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MVL
MVL
Mvelaphanda Resources Limited - Results for the year ended 30 June 2006
MVELAPHANDA RESOURCES LIMITED
(Registration number: 1980/001395/06
Incorporated in the Republic of South Africa
Share code: MVL
ISIN number: ZAE000050266
Mvelaphanda Resources Limited Reviewed Results for the year ended 30 June
2006
HIGHLIGHTS:
* Headline earnings per share rise sharply to 1,663 cents.
* R3.4billion increase in fair value of Gold Fields investment to R7.4
bilion.
* Cash Position improved for growth.
* Share overhang removed and empowerment status enhanced.
GROUP NET ASSET VALUE (not reviewed)*
Asset Percentage Share price Value Value
owned(%) (R/share) (Rm) (R/share)
Gold Fields
Total 1 8.8% 162.00 5,455 32.72
Northam total
existing
equity 21.9% 37.48 1,939 11.63
Trans Hex
Total 2 21% 11.02 202 1.21
Total listed
assets 7,596 45.56
Booysendal total 3 1,414 8.48
Unlisted assets 258 1.54
Cash and
cash equivalents 4 240.4 1.44
TOTAL 9,508 57.02
Premium/(discount) to NAV (37%)
MVL share price (R/share) 36.00
MVL shares in issue (million) 167.214
* Market value of listed assets and management valuation of unlisted
assets at 30 June 2006. The contents of this table have not been reviewed
by the group"s auditors.
1. Assumes 15% of GFI-SA exchanged for 48 million Gold Fields shares,
adjusted for PV of mezzanine debt and management estimate of dividends
foregone until March 2009.
2. Assumes conversion of forward purchased shares, adjusted for contingent
liability of R36 million.
3. Assumes sale to Northam: 20.4 million NHM shares, 18 million deferred
shares and cash of R90 million.
4. Year-end balance adjusted for NHM dividend and R20 million for Khumama
Consortium.
GROUP BALANCE SHEET
As at Reviewed IFRS Restated
R"000 Notes 30 June 30 June
2006 2005
ASSETS
Non-current
assets
Investment in
associate
companies 785,959 780,201
- Northam Platinum
Limited 725,016 660,803
- Trans Hex Group
Limited 8 60,943 119,398
GFI-SA loan 3 7,400,000 3,986,000
Derivative
financial
Instruments 4 140,614 211,332
Tirisano Mine
project 8 - 26,131
Non-strategic
listed
Investments 3,518 3,008
Goodwill 8 75,869 120,869
Property, plant
and equipment 927 794
Total non-current
assets 8,406,887 5,128,335
Current assets
Cash and cash
equivalents 174,628 161,023
Booysendal Platinum
project 315,892 315,892
Accounts receivable
and prepayments 7,231 7,422
Inventories 255 3,234
Total current assets 498,006 487,571
TOTAL ASSETS 8,904,893 5,615,906
EQUITY AND
LIABILITIES
Share capital
and reserves 6,142,705 3,402,357
Total share
capital and reserves 6,142,705 3,402,357
Non-current
liabilities
Senior bank
loan (GFI-SA) 532,424 809,625
Mezzanine finance
(GFI-SA) 5 1,414,343 1,070,180
Deferred
taxation 6 460,451 10,072
Total non-current
liabilities 2,407,218 1,889,877
Current l
iabilities
Accounts payable
and accruals 13,187 14,302
Provision for
employee
long-term
incentive costs 43,934 2,699
Short-term portion of
senior bank loan 277,201 254,807
Booysendal Platinum
project accrual 20,000 20,000
Current taxation
payable 648 31,864
Total current
liabilities 354,970 323,672
TOTAL EQUITY AND
LIABILITIES 8,904,893 5,615,906
GROUP INCOME STATEMENT
R"000 Reviewed IFRS Restated
Year ended Year ended
Notes 30 June 30 June
2006 2005
INCOME
Earnings from
associate companies 134,853 42,763
- Northam Platinum
Limited 145,653 38,913
- Trans Hex Group
Limited (10,800) 3,850
Interest
earned on
GFI-SA loan 437,405 437,405
Interest
earned on
cash and
cash
equivalents 10,952 13,624
Other income 1,702 249
Total income 584,912 494,041
OPERATING
EXPENSES
Exploration
and project
development
costs 7 86,967 29,016
Corporate
expenses 25,129 21,732
Share-based
incentive costs 7 54,382 2,654
Finance costs 320,389 331,792
- Senior bank
loan (GFI-SA) 104,809 129,836
- Mezzanine
finance
(GFI-SA) 215,580 191,764
