Interim Results

SouthernEra Releases Second Quarter Results Shares Issued and Outstanding: 85,335,411 TSX: SUF AIM: SRE TORONTO, Aug. 16 /CNW/ - The Board of SouthernEra Resources Limited announced the following highlights from the second quarter of 2004: - Transaction closed to increase stake in Johannesburg-listed Messina Platinum to 91.5 percent; - Messina's successful first blast on mechanized long-hole stope; - Phase 2 feasibility study completed; - Continuous operations implemented at Messina; - SouthernEra awarded 41 diamond exploration permits in the Democratic Republic of Congo (DRC); - Monts de Cristal PGM/nickel/copper project in Gabon returned encouraging PGM and nickel results; - SouthernEra reported on Koumba Gold Project first phase drill results; Subsequent to June 30, SouthernEra announced shareholder approval for the re-organisation of the company into separately listed Platinum and Diamond Companies. The Company realized a net loss for the three months to June 30 of $12.2 million (16 cents per share) compared to net income of $1.2 million (2 cents per share) in the second quarter of 2003. In the current quarter, the Company incurred an operating loss of $8.4 million on revenue of $7 million versus an operating loss of $1.3 million on revenue of $0.6 million in the comparable quarter of 2003. Cash flow used in operations for the quarter was $7.9 million (10 cents per share), compared to a use of $9.7 million (16 cents per share) in the second quarter of 2003. Operations Update Progress in the quarter with development at Messina Platinum's Phase 1 Mine was satisfactory with rates having doubled since January. Production during the quarter was adversely affected by illegal industrial action and, consequently, was less than satisfactory. Encouragingly, accident rates have halved since January. This can be attributed to interventions taken by mine management since January. In the quarter Messina produced approximately 18,300 ounces of 5PGEs plus gold from 157,150 tonnes milled. The average head grade for the quarter was 4.12 grams per tonne (5PGE's+Au) and the plant recoveries were 87.9 percent. Production during the quarter was below expectations as a consequence of a number of human resources-related factors, including: - Illegal industrial action during the last week of May and first week of June; - The impact of the implementation of continuous operations; and - Continuing labour inefficiencies as a result of the relative inexperience of the workforce; Messina Platinum implemented continuous operations at the Phase 1 Mine during the quarter. The implementation of continuous operations on the shafts, engineering and support services occurred without incident during May. However, the implementation of continuous operations on development and stoping was met with some resistance as a small rival union to the main recognised union at Messina engaged in minor illegal industrial action in opposition to its implementation. This action disrupted development and production during the last week of May and the first week of June and has resulted in disciplinary action being taken against approximately 90 of Messina's 1,900 employees. Development and stoping has returned to normal and the benefits of continuous operations will become apparent in the months ahead. The upper four levels of the mine, which are now open and manned, are designed to support production at a rate of 80,000 tonnes per month. It is apparent that skills and productivity issues relating to the mine's workforce are posing a challenge to achieving this production rate in the time frame anticipated. Despite the slow progress, the mine's management remains confident that this production rate will be achieved and sustained in the current quarter. Over the past three-and-a-half years since production at the mine commenced, Messina's management team has sought continuous improvements as its knowledge of the ore body has improved. The materially lower levels of faulting of the reefs, compared to what was anticipated in the 2000 feasibility study, resulted in a decision to trial conventional long-hole stoping, which was done on the Merensky reef on the 275-meter level. Based on this experience, Messina is now implementing mechanised long-hole stoping on the lower levels of the mine. Compared to conventional down-dip stopping, which is the primary mining method on the four upper levels, mechanised long- hole stoping is a safer, more efficient and less costly mining method. Development to support the build-up to full production is progressing well on the new 370 and 390-meter levels. These levels have been designed to support mechanised long-hole stoping. During the quarter, the first long hole blast was taken on the UG2 reef between the 350 and 370 meter levels. Results from this blast exceeded expectation with the hanging and footwalls holding up well and very satisfactory fragmentation being achieved. The long-hole drilling and blasting on these new levels is in now continuing. The companies operations at Messina Platinum continued to be negatively impacted by the strength of the South African Rand. In the second quarter the Rand was 5% stronger than during the first quarter. The Company welcomes the announcement by the South African Reserve Bank of a 50 basis points interest reduction which is anticipated to lead to a weakening of the currency. Commenting, SouthernEra's President and CEO Patrick Evans said: 'We are proud of