assets
Mining assets 7 3 302.0 3 408.1 3 412.7 3 379.4
Derivative asset 2 996.4 838.1 709.1 702.6
Listed/Other 17.7 39.4 39.0 38.2
investments
Deferred taxation 8 866.5 691.7 610.0 453.6
Cash and cash 207.9 16.0 1.3 13.2
equivalents
Other assets 67.1 62.0 45.9 54.5
Total assets 5 457.6 5 055.3 4 818.0 4 641.5
Equity and
liabilities
Shareholders" 1 529.0 1 156.1 1 267.9 1 486.2
equity
Option premium 939.4 965.8 1 038.3 905.7
payable
Derivative 2 2 843.9 2 431.4 2 096.5 2 016.7
liability
JCI Limited loan 9 - 369.3 226.3 95.2
Other liabilities 145.3 132.7 189.0 137.7
Total equity and 5 457.6 5 055.3 4 818.0 4 641.5
liabilities
STATEMENT OF CHANGES IN SHAREHOLDERS" EQUITY
Avail
able-
for-s
Share Trea- Cash flow ale
SA Rand cap- Share sury hedge re- Retained
million ital premium shares reserve serve earnings Total
Balance as 118.5 2 245.5 (3.1) (1 367.9) - 518.0 1 511.0
at 31
December
2004
IFRS - - - - - (24.8) (24.8)
adjustment
Restated 118.5 2 245.5 (3.1) (1 367.9) - 493.2 1 486.2
opening
balance
Number of 35.5 603.6 - - - - 639.1
ordinary
shares
issued
Share issue - (6.1) - - - - (6.1)
costs
Fair value - - - (303.3) 1.3 - (302.0)
adjustment
Recycling - - - 127.1 - - 127.1
of fair
value on
maturing of
derivatives
Attribu- - - - - - (415.3) (415.3)
table loss
for the
period
Balance as 154.0 2 843.0 (3.1) (1 544.1) 1.3 77.9 1 529.0
at 31
December
2005
ABRIDGED CASH FLOW STATEMENT
Quarters ended Year ended
31.12.05 30.09.05 30.06.05 31.12.05 31.12.04
Restated Restated Restated
SA Rand million Unaudited Unaudited Unaudited Unaudited Unaudited
Cash flow (utilised (29.2) (62.8) 2.2 (111.7) (152.8)
in)/from operating
activities
Cash flow utilised (28.1) (25.2) (19.7) (104.3) (255.7)
in investing
activities
Cash flow from 249.2 102.7 13.8 410.7 399.8
finance activities
Net 191.9 14.7 (3.7) 194.7 (8.7)
increase/(decrease)
in cash and cash
equivalents
Cash and cash
equivalents
- at beginning of 16.0 1.3 5.0 13.2 21.9
period
At end of period 207.9 16.0 1.3 207.9 13.2
BASIS OF ACCOUNTING
The accounting policies used to prepare the quarterly results are in accordance
with International Financial Reporting Standards (IFRS). These results form part
of the Group"s first IFRS annual financial statements and IFRS 1 - First-time
Adoption of International Financial Reporting Standards have been applied. As a
result of the revised IAS 16 - Property Plant and Equipment the Company reviewed
the classification of components and useful life of assets. The review resulted
in the restatement of the prior year and the quarterly results, as the
components and the applicable useful life of these assets, were incorrectly
assessed at date of acquisition. The reconciliation of the transition has
affected equity and net income as follows:
Quarters ended Year ended Transition
date
Reconciliation 30.09.05 30.06.05 31.03.05 31.12.04 01.01.04
of equity
Equity as 1 185.5 1 295.5 1 381.3 1 511.0 1 135.6
previously
reported
- Adjustment (40.6) (37.5) (34.6) (32.4) (25.8)
- Deferred tax 11.2 9.9 8.6 7.6 6.6
effect
Equity as 1 156.1 1 267.7 1 355.3 1 486.2 1 116.4
restated
Reconciliation
of loss/profit
Profit/(Loss) 32.0 (125.3) (186.8) 13.5
for the period
- Additional (3.1) (2.9) (2.1) (6.6)
amortisation
- Deferred 1.3 1.3 1.0 1.0
tax effect
Restated 30.2 (126.9) (187.9) 7.9
profit/(loss)
for the period
NOTES TO THE ABRIDGED FINANCIAL STATEMENTS
1. Non-cash operating costs generally includes the amortisation of Western
Areas" share of South Deep and the change in inventory for the period.
2. The fair value adjustments to the revaluation of the derivative structure at
period-end. The revaluation stemming from exchange rate fluctuations are
accounted for in the income statement, whilst the revaluation stemming from the
gold price fluctuations are accounted for through the hedge reserve on the
balance sheet. The US$ gold price increased from US$474 at 30 September 2005 to
US$515 at 31 December 2005 (2004: US$438).
3. Exchange gains/losses relating to option premium payable are attributable to
the change in the Rand/US Dollar exchange rate from 6.3665 at 30 September 2005
to 6.3275 at 31 December 2005 (2004:5.6600).
