Wrap Text
Key features: six months ended 31 December 2013
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
21 February 2014
VILLAGE MAIN REEF RESTRUCTURING COMPLETE,
FOCUS NOW ON STRENGTHENING BALANCE SHEET
Key features: six months ended 31 December 2013
- Despite the strike at Cons Murch, gold production from continuing operations increased by 2% to
2,030kg (65,264oz) for the six months ended 31 December 2013 compared to 1,987kg
(63,882oz) reported previously.
- Revenue was negatively affected by the lower realised average gold price of R421,701/kg
compared to R452,188/kg for the six months ended December 2012, a decrease of 7%.
- Antimony production was 1,289t for the six months ended 31 December 2013 compared to 2,728t
for the six months ended 31 December 2012, a decrease of 53%, which was a direct result of the
impact of the unprotected strike at Cons Murch in July 2013.
- All-in cost at Tau Lekoa for the six months ended 31 December 2013 amounted to R617 million
compared to R571 million for the six months ended December 2012, an increase of 8% year-on-
year. On a per unit cost basis, the increase amounted to 3%, at R321,220/kg or $999/oz to
R310,926/kg or $1,033/oz, realizing a profit margin of 24%.
- Cash operating profit of R198 million from continuing operations for the six months ended 31
December 2013 compared to R324 million for the six months ended 31 December 2012, mainly
due to the impact of the unprotected strike at Cons Murch, lower gold and antimony prices and
annual cost increases.
- Basic and headline earnings per share from continuing operations of 12.07 cents and 14.55 cents
per share respectively, compared to 25.68 cents per share for the six months ended 31
December 2012, an decrease of 53% and 43% respectively.
- Significant improvement in the net asset value per share of 118.8 cents per share, compared to
79.85 cents per share as at 30 June 2013, an increase of 49%, reflecting the positive effects of
the restructuring, the placing of Buffels on care and maintenance and the deconsolidation of
Blyvoor from the results.
Quarter ended December 2013
- Following a record performance in the September 2013 quarter, gold production at Tau
decreased from 1,090kg or 35,044 oz to 831kg or 26,717 oz in the December quarter, which was
slightly lower than the planned production of 27,500 oz. With production at 1,921 kg (61,760 oz)
for the first six months of the year, Tau is on track to achieve its annual production guidance of
120,000oz
- Revenue was negatively impacted by the 4% lower realised gold price during the quarter of
R413,252/kg compared to R428,143/kg .
- Antimony production was 21% higher at 707t compared to 582t for the quarter ended September
2013, as Cons Murch recovered from the impact of the strike...
- Working costs were well managed; despite having to carrying the full cost of the South Plant
metallurgical facilities after cessation of production at both Buffels and Blyvoor, the all-in cost at
Tau Lekoa still decreased by 2% from R311 million to R306 million in the December quarter. Unit
costs, however, increased from R285,082/kg to R368,623/kg largely due to the lower production
volumes as a result of the lower recovery grades, the impact of the annual industry Christmas
break, a fatality and safety-related stoppages.
- Following a review of the current underground development plan, an exploration drilling
programme was approved which, if successful, could see the life of mine at Tau being extended
by approximately three years to 2020.
- Buffels recouped its full carrying costs in the December quarter through the disposal of assets
and equipment. The mine has successfully initiated the implementation of a care and
maintenance plan in preparation for rehabilitation and subsequent closure. Going forward, the
focus will be on minimising the costs associated with pumping of underground water whilst a
longer term regional industry solution is found.
- Blyvoor was formally placed into liquidation and a liquidator was appointed by the courts on 6
August 2013. On this date, Village effectively lost control over the operations of Blyvoor and as
such it has been deconsolidated from the Village consolidated results in the December quarter.
Events post quarter end
- The Board regrets to announce and extends its condolences to the family and friends of Mr
Sandi Lufele, following a fatality that occurred on 12 February 2014 at our Tau Lekoa mine.
