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SIM - Simmer and Jack Mines Limited - Report for the three months ended 31
December 2010 (q3fy2011)
SIMMER AND JACK MINES LIMITED
Incorporated in the Republic of South Africa
(Registration number 1924/007778/06)
Share code: SIM ISIN ZAE000006722
REPORT FOR THE THREE MONTHS ENDED 31 DECEMBER 2010 (Q3FY2011)
Salient Features:
- Simmer & Jack and Village Main Reef request shareholders to consider a
merger between the companies that will create a diversified mining company
with exciting asset growth potential and new business development
capabilities
- Tau Lekoa accounted for the full three months of the quarter compared to
two months during the previous quarter
- Simmer & Jack`s revenue for the quarter ended 31 December 2010 increased by
42% to R463 million, compared to R327 million last quarter, while R158
million was reported at 30 June 2010 with no production from Tau Lekoa
included
- Cash operating profit increased to R86.0 million compared to R7.9 million
last quarter and a loss of R55 million at 30 June 2010
- Gold production increased 34% to 49 170 oz (1 529 kg) from 36 608 oz (1 139
kg) last quarter and 17 599 oz (547 kg) at 30 June 2010
- Operational free cash flow after capital of R31.8 million generated during
the quarter with Tau Lekoa contributing a profit of R34.5 million, whilst
Buffelsfontein Gold Mines ("BGM") incurred a loss of R2.7 million
- Q4 cashflow negatively impacted as a result of a slow start-up of
production at both BGM and Tau Lekoa during January 2011
VILLAGE TRANSACTION
On 06 December 2010, Simmer & Jack Mines, Limited ("Simmers" or "the Company"
or the Group") and Village Main Reef Gold Mining Company (1934) Limited
("Village") announced a proposed merger to create a diversified mining
company that will operate in the gold, platinum group metals ("PGMs"),
uranium and antimony sectors (`the proposed merger").
The proposed merger, which remains subject to various conditions precedent,
will be implemented through the acquisition, by Village, of the majority of
Simmer`s assets, including the 100% of Simmers investment in Simmer and Jack
Investment (Pty) Limited ("SJ&I"), (both Buffelsfontein mine and Tau Lekoa
mine is housed in SJ&I), the Company`s 33% shareholding in First Uranium
Corporation ("FIU") and the 392 874 ZAR denominated secured convertible notes
issued by Mine Waste Solutions, which is FIU`s surface treatment operation.
The total purchase price of approximately R1.3 billion is to be settled
through an issue of 598 million Village shares at a price of R2.20 per
Village share and the assumption of certain liabilities. This price implies
an exchange ratio based on a value of R1.05 per Simmer`s share, which
represents a premium of 14.7% to the volume weighted average price at which a
Simmer`s share traded on the JSE for the 30 days preceding the date of the
announcement.
The Board of Directors of Simmers supports the consolidation of the Simmers
and Village mining interests into a single company, which will be housed
under the Village structure. The proposed new entity will have an attractive
diversified portfolio of assets, certain of which are currently generating
cash flows, and will have sufficient critical mass to optimise profitability
and growth opportunities. Furthermore, the new entity will have a highly-
experienced management team capable of extracting further efficiencies from
all operations and implementing a focused strategy based on organic growth
and targeted acquisitions in the South African mining environment.
A circular to shareholders will be posted in due course and shareholders are
expected to vote on the proposed merger during the latter part of March 2011.
STATEMENT BY THE INTERIM CHIEF EXECUTIVE OFFICER
The safety performance over the last quarter was impacted by a fatal incident
at Tau Lekoa, which occurred on 3 October 2010. A fatality occurred at BGM on
16 February 2011, when an employee was fatally injured in an explosive
related incident. Simmers management and the Board has expressed its
condolences to the family and friends of the deceased. This accident is
especially disheartening as BGM achieved 750 000 fatality free shifts only
weeks prior to the incident.
The Company continues to drive the objective of no harm to all employees,
through heightened communication and specific awareness campaigns launched to
ensure safe and sustainable working conditions.
