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Report for the quarter ended 30 June 2013 (Q4,FY2013)
VILLAGE MAIN REEF LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1934/005703/06)
JSE share code: VIL ISIN: ZAE000154761
(“Village” or “the company”)
REPORT FOR THE QUARTER ENDED 30 JUNE 2013 (Q4, FY2013)
Strategic review results in decisive action
Key features
- As with all other gold producers, Village undertook a strategic review of investments and operating assets.
The aim is to ensure Village returns to positive cash generation:
- Buffels underground operations being placed on care and maintenance, as advised previously. This
necessitated a section 189 process which was successfully concluded
- post quarter-end decision to suspend financial support to Blyvoor operations as continued under
performance resulted in R88m of cash losses in Q4.
- Group gold production of 1,448kg (46,537oz) compared to 1,394kg (44,806oz) in Q3, an increase of 4%.
- gold production at Tau up by 26% quarter on quarter, back at normalised production levels
- Antimony production at Cons Murch of 1,165t compared to 1,433t for the prior quarter, a decrease of 19%
- Realised average gold price of R421,898/kg compared to R467,358/kg for Q3,2013, a decrease of 10%.
All-in sustaining costs from continuing operations (which still includes Tau, Cons Murch and Blyvoor) for
Q4,2013 of R497m or R425,260/kg compared to R491m or R452,631/kg for the previous quarter. All
operations are reported in line with the World Gold Council guidance note
- Basic loss per share from continuing operations of 43.13 cents, which includes an accounting impairment
of R469m (46.50 cents per share). It will be accounted for as a discontinued operation as of July, 2013.
Events post quarter end
- Employees at Cons Murch mine embarked on an unprotected strike on 10 July 2013. A court interdict was
obtained on 12 July 2013 and with the help of the South African Police Service, striking workers occupying
the Monarch surface decline were arrested and control over the mine re-established on 20 July 2013. The
unprotected strike will negatively impact on the Q1,2014 production figures.
- As of 30 July 2013 the Village Board recommended that all financial assistance to Blyvoor be suspended.
The Board of Blyvoor and other affected parties have been informed of this decision. Blyvoor will in future
be treated as a discontinued operation.
Statement by the Chief Executive Officer
Bernard Swanepoel, Chief Executive Officer commented: “The Village management team completed a
strategic review of the company and its underlying assets during the quarter and the decisions made are
reflected in the commentary that follows.
From an operational perspective, Village is pleased that production at the flagship Tau mine has returned to
normalised levels during the June quarter, following a very disappointing March quarter. We believe that the
interventions at Tau have shown positive results and we expect the improvements at Tau to be sustainable.
The restructuring process at our Buffels operation is complete. The cost savings from this very painful but
necessary process will start to materialise during the latter portion of the September, 2013 quarter. In the
interim, care and maintenance cost at the Buffels operation should decrease to around R7m a month,
compared to the R27m a month lost operating the asset during the March quarter.
Blyvoor had a difficult quarter, which was particularly disappointing following the improved performance during
February and March 2013. These mature underground operations, which were acquired out of a business
rescue process approximately 13 months ago, have over the past few quarters experienced the loss of high
grade panels due to seismicity, unprotected strikes with the result that AMCU became the majority union and
equipment breakdowns. The materially lower production volumes and resultant cash losses of R88m during
the June quarter placed pressure on Village’s ability to continue to financially support Blyvoor.
Outlook
Our focus remains on ensuring that we generate positive free cash flows from our operations whilst not
indefinitely subsidising loss making assets. The company has been through a very difficult quarter where we
consumed some R107m in cash, mainly resulting from a materially lower gold price, funding operational losses
at Blyvoor and the impact of the retrenchment costs at Buffels. A number of actions have been taken during
the quarter to reduce the losses at Buffels and to ensure that the production at Tau is more sustainable, we are
confident that these measures will have a positive impact on the Q1,2014 FY results.’’
Performance for the fourth quarter ended 30 June 2013
Gold production totalled 1,448kg (46,537oz) in the June quarter, an improvement of 4% over the 1,394kg
(44,806oz) achieved during the March quarter. Our antimony production of 1,165t in Q4 was 19% or 268t lower
than in Q3. Despite the increase in gold production, revenue was negatively affected by the lower realised gold
price of R421,898/kg compared to R467,358/kg in the March quarter.
Following the Board’s decision to curtail operations at Buffels and place it on care and maintenance, the results
for the mine have been classified as a discontinued operation. The loss for the quarter of R366m comprises
cash losses of R86m and non-cash adjustments of R280m.This non-cash adjustment includes a R414m
impairment related to property, plant and equipment, offset by a reversal of R182m on the Premier Perpetual
Royalty. The non-cash adjustment also includes the remainder of the retrenchment costs amounting to R60m.
