| Thu 25 Jan 2007, 10:01 | | WAR - Western Areas - Unaudited quarterly results |
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WAR
WARA
WAR - Western Areas - Unaudited quarterly results ended 31 December 2006
production and unit results
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: ZAE000016549ADR Ticker symbol:
WARUYCUSIPNo: 957654304
Unaudited quarterly results ended 31 December 2006 production and unit
results
Year Year
ended to date Quarters ended
31.12.05 31.12.06 30.06.06 30.09.06 31.12.06
IMPERIAL
Lost Time
Injury per 200
000 hours
Reef mined tons 947 730 164 137 175
(`000)
Reef ore milled Tons 962 696 151 149 154
(`000)
Waste dump tons 212 317 64 107 117
milled (`000)
Total milled tons 1 174 1 013 215 256 271
(`000)
Yield oz/to 0.239 0.210 0.224 0.196 0.194
(underground) n
Yield (incl. oz/to 0.200 0.152 0.164 0.127 0.119
surface) n
Gold produced oz 234 584 154 008 35 232 32 532 32 271
Gold sold oz 231 094 154 865 36 578 33 170 29 657
Cash costs US$/o 367 552 602 624 649
z
Total US$/o 448 652 750 735 692
production z
costs
Gold price US$/o 338 394 394 408 393
achieved z
Average gold US$/o 448 588 605 632 611
spot price z
Average
exchange rate
achieved
Period end
exchange rate
Capital US$m 18 24 6 6 7
expenditure
Capital US$m 7 23 19 16 23
commitment at
end of period
PRODUCTION AND UNIT RESULTS (CONTD)
Year Year
ended to date Quarters ended
31.12.05 31.12.06 30.06.06 30.09.06 31.12.06
METRIC
Lost Time 0.56 0.82 1.04 0.90 0.47
Injury per 200
000 hours
Reef mined tonne 859 662 149 124 158
(`000) s
Reef ore milled tonne 879 632 137 135 140
(`000) s
Waste dump tonne 179 287 58 97 106
milled (`000) s
Total milled tonne 1 058 919 195 232 246
(`000) s
Yield g/ton 8.15 7.20 7.69 6.73 6.64
(underground) ne
Yield (incl. g/ton 6.90 5.21 5.61 4.36 4.08
surface) ne
Gold produced kg 7 296 4 790 1 096 1 012 1 004
Gold sold kg 7 188 4 817 1 138 1 032 923
Cash costs R/kg 75 365 120 450 124 965 143 784 153 337
Total R/kg 91 822 142 141 155 676 169 349 163 461
production
costs
Gold price R/kg 69 371 85 852 81 846 94 046 92 829
achieved
Average gold R/kg 91 944 128 300 125 670 145 602 144 172
spot price
Average R/$ 6.3837 6.7831 6.4612 7.1695 7.3468
exchange rate
achieved
Period end R/$ 6.3275 6.9732 7.1420 7.7643 6.9732
exchange rate
Capital Rm 113 171 44 48 49
expenditure
Capital Rm 46 163 136 122 163
commitment at
end of period
Note: Production and financial information relates to Western Areas`
proportional share of South Deep. Production information (gold produced,
gold sold and cash costs) reflects Western Areas` current 50.875%
entitlement of gold revenue in terms of the Joint Venture Agreement.
