Wrap Text
KEH - Keaton Energy Holdings Limited - Reviewed results for the six months
ended 30 September 2011
Keaton Energy Holdings Limited
(Incorporated in the Republic of South Africa)
(Registration number 2006/011090/06)
JSE share code: KEH ISIN: ZAE000117420
("Keaton Energy" or "the Company" or "the Group")
Reviewed results for the six months ended 30 September 2011
COMMENTARY
Key features
- 394% increase in HEPS to 8.4 cps
- 235% increase in revenue to R117.7million
- R8.4million net profit
- Vanggatfontein Mine:
- 105% rise in 5-Seam coal production to 99 232 tonnes
- Eskom contract deliveries initiated
- 1million lost time injury-free hours worked
Introduction
Keaton Energy has made the transition from explorer and developer to producer
in record time. The first exploration borehole was drilled on the
Vanggatfontein property in November 2007 and by May 2010 opencast mining had
begun, following receipt of regulatory approvals and access having been gained
to the surface rights. The first washed 5-Seam coal product was dispatched in
December 2010. This has been followed in the period under review with the
commissioning of the 4 and 2 Seam plant at what is now the Vanggatfontein Mine
and the initiation of coal deliveries to South African power utility Eskom.
The Vanggatfontein Mine is expected to produce some 2.4 million tonnes of coal
per annum, taking Keaton Energy beyond its medium-term target of producing 2
million tonnes of coal per annum and well towards its longer-term target of
becoming a mid-tier, 5 million tonnes per annum coal producer.
During the period, 99 232 tonnes of 5-Seam coal were sold to customers in the
domestic metallurgical and thermal coal market (six months to 30 September
2010: nil; 12 months to 31 March 2011: 48 397tonnes). Some 230 042 tonnes of
thermal coal were sold to Eskom during the period (no sales of 4- and 2- Seam
coal in prior periods). These sales resulted in revenue of R117.7 million, up
from R35.2 million for the year ended 31 March 2011. While the Vanggatfontein
Mine has not yet attained steady-state operations, a net profit of R8.4
million was delivered for the period.
Safety, health and the environment
During the period under review, the Vanggatfontein Mine achieved the milestone
of 1 000 000 hours worked without a lost time injury. However, the mine`s
transition to production has seen a deterioration in safety performance with
four lost time injuries. This is viewed seriously by the company and action
has been taken to improve safety standards, compliance and management at the
mine.
Although no material environmental issues were experienced during the period,
particular attention was paid to dust suppression at the Vanggatfontein Mine
and the effect of blasting at monitoring sites surrounding the mine. A new
dust suppression system is being installed on the 4- and 2-Seam plant and the
effect of blasting is expected to be mitigated through improved blast design
and the fact that box-cut development is now complete
Cash position
The company has been investing aggressively in the Vanggatfontein Mine, and as
at 30 September 2011, had R26.3 million in cash and cash equivalents, down
from R190.4 million one year earlier, but not materially different to the R27
million at 31 March 2011. This was as a consequence of the securing of a R230
million Nedbank Capital project finance facility, of which R204.4 million had
been drawn down at the end of the period under review. The Vanggatfontein
Mine reached its peak cash draw-down position towards the end of 2011 and is
expected to be cash flow-positive thereafter.
Corporate governance
Mr Dirk Jonker was appointed to the Board of Directors as a non-executive
director with effect from 31 May 2011. Mr Jonker (60), a Dutch national, is
Managing Director of Gunvor International BV and is based in Amsterdam. He is
a senior business executive with many years` experience in international
commodity trading and processing. Mr. Peet Snyders resigned as an executive
director of the company with effect from 31 July 2011. Mr Johan Schonfeldt
gave notice of his intention to resign his position as Financial Director of
Keaton Energy with effect from 30 November 2011. He intends relocating abroad
with his family. Mr Jacques Rossouw (36) has been appointed Financial
Director Designate and has taken up the position from 1 November 2011.
