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Vatukoula Gold Mines plc - Interim Results to 28th February 2010
28-05-2010
28 May 2010 AIM: VGM
Vatukoula Gold Mines plc
(“Vatukoula” or “the Company”)
Interim Results to 28 February 2010
Financial Highlights of the first half year:
- Turnover for the period reached £16.5 million (2009: £9.5 million)
- Gross margin increased to £7.5 million (2009: £0.23 million)
- Profit after tax of £4 million (2009: loss £3.9 million)
- Capital expenditure for the period £5.5 million (2009: £1.4 million)
- Cash balance of £8.2 million as at 28 February 2010
Operational Highlights:
· Gold shipped increased to 24,092 ounces (2009: 17,920 ounces)
· Ore mined and processed increased to 188,631 tonnes (2009: 94,592 tonnes)
· Cash cost per ounce of gold recovered reduced to US$ 635 (2009: US$857 / ounce)
· Average price of gold received increased to US$1,102 / ounce (2009: US$834 / ounce)
· Average underground grade mined 7.52 grams per tonne (2009: 6.90 grams / tonne)
· Average surface grade mined 1.96 grams per tonne
· Continued underground development programme achieved 3,700 metres for the six months.
David Paxton, CEO of Vatukoula commented – “The first half year has been particularly productive for Vatukoula. Our continuing efforts to increase production at the mine resulted in higher gold production, increased gross margins and £4 million of profit after tax. The fundraising during the period has enabled the purchase of capital equipment and continue the much needed capital development programme.”
“We now expect production for the year to be about 50,000 ounces and anticipate reaching our targeted production rate of 100,000 ounces per annum in the first calendar quarter of 2011. Our cash costs per ounce are expected to fall as production ramps up, providing further scope for growth.”
“Additionally, we remain fully committed to our exploration programme, which itself could provide further potential upside and we have engaged a minerals consultancy group to develop an exploration programme both within the mining lease, and within exploration leases surrounding the mine.”
Enquiries:
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Vatukoula Gold Mines plc
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Arbuthnot Securities Limited
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David Paxton
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+ 44 20 7016 7861
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Richard Johnson
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+ 44 20 7382 7776
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Kiran Morzaria
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W.H. Ireland Limited
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Bishopsgate Communications
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James Joyce
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+ 44 20 7220 1666
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Nick Rome
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+ 44 20 7562 3350
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Michael Kinirons
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Chief Executive’s Statement:
I have the pleasure in presenting the interim report for the Company for the period ended 28 February 2010.
Review of Operations
During the period the Group continued its ongoing production ramp up at the Vatukoula Gold Mine in Fiji, with a 34% increase in gold shipped to 24,092 ounces (2009: 17,920 ounces).
Production
Underground production for the period provided 107,711 tonnes of ore at a grade of 7.52 grams of gold per tonne (2009: 94,592 tonnes at a grade of 6.90 grams of gold per tonne). The mine benefitted from the mining of a high-grade section toward the end of the first and some of the second quarter.
Our oxide circuit, which was commissioned in the final quarter of last year, has performed exceptionally well. For the period, we treated 87,372 tonne of oxide material at a grade of 1.96 grams per tonne gold.
A total of 188,631 tonnes of sulphide and oxide ore was processed during the period, shipping 25,096 ounces, which was an improvement of 99% in ore processed and an improvement of 34% in terms of gold shipped compared to the previous period.
Operating cash cost on a per ounce basis for the period was US$635 (2009: US$857 per ounce). We remain confident that we can reduce our cash costs to between US$550 and US$600 per ounce once the Company achieves its target of 100,000 ounces of gold per annum.
During the period we purchased a further three pieces of underground equipment which takes the balance of the underground mobile equipment purchased during Vatukoulas ownership to twelve. This equipment along with our extensive maintenance programme has resulted in higher availability and utilisation rates from our underground mobile equipment. We have budgeted for an additional five pieces of underground equipment which includes a further four Toro 151 loaders and one Toro 006 loader.
