Wrap Text
Difficult Quarter as Safety Stoppages Impact on Operational Performance
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
20 May 2014
DIFFICULT QUARTER AS SAFETY STOPPAGES IMPACT ON OPERATIONAL PERFORMANCE
Key features: quarter ended 31 March 2014
- Realised gold price achieved during the quarter amounted to R450,854/kg compared to R413,
252/kg, a 9% increase.
- Gold production at Tau Lekoa decreased from 831kg or 26,717 oz in the December 2013 quarter
to 647 kg or 20,801 oz in the March, 2014 quarter mainly due to a slow start up following the
December seasonal break, Section 54 safety related stoppages and a fatal accident in February.
Year to date Tau Lekoa produced 2,568 kg or 82,561 oz, and is expected to produce between
100 000 oz and 110 000 oz for the year, within annual market guidance of between 100 000oz
and 120 000 oz.
- The all-in cost at Tau Lekoa decreased by 10% from R306 million to R275 million in the March
2014 quarter. Unit costs however increased from R368,623/kg ($1,147/oz) to R424,893/kg
($1,219/oz) largely due to the lower production volumes. Tau Lekoa averaged R347, 340 /kg or
($1,047/oz) costs for the 9 months to date.
- Profit before taxation at Tau Lekoa decreased from R 40 million to R19 million for the quarter. For
the 9 months to date the profit before taxation at Tau Lekoa totalled R217 million.
- Cons Murch continues to struggle with equipment and infrastructure availability with antimony
production 5% lower at 671t compared to 707t for the previous period
- Buffels liabilities for closure and rehabilitation costs determined, indications are that the mine is
adequately funded to complete these activities.
Potential Sale
Further to the cautionary announcements published on the JSE Limited's Stock Exchange News
Service ("SENS") on 3 February 2014, 17 March 2014 and 5 May 2014, the company is currently in
negotiations to dispose of its 76.6% interest in Cons Murch. Good progress is being made in finalizing
the necessary agreements and more information will be made available on the conclusion thereof.
Statement by the Chief Executive Officer
In addition to the large number of public holidays the March quarter was adversely impacted by the
loss of 16 shifts or the equivalent of 140 kg (4,500 oz) of gold following Section 54 safety stoppage
notices and a fatal accident (which was reported on as a post quarter event in the December quarterly
report) at our Tau Lekoa mine. The mine has subsequently implemented a safety training programme
which will assist in aligning the operations with the constantly changing increased industry safety
standards. Production levels during April recovered to planned levels and this performance is
expected to continue for the remainder of the June quarter.
Cons Murch continues to struggle from the impact of ageing infrastructure and underground
equipment which resulted in lower production levels. This operation requires capital expenditure to
improve its operating efficiencies and depending on the outcome of the Cons Murch disposal process
currently underway, a proposal to address this situation is being prepared for board consideration.
We are making good progress with minimizing the carrying cost of Buffels; which has been decreased
from R7.0 million per month to R4.0 million per month. Indications are that our rehabilitation liability
will be covered by the funding available in the Buffels Rehabilitation Trust Fund. The outstanding
issue of the pumping of underground water on behalf of other operators in the region is receiving
attention and we hope to see this situation change in the near term.
Financial review
Cash operating profit from continuing mining operations was R49 million compared to the R82 million
achieved in the previous quarter. The most significant impact on the profitability of the mining
operations was the lower gold production output from our Tau Lekoa mine. Gold production totalled
696kg (22,376oz) in the March quarter which was 21% lower than the 896kg (28,807oz) achieved in
the previous quarter. Headline earnings per share from continuing operations decreased from 1.99
cents per share in the previous quarter to 1.67 cents per share in the current quarter.
