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Report for Quarter Ended 31 December 2012 (Q2 FY2013) and the Six Months Ended 31 December 2012

21 February 2013

Key Features (Six months ended 31 December 2012)

  • R183 million of cash generated from operations for the six months ended 31 December 2012 compared to R87 million for the six months ended 31 December 2011, an improvement of 110%
  • Basic earnings per share of 5.92 cents per share compared to 16.57 cents for the six months ended 31 December 2011, a decline of 64%
  • Gold production for the Village Group on a like for like basis, excluding Blyvooruitzicht Mining Company Limited (“Blyvoor”), was 2,602kg (83,654oz) compared to 2,817kg (90,567oz) for the six months ended 31 December 2011. Total gold production including Blyvoor totalled 3,434kg (110,429oz)
  • The impact of the industrial action at Blyvoor during October 2012 and safety related stoppages across all our mines negatively impacted total gold production volumes by an estimated 360kg over the six month period
  • Antimony production was 2,728t compared to 2,285t for the six months ended 31 December 2011, an improvement of 19%
  • Realised average gold price of R456,000/kg compared to R413,000/kg for the six months ended December 2011, an improvement of 10%
  • Cash costs for the six months ended 31 December 2012 on a like for like basis, excluding Blyvoor was R360,000/kg compared to R282,890/kg for the six months ended December 2011, an increase of 27%
  • Receipt of R405 million in cash from First Uranium Corporation (“FIU”), consisting of R392 million in settlement of Village’s investment in the secured Mine Waste Solution (Pty) Ltd Rand notes (MWS Notes) and R14 million as an interim dividend in relation to its equity investment in FIU
  • Payment of 30 cents per share special dividend on 06 August 2012
  • Village successfully repurchased 25.3 million of its ordinary shares amounting to 2.5% of the company’s
  • share capital through its wholly owned subsidiary Buffelsfontein Gold Mines Limited (“Buffels”), at a total cost of R30.2 million

Events post quarter end

  • Village repurchased a further 26.7 million of its ordinary shares for R33.6 million post the December quarter end, resulting in a total of 52 million or 5.2% of the company’s issued shares being repurchased, through its wholly owned subsidiary Buffels to date. Village has the authority from its shareholders to acquire a further 150 million shares as part of the repurchase program.
  • Two employees lost their lives at our Village operations on 31 January and 11 February 2013. The board of directors of Village (“the Board”) and the group management regret this unfortunate loss of life and is in the process of implementing action plans and processes that will result in a culture change within the operations that should impact positively on the safety record at all Village operations. In both instances the inspectorate issued mine wide Section 54 instructions, stopping all mining activities. It is estimated that the stoppages will result in approximately 100kg of gold being lost due to lower production during the third quarter of the 2013 financial year.
  • The section 189 process at Blyvoor was successfully concluded.

Statement by the Joint Chief Executive Officer

Marius Saaiman, Village joint CEO commented: “Our results for the half year was characterised by two very distinct quarters from an operational perspective. In the September quarter we achieved record production at both our Tau Lekoa and Consolidated Murchison operations, driven by strong increases in volume and good grade control. These positive gains were however reversed in the second quarter, where the Village operations did not escape the impact of industrial action that spread throughout the South African mining industry. The unprotected strikes, coupled with safety related stoppages, resulted in gold production, on a like for like basis excluding Blyvoor decreasing by 8% compared to the same period last year. Lower production over the period resulted in revenue losses of R162 million. Notwithstanding some of the operational challenges, Village generated cash from operations of R183 million, an improvement of 110% over the same period last year.

Village has invested some R63.8 million in repurchasing its own shares, a firm vote of confidence by the Board in the value represented by the portfolio of assets Village holds, as well as in the cash generating ability of our assets.

We look towards the second half of the year, optimistic that the improvement strategies taken by management will positively impact on our performance.”

Performance for the quarter ended 31 December 2012 (“Q2”)

Gold production totalled 1,527kg (49,111oz) in the December quarter which was 20% lower than the 1,907kg (61,318oz) achieved in the September quarter. Our antimony production of 1,255t in Q2 was 15% or 218t lower than Q1. Revenue was positively impacted by the higher realised gold price during the quarter of R476,803/kg compared to R440,000/kg in the September quarter. Total cash costs decreased by 13% to R667 million in Q2 compared to R762 million in Q1. Cash cost on a per kilogram basis however, increased by 12% to R428,505/kg from R382,608/kg in the previous quarter, largely due to the lower production volumes. Operating profit from mining activities was R18 million compared to the R104 million achieved in the previous quarter, a decline of 83%. Production related depreciation accounted for R51 million or 63% of the decline. Village’s accounting policy is to depreciate assets over their useful life using the proven and probable reserves depletion method. With the implementation of the new enterprise resource planning system (“ERP system”) it was noted that the proven and probable resources used to calculate the depreciation charge at Tau was not correct and required a change of estimate to correct the depreciation charge going forward, this led to a once off charge to the income statement of R38 million. In addition, due to the revaluation on acquisition of the Blyvoor assets, depreciation charges at Blyvoor will be higher than historical numbers, with additional depreciation of R6 million charged to the income statement per quarter.