All-in sustaining costs from continuing operations (which still includes Blyvoor) decreased by 5% to R497m in
Q4 compared to R523m in Q3. On a per kilogram basis, sustainable costs from continuing gold mining
operations were at R425,260/kg compared to R426,728/kg in the previous quarter. Village incurred an
operating loss from continuing mining activities of R12m compared to the R40m profit achieved in the previous
quarter. As previously noted, R88m cash loss was attributable to Blyvoor.
The cash balance at 30 June 2013 was a positive R154m, of which R105m is restricted. The restricted cash is
for the commitments to the Department of Mineral Resources in relation to rehabilitation guarantees.
Quarterly performance data – all operations
GOLD Q4 FY2013 Q3 FY2013 ANTIMONY Q4 FY2013 Q3 FY2013
Cons Murch Cons Murch
Blyvoor Tau Lekoa Buffels TOTAL TOTAL
Tons milled - surface 466 864 - - 466 864 513 753
Tons milled – under-ground 59 759 231 498 67 532 358 789 319 940 Tons milled 61 022 70 089
Recovered grade – Au g/t 0.7 3.5 3.0 1.7 1.7 Recovered grade – Au g/t 1.17 1.25
Gold produced under-ground -
205 817 205 1 227 1 139
kg
Gold produced surface - kg 149 - - 149 168 Recovered grade – Sb % 1.12 1.19
Gold produced – total oz 11 381 26 267 6 591 44 238 42 000 Gold produced – oz 2 299 2 806
Gold produced – total kg 354 817 205 1 376 1 307 Antimony produced – tonnes 1 165 1 433
Realised gold price – R/kg 425 172 420 839 420 467 421 898 467 358 Realised antimony price – R/t 38 029 41 045
1
All-in sustaining cost - R/kg 674 377 317 320 932 345 500 807 588 880 Cash cost – R/ton 1 376 1 139
2 1
All-in cost - R/kg 674 377 317 320 932 345 500 807 588 880 Notional cost – R/ton 1 507 1 252
1 Excludes gold revenue credits.
2 World Gold Council proposes disclosure of ‘’All-in sustaining” cost and ‘’All-in” cost. Village will only report the ‘’All-in sustaining” costs, as all costs relate to well-
established operations.
Prospects
Village expect total production volumes from the gold operations to show further improvement during the
September 2013 quarter. Antimony production will be negatively impacted as a result of the unprotected strike
at the Cons Murch operation. Cash costs during the September quarter are usually higher than those achieved
during the June quarter, a result of the increased electricity tariffs during the July and August winter months.
The table below has been included to provide insight as to what the quarterly performance would have looked
like post a Buffels care and maintenance scenario and the suspension of financial support to Blyvoor.
Quarterly performance data – sustainable operations -Tau and Cons Murch only
GOLD Q4 FY2013 Q3 FY2013 ANTIMONY Q4 FY2013 Q3 FY2013
Tau Lekoa Tau Lekoa Cons Murch Cons Murch
Tons milled - surface - -
Tons milled – underground 231 498 197 506 Tons milled 61 022 70 089
Recovered grade – Au g/t 3.5 3.7 Recovered grade – Au g/t 1.17 1.25
Gold produced underground - kg 817 649
Gold produced surface - kg - - Recovered grade – Sb % 1.12 1.19
Gold produced – total oz 26 267 20 865 Gold produced – oz 2 299 2 806
Gold produced – total kg 817 649 Antimony produced – tonnes 1 165 1 433
Realised gold price – R/kg 420 839 466 898 Realised antimony price – R/t 38 029 41 045
1
All-in sustaining cost - R/kg 317 320 402 816 Cash cost – R/ton 1 376 1 139
2 1
All-in cost - R/kg 317 320 402 816 Notional cost – R/ton 1 507 1 252
1 Excludes gold revenue credits.
2 World Gold Council proposes disclosure of ‘’All-in sustaining” cost and ‘’All-in” cost. Village will only report the ‘’All-in sustaining” costs, as all costs relate to well-
established operations.
