[miningmx.com] — VILLAGE Main Reef on Wednesday confirmed its intention to discard the 26% stake in First Uranium it acquired through its purchase of Simmer & Jack, saying the group would use proceeds to bolster its balance sheet and return some cash to shareholders.
Posting its first operational update since Simmers’ assets were transferred to Village, the group said it was not its intention to build a “typical’ mining house, and it would try to improve the acquired assets while finding ways to return the value created to shareholders.
“The board has also decided to continue to take Tau Lekoa gold mine, Cons Murch antimony mine and the Lesego platinum project further up the value curve, whereas the optimum way to unlock value from our exposure to First Uranium as well as other non-core assets like Weltevreden, Strathmore and the old metallurgical plant at Hartebeesfontein will be evaluated and implemented,’ read a company statement.
“It is the intention to strengthen the company’s balance sheet through such disposals, and surplus cash or other liquid instruments would be distributed to Village shareholders.’
One glaring omission among the assets which Village pledged to take “further up the value curve’ was the troublesome Buffelsfontein Gold Mine (BGM). Simmers’ management announced a restructuring plan for BGM on June 20, with the intention to lay off around a third of the mine’s staff.
Village CEO Bernard Swanepoel said the aim was to do away with previous overstated output targets, maintaining current production from a lower cost base. Forecast production for the June quarter would be between 400kg and 430kg gold.
Following the job cuts, Village envisaged an initial target of 120kg per month, to be ramped up to 140kg.
The Buffels plant has also been reconfigured to match output from both BGM and Tau Lekoa, intended to realise another cost saving.
Due to the lower-than-budgeted production levels at BGM for the June quarter, Village anticipated a cash flow loss of some R60m. The restructuring costs would amount to around R55m, of which the bulk would be accounted for in the September quarter.
“For now we only want to achieve breakeven and then assess the viability to carry on with the remaining three shafts,’ said Swanepoel.
The prospects of Tau Lekoa seem much better though. Village said production was lower than planned, offset by cost savings. “Tau is operating profitably,’ the group said.
Antimony asset Consolidated Murchison has achieved positive cash flow for four consecutive months, with cash profits for the quarter expected to be around R9m.
“We ran into a bit of luck with high antimony prices,’ said Swanepoel. Village intended to continue ramping up tonnage output to 27,000 tonnes per month, from around 22,000 t at the moment.
“With time, the mine will be transformed and use more mechanised stoping methods, with expected improvements in production and efficiencies,’ said Village. “This process has already started at two of the operating shafts where there is ongoing deepening of the shafts via trackless mechanised equipment.’
Commenting on the collapse of Village’s share price since the Simmers deal was announced, and in particular during the last two weeks, Swanepoel said it was to be expected given the overhang created by Village issuing 600 million new shares to facilitate the transaction.
The share is trading at almost half its price of the beginning of 2011 (R1.18 compared to R2.25). “What we didn’t expect was the misfortunes of First Uranium, which has largely influenced our own performance,’ Swanepoel said.
First Uranium has also lost close to 50% of its value so far this year, trading at around R4.46 compared to R8.65 in January.