The cash balance at 31 December 2012 was a positive R353 million, of which R210 million is restricted. The restricted cash is for the commitments to the Department of Mineral Resources in relation to rehabilitation guarantees of R105 million, and to Deutsche Bank (“DB”) in relation to the gold forward purchase agreement of R105 million. The DB gold forward loan will terminate in April 2013 which will release R105 million from restricted cash. Significant cash receipts included the R14 million received as an interim dividend from FIU shares and cash generated from operations of R76 million. Significant cash payments made during the quarter included a R42 million repayment of the DB loan, capital investment of R48 million and the share buyback of R30 million.

Quarterly performance data
  GOLD Q2 FY 2013 Q1 FY 2013 ANTIMONY Q2 FY 2013 Q1 FY 2013
Blyvoor Tau Lekoa Buffels TOTAL TOTAL   Cons Murch Cons Murch
Tons milled - surface 470 945 - - 470 945 604 084      
Tons milled - underground 35 899 229 619 84 316 349 834 427 859 Tons milled 58 250 69 993
Recovered grade - Au g/t 3.6 3.7 3.8 3.7 3.9 Recovered grade - Au g/t 1.1 1.2
Gold produced underground - kg 122 851 322 1 295 1 633      
Gold produced surface - kg 169 - - 169 188 Recovered grade - Sb % 1.3 1.6
Gold produced - total oz 9 355 27 360 10 359 47 074 58 543 Gold produced - oz 2 037 2 775
Gold produced - total Kg 291 851 322 1 464 1 821 Antimony produced - tonnes 1 255 1 473
Realised gold price - R/kg 468 408 478 885 478 885 476 803 440 000 Realised antimony price - R/t 39 514 41 273
Cash cost - R/kg 746 246 291 811 502 182 428 505 382 608 Cash cost - R/ton 1 270 1 145
Notional cost - R/kg 746 246 317 144 532 140 449 819 394 689 Notional cost - R/ton 1 535 1 231

Variance analysis of revenue and cash costs at operations Q2 FY2013 vs Q1 FY2013
  Tau Buffels Cons Blyvoor Total
Volume (60) 12 (18) (111) (177)
Price 29 11 (2) 8 46
Working costs 1 10 6 66 83
Total impact on profits (30) 33 (14) (37) (48)

Prospects

All the operations were affected by a slower than anticipated start up post the year end break. Safety related stoppages, resulting from the two fatal accidents at the operations in late January and February, will also negatively impact on production volumes for the third quarter. We expect production to ramp up in February and normalise during the remainder of the third quarter. The group’s quarterly production volumes in the third quarter is anticipated to be lower than the second quarter.

Financial review

The table below sets out the unaudited results of the operations for the quarter ended 31 December 2012

