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Western Areas in profit, hedge weighs
Allan Seccombe
Posted: Thu, 20 Oct 2005

[miningmx.com] -- WESTERN Areas posted a quarterly profit prompting management to say its South Deep joint venture gold mine was finally starting to deliver. However, the mine’s performance is still weighed down by a hedge book which saw gold prices 24% below the spot price.

Western Areas, once led by mining entrepreneur, Brett Kebble, shot dead earlier last month, posted a R32m profit for the three months to end-September versus a R125.3m loss in the previous quarter.

The South Deep joint venture, shared equally with Canada’s Placer Dome, is Western Areas’ main operating asset. The South Deep mine is one of the world’s richest gold deposits.

"South Deep is starting to deliver on the promise that prompted a multiple billion rand investment a decade ago", said acting Western Areas CEO, Chris Lamprecht. In the year to date it has recorded a R280m loss. Last year it notched up a small profit of R13.5m.
This emphasises the urgent need to restructure the derivative structure
Despite receiving a better price for the gold it sold, which increased 17% to R74,352/kg, that figure could have been R92,229/kg if it weren’t for the hedging commitments.

"This emphasises the urgent need to restructure the derivative structure and thus improve the company’s cash flow. The directors are paying particular attention to this and we hope to have resolved this matter within the next few months."

South Deep’s year-end reserve declaration is being finalised by an “independent international” panel. Western Areas’ shares were pounded at the end of August when it said it might cut its reserves estimate by 18% to 45 million ounces.

“Details of the possible reduction in mineral reserves anticipated in the previous quarterly report would be reported to shareholders in the 2005 annual financial statements,” Western Areas said in a statement to its results.

Western Areas will begin its R640m rights issue shortly, which is being underwritten to the tune of R250m by its largest shareholder and another Kebble company JCI.