Financial review
The table below sets out the unaudited results of the operations for the quarter ended 30 June 2013:
Unaudited Unaudited Variance
Q4 Q3 (Restated) Q4 FY2013
VILLAGE MAIN REEF LIMITED FY2013 FY2013 vs Q3
SELECTED FINANCIAL INFORMATION R’000 R’000 (Restated)
2013
%
Statement of Comprehensive Income
Continuing operations
Revenue 569 124 599 162 -5%
Total cash cost (547 430) (518 900) -5%
Total cash operating profit / (loss) 21 694 80 262 -73%
Production-related depreciation (32 525) (38 911) 16%
Rehabilitation expenses (1 658) (1 278) -30%
Operating profit / (loss) from mining activities (12 489) 40 073 -100%
Non-production related depreciation (919) (4 534) 80%
5
Other income 7 837 16 539 -53%
Share option costs (1 884) - -100%
Head office costs 2 (9 491) (8 404) -13%
3
General administrative and overhead expenditure (11 476) (11 348) -1%
Profit / (loss) from operations before interest and taxation (28 422) 32 326 -100%
4
Fair value adjustments (47 469) 3 305 -100%
6
Impairment of assets and loans and movements in environmental rehabilitation liability (479 638) (1 329) -100%
Foreign exchange gains / (losses) 928 (3 138) 100%
Net finance income / (charges) 430 3 788 -89%
Profit / (loss) before taxation from continuing operations (554 171) 34 952 -100%
7
Loss from discontinuing operations (365 790) (69 232) -100%
Profit / (loss) before taxation (919 961) (34 280) -100%
Statement of Financial Position
Total assets 2 287 854 3 189 447 -28%
Cash and equivalents 154 107 261 516 -41%
Financial assets 1 923 1 881 2%
Current liabilities (740 085) (672 186) -10%
Non-current liabilities (783 955) (803 161) 2%
Total equity (763 814) (1 714 100) -55%
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 Head office cost relates to the costs incurred to run the Village head office. These costs include salaries to the amount of R6 million. An amount of R1.5 million relating
to the planned retrenchment fees are included in these costs. The Retrenchments were settled in July 2013.
3 General and admin costs relate to administrative costs such as legal fees, training of employees and insurance premiums.
4 Fair value from continuing operations relates to the investment in Continental Coal Limited. The 16.34% investment in Continental Coal Limited is accounted for on a
mark-to-market adjustment based on the share price on the last day of the reporting period.
5 Other income includes a fee amounting to R2.5 million from Continental Coal which is part of the share placement agreement. MQA grants amounting to R1 million was
received in the quarter. Scrap sales amounting to R4 million are also included.
6 An amount of R469 million relates to the impairment of the Blyvoor Mine assets. An amount of R11 million is also included which relates to the accretion expense on the
rehabiliation liability and other net impairments within the Group.
7 The loss from the discontinued operation relates to the Buffelsfontein operation. It was announced that operations be ceased at Buffelsfontein. An impairment on the
assets amounting to R414 million was recognised. The Premier Perpetual Royalty liability was reversed, amounting to R182 million as production has ceased.
Continuing operations review
Tau Lekoa Gold Mine (“Tau”)
Total gold produced at Tau was 817kg (26,267oz) in Q4,2013 an increase of 26% (5,411oz) compared to the
649kg (20,865oz) produced during the previous quarter.
The improved production volumes and mining mix in the June quarter resulted in a significant improvement in
gold production through a renewed focus on the business improvement initiatives, productivity and quality
mining. Gold production during July 2013 has seen this positive trend continue.
Improved gold production, despite a lower realised average gold price of R420,839/kg compared to
R466,898/kg in the previous quarter, resulted in gold revenues being 14% higher at R344m compared to
R303m in Q3,2013. All in sustaining costs for Tau was R259m compared to R261m in the March quarter. This
improvement was achieved despite higher production volumes and R7m in increased electricity costs resulting
from higher winter tariffs in June 2013. On a per unit cost basis all in sustaining cost per kg improved by
21%,quarter on quarter, reducing from R402,816/kg in the March quarter, to R317,320/kg. The cash
generated from operations was a positive R96m for the June quarter, compared to R67m for the previous
quarter.
Cons Murch Gold and Antimony Mine (“Cons Murch”)
Cons Murch produced 1,165t of antimony and 72kg (2,299oz) of gold for the June quarter, a decrease of 19%
(268t) in antimony and 19% (507oz) in gold compared to the March 2013 quarter.
Following a solid March quarterly performance, production volumes in the June quarter were negatively
impacted by lower production from Cons Murch’s Monarch shaft due to a ventilation related stoppage and a fall
of ground in this high grade trackless section. This consequently affected run of mine tons and grade.
However, by quarter end these issues had been resolved.
Revenue decreased by 19% to R75m in Q3 compared to R93m in Q3.