Statement by the Chief Executive Officer
Village returned a much improved overall performance compared to the previous quarter and for the
six month period ended 31 December 2013. The restructuring process that was announced during
July 2013 was finally completed during the past quarter with good progress being made in minimising
the impact of Buffels, our non-producing asset. The restructuring process resulted in significant cash
outflows and our focus during the next few quarters will be on optimising operational performance,
restructuring our asset base and strengthening our balance sheet to allow for a resumption of our
growth strategy. Although the loss of production from Buffels and Blyvoor might have reduced
optionality the remainder of our assets remain highly leveraged to a change in gold price.
The operational and cost performance at our Tau mine which resulted in only an 8% and 3% increase
in all-in-costs and unit costs respectively, year-on-year, was pleasing. Following record production
during the September 2013 quarter, Tau production was slightly lower than plan during a quarter
which is amongst others typically influenced by the annual industry Christmas break. Following a
review of the current underground development plan, an exploration drilling programme was approved
which, if successful, could see the life of mine at Tau being extended by approximately three years to
2020. Quarterly updates on project progress will be provided.
Cons Murch continues to make progress in increasing production to pre-strike levels, reducing losses
from R56 million in the September quarter to a profit of R7 million in the December 2013 quarter, with
further improvements expected during the current quarter.
The costs associated with pumping and placing Buffels on care and maintenance were well
controlled, whilst we prepare the mine for rehabilitation and subsequent closure. We will continue to
evaluate alternative solutions to minimise the carrying cost of Buffels.
Village effectively lost control over the operations of Blyvoor on the 6 August, 2013 when it was
formally placed into liquidation and a liquidator appointed by the courts. Management do not expect
any further expenditure at or losses from Blyvoor.
In a significant turnaround from the September 2013 quarter in which Blyvoor and Buffels consumed
R126 million in cash, no cash outflow from these two operations was experienced during this quarter.
An amount of R25.1 million was recognised as impairment on our investment in Continental Coal.
Looking forward, the third quarter is always a difficult quarter for the industry due to the slow start up,
post the festive season break. We expect a further increase in production at both our Cons Murch and
Tau operations. An investigation to minimise the cost and impact of pumping underground water at
Buffels is underway and we believe that a sustainable longer-term industry solution will be to the
advantage of all operators in the region
Financial review
Cash operating profit from continuing operations was R82 million compared to the R170 million
achieved in the previous quarter. A significant impact on the profitability of the mining activities was
the lower gold production output from our Tau Lekoa mine as well as the lower gold price received
during the quarter. On a positive note, total all-in costs were 9% lower quarter-on-quarter decreasing
from R347 million to R315 million.Gold production totalled 896kg (28,835oz) in the December quarter
which was 21% lower than the 1,133kg (36,439oz) achieved in the previous quarter on the back of
record production from the Tau operation in that quarter. Revenue was negatively impacted by the 4%
lower realised gold price during the quarter of R413,252/kg compared to R428,143/kg in the
September quarter. With production at 1,921 kg (61,760 oz) for the first six months of the year, Tau is
on track to achieve its annual production guidance of 120,000oz.With all-in cash costs of R321,220/kg
for the six months ended 31 December 2013, Tau operated at a cash profit margin of 24%.
The Financial Position of Village improved significantly as at 31 December 2013 when compared to
30 June 2013. The deconsolidation of Blyvoor, the placing of Buffels on care and maintenance and
the completion of other restructuring activities carried, saw the net asset value of the group improve to
R1.236 billion(118.82 cents per share) as at 31 December 2013, compared to R831 million as at 30
June 2013(79.85 cents per share). Current liabilities improved from R1.231 billion as at 30 June 2013
to R665 million as at 31 December 2013. Included in current liabilities is a provision for environmental
rehabilitation at Buffels of R328 million. There is R131 million in rehabilitation trust funds and a
reimbursive asset of R115 million, both shown under non-current assets, to cover the rehabilitation at
Buffels. As noted significant progress has been made assessing the final costs of rehabilitation at
Buffels and we believe that this liability will be reduced in the future.
Shareholders are referred to the withdrawal of cautionary announcement dated 3 December 2012
wherein shareholders were advised that the Company had successfully established a R1 billion
domestic medium term note program ("DMTN") to be listed on the JSE.
Village did not seek to issue any notes under the program during January 2013 due to the market
circumstances at the time. As part of the establishment of the facility, Global Credit Ratings
(Proprietary) Limited reviewed the Company's activities and awarded Village a BBB stable credit
rating at the time. This credit rating has since been downgraded to a B negative rating.
