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AFG
AFG
Afgem Limited - Preliminary Consolidated Annual Results For The
Year Ended 31 March 2006
Afgem Limited(Incorporated in the Republic of South Africa)(Registration
number 1998/007292/06)JSE code: AFG & ISIN: ZAE000067757("Afgem" or "the
Company")
Preliminary Consolidated Annual Results for the year ended 31 March 2006
KEY INDICATORS:
Operational
- Refurbished winder successfully installed and commissioned at
Simolotse No 2 Shaft
- Completion of underground link up of No 1 and No 2 Shafts at
Simolotse a key development
- Development work undertaken with new stopes opened up
Corporate
- Acquisition of three diamond mines concluded
- Empowerment deal entered into
- Board restructured to reflect transformation
- Prospecting Right granted for Bokang Mine
Corporate Developments
In June 2005, Afgem acquired the assets of Rex Mining Corporation
Limited ("Rex Mining"), including the following three underground
fissure diamond mines:
- Loxton Exploration, subsequently renamed Simolotse Mine, an
operational mine, northwest of Kimberley in the Northern Cape Province
- Bellsbank Consolidated Diamond Mine, subsequently renamed Bokang
Mine, also northwest of Kimberley in the Northern Cape Province; and
- Rex Diamond Mine, subsequently renamed Agisanang Mine, which is
situated between Welkom and Theunissen in the Free State Province;
collectively referred to as the "mining assets".
The mining assets were acquired for a consideration of
approximately R60 million. The purchase consideration was
discharged as follows:
- R2,5 million thereof in cash;
- R25 million thereof through the issue of 50 million ordinary
shares in Afgem 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 from the mining assets 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%.
At the same time a Black Economic Empowerment partner was introduced
and Afgem now has a 21% empowerment investor in Simeka Mining with
previously disadvantaged Afgem staff holding a further 3%. Afgem"s
board was restructured to reflect this transformation, with Robinson
Ramaite of Simeka Mining being appointed the new Chairman. Rodney
Yaldwyn was appointed as CEO and Lemogang Pitsoe as COO. Subsequent
to year end Mike Nunn, Afgem"s founder and former CEO, resigned from
the board.
Operational Developments
The twelve months to 31 March 2006 proved eventful for all concerned.
The gradual upgrading of Simolotse Mine continued with most of the
emphasis being placed on increasing development. This progressed
well with the main haulage on 1500 level linking No 1 and No 2 Shafts
being completed in November 2005. In addition, two new stopes were
opened up on 1600 level at No 1 Shaft. Increasingly, this level will
become the main mining area for the foreseeable future and ultimately
will join up with the development from No 2 Shaft.
The small, mobile dense media separator ("DMS") plant operated
satisfactorily. Two of the three screens on the original crushing
section were replaced as was the main crusher. The processing
procedure remains incomplete as a tertiary crusher is still required.
A second hand cone crusher has been purchased for this purpose but
has yet to be tested thoroughly to see its effectiveness. It is
noticeable that the coarse discard material still yields economic
quantities of diamonds when retreated as the cut off size is still
unacceptably large. This obviously has a depressing effect on the
recovered grade of the ore treated but this material has been
stockpiled and will be treated shortly.
Shortly after re-opening in January, a sudden cloud burst produced
unusually high levels of rainfall and partially flooded the mine.
Production was temporarily stopped and resulted in high capital
replacement costs with much of the electrical installations needing
to be replaced. Production resumed after a fortnight; although the
water level at the No 2 Shaft took several weeks to lower to below
mining levels. This, together with minor electrical problems
associated with the new winder, resulted in a delay in the
commissioning of the No 2 Shaft. Although production from No 1 Shaft
rapidly returned to normal, the financial viability of Simolotse Mine
always relied on the levels of production anticipated from the
commissioning of No 2 Shaft. Unfortunately this delay in
commissioning strained the Company"s financial resources and
threatened to compromise the safety of employees. Accordingly mining
was suspended at the end of March 2006. The mine is currently on
care and maintenance with key capex items being completed.
The mine produced on average, 3 100 tonnes of fissure material per
month from the No 1 Shaft, until it was placed on care and
maintenance. From this some 5,800 carats of diamonds were recovered
at an average sales price of US$194/ct. The demand remained strong
throughout the year although some weakening in prices was noticed
near the end of the financial year.