- Other - 10,192
Total operating
expenses 486,867 385,194
PROFIT BEFORE
OTHER (INCOME)/
EXPENSES 98,045 108,847
OTHER (INCOME)/
EXPENSES
Impairment
write-downs 8 114,564 8,000
(Gain)/loss on
revaluation
of
financial
instruments (3,155,282) (73,029)
- GFI-SA loan (3,414,000) (578,999)
- Mezzanine
finance 188,000 476,000
- Trans Hex Group
Limited forward
purchased shares 70,718 29,970
Other expenses 1,628 3,584
Total other
(income)/expenses (3,039,090) (61,445)
PROFIT BEFORE
TAXATION 3,137,135 170,292
TAXATION (484,585) (26,849)
- Normal (34,207) (31,374)
- Deferred 6 (450,378) 4,525
ATTRIBUTABLE INCOME 2,652,550 143,443
EARNINGS PER
ORDINARY
SHARE (cents)
- Basic 1,594 86
- Headline 9(a) 1,663 91
- Diluted 1,586 86
- Adjusted 9(b) 108 62
GROUP SEGMENTAL RESULTS*
R"000 Reviewed IFRS Restated
Year ended Year ended
30 June 30 June
2006 2005
Net profit/
(loss)
after taxation
- Gold 2,763,668 155,844
- Platinum 141,376 35,140
- Diamonds (192,786) (33,171)
- Other (59,708) (14,370)
ATTRIBUTABLE
INCOME 2,652,550 143,443
* A detailed segmental income statement is available on the company`s
website: www.mvelares.co.za
GROUP STATEMENT
OF CHANGES
IN EQUITY Notes Total
R"000
Balance at
1 July 2004
- under SA GAAP 2,985,884
Impact of
conversion
to IFRS (15,626)
Balance at
1 July 2004
- under IFRS 2,970,258
IFRS 3 adjustment
- negative
goodwill written
back 262,810
Attributable
profit
for the year
- under IFRS 2 143,443
Equity
compensation
reserve 23,250
Unrealised gain
on revaluation
of listed
Investments 857
Equity accounted
portion of
share-based Payments
of associates 1,295
Equity accounted
portion
of foreign currency
translation reserve (432)
Equity accounted
portion of fair
value adjustment
on available
-for-sale financial
assets (94)
Profit on disposal of
treasury shares 970
Balance at 30 June 2005 3,402,357
Attributable profit
for the year 2,652,550
Equity
compensation
reserve 73,910
Proceeds on share issue 13,361
Unrealised profit on
revaluation of listed
investments 510
Equity accounted
portion of
share-based payments
of associates 1,407
Equity accounted
portion of
foreign currency
translation reserve 73
Equity accounted portion
of fair value adjustment
on available-for-sale
financial assets (379)
Other minor adjustments (1,084)
Balance at 30 June 2006 6,142,705
GROUP CASH FLOW STATEMENT
Reviewed IFRS Restated
Year ended Year ended
R"000 30 June 30 June
2006 2005
CASH FLOWS FROM
OPERATING ACTIVITIES
Cash utilised
in operations (47,654) (29,508)
Interest received 448,357 451,029
Finance costs (164,226) (188,050)
Taxation paid
(mainly GFI-SA) (65,423) (2,678)
NET CASH GENERATED
BY OPERATING
ACTIVITIES 171,054 230,793
CASH FLOWS FROM
INVESTING ACTIVITIES
Dividends received
from associated
companies 84,440 46,190
- Northam Platinum
Limited 82,781 43,978
- Trans Hex Group
Limited 1,659 2,212
Capital repayment
by associate
companies - 10,348
Payment in respect
of capital projects - (56,131)
Acquisition of
furniture, fittings
and office equipment (443) (758)
NET CASH GENERATED
BY/(UTILISED IN)
INVESTING ACTIVITIES 83,997 (351)
CASH FLOWS FROM
FINANCING ACTIVITIES
Capital repayment
in respect of
senior bank loan (254,807) (234,374)
Issue of shares 13,361 -
Loans repaid - (47,069)
Purchase of treasury
shares - (10,904)
Proceeds on disposal
of treasury shares - 11,874
Transaction costs
(GFI-SA) - (7,662)
NET CASH
UTILISED IN FINANCING
ACTIVITIES (241,446) (288,135)
Net increase/(decrease)
in cash and
cash equivalents 13,605 (57,693)
Cash and
cash equivalents
at beginning of
the year 161,023 218,716
CASH AND
CASH EQUIVALENTS AT
END OF THE YEAR 174,628 161,023
NOTES
1. Basis of preparation
In terms of the JSE Limited (JSE) Listings Requirements, all listed
companies are required to prepare their annual financial statements in
accordance with International Financial Reporting Standards (IFRS).