Shareholders are advised that Village's gearing is low and the Company has no intention of issuing
new debt under the DMTN.
The Village cash balance at 31 December 2013 was a positive R157 million, of which R81 million is
restricted to cover rehabilitation guarantees. Village generated R55 million in cash from operations of
which R40 million was spent on development activities, and R34 million was utilised to fund working
capital requirements, the net effect being that the Group utilised R20 million of cash during the
quarter. From a cash flow perspective, Village was in a break even position in the previous quarter
after having funded cash requirements of R126 million related to the restructuring activities at Buffels
and Blyvoor.
The table below sets out the unaudited results of the operations for the quarter and half year ended
31 December 2013
VILLAGE MAIN REEF LIMITED Unaudited Unaudited Variance Unaudited Unaudited Variance
SELECTED FINANCIAL INFORMATION 6 month ended 6 month ended
6 months 2013 31 December 30 September Dec 2013 vs
31 December 31 December vs 6 months 2012 2013 2013 Sep 2013
2013 2012 % R'000 R'000 %
R'000 R'000
Statement of Comprehensive Income
Continuing operations
Revenue 914 384 1 015 073 -10% 397 372 517 012 -23%
Total cash cost(1) (662 774) (603 198) -10% (315 314) (347 460) 9%
Total cash operating profit / (loss) 251 610 411 875 -39% 82 058 169 552 -52%
Production-related depreciation (56 137) (88 728) 37% (28 920) (27 217) -6%
Operating profit / (loss) from mining activities 195 473 323 147 -40% 53 138 142 335 -63%
Non-production related depreciation (3 217) (2 099) -53% (1 735) (1 482) -17%
Other income(5) 5 017 17 565 71% 1 881 3 136 -40%
Share option costs (3 194) (7 924) 60% (3 194) - -100%
Head office costs(2) (23 490) (28 143) 17% (10 584) (12 906) 18%
General administrative and overhead expenditure(3) (34 022) (18 522) -84% (20 001) (14 021) -43%
Profit / (loss) from operations before interest and taxation 136 567 284 025 -52% 19 505 117 062 -83%
Fair value adjustments(4) (354) (21 600) 98% 229 (583) 100%
Impairment of assets & loans & movement in environmental rehab liability(6) (27 166) - -100% (26 875) (291) -100%
Foreign exchange gains / (losses) (10) (14 306) 100% (10) - 0%
Net finance income / (charges) 2 803 4 905 -43% 1 349 1 454 -7%
Profit / (loss) before taxation from continuing operations 111 840 253 024 -56% (5 802) 117 642 -100%
Profit/(Loss) from discontinuing operations(7) 298 458 (233 499) 100% 449 330 (150 872) 100%
Profit / (loss) before taxation 410 298 19 525 100% 443 528 (33 230) 100%
Taxation (596) - -100% (596) - -100%
Profit / (loss) after taxation 409 702 19 525 100% 442 932 (33 230) 100%
Basic earnings/(loss) per share from continuing operations 12.07 25.68 -53% (0.67) 12.74 -100%
Basic earnings/(loss) per share from discontinued operations 22.25 (19.76) -213% 36.66 (14.42) 100%
Headline earnings/(loss) from continuing operations 14.55 25.68 -43% 1.99 12.55 -84%
Headline earnings/(loss) from discontinued operations (28.95) (19.75) 47% (12.38) (16.57) 100%
Net Asset Value Per share 118.82 177.44 -33% 118.82 76.65 55%
Statement of Financial Position
Total assets 2 173 866 3 325 379 -35% 2 173 866 2 338 082 -7%
Cash and equivalents 193 598 352 573 -45% 193 598 176 714 10%
Financial assets 16 204 20 701 -22% 16 204 36 943 -56%
Current liabilities-(8) (665 247) (641 024) -4% (665 247) (1 145 552) 42%
Current liabilities(excluding Rehabilitation Provision) (337 713) (360 576) 6% (337 713) (818 018) 59%
Non-current liabilities (272 100) (894 527) 70% (272 100) (394 807) 31%
Total equity (1 236 519) (1 789 828) -31% (1 236 519) (797 724) 55%
*- In the 6 months ended December 2012, 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. The restructuring of the head office has led to substantial cost savings. In the quarter ended 31 December 2013, the last
fees with regards to the restructuring were paid.