Unaudited results of operations for the quarter
VILLAGE MAIN REEF LIMITED
SELECTED FINANCIAL INFORMATION
Q2
FY2013
R'000
Q1
FY2013
R'000
Variance
Q2 2013 vs.
Q1 2013
%
Half year
ended 31 Dec
2012
R'000
Half year
ended 31 Dec
2011
R'000
Variance
H1 2013 vs.
H1 2012
%
Statement of Comprehensive Income
Continuing operations
Revenue 769 961 899 979 -14% 1 669 940 1 287 808 30%
Total cash cost ( 666 706) ( 762 447) 13% (1 429 153) ( 848 778) -68%
Total cash operating profit / (loss) 103 255 137 532 -25% 240 787 439 030 -45%
Production-related depreciation5 ( 85 126) ( 33 312) -156% ( 118 438) ( 55 070) -115%
Rehabilitation expenses ( 406) ( 608) 33% (  1 014) ( 1 423) 29%
Operating profit / (loss) from mining activities 17 723 103 612 -83% 121 335 382 537 -68%
Non-production related depreciation ( 2 690) ( 1 949) -38% ( 4 639) ( 3 163) -47%
Other income 28 173 1 763 1498% 29 936 21 624 38%
Share option costs ( 7 924) - -100% ( 7 924) ( 10 512) 25%
Head office costs2 ( 9 165) ( 18 965) 52% ( 28 143) ( 24 019) -17%
General administrative and overhead expenditure3 ( 24 020) ( 21 717) -11% ( 45 737) ( 44 624) -2%
Profit / (loss) from operations before interest and taxation 2 097 62 744 -97% 64 829 321 843 -80%
Fair value adjustments4 18 218 ( 30 608) 160% ( 12 390) ( 133 840) 91%
Impairment of assets & loans & movement in environmental rehab liability ( 5 195) ( 3 553) -46% ( 8 749) 5 343 264%
Foreign exchange gains / (losses) ( 18 455) ( 10 155) -82% ( 28 610) ( 34 728) 18%
Net finance income / (charges) 3 430 1 014 238% 4 445 23 198 -81%
Profit / (loss) before taxation from continuing operations 96 19 442 -100% 19 525 181 816 -89%
Loss from discontinuing operations - - 0% - ( 55) 100%
Profit / (loss) before taxation 96 19 442 -100% 19 525 181 761 -89%
Statement of Financial Position
Total assets 3 325 379 3 377 638 -2% 3 325 379 2 963 191 12%
Cash and equivalents 352 573 389 370 -9% 352 573 309 600 14%
Financial assets 20 701 47 463 -56% 20 701 390 047 -95%
Current liabilities ( 641 025) ( 668 247) 4% (641 025) (514 647) -25%
Non-current liabilities ( 894 526) ( 885 523) -1% (894 526) (478 234) -87%
Total equity (1 789 841) (1 823 869) -2% (1 789 828) (1 970 310) -9%

Comments

1 – Total cash costs are costs directly related to the physical activities of producing gold and include mining costs, administrative costs, royalties, on-mine drilling expenditures that are related to production and other direct costs. Sales of by-product metals are deducted from the above in computing cash costs. Cash costs exclude depreciation, depletion and amortisation, corporate, general and administrative expenses, exploration costs, finance charges, and pre-feasibility costs and accruals for mine reclamation but include central costs such as human resources and technical services.

2 – Head office cost relates to the costs incurred to run the Village head office. These costs include salaries to the amount of R 5 million, legal fees relating to the unprotected strikes and other related matters , other consulting fees and administration costs amounted to R4 million. The costs incurred decreased as a result of the payment of success fees in the previous quarter.

3 – General and administrative costs reduced by R1 million, largely due to the credits received from workmans compensation premiums from Rand Mutual Insurance company.

4 – Fair value adjustments relate to the 1% perpetual liability payable to Aberdeen from all gold produced at Buffels, R1.9 million fair value loss; a gain in the DB Gold Forward liability of R29 million; a mark to market gain in relation to the remaining equity investment in FIU of R9 million.

5 – Village depreciate mining assets and infrastructure based on the proven and probable reserves . At our Tau operation the proven and probable reserves was updated to reflect the latest reserves as at 30 June 2012. This resulted in an increase in the depreciation charge to fairly reflect the amortisation of our Tau Lekoa mining assets over its life of mine.

Operational review

Tau Lekoa Gold Mine (“Tau”)

Total gold produced at Tau was 851kg (27,360oz) in Q2, which decreased by 14% (4,365oz) compared to the 987kg (31,725oz) produced during Q1.

The lower production can largely be attributed to safety related stoppages and the slow start up post the fatal accident that occurred during the quarter. Production volumes were lower than expected and the overall mining mix resulted in a reduction in recovered grade. As part of our efforts to prevent accidents there is a renewed focus on safety and the retraining of all our employees. In addition, Tau is implementing a new management control system which is expected to positively impact on the achievement of zero harm and is focussed on ensuring safe optimised operational performance.

Lower gold production, notwithstanding an increased average gold price received for the quarter, resulted in gold revenues being 7% lower, at R402 million (Q1, R433 million). The realised Rand per kilogram gold price achieved during the quarter, of R478,885/kg was 9% higher than the R438,822/kg achieved during Q1. Cash costs for Tau were well controlled at R248 million and was similar to the R249 million in the September quarter. On a unit cost basis cash cost increased by 16% quarter on quarter, rising from R252,440/kg in the September quarter, to R291,811/kg. The cash generated from operations was a positive R154 million for the December quarter, compared to R184 million for the previous quarter.

Buffelsfontein Gold Mine (“Buffels”)

Total gold production from Buffels was 322kg (10,359oz) in Q2 which rose by 10% compared to the 293kg (9,425oz) produced during Q1.