Over the last quarter, ended 31 December 2010, Simmers continued focussing on
its objective of materially reducing general costs and completing the
restructuring of the Tau Lekoa and BGM gold mines through increased
production at sustainable grades. This resulted in total gold production
increasing by 34%, quarter-on-quarter, from 36 608 oz (1 139 kg) to 49 170 oz
(1 529 kg), an increase of 6% if the effect of the July production from Tau
Lekoa is excluded.
Gold revenue increased from R327 million for the quarter ended 30 September
2010 to R463 million, the majority of the increase is due to accounting for
Tau Lekoa production and sales for three months, while R17.9 million was due
to a 5% increase in the rand gold price per kilogram.
Simmer`s average underground grade increased from 3.21g/t to 3.54g/t.
CFO and Interim CEO, Marius Saaiman commented: "Simmers delivered a solid set
of results this quarter with gold production increasing by 34%. This was
largely as a result of accounting for Tau Lekoa for the full quarter, our
focus on operating efficiencies and sharing operational benefits between our
two operations combined with good cost control".
Mineable face lengths increased by 37% and face advance decreased by 9%,
quarter-on-quarter. This resulted in a 17 843mSquared (25%) increase in
square metres broken, which in turn positively impacted on the underground
tonnage delivered to the plant.
On a consolidated basis and as a result of accounting for Tau Lekoa for a
full three months during the quarter, as well as the impact of the milled
tonnages increasing, absolute cash costs rose by 18% from R320 million (US$1
187/oz) in Q2 FY2011 to R376 million (US$ 1 104/oz) in Q3 2011, with unit
cash cost in US$ reducing by US$83 /oz.
Saaiman continued: "We have successfully implemented the first phase of our
turnaround plan, which was aimed at integrating the newly-acquired Tau Lekoa
operations into BGM and restoring production levels at BGM. The second phase
of our turnaround, which involves maximising the operational cost savings
between our two operations, increasing production, and further reducing
operating cash costs at both operations, is now underway."
Simmer`s operating profit from mining activities increased to R69.0 million
from a loss of R12.7 million in the previous quarter. There was an increase
in general administration and overhead expenditure to R42.3 million from
R32.8 million, which is largely as a result of additional once-off
expenditures related to the conclusion of the Deutsche Bank Gold Forward Sale
Agreement and arrangements in terms of the possible merger between Simmers
and Village Main Reef. Simmers accounted for the following items that
impacted on the overall profit of the company during the quarter; a downward
adjustment to the fair value of the investment in the Mine Waste Solutions
("MWS") Rand Notes of R89.2 million; a decrease of the Aberdeen contingent
liability as a result of the revised production profile of BGM of R127.4
million, a fair value adjustment to the Deutsche Bank gold forward sale loan
value of R10.1 million; and a R24.8 million loss on exchange of 1 500 000 FIU
shares for the MWS Rand Notes. This resulted in a profit before taxation of
R204.6 million, compared to a loss of R307.7 million last quarter.
Simmers selected financial information - table 1
Please visit the Simmer and Jack website (www.simmers.co.za) to view the
selected financial information contained in table 1 of the Q3 F2011 quarterly
report for the period ending 31 December 2010 listed under the Results
section of the Investor Centre.
Notes to Table one:
1 - Total cash costs are costs directly related to the physical activities of
producing gold and include mining costs, administrative costs, royalties, on-
mine drilling expenditures that are related to production and other direct
costs. Sales of by-product metals are deducted from the above in computing
cash costs. Cash costs exclude depreciation, depletion and amortisation,
corporate general and administrative expenses, exploration costs, finance
charges, and pre-feasibility costs and accruals for mine reclamation but
include central costs such as human resources and technical services.
2- During the previous quarter 85 000 Mine Waste Solutions Rand Notes ("MWS
Notes") were disposed at a loss of R25.5 million compared to the face value
of the notes. The MWS Notes are classified as a financial asset held for sale
and is carried at fair value. During Q2 a fair value adjustment of R113.3
million was accounted for through the Statement of Comprehensive Income. The
share price of FIU recovered during Q3 to trade at R8.65 per share compared
to R6.85 during Q2, resulting in a fair value gain of R89.2 million being
accounted for in Q3.
The abovementioned credit adjustment was partially negated by accounting for
a fair value loss in the Deutsche Bank Gold Forward Sale loan amounting of
R10.1 million. IAS 39 requires that derivatives be carried at fair value.