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 Algold. In the current quarter Village was issued Algold shares for the FIU shares.
5- No dividends were received from FIU in the 6 months ended 31 Dec 2013.
6- An amount of R1.7 million relating to accretion is included in this amount. An amount of R25.1 million was recognised as an impairment in the second quarter, relating to the investment in Continental
Coal Ltd.
7- The loss from discontinued operations includes both Buffelsfontein and Blyvoor operations. In the current quarter Buffels, from a cash perspective, broke even due to the asset disposal process.
Village lost control of Blyvoor and Blyvoor was deconsolidated, a profit amounting to R 449 million was recognised in the quarter.
8- The balance includes an amount of R327 million , which relates to the Buffelsfontein rehabilitation provision. An amount of R131 million is held in a trust fund for rehabilitation purposes.An amount of
R115 million is included in Total assets as a Reimbursive asset that should be offset against the Provision amount.
Quarterly operational review for the period ended 31 December 2013
GOLD Q2 FY 2014 Q1 FY 2014 ANTIMONY Q2 FY 2014 Q1 FY 2014
Tau Lekoa Tau Lekoa Cons Murch Cons Murch
Tons milled - underground 219 782 262 462 Tons milled 51 877 39 960
Recovered grade - Au g/t 3.8 4.2 Recovered grade - Au g/t 1.27 1.08
Gold produced underground - kg 831 1 090 Gold produced underground - kg 65 43
Gold produced surface - kg - - Recovered grade - Sb % 0.81 0.87
Gold produced - total oz 26 717 35 044 Gold produced - oz 2 118 1 395
Gold produced - total Kg 831 1 090 Antimony produced - tonnes 707 582
Realised gold price - R/kg 413 252 428 143 Realised antimony price - R/t 36 473 46 633
Cash cost/kg 346 393 266 318 Cash cost - R/ton(1) 1 001 2 056
All-in cost/kg(2) 368 623 285 082 Notional cash cost - R/ton(1) 1 418 2 284
Cash cost $/oz 1 063 830 Cash cost - $/ton(1) 99 130
All-in cost $/oz(2) 1 147 887 Notional cash cost - $/ton(1) 142 184
(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.
Tau Lekoa Gold Mine
Following the record gold production in the September quarter, total gold produced was 24% (8,326
oz) lower at 831kg (26,717 oz) ,compared to the 1,090kg (35,043 oz) produced during the September
quarter. This lower gold production, together with a decrease in the average gold price received for
the period, resulted in gold revenues being 26% lower, at R343 million (September quarter, R467
million). The cash generated from operations was significantly lower at R56 million compared to the
R145 million for the previous quarter.
The lower production can largely be attributed to lower recovery grades, safety-related stoppages and
the fatal accident that occurred during the quarter; in total 106kg can be attributed to safety related
stoppages. The quarter was also impacted by the annual industry Christmas break and safety
shutdown procedures. To address the potential loss from safety stoppages, management has
embarked on a safety awareness programme which has already started positively impacting on the
overall performance at Tau.
The realised rand per kilogramme gold price achieved during the quarter, of R413,252/kg was 4%
lower than the R428,143/kg achieved during the September quarter. All-in costs for Tau were well
controlled at R306 million and were lower than the R311 million in the September quarter. On a per
unit cost basis all-in cost increased quarter-on-quarter, rising from R285,082/kg in the September
quarter, to R368,623/kg.
Cons Murch Antimony and Gold Mine
Revenue increased by 8% to R54 million in the December quarter compared to R50 million in the
September quarter. Notional cash costs decreased by 19% to R74 million in the quarter from R91
million in the previous quarter. The notional cash cost per tonne decreased by 38% to R1,418/t
compared to R2,284/t in the September quarter as a result of higher production. Cash operating
losses decreased from R56 million to a profit of R7 million for the period under review.