There was an improvement in production volumes, despite the impact of the safety related stoppages at the high grade number 2 shaft, resulting from a number of electrical power failures and the fatal accident that occurred towards the end of the quarter. The improvement in gold produced is encouraging and operationally Buffels performed much better than in Q1. Focus at Buffels remains on ensuring uninterrupted production from the available working areas.

Gold revenue increased by 17% to R151 million in Q2 compared to R129 million in Q1.

Cash costs at Buffels showed a welcome decrease quarter on quarter by 6% to R166 million in Q2 from R176 million in Q1. The lower costs combined with higher production had a favourable effect on unit cash costs, which improved to R502,182/kg in Q2 from R601,376/kg in Q1. Buffels reported a material improvement and curtailed its cash operating loss to R15 million in Q2, compared to a cash operating loss of R48 million during Q1.

Blyvooruitzicht Gold Mine (“Blyvoor”)

Total gold production from Blyvoor at 291kg (9,355oz) in Q2 was materially lower than the 541kg (17,393oz) produced during Q1.

Lower gold production was in line with the guidance provided to the market during the September quarter. Production was impacted by the three week long unprotected mine strike action during October 2012. A seismic event during the same period affected 40% of underground production areas and had a material impact on Blyvoor’s production during the December quarter. Blyvoor has, and will continue to re-establish the affected working areas resulting in increased available ground over the next three months. Production at Blyvoor was further affected by a safety stoppage following a fall of ground event that resulted in a fatality at the beginning of December 2012.

Gold revenue decreased by 57% to R136 million in Q2 compared to R239 million in Q1.

Cash costs at Blyvoor decreased quarter on quarter by 23% to R219 million from R285 million in Q1. Cash operating loss increased by 63% to R83 million in Q2 from a cash operating loss of R46 million in Q1 Cash costs per kilogram increased by 41% to R746,246/kg compared to R527,623/kg achieved during the September 2012 quarter.

Blyvoor has been under operational pressure for some time and required an intervention to right size the operation to ensure longer term sustainability. The events of the December quarter increased the operational pressure at Blyvoor and resulted in the retrenchment of some 960 employees at the operations. Management is pleased to report that the Section 189 process was successfully concluded during January 2013, without any further labour related issues, in a very difficult labour environment. Blyvoor management expect the benefits of the restructuring plan to be evident in the cost base of the operations going forward. As indicated to the market, it is expected that unit cost at Blyvoor will reduce to around R450,000/kg in the medium term whilst panels are re-established. Management remain confident that cash costs at Blyvoor will be below R400,000/kg in a normalised production environment.

To date Village has provided working capital and other funding to Blyvoor of R110 million.

Cons Murch Gold and Antimony Mine (“Cons Murch”)

Cons Murch produced 1,255t of antimony and 63kg (2,037oz) of gold for the December quarter, a decline of 15% (218t) in antimony and 27% (737oz) in gold compared to the September 2012 quarter. Production performance was affected by lower volumes resulting from infrastructure repairs at the high volume Monarch shaft. Normal production has since been restored.

Revenue decreased by 17% to R82 million in Q2 compared to R99 million in Q1.

Total cash costs decreased by 8% to R74 million in Q2 from R80 million in Q1. The cash cost per ton increased by 11% to R1,270/t compared to R1,145/t in the September quarter as a result of the lower production. Cash operating profit was R4 million during the quarter compared to a cash operating profit of R18m in the previous quarter.

Significant progress has been made at the new high grade antimony shaft, Gravelotte, where the decline has progressed some 90 meters. The project remains on track and within budget and should start contributing to Cons Murch’s antimony production during the current financial year. The commissioning of the first new fleet of key trackless equipment is scheduled for the March quarter.

In line with its strategic intent, Village invites all parties that may have an interest to acquire the Village equity interest in Cons Murch, to register such interest with Ferdi Dippenaar (cmmprocess@villagemainreef.co.za), from To the Point Growth Specialists (“TTP”), by no later than Friday 1 March 2013. The Village board has appointed TTP to manage a competitive sale process in relation to the Cons Murch asset.

Lesego Platinum Project

The Definitive Feasibility Study (“DFS”) is in the final stages of compilation. The study is expected to be completed towards the end of the March quarter. The DFS will include an updated resource statement, including a substantial JORC /SAMREC compliant reserve resulting from additional infill drilling conducted.

A total of R6.4 million was spent on the DFS during the December quarter compared to R9 million in the previous quarter. These costs were capitalised to the project.

Engagements with key regulatory authorities and essential service providers such as Eskom have also begun.


Contacts:

Sponsor

Java Capital


CEO Tele-conference Call

21 February 2013 @ 15h30 [GMT+1]

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011 535 3600
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Please note that a recording on the conference call will also be made available after the call.