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WAR
WARA
Western Areas Limited - Quarterly Results Ended 30 June 2006
WESTERN AREAS LIMITED
(INCORPORATED IN THE REPUBLIC OF SOUTH AFRICA)
(REGISTRATION NUMBER 1959/003209/06)
SHARE CODE: WAR & ISIN: ZAE000016549
("WAL" OR "THE COMPANY")
WESTERN AREAS LIMITED
UNAUDITED QUARTERLY RESULTS ENDED 30 JUNE 2006PRODUCTION AND UNIT RESULTS
Quarter Quarter Year Year
ended ended to date ended
30.06.06 31.03.06 30.06.06 31.12.05
IMPERIAL
Lost Time Injury
per 200 000 hours
Reef mined (`000) tons 164 254 418 947
Reef ore milled tons 151 242 393 962
(`000)
Surface ore milled tons 64 29 93 212
(`000)
Total ore milled tons 215 271 486 1 174
(`000)
Yield (underground) oz/ton 0.224 0.221 0.221 0.239
Yield (incl. oz/ton 0.164 0.200 0.183 0.200
surface)
Gold produced oz 35 232 53 973 89 205 234 584
Gold sold oz 36 578 55 460 92 038 231 094
Cash costs US$/oz 602 422 493 367
Total production US$/oz 750 525 613 448
costs
Gold price achieved US$/oz 285 403 353 338
Average gold spot US$/oz 605 561 576 448
price
Average exchange
rate achieved
Period end exchange
rate
Capital expenditure US$m 6 5 11 18
Capital commitment US$m 19 9 19 7
at end of period
PRODUCTION AND UNIT RESULTS (Contd)
Quarter Quarter Year Yearended
ended ended to date 31.12.05
30.06.06 31.03.06 30.06.06
METRIC
Lost Time Injury 1.04 0.88 0.96 0.56
per 200 000 hours
Reef mined (`000) tonnes 149 231 380 859
Reef ore milled tonnes 137 220 357 879
(`000)
Surface ore milled tonnes 58 26 84 179
(`000)
Total ore milled tonnes 195 246 441 1 058
(`000)
Yield g/tonne 7.69 7.53 7.59 8.15
(underground)
Yield (incl. g/tonne 5.61 6.83 6.29 6.90
surface)
Gold produced kg 1 096 1 679 2 775 7 296
Gold sold kg 1 138 1 725 2 863 7 188
Cash costs R/kg 124 965 83 777 100 044 75 365
Total production R/kg 155 676 104 161 124 507 91 822
costs
Gold price R/kg 59 183 79 862 71 644 69 371
achieved
Average gold spot R/kg 125 670 111 196 116 949 91 944
price
Average exchange R/$ 6.4603 6.1637 6.3150 6.3837
rate achieved
Period end R/$ 7.1420 6.1890 7.1420 6.3275
exchange rate
Capital Rm 44 30 74 113
expenditure
Capital commitment Rm 136 53 136 46
at end of period
ABRIDGED CONSOLIDATED INCOME STATEMENT
Quarters ended Year to Year ended
date
30.06.06 31.03.06 30.06.06 31.12.05
SA Rand million Notes Unaudited Unaudited Unaudited Audited
Gold revenue 29.0 107.4 136.4 420.6
Gold sales at 143.0 191.9 334.9 660.9
spot
Realisation of 1 (114.0) (84.5) (198.5) (240.3)
matured option
Total production (170.6) (174.9) (345.5) (668.2)
costs
Production costs - (137.0) (140.6) (277.7) (549.9)
cash
Production costs 2 (33.6) (34.2) (67.8) (118.3)
- non cash
Operating loss (141.6) (67.5) (209.1) (247.6)
from gold
operations
Property, plant 3 (28.0) - (28.0) -
and equipment
write-off
Net other income/ 2.8 33.6 36.4 (20.6)
(expense)
Administration (5.1) (10.2) (15.3) (23.8)
expenditure
Present value (8.6) (3.7) (12.3) (55.6)
adjustment for
option premium
payable
Fair value 4 (369.6) 52.9 (316.7) (128.9)
adjustment
Exchange 5 (124.5) 21.0 (103.5) (107.7)
(losses)/gains
Impairments - - - (90.2)
(Loss)/Profit (674.6) 26.1 (648.5) (674.4)
before taxation
Taxation 313.8 (13.9) 299.9 267.0
(Loss)/Profit for (360.8) 12.2 (348.6) (407.4)
the period
(Loss)/Earnings
per ordinary share
(cents)
- Basic (234.3) 7.9 (226.4) (339.3)
- Headline (216.6) (13.4) (230.0) (273.9)
Number of ordinary 154.0 154.0 154.0 105.4
shares issued
(million)
Weighted average 154.0 154.0 154.0 120.1
number of ordinary
shares (million)
Determination of
headline loss:
(Loss)/Profit for (360.8) 12.2 (348.6) (407.4)
the period
(Loss)/Profit on 27.3 (32.2) (4.9) (6.1)
disposal/write-off
of property, plant
and equipment
Profit on disposal - - - (1.0)
of unlisted
investments
Profit on disposal - - - (4.3)
