What I find particularily encouraging in the work that SUF has been doing in the NWT is the fact that they were able to both detect and drill through the sill in the bottom of Munn Lake and the Dyke at Yamba which is under 60 meters of overburden.
What this means to me is that the staff, technology and methodology that SUF is employing is very competant and capable.
If there are economic deposits to be found on the SUF JV properties I am confidant that SUF will methodically track them down and prove them up.
Excellent revenue coming from Klipspringer/Marsfontein will enable SUF to continue their exploration efforts without dilution of the stock, debts or sacrificing the deposits once found for lack of development money and expertise.
SOUTHERNERA RESOURCES LIMITED
FIRST QUARTER REPORT 1999
for the three months
ended March 31, 1999
To the Shareholders:
HIGHLIGHTS
Diamond production of 200,132 carats at Marsfontein in the first quarter. The Company's 40% share totaled 80,053 carats
Net income for the quarter $4.9 million or 19¢ per share
Cash flow from operations $9.6 million or 37¢ per share
OPERATING RESULTS
Net after tax income for the three months to March 31 was $4.9 million on revenue of $11.8 million, compared to a loss of $2.0 million in the first quarter of 1998, incurred prior to the start up of operations at the Klipspringer project in South Africa. Net income per share was 19 cents, compared to a loss of 8 cents for the comparable period last year.
Cash flow from operations was $9.6 million or 37 cents per share, compared to a cash requirement for operations of $1.9 million in the first quarter of 1998, a negative 7 cents per share.
SOUTH AFRICA
Marsfontein Joint Venture (40% SUF)
Production throughput for the quarter was 82,800 tonnes yielding 200,132 carats for an average of 242 carats per hundred tonnes. The tonnage throughput per day improved to 1200 tonnes from 1100 tonnes in the fourth quarter of 1998, but the grade dropped from 415 cpht to 242 cpht, which is close to the expected average recorded grade for the M-1 kimberlite pipe. The higher 4th quarter grade was due to the partial mining of very enriched gravels overlying the pipe.
The average price per carat in the quarter was US$ 121 per carat, compared to US$ 147 in the fourth quarter of 1998. In 1998, the very rich overburden over the M-1 pipe was mined, with average stone sizes and quality significantly better than that which is projected for the run of mine production in 1999. The De Beers price list was revised, effective January 1, and this had a negative effect on the price received for M-1 production.
Production from the Marsfontein Joint Venture is sold through De Beers' Central Selling Organization, (CSO). Under current market conditions, the CSO is restricting the purchase of diamonds from its suppliers, based on the available intake from all sources and the CSO's worldwide sales. The formula for the joint venture's delivery entitlement is based on installed production capacity.
A portion of the production for March is being stockpiled under the marketing agreement, and, although this amounted to only 3,550 carats (company portion 1,420 carats), it is estimated that a small percentage of production in subsequent periods may be required to be stockpiled until worldwide demand exceeds the production of diamonds.
The M-1 pit extension required to mine down to the 150-metre level is scheduled to begin in May. Excavation is continuing to uncover the M-3 kimberlite in order to obtain and process a large bulk sample to evaluate the diamond grade per tonne and value per carat. Planning of exploration on other anomalies, M-2 through M-17, is accelerating.
Klipspringer Project (100% SUF)
The development of the Leopard fissure for underground mining is progressing at an advance rate of 400 metres per month on six working faces in the Ingwe Section. Mining is expected to commence in July, initially to process 10,000 tonnes per month.
The 50 tonne per hour plant was installed in April and during commissioning, until July, will be used by the Marsfontein Joint Venture to process lower grade diabase material from M-1 and kimberlite from the M-3 pipe.
A third, ten tonne per hour, dense medium separation plant located within the main plant area was commissioned in March. This plant is designed to process drill core and small bulk samples from exploration, independent of the production in the two larger plants. Drill core from the Camafuca project in Angola is being processed through the plant in the month of May.
Definition drilling on the Ndau Section of the Leopard fissure was initiated during the period in order to firm up the resource in this section.
Extensive exploration work continues on a number of the farms in the Klipspringer area. Programmes include soil sampling, stream sediment sampling and geological prospecting and geophysical surveys. Grids range from initial wide spaced lines down to 50 metre spacing, depending on the progressive results from the sampling.
The Klipspringer lab is currently processing over 2,300 samples per month.
ANGOLA
Camafuca Project (51% SUF)
A complete test plant was moved on site during the first quarter and has commenced processing the 15,000 tonne kimberlite bulk sample taken in late 1998 to establish grades and diamond values.
