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VILLAGE MAIN REEF LIMITED - Report For The Quarter Ended 30 September 2013 (Q1, FY2014)

Release Date: 30/10/2013 08:00
Code(s): VIL     PDF:  
Wrap Text
Report For The Quarter Ended 30 September 2013 (Q1, FY2014)

VILLAGE MAIN REEF LIMITED
(formerly Village Main Reef Gold Mining Company (1934) Limited)
(Incorporated in the Republic of South Africa)
(Registration number 1934/005703/06)
JSE code: VIL   ISIN: ZAE000154761
("Village" or "the Company" or "the group")

For immediate release

VILLAGE MAIN REEF LIMITED

REPORT FOR THE QUARTER ENDED 30 September 2013 (Q1, FY2014)

30 October 2013:

Key features
- Record gold production at Tau with more than a 1,000kg produced, up 33% quarter on quarter, from
  817kg (26,267oz) to 1,090kg (35,044oz).
- Tau Lekoa generates cash of R156 million for the quarter.
- Gold production costs from continuing operations down 11% from R317,320 p/kg to R285,082 p/kg.
- Basic earnings from continuing operations of 12.11 cents per share for Q1.
- Losses from Buffels materially reduced after it was placed on care and maintenance after 16
  August 2013.
- Blyvoor placed in provisional liquidation, resulting in no further future losses from this operation.
- Labour situation at Cons Murch finally normalised and production returning to planned levels.

Events post quarter end
- A fatality in the timber yard at Tau Lekoa occurred on 11 October 2013. The Board extends its
  condolences to the family and friends of Mr Frans Mkhwanazi.

Statement by the Chief Executive Officer
Ferdi Dippenaar, Chief Executive Officer, commented: "From an operational perspective, Village is
pleased with the production achieved at our flagship Tau Lekoa mine which showed further
improvements on the June quarter. Our challenge will be to maintain the momentum going into what is
normally a difficult time of the year.

"The restructuring process at our Buffels operation was completed with the mine being placed on care
and maintenance on 16 August 2013 when the initial retrenchment process was concluded. Due to the
timing involved, Buffels still incurred substantial electricity and labour costs in the quarter which are
expected to decrease in the current quarter to levels of approximately R7 million a month.

"Following the granting of the provisional liquidation order at Blyvoor on 6 August 2013, Blyvoor has
been classified as a discontinued operation. As Blyvoor remained fully operational during July 2013
prior to the granting of the provisional liquidation order, the operation incurred a loss of R46 million.
Management does not expect any further losses from Blyvoor.

"Our focus on ensuring that we generate positive free cash flows from our operations whilst not unduly
subsidising non-performing assets is delivering the planned results. Some work still remains to be done
at limiting pumping costs at Buffels and with production from Cons Murch expected to increase we are
confident that these measures will have a positive impact on the Q2, 2014 FY results."

Performance for the first quarter ended 30 September 2013
Gold production from continuing operations totalled 1,133kg (36,439oz) in the September quarter, an
improvement of 27% over the 889kg (28,581oz) achieved during the June quarter, mainly as a result of
record production from our Tau Lekoa operation. Antimony production of 582t in Q1 was 50% or 583t
lower than in Q4. Lower production at Cons Murch was a direct result of the unprotected labour action
at the mine during July 2013 and the slow start-up post the strike, followed by the dismissal of the
employees that were involved in the unprotected strike action. Production will be at planned levels by
end October, 2013. The continuing operations generated a profit of R117 million for the quarter.

As reported in the previous quarter, Buffels was placed on care and maintenance on 16 August 2013
and classified as a discontinued operation for accounting purposes. Buffels incurred costs of R60
million during the quarter which was mainly related to electrical power costs of R27 million, to ensure
that the pumping obligations were met, and R20 million in salary costs before the retrenchment process
was concluded. Costs at Buffels have already started to reduce and, during September 2013, costs of
R7 million were incurred as part of the care and maintenance programme. Management expect costs to
stabilise at this level going forward as Buffels is being prepared for closure.

