SouthernEra second-quarter report
SouthernEra Resources Limited SUF
Shares issued 26,881,395 Aug 19 close $3.25
Fri 20 Aug 99 Company Review
Mr. Christopher Jennings reviews the company
Income before exploration cost write-offs for the three months to June 30 was $4.9-million on revenue of $13,7-million, compared with $4.1-million in the second quarter of 1998 on revenue of $8.1-million. Net income was $1.9-million or seven cents per share, compared with 16 cents for the second quarter last year.
During the quarter, the company reviewed the exploration results over the past two years at MacKay Lake, in the Northwest Territories of Canada, and determined that it would not be actively pursuing the project in the near future. The accumulated costs totalling $3-million were written off, reducing the net income per share by 11 cents in the second quarter. Cash flow from operations was $9.2-million or 35 cents per share, compared with $6.1-million or 24 cents per share in the second quarter of 1998. For the six months ended June 30, net income totalled $6.9-million or 26 cents per share, compared with $2.1-million or eight cents per share for the comparable period in 1998. Cash flow totalled $18.8-million or 72 cents per share, compared with $4.2-million or 16 cents per share in 1998.
South Africa
Marsfontein joint venture (40 per cent, SUF)
Production throughput for the quarter was 123,800 tonnes (first quarter, 82,800 tonnes) yielding 276,486 carats, compared with 200,132 carats in the first quarter. The tonnage throughput per day improved to 1,650 tonnes from 1,200 tonnes in the first quarter. The recovered grade dropped from 242 cpht to 228 cpht in the second quarter.
The average price per carat reflected in revenue for the quarter was $114 (U.S.) per carat, compared with $121 (U.S.) in the first quarter. The average stone size is decreasing as the M-1 pipe is mined to deeper levels and the shape of the stones has also been reported to be affecting the current realized price per carat.
Production from the Marsfontein joint venture is sold through De Beers? Central Selling Organization (CSO). Although there has been a good recovery in world diamond sales in 1999, the CSO continues to restrict the purchase of diamonds from its suppliers, based on a formula of the available intake from all sources and the CSO?s worldwide sales. The joint venture?s delivery entitlement is based on installed production capacity, which exceeds current production.
It is possible that a small percentage of production in 1999 may be affected, with the result that the diamonds would be stockpiled until worldwide demand exceeds the world production. Diamond sales revenue totalling $1.1-million to June 30, has been deferred for this eventuality. The M-1 pit extension to mine down to the 150-metre level is in progress and has not resulted in any disruption of current production. At current rates of production, the M-pit will supply ore to the plant until the fourth quarter of 2000. The grade of ore is expected to decrease at depth, which will affect future earnings.
The cost of acquiring the mineral rights on the farm Marsfontein is being written-off over the remaining tonnage of ore known at this time. Based on current calculations, the amortization charge per tonne for the next year is expected to be double the amount recorded in the first half of 1999. New discoveries on the site would have the result of decreasing the charge per tonne in the future.
Six new kimberlite anomalies have been identified on the farm, bringing the total to 18. Geophysical surveys have defined 10 targets and reverse circulation drilling of these targets started in July. Klipspringer project (100 per cent, SUF)
Development progressed on the Ingwe section of the Leopard fissure during the quarter, with initial tonnage to the plant for processing in July. The intent is to increase the tonnage mined from 10,000 tonnes per month to 20,000 tonnes per month by midyear 2000.
During the quarter, the 50 tph plant was commissioned and used to assist with production for the Marsfontein joint venture. Drill results along the 3.5-kilometre Leopard fissure strike length indicate a 4.6-million-tonne kimberlite resource to the 1,000-metre elevation, which is between 500 and 630 metres below surface. A further extension of 400 metres has been proven by recent drilling. Bulk sampling earlier resulted in an estimated in-situ grade of 73 carats per hundred tonnes.
Extensive exploration work continues over a number of the farms comprising the 62,000-hectare Klipspringer project area.
Angola
Camafuca project (51 per cent, SUF)
Diamond recovery tests on eight tonnes of drill core from 23 holes show a significantly higher grade than previously reported by DIAMANG years ago. For the three types of kimberlite encountered, average grades were 5.2, 5.7 and 45.5 cpht, with the stones showing good color and clarity. The final payment of $6.5-million (U.S.) to obtain a 51-per-cent interest in the project was made in April, one-half in cash and by the issue of 880,750 shares of the company valued at $5.50 per share. Processing is currently under way on 25,000 tonnes of materials from a number of trenches east of the Chicapa River. This program will continue into the fourth quarter of 1999.