ABRIDGED CONSOLIDATED INCOME STATEMENT
Quarters ended Year to Year
date ended
31.12.06 30.09.06 30.06.06 31.12.06 31.12.05
SA Rand Notes Unaudited Restated Restated Unaudite Restated
million d
Gold revenue 62.2 71.4 65.7 306.6 420.6
Gold sales at 131.0 147.1 139.6 606.3 647.8
spot
Gold first 2.1 3.0 3.4 11.7 13.1
charge
Realisation 1/2 (70.9) (78.7) (77.3) (311.4) (240.3)
of matured
options
Total (161.0) (170.1) (168.8) (677.1) (663.3)
production
costs
Production (153.9) (145.5) (137.0) (577.0) (549.9)
costs
Amortisation (16.9) (23.4) (27.7) (102.7) (125.1)
of mining
assets
Other - non 3 9.8 (1.2) (4.1) 2.6 11.7
cash
Operating (98.8) (98.7) (103.1) (370.5) (242.7)
loss from
gold
operations
Property, 4 (8.4) - (28.0) (36.4) -
plant and
equipment
write off
Net other 5 5.0 252.8 1.0 291.2 8.4
income
Administra- 6 (42.5) (26.4) (5.1) (84.1) (23.8)
tion and
other
expenditure
Operating (144.7) 127.1 (135.2) (199.8) (258.1)
(loss)/profit
before
financing
costs
Finance 1.1 (0.6) 1.8 3.4 (29.0)
income/
(expense)
Operating (143.6) 127.2 (133.4) (196.4) (287.1)
(loss)/profit
after
financing
costs
Present value (20.3) (48.4) (8.6) (81.0) (55.6)
adjustment
for option
premium
payable
Realised 1 (44.7) (37.7) (36.7) (119.1) -
ineffective
fair value
adjustment
Fair value 7 358.7 (272.6) (369.6) (230.7) (128.9)
adjustment
Exchange 8 80.6 (81.4) (124.5) (104.3) (107.7)
gains/
(losses)
Reversal of 9 - 15.3 - 15.3 (84.9)
impairments/
(impairments)
Share of loss - - - - (5.3)
in associated
company
Profit/(Loss) 230.7 (297.7) (672.8) (716.2) (669.5)
before
taxation
Taxation 10 (105.5) 128.5 313.0 323.1 264.8
Profit/(Loss) 125.2 (169.2) (359.8) (393.1) (404.7)
for the
period
EARNINGS/
(LOSS) PER
ORDINARY
SHARE (CENTS)
- Basic 77.4 (108.3) (233.6) (251.0) (337.0)
- Headline 83.0 (118.4) (215.9) (249.1) (271.6)
Number of 161.7 161.7 154.0 161.7 154.0
ordinary
shares issued
(million)
Weighted 11 161.7 156.3 154.0 156.6 120.1
average
number of
ordinary
shares
(million)
Determination
of headline
earnings
/(loss):
Profit/(Loss) 125.2 (169.2) (359.8) (393.1) (404.7)
for the
period
Loss/(Profit) 8.4 0.6 27.3 3.5 (6.1)
on write-
off/disposal/
of
property,plan
t and
equipment
Profit on - - - - (5.3)
disposal of
other assets
Fair Value 0.6 (1.1) - (0.5) (0.3)
adjustment of
other
investments
(Reversal of - (15.3) - - 84.9
impairments)/
impairments
Share of loss - - - - 5.3
in associated
company
relating to
impairments
Headline 134.2 (185.0) (332.5) (390.1) (326.2)
earnings/(los
s)
ABRIDGED CONSOLIDATED BALANCE SHEET
Period ended Year
ended
31.12.06 30.09.06 30.06.06 31.12.05
SA Rand million Notes Unaudited Restated Restated Restated
ASSETS
Non-current assets
Property, plant and 12 3 347.3 3 320.2 3 279.1 3 299.6
equipment
Investment properties 2.4 1.5 1.5 1.5
Other investments 21.5 18.7 18.3 17.7
Other long-term 1.1 1.0 1.0 1.0
assets
Deferred taxation 10 1 363.9 1 389.8 1 369.4 849.4
Derivative asset - 7/14 1 280.1 1 391.1 1 375.3 881.8
long tern portion
6 016.3 6 122.3 6 044.6 5 051.0
Current assets
Inventories 15 27.5 18.5 19.6 27.4
Trade and other 5 268.0 274.3 26.1 35.0
receivables
Derivative asset - 7 18.2 - - -
gold forward
Derivative asset - 7/14 190.4 190.7 178.8 114.6
short-term portion
Cash and cash 11.1 154.3 20.7 207.9
equivalents
Non-current asset - 0.9 0.9 0.9
held for sale
515.2 638.7 246.1 385.8
Total assets 6 531.5 6 761.0 6 290.7 5 436.8
EQUITY AND
LIABILITIES
Capital reserves
Shareholders` equity 15 1 173.4 1 145.3 884.9 1 507.3
per statement
Non-current
liabilities
Provision for post- 2.3 2.4 2.7 2.9
retirement medical
benefits
Provision for 20.8 20.6 20.1 19.2
environmental
rehabilitation
Option premium 14 788.7 904.0 818.3 803.3
payable - long-term
portion
Derivative liability 7/14 3 623.4 3 861.1 3 801.3 2 537.0
- long-term portion
4 435.2 4 788.1 4 642.4 3 362.4
Current liabilities
