[miningmx.com] — SHARES in Simmer & Jack Mines (Simmers) on Monday raced up 4.4% after the group reported a 108% quarterly production increase.
The output growth came on the back of the contribution its newly-acquired Tau Lekoa mine made during the period to end-September. Simmers completed the takeover of Tau Lekoa from AngloGold Ashanti in July.
As a consequence, quarter-on-quarter total gold production increased from 17,559 ounces to 36,608oz. Revenue increased by a similar margin, up 106% to R327m.
More significantly, the consolidation of Tau Lekoa into the group raised cash costs by only 51% (from R211m to R320m), adding significantly to the group’s operating margin and overturning a R52.8m operating loss into a R7.9m profit.
“Efforts to extract real synergy benefits between Tau Lekoa and Buffelsfontein Gold Mine (BGM) are ongoing, while we have been successful in materially reducing head office and administrative costs,” said Simmers acting CEO Nico Schoeman.
The treatment of Tau Lekoa ore at BGM’s south plant commenced on August 1. The group said integration issues have mostly been dealt with and operationally the mine performed well during the quarter.
On a full quarterly basis, production at Tau Lekoa was up 900oz to 27,263oz (Simmers only accounted for production since August in its total output figure), while BGM increased its output by 4% to 18,353oz.
“Our company is starting to realise the benefits of Tau Lekoa’s integration with BGM by means of removing certain corporate overheads that were previously factored into the cost profile for Tau Lekoa and by treating Tau Lekoa ore at BGM,” said Schoeman.
“The integration enables Simmer and Jack to spread the operating costs over a much larger volume and share the service costs that were previously incorporated into one operation. This integration and the benefits derived will continue to be monitored in the coming quarters in order to ensure that the benefits intended are fully maximised.’
The group’s capital expenditure increased from R8.6m to R540.3m for the quarter, which included R501.7m for the Tau Lekoa purchase.
CASH FLOW SECURED
On Friday, the company announced it had concluded a forward gold purchase loan of $20m with Deutsche Bank, the proceeds of which have been used to settle the remaining R105m of a loan which was due to Rand Merchant Bank in terms of a R220m advance granted earlier in the year.
“This loan is a significant step forward for Simmers as it ensures a degree of reassurance in terms of our short-term financial security. We are by no means in a cash flow comfort zone, but this will provide the relief required until such time as we are at our planned operating levels at Tau Lekoa and BGM,” said Schoeman.
Simmers also said it was working with Stonewall Mining to finalise the sale of Transvaal Gold Mining by end-February. The transaction carries a R25m price tag.
“While this disposal reduces the current care and maintenance costs, successful conclusion of the transaction will further strengthen the company’s cash position,” Simmers said.
“More importantly, it allows absolute management focus on Simmer & Jack’s operations and the ongoing exploitation of synergies between Tau Lekoa and BGM.”
At 09:35 on Monday, Simmers shares were trading at 95c, up 4.4% for the day.
