I have received this via e-mail. I don't know if it is an official press release.
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9mo results
SouthernEra Resources Limited SUF
Shares issued 25,695,265 Nov 3 close $8.45
Wed 4 Nov 98 Company Review
Mr. Christopher Jennings reviews the company
OPERATING
Net income for the three months to Sept. 30 was $11.9-million on revenue of
$24-million, compared to a loss of $0.7-million on revenue of $0.1-million
in the third quarter of 1997. On a per share basis the net income was 46
cents, compared to a loss of three cents in the third quarter of 1997.
For the nine month period, net income was $13.9-million or 54 cents per
share on revenue of $35.2-million, compared to a net loss of $2.1-million
or nine cents per share on revenue of $0.3-million for the nine months in
1997.
Comparative numbers are not meaningful, as the Klipspringer project in
South Africa only became operational at the beginning of the second quarter
of 1998, the Marsfontein joint venture commenced commercial production on
Aug. 31, and production at Luo and Cassanguidi in Angola only became
meaningful during 1998.
Cash flow from operations for the quarter totalled $21.2-million, or 82
cents per share, compared to $0.9-million in the third quarter of 1997, or
four cents per share.
For the nine months, cash flow from operations was $25.3-million, or 98
cents per share, compared to a negative cash flow of $0.1-million for the
nine months to Sept. 30, 1997.
SOUTH AFRICA
Klipspringer Project (100 per cent SUF)
During July, the remaining tonnage removable from the open pit at the
Sugarbird Blow was mined. Approximately 25,000 tonnes, yielding 17,300
carats of diamonds, were processed through the dense medium separation
plant, bringing total diamond recoveries from the blow to approximately
67,000 carats. Production continued until the plant was committed for use
by the Marsfontein joint venture.
At the Leopard fissure site, underground development work is continuing
with the goal of preparing a sufficient number of stopes to generate 10,000
to 12,000 tonnes of monthly feed for the plant by the third quarter of
1999.
Exploration on the Klipspringer property continues, and during the
reporting period a 1,900 tonne surface sample from the Kudu pipe, between
the Leopard and Sugarbird fissures on the 100 per cent owned Rusland Farm,
yielded 173 carats (valued at $203 per carat) for an average grade of nine
carats per 100 tonnes. Delineation by drilling and trenching is under way
and bulk sample results from three large diameter reverse circulation holes
completed to depths from 48 to 75 metres indicated a prospecting grade of
55 carats per 100 tonnes. The apparent consistency in grade at depth is
similar to the results from the Sugarbird Blow.
On the same farm, a new kimberlite fissure was discovered running parallel
to the Leopard fissures and 40 metres from the Kudu pipe. Trenching and
drilling have tested the fissure along a 500 metre strike length, and is
open in both directions and at depth. Drilling has intersected this fissure
at a depth of 250 metres below surface. Testing for diamond content is in
progress. Two commercial sized diamonds were recovered from prospecting
trenches. Bulk sample testing will take place in the fourth quarter.
Marsfontein Joint Venture (40 per cent SUF)
The agreement signed with Randgold & Exploration Company to purchase their
interest in the Farm Marsfontein 91KS was signed in August and closed on
Oct. 13. SouthernEra now owns a 40 per cent interest in the Marsfontein
joint venture (De Beers 60 per cent).
By Aug. 6, the first bulk sample of 1,733 tonnes of overburden over the M-1
pipe was processed by the Marsfontein joint venture and yielded 22,390
carats of diamonds, sold at an average price of over $206 (U.S.) per carat.
Commercial production commenced on Aug. 31, and by the end of the quarter
over 34,000 tonnes had been processed, yielding 189,600 carats, for a grade
of 5.6 carats per tonne. Sales in September were at an average of $188
(U.S.) per carat.
Based on estimates of the amount of overburden at M-1, production at this
grade will continue at least for the first month into the fourth quarter of
1998. As the bulk samples of the primary kimberlite pipe indicated a grade
of approximately three carats per tonne, the yield could drop as the
quarter progresses. The value of the diamonds per carat may vary, depending
on quality and market conditions.