Option premium 14 166.0 180.1 174.6 136.1
payable - short-term
portion
Derivative liability 7/14 520.5 519.6 482.7 306.9
- short-term portion
Short-term facility 13 68.3 - - -
Trade and other 168.1 127.9 106.1 124.1
payables
922.9 827.6 763.4 567.1
Total equity and 6 531.5 6 761.0 6 290.7 5 436.8
liabilities
STATEMENT OF CHANGES IN SHAREHOLDERS` EQUITY
SA Rand million Period ended Year to Year
date ended
31.12.06 30.09.06 30.06.06 31.12.06 31.12.05
Unaudited Restated Restated Unaudited Restated
Share capital 161.7 161.7 154.0 161.7 154.0
Balance at 161.7 154.0 154.0 154.0 118.5
beginning of period
Ordinary shares - 7.7 - 7.7 35.5
issued
Share premium 3 132.3 3 132.3 2 842.2 3 132.3 2 842.2
Balance at 3 132.3 2 842.2 2 842.2 2 842.2 2 245.5
beginning of period
Ordinary shares - 308.0 - 308.0 603.6
issued
Share issue costs - (17.9) - (17.9) (6.9)
Cash flow hedge (1 811.9) (1 714.2) (1 846.1) (1 811.9) (1 572.7)
reserve
Balance at (1 714.2) (1 846.1) (1 839.4) (1 572.7) (1 367.9)
beginning of
period
Tax effect due to - - - - (25.3)
rate change
Fair value (158.8) 71.0 (64.4) (460.8) (309.0)
adjustment on
unrealised options
- fair value (288.8) 129.0 (117.0) (837.9) (561.9)
movement
- tax effect on 130.0 (58.0) 52.6 377.1 252.9
movement
Realisation of 61.1 60.9 57.7 221.6 129.5
matured options
- matured options 115.6 116.4 114.0 430.5 240.3
realisation and
payment
- matured options (4.5) (5.6) (8.9) (27.4) (4.8)
gold price
reclassification
- tax effect on (50.0) (49.9) (47.4) (181.5) (106.0)
movement
Available-for-sale 0.6 - - 0.6 -
Reserve
- fair value 1.1 - - 1.1 -
adjustment
- tax effect on (0.5) - - (0.5) -
movement
Retained earnings (309.3) (434.5) (265.2) (309.3) 83.8
Balance at (434.5) (265.3) 94.5 83.8 488.5
beginning of period
Attributable 125.2 (169.2) (359.8) (393.1) (404.7)
profit/(loss) for
the period
Shareholders` 1 173.4 1 145.3 884.9 1 173.4 1 507.3
equity
CONSOLIDATED CASH FLOW STATEMENT
Quarters ended Year Year
to date ended
31.12.06 30.09.06 31.06.06 31.12.06 31.12.05
SA Rand million Unaudited Restated Unaudited Unaudited Audited
Cash flow
utilised by
operating
activities
Cash flow (27.4) (11.6) 37.0 40.2 77.4
(utilised
by)/from
operations
Net interest 1.1 (0.6) 1.8 3.5 (27.6)
received/(paid)
Dividends - - 0.5 0.5 -
received
Tax received - - 2.5 3.7 -
Net cost of (78.0) (80.6) (75.6) (288.3) (162.3)
realisation of
options
(104.3) (92.8) (33.8) (240.4) (112.5)
Cash flow
utilised in
investing
activities
Additions to (48.7) (48.4) (43.6) (170.7) (113.4)
property, plant
and equipment
Proceeds on - 0.2 1.9 2.1 11.4
disposal of
mining assets
Proceeds on - - - - 1.0
disposal of
unlisted
investment
Acquisition of - - - - (2.0)
other
investments
(48.7) (48.2) (41.7) (168.6) (103.0)
Cash flow
from/(utilised
in) finance
activities
Loan from JCI - - - - (94.8)
Short term 67.9 - - 67.9 -
facility
Ordinary shares - 315.7 - 315.7 639.1
issued -
proceeds
(17.6) (0.3) - (17.9) (6.9)
- costs
Option premiums (40.5) (40.8) (37.4) (153.5) (127.2)
paid
9.8 274.6 (37.4) 212.2 410.2
Net(decrease)/in (143.2) 133.6 (112.9) (196.8) 194.7
crease in cash
and cash
equivalents
At beginning of 154.3 20.7 133.6 207.9 13.2
period
At end of period 11.1 154.3 20.7 11.1 207.9
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 CONSOLIDATED FINANCIAL STATEMENTS
1. The Company is required by IFRS to assess the effectiveness of the
derivative structure on an ongoing basis to ensure it accounts for the fair
value changes stemming from the gold price fluctuations in the hedge
reserve. The combination of the Shaft Incident (May 2006) and the
underground fire (which started on 31 August 2006), resulted in the
derivative structure being ineffective for the months of June 2006,
September 2006 and for the fourth quarter ended 2006, as more ounces were
committed under the derivative structure than were actually produced. Due