The Village cash balance at 31 March 2014 was a positive R130 million, of which R81 million is
restricted to cover rehabilitation guarantees. Village utilised R3 million in cash from operations,
realised a R9 million inflow from working capital movements, and an amount of R34 million was spent
on investing activities. The net effect being that the Group utilised R28 million of cash during the
quarter. Village generated R 55 million in cash from operations in the previous quarter. The variance
was due to the lower Tau Lekoa production which accounted for R21 million of the cash generated in
Q2. In addition, Cons Murch also generated a cash loss of R 19 million in the March quarter
compared to a cash profit of R 4 million in the December quarter whilst Buffels made a cash loss of
R14 million compared to a break even in the previous quarter.
The table below sets out the unaudited results of the operations for the quarter ended 31 March 2014
Unaudited
VILLAGE MAIN REEF LIMITED 31 March 2014 Unaudited Variance
31 March 2014 31 December 2013 Mar 2014 vs. Dec 2013
SELECTED FINANCIAL INFORMATION R'000 R'000 %
Cons Murch held for sale
Statement of Comprehensive Income
Continuing operations
Revenue 291 702 397 372 -27%
Total cash cost(1) (242 225) (315 314) 23%
Total cash operating profit / (loss) 49 477 82 058 -40%
Production-related depreciation (16 084) (28 920) 44%
Operating profit / (loss) from mining activities 33 393 53 138 -37%
Non-production related depreciation (1 282) (1 735) 26%
Other income 619 1 881 -67%
Share option costs - (3 194) 100%
Head office costs(2) (10 747) (10 584) -2%
General administrative and overhead expenditure(3) (7 208) (20 001) 64%
Profit / (loss) from operations before interest and taxation 14 775 19 505 -24%
Fair value adjustments 720 229 100%
Impairment of assets & loans & movement in environmental rehab liability(4) (344) (26 875) 99%
Foreign exchange gains / (losses) - (10) 100%
Net finance income / (charges) 546 1 349 60%
Profit / (loss) before taxation from continuing operations 15 697 (5 802) 100%
Profit/(Loss) from discontinuing operations(5) (47 384) 449 330 -100%
Profit / (loss) before taxation (31 687) 443 528 -100%
Taxation - (596) 100%
Profit / (loss) after taxation (31 687) 442 932 -100%
Basic earnings/(loss) per share from continuing operations (cents) 1.73 (0.67) 100%
Basic earnings/(loss) per share from discontinued operations (cents) (5.11) 36.66 -100%
Headline earnings/(loss) per share from continuing operations (cents) 1.67 1.99 -16%
Headline earnings/(loss) cents per share from discontinued operations (cents) (6.36) (12.38) 49%
Net Asset Value Per share (cents) 115.77 118.82 -3%
Statement of Financial Position
Total assets 2 104 880 2 173 866 -3%
Non- Current Assets held for Sale 292 425 - 100%
Cash and equivalents 140 761 193 598 -27%
Financial assets 2 135 16 204 -87%
Current liabilities-(6) (566 738) (665 247) 15%
Current liabilities( excluding Rehabilitation Provision) (239 203) (337 713) 29%
Non-current liabilities (170 509) (272 100) 37%
Non- Current Liabilities held for Sale (162 799) - -100%
Total equity (1 204 834) (1 236 519) -3%
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. Costs included are Head office salaries, legal
fees, audit fees and corporate consultant fees.
(3)- General and admin costs relate to administrative costs such as legal fees, training of employees and insurance premiums.
(4)- An amount of R1.2 million relating to accretion is included in this amount. An amount of R25.1 million was recognised as
impairment in the second quarter, relating to the investment in Continental Coal Ltd. No Impairment was recognised in the
third quarter ended 31 March 2014.
(5)- Cons Murch was classified as a held–for-sale operation as a result of a disposal agreement entered into. An amount of R 31
million was recognised as a loss in the quarter from Cons Murch together with a loss of R 16 million in the quarter from the
Buffelsfontein Mine, which was placed on care and maintenance. In the previous quarter the de-recognition of the Blyvoor
operation for an amount of R 449 million was recognised as a profit.
