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Send  Print  Share  RSS  Twitter  19 Aug 2009

RESULTS: Simmers

 
OVERVIEW
Simmers today announced its financial results for the quarter ended 30 June 2009 (Q1 FY2009) as detailed in the latest Management Discussion and Analysis (MD&A), which can be found on the company`s website.
In February 2009, Simmers acquired the Tau Lekoa mine from AngloGold Ashanti.
The deal is subject to a number of conditions precedent and Simmers expects to take ownership in January 2010. The reduction of Simmers` holding in First Uranium Corporation Limited (First Uranium) to below 50% in March 2009 changed the relationship between Simmers and First Uranium from that of subsidiary to an associate company. Consequently First Uranium was equity accounted for as an investment in an associate from March 2009 onwards rendering comparisons between Q4 FY2009 and Q1 FY2010 meaningless, especially when comparing items in the Statement of Comprehensive Income. For information on First Uranium`s year end results, please refer to the MD&A and annual financial statements for the quarter ending 30 June 2009 on their website hosted at www.firsturanium.com
Highlights:
- Fatality-free quarter
- Group (at 100%) produced 46 589 ounces (1 449 kg) of gold compared to the 48 298 ounces (1 502kg) in Q4 FY2009
- Group unit cash costs increased from R246 817/kg in Q4 FY2009 to R279090/kg
- Group revenue decreased from R372 million to R252 million as a result of the negative impact of the strong rand on the gold price, marginally reduced volumes and a change in the accounting treatment from March 2009 onwards which excluded any revenue from First Uranium in Q1
- Revenue from Simmers` wholly-owned gold operations decreased 17% from R304 million to R252 million as a result of a 16% reduction in the gold price received and a 2% decrease in gold production
- Gross proceeds of R289 million raised for the fast-tracking of theWeltevreden project
- First batch of ammonium diuranate ("yellowcake") produced at Ezulwini Mine
- Final commissioning of the first of two streams of the Ezulwini Mine`s 100 000 tonne per month uranium plant completed
- Mine Waste Solutions (MWS) secures guaranteed supply of sulphuric acid to MWS for a 36-month period
- Bought deal financing raises gross proceeds of Cdn$106.8 million for acceleration of pressure leach at MWS
- First Uranium enters into a letter of intent to supply Eskom with uranium for its Koeberg nuclear power station
During Q2 FY2010 the group aims to:
- Continue with the rationalisation process aimed at buffering Simmers` gold operations from the stronger rand
- Revise life of mine plans for the Simmers wholly-owned gold operations
- Complete the third and final phase of the rehabilitation of BGM`s high grade Number Five shaft
- Continue with integration plans for Tau Lekoa
- See the benefits of the newly commissioned Mini Float at BGM aimed at boosting low-cost surface production
- Expand the Elandsdrift heap leach pad at TGME
- Begin surface production from TGME`s Vaalhoek rock dump
- Provide a credit facility of R160 million to First Uranium
- Execute the new order mining right granted by the Department of Mineral Resources to MWS;
- Proceed with the establishment of MWS` new tailings deposition site following formal approval of the site by the North West Province Department of Agriculture, Conservation and
Environment in July 2009
STATEMENT BY THE CHIEF EXECUTIVE OFFICER
"In common with many South African miners, the unexpected strength of the local currency has impacted negatively on earnings in the first quarter of the 2010 financial year.
At Buffelsfontein Gold Mine (BGM), the strong rand impacted on the marginal mine`s road to recovery. Having posted two good quarters, the loss from mining activities in the current quarter means that the rationalisation process that began in November last year was intensified and has resulted in the closure of Number 12 shaft. This will cut almost 90% of the overhead costs associated with running this shaft, while the high grade material
previously mined from 12 shaft will now be hoisted through Number 10 shaft.
BGM will continue to rationalise unprofitable shafts and sections until such time as the mine returns to profitability at the current rand gold price.
It should be noted however that BGM`s risk profile is about to improve substantially due to three new sources of production which are expected to come on line before the end of the current financial year, namely, the introduction of the Mini Float project which was commissioned in July 2009 to treat low-cost surface waste rock; the completion of the rehabilitation programme of the high grade Five Shaft which is on track for September 2009;
and the addition of higher-grade tonnage from Tau Lekoa from January 2010 to unscheduled safety stoppages as a result of the North West regional office of the Department of Mineral Resources issuing three Section 54 Notices following routine inspections. These were all uplifted in a relatively short space of time, following presentations by the general manager to the regional head of the Department. At current gold prices, had these kilograms been
produced, BGM`s operating loss (before non-cash production related expenditure) of R2.9 million would have reverted to an operating profit of R3million.
In order to mitigate the impact of the strong rand, the focus for the remaining two quarters remains squarely on cash preservation through the controlling and cutting of costs until such time as higher tonnages at better grades lead to improved cash generation.