The gain or loss on the change in fair value (subsequent to initial
recognition) should be recognised in the Statement of Comprehensive Income.
3 - In terms of the disposal as described in point 2 above Simmers had a call
option whereby it was able to re-purchase the MWS Rand Notes from the
investor consortium. During the period under review, Simmers repurchased
13,956 MWS Notes valued at R13,9 million. The consideration for the MWS Notes
were settled by Simmers exchanging 1,5 million of its shares in FIU for the
MWS Notes.
4 - The 1% perpetual royalty obligation under the Aberdeen agreement is fair
valued on a quarterly basis. The fair value of the royalty payable is
determined with reference to the future cash flow to be generated from the
production from BGM as per the latest BGM LOM. A new competent person`s
report was completed during the current quarter that forecast a significant
drop in the expected production from BGM., resulting in a credit of R127.4
million.
*- Cash and cash equivalents includes an amount of R105.9 million which is
restricted cash held as guarantees for rehabilitation at Tau Lekoa (R94.2
million); BGM (R10.0 million) and at TGME (R1.7 million).
** The results for Tau Lekoa in respect of Q2 FY2011 is only incorporated
into the consolidated results of the Group for two months with effect from 1
August 2010.
Salient features on a consolidated basis - table 2
Please visit the Simmer and Jack website (www.simmers.co.za) to view the
salient features information contained in table 2 of the Q3 F2011 quarterly
report for the period ending 31 December 2010 listed under the Results
section of the Investor Centre.
TAU LEKOA
This is the first quarter that Simmers accounts for the impact of the Tau
Lekoa operations for a full three month period, having concluded the
acquisition of Tau Lekoa with effect from 1 August 2010.
Tau Lekoa`s gold production was 61.4% higher, or 11 216 oz, at 29 471 oz (917
kgs) compared to the last quarter. The overall yield over the period
increased significantly by 11.6% from 3.04g/t to 3.40g/t. This was primarily
due to the "war on waste" campaign launched during the second quarter, which
aims to reduce the mining of lower grade reef ore and waste material through
reducing stoping widths.
Face length creation over the quarter improved with 77 metres or 3% to 2 572
metres of mineable available face length, increasing the available face at
Tau Lekoa to some 14 months. Both the tonnes milled and square metres mined
over the period in question improved by 45% and 44%, respectively. Notably
10 200 square metres out of the total of 57 900 square metres for the third
quarter was mined from the old area pillar section.
Tau Lekoa`s gold revenue increased by 69.3% from R164 million to R277
million. This was mainly due to higher gold production and an average gold
price for the third quarter of US$1 359/oz. This represents an average
improvement of US$145/oz or 12% over the second quarter.
Total cash costs increased by 62% from R129 million (US$962/oz) in the second
quarter to R210 million (US$1 026/oz) for the third quarter. This is
attributable to the effect of accounting for Tau Lekoa for three months
during the quarter compared to two months during the previous quarter. Total
cash cost per kilogram remained flat at R228 000 quarter on quarter.
BGM
BGM`s total gold production increased by 7% from 18 353 oz (571 kg) in Q2
FY2011, to 19 699 oz (613 kg) in Q3 FY2011.
Face length increased by 8% and face advance decreased by 7%. The underground
grade increased from 3.43 g/t in Q2 FY2011 to 3.82 g/t in Q3 FY2011, mainly
due to mining higher volumes from high grade areas, in particular from the 5
shaft area where volumes are consistently increasing. Notwithstanding the
good progress at 5 shaft, development meters were behind target as certain
areas, in particular Kromdraai at 2 shaft and 69 level at 7 shaft, were
halted due to these areas being loss-making, and this has had an impact on
the available face at BGM.
The average gold revenue over the three months increased by 14% to R186
million. OF this increase, R12.7 million is due to increased volumes (1 346
ounces or 41.9 kg more gold produced in Q3 FY2011) and R9.9 million was due
to a 6% increase in the rand gold price per kilogram.
The mine`s total cash costs decreased quarter on quarter by 12% from R190
million (US$1 411/oz) in Q2 FY2011 to R167 million (US$ 1 222/oz). This is
as a result of Simmer`s drive to ensure synergy savings and shared costs with
the Tau Lekoa operation, as well as other cost cutting measures implemented
and lower summer electricity charges.