Jacques is a CA (SA), having completed his articles with
PricewaterhouseCoopers, and subsequently worked in both the high technology
and mining industries, most recently as Manager: Corporate Reporting at
Harmony Gold Mining Company Limited.
Ms Mandi Glad, previously Executive Director: Marketing and New Business
Development, has assumed responsibility for the company`s operations as
Executive Director: Operations. She will continue to have responsibility for
coal marketing and regulatory matters. The Managing Director will assume
responsibility for New Business Development.
Activities during the period
The focus of management in the period has been to ramp up the production of 4-
and 2-Seam coal from the Vanggatfontein Mine to meet the contracted off-take
to Eskom. The ramp-up to full production of 4- and 2--Seam coal was affected
by the failure of a surge bin support structure in the 4- and 2-plant on 27
May 2011. An interim solution had to be found, using mobile conveyors to by-
pass the damaged area, and 29 982 tonnes were delivered to Eskom in July 2011.
The damage was repaired by the end of July 2011, and 79 494 tonnes were
delivered to Eskom in August 2011 and 120 566 tonnes in September 2011.
The failure of the surge bin support structure is now the subject of a dispute
resolution process between Keaton Mining (Proprietary) Limited (Keaton Mining)
(74% subsidiary of Keaton Energy) and the contractor concerned, DRA Mineral
Projects (Pty) Ltd.
The ramp-up is expected to continue until steady-state production of 175 000
tonnes per month is achieved. The mining contractor will also now move to
24/6 operations to ensure that the required run-of-mine production can be
achieved. Steady state rollover mining has begun in the Vanggatfontein Mine`s
Pit 1, and Pit 2 rollover mining is expected to begin in December 2011.
The production of 5-Seam run-of-mine coal was affected by geological washouts
and weathered coal at the boundaries of the coal reserve. The monthly sales
target for 5-Seam coal remains 20 000 tonnes.
While the acquisition of a controlling interest in Leeuw Mining and
Exploration (Pty) Ltd (LME) remains dependent on regulatory approval,
operations at the Vaalkrantz Colliery have improved dramatically following the
support provided by Keaton Energy. Some 205 715 tonnes of anthracite were
produced in the period, with 91 374 tonnes exported and 114 341 tonnes sold to
domestic customers.
Looking ahead
Keaton Energy continues to make solid strides toward mid-tier producer status.
This status will be confirmed with the Vanggatfontein Mine becoming a major
earnings contributor. Management`s focus on the Vanggatfontein Mine will
remain ramping up 4- and 2- Seam production to meet Eskom obligations while
maintaining the 5-Seam production profile and market acceptance. Regulatory
approval for the acquisition of a controlling stake in LME is expected in the
next period, and consolidating LME into the group will also be a priority.
Finally, the Sterkfontein and LME`s Braakfontein projects will move further up
the value curve - Sterkfontein through advancing of the feasibility study and
Braakfontein through review of the existing feasibility study.
On behalf of the Board
David Salter Paul Miller
(Chairman) (Managing Director)
1 December 2011
Preparation of condensed consolidated financial statements
The condensed consolidated financial statements for the 6 months ended 30
September 2011 have been reviewed in terms of the Companies Act 71, 2008.
Their preparation was supervised by the group financial director, Johan
Schonfeldt, a Chartered Accountant (SA).