to the ineffective nature of the derivative structure for these periods,
the matured options are recognised as a realised ineffective fair value
adjustment in the income statement and are no longer accounted for as an
adjustment to gold revenue. R44.7 million (Q3: R36.7 million) of the
unrealised fair value adjustment of R47.5 million in the third quarter as
it related to the anticipated ineffective portion of the derivative
structure in the fourth quarter, which normally would have been accounted
for in the hedge reserve, has been reclassified as a realised ineffective
fair value adjustment. The balance of R2.8 million is accounted for as an
adjustment to gold revenue, as it was deemed effective.
2. Realisation of matured options includes an actual cash flow of R47.5
million as it relates to the effective hedges for the fourth quarter (Q3:
R53.2 million).
3. Non-cash costs include the depreciation of property, plant and
equipment.
4. The estimated net book value of the infrastructure damaged by the fire,
representing R8.4 million, has been written-off (Q2: R28 million as it
relates to the Shaft Incident).
5.The insurance claim arising from the Shaft Incident has been recognised
in Q3. Western Areas anticipates payment of its share of the net
settlement, being US$32.5 million (R252.3 million), in early 2007.
6. Administration and other expenditure includes the payment of a phantom
share bonus totalling R17 million in accordance with the Western Areas
Phantom Share Scheme ("the Scheme") to senior executives of the Company.
The strike prices of the shares were market related, having been based on
the date on which the relevant senior executive commenced working for the
Company. The total number of phantom shares allocated was 1.1 million
shares at a weighted average price R28.38/share, and a conversion price of
R43.89/share in accordance with the Scheme. Also included are advisors fees
as they relate to the Gold Fields Offer.
7. The fair value adjustments relate to the re-valuation of the derivative
structure as at quarter-end and consist of the following:
The re-valuation stemming from a change in the exchange rate. Due to the
fact that the Rand strengthened from R7.7643/$ (Q3) to R6.9732/$ for the
quarter, a positive fair value adjustment of R358.0 million was realised.
As from 8 December 2006 the Company, in accordance with its accounting
policy, revoked the designation of the hedge relationship. Hence,
revaluations stemming from fluctuations in the gold price are accounted for
through the hedge reserve on the balance sheet up to this date. The amount
as per the hedge reserve on 8 December 2006 will be reflected in the Income
Statement as and when the actual related option matures or is settled.
Subsequent to 8 December 2006 the revaluation adjustments stemming from
fluctuations in the gold price are also accounted for in the Income
Statement, which resulted in a negative fair value adjustment of R17.2
million for this quarter. The US$ gold price increased from US$599/oz as at
30 September 2006 to US$631.75/oz as at 8 December 2006, and subsequently
to US$634.22/oz as at 31 December 2006.
The additional positive fair value adjustment of R18.2 million relates to
the accumulation of the gold committed to the Derivative Structure as
detailed in the Letter to Shareholders. As at 31 December 2006, 27% of the
Delta was accumulated at a forward price to mature after quarter end, and
resulted in a fair value gain representing the mark-to-market adjustment of
this accumulation.
8. Exchange gains are mainly attributable to the re-valuation of the option
premium payable due to the Rand having strengthened from R7.7643/$ (30
September 2006) to R6.9732/$ (31 December 2006) offset by a loss on the
insurance receivable of $32.5 million recognised in Q3.