4. The Company has evaluated its unused old order rights and concluded that
future benefits from these rights are not guaranteed, and hence the impairment.
The impairment is not as a result of the reduction of the mineral resources and
reserves at South Deep.
5. Diluted earnings and diluted headline earnings per share are attributable to
the shares held in the Share Incentive Trust (Treasury Shares), for which the
exercise price is lower than the current market value.
6. The weighted average number of ordinary shares is arrived at after making
adjustments for the treasury shares and the rights issues during 2005 and 2004.
7. Mining assets are stated at cost less accumulated depreciation.
8. The deferred taxation movement results from operating losses and the fair
value revaluation of the derivative structure through the income statement and
equity.
9. The JCI Limited loan, which was arranged in terms of the stand-by facility in
2004, amounted to R407 million (including capitalised interest), was settled
from the proceeds of the Western Areas" rights issue.
LETTER TO SHAREHOLDERS
For Western Areas, the period subsequent to the commissioning of the new South
Deep Twin Shaft System in November 2004 was one of consolidation and rebuilding.
The first quarter of 2005 was marred by infrastructure failures at the South
Shaft System, causing partial flooding and necessitating remedial capital
expenditure to address the lack of proper maintenance in the past. Following the
requisite maintenance work, and a focus by the South Deep personnel on
optimising the new Twin Shaft System, the third quarter of 2005 delivered the
best operating results since the inception of the joint venture with Placer Dome
in 1999. Although the fourth quarter did not match the record of the third
quarter, it outstripped the comparable quarter for 2004, and continued to
demonstrate the potential of South Deep to be a world-class operation.
The board of Western Areas has been reconstituted to create independence and to
formulate a strategy for the Company in going forward.
Following the conclusion of the rights issue in December 2005 through the
issuance of 35.5 million new shares, which was 87.8% oversubscribed, R639
million was raised.
On 6 February 2006, Western Areas released a preliminary mineral resource and
reserve statement for South Deep as at 31 December 2005, based on a review
conducted by an independent review panel. A more detailed mineral resource and
reserve statement will be released once sign-off has been received from a
Competent Person, which will be accompanied by a detailed reconciliation.
The lost time injuries for the fourth quarter improved by 73% from the previous
quarter, with a progressive lost time injury rate of 0.34. In addition, the lost
time injury frequency rate declined from 0.66 in 2004 to 0.56 in 2005, which
represents the best rate ever achieved at South Deep and compares favourably to
rates in the Canadian/Australian Mining Industries at 0.62 and 0.81
respectively. A further excellent achievement in this regard, was a mine
fatality rate per million man hours worked of 0.06.
Gold sold for the year was 7 188kg compared to plan of 7 281/kg, with almost a
month"s production having been lost in the first quarter due to the
infrastructural failures at the South Shaft. Performance for the year
represented an improvement of 5.7% compared to 6 799kg sold in 2004. 2 051kg of
gold sold for the quarter compared favourably with the 1 973kg in the previous
quarter, despite the impact of the Christmas break on production. To compensate
for the lower reef tonnage from underground, surface material was treated in
addition to the last remnants from the clean-up of the old metallurgical plant;
Cash costs for the year were R75 365/kg compared to plan of R68 500/kg produced.
This is a decrease of 4% from the cash cost of R77 873/kg in 2004. The
protracted negotiations regarding the pumping obligations for Randfontein
Estates No. 4 Shaft contributed to additional costs, as did the need to utilise
the South Shaft System to hoist following concerns relating to rope wear at the
Twin Shafts. While the pumping obligation has been resolved, the matter of rope
wear is being addressed. The cash costs of R74 676/kg for the quarter compared
unfavourably with the R67 981/kg in the September quarter, primarily as a result
of additional labour costs stemming from the pumping and hoisting issues
referred to above, as well as the higher labour costs arising from the Christmas
work-in arrangements;
Total costs were R91 822/kg compared to plan of R81 000/kg, reflecting a
decrease of 2% from R93 750/kg in 2004. Included in the 2005 non-cash costs are
adjustments for the implementation of IFRS in terms of which the South Deep
infrastructure is amortised over existing infrastructure (110 level and above),
and the amortisation charge is accelerated following the latest reduction in the
mineral reserve estimate. The December quarter total cost of R95 097/kg,
compared to R79 191/kg for the previous quarter, reflects this adjustment; and
Capital expenditure for the year totalled R113 million compared to plan of R215
million. The major reason for this reduction was the decision to delay certain
capital expenditure pending the completion of a new South Deep mine plan.
The average spot gold price achieved increased from $410/oz in 2004 to $448/oz
in 2005. The benefit of the improved gold price was partially offset by the
strengthening of the Rand, from an average of R6.5009/$ in 2004 to R6.3837/$ in
2005, translating into R82 997/kg for 2004 and
R91 944/kg for 2005. The improved dollar gold price was offset by the sold call
options in the derivative structure. Nevertheless the average gold price
achieved was $338/oz relative to $298/oz in 2004.