Total cash costs in Q4 increased by 5% to R84m from R80m reported previously. The cash cost per tonne
increased by 21% to R1,376/t compared to R1,139/t in the March quarter mainly as a result of the decrease in
production. Cons Murch reported a cash loss of R9m in the June quarter compared to a R4m cash profit in the
previous quarter. The depressed commodity prices as well as the illegal strike during July have resulted in the
last of the interested parties withdrawing from the previously announced disposal process.
Lesego Platinum Project
A review of the completed Definitive Feasibility Study (DFS) is currently underway. The review is focussed on
right-sizing of the project as well as a review of the proposed capital expenditure. A total of R3m was spent on
the DFS during the June quarter compared to R7m in the previous quarter. These costs were capitalised to the
project.
Lesego is proceeding with the various licensing processes, including applications and on-going liaison with the
Department of Water Affairs for an Integrated Water Use Licence (IWUL), Department of Environmental
Affairs for submission of the Environmental Impact Assessment, and DMR for the Mining Right Application.
Eskom continues to be engaged for power options.
Discontinued Operations Review
Buffelsfontein Gold Mine (“Buffels”)
Total gold production from Buffels was 205kg (6,591oz) in Q4,2013 which decreased by 8% compared to the
222kg (7,150oz) produced during the previous quarter.
Following the regulatory announcement on 14 May 2013, all underground gold production at Buffels ceased.
The mine continued to sustain significant losses during the June quarter whilst management finalised
negotiations with the workforce and initiated the necessary actions to place the operations on care and
maintenance on 1 July 2013. Placing Buffels on care and maintenance should result in material cost savings of
some R20m per month. Management will continue to focus on further reducing the impact of remaining
pumping costs at Buffels and good progress is being made in this regard.
Gold revenue decreased by 17% to R86m compared to R104m in Q3,2013 at a realised gold price of
R420,467/kg. Village does not expect any further gold production from Buffels.
All in sustaining costs at Buffels increased quarter-on-quarter by 6% to R191m from R180m in Q3,2013.
Included in the cost is an initial amount of R6m paid for voluntary retrenchments. On a per unit basis, all in
sustainable costs increased to R932,345/kg from R809,148/kg in Q3. Buffels incurred a cash operating loss of
R86m for the quarter compared to R65m loss reported previously.
Blyvooruitzicht Gold Mine (“Blyvoor”)
Total gold production from Blyvoor, at 354kg (11, 381oz) in Q4, was 19% lower than the 438kg (13,985oz)
produced during Q3.
The underground gold production momentum achieved during the latter part of the March quarter was not
sustained during the current quarter. Production was initially negatively impacted by the flooding of most of the
working areas at the number 5 shaft during April 2013. The mining mix was negatively impacted by the
underground seismic events and constraints in the underground shaft and hoisting infrastructure. Development
activities into new mining areas resulted in a decrease in the overall grade. The surface gold operations
continue to generate positive free cash flows. However, the continued losses from the underground operations
have placed the viability of Blyvoor under scrutiny. A decision was taken by the Village Board to suspend all
financial support to Blyvoor post quarter end.
Due to the recurring losses incurred at the Blyvoor operations, the weak commodity prices coupled with rising
costs and a series of recent operational infrastructure challenges, management of Village has decided to
impair the assets of Blyvoor by an amount of R469m.
Gold revenue decreased by 26% to R150m in Q4 compared to R204m in Q3.
All in sustainable costs at Blyvoor increased quarter on quarter by 4% to R239m from R230m in the previous
quarter. Cash operating loss increased to R88m in Q4,2013 from a cash operating loss of R24m. Sustainability
costs per kilogram increased by 28% to R674,377/kg compared to R526,782/kg achieved during the March
2013 quarter.
Contacts
Village CEO: Bernard Swanepoel
Email: bernard@2tp.co.za
Sponsor
Java Capital
CEO Tele-conference call
2 August 2013
15h00 [GMT+1]
Live Call Access Numbers
South Africa (Toll-Free) 0 800 200 648
UK (Toll-Free) 0808 162 4061
US (Toll-Free) 1 866 652 5200
Other Countries (Intl Toll) +27 11 535 3600
Other Countries – Alternate +27 10 201 6616
Playback Access Numbers code – 25464#
South Africa (Telkom) 011 305 2030
Other countries +27 11 305 2030
UK (Toll-Free) 0 808 234 6771
Canada and USA (Toll) 412 317 0088
Please note that a recording of the conference call will also be made available on www.villagemainreef.co.za
after the call.
2 August 2013
Sponsor
Java Capital
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