9. The reversal of the prior impairment relates to the fact that the BEE
agreement pertaining to the issuance of those Prospecting Rights adjacent
to South Deep has become unconditional.
10. The deferred taxation movement resulted from both operating losses and
the re-valuation of the derivative structure through the income statement
and equity. Based on the best estimate at the period-end, management
believes it is probable that taxable income will be available in future to
utilise the deductible temporary differences and therefore supports the
recognition of the deferred tax asset.
11. The weighted average number of ordinary shares is arrived at after
making adjustments for the ordinary share issue in September 2006, and the
rights issue during 2005.
12. Property, plant and equipment are stated at cost less accumulated
depreciation.
13. The short term facility includes capitalised interest in terms of the
R200 million Standard Bank facility. The facility is secured, carries
interest at prime less 0.65% and is to be re-paid on 31 March 2007.
14. As discussed in the Letter to Shareholders, WAL with the assistance of
Gold Fields Limited, have closed out the Derivative Structure as on 24
January 2007. The settlement of Derivative Structure obligation and the
Deferred Premium will be done on 30 January 2007. To disclose the effect of
the settlement of the Derivative Structure and Deferred Premium, an
unuadited pro-forma consolidated income statement and balance sheet of WAL
before and after the settlement are set out below. The unaudited pro-forma
income statement and balance sheet have been presented for illustrative
purposes only and because of their nature may not give a fair reflection of
WAL`s results, financial position and changes in equity after the
settlement. It has been assumed for purpose of the pro-forma financial
information that the settlement took place with effect from 1 January 2006
for income statement purposes and 31 December 2006 for balance sheet
purposes.
UNAUDITED PRO FORMA INCOME STATEMENT
Before After
derivative derivative
settlement Adjustments settlement
SA Rand million
Loss before taxation as (716.2) - (716.2)
reported
Additional costs in respect of - (128.8) (128.8)
option premium settlement
Realised fair value adjustment - (3 294.3) (3 294.3)
on derivative settlement
Loss before taxation (716.2) (3 423.1) (4 139.3)
Taxation 323.1 1 540.4 1 863.5
Loss for the period (393.1) (1 882.7) (2 275.8)
Notes
(1) The "Before" financial information is based on WAL`s published
unaudited, condensed income statement for the twelve months ended 31
December 2006 as disclosed in these results.
UNAUDITED PRO FORMA BALANCE SHEET
Before After
derivative derivative
SA Rand million settlement Adjustments settlement
ASSETS
Property, plant and equipment 3 347.3 - 3 347.3
Derivative asset 1 488.7 (1 488.7) -
Investments 23.9 - 23.9
Deferred taxation 1 363.9 58.0 1 421.9
Cash and cash equivalents 11.1 - 11.1
Other assets 296.6 - 296.6
Total assets 6 531.5 (1 430.7) 5 100.8
EQUITY AND LIABILITIES
Shareholders` equity 1 173.4 70.8 1 102.6
Retained earnings (309.3) (1 882.7) (2 192.0)
Cash flow hedge reserve (1 811.9) 1 811.9 -
Other Equity 3 294.6 - 3 294.6
Option premium payable 954.7 (954.7) -
Derivative liability 4 143.9 (4 143.9) -
Other liabilities 259.5 - 259.5
Loan - 3 738.7 3 738.7
Total equity and liabilities 6 531.5 (1 430.7) 5 100.8
Notes
(1) The "Before" balance sheet is based on WAL`s published unaudited,
abridged balance sheet as at 31 December 2006 as disclosed in these
results.
15. The change in accounting policy arose from the adoption of the
accounting policies of Gold Fields, the company`s major shareholder. The
company has in the past valued gold-in-progress whereas Gold Fields only
value gold on hand for its South African operations, which resulted in the
restatement of the prior year and quarterly results as follows:
Quarters ended Year ended
30.09.06 30.06.06 31.03.06 31.12.05
Reconciliation of
Retained earnings
Retained earnings as (432.8) (262.8) 98.0 85.8
previously reported
- Adjustment (3.2) (4.3) (6.1) (3.6)
- Tax effect 1.4 1.9 1.1 1.6
(435.5) (265.2) 93.0 83.8
LETTER TO SHAREHOLDERS
The fourth quarter of 2006 (Q4) for Western Areas Limited ("WAL" or the
"Company") and South Deep has continued to be eventful, with a number of
important developments having taken place, namely: the significant
progress that has been made as regards both the Shaft Incident of 4 May
2006 and the underground fire that started on 31 August 2006; the Gold
Fields Limited Offer to WAL shareholders of 30 October 2006; and the
pending close-out of the Long-Dated Hedging Transaction and associated
Deferred Premium.