(6)- The balance includes an amount of R327 million which relates to the Buffelsfontein rehabilitation provision, as the operation
is on care and maintenance. An amount of R131 million is held in the Buffels Rehabilitation Trust Fund. An amount of R115
million is included in Total assets as a reimbursive asset that should be offset against the provision amount.
Restatement of 30 June 2013 cash flow statement
The cash flow statement for 30 June 2013 has been restated in order to reclassify the dividend paid
of R 302.6 million from investing activities to financing activities in order to correctly reflect the
nature of the cash flow.
Operational review for the quarter ended 31 March 2014
GOLD Q3 FY 2014 Q2 FY 2014 ANTIMONY Q3 FY 2014 Q2 FY 2014
Tau Lekoa Tau Lekoa Cons Murch Cons Murch
Tons milled - underground 161 850 219 782 Tons milled 46 761 51 877
Recovered grade - Au g/t 4.0 3.8 Recovered grade - Au g/t 1.73 1.27
Gold produced underground - kg 647 831 Gold produced underground - kg 49 65
Gold produced surface - kg(3) - - Recovered grade - Sb % 1.16 0.81
Gold produced - total oz 20 801 26 717 Gold produced - oz 1 575 2 090
Gold produced - total Kg 647 831 Antimony produced - tonnes 671 707
Realised gold price - R/kg 450 854 413 252 Realised antimony price - R/t 39 219 36 473
Cash cost/kg 397 400 346 393 Cash cost - R/ton(1) 1 355 1 001
All-in cost/kg(2) 424 893 368 623 Notional cash cost - R/ton(1) 1 574 1 418
Cash cost $/oz 1 140 1 063 Cash cost - $/ton(1) 125 99
All-in cost $/oz(2) 1 219 1 147 Notional cash cost - $/ton(1) 145 140
(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.
(3)- Excluded is 9 kg production from surface sources.
Tau Lekoa Gold Mine
Total gold produced was 22% (5,916 oz) lower at 647kg (20,801 oz), compared to the 831kg (26,717
oz) produced during the December quarter. The decreased production was primarily as a result of
reduced production shifts as well as a slow start up after the December break. The mine lost 16 shifts
as a result of safety related stoppages during the quarter which equates to approximately 140 kg or
4,500 oz of gold production. In an effort to address the changes in operational environment the mine
subsequently implemented a safety training program which will assist in aligning the operations with
the constantly changing increased industry safety standards. Although more shifts were lost as every
underground team was taken out of the work environment for a day's refresher safety training, the
benefits are starting to show with production returning to planned levels in April.
The lower gold production resulted in 15% lower gold revenue amounting to R 292 million compared
to R 343 million reported in the previous quarter. The decrease in production volumes was offset by
the increase in the average gold price received. The average gold price realised for the March quarter
increased by 9% from R 413,252/kg to R 450,854/kg. The cash generated from operations was lower
at R35 million compared to the R56 million for the previous quarter.
All-in costs for Tau Lekoa amounted to R275 million and were 10% lower than the R306 million in the
December quarter. On a per unit cost basis all-in cost increased quarter-on-quarter, R 424,893/kg
($1,219/oz) in the March quarter compared to R 368, 623/kg ($1,147/oz) in the December quarter. For
the 9 months to date Tau Lekoa's all-in-costs average R 347, 340/kg ($1,047/oz)
During the March quarterly results presentation the company announced a drilling program which if
successful could extend the Life-of Mine at these operations to 2022. The drill rig has arrived on site
and is being commissioned. Drilling is planned to be completed by the end of September, 2014.
Cons Murch Antimony and Gold Mine
Despite the success in ensuring industrial relations stability and progress towards production stability
achieved in the December quarter, Cons Murch suffered major setbacks in the March quarter, related
to poor plant and trackless machinery availabilities. Major breakdowns related to drill-rigs and load
haul dump units (LHDs), occurred during the quarter, with the critical LHDs averaging 50%
availability, also exacerbated by the old age of the machines. A delay in delivery of new replacement
equipment which had been ordered earlier in the year was also experienced. During the same period
the processing plant also experienced breakdowns in the crusher section, resulting in low and
inconsistent mill-feed, which affected plant efficiencies including recoveries. As indicated earlier
Cons Murch requires a significant capital investment to deliver the planned production levels.
