To view the PDF file, sign up for a MySharenet subscription.

SIM - Simmer and Jack Mines Limited - Report for the three months ended 31

Release Date: 22/02/2011 07:30
Code(s): SIM
Wrap Text

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 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

Share This Story