BGM`s capital expenditure decreased from R37.4 million to R13.6 million as at
31 December 2010. This resulted in BGM negatively contributing R2.7 million
on a notional cash cost basis.
WELTEVREDEN
A pre-feasibility study was completed during late December 2010. The results
of the pre-feasibility study are currently being prepared for submission to
and deliberation by the Simmer`s Board of Directors. Based on the pre-
feasibility study and given a continuing strong gold price, Weltevreden has a
positive NPV and will require capital expenditure of some R750 million over
the life of the operation. Development of this resource will significantly
extend the life of the Tau Lekoa operation to 2024.
TRANSVAAL GOLD MINING ESTATES (TGME)
The disposal of TGME remain subject to the fulfilment of certain conditions,
including inter alia the transfer of the mineral rights to Stonewall Mining
(Pty) Ltd by no later than 28 February 2012. TGME does not form part of the
proposed transaction with Village.
FIRST URANIUM CORPORATION (FIU)
The results for FIU, which were issued on 3 February 2011, can be viewed at
www.firsturanium.com.
PROSPECTS
The Group`s focus is to minimise the effect of the slow start-up and to
ensure production stabilise for the remainder of the quarter, whilst
focussing on cost control and maximising synergistic benefits between
operations.
Gold produced from the Tau Lekoa and BGM operations in January 2011, was
materially lower than forecast and has negatively impacted Simmer`s available
cash. This was largely as a result of production being negatively impacted
following the December holidays and the resultant slower start-up of
production during January 2011. Simmers has highlighted that production for
the fourth quarter will be lower than the levels achieved during Q3 2011.
Management anticipates total gold produced for the quarter to be in the order
of 1 400 kg.
Notwithstanding the fact that the operations are contributing positively to
cash flow, available cash remains constrained after repaying the monthly
instalments due to Deutsche Bank under the gold loan. Management are
therefore currently assessing various funding options which includes the
potential to raise capital in order to settle the high yield medium term
notes repayable from July 2011 onwards.
A circular will be posted to all Simmers shareholders in due course to allow
shareholders to assess the Village proposed merger and be in a position to
vote on what is believed to be a compelling proposal that offers value to
current shareholders. The Village proposed merger represents a 15% premium to
the Simmers` share price prior to the announcement being made. Simmers
shareholders will continue to participate in the future upside that the
proposed entity can deliver. The Village proposed merger will also provide
the proposed entity with access to global equity and debt capital markets to
fund further value enhancing mining opportunities.
Transfer secretaries
South Africa
Computershare Investor Services (Pty) Ltd
Ground Floor, 70 Marshall Street, Johannesburg, 2001, Republic of South
Africa
United Kingdom
Capita Registrars
The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU, United Kingdom
Auditors
Grant Thornton
Registered Office
5 Press Avenue, Selby, Johannesburg, 2025, Republic of South Africa
Sponsor
RAND MERCHANT BANK (A division of First Rand Bank Limited),1 Merchant Place,
Corner Fredman and Rivonia Road, Sandton, 2146
The financial statements have been prepared in accordance with International
Accounting Standard (IAS 34) Interim Financial Reporting.
Operating and financial results - table 3
Please visit the Simmer and Jack website (www.simmers.co.za) to view the
operating and selected financial results contained in table 3 of the Q3 F2011
quarterly report for the period ending 31 December 2010 listed under the
Results section of the Investor Centre.
CEO Tele-conference call
22 February 2011
16h00 (GMT+2)
Live Call Access Numbers
South Africa - Johannesburg 011 535 3600
UK (Toll-Free) 0 800 917 7042
USA (Toll) +1 412 858 4600
South Africa - Cape Town 021 819 0900
South Africa - Durban 031 812 7600
South Africa (Toll-Free) 0 800 200 648
Australia (Toll-Free) 1 800 350 100
Other Countries (Intl Toll) +27 11 535 3600
Canada (Toll-Free) 1 866 605 3852
USA (Toll-Free) 1 800 860 2442
Playback Access Numbers
South Africa 011 305 2030
USA and Canada (Toll) +1 412 317 0088
Date: 22/02/2011 07:30:01 Supplied by www.sharenet.co.za
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