This effectively resulted in a 10% reduction in tons milled compared to the previous quarter and
despite the improvement in antimony head grade, the impact of both lower volumes milled and lower
plant recoveries resulted in lower antimony and gold production. Cons Murch produced 671t of
antimony and 49kg (1,575oz) of gold for the March quarter, a decrease of 5% (36t) in antimony and a
25% (515oz) in gold compared to the December 2013 quarter.
Revenue decreased by 19% to R44 million in the March quarter compared to R54 million in the
December quarter. All-in cash costs remained constant at R 74 million for the quarter with cash cost
per tonne increasing by 9% to R1, 574/t compared to R1, 418/t in the December quarter as a result of
lower production volumes. Cons Murch incurred cash operating losses amounting to R19 million
compared to a R 4 million cash profit in the previous quarter.
Buffelsfontein Gold Mine
In the March quarter Buffels realised a cash loss amounting to R14 million after proceeds from assets
sold and the treatment of surface sources totalling R11 million, which is lower than current planned
carrying cost of R 21 million per quarter. Following the introduction of underground water pumping
related cost saving initiatives we are now incurring a carrying cost of approximately R5 million a
month. We will continue to engage all parties to minimise the cost going forward.
We have also made good progress with the planning around the rehabilitation and closure of Buffels.
Contractors have commenced with the demolition of North Plant and 4 Shaft. After receiving tenders
from specialist rehabilitation contractors, current indications are that Buffels will be adequately funded
to complete the rehabilitation of the area. The current Buffels rehabilitation estimates will further be
reduced with the transfer of a R115 million rehabilitation liability, related to the disposal of the slimes
dams, to AGA's Mine Waste Solutions. This transfer process is currently underway.
Lesego Platinum Project
Lesego has completed a Preliminary Economic Assessment (PEA) which focuses on initially just
mining the upper portion of the Merensky Reef and UG2 ore bodies from a depth of 350 m to 1,200
m below surface with a mill feed of 100,000 tonnes per month. This portion of the resource
considered for mining amounts to a total plant feed of 21 million tonnes at a weighted grade of 3.94
g/t 3PGE's plus Au, giving a life of mine (LOM) for the upper portion of the ore body of 23 years.
It is estimated that it will take 3 years to reach first production, and full production is achieved in year
7 of the operation, allowing for 13 years at steady state production, whereupon the option will exist to
access a further 180 million resource tonnes with a further capital injection to either deepen the
existing shaft or sink a new shaft. Peak funding requirements are in the order of R1, 6 billion, which is
spent by year 4, and total capital required to bring this portion of the mine into steady state production
is R2,5 billion, which is achieved by year 7. Total capital requirements over the 23 year life of mine is
approximately R5,1 billion, including stay in business capital for ongoing development and mining
fleet replacement.
This high level assessment returned an IRR of 15.22% and a NPV of R710 million at a discount rate
of 10%. A Rand US Dollar exchange rate of 10.5 was used. Platinum group metal and nickel and
copper price forecasts used are in line with long term industry forecasts.
Lesego intends commencing with a pre-feasibility study based on the above results, which is
scheduled for completion in Q1 2015. Should the company decide to proceed with the building of
Lesego, a mining right application will have to be submitted by Q2, 2015.
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 Equity Services (Pty) Ltd
CEO Tele-conference call
20 May 2014
15h00 [GMT+2]
Live Call Access Numbers For Participants
Country Access Number
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
UK (Toll-Free) 0808 162 4061
USA and Canada (Toll Free) 1 855 481 5362
Playback Access Numbers
Country Access Number
Other Countries (Intl Toll) +27 11 305 2030
South Africa (Telkom) 011 305 2030
UK (Toll-Free) 0 808 234 6771
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: 20/05/2014 03:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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