Plans to re-commission the 50 tonnes per hour DMS plant have been
shelved for the moment and operating costs have been reduced to a
minimum. In the interim the treatment of the coarse discard material
is to re-commence and should prove a useful generator of cash, given
current exchange rates.
The refurbished winder at No 2 Shaft was finally commissioned in
March 2006. It is now licensed to convey staff to attend to the
various water pumps underground ensuring that the mine can be
reopened at short notice. An upgrading of the electrical supply to
the 1500 and 1600 mining levels is required before full production
can be reached.
The Department of Minerals and Energy ("DME") has granted the new
order Prospecting Right for the Bokang Mine, subject to fulfilling
one condition, which has been addressed. A final response from the
DME is awaited. Evaluation of the Bokang Mine is planned to commence
as soon as this application has been finalized.
Loan agreement
In August 2004, Afgem entered into an agreement with Rex Mining to
lend that company R5 million to Rex Mining. To date R3.5 million of
this loan has been repaid to Afgem. The loan was interest free and
repayable on five days notice after 2 August 2005. Rex Mining was
placed on terms to repay the outstanding balance of the loan on 24
November 2005 and from that date interest has accrued on the loan.
Rex Mining, by not repaying the loan on demand on 29 November 2005 is
in breach of the said loan agreement. In this regard Afgem
management is exploring ways to realise value from the Afgem shares
owned by Rex Mining that were pledged to secure this loan.
Financial results
Prior to the acquisition of the mining assets in June 2005,
Afgem had been managing the mining assets on behalf of Rex Mining for
a management fee in anticipation of the acquisition. Accordingly
these results reflect two distinct periods:
- 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 nine months to 31 March 2006, the mining operations were
fully consolidated and diamond sales were the primary source of revenue.
The balance sheets of the mining assets have been fully
consolidated as opposed to prior periods during which Afgem did
not own the mining assets. For the reasons outlined above,
comparisons with prior periods are not appropriate.
Diamond sales of R7,1 million were achieved in the nine month
period from Simolotse Mine. This compares to on-mine costs of
R14,5 million for the same period and operating expenses of R26,9
million. Included in these operating expenses is a provision for
non-operating inter-company loans of R16,6 million, amortization
of R3,7 million and consulting fees of R1,7 million.
The result is a net loss before tax of R33,9 million. The
positive tax charge relates predominantly to the reversal of a
capital gains tax liability raised at the time of the disposal of
Afgem"s tanzanite assets. Management is of the view that this
liability will not be paid.
Shares in issue increased by approximately 60% during the year
due to the acquisition of the mining assets and further capital
raisings; increasing the weighted average number of shares in
issue from 143,797,717 to 210,992,038. Accordingly, net loss
attributable to shareholders of R26,7 million equates to a loss
of 12.7cps. Headline loss per share however, which exclude the
positive tax write back of R5,9 million and the ammortisation of
intangible assets of R3,7 million, is 13.7 cps.
Long term loans receivable of R7,3 million relates predominantly
to loans to Rex Mining of R6,7 million (including the R1,5
million and interest as discussed above).
Trade and other payables of R9 million relate predominantly to R3,7
million worth of creditors arising from the Scheme of Arrangement
entered into with the creditors of the mining assets in 2005, salary
provisions of R3 million and ordinary trade payables of R1,2
million.
Way forward
Afgem management is exploring various ways of raising capital for
the completion of the re-opening of No 2 Shaft at Simolotse and
the initial evaluation of the Bokang Mine. In the interim
numerous safety and security concerns have been rectified, costs
have been reduced to a minimum and coarse discard material is
being treated to provide interim cash flow. Alongside this the
sale of non core assets including various surface rights on
neighbouring properties has been undertaken. Management is
actively pursuing a solution to the breach of agreement with Rex
Mining and hopes to secure a repayment of these funds imminently.
Annual Financial Statements
Statement of compliance and basis of preparation
The consolidated annual financial statements have been prepared
in accordance with International Financial Reporting Standards
and its interpretations adopted by the International Accounting
Standards Board.
Review of results
The preliminary results for the year ended 31 March 2006 have
been reviewed by the Company"s auditors, Zeelie de Kock. The
audit report is available for inspection at the Company"s
registered address and its physical address.