Accordingly, Mvela Resources has adopted IFRS as from 1 July 2005. These
condensed consolidated financial statements have been prepared in
accordance with the Group"s accounting policies compliant with IFRS, and in
accordance with IAS 34: "Interim Financial Reporting", the South African
Companies Act, 1973, as amended, and the JSE Listing Requirements.
The first time adoption of IFRS has resulted in the following adjustments:
(a)IFRS 2 ("Share-based payments"):
Share-based payments granted to employees after 7 November 2002, and that
had not vested by 1 January 2005, were valued using a binomial valuation
model and this value is charged to the income statement over the vesting
period of the option.
Share options granted to parties other than employees after 7 November
2002, and that had not vested by 1 January 2005, were valued using the fair
value of the goods or services received.
(b)IAS 39 ("Financial instruments: Recognition and Measurement"):
Transaction costs relating to financial assets and financial liabilities
that are carried at fair value through profit and loss are expensed as
incurred. Such costs had previously been capitalised and were amortised
over the life of the asset/liability.
(c)Certain balance sheet classifications have been changed to comply with
IFRS classifications.
Comparative information has been adjusted to comply with IFRS. There has
been no impact on the Group`s cash flow statement.
IFRS 1 allows a number of exemptions to retrospective application of IFRS
and the Group has adopted the following transitional arrangements on a
consistent basis:
(a)IFRS 2: "Share-based payments" has not been applied to equity
instruments that were granted on or before 7 November 2002.
(b)IFRS 2: "Share-based payments" has not been applied to equity
instruments that were granted after 7 November 2002 and that vested before
1 January 2005.
2. The after-tax effect resulting from the adoption of IFRS on the
comparative reporting periods is set out below:
IFRS reconciliation of attributable earnings
R"000 12 months 9 months
to to
30 June 30 June
2005 2004
Attributable earnings
previously reported 172,376 (97,264)
IFRS 2: Share-based
payments (26,926) (5,073)
IAS 39: Transaction costs
amortised (2,345) (15,946)
Other** 338 320
Restated attributable
earnings 143,443 (117,963)
** Attributable portion of amounts relating to the adoption of IAS 16:
("Property, plant and equipment") by an associate company.
A reconciliation of the assets, liabilities and equity reported under
previous South African Generally Accepted Accounting Practice (SA GAAP) and
those reported under IFRS is available on the company"s website:
www.mvelares.co.za.