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six months ended Year ended
R`000 No 30 30 31 March
te September September 2011
2011 2010 (Audited)
(Reviewed) (Reviewed)
Revenue 2 117 695 - 35 163
Cost of sales (95 388) - (23 095)
Gross profit 2 22 307 - 12 068
Other income 2 902 277 383
Administrative and other (10 337) (7 618) (17 412)
operating expenses
Mining and related expenses (3 553) (4 708) (10 924)
Share-based payments (439) (856) (2 191)
Operating profit/(loss) 10 880 (12 905) (18 076)
Finance income 10 663 11 243 20 193
Finance cost 7 (10 483) (532) (1 494)
Profit/(loss) before taxation 11 060 (2 194) 623
Taxation (2 668) 712 6 574
Net profit/(loss) 8 392 (1 482) 7 197
Other comprehensive income - - -
for the period, net of income
tax
Total comprehensive 8 392 (1 482) 7 197
income/(loss) for the period
Attributable to:
Owners of the company 14 475 2 509 15 186
Non-controlling interest (6 083) (3 991) (7 989)
Earnings per ordinary share 3
(cents)
- Basic 8.4 1.7 10.3
- Diluted 8.4 1.7 10.3
The accompanying notes are an integral part of these condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
R`000 At At At
No 30 September 31 March 30 September
te 2011 2011 2010
(Reviewed) (Audited) (Reviewed)
Assets
Non-current assets
Property, plant and 4 636 067 479 453 234 521
equipment
Intangible exploration and 65 092 65 074 65 080
evaluation asset
Deferred tax 3 740 6 660 3 952
Long term financial assets 5 142 834 131 612 -
Restricted cash 13 023 6 280 28 356
Total non-current assets 860 756 689 079 331 909
Current assets
Inventory 9 502 7 939 -
Trade and other receivables 54 113 47 389 17 959
Restricted cash 7 31 000 12 000 -
Cash and cash equivalents 26 281 27 000 190 383
Total current assets 120 896 94 328 208 342
Total assets 981 652 783 407 540 251
Equity and liabilities
Share capital and reserves
Share capital 171 171 145
Share premium 567 718 567 718 449 935
Other reserves 2 834 2 395 1 060
Retained earnings 35 495 21 020 8 343
Total equity attributable to 606 218 591 304 459 483
owners of the company
Non-controlling interest (15 840) (9 757) (5 759)
Total equity 590 378 581 547 453 724
Non-current liabilities
Provisions 6 77 520 46 053 23 005
Borrowings 7 188 041 - -
Total non-current 265 561 46 053 23 005
liabilities
Current liabilities
Borrowings 7 19 075 - -
Trade and other payables 106 271 154 872 49 595
Provisions 326 326 8 326
Taxation 41 609 5 601
Total current liabilities 125 713 155 807 63 522
Total equity and liabilities 981 652 783 407 540 251
The accompanying notes are an integral part of these condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 30 September 2011 - reviewed
R`000 Share Share Share Retained
capital premium based earnings
payment
reserve
Balance at 31 March 171 567 718 2 395 21 020
2011
Total comprehensive - - - 14 475
income for the period
Share-based payments - - 439 -
Balance at 30 September 171 567 718 2 834 35 495
2011
Balance at 31 March 145 449 935 204 5 834
2011
Total comprehensive - - - 2 509
loss for the period
Share-based payments - - 856 -
Balance at 30 September 145 449 935 1 060 8 343
2010
R`000 Total equity Non- Total equity
attributable controlling
to owners of interest
the company
Balance at 31 March 591 304 (9 757) 581 547
2011
Total comprehensive 14 475 (6 083) 8 392
income for the period
Share-based payments 439 - 439
Balance at 30 606 218 (15 840) 590 378
September 2011
Balance at 31 March 456 118 (1 768) 454 350
2011
Total comprehensive 2 509 (3 991) (1 482)
loss for the period
Share-based payments 856 - 856
Balance at 30 459 483 (5 759) 453 724
September 2010
The accompanying notes are an integral part of these condensed consolidated
financial statements.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended Year ended
R`000 30 30 31 March
September September 2011
2011 2010 (Audited)
(Reviewed) (Reviewed)
Cash flows from operating 39 787 (12 883) 2 976
activities
Cash flows from investing (242 099) (131 815) (368 261)
activities
Cash flows from financing 201 593 - 57 205
activities
Net decrease in cash and (719) (144 698) (308 080)
cash equivalents
Cash and cash equivalents at 27 000 335 081 335 080
the beginning of the period
Cash and cash equivalents at 26 281 190 383 27 000
the end of the period
The accompanying notes are an integral part of these condensed consolidated
financial statements.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting policies
Basis of accounting
The condensed consolidated financial statements for the six-months ended 30
September 2011 have been prepared in accordance with the recognition,
measurement, presentation and disclosure requirements of IAS 34: Interim
Financial Reporting and are presented in accordance with the South African
Companies Act and the AC 500 standards as issued by the Accounting Practices
Board. They should be read in conjunction with the annual financial statements
for the year ended 31 March 2011, which have been prepared in accordance with
International Financial Reporting Standards as issued by the International
Accounting Standards Board (IFRS). The accounting policies applied are
consistent with those applied in the annual financial statements.