Following the granting of the provisional liquidation order at Blyvoor on 6 August 2013, Blyvoor has
been classified as a discontinued operation. As Blyvoor remained fully operational during July 2013
prior to the granting of the provisional liquidation order, the operation incurred a loss of R46 million.
Management do not expect any further losses from Blyvoor.

Tau Lekoa generated cash of R156 million for the quarter. Unfortunately the positive cash generated by
Tau was reduced by the cash losses sustained at Blyvoor and Buffels and the funding of the operating
losses at Cons Murch resulting from the lower production, leaving the Group in a cash neutral position
from a cash generation perspective. Management is confident that this will not be the case going
forward as losses from both Blyvoor and Buffels have been addressed and Cons Murch is returning to
normalised operational levels.

All-in sustaining costs from continuing gold mining operations increased by 20% to R311 million in Q1
compared to R259 million in Q4 (excl Blyvoor). On a per kilogram basis, all-in sustainable costs from
continuing gold mining operations were at R285,082/kg compared to R317,320/kg (excl Blyvoor) in the
previous quarter, a reduction of 10%.

The cash balance at 30 September 2013 was a positive R177 million, of which R81 million is restricted.
The restricted cash is for the commitments to the Department of Mineral Resources in relation to
rehabilitation guarantees.

             GOLD                Q1 FY 2014  Q4 FY 2013              ANTIMONY            Q1 FY 2014   Q4 FY 2013

                                  Tau Lekoa   Tau Lekoa                                  Cons Murch   Cons Murch
     Tons milled - Surface                -           -                                           -            -
  Tons milled - underground         262 462     231 498            Tons milled               39 960       61 022
   Recovered grade - Au g/t             4.2         3.5      Recovered grade - Au g/t          1.08         1.17
Gold produced underground - kg        1 090         817
  Gold produced surface - kg              -           -       Recovered grade - Sb %           0.87         1.12
   Gold produced - total oz          35 044      26 267          Gold produced - oz           1 395        2 299
   Gold produced - total kg           1 090         817      Antimony produced - tonnes         582        1 165
   Realised gold price - R/kg       428 143     420 839    Realised antimony price - R/t     46 633       38 029
   All-in Sustaining cost/kg        285 082     317 320         Cash cost - R/ton 1           2 056        1 376
        All-in cost/kg2             285 082     317 320       Notional cost - R/ton 1         2 284        1 507

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 is confident that costs from Buffels will be materially lower during Q2 FY2014, and in line with
what was communicated to the market at around R7 million per month. The company is working closely
with the relevant regulatory authorities to find a long-term solution to addressing the pumping
challenges and associated costs facing the remaining mining companies in that region. Village should
incur no further costs related to Blyvoor during this quarter. The main focus for this quarter will be to
restore Cons Murch to profitability, whilst maintaining costs and production at Tau at planned levels. It
is anticipated that Village will generate strong cash flow at current gold prices during this quarter.

Financial review
The table below sets out the unaudited results of the operations for the quarter ended
30 September 2013:

