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 (or pipr or sill) 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
May 14th, 1999
SOUTHERNERA RESOURCES LIMITED
CONSOLIDATED BALANCE SHEETS - MARCH 31
(In thousands of Canadian dollars)
ASSETS 1999 1998
Current assets
Cash and short-term investments $ 8,058 $ 4,315
Accounts receivable 17,928 3,966
Diamond inventory 34 1,827
26,020 10,108
Property, plant & equipment 56,263 33,095
Exploration properties 35,203 27,508
$117,486 $70,711
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities$ 6,791 $ 3,021
Income taxes payable 4,855 -
Current portion of deferred income taxes 4,326 -
15,972 3,021
Deferred income taxes 16,539 -
Shareholders' equity
Common shares 98,859 96,572
Deficit (7,939) (28,882)
Cumulative foreign exchange adjustment (5,945) -
84,975 67,690
$117,486 $70,711
SOUTHERNERA RESOURCES LIMITED
CONSOLIDATED STATEMENTS OF INCOME AND DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31
(In thousands of Canadian dollars)
1999 1998
Income
Diamond revenue net of marketing and royalties$ 11,825 $ -
Direct costs
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)
Deficit, beginning of period (12,874) (26,879)
Deficit, end of period $ (7,939) $ (28,882)
Income per common share:
Basic $ 0.19 $ (0.08)
Fully diluted $ 0.19 $ (0.08)
Weighted average number of shares outstanding to March 31, 1999 and 1998
was 25,994,867 and 25,744,184 shares respectively.
SOUTHERNERA RESOURCES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31
(In thousands of Canadian dollars)
1999 1998
Results of operations
Net income (loss) for the period $4,935 $(2,003)
Adjustments for non-cash items
Exploration costs written off
Depreciation and amortization 1,841 15
Deferred income taxes 805 -
Discontinued operations - 437
7,581 (763)
Change in non-cash working capital balances 1,982 (1,139)
Cash from (used in) operations 9,563 (1,902)
Financing activities
Issue of capital stock for cash 32 116
Cash provided by financing activities 32 116
Investing activities
Exploration expenditures (3,239) (3,665)
Property, plant and equipment (4,774) (7,513)
Investment transactions - (75)
Cash used in investing activities (8,013) (11,253)
Increase (decrease) in cash 1,582 (13,039)
Cash and cash equivalents - beginning of period 6,476 17,354
Cash and cash equivalents - end of period$ 8,058 $ 4,315
Cash and cash equivalents comprise
Cash $ 3,338 $ 312
Bank overdraft - (105)
Short-term investments 4,720 4,108
$ 8,058 $ 4,315 |