Via our “accelerated underground development programme” we are actively increasing the available stoping faces. However, even with this accelerated development programme (3,700 metres during the period) we remain below our targeted development rates needed for the type of ore bodies encountered at Vatukoula. The Company is continually reviewing the development strategy so as to maximise the rate of underground development.
Fijian Government
We have maintained our relationship with the Fijian Government and the local community. In December 2009,the Company signed the Vatukoula Trust Deed with the Minister for Lands and Minerals.
The Trust Deed formalises a number of key concessions and exemptions to the mine as well as establishing the Social Assistance Trust. Vatukoula Gold Mines Ltd will provide a total of Fijian $6.0 million (US$ 3.23 million), payable over 5 years to the fund, the first amount of Fijian $1.5 million (US$ 0.78 million) was paid in March 2010. This fund will finance the retraining and relocation of previous employees of Vatukoula who have not regained employment, and has been well received.
As announced in December the concessions granted to Vatukoula in relation to the Vatukoula Trust Deed include an exemption on the payment of corporation tax for a total of 5 years; and exemption on the payment of export tax for a period of five years and other exemptions in relation to the fiscal duties payments an payment of import excise duty.
Financial Overview
Turnover for the period ended 28 February 2010 was £16.5 million; compared to a turnover of £9.5 million for the period ended 28 February 2009. This increase is predominantly attributable to both the planned ramp up in gold production at the Vatukoula Gold mine and a higher average gold price received (US$1,102/ounce). Gross margins increased to £7.5 million up from £0.23 million in the previous period ended 28 February 2009. This substantial increase is due to the increased revenue as mentioned above, and a relatively stable cost of sales (£9 million) compared to the previous period (2009: £9.2 million). The cost of sales have remained at this level in part due to the nature of operations at the mine which has a high fixed cost base, which includes generating power onsite, continual pumping to keep the mine dry, ongoing mine and equipment maintenance, etc. These costs are incurred whether the mine produces any gold or not. However, once production crosses a certain threshold (i.e. covering the fixed cost base), gross margins increase as every unit of production is effectively variable.
Administrative costs decreased to £0.9 million compared to the equivalent period in 2009 (£1.1 million). This reduction can be attributed to lower legal and regulatory costs. Of the £0.9 million, £0.76 million is attributable to head office costs in London while the balance of £0.24 million was incurred at the mine and other operating subsidiaries.
The result after tax was a profit of £4.0 million (2009: loss £3.9 million). The earnings per share in the six months ended 28 February 2010 was 0.12 pence per share (2009: loss per share of 0.29 pence).
Investment in property, plant and equipment increased by £1.2 million prior to depreciation and amortisation. The Company expects this to increase further during the remainder of the year, in particular with the rehabilitation of the Philip shaft which is expected to cost approximately £1.8 million. Investment in mine development increased by £4.3 million prior to depreciation and amortisation, as result of the increased underground development programme (3.7 km over the period).
Inventories increased by approximately £0.4 million largely due to an increase of gold in circuit. Trade and other receivables increased by £4.7 million primarily due to the increase in prepaid items of £3.4 million of which approximately £1 million are prepaid capital items.
Total liabilities increased by £1.4 million primarily as a result of a £1.2 million increase in provisions in relation to the Vatukoula Social Assistance Trust Fund and an increase in employment related provisions.
The net cash flow generated in operating activities was £1 million (2009: net outflow of £0.97 million). After deducting the cash flows used in investing activities of £5.5 million) the cash out flows prior to financings were £4.5 million (2009: net outflow of £1.4 million). The net cash provided by financing activities of £10.8 million was mainly attributable to the equity issue carried out in September and October 2009, which raised a total of £11 million. As result of the above there was a net cash increase over the period of £6.3 million resulting in a cash position of £8.3 million at the end of February 2010.
Post Period Highlights
We continue to plan for an increase in production to a rate of 100,000 ounces of gold per annum which we now expect to occur in the first quarter of the calendar year beginning 2011.
