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
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Assets
Current assets:
Cash and cash equivalents $ 31,283 $ 64,023
Accounts receivable 10,576 13,133
Inventories - supplies 2,890 1,197
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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
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$ 286,537 $ 291,914
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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
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43,030 40,792
Messina loans 52,164 55,944
Future income taxes 1,588 1,772
Environmental rehabilitation provision 2,163 1,998
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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
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183,432 174,093
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$ 286,537 $ 291,914
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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
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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)
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(15,423) (1,869) (31,696) (4,065)
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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)
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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
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(Loss) income before income
taxes (14,864) 1,155 (27,300) 1,344
Income taxes:
Future recovery 80 13 182 130
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(Loss) income after income
taxes (14,784) 1,168 (27,118) 1,474
Non-controlling interests 2,569 15 4,889 17
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(Loss) income for the
period $ (12,215) $ 1,183 $ (22,229) $ 1,491
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Basic and diluted (loss)
income per common share $ (0.16) $ 0.02 $ (0.29) $ 0.03
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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
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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 - -
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End of
period $(92,384) $ 2,809 $ 10,602 $(56,378) $ 2,127 $ 2,903
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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
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(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)
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(5,446) (1,901) (8,478) (3,324)
Change in non-cash working
capital balances (2,424) (7,750) (1,397) (11,002)
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Cash used in operations (7,870) (9,651) (9,875) (14,326)
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Financing activities:
Loan repayment - - (10,595) -
Issue of common shares
for cash - - 98 43,707
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Cash (used in) provided
by financing activities - - (10,497) 43,707
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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)
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(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
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Cash and equivalents -
end of period $ 31,283 16,574 $ 31,283 16,574
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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)
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$ 31,283 16,574 $ 31,283 16,574
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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)