Gold Production, Costs And The Impact Of The Derivative Structure
The results for the fourth quarter are broadly in keeping with the revised
production plan (the "Revised Plan") following the Shaft Incident of 4 May
2006, compounded by the underground fire that started on 31 August 2006 in
the 95 3W project area.
The total plant feed for South Deep for Q4 was 6% higher than that of Q3,
with 279 568 tonnes of underground ore (Revised Plan: 273 788 tonnes) and
204 152 tonnes of low grade waste dump material (Revised Plan: 90 000
tonnes) having been processed, resulting in the production of 1 973kg, of
gold (by comparison gold sold of 1 814kg). The head grade of the
underground ore decreased from 6.88g/t (Q3) to 6.74g/t (Q4), whereas the
overall head grade inclusive of low grade waste dump material decreased to
4.20g/t over the same period (Q3: 4.50g/t), due to the high volume of low
grade waste dump material processed. It was necessary to process this
volume of low grade waste dump material in order to optimise the
utilisation of the metallurgical plant, as well as to generate the required
volume of tailings for the emplacement of backfill. Given the high fixed
costs for South Deep, all unit production costs remained high due to the
lower production levels. Cash operating costs increased from R146 848/kg
(Q3) to R158 546/kg (Q4), this increase being attributable to additional
labour costs, an increase in consumables relating to the underground fire,
and the transportation on surface, of underground ore and low grade waste
dump material from the South Shaft Complex to the metallurgical plant at
the Twin Shaft Complex.
The Company`s attributable share of gold production for the year-to-date is
154 008 ounces compared to the Revised Plan of 153 211 ounces, whereas for
Q4 its share totalled 32 271 ounces (Q3: 32 532 ounces). The operating
loss from gold operations for Q4 increased marginally to R102.0 million (Q3
: R100.0 million), this being partly attributable to the strengthening of
the Rand from R7.7643/$ (Q3) to R6.9732/$ (Q4), which had a negative impact
on the Rand gold price. Gold revenues decreased by R9.2 million from
quarter to quarter. Due to the negative impact that the Shaft Incident and
the underground fire had on gold production, the net commitment under the
derivative structure was greater than the ounces sold for the months June
2006, September 2006 and Q4. Therefore, and in accordance with defined
accounting policies which are further elaborated in the notes provided in
the financial section, the Long-dated Derivative Transaction ("the
Derivative Structure") was deemed to be ineffective for these periods.
Accordingly, the matured options are recognised as a realised ineffective
fair value adjustment in the income statement (cumulatively R119.1 million
for the year-to-date), and are no longer accounted for as an adjustment to
gold revenue. As a result of this change, the revised gold price achieved
for Q2, Q3 and Q4 is R81 846/kg, R94 046/kg and R92 829/kg respectively,
which compares with R67 456/kg, R59 183/kg and R59 671/kg (respectively)
had hedge accounting rules been applied.
Given that the derivative structure is a US Dollar obligation, the impact
of the stronger Rand relative to the US Dollar resulted in a positive fair
value adjustment of R358.0 million for the Derivative Structure and R104
million for the Deferred Premium respectively, which is detailed further in
the accompanying Notes To The Consolidated Financial Statements ("the
Financial Notes"). This compares with the negative values of R272.6
million and R81.4 million respectively for Q3. In addition to the fair
value adjustment for the exchange rate, the positive mark-to-market
adjustment of R18.2 million for the gold purchased for value at a future
date (accumulated Delta), as detailed below in the section on the
Settlement of the Derivative Structure and the Financial Notes, were partly
offset by the negative fair value adjustment of R17.2 million in respect of
gold price movements from 8 December 2006 to quarter-end. Furthermore, as
per the Financial Notes, the Company elected to revoke the designation of
the hedge relationship, hence the movements in the gold price previously
recognised in the cash flow hedge reserve are now accounted for in the
income statement. The exchange gain in respect of the Deferred Premium, as
discussed above, was partially offset by an exchange loss of R23.4 million
in accordance with the insurance proceeds recognised in Q3, which was at a
weaker Rand/US Dollar exchange rate.
