Writedowns eroded what would otherwise have been a profitable year for
In 1999, net losses totalled $24 million (or 90 per share) on revenue of $48 million, compared with net earnings of $14 million (54 per share) on $52.4 million in 1998. The about-face is attributed to $35.9 million in writedowns against exploration properties, including a $22.6-million devaluation of the jointly held Camafuca project in Angola. If not for these writedowns, pretax earnings would have been $21.9 million.
Cash flow between the years rose 12% to $37.8 million.
Losses in the final quarter of 1999 were $34 million ($1.28 per share) on $8.8 million, owing to most of the writedowns being recorded in that period. This compares with net earnings of $84,000 (nil per share) on $23.6 million in the fourth quarter of 1998.
Attributable output from the Marsfontein joint venture in South Africa topped 340,964 carats, up 20% from 1998. Of that amount, only 68,801 carats were produced in the final quarter, reflecting the decrease in ore grades as miners reach deeper portions of the M1 kimberlite pipe.
SouthernEra sold its diamonds for an average US$113 per carat, or US$37 less than 1998. The difference reflects a decrease in the size of stones recovered over the year.
Reserves in the M1 pipe are sufficient for another four months of production, after which stockpiles of low-grade diabase and gravels will be processed. New sources of feed are being sought elsewhere on the property, with crews currently focusing on the western extension of the M-8 fissure.
In 2000, SouthernEra expects its share of output from M1 to top 225,000 carats.
SouthernEra owns a 40% interest in Marsfontein, with
Meanwhile, SouthernEra continues to test-mine the Leopard fissure at the wholly owned Klipspringer project, which is adjacent to Marsfontein. During the recent quarter, 9,545 carats were produced from 26,000 tonnes grading 27.9-41.6 carats per 100 tonnes. Some of the mined material came from development headings, which included a significant amount of waste. Ongoing underground mapping and drilling are attempting to reconcile the dilution program (the biggest stumbling block to full-scale production) and provide more accurate grade predictions.
An in-house feasibility study is scheduled for completion by mid-year. If it is positive, another year of development is needed (well beyond original forecasts) to advance the project to full-scale production at the rate of 20,000-30,000 tonnes per month.
In other news, SouthernEra has begun financing negotiations for the advanced Messina platinum-palladium property, 15 km southeast of Klipspringer. The company holds a 54% interest in the project’s owner, Messina Holdings, which it bought from South African-based
Messina’s principal asset — three mineral leases at Voorspoed and Doornvlei — saw development in the early 1990s but was mothballed by Impala Platinum. However, a recently completed bankable feasibility study by SouthernEra (part of the purchase requirements) indicates the project can generate an internal rate of return of 36.6% with a capital investment of US$86 million, not counting US$20 million already spent on the project. The study focused on the Voorspoed section only (T.N.M., March 6/00).
In Angola, SouthernEra has agreed to relinquish nearly half of its 65% interest in the Camafuca diamond project in exchange for US$7 million in project financing and the assumption of half of its other project-related obligations. The buyer, privately owned Welcox, is a member of a group of companies whose portfolio reportedly includes an 18% interest in the producing Sociedad Mineira do Catoca mine, 150 km south of Camafuca.
Welcox will initially invest up to US$2 million in the project, secured against an up-to-18.6% interest, to fund ongoing assessments over the next six months, following which it can elect to back out and request repayment within 60 days. However, SouthernEra can refuse, instead leaving Welcox with its interest, plus project-related equipment if needed.
As a precondition to the deal, SouthernEra must issue 300,000 warrants to Welcox. These can be converted to shares within two years at $1.80 apiece. If Welcox backs out of the project, any amount still owing on the initial loan becomes interest-free but repayable out of initial revenues arising from Camafuca should it be advanced to production.
Also, SouthernEra will issue another 200,000 warrants that can be exercised until the end of the due diligence period at $1.98 each, or $2.16 in the ensuing two months should Welcox proceed with the joint venture.
Prior to entering into the Welcox deal, SouthernEra wrote down the carrying value of its investment in Camafuca to $12.9 million — the approximate amount spent on a recently completed economic evaluation. The writedown reflects its decision to seek an investor in the project.
The study recommends staged development, with an initial capital investment of between US$10 million and US$15 million. No further details were publicly released, presumably so that the two other property-owners could have a chance to review the report. Those partners include a state-owned mining company, with 20%, and a private Angolan mining company, with 15%.
In 1984, the Camafuca pipe was estimated to contain 13.5 million carats in 90 million cubic metres, based on sampling of 60% of its total area. The company says it has since increased the grade using more efficient recovery methods.
On the exploration front, SouthernEra has budgeted $4.5 million for its diamond projects around the world. Funding will be provided by cash flow from Marsfontein.
SouthernEra began the year with $4.3 million in working capital and no long-term debt. It also started the year with a new president, Steve Banning, who succeeded Christopher Jennings, the company’s founder. It also plans to relocate its headquaters to Denver, Colo.
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