Calonda Sul
In July, the company commenced activity on this property, which is south of Camafuca. The site is currently being mined by local artisans who are recovering alluvial diamonds from the rivers and drainage areas of the property. Security forces are currently on site, preparing for the arrival of operational staff.
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.
Since August, 1998, three kimberlitic mineral indicator trains have been defined in the Gooseneck Lake area, and 8,000 line kilometres of high-resolution airborne magnetic and electromagnetic surveys completed. One new kimberlite pipe was discovered.
A till sampling program to trace the origin of the three indicator trains started in July.
The new airborne data is being interpreted and more than 25 high-priority targets identified for possible drilling. Till samples will be collected down-ice of the targets and geophysical targets ground-checked this summer. 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 metres to 12.0 metres in thickness and is open along its strike length and down dip. Drill core returned excellent microdiamond counts with excellent color and clarity.
The company?s partners on the project, Island-Arc Resources Corp. and Kalahari Resources Ltd., have agreed to finance a summer program to drill 10 to 15 holes to define the strike and down dip continuity, with the possibility of obtaining a minibulk sample of 50 tonnes. The partners must spend $250,000 and can earn-in a 10-per-cent working interest if they expend $750,000 on the program.
Brazil (earn-in, 50 per cent)
Extensive airborne and ground geophysical surveys, geochemical sampling and drilling, created a large volume of data with a high number of interesting targets.
The exploration program has been started to identify primary diamondiferous kimberlites and alluvial gravels. One hundred kimberlite pipes have been discovered with only eight tested, three positively, for microdiamonds. Local miners have recovered alluvial diamonds, including high-value fancy pinks, from the major rivers on and around the property for years. Drainages with historical production of high-value diamonds are being examined and will be tested as a first priority.
Messina platinum mines
The company entered into an agreement, subject to the completion of a bankable feasibility study, to acquire a 54-per-cent interest in Messina Ltd., a public company listed in Johannesburg, which owns Messina platinum mines, a property 16 kilometres from the Klipspringer mine, for $10.5-million (U.S.).
The known resource on two sections of the property to 1,000 metres is 51 million tonnes at a grade of 6.4 g/t platinum group of metals plus gold (PGM + Au), with significant nickel and copper credits, estimated to contain 10.5 million ounces of PGM + Au, with considerable further potential along strike and down dip.
A bankable feasibility study is expected to be completed late this year. After the acquisition is completed, a followup offer will be made to purchase the minority shareholders? interest at the same price to be paid for the 54-per-cent interest.
CONSOLIDATED STATEMENT OF INCOME
Three months ended June 30 (in thousands of Canadian dollars)
1999 1998
Income
Diamond revenue net
of marketing and
royalties $13,683 $ 8,137
Direct costs
Mining operations 1,494 3,067
Depreciation and
amortization 3,852 416
----- -----
Income from mining
operations 8,337 4,654
Other operating
expenses
General and
administration 613 322
----- -----
Income before the
undernoted 7,724 4,332
Interest and
investment income (151) (103)
Exploration costs
written off 3,028 9
Discontinued
operations - (279)
Other 52 640
----- -----
Income before taxes 4,795 4,065
Income taxes
Current 3,986 -
Deferred (1,110) -
----- -----
Net income for the
period $ 1,919 $ 4,065
===== =====
Income per share 7 cents 16 cents
CONSOLIDATED STATEMENT OF INCOME
Six months ended June 30
(in thousands of Canadian dollars)
1999 1998
Income
Diamond revenue net
of marketing and
royalties $25,508 $ 8,137
Direct costs
Mining operations 3,692 3,067
Depreciation and
amortization 5,678 416
----- -----
Income from mining
operations 16,138 4,654
Other operating
expenses
General and
administration 1,097 928
----- -----
Income before the
undernoted 15,041 3,726
Interest and
investment income (299) (204)
Exploration costs
written off 3,028 797
Discontinued
operations - 416
Other 67 655
----- -----
Income before taxes 12,245 2,062
Income taxes
Current 5,696 -
Deferred (305) -
----- -----
Net income for the
period $ 6,854 $ 2,062
===== =====
Income per share 26 cents 8 cents
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