Settlement of the Derivative Structure and Deferred Premium
Following concerns that were raised in its Circular To Shareholders of 10
November 2006 as regards the Derivative Structure and Deferred Premium, and
in particular the potential termination of the Derivative Structure by the
hedge counterparties in the event of a change in control of the Company,
WAL elected to proceed with the close-out of the Derivative Structure. In
order to fund this, WAL has been granted approval to participate as an
additional borrower under a Gold Fields bridge facility (the "Bridge
Facility"), such that a direct loan, granted on market related terms, can
be established under the Bridge Facility in an amount equal to the
settlement amount of the close-out value of the Derivative Structure and
Deferred Premium on the due date.
In order to achieve this, and subsequent to Gold Fields Limited ("Gold
Fields") having acquired a controlling interest in WAL, Barclays Capital
was mandated to accumulate the remaining gold committed to the Derivative
Structure of 1.0 million ounces (the "Delta"). In order to close-out the
remaining trades as they relate to the Derivative Structure, the Delta of
1,005,000 ounces of gold was purchased in the gold spot market over the
period 19 December 2006 up to, and including, 15 January 2007, which
position was then rolled forward to mature on 30 January 2007.
A discrete, systematic, approach enabled WAL to accumulate the Delta at an
average spot price of US$620.05/oz, which when rolled forward for
settlement on 30 January 2007, translates to a price of US$622.14/oz.
Barclays Bank PLC ("Barclays") became a counterparty to the Derivative
Structure on 8 December 2006, following an assignment by AIG International
Inc. ("AIGI") of all its rights, interests and obligations in terms of the
Derivative Structure to Barclays. Barclays has subsequently entered into
negotiations with the remaining two hedge banks, namely Investec Bank
Limited ("Investec") and Bayerische Hypo-Und Vereinsbank Aktiengesellschaft
("HVB"), by way of them novating their portion of the Derivative Structure
to Barclays. Thus Barclays will be WAL`s sole hedge counterparty,
facilitating the entire close-out of the Derivative Structure.
Barclays has agreed to show a firm price on the entire close-out in one
trade. This entailed buying all outstanding put options from WAL, selling
all outstanding call options to WAL, and buying all upside call options
from WAL. Barclays has entered into new contracts with WAL on economic
terms which are equal but opposite to those terms of the Derivative
Structure.
Thus the total cost of closing out the Derivative Structure and Deferred
Premium is US$527.5 million, which will be settled on 30 January 2007. The
closure cost of the Derivative Structure is US$373.9 million, effected at
par, whereas the early settlement of the Deferred Premium will cost
US$153.6 million.
WAL Cash Flow Requirements
WAL has secured interim financing until the end of March 2007. This,
together with the revenue received from gold production that will no longer
be required to service the hedge, should enable WAL to meet its financial
obligations until the Section 440K process is completed. Once this has
been done, WAL effectively becomes a wholly-owned subsidiary of Gold
Fields, and settlement of the facility utilised to close-out the Derivative
Structure and Deferred Premium will be their responsibility.
Cash flow requirements for calendar 2007 are estimated be R4 billion, of
which the largest portion relates to the close-out of the Derivative
Structure and Deferred Premium, and interest accrued through the
utilisation of the Bridge Facility. This estimate further provides for
working capital and the receipt of payment of the insurance claims arising
from the Shaft Incident and underground fire.
Twin Shaft Complex and Fire
Work on the Main Shaft at the Twin Shaft Complex has progressed well, with
the necessary due diligence, care and signing-off protocols. All the
hoisting systems and associated operating protocols for the Main Shaft have
been approved, and the focus is presently on the integration of the ore
transportation systems, namely the priming of the ore passes and that of
training belt crews in preparation of resuming full hoisting activities,
anticipated to commence on 29 January 2007.