Under the joint venture arrangements, production is marketed through De
Beers' central selling organization. The company recognizes revenue from
diamond production, net of marketing charges, on completion of onsite
processing.
The dense medium separation plant performed well, but a high clay content
in the overburden created minor problems in the thickener. Average
throughput per processing day in September was 1,300 tonnes.
ANGOLA
Cassanguidi
The river diving operations on the Cassanguidi concession recovered 58,200
carats during the third quarter, compared to 5,400 carats in the previous
quarter. Production for the nine months to Sept. 30 was just over 65,000
carats. The exceptional increase in recoveries results from extracting
gravel from scour channels in the Luembe riverbed. Portions of the river
were previously mined using dragline methods, leaving behind significant
gravel in irregularities on the river bed. The value per carat has dropped
somewhat, to below $100 (U.S.), due to market conditions. The current level
of production is expected to continue, but reserves in this type of deposit
are indeterminate. In accordance with the agreement with the concession
partners, the revenue sharing formula will change now that all start-up
costs have been recovered; for the fourth quarter the company will receive
35 per cent of the net profit from operations.
Luo
At the Luo concession (SUF 46 per cent of revenues, 100 per cent of costs),
on the Chicapa River, 4,800 carats were recovered during the quarter,
compared to 8,000 carats in the second quarter. The main activity during
the quarter involved the completion of a secondary diversion of the river.
All development costs on the project are written off as incurred, with the
result that the project is not currently profitable. Plant and equipment is
being written off over a three year period.
Production at Luo for the nine months to Sept. 30 totalled 24,300 carats,
with the company's equivalent share totaling 11,200 carats. The most recent
sale averaged $114 (U.S.) per carat.
With the completion of the secondary diversion and the drying out of the
flood plain, improved production is expected in the fourth quarter.
Camafuca
At Camafuca (SUF 51 per cent), trenching is well advanced to provide a
20,000 tonne bulk sample for processing late this year through an onsite
pilot plant. Large diameter core drill holes to a depth of up to 110 metres
have been completed on the east side of the pipe and have confirmed earlier
geological interpretations. Previous bulk sampling to depths of 80 metres
outlined an estimated resource of 13.5 million carats within 88 million
cubic metres at an average grade of 0.15 carats per cubic metre. Four
blocks within this zone contain an estimated 8.7 million carats at a grade
of 0.30 carats per cubic metre and two of the blocks contain 11 million
cubic metres at an average grade of 0.43 carats per cubic metre. The
deposit is open at depth. Only about 60 per cent of the surface area has
been tested by bulk sampling.
The political unrest in Angola continues to affect all sites with the
supply and movement of personnel and equipment somewhat hampered.
Operations are, however, continuing satisfactorily. The CMC property
continues to be on standby during this period of unrest.
CANADA - NORTHWEST TERRITORIES
Yamba Lake
During the third quarter an agreement was reached with Tanqueray Resources
and Cypango Ventures, whereby the company has the right to earn a 51 per
cent interest in the Yamba Lake property which adjoins the northern
boundary of the BHP-DiaMet Ekati diamond mine at Lac de Gras. Five
kimberlite pipes have been discovered on the property and considerable
potential exists for finding new pipes. The terms are that SouthernEra is
to spend $1-million in the first two years and a total of $5-million over
four years to earn a 51 per cent interest.
In September, over 1,000 till samples were collected to test both airborne
geophysical targets and areas that have returned positive indicator results
from previous sampling. The samples will be processed during the fourth
quarter, with drilling planned for March 1999.
Back Lake
For the Back Lake (Northwest Territories) project (SUF 70 per cent), ground
geophysical data have been reprocessed and independently interpreted. A
number of weak coincident anomalies are present which could be
representative of kimberlite intrusions in the vicinity of the heads of
several mineral trains present on the property.
During the summer, an additional 380 till samples were collected from the
project area and are currently being processed. A sonic drill program will
be used to collect till samples from the bottom of Munn and Margaret Lakes
in February 1999, followed by core diamond drilling in March.