Cons Murch produced 707t of antimony and 66kg (2,118oz) of gold for the December quarter, an
increase of 21% (125t) in antimony and a 52% increase (723oz) in gold compared to the September
2013 quarter. This was achieved on the back of a 30% improvement in volumes, post the strike,
mainly driven by steady performance from the high volume and high gold grade Monarch shaft. This
consequently also led to an 18% improvement in gold recovered grades, hence the increase in total
gold production.
The increase in antimony production was, however, restricted by lower volumes from the high
antimony grade Athens shaft as a result of a winder breakdown and some ground control issues
(scaling) which all significantly affected antimony grades. This effectively resulted in a lower than
planned antimony production from this shaft, which accounts for 25% of the mine's revenues. These
engineering infrastructure issues have since been addressed and mitigating actions in relation to
grade control issues have been undertaken.
Management believes that Cons Murch has made good progress towards normalising industrial
relations and production stability and the March 2014 quarter should yield improved results. Key focus
areas for the new quarter are the increase in development at Athens shaft and restarting the
Gravelotte shaft to create mining and grade flexibility. Overall, we expect to see an improvement in
production unit costs through labour productivity and cost efficiency improvement initiatives.
Buffelsfontein Gold Mine
Buffels ceased production and was placed on care and maintenance on 14 May 2013. In the current
quarter, Buffels benefited from the asset and equipment disposal programme initiated on the mine,
which led to the mine delivering a small positive cash contribution to treasury compared to the
planned estimated R21 million quarterly carrying costs. Significant progress has been made in
estimating the final costs of rehabilitation at Buffels and management has initiated a programme to
engage with all related parties to enable the start of successful rehabilitation and closure. Current
indications are that Buffels is adequately funded for the rehabilitation programme.
Management is also engaging with all affected parties to determine and implement actionable
solutions to minimise the impact of the underground water pumping costs on the Buffels cost base.
Blyvooruitzicht Gold Mine
During the previous quarter, Village suspended all financial support to Blyvoor and the Blyvoor Board
applied for provisional liquidation. The courts appointed a liquidator on 6 August 2013. On this date,
Village effectively lost control over the operations of Blyvoor and as such it has been deconsolidated
from the Village consolidated results during the December quarter.
Management do not expect any further losses from Blyvoor.
Lesego Platinum Project
Lesego Platinum is in the process of completing a Preliminary Economic Assessment of a medium-
sized mine with a scheduled run-of-mine of 100,000 tonnes per month, mining both the UG2
Chromitite and the Merensky Reef from a depth of 350m to 1,200m. This allows for a significantly
reduced funding requirement in comparison to the completed Definitive Feasibility Study (DFS) which
exploited the 39 million ounce ore body from a depth of 350m down to 2,350m at a rate of
approximately 300,000 tonnes per month.
This approach has resulted in a better Internal Rate of Return than was achieved in the Definitive
Feasibility Study.
Village is also pleased to announce that the Limpopo Department of Economic Development,
Environment and Tourism has accepted the final Environmental Impact Assessment Report as part of
the required environmental authorisation process in terms of the National Environmental Act of 1998
and approval in terms of the National Environmental Management Act of 2008 is expected during the
third quarter of the 2014 financial year.
Contacts
Village CEO: Ferdi Dippenaar; ferdi@villagemainreef.co.za
Village CFO: Clinton Halsey; chalsey@villagemainreef.co.za
Village Media and Investor Relations: Russell and Associates
Sponsor
Bravura Capital (Pty) Ltd
CEO Tele-conference call
21 February 2013
15h00 [GMT+2]
Live Call Access Numbers
Other Countries (Intl Toll) +27 11 535 3600
Other Countries - Alternate +27 10 201 6800
South Africa (Toll-Free) 0 800 200 648
South Africa - Cape Town 021 819 0900
South Africa - Durban 031 812 7600
South Africa - Johannesburg 011 535 3600
South Africa - Johannesburg Alternate 010 201 6800
USA and Canada (Toll Free) 1 855 481 5362
Playback Access Numbers code – 29068#
Other Countries (Intl Toll) +27 11 305 2030
South Africa (Telkom) 011 305 2030
USA and Canada (Toll Free) 1 855 481 5363
Please note that a recording on the conference call will also be made available on www.villagemainreef.co.za
after the call.
Date: 21/02/2014 09:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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