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: [phone], Fax: [phone],

E-mail: inbox(at)southernera.com

    (SUF. SRE)