CORPORATE AND FINANCIAL
The company has been operating profitably since the first quarter of the
year. The diamond revenue from the Marsfontein joint venture has exceeded
expectations because of the high-grade of the overburden over the M-1 pipe.
Insufficient amounts of kimberlite have been processed to date to confirm
the three carats per tonne in situ drill indicated grade of the pipe
itself, but production in the fourth quarter will give a good indication of
the grade at the upper level of the pit.
The amortization and depreciation charge of $1.6-million for the South
African operation includes a charge per tonne processed for the acquisition
cost of the Randgold share of the Marsfontein joint venture. All costs
related to the Farm Marsfontein will be written off over the life of the
M-1 pipe.
A similar charge for the Angolan operations reflects an escalated writeoff
of all preproduction costs and plant and equipment at Cassanguidi and Luo
over a three year term from the start of operations.
Exploration costs of $2.1-million in the third quarter were according to
plan.
Working capital at Sept. 30, was $8.3-million, consisting largely of
$19.1-million in diamonds in the process of settlement offset by the
payment due to Randgold of $15.9-million. Cash on hand was $6.9-million. In
August, warrants for 875,575 shares expired without being exercised,
reducing the potential total number of shares on a fully diluted basis to
29,969,952 shares. Warrants for 1,162,673 shares exercisable at $9.00
mature on Nov. 16, 1998.
he company recently announced the appointment of Patrick Evans to the board
of directors and the assignment of increased responsibility to the
vice-presidents of the company. Mr. Evans is an international business
consultant, was a senior career diplomat in South Africa's foreign service
and will add strength to the international operations of the company.
SUMMARY
With the successful start-up of operations at Marsfontein, the company has
entered into a new phase of its development, with adequate cash flow to
finance an aggressive exploration program in both Africa and Canada and
allow it to consider further growth by means of possible mergers or
acquisitions.
The M-1 pipe now has a currently indicated mine life of at least two and a
half years at current production rates and the company is confident that
the development to production of the Klipspringer fissure systems and other
kimberlites will assure a long and continuous mine life in the Klipspringer
area.
Progressive exploration work in Canada's Northwest Territories, and the
possible acquisition of other properties with new discovery potential
indicates a continuing commitment to exploration in Canada's north.
CONSOLIDATED STATEMENT OF INCOME
Three months ended Sept. 30
(thousands of dollars)
1998 1997
Revenue
Diamond revenue
South Africa $ 20,652 $ -
Angola 3,161 -
Interest 155 80
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23,968 80
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Expenses
Mining operations
South Africa 1,405 -
Angola 1,318 -
General and admin 456 274
Depreciation and
amortization
South Africa 1,195 -
Angola 600 -
Canada 14 24
Exploration costs
written off 35 458
Writedown of
investments 8 11
Gain on sale of
investments - -
Foreign exchange
losses (gains) (224) -
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4,807 767
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Income (loss)
before income taxes 19,161 (687)
Deferred income
taxes (7,300) -
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Net income (loss) $ 11,861 $ (687)
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Net income (loss)
per share 46 cents (3 cents)
CONSOLIDATED STATEMENT OF INCOME
Nine months ended Sept. 30
(thousands of dollars)
1998 1997
Revenue
Diamond revenue
South Africa $ 28,789 $ -
Angola 6,076 -
Interest 359 338
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35,224 338
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Expenses
Mining operations
South Africa 4,472 -
Angola 3,657 -
General and admin 1,370 1,028
Depreciation and
amortization
South Africa 1,580 -
Angola 1,590 -
Canada 45 51
Exploration costs
written off 832 1,361
Writedown of
investments 87 32
Gain on sale of
investments (159) (63)
Foreign exchange
losses (gains) 519 -
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14,003 2,409
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Income (loss)
before income taxes 21,221 (2,071)
Deferred income
taxes (7,300) -
--------- ---------
Net income (loss) $ 13,921 $ (2,071)
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Net income (loss)
per share 54 cents (9 cents)
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Bozkurt
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