For the December quarter, the average spot gold price realised was $476/oz (R100
380/kg) compared to $440/oz(R92 239/kg) for the September quarter. Inclusive of
the hedge, the average gold price achieved was $366/oz(R77 212/kg) and $354/oz
(R74 352/kg) for the December and September quarters respectively.
The effect of the change in the gold price as indicated above, together with the
increase in production, resulted in the gold revenue at spot increasing from
R573.6 million in 2004 to R660.9 million in 2005. The net gold revenue, after
taking into consideration the matured options of R240.3 million in 2005 and
R192.2 million in 2004, increased by R39.2 million. The higher spot gold price
and improved production saw South Deep generate positive cash flows for the last
two quarters, inclusive of capital expenditure, excluding hedging costs, of
R21.3 million and R11.6 million for the September and December quarters
respectively.
The increase in total production costs of R35.9 million year-on-year almost
negated the increased revenue, resulting in a marginal improvement in the
operating losses from gold operations of R3 million, totalling R249 million for
the year. As indicated above, the conversion to IFRS and the increase of
production resulted in an increase in the amortisation charge from 2004 to 2005.
The additional interest, primarily as a result of the interest incurred on the
loan from JCI pending finalisation of the rights issue, and higher corporate
costs, primarily provisions relating to historical issues, saw the operating
loss increase by R17.5 million to R297.6 million for the year.
On the basis of the Mineral and Petroleum Resources Development Act No.28 of
2002 ("the Act"), and the manner in which unused old order rights are dealt with
therein, the directors have elected to fully impair the carrying value of those
unused old order rights held prior to 01 May 2005 to the extent of R82.8
million. Furthermore, and in accordance with the provisions of the Act, the
Company has lodged applications for the grant of new form prospecting rights
adjacent to South Deep.
Following the proclamation of the Mineral and Petroleum Resources Development
Act of 2002, the directors have elected to fully impair the carrying value of
the Company"s prior unused old order rights, excluding its interest in South
Deep, and related investments. This has resulted in a write-down of R82.8
million.
The deferred taxation adjustment for the year on the back of an operating loss
from gold and the IAS39 losses was R257.3 million for the year.
The December quarter was negatively impacted by the issues discussed above, in
particular the impairment charge, resulting in a R127 million loss compared to a
profit of R28.8 million in the September quarter. The combination of all the
above factors contributed to the Company posting a net loss of R415.3 million
for 2005 compared with the restated profit of R7.9 million for 2004.
Given the anticipated cash requirements in the latter part of the year, the
Company is in discussions to secure a stand-by facility to ensure adequate cash
flows for the next 12 months. The option to restructure the derivative structure
is also receiving urgent attention.
Barrick Gold Corporation, following their successful acquisition of Placer Dome
Inc., became Western Areas" Joint Venture partner during January 2006, and the
Company looks forward to working with them in developing and realising the
potential of South Deep.
By order of the Board
Johannesburg
17 February 2006
Contact details
WESTERN AREAS LIMITED
Incorporated in the Republic of South Africa
(Registration number: 1959/003209/06)
("Western Areas" or "the Company")
Share code: WAR & ISIN No: ZAE000016549
ADR Ticker symbol: WARUY
CUSIP No: 957654304
28 Harrison Street Johannesburg 2001
PO Box 61719 Marshalltown 2107
Telephone: +27 (11) 688-5000
Fax: +27 (11) 834-9195
DIRECTORATE
G Marcus (Executive Chairperson), JC Lamprecht (Financial Director), SA Levitt
(Executive), JR Dickson (Non-Executive), AA McGregor (Independent Non-
Executive), DM Nurek (Independent Non-Executive), IS Sehoole (Independent Non-
Executive), HJ Smith (Independent Non-Executive)
COMMUNICATIONS
Contact person: Gill Marcus
Telephone: +27 (11) 688-5000
Fax: +27 (11) 834-9195
e-mail: gmarcus@wal.co.za
TRANSFER SECRETARIES - SOUTH AFRICA
Computershare Investor Services 2004 (Pty) Ltd
70 Marshall Street Johannesburg 2001
PO Box 61051 Marshalltown 2107
Telephone: +27 (11) 370-5000
Fax: +27 (11) 688-7721/2
OFFICE OF UNITED KINGDOM REGISTRARS
Capita Registrars
The Registry
34 Beckenham Road Beckenham
Kent BR3 4TU
Tel: +944 (0870) 162 3100
Fax: +944 (020) 8639 2142
UNITED STATES DEPOSITORY
American Depository Receipts
The Bank of New York
Shareholder Relations Department
Tel: +91 212 815 3326
Fax: +91 212 571 3050
www: adrbny.com
Shareholder Relations
Toll free no: (US or Canada only)
1-888-269-2377 (1-888-BNY-ADRs)
International callers:
Tel: +91 212 815 3700
SPONSOR
Sasfin Capital
(A Division of Sasfin Bank Limited)
Date: 17/02/2006 12:30:26 PM Produced by the JSE SENS Department
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