of treasury shares
Fair value - (0.6) (0.6) (0.3)
adjustment of
other investments
Impairments - - - 90.2
Headline loss (333.5) (20.6) (354.1) (328.9)
ABRIDGED CONSOLIDATED BALANCE SHEET
Period ended Year ended
31.12.05
SA Rand million Notes Audited
30.06.06 31.03.06
Unaudited Unaudited
ASSETS
Property, plant and 6 3 279.1 3 290.1 3 299.6
equipment
Derivative asset 4 1 554.1 1 288.1 996.4
Investments 19.8 19.8 19.2
Deferred taxation 7 1 367.5 1 050.8 847.7
Cash and cash equivalents 20.7 133.6 207.9
Other assets 51.9 94.9 68.0
Total assets 6 293.1 5 877.3 5 438.8
EQUITY AND LIABILITIES
Shareholders" equity 887.3 1 254.8 1 509.3
Option premium payable 992.9 887.7 939.4
Derivative liability 4 4 284.0 3 598.1 2 843.9
Other liabilities 128.9 136.7 146.2
Total equity and liabilities 6 293.1 5 877.3 5 438.8
STATEMENT OF CHANGES IN SHAREHOLDERS" EQUITY
Cash flow Retained
Share Share Hedge (loss)/
SA Rand million capital premium reserve earnings Total
Balance as at 31 154.0 2 842.2 (1 572.7) 85.8 1 509.3
December 2005
Fair value - - (373.0) - (373.0)
adjustment
Recycling of fair - - 99.6 - 99.6
value on maturing of
derivatives
Attributable loss - - - (348.6) (348.6)
for the period
Balance as at 30 154.0 2 842.2 (1 846.1) (262.8) 887.3
June 2006
ABRIDGED CONSOLIDATED CASH FLOW STATEMENT
Quarters ended Year to Year ended
date
SA Rand million 30.06.06 31.12.05
Unaudited Audited
30.06.06 31.03.06
Unaudited Unaudited
Cash flow utilised by (33.8) (9.5) (43.3) (112.5)
operating activities
Cash flow utilised in (41.7) (30.0) (71.7) (103.0)
investing activities
Cash flow utilised in (37.4) (34.8) (72.2) 410.2
finance activities
Net (decrease)/increase (112.9) (74.3) (187.2) 194.7
in cash and cash
equivalents
Cash and cash
equivalents:
- at beginning of period 133.6 207.9 207.9 13.2
At end of period 20.7 133.6 20.7 207.9
OPEN HEDGE POSITION
As at 30 June 2006 2006 2007 2008 2009 2010
Derivative asset
Put options bought
Quantity ozs 102 258 205 572 214 224 209 436 213 960
Average price $/oz 288.20 288.20 288.20 293.20 303.20
Fair value Rm"s 0.0 0.1 0.7 1.5 3.0
Call options bought
Quantity ozs 42 474 85 392 88 980 87 000 88 872
Average price $/oz 308.70 323.70 333.70 348.70 358.70
Fair value Rm"s 90.0 180.5 193.8 192.2 201.4
Total derivative
asset fair value
Derivative
liability
Call options sold
Quantity ozs 78 660 158 136 164 784 161 100 164 580
Average price $/oz 288.70 288.70 288.70 293.70 303.70
Fair value Rm"s (177.7) (371.4) (404.9) (406.6) (421.0)
Call options sold
Quantity ozs 31 464 63 252 65 916 64 440 65 832
Average price $/oz 333.70 348.70 363.70 378.70 393.70
Fair value Rm"s (61.1) (123.2) (131.6) (131.7) (137.6)
Total derivative
liability fair
value
OPEN HEDGE POSITION (Contd)
As at 30 June 2011 2012 2013 2014 Total
2006
Derivative asset
Put options
bought
Quantity ozs 200 436 205 920 205 056 98 166 1 655 028
Average price $/oz 313.20 313.20 323.20 333.20
Fair value Rm"s 4.1 4.2 5.3 3.1 22.0
Call options
bought
Quantity ozs 83 256 85 536 85 188 40 776 687 474
Average price $/oz 373.70 398.70 413.70 428.70
Fair value Rm"s 191.1 194.1 195.3 93.7 1 532.1
Total derivative 1 554.1
asset fair value
Derivative
liability
Call options sold
Quantity ozs 154 176 158 400 157 740 75 516 1 273 092
Average price $/oz 313.70 313.70 323.70 333.70
Fair value Rm"s (399.1) (420.9) (421.6) (202.0) (3 225.2)
Call options sold
Quantity ozs 61 668 63 360 63 096 30 204 509 232
Average price $/oz 408.70 423.70 438.70 453.70
Fair value Rm"s (131.6) (137.0) (138.4) (66.6) (1 058.8)
Total derivative (4 284.0)
liability fair
value
BASIS OF ACCOUNTING
The accounting policies used to prepare the quarterly results are consistent
with that applied in the previous period and are in accordance with
International Financial Reporting Standards (IFRS).