2. Revenue and gross profit / margin
The group sold 99 232 metric tonnes of 5-Seam coal from its Mpumalanga-based
Vanggatfontein Mine into the domestic metallurgical market in the six months
ended 30 September 2011 (30 September 2010: nil and year ended 31 March 2011:
48 397 metric tonnes). Deliveries of thermal coal to Eskom for the six months
ended 30 September 2011 amounted to 230 042 metric tonnes (no deliveries in
prior periods).
The Group achieved a gross profit of R22.3 million or 19% of sales for the
period ended 30 September 2011 (30 September 2010: Rnil and year ended 31
March 2011: R12.1 million or 34%). The decrease in gross margin is as a result
of the product mix, which weighed more towards thermal coal during the current
period.
3. Earnings and net asset value per share
The calculation of basic and diluted earnings per share is based on a profit
for the period ended 30 September 2011 (attributable to owners of the company)
of R14.5 million (30 September 2010: R2.5 million and year ended 31 March
2011: R15.2 million) and a weighted average number of shares in issue during
the period of 171 547 644 (30 September 2010: 144 841 293 and the year ended
31 March 2011: 148 102 328).
Six months ended Year ended
30 September 30 September 31 March
2011 2010 2011
(Reviewed) (Reviewed)
(Audited)
Total earnings per ordinary
share (cents)
Basic earnings 8.4 1.7 10.3
Diluted earnings 8.4 1.7 10.3
Headline earnings 8.4 1.7 10.3
Diluted headline earnings 8.4 1.7 10.3
Reconciliation of headline earnings:
Net profit attributable to owners of the 14 475 2 509 15 186
company
Headline earnings for the period 14 475 2 509 15 186
Net asset value per share (cents)
At At At
30 31 March 30 September
September 2011 2010
2011 (Audited) (Reviewed)
(Reviewed)
Number of shares in issue 171 547 171 547 644 144 841 293
644
Net asset value per share 344 339 313
4. Property, plant and equipment
The increase of R156.6 million from 31 March 2011 is mainly as a result of
capital investments at the Vanggatfontein Mine. These include boxcut
developments (R102.2 million), mine infrastructure development (R34.8
million), ramp-up costs (R11.4 million) and an increase in rehabilitation
assets as a result of an increase in rehabilitation liabilities (R29.7
million). These have been offset by depreciation charges of R27.3 million.
5. Long term financial assets
In terms of the refinancing agreements entered into between Keaton Energy
andLME during the 31 March 2011 financial year, the group advanced a further
loan of R8.0 million to LME during the period, whilst LME repaid R5.3 million
on these loans. Interest accrued on the LME loans amounted to R8.3 million (30
September 2010: Rnil and the year ended 31 March 2011: R5.4 million).
6. Non-current provisions
The rehabilitation liability at the Vanggatfontein MIne increased by R29.7
million during the period, whilst the previously recognised rehabilitation
liability unwound with R2.0 million during the period.
