Subject:
Stockwatch: SouthernEra Resources Limited - Company Review
Date:
Wed, 09 Jun 1999 02:39:34 -0700
From:
newsout@canada-stockwatch.com
SouthernEra 1999 first quarter report
SouthernEra Resources Limited SUF
Shares issued 25,980,645 Jun 8 close $4.88
Wed 9 Jun 99 Company Review
Mr. Christopher Jennings reviews the company
Net after tax income for the three months to March 31 was $4.9-million on
revenue of $11.8-million, compared with 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 with a loss of eight cents for the comparable period last year.
Cash flow from operations was $9.6-million or 37 cents per share, compared
with 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 per cent 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 1,200 tonnes from 1,100 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 fourth quarter grade was due to the partial mining of enriched
gravels overlying the pipe.
The average price per carat in the quarter was $121 (U.S.) per carat,
compared with $147 (U.S.) in the fourth quarter of 1998. In 1998, the 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
Jan. 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. 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 per cent 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, 10-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 started
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. Programs 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 per cent 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 program 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 1,000 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 $6.5-million (U.S.) was made under the
agreement whereby the company obtained a 51 per cent 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 per cent SUF)
The Yamba Lake project is 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 8,000-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 T10 pipe. The kimberlite drill
core will be tested for diamond content.
DHK block (25 per cent SUF)
A new 2.2-metre true-width land-based kimberlite dyke (DD2002), was
discovered by Kennecott on the DHK block at Lac de Gras. Caustic fusion of
seven kilograms of kimberlite returned encouraging results of six
microdiamonds (85.7 micro/100 kg.)
Lac de Gras (40 per cent SUF)
Preliminary microdiamond results have been returned from the EGOS
kimberlite pipe discovered by Kennecott in the Lac de Gras block. A total
of 27 microdiamond and one 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 100 kg.).
Microdiamond results from over 600 kilograms are awaited.
Back Lake Project (70 per cent SUF)
Following the sonic drilling program to locate the primary kimberlite
source area of the kimberlite float situated 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 Corp.,
whereby the company can earn a 50 per cent interest in a project covering
480,000 hectares, 400 kilometres southeast of Brasilia in Brazil, by
spending $20-million (U.S.) over seven 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 $1.5-million (U.S.) 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
per cent interest in Messina Ltd., which owns Messina Platinum Mines, a
property 16 kilometres from the Klipspringer mine in the Northern Province
of South Africa, for $10.5 million (U.S.).
The known resource on two sections of the property to 1,000 meters is 51
million tonnes at a grade of 6.4 g/t platinum group metals plus gold with
significant nickel and copper credits. The resource is estimated to contain
10.5 million ounces of platinum group metals plus gold, 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
per cent on capital. If the transaction closes, as expected, a followup
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.
CONSOLIDATED STATEMENT OF INCOME
Three months ended March 31
(in thousands of dollars)
1999 1998
Income
Diamond revenue
net of marketing
and royalties $11,825 -
Direct cost
Mining operations 2,198 -
Depreciation and
amortization 1,826 -
------ ------
Income from mining
operations 7,801 -
Other operating
expenses
General and
administration 484 606
------ ------
Income (loss) before
the undernoted 7,317 (606)
Interest and
investment income (148) (101)
Exploration costs
written off - 788
Discontinued
operations - 695
Other 15 15
------ ------
Income (loss) before
taxes 7,450 (2,003)
Income taxes
Current 1,710 -
Deferred 805 -
------ ------
Net income (loss)
for the period $ 4,935 (2,003)
====== ======
Income (loss) per
share 19 cents (8 cents)
(c) Copyright 1999 Canjex Publishing Ltd. canada-stockwatch.com
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