NOTES TO THE ABRIDGED FINANCIAL STATEMENTS
1. Realisation of matured options includes actual cash flow of R75,6 million for
the June 2006 quarter. (March 2006 quarter: R54,1 million)
2. Non-cash costs includes the depreciation of property, plant and equipment and
the change in inventory for the period.
3. The net book value of the infrastructure damaged by the falling conveyance
and rope on 4 May 2006, representing R28 million, has been written-off. The
costs of replacing the damaged shaft components is capitalised where it is
probable that future economic benefits embodied within the item will flow to the
Company. All other costs are recognised in the income statement as an expense.
Insurance proceeds are recognised in the income statement.
4. The fair value adjustments relate to the revaluation of the derivative
structure at period-end. The revaluation stemming from exchange rate
fluctuations are accounted for in the income statement, whilst the revaluation
stemming from the gold price fluctuations are accounted for through the hedge
reserve on the balance sheet.
The US$ gold price increased from US$588 at 31 March 2006 to US$600 at 30 June
2006.
5. Exchange gains/losses relating to option premium payable are attributable to
the change in the Rand/US Dollar exchange rate from 6.189 at 31 March 2006 to
7.142 at 30 June 2006.
6. Property, plant and equipment are stated at cost less accumulated
depreciation.
7. The deferred taxation movement resulted from operating losses and the fair
value revaluation of the derivative structure through the income statement and
equity.
LETTER TO SHAREHOLDERS
As reported at the Western Areas Annual General Meeting held on 10th May 2006, a
serious incident occurred at South Deep on 4 May 2006 when, during routine rope
maintenance at the Main Shaft of the Twin Shaft Complex, the winder ropes pulled
free from the hoist drum resulting in a conveyance and the rope being drawn down
the Shaft ("the Incident"). It was furthermore stated that, as a result of the
subsequent closure of the Shaft, every effort would be made to maintain a gold
production rate of at least 50% of that which existed prior to the Incident.
As a consequence of the Incident, underground ore had to be redirected through
the South Shaft Complex. Accordingly, the mine rescheduled production taking
cognisance of the limitations of the older South Shaft infrastructure, such that
the plant feed for the period through to December 2006 is expected to average 85
000 tonnes per month of underground ore, and 30 000 tonnes per month of low-
grade surface material.
Although underground production in June 2006 was interrupted by difficulties
experienced with the pumping infrastructure at the base of the South Shaft
Complex, related to the handling of mud press product on 87 Level, production
has increased since, with daily hoisting targets now being exceeded regularly.
The redirection of the underground ore flow has culminated in increased
operating costs as a result of double-handling and additional surface
transportation costs.
Gold production for the second quarter ("Q2") totalled 35 232 ounces, which was
some 35% lower than the first quarter ("Q1") (53 973 ounces). Similarly, the
tonnes milled were 20% lower totalling 195 352 tonnes (Q1: 245 718 tonnes).
Despite an increase in the head grade of the underground ore from 7.53g/t (Q1)
to 7.69g/t (Q2), the overall head grade dropped from 6.83 to 5.61g/t for the
same period - this being attributable to an increase in the ratio of low grade
surface material from 10.6% to 29.9%.