7. Borrowings
On 1 April 2011 Keaton Mining entered into a project financing facility with
Nedbank Limited to the value of R230 million and a further standby debt
facility of R25 million. The facility attracts interest at Jibar plus 5% and
is repayable in sculptured quarterly payments commencing 30 June 2012 and
ending 31 March 2017. Various guarantees, representations, warranties,
undertakings, indemnities and pledges, normal to project financing
arrangements, have been given by both Keaton Mining and the company (as
guarantor). As at 30 September 2011 draw-downs to the value of R204.4 million
have been made, whilst interest of R10.9 million has been accrued. These were
offset by unamortised transaction costs amounting to R8.2 million. As at 30
September 2011 the group was in compliance with all project finance covenants
related to the Vanggatfontein Mine.
As part of the project finance covering security arrangement the company had
to restrict R50 million of its cash as a standby equity deposit in favour of
the Vanggatfontein Mine. R31 million of this deposit had been invested in the
project by 30 September 2011. The increase in the current restricted cash
balance of R19 million is attributable to the remaining amount of the standby
equity.
8. Commitments and contingencies
The group`s capital commitments are:
R`000 At At At
30 31 30
Septembe March Septembe
r 2011 r
2011 (Audite 2010
(Reviewe d) (Reviewe
d) d)
Exploration and mine 1 049 42 118 160 083
development expenditure
authorised and contracted
Exploration and mine 32 257 42 219 109 170
development expenditure
authorised but not contracted
33 306 84 337 269 253
All contracted amounts will be funded both through existing funding mechanisms
within the group and external debt finance for Vanggatfontein. For a detailed
disclosure on contingent liabilities refer to Keaton Energy`s annual report
for the year ended 31 March 2011, available on the group`s website at
www.keatonenergy.co.za. Further rehabilitation guarantees to the value of R16
million were issued during the period, as well as a R3.5 million payment
guarantee in favour of the electricity provider. Subsequent to 30 September
2011 a net R10 million of existing payment guarantees expired and the related
restricted cash released.
9. Subsequent events
Refer changes to the board of directors discussed under the commentary. Apart
from these changes and the released guarantees disclosed in note 8 above there
were no other significant events after 30 September 2011 up to the date of
this report.
10. Dividends
No dividends have been declared nor are any proposed for the period ended 30
September 2011 (30 September 2010: Rnil and the year ended 31 March 2011:
Rnil).
11. Coal reserve and resource Statement
The Vanggatfontein Mine coal reserve has been reduced by 0.2 million tonnes of
metallurgical coal and 0.5 million tonnes of thermal coal mined during the
period. There were no further changes to the previously reported Sterkfontein
and Leeuwfontein resource statements.
12. Review report
KPMG Inc., the Company`s independent auditors, have reviewed the financial
information contained in this condensed interim report and have expressed an
unmodified conclusion on the condensed interim financial information. Their
review report is available for inspection at the Company`s registered office.