Drill core from the phase 1 drilling programme was shipped to the plant at Klipspringer and preliminary results indicate that the grades appear to be significantly higher than the historical database.
All remaining drill core on site at Camafuca will be shipped to South Africa for testing.
As part of the prefeasibility valuation to study the economics of selectively mining higher grade portions of the pipe, over 1000 metres of geotechnical core drilling was completed on the east side of the Chicapa river to provide information for the design of the cutting wheel heads for a dredge extraction process.
In April, the final payment of US$ 6.5 million was made under the agreement whereby the Company obtained a 51% interest in the project. The payment was made half in cash and by the issue of 880, 750 shares of the Company valued at $5.50 per share.
CANADA - NORTHWEST TERRITORIES
Yamba Lake (51% SUF)
The Yamba Lake project is located within the Lac de Gras kimberlite field approximately 46 kilometres north of the producing BHP-Dia Met Ekati Diamond Mine.
Following the completion of an 8000 line-kilometre, helicopter mounted magnetic and electromagnetic geophysical airborne survey, diamond drilling commenced to test geophysical targets indicative of kimberlite pipe intrusions.
Five geophysical targets have been tested, resulting in the discovery of one new kimberlite body (S141). In addition, one hole was drilled in the known Ptarmigan pipe and three holes in the T-10 pipe. The kimberlite drill core will be tested for diamond content.
DHK Block (25% SUF)
A new 2.2 meter true width land based kimberlite dyke (DD2002), was discovered by Kennecott on the DHK block at Lac de Gras. Caustic fusion of 7 kilograms of kimberlite returned encouraging results of 6 microdiamonds (85.7 micro/100 kg.)
Lac de Gras (40% SUF)
Preliminary microdiamond results have been returned from the EG05 kimberlite pipe discovered by Kennecott in the Lac de Gras block. A total of 27 microdiamond and 1 macrodiamond were recovered from 129.4 kilograms of kimberlite from hole 3 (21.59 micro/macrodiamonds/100 kg). The highest individual sample returned 16 microdiamonds per 8.7 kg of kimberlite (184 microdiamonds per 100kg).
Microdiamond results from over 600 kilograms are awaited.
Back Lake Project (70% SUF)
Following the sonic drilling program to locate the primary kimberlite source area of the kimberlite float located on the shore of Munn Lake, a core diamond drilling program consisting of 10 holes, has defined a kimberlite sill that dips 30 degrees to the northeast.
The sill has an estimated true width ranging from 0.25 to 12.0 metres in thickness and is open along its strike length and downdip. Unless the dimensions of the sill can be determined to be significantly larger, the sill is not likely to be economic.
NEW DEVELOPMENTS
Brazil
The Company recently announced its agreement with Canabrava Diamond Corporation whereby the Company can earn a 50% interest in a project covering 480,000 hectares, 400 kilometres southeast of Brasilia in Brazil, by spending US$ 20 million over 7 years. More than 100 kimberlites and lamproite pipes have been located, with only eight tested for microdiamonds, three positively.
There are over 500 geophysical and geochemical targets in the area with a number identified as having excellent mineral chemistry.
The Company is committed to spending US$ 1.5 million over the next two years in this region, which is well known for its production of large, high quality gem diamonds.
Work was activated on the project immediately.
Messina Platinum Mines
In April, the Company announced that it had entered into an agreement, subject to the completion of a bankable feasibility study, to acquire a 54% interest in Messina Limited, which owns Messina Platinum Mines, a property 16 kilometres from the Klipspringer mine in the Northern Province of South Africa for US$ 10.5 million.
The known resource on two sections of the property to 1000 meters is 51 million tonnes at a grade of 6.4 g/t platinum group metals plus gold (PGM + Au) with significant nickel and copper credits. The resource is estimated to contain 10.5 million ounces of PGM + Au with considerable further potential along strike and down dip.
The required bankable feasibility study has been preceded by a prefeasibility study, and is expected to be completed within a few months. The study is expected to demonstrate an after tax return in excess of 20% on capital. If the transaction closes, as expected, a follow-up offer will be made to purchase the minority shareholders' interest.
SUMMARY
The Company has completed its fourth consecutive quarter of profitable production.
Additional equipment, now being commissioned at the Klipspringer plant will benefit production in the second quarter. A second 50 tonne per hour plant was completed and is currently being commissioned
Development of the Leopard fissure system is on schedule for production later this year.
Exploration is proceeding satisfactorily in a number of locations.
The entry into platinum mining should lead to another source of profitable production within three years.
Christopher M.H. Jennings
President
Toronto, Ontario |