Income statements
for the year ended 31 March 2006
Group Company
Reviewed Audited Reviewed Audited
Twelve Fifteen Twelve Fifteen months
months ended months ended months ended ended
31 March 31 March 31 March 31 March 2005
2006 2005 2006
R R R R
Revenue 7,081,391 36,771,497
Cost of (14,456,759) (6,674,049)
sales
Gross (7,375,368) 30,097,448
(loss)/
profit
Manage- 11,464,005 3,000,000 11,760,400
ment fees
received
Profit on 88,466,790 88,466,790
sale of
business
Net (621,021) (668,149)
foreign
exchange
loss
Operating (26,890,348) (30,968,594) (20,347,198) (4,037,234)
expenses
Operating (34,265,716) 98,438,628 (17,347,198) 95,521,807
(loss)/in
come
Net 411,963 (41,548) 267,408 815,046
interest
received/
(paid)
(Loss)/pr (33,853,753) 98,397,080 (17,079,790) 96,336,853
ofit
before
tax
Income 7,134,927 (17,567,858) 7,134,927 (15,635,926)
tax
refund/
(expense)
(Loss)/ (26,718,826) 80,829,222 (9,944,863) 80,700,927
profit
for the
year/
period
Attributa
ble to:
Equity (26,718,826) 80,491,990
holders
of the
parent
Minority 337,232
interest
(Loss)/ (26,718,826) 80,829,222
profit
for the
year/
period
Weigted 210,992,038 143,361,169
average
number of
shares
Basic (12.66) 56.15
(loss)/
earnings
per share
(cents)
Diluted (10.03) 56.15
(loss)/
earnings
per share
(cents)
Headline (13.68) (1.50)
loss per
share
(cents)
Balance sheets
at 31 March 2006
Group Company
31 March 2006 31 March 31 March 31 March
2005 2006 2005
R R R R
Assets
Non-current
assets
Property, plant 40,229,181 2,693,384
and equipment
Intangible 53,447,270
assets
Interest in 60,000,300 100
subsidiaries
Loans to Group 24,805,077 23,428,087
companies
Long-term loans 7,289,847 27,493,065 7,289,847 9,120,000
receivable
Total non- 100,966,298 30,186,449 92,095,224 32,548,187
current assets
Current assets
Inventories 230,009
Short-term loans 168,002 4,635,336
receivable
Trade and other 1,858,044 229,078 56,228 12,777
receivables
Cash and cash 1,178,821 3,114,434 102,894 3,351,123
equivalents
Total current 3,434,876 7,978,848 159,122 3,363,900
assets
Total assets 104,401,174 38,165,297 92,254,346 35,912,087
Equity
Ordinary share 2,340 1,438 2,340 1,438
capital
Preferrence 723 723
share capital
Share premium 37,953,033 1,622,673 37,953,033 1,622,673
Retained 511,550 27,230,376 17,285,513 27,230,376
earnings
Total equity 38,467,646 28,854,487 55,241,609 28,854,487
Non-current
liabilities
Interest-bearing 966,092 1,461,036
borrowings
Environmental 15,698,750
rehabilitation
provision
Royalties 32,500,000 32,500,000
payable
Deferred tax 7,232,912
liabilities
Total non- 56,397,754 1,461,036 32,500,000
current
liabilities
Current
liabilities
Interest-bearing 491,937 449,701
borrowings
Short-term loans 25,704 667,645 25,704 667,645
payable
Income tax 5,906,031 5,818,916
payable
Trade and other 9,018,133 826,397 4,487,033 571,039
payables
Total current 9,535,774 7,849,774 4,512,737 7,057,600
liabilities
Total equity and 104,401,174 38,165,297 92,254,346 35,912,087
liabilities
Statements of changes in equity
for the year ended 31 March 2006
Ordi- Prefe Share Retained Total equity Mino- Total
nary rence premium earnings / attributable rity equity
share share (accumu- to equity Interes
capi- cap- lated holders of the t
tal ital loss) parent
R R R R R R R
Group
Bala- 1,423 131,040, 31,334, 162,376,405 159,815 162,536,
nce 013 969 220
at
31 Dece-
mber
2003
Shares 15 1,622, 1,622,688 1,622,688
issued 673
Profit 80,491,990 80,491,990 337,232 80,829,222
for the
period
Dividen (131,040, (40,349, (171,389,598) (171,389,
ds 013) 585) 598)
declare
d
Disposa (44,246, (44,246,998) (497,04 (44,744,
l of 998) 7) 045)
subsidi
aries
Bal 1,438 1,622,673 27,230, 28,854,487 28,854,487
ance at 376