our progress at Messina over the three-and-a-half years since development and stoping at Messina commenced. For a Company that had no platinum assets four years ago, we have built the Phase 1 mine in about half the time it normally takes to bring a mine of this size into production and Messina is already well past the halfway mark to full production'. Mr. Evans added: 'Despite the challenges associated with any new mining operation, we have constantly sought continuous improvements. In 2001 we elected to hire and train our own labour force rather than use outside contractors, which would have been less sustainable; in 2002 we expanded the mine's capacity; and in 2003 we prepared to implement mechanised long-hole stoping. These initiatives will ensure the optimal performance of this mine over its twenty-year life. The minor delays of a few months in achieving previously planned production targets are not material in the context of the important benefits that will be derived from these innovative initiatives over the next decade and more. In addition, the lessons we are learning at the Phase 1 mine are contributing in important ways to the Phase 2 feasibility study and the Phase 3 pre- feasibility study.' At the end of June, the Company finalized an agreement with a consortium of Messina Limited shareholders acquiring 3,700,536 Messina shares representing 18.4 percent of Messina's issued and outstanding shares. The successful conclusion of this transaction increased SouthernEra's ownership in Messina Limited to approximately 91.5 percent. During the quarter, the Company encountered encouraging platinum group metals (PGM) and nickel assay results from stream samples collected within the new Monts de Cristal 'Kinguele' ultra-mafic complex in Gabon. This project will continue to be explored. The company also announced the results from drilling that tested gold-in-soil geochemical anomalies within the main Mainou Vein gold mineralized trend on the Koumba gold project, Gabon, where SouthernEra has a 95% interest in a 625 square kilometer gold exploration permit. Although below expectations, exploration at Koumba is at a very early stage. The company will also continue exploration at this project. The company also continued to advance its extensive diamond exploration program in Canada, Gabon, the DRC, South Africa and Australia. Increased focus on diamond activities is expected once the re-organisation of the Group is finalised. The Messina Phase 2 (Doornvlei and Dwaalkop sections) feasibility study was completed on schedule at the end of June. The results of this study are currently being assessed and are expected to be released at the end of the third quarter. Subsequent to the quarter, at the annual and special meeting of the Company held on Tuesday July 27, shareholders voted overwhelmingly in favour of the proposed reorganization of the Company into two separately listed companies. Of the shares represented at the meeting, 99.7% were voted in favour of the reorganization. The proposed re-organisation also received Court approval on July 29th. The company is awaiting approval for the listing of Southern Platinum on the Toronto Stock Exchange and also a tax ruling from the Canada Revenue Agency. Following this, the Board will decide on the effective date for the re-organisation. SouthernEra Resources is an independent producer of platinum group metals (PGMs) and diamonds. The Company also has an extensive PGM, gold and diamond exploration program. The common shares are listed on the Toronto Stock Exchange and the London Stock Exchange's AIM. The full, unaudited interim financial statements and management's discussion and analysis for the quarter ended June 30, 2004 are available at www.southernera.com. Consolidated balance sheets (in thousands of United States dollars) (unaudited) June 30, December 31, 2004 2003 ------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 31,283 $ 64,023 Accounts receivable 10,576 13,133 Inventories - supplies 2,890 1,197 ------------------------------------------------------------------------- 44,749 78,353 Property, plant and equipment 201,426 179,623 Development projects 13,878 13,616 Exploration projects 23,115 16,919 Future income taxes 3,369 3,403 ------------------------------------------------------------------------- $ 286,537 $ 291,914 ------------------------------------------------------------------------- Liabilities and shareholders' equity Current liabilities: Accounts payable and accrued liabilities $ 12,651 $ 12,866 Income taxes payable 12,992 11,862 Messina loans 17,387 16,064 ------------------------------------------------------------------------- 43,030 40,792 Messina loans 52,164 55,944 Future income taxes 1,588 1,772 Environmental rehabilitation provision 2,163 1,998 ------------------------------------------------------------------------- 98,945 100,506 Non-controlling interests 4,160 17,315 Shareholders' equity: Common shares 259,813 230,740 Share purchase warrants 2,592 2,592 Contributed surplus 2,809 2,293 Deficit (92,384) (70,155) Cumulative translation adjustments 10,602 8,623 ------------------------------------------------------------------------- 183,432 174,093 ------------------------------------------------------------------------- $ 286,537 $ 291,914 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated statements of operations (in thousands of United States dollars, except income (loss) per share amounts) (unaudited) Three Months