Segment report for the six months ended September 2011
Revenue Operating
profit/(loss) before
depreciation/
amortisation
R`000 6 months 6 months 6 months 6 months
ended 30 ended 30 ended 30 ended 30
September September September September
2011 2010 2011 2010
Vangatfontein 117 695 - 45 495 (5 626)
Mine(1)
Sterkfontein - - - (429)
Project
Klip Colliery - - - -
Keaton Energy 2 129 - (7 251) (5 660)
Holdings
Limited(2)
Keaton 4 095 5 175 (1 053) (62)
Administrative
and Technical
Other - - 870 (273)
segments(3)
Reconciliation
to statements
of
comprehensive
income and
financial
position
Inter-segment (6 224) (5 175) 109 (545)
and other
consolidation
Assets/
liabilities
not allocated
to segments
Total per 117 695 - 38 170 (12 595)
statements of
comprehensive
income and
financial
position
Depreciation/ Net finance income/
amortisation (expense)
R`000 6 months 6 months 6 months 6 months
ended 30 ended 30 ended 30 ended 30
September September September September
2011 2010 2011 2010
Vangatfontein (27 137) - (39 761) (12 533)
Mine(1)
Sterkfontein - - - (713)
Project
Klip Colliery - - - -
Keaton Energy - - 42 460 10 977
Holdings
Limited(2)
Keaton (153) (310) 4 4
Administrative
and Technical
Other - - (899) 374
segments(3)
Reconciliation
to statements
of
comprehensive
income and
financial
position
Inter-segment - - (1 624) 12 602
and other
consolidation
Assets/
liabilities
not allocated
to segments
Totals per (27 290) (310) 180 10 711
statements of
comprehensive
income and
financial
position
Net profit/(loss) Segment assets
before taxation
R`000 6 months 6 months 6 months 6 months
ended 30 ended 30 ended 30 ended 30
September September September September
2011 2010 2011 2010
Vangatfontein (21 403) (18 159) 729 945 277 801
Mine(1)
Sterkfontein - (1 142) 65 426 65 080
Project
Klip Colliery - - 1 849 1 339
Keaton Energy 35 209 5 317 605 973 480 362
Holdings
Limited(2)
Keaton (1 202) (368) 3 778 -
Administrative
and Technical
Other (29) 101 1 072 -
segments(3)
Reconciliation
to statements
of
comprehensive
income and
financial
position
Inter-segment (1 515) 12 057 (453 902) (289 334}
and other
consolidation
Assets/ 27 511 5 003
liabilities
not allocated
to segments
Totals per 11 060 (2 194) 981 652 540 251
statements of
comprehensive
income and
financial
position
Segment liabilities
R`000 6 months ended 6 months ended
30 September 30 September
2011 2010
Vangatfontein Mine (1) 803 004 318 521
Sterkfontein Project 55 476 46 870
Klip Colliery 331 326
Keaton Energy Holdings 2 625 3 737
Limited (2)
Keaton Administrative and 13 549 11 038
Technical
Other segments (3) 16 576 10 295
Reconciliation to
statements of comprehensive
income and financial
position
Inter-segment and other (511 116) (312 709)
consolidation
Assets/ liabilities not 10 829 8 449
allocated to segments
Totals per statements of 391 274 86 527
comprehensive income and
financial position
(1) Revenue represents sales to external customers only
(2) Revenue represents intersegment sales only
(3) Include the subsidiaries Amalahle Exploration (Pty) Limited and Labohlano
Trading 46 (Pty) Limited
CONTACT DETAILS
KEATON ENERGY HOLDINGS LIMITED
Registered Office:
Ground Floor, Eland House, The Braes, 3 Eaton Avenue,
Bryanston, South Africa
(Postnet Suite 464, Private Bag X51, Bryanston, 2021)
Telephone: +27 11 317 1700
Telefax: +27 11 463 4759
email: info@keatonenergy.co.za
Website: www.keatonenergy.co.za
Directors:
Dr JD Salter (chairman)*++,
PBM Miller (managing director)
J Rossouw (financial director)
AB Glad (executive director)
LX Mtumtum++, P Pouroulis**+, OP Sadler++, APE Sedibe+, D Jonker***+
*British **South African / Cypriot ***Dutch
+non-executive, ++independent non-executive
Investor relations
James Duncan
Russell & Associates
Tel: +27 (0) 11 880 3924
Mobile: +27 82 892 8052
E-mail: james@rair.co.za
Company Secretary
Michelle Taylor
Transfer Secretaries:
Computershare Investor Services South Africa (Pty) Limited
Ground Floor, 70 Marshall Street, Johannesburg, South Africa
(PO Box 61051, Marshalltown, 2107)
Sponsor
Nedbank Capital
135 Rivonia Road
Sandown 2196
Auditors:
KPMG Inc.
1226 Schoeman Street, Hatfield, Pretoria
Date: 02/12/2011 09:00:01 Supplied by www.sharenet.co.za
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