JSE-listed miner Village Main Reef recorded a 64% fall in basic earnings per share to 5.92c in the six months ended December 2012, down from 16.57c in the 2011 corresponding period, as production was hampered by industrial action at the company’s Blyvooruitzicht gold mine and safety-related stoppages across all its operations.
Disruptions to operations, particularly in the second quarter of the 2013 financial year, negatively impacted on total gold production for the six months by an estimated 360 kg. This resulted in the group’s production, excluding the Blyvooruitzicht (Blyvoor) mine, falling 8% to 83 654 oz, compared with 90 567 oz in the corresponding period the year before. Total gold production, including production from the Blyvoor mine, amounted to 110 429 oz.
Joint CEO Marius Saaiman said, despite lower gold output over the six-month period, resulting in revenue losses of R162-million, Village generated cash of R183-million from operations, an improvement of 110% over the corresponding period last year.
He said that this was driven by the 10% improvement in the realised average gold price to R456 000/kg, compared with R413 000/kg for the six months ended December 2011, as well as record production at the company’s Tau Lekoa and Consolidated Murchison (Cons Murch) mines during the September quarter and well-controlled costs. However, the good performance in the first quarter was followed by safety stoppages and illegal strike action during the second quarter.
Saaiman added that the company succeeded in bringing its absolute costs down by 13% over the last six months, despite the impact of strikes, stoppages, increased Eskom electricity tariffs and higher wages.
“We believe we will be able to reduce costs even further in our March quarter, certainly at Blyvoor, given the positive impact of the retrenchments and restructuring there on the cost base,” he stated.
Cash unit costs for the six months, excluding Blyvoor, grew by 27% to R360 000/kg from R282 890/kg in the six months ended December 2011, as a result of lower production.
Production at Tau Lekoa fell by 14% to 27 360 oz in the second quarter of the financial year, owing to a fatality in December, while the overall mining mix in November resulted in a reduction in recovered grade to under 4 g/t, down from 4.6 g/t in the first quarter.
Although normal production had since been restored, antimony produced at Cons Murch, compared with the September numbers, fell by 15% to 1 255 t during the December quarter, while gold production slumped to 2 037 oz, marking a 27% decrease between the quarters.
Village said lower volumes, resulting from infrastructure repairs at the high-volume Monarch shaft, had affected production.
Further, a three-week-long strike also weighed on production from Blyvoor, where 9 355 oz was produced in the December quarter. This was materially lower than the 17 393 oz produced during the previous quarter.
However, despite the impact of safety-related stoppages, production from the company’s Buffelsfontein gold mine rose by 10% to 10 359 oz in the second quarter, compared with the 9 425 oz produced during the first quarter.
“Production numbers were much more in line with our business plan and the safety stoppages at Buffelsfontein were not as severe as in the first quarter. Overall, mining operations, in terms of volume and grade, saw improvements during the second quarter,” Saaiman indicated.
Meanwhile, the definitive feasibility study at the Lesego platinum project was in its final stages of compilation and was expected to be completed towards the end of the March quarter.
A total of R15.4-million was spent on the study during the six months ended December and the company indicated that engagements with key regulatory authorities and essential services providers, including State-owned power utility Eskom, had begun.
Outlook
Saaiman said the group’s quarterly production volumes in the March quarter were expected to be lower than those of the December quarter, as a slower-than-expected start-up following the December break affected the group’s operations.
In addition, further safety-related stoppages, resulting from two fatal accidents at the Tau Lekoa and Buffelsfontein operations, in late January and February, would also negatively impact on production volumes for the current quarter.
“We expect production to ramp up in February and normalise during the remainder of the third quarter . . . and over the next four months. “We are placing huge emphasis on changing the safety culture within the operations,” Saaiman assured shareholders.