Given the decreased production, all unit costs increased accordingly. By way of
example, cash costs for gold production increased from R83 777/kg (Q1) gold to
R124 965/kg (Q2). Cognisant of the impact of the decreased production rates on
unit costs, and the need to retain a staff complement in support of the planned
production build-up once the Main Shaft has been re-commissioned, mine
management critically reviewed its staff requirements. As a consequence,
associated cost reductions will become evident in the third quarter.
The depreciation of the Rand from R6.189/$ (Q1) to R7.142/$ (Q2) had a positive
impact on the Rand gold price received. However, with the reduced gold
production, the Company was unable to fully benefit from this, as 92.5% of the
gold sold was into the derivative structure. By comparison, 61.0% of the gold
sold in Q1 was into the derivative structure. Accordingly gold revenue
decreased by R78 million from quarter to quarter.
Given that the derivative structure is a US Dollar obligation, the impact of the
weaker Rand relative to the US Dollar resulted in a negative fair value
adjustment of R370 million for the derivative structure and R124 million for the
associated deferred premium. This compares with a total positive adjustment of
R74 million for Q1.
The operating loss from gold operations for Q2 increased to R166.8 million,
which includes a write-off of R28 million attributable to the infrastructure
that was damaged as a result of the Incident. As regards the latter, the mine
is insured for property damage and a portion of business interruption losses,
for which an insurance claim has been initiated.
Following the Incident, mine management has reviewed the opportunities
available, given the inevitable down time, to facilitate improved operational
efficiencies once the Main Shaft is re-commissioned. One such initiative that
has been implemented is the on-site training of some 800 employees in an
endeavour to enhance the current skill base of mine personnel.
Mine personnel and contractors have performed above expectations as regards the
rehabilitation of the Main Shaft, with the re-commissioning of the Shaft being
expected in early 2007 at an estimated total cost of R70 million. By June 2007
underground ore hoisted through the Main Shaft is expected to attain an
estimated level of 200 000 tonnes per month. Work has recently commenced on the
deepening of the Ventilation Shaft, which will ultimately increase the combined
hoisting capacity of the Twin Shaft Complex.
As reported on 4 July 2006, the Company has secured short term banking
facilities with The Standard Bank of South Africa and Investec Bank Limited
totalling R450 million. These facilities should be sufficient to fund all
operational and hedging obligations as they fall due through to early 2007. In
addition, the Board has the authority to issue 10% of the issued share capital
of the Company for cash in line with the resolution adopted by shareholders at
the Annual General Meeting.
Prospecting Rights
As was announced on 10 May 2006, the Company has been granted certain
prospecting rights adjacent, or in close proximity, to South Deep Gold Mine
("the Contiguous Rights"). In accordance with the Mineral and Petroleum
Resources Development Act No 28 of 2002, and with reference the Contiguous
Rights, the Company has concluded an agreement with Peotona Gold (Pty) Limited
("Peotona"), a Broad Based Black Economic Empowerment Company, which entitles
Peotona to a 26% participation in such rights. The agreement is however subject
to certain suspensive conditions, of which the majority have been complied with.
Shareholding
There has been considerable commentary in the press of late regarding the
shareholding of the Company, particularly as regards Harmony Gold Mining Company
Limited (29.2% shareholding) and Gold Fields Limited (18.9% shareholding).
The Board, in consultation with its advisors, continues to evaluate the various
options available in these circumstances, with the objective of optimising
shareholder value, and all its shareholders will be kept abreast of any new
developments.
By order of the Board
Johannesburg
3 August 2006
SPONSOR
Sasfin Capital
A Division of Sasfin Bank Limited
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
S A Levitt (Chief Financial Officer)
S Tainton (Executive)
D M Nurek (Non-Executive)
N D B Orleyn (Non-Executive)
Z B Swanepoel (Non-Executive)
J R Dixon (Independent Non-Executive)
I S Sehoole (Independent Non-Executive)
H J Smith (Independent Non-Executive)
COMMUNICATIONS
E-mail: info@wal.co.za
Fax: +27 (11) 834-9195
Website: www.westernareas.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: +44 (870) 162 3100
Fax: +44 (20) 8639 2142
UNITED STATES DEPOSITORY
American Depository Receipts
The Bank of New York
Shareholder Relations Department
Tel: +1 (212) 815 3326
Fax: +1 (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: +1 (212) 815 3700
Date: 03/08/2006 03:30:37 PM Produced by the JSE SENS Department
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