Daily production from underground has continued to increase in the third quarter post the period end. However while we have opened up new production areas, our “accelerated underground development program”, has not progressed at a rate that we had expected. Therefore, we have not yet opened sufficient mining areas at high enough grades to achieve our planned production rate for the period ending August 2010.
As such we anticipate a reduction in gold production for the third quarter, but a stronger production for the fourth quarter, which should result in gold production for the financial year in the region of 50,000 ounces of gold, which is approximately 83% of our previously stated target.
Philip Shaft repair
Historical extraction had damaged the Philip shaft barrel between levels 15 and 16 and has prevented mining below these levels. In house geological and production data suggests this area to be good grade and to contain significant partially areas.
Together with our geotechnical consultants, we have undertaken an investigation on the condition of the shaft. A refurbishment programme has been detailed by our consultants and we have engaged an engineering group to undertake the repairs to the shaft. Preliminary work on the shaft repair has commenced and is expected to be complete by the end of the financial year. In addition the lower levels of the Philip shaft are being prepared in readiness for mining.
Alternative Power Supply
Management has commenced a feasibility study of the economic potential for the construction of a low cost alternative sourced power station at Vatukoula. This decision was taken due to the length of time it has taken to date for the Fiji Sugar Corporation (“FSC”) to resolve its strategy of producing power, from locally sourced agricultural products. We expect a feasibility study to be completed by the end of August 2010.
Regional Exploration program
Via a continuous exploration programmes the Vatukoula Mine has historically uncovered new underground ore bodies on a regular basis. However this was curtailed by the previous owners in the late 1990’s because of the prevailing low gold price, and as result no major new mining areas have been discovered since then. We recognise that to achieve our longer term strategy of increasing our resource and reserve base, and ultimately investigating the potential of Vatukoula producing at over and above the 100,000 ounces per year, we will need to embark on an extensive exploration programme. As such we have engaged a minerals consultancy group, that have experience with the Vatukoula ore bodies, to develop an exploration program both within the mining lease, and within the exploration licences surrounding the mine. This group has commenced with a desk-top study which will prioritise the exploration targets after which we will begin surface exploration in early September 2010.
Outlook
Our long term planning for production at a rate of 100,000 ounces gold per year remains on course and our initial capital replacement program is nearing an end. We have encountered some setbacks which reduced our production in the current quarter, but through the efforts of the mine management these issues are being progressively dealt with.
To place Vatukoula into a sustainable production profile of 100,000 ounces per annum we need an underground mine that has sufficient flexibility in all areas to be able to maintain production. We are targeting to get to that position and we anticipate producing at a pro-rata rate of 100,000 ounces of gold in the first calendar quarter of 2011.
On behalf of the Board I wish to record the Company's appreciation of the efforts of my fellow directors, our senior management and operational staff, who have shown continuing support and commitment to Vatukoula. It is this commitment and support that has brought the Company to the strong position it is in today, and that will continue this success in the future.
Finally I would like to take this opportunity of thanking you - the shareholders - for your continued support and your encouragement. We look forward to keeping you updated on the progress of your Company throughout 2010.
Dave Paxton
28 May 2010
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CONDENSED STATEMENT OF COMPREHENSIVE INCOME
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Notes
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6 months
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6 months
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12 months
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28-Feb-10
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28-Feb-09
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31-Aug-09
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(Unaudited)
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(Unaudited)
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(Audited)
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£’000
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£’000
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£’000
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Turnover
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16,528
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9,500
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18,837
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Cost of sales
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(9,010)
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(9,267)
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(17,429)
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Gross margin
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7,518
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233
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1,408
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Operating expenses:
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Gold duty
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(496)
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(285)
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(560)
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Administration expenses
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(913)
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(1,104)
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(2,541)
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Depreciation and amortisation expense
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(1,388)
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(1,206)
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(3,903)
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Underlying operating surplus / (deficit)
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4,721
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(2,362)
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(5,596)
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