Ended Six Months Ended June 30 June 30 2004 2003 2004 2003 ------------------------------------------------------------------------- Revenue $ 7,032 $ 564 $ 16,882 $ 1,650 Direct costs: Mining operations (11,110) (1,521) (23,404) (3,372) Amortization (4,313) (348) (8,292) (693) ------------------------------------------------------------------------- (15,423) (1,869) (31,696) (4,065) ------------------------------------------------------------------------- Loss from mining operations (8,391) (1,305) (14,814) (2,415) Interest expense (3,045) - (6,191) - General and administration expenses (1,589) (1,717) (3,110) (2,719) ------------------------------------------------------------------------- Loss before the undernoted (13,025) (3,022) (24,115) (5,134) Foreign exchange (loss) gain (2,142) 3,806 (3,961) 5,827 Interest income 303 371 776 651 ------------------------------------------------------------------------- (Loss) income before income taxes (14,864) 1,155 (27,300) 1,344 Income taxes: Future recovery 80 13 182 130 ------------------------------------------------------------------------- (Loss) income after income taxes (14,784) 1,168 (27,118) 1,474 Non-controlling interests 2,569 15 4,889 17 ------------------------------------------------------------------------- (Loss) income for the period $ (12,215) $ 1,183 $ (22,229) $ 1,491 ------------------------------------------------------------------------- Basic and diluted (loss) income per common share $ (0.16) $ 0.02 $ (0.29) $ 0.03 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated statements of deficit, contributed surplus and cumulative translation adjustments For the Six Months Ended June 30 (in thousands of United States dollars) (unaudited) 2004 2003 ------------------------------------------------------------------------- CONTRI- CUMULATIVE CONTRI- CUMULATIVE BUTED TRANSLATION BUTED TRANSLATION DEFICIT SURPLUS ADJUSTMENTS DEFICIT SURPLUS ADJUSTMENTS ------------------------------------------------------------------------- Beginning of period $(70,155) $ 2,293 $ 8,623 $(57,869) $ 1,635 $ 206 Translation gains (losses) net for the period - - 1,979 - - 2,697 Fair value of share options granted and vested - 516 - - 492 - (Loss)income for the period (22,229) - - 1,491 - - ------------------------------------------------------------------------- End of period $(92,384) $ 2,809 $ 10,602 $(56,378) $ 2,127 $ 2,903 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated statements of cash flows For the Periods Ended June 30 (in thousands of United States dollars) (unaudited) Three Months Ended Six Months Ended June 30 June 30 2004 2003 2004 2003 ------------------------------------------------------------------------- (Loss) gain for the period $ (12,215) $ 1,183 $ (22,229) $ 1,491 Adjustments for non-cash items: Amortization 4,313 348 8,292 693 Accrued interest charged to earnings 3,045 - 6,191 - Fair value of granted and vested share options 56 414 516 492 Future income taxes (80) (13) (182) (130) Foreign currency translation loss (gain) 2,142 (3,806) 3,961 (5,827) Gains on sale of fixed assets (138) (12) (138) (26) Non-controlling interests (2,569) (15) (4,889) (17) ------------------------------------------------------------------------- (5,446) (1,901) (8,478) (3,324) Change in non-cash working capital balances (2,424) (7,750) (1,397) (11,002) ------------------------------------------------------------------------- Cash used in operations (7,870) (9,651) (9,875) (14,326) ------------------------------------------------------------------------- Financing activities: Loan repayment - - (10,595) - Issue of common shares for cash - - 98 43,707 ------------------------------------------------------------------------- Cash (used in) provided by financing activities - - (10,497) 43,707 ------------------------------------------------------------------------- Investing activities: Exploration and development projects (2,859) (2,152) (4,921) (3,636) Messina platinum project (689) (9,433) (2,422) (18,131) Proceeds from sale of property, plant and equipment 318 - 392 - Purchase of property, plant and equipment (399) (20) (426) (444) Cash used in investing activities (3,629) (11,605) (7,377) (22,211) ------------------------------------------------------------------------- (Decrease) increase in cash (11,499) (21,256) (27,749) 7,170 Foreign exchange (loss) gain on cash held in foreign currency (2,243) 5,736 (4,991) 6,534 Cash and equivalents - beginning of period 45,025 32,094 64,023 2,870 ------------------------------------------------------------------------- Cash and equivalents - end of period $ 31,283 16,574 $ 31,283 16,574 ------------------------------------------------------------------------- Cash and cash equivalents comprise: Cash and bank balances $ 518 359 $ 518 359 Short-term investments 64,527 28,733 64,527 28,733 Less overdraft facility (33,762) (12,518) (33,762) (12,518) ------------------------------------------------------------------------- $ 31,283 16,574 $ 31,283 16,574 ------------------------------------------------------------------------- ------------------------------------------------------------------------- For further information: SouthernEra Resources Limited, Mark Rosslee, Senior Vice President and CFO, or Chris Reynolds, Vice President Finance, Controller and Secretary, Telephone: (416) 359-9282, Fax: (416) 359-9141, E-mail: inbox(at)southernera.com (SUF. SRE)
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