For the underground trial-mining project at Transvaal Gold Mining Estates (TGME), the strong rand compounded a loss-making situation created by ongoing permitting delays. In July we took steps to curb the cash burn at TGME by temporarily suspending underground operations until such time as all four of the mine`s heap leach pads are up and running. Originally, these four low-cost surface projects were intended to subsidize the development of the underground operations until such time as BIOX technology could be tested on all underground targets, and we`d improved the confidence levels of our underground reserves. The roll-out of these surface projects has taken much longer than anticipated, primarily due to the complexity of the permitting process. This is tremendously frustrating and very sad as it means the loss,
albeit temporarily, of 270 jobs in an area plagued by high rates of unemployment. In the interim we will continue development of Frankfort Mine`s high grade B Block to allow the viability of the underground operations to be re-evaluated at a higher rand gold price.
First Uranium, which released its first quarter results on Friday 14 August 2009, is on course with its key goals for FY2010, and continues to advance the construction of its third gold plant and first two uranium plants at its MWS tailings recovery operation and accelerate the underground development at its Ezulwini Mine to feed the recently completed gold and uranium plants. As a result of spending on investments to increase uranium and gold production, First Uranium posted a net loss for the quarter of US$33.3 million or US$0.22
per share. The substantial increase in the consolidated loss was primarily due to the gross loss incurred at the Ezulwini Mine, which is continuing to ramp up its underground development to fill its underutilized uranium and gold plants, combined with the significant foreign exchange loss on translation during the quarter.
Significant to the future success of First Uranium, was the progress made regarding necessary permits and approvals related to its MWS operation. In July 2009, First Uranium received formal approval from the North West Province Department of Agriculture, Conservation and Environment for the new tailings deposition site, thus enabling MWS to proceed on schedule with construction of this tailings facility for completion in Q1 FY 2011. In addition, the Department of Mineral Resources granted MWS a `new order` mining right, which signals their approval of the operation`s Environmental Management Plan and its Social and Labour Plan, thus establishing a firm foundation for the future of this operation.
In turn, the Ezulwini Mine has recently completed its currently-identified capital projects and is accelerating underground development to drive increases in the production of uranium and gold and we expect this operation to turn cash positive in Q3 FY2010,First Uranium believes that its cash resources of US$123 million at 30 June 2009 and the cash forecasted to be generated from the sale of gold and uranium from both its operations, together with a one-year term credit facility of R160 million provided by Simmers, will provide sufficient funding to complete the current capital projects at the two operations which are expected to cost US$266 million.
Should management in future determine that the funding is not sufficient, First Uranium will at that time look to a potential new South African project financing facility, if it is available, or reprioritize development and expansion activities to reduce potential funding requirements.
In terms of the First Uranium production update also issued on Friday 14 August 2009, commissioning of a second gold plant module at MWS has begun and, once fully commissioned, is expected to more than double MWS`s low-cost gold production from 43 100 ounces to approximately 100 000 ounces per annum.
With the commissioning of its first uranium plant in the first quarter, First Uranium is well positioned to fulfil its vision to be a long-term low-cost producer of both gold and uranium."
SUMMARISED FINANCIAL OVERVIEW - Q1 FY2010
For Q1 FY2010 the group produced 46 589 ounces (1 449 kg) compared to 48 298
ounces (1 502 kg) in Q4 FY2009.
The reduced volumes also impacted on total unit cash costs which rose 13% for the group (at 100%) from 246 817/kg to 279 090/kg. Of the 46 589 ounces (1 449 kg) produced in the quarter, 32 994 ounces (1 026 kg) is attributable to Simmers Gold Division. This is compared to 33 605 ounces (1 045 kg) in Q4 FY2009.
Revenue for Simmers Gold reduced from R304 million to R252 million for the quarter. This is primarily due to the stronger rand which resulted in a 16% drop in the rand gold price, quarter on quarter. Volumes were also down 2% due to a drop in surface production at BGM and lower-than anticipated production levels from TGME.
The quarter on quarter variances are not comparable because of First Uranium`s subsidiaries being accounted for as associate companies for the full quarter in Q1FY2010. For example, no revenue from First Uranium was included in the group figures in Q1FY2010, whereas Q4FY2009 reflects two months` revenues from First Uranium. Similarly, this change in accounting
treatment affects all line items in the Statement of Comprehensive Income.
The Q4 FY2009 results also reflect the accounting treatment following the once-off gain from the partial sale of First Uranium shares which amounted to R3.2 billion, rendering a quarterly comparison meaningless.
As at 30 June 2009, Simmers reported total assets of R4.3 billion, total liabilities of R590 million, shareholders` equity of R3.75 billion, cash and cash equivalents of R1.02 billion compared to R842.7 million at year end.

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