3. GFI-SA Loan
Reviewed IFRS Restated
R"000 30 June 30 June
2006 2005
Loan advanced to
GFI-SA 4,139,000 4,139,000
Unrealised fair
value adjustment at
end of the year 3,261,000 (153,000)
GFI-SA loan at fair value 7,400,000 3,986,000
The value of this investment is sensitive to the following key drivers:
- Rand/dollar exchange rate;
- US dollar gold price; and
- Gold Fields" share price
The fair valuation of this investment takes into account the change in the
value of the GFI-SA loan according to the contractual formula and impacted
by the above drivers and, the difference between the present value of the
future interest payments from GFI-SA until 17 March 2009 and the present
value of the estimated future dividends foregone over the same period. The
significant unrealised fair value gain during the current financial year
arises primarily from the increase in the Gold Fields share price and the
number of Gold Fields shares attributable to Mvela Resources (48 million on
30 June 2006).
4. Derivative financial instruments
This represents the fair value of 16 million Trans Hex Group Limited
forward purchased shares for delivery on 5 March 2008. The fair value is
based on the market price of Trans Hex Group Limited shares as at 30 June
2006 and the contingent liability of R35,6 million (2005: R52,5 million)
relating to the debenture coupon.
5. Mezzanine finance
Reviewed IFRS Restated
R"000 30 June 30 June
2006 2005
Loan advanced to
Mvela Gold 1,086,000 1,086,000
Net interest
capitalised at
beginning of the
year 172,180 36,100
Net interest
capitalised during
the year 156,163 136,080
1,414,343 1,258,180
Unrealised fair
value adjustment at
end of the year - (188,000)
Mezzanine finance -
at fair value 1,414,343 1,070,180
The mezzanine finance was advanced to Mvela Gold by a special purpose
vehicle company (SPV), on a back-to-back arrangement (the same arrangements
which are applicable to the SPV are applicable to Mvela Gold). All of the
SPV costs are treated as finance costs for the mezzanine finance. The
mezzanine finance package is treated as a financial instrument and is
carried in the balance sheet at fair value. The fair value is determined
through the use of option pricing methodologies.
6. Deferred tax
The increase in the deferred tax provision is mainly a result of the fair
value adjustment relating to the GFI-SA loan.
7. Share-based payment costs
The Group recognises the cost of the Gold Fields warrants, non executive
directors" share options and share appreciation rights (collectively
referred to as share-based payments) in terms of IFRS2: Share-based
payments. Equity-settled share options are valued at grant date, and the
cost is spread equally over the vesting period of the option. The resulting
credit is accounted for in shareholders" equity. Cash-settled share
appreciation rights are valued at fair value of the rights at each balance
sheet date, with any changes in fair value recognised in profit and loss
over the vesting period of the rights.
The effect of adopting IFRS 2 on the Group"s financial performance and
financial position was as follows:
Reviewed IFRS Restated
R"000 30 June 30 June
2006 2005
Income Statement
Equity-settled
share options 1 78,373 24,272
Cash-settled share
appreciation rights 38,420 2,654
116,793 26,926
Balance Sheet
Equity-settled
share options 2 104,935 29,618
Cash-settled share
appreciation rights 43,934 2,699
1 2006: R73 million represents Gold Fields warrants (2005: R23 million)
2 2006: R96 million represents Gold Fields warrants (2005: R23 million)
8. Impairment write-downs
The Group"s assets are tested for impairment in terms of IAS 36.
Consequently, an impairment charge of R115 million has been raised during
the year. This relates to the impairment of the goodwill relating to the
diamond segment (R45 million), the Tirisano Mine (R24 million) and the
write-down in the value of the investment in Trans Hex (R46 million).
9. Earnings per share are calculated as follows:
Reviewed IFRS Restated
30 June 30 June
2006 2005
(a) Headline earnings
per share (cents) 1,663 91
R"000
Attributable earnings 2,652,550 143,443
Impairment write-downs 114,564 8,000
Headline earnings 2,767,114 151,443
Weighted average
number of shares in issue 166,407,584 166,403,140
(b) Adjusted headline
earnings per
share (cents) 108 62
R"000
Attributable earnings 2,652,550 143,443
"Other(income)/
expenses"
per income statement (3,039,090) (61,445)
IFRS 2 related expenses* 102,951 25,949
Taxation relating to
"other (income)/
expenses" 462,616 (5,518)
Adjusted headline
earnings 179,027 102,429
Weighted average number
of shares in issue 166,407,584 166,403,140
* Adjustment for Gold Fields warrants and share-based incentive costs (net
of taxation).
10. Post balance sheet events
Northam Platinum Limited declared a final dividend of 165 cents per share
to be paid on 28 August 2006.