1 April
2005
Shares 902 723 36,330,360 36,331,985 36,331,985
issued
Loss (26,718,82 (26,718,826) (26,718,
for the 6) 826)
year
Balance 2,340 723 37,953,033 511,550 38,467,646 38,467,646
at 31
March
2006
Company
Balance 1,423 131,040,01 (13,120,96 117,920,470 117,920,
at 31 3 6) 470
Dece-
mber
2003
Shares 15 1,622,673 1,622,688 1,622,688
issued
Profit 80,700,927 80,700,927 80,700,927
for the
period
Divi- (131,040, (40,349, (171,389,598) (171,389,
dends 013) 585) 598)
declare
d
Balance 1,438 1,622,673 27,230,376 28,854,487 28,854,487
at 1
April
2005
Shares 902 723 36,330,360 36,331,985 36,331,985
issued
Loss (9,944, (9,944,863) (9,944,
for the 863) 863)
year
Balance 2,340 723 37,953,033 17,285,513 55,241,609 55,241,609
at 31
Mar
ch 2006
Cash flow statements
for the year ended 31 March 2006
Group Company
Twelve months Fifteen Twelve Fifteen
ended months ended months ended months ended
31 March 2005 31 March 31 March 31 March
2005 2005 2005
R R R R
Cash (20,536,325) 3,130,801 (13,474,655) 3,803,929
(utilised
in)/generate
d by
operations
Net 411,963 (41,548) 267,408 815,046
financing
income/
(cost)
Taxation 1,228,896 (5,580,712) 1,316,011 (5,043,698)
refunded/
(paid)
Dividends (13,771,996) (13,771,996)
paid
Net cash (18,895,466) (16,263,455) (11,891,236) (14,196,719)
utilised in
operations
Proceeds on 4,494,415 4,494,415
sale of
subsidiaries
Net (42,948,035) (27,500,200)
acquisition
of
subsidiaries
Acquisition (983,859) (66,990)
of property,
plant and
equipment
Net cash (42,948,035) 3,510,556 (27,500,200) 4,427,425
from
investing
activities
Proceeds 36,331,985 1,622,688 36,331,985 1,622,688
from the
issue of
share
capital
Movement in (1,376,990) 14,779,937
loans to
subsidiaries
Movement in 20,203,218 (28,091,046) 1,830,153 (9,120,000)
long-term
loans
Movement in 3,825,393 (3,967,691) (641,941) 667,645
short-term
loans
Repayment of (452,708) (2,909,225)
interest-
bearing
borrowings
Net cash 59,907,888 (33,345,274) 36,143,207 7,950,270
from
financing
activities
Net decrease (1,935,613) (46,098,173) (3,248,229) (1,819,024)
in cash and
cash
equivalents
Cash and 3,114,434 49,212,607 3,351,123 5,170,147
cash
equivalents
at beginning
of
year/period
Cash and 1,178,821 3,114,434 102,894 3,351,123
cash
equivalents
at end of
year/period
The calculation of headline earnings per share at 31 March 2006 was
based on a headline loss of R28,9 million (headline loss of
R2,155,884 - 31 March 2005) and a weighted average number of
ordinary shares outstanding during the period ended 31 March 2006 of
210,992,038 (143,361,169 - 31 March 2005), calculated as follows:
Group Group
31 March 2006 31 March
2005
R R
Reconciliation of earnings to
headline earnings
(Loss)/profit attributable to (26,718,826) 80,491,990
ordinary shareholders
Adjusted for:
Amortisation of intangible assets 3,667,798
Profit on sale of tanzanite business (88,466,790)
Taxation effect on profit on sale of (5,818,916) 5,818,916
tanzanite business
Headline loss (28,869,944) (2,155,884)
Weighted average number of ordinary
shares
Effect of ordinary shares in issue 143,797,717 142,256,182
at beginning of period
Effects of shares issued during the 1,104,987
previous period
Effect of shares issued on 25 June 47,933,332
2005
Effect of shares issued on 18 July 19,260,989
2005
210,992,038 143,361,169
Weighted average number of
preference shares
Effect of shares issued on 30 June 55,468,618
2005
For and on behalf of the board
RS Yaldwyn MR Summers
Chief Executive Officer Group Financial Director
Melrose Arch30 June 2006
Sponsor
ABSA Capital - Corporate Finance
Date: 03/07/2006 08:00:49 AM Produced by the JSE SENS Department
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