                                                                                                 Unaudited         Variance
                                                                             Unaudited *                Q4   Q1 2014 vs. Q4      Unaudited        Variance
VILLAGE MAIN REEF LIMITED                                                              Q1           FY2013             2013             Q4  Q1 2014 vs. Q4
SELECTED FINANCIAL INFORMATION                                                     FY2014         (Blyvoor         (Blyvoor         FY2013            2013
                                                                                    R'000      excluded as      excluded as          R'000               %
                                                                                               continuing)      continuing)
                                                                                                     R'000                %
Statement of Comprehensive Income
Continuing operations
Revenue                                                                           517 012          418 613              24%        569 124             -9%
Total cash cost 1                                                               (347 460)        (313 717)             -11%      (547 430)             37%
Total cash operating profit / (loss)                                              169 552          104 896              62%         21 694            100%
Production-related depreciation                                                  (27 217)         (30 339)              10%       (32 525)             16%
Rehabilitation expenses                                                                 -                -               0%        (1 658)            100%
Operating profit / (loss) from mining activities                                  142 335           74 557              91%       (12 489)            100%
Non-production related depreciation                                               (1 482)            (849)             -75%          (919)            -61%
Other income 5                                                                      3 136            5 695             -45%          7 837            -60%
Share option costs                                                                      -          (1 884)             100%        (1 884)            100%
Head office costs 2                                                              (12 906)          (9 491)             -36%        (9 491)            -36%
General administrative and overhead expenditure 3                                (14 136)          (7 607)             -86%       (11 476)            -23%
Profit / (loss) from operations before interest and taxation                      116 947           60 421              94%       (28 422)            100%
Fair value adjustments 4                                                            (583)         (47 469)              99%       (47 469)             99%
Impairment of assets & loans & movement in environmental rehab liability 6          (291)         (23 996)              99%      (479 638)            100%
Foreign exchange gains / (losses)                                                     116              928             -88%            928            -88%
Net finance income / (charges)                                                      1 454              251             100%            430            100%
Profit / (loss) before taxation from continuing operations                        117 643          (9 865)             100%      (554 171)            100%
Loss from discontinuing operations 7                                            (150 872)        (365 790)              59%      (365 790)           -100%
Profit / (loss) before taxation                                                  (33 229)        (375 655)              91%      (919 961)             96%

Statement of Financial Position
Total assets                                                                    2 338 083        2 287 854               2%      2 287 854              2%
Cash and equivalents                                                              176 714          154 107              15%        154 107             15%
Financial assets                                                                    1 341            1 923             -30%          1 923            -30%
Current liabilities                                                             (818 018)        (740 085)             -11%      (740 085)            -11%
Non-current liabilities                                                         (722 341)        (783 955)               8%      (783 955)              8%
Total equity                                                                    (797 724)        (763 814)               4%      (763 814)              4%

*- In the Q1 FY 2014 results, Blyvoor and Buffels have been included as discontinued operations.

Comments

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 R5 million. The increase in the current quarter
related to the costs involved in publishing the integrated report, and various consultants' costs.

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 remaining equity investment in FIU.

5 - Other income from continuing operations relates to MQA grants amounting to R2.6 million received in the quarter. Profit on sale of assets from continuing operations
amounted to R0.5 million.

6 - An amount of R1.6 million relating to accretion is included in this amount. An amount of R1.3 million was recognised as a reversal of an impairment, relating to the
investment in Continental Coal Ltd.

7 - The loss from discontinued operations include both Buffelsfontein and Blyvoor operations. Buffelsfontein realised a loss of R60 million toghether with a R25 million
impairment on remaining assets. Blyvoor realised a loss of R66 million in the quarter.

Continuing operations review

Tau Lekoa Gold Mine ("Tau")

Total gold produced at Tau was 1,090kg (35,044oz) in Q1, 2014 an increase of 33% (8,777oz)
compared to the 817kg (26,267oz) produced during the previous quarter.

A higher realised average gold price of R428,143/kg compared to R420,839/kg in the previous quarter,
resulted in gold revenues being 36% higher at R467 million compared to R344 million in Q4, 2013. All-
in sustaining costs for Tau were R311 million compared to R259 million in the June quarter, mainly due
to the higher production and re-allocation of costs associated with the restructuring of Buffels and
Blyvoor. On a per unit cost basis, all-in sustaining cost per kg improved by 11%, quarter on quarter,
reducing from R317,320/kg in the June quarter, to R285,082/kg. Record production together with
improved cost efficiencies and a higher gold price led to positive cash generated from operations of
R156 million for the September quarter, compared to R96 million for the previous quarter.

Cons Murch Gold and Antimony Mine ("Cons Murch")

Cons Murch produced 582t of antimony and 43kg (1,395oz) of gold for the September quarter, a
decrease of 50% (583t) in antimony and 39% (904oz) in gold compared to the June 2013 quarter.