This will represent a cash inflow of R85,4 million for the Mvela Resources
Group.
11. Audit review opinion
These financial results have been reviewed by the Group"s auditors,
PricewaterhouseCoopers Inc., and their unqualified review opinion is
available for inspection at the company"s registered office.
Commentary
YEAR ENDED 30 JUNE 2006
The current financial year has been characterised by an upwardly volatile
trend in commodity prices, notably gold and platinum. The dollar gold
price rose 40% during the course of the financial year, with the average
price of $525/oz, 24% higher than in FY2005. The platinum price similarly
rose 39% in dollar terms, averaging $1,018/oz compared with $855/oz in
FY2005. This, coupled with a 3% depreciation in the average exchange rate
to R6.41/$, boosted the profitability of Mvela Resources key associate
companies, the result of which was reflected in the solid share price
performance of Gold Fields and Northam on the JSE Limited. The impacts of
these positive trends have filtered right through to Mvela Resources"
bottom line financial performance.
CORPORATE ACTIVITY
Change in key empowerment shareholder
Pursuant to the unsuccessful bid for Mvela Group"s 23% stake in Mvela
Resources by Incwala Resources, Mvela Holdings has offered to buy the
shareholding from Mvela Group. The acquisition by Mvela Holdings, which is
subject to shareholder and regulatory approval, signals a renewed
commitment to the mining and minerals sector by Mvela Holdings and
simplifies the empowerment ownership of Mvela Resources, by removing a
layer from the corporate structure. Mvela Holdings has also acquired a
further 6% shareholding in the Company from the Khumama Platinum
consortium, potentially increasing its direct interest in Mvela Resources
to 29%. The removal of the share overhang and clarification of Mvela
Resources" key empowerment shareholding, should better position the company
to achieve its key objectives of becoming an operating mining company and
achieving value accretive growth in the sector.
Cautionary
Mvela Resources today issued a cautionary advising its shareholders that it
is currently in negotiations regarding a possible increase in its broad-
based empowerment shareholding to over 50%, which may have an impact on the
price of its ordinary shares. As a result, shareholders are advised to
exercise caution when dealing in Mvela Resources" shares.
FINANCIAL REVIEW
Balance Sheet
The increase in the value of the Gold Fields SA (GFI-SA) investment has
significantly strengthened the Group"s balance sheet. The investment value
has increased on the back of an increase in the Gold Fields share price
that was underpinned by a rising gold price during the period under review.
Accordingly, the value of the investment in GFI-SA has increased from R4,0
billion as at 30 June 2005 to R7,4 billion as at 30 June 2006. The fair
valuation of the GFI-SA investment takes into account the present value of
interest receipts from GFI-SA until March 2009, as well as the present
value of dividends forgone during the same period.
Cash balances remained robust at R175 million, and will further be
bolstered by a dividend of R85,4 million to be received from Northam on 28
August 2006. The senior loan has been serviced as per the repayment
schedule and the long-term portion thereof has accordingly reduced from
R810 million as at 30 June 2005 to R532 million as at 30 June 2006. The
value of the mezzanine finance has increased from R1,1 billion in 2005 to
R1,4 billion due to capitalised interest, amounting to R156 million and a
fair value impact of R188 million for the year. The mezzanine finance gets
fair valued at each balance sheet date using option pricing methodologies.
Recourse to Mvela Resources" balance sheet on the mezzanine funding is
limited to R200 million.
Income Statement
The Group"s earnings for the year have been positively impacted by Gold
Fields and Northam, on the back of an increase in commodity prices and a
modest weakening of the rand during the year. The fair value of the Gold
Fields investment has resulted in an unrealised, non-cash adjustment of
R3,4 billion.
Northam recorded a commendable performance, with attributable profits
increasing by 183% from R248,5 million in 2005 to R703,2 million in 2006.
The improvement was on the back of strong commodity prices, coupled with a
relatively low profit base for 2005 due to six weeks" loss of production
that was experienced in the first half of 2005.
Trans Hex has experienced difficult market conditions, with margins
impacted by a strong rand, increased fuel prices and falling diamond prices
in the second half of their financial year ending 31 March 2006.