As regards the underground fire, which started on 31 August 2006, by virtue
of limited access to the areas most affected, it remains difficult to fully
assess the extent of the damage. However, following the removal of the
relevant seals, temperature and gas levels indicate that all forms of
combustion have ceased. Accordingly, the rehabilitation of the damaged
areas is currently underway.
It is anticipated that, as full hoisting activities at the Twin Shaft
Complex will only be resumed on 29 January 2007, and due to the damage
caused by the underground fire in the 2 W and 3 W Lines, gold production
for the first quarter of 2007 will be 19% lower than budget at an estimated
90 400 ounces.
Insurance
As regards the Shaft Incident, all of the participating underwriters have
accepted liability therefor as an underground claim, and the majority have
accepted the quantum thereof, at the full US$65 million underground sub-
limit. It is anticipated that confirmation from the last of the
underwriters will be received shortly, and the majority of the funds
arising from the claim will be collected within 30-days of receiving
acceptance from all the underwriters.
A loss adjusting team has been appointed to assess the damage arising from
the now extinguished underground fire. An interim payment from the
insurers and a decision regarding liability will be requested. Whilst a
fire claim (Business Interruption and Property Damage) was last adjusted in
mid-December 2006, this has yet to be finalised on the basis of the latest
production results.
Status Of Gold Fields Offer
On 18 January 2007 Gold Fields announced that it had received valid
acceptances of 92% of the Offer shares, which when combined with the WAL
shares already held by Gold Fields, resulted in a total shareholding of
95.6% in WAL (viz. 154,649,986 ordinary shares).
In the same announcement, Gold Fields advised the remaining WAL
shareholders that it intends invoking Section 440K of the Companies Act,
which enables Gold Fields to acquire the remaining shares in WAL on a
compulsory basis, the details of which will be elaborated on in a further
Circular To Western Areas Shareholders that Gold Fields will release
shortly. Thereafter application will be made for the delisting of WAL.
Gold Fields Accounting Practices
Given that WAL will effectively become a subsidiary of Gold Fields, the
financial year-end will now be June 2007.
Concluding Statement
This is the end of an era for WAL, and its future as a delisted company
lies in the hands of its new owners, Gold Fields. It is also a new
beginning for South Deep. The Twin Shaft Complex is being re-commissioned,
the synergies with Kloof are being explored, and there are exciting
opportunities for promising new and continued development that can be
realised through the skill and resource that Gold Fields has. The Board of
Directors wish to express their sincere appreciation to former executive
and non-executive directors, who have contributed significantly to
stabilising WAL over the past 15 months, and ensuring the future of South
Deep.
By order of the Board:
Johannesburg
25 January 2007
28 Harrison Street Johannesburg 2001PO Box 61719 Marshalltown
2107Telephone: +27 (11) 688-5000Fax: +27 (11) 834-9195
DIRECTORATEG Marcus (Executive Chairperson)P H Henning (Chief Financial
Officer)
S Tainton (Executive)N J Holland (Non-Executive)B J Mattison (Non-
Executive)
N D B Orleyn (Non-Executive)
J R Dixon (Independent Non-Executive)I S Sehoole (Independent Non-
Executive)H J Smith (Independent Non-Executive)
COMMUNICATIONSE-mail: info@wal.co.zaFax: +27 (11) 834-9195Website:
www.westernareas.co.za
TRANSFER SECRETARIES - SOUTH AFRICAComputershare Investor Services 2004
(Pty) Ltd70 Marshall Street Johannesburg 2001PO Box 61051 Marshalltown
2107Telephone: +27 (11) 370-5000Fax: +27 (11) 688-7721/2
OFFICE OF UNITED KINGDOM REGISTRARSCapita RegistrarsThe Registry34
Beckenham Road BeckenhamKent BR3 4TUTel: +44 (870) 162 3100Fax: +44 (20)
8639 2142
UNITED STATES DEPOSITORYAmerican Depository ReceiptsThe Bank of New
YorkShareholder Relations DepartmentTel: +1 (212) 815 3326Fax: +1 (212) 571
3050www: adrbny.comShareholder RelationsToll free no: (US or Canada
only)1-888-269-2377(1-888-BNY-ADRs)International callers:Tel: +1 (212) 815
3700
SPONSOR
Sasfin Capital
A Division of Sasfin Bank Limited
Date: 25/01/2007 10:01:33 Produced by the JSE SENS Department.