Revenue decreased by 33% to R50 million in Q1 compared to R75 million in Q4. Total cash costs in Q1
decreased by only 2% to R82 million from R84 million reported previously. The cash cost per tonne
increased by 49% to R2,056/t compared to R1,376/t in the June quarter mainly as a result of the
decrease in production. Cons Murch reported a cash loss of R30 million in the September quarter
compared to a R9 million cash loss in the previous quarter.

September has been a disappointing quarter for Cons Murch as labour related issues negatively
affected production with the mine coming to a complete shutdown in the earlier part of the quarter. The
impact of the strike extended into the August and September months due to a slow production build-up
post the strike as labour was being re-allocated following a disciplinary process that led to some
dismissals. During this period, Cons Murch incurred the bulk of its planned working cost but not the
planned production. Production at Cons Murch is expected to return to planned levels by the end of
October.

This was further exacerbated by safety incidents and a mine-wide stoppage in relation to engineering
infrastructure during the month of September which consequently had a significant impact on volumes,
grade mix and unit costs. Intervention was made through a mine-wide independent audit on
engineering systems and the necessary corrective measures have been drawn up and are being
implemented.

Lesego Platinum Project

During the quarter, the company continued with a review of a number of alternatives for a smaller mine
option with a vastly reduced funding requirement whilst improving the IRR of the project. There seems
to be a strong business case for a mine producing tonnages at levels of between 50,000 and 80,000
tonnes per month whilst providing an improved IRR rather than that of the completed Definitive
Feasibility Studys mine producing at 300,000 tonnes per month.

We are also pleased to announce that the Limpopo Department of Economic Development,
Environment and Tourism (LEDET) has accepted the draft Environmental Impact Assessment Report
as part of the required environmental authorisation process in terms of the National Environmental Act
of 1998.

An amount of R1 million was spent on the project in the September quarter.

Discontinued Operations Review

Buffelsfontein Gold Mine ("Buffels")

As communicated, Buffels was classified as a discontinued operation in the previous quarter. As
anticipated Buffels would still have a cost element attached to the operation during the quarter.

Buffels lost an amount of R60 million in cash, which includes R44 million for power and water pumping
related costs, the winter tariffs having a huge impact, and further costs related to the finalisation of the
retrenchment process and the care and maintenance programme. .

The expectation is that the operating costs should decrease significantly to approximately R7 million a
month. Management is actively working with all affected parties to find a long term solution to the water
pumping challenges in that mining region.

Blyvooruitzicht Gold Mine ("Blyvoor")

Financial assistance to Blyvoor was suspended on 30 July 2013 and has therefore been classified as a
discontinued operation for the quarter ended 30 September 2013. Blyvoor only operated for the month
of July during the quarter, after which the mine was put into provisional liquidation.

Gold revenue decreased by 69% from R150 million to R47 million in the September quarter. 
The cash operating loss for the September quarter decreased from R88 million in Q4, FY 2013 to R66 million.
Gold amounting to 95kg (3,054oz) was produced, a decrease of 73% compared to production of 354kg (11,381oz) 
in the June quarter.


Contacts

Village CEO: Ferdi Dippenaar
Email:                                  ferdi@villagemainreef.co.za

Sponsor
Bravura Equity Services (Pty) Ltd

CEO Tele-conference call
30 October
15h30 [GMT+1]

Live Call Access Numbers
South Africa - Johannesburg             011 535 3600
UK (Toll-Free)                          0 800 917 7042
South Africa  Johannesburg alternate   010 201 6616
South Africa - Cape Town                021 819 0900
South Africa (Toll-Free)                0 800 200 648
Other Countries (Intl Toll)             +27 11 535 3600
USA                                     1 800 860 2442

Playback Access Numbers code  23941#
South Africa                            011 305 2030
Other countries                         +27 11 305 2030
UK (Toll Free)                          0 808 234 6771
Canada and US                           1-412-317-0088

Please note that a recording of the conference call will also be made available on
www.villagemainreef.co.za after the call.
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