Accordingly, the Trans Hex investment was impaired by R46 million, which is
reflected in the income statement.
Expenditure on exploration and project development increased from R29
million in 2005 to R87 million during the current financial year. The
increase is primarily attributable to the Group"s share of Gold Fields"
exploration expenditure in Africa, which increased from R23 million in 2005
to R73 million in the current year (Gold Fields warrants). A significant
portion of the expenditure relates to the Essakane exploration project in
Burkina Faso. Under SA GAAP, this expenditure was not recognised in the
past as it is settled through an issue of warrants to Gold Fields.
However, with the adoption of IFRS, the cost of these exploration warrants
is now recognised and expensed in the income statement in terms of IFRS 2.
Current year profits have also been affected by the adoption of IFRS on the
fair valuation of share options granted to certain non-executive directors
and share appreciation rights granted in terms of the new employee long-
term retention scheme. The increase in share option costs from R3 million
in 2005 to R54 million is primarily attributable to the significant
increase in Mvela Resources" share price during the year. The share-based
payment reserve for equity-settled share options, including the Gold Fields
warrants, amounted to R105 million, compared with R30 million in 2005, and
the provision for cash-settled share appreciation rights amounted to R44
million, compared with R2,6 million in 2005.
Cash Flow Statement
The Gold Fields transaction has, once again, continued to influence the
Group"s cash flows. Interest received from GFI-SA during the year of R437
million was offset by capital repayments on the senior loan (R255 million),
cash finance costs on the senior and mezzanine loans (R164 million) and tax
payments of R65 million by Mvela Gold. Dividends received during the year
were substantially higher at R84 million compared with R46 million in 2005,
primarily due to an interim dividend of R60 million that was received from
Northam in February 2006. A final dividend for 2006 from Northam, amounting
to R85,4 million, will further boost the Group"s cash reserves post year-
end.
DIVIDENDS
Further acquisitive and organic growth opportunities are likely to arise
for Mvela Resources in the coming periods. As such, the Directors have
elected not to pay a dividend for the year ending 30 June 2006.
CHANGES TO THE BOARD
On 4 June 2006, Mr Eric Molobi a long-serving, non-executive director of
Mvela Resources passed away. His dedication and positive contribution to
Mvela Resources will be sorely missed.
As announced on 3 August 2006, Mr Robinson Ramaite resigned as a non-
executive director of the Company. No new appointments have been made at
this stage, although the board will be reconstituted to increase the number
of independent non-executive directors in time.
PROSPECTS
The outlook for precious metals remains positive, with global economic and
geopolitical tailwinds supported by solid industry fundamentals. With the
step change in the equilibrium level of the rand experienced earlier this
year, the profitability of Mvela Resources" key investments has improved
significantly and should continue to reflect in robust financial results in
the coming year.
Empowerment activity in the South African mining sector has begun to mature
and as continuously outlined in its strategy, Mvela Resources anticipates
further value accretive growth opportunities to arise through co-operative
ventures or consolidation within the empowerment mining sector.
Diversification of the portfolio and the progression towards becoming an
operating mining company will remain as the primary focus, with expansion
into Africa being given increasing attention by management.
For and on behalf of the board
TMG Sexwale PC Pienaar
Chairman Chief Executive Officer
Sponsor
PricewaterhouseCoopers Corporate Finance (Pty) Ltd
24 August 2006
Johannesburg
www.mvelares.co.za
Directors
TMG Sexwale (Chairman); PC Pienaar* (CEO); NS Ntsaluba* (FD); CG Johnson*;
KB Mosehla*; BR van Rooyen*; ME Beckett (British); OA Mabandla; NE
Mtshotshisa; MP Ncholo; MJ Willcox; MSMM Xayiya
(* Executive Directors)
Transfer Secretaries
Computershare Investor
Services 2004 (Pty) Limited
70 Marshall Street
P O Box 61051,
Marshalltown, 2107
Johannesburg, 2001
Registered Office
1A Albury Park
Dunkeld West, 2196
Magalieszicht Avenue
P O Box 413420,
Craighall, 2024
Date: 24/08/2006 08:00:18 AM Produced by the JSE SENS Department
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