Simmers interim costs soar

Allan Seccombe | Thu, 19 Nov 2009 09:59
[miningmx.com] -- JUNIOR gold producer Simmer & Jack saw a cost blow out at its flagship Buffelsfontein mine as it deals with shareholder discontent over the way the company is being managed.

Reporting results for the interim period to end-September 2009, Simmers reported total cash costs at Buffels ballooned to $964/oz or R477m, an 18% increase from a year ago and the mine is laying off staff.

“These were largely due to increases in electricity and the standard tariff effective 1 July 2009, a two year wage increase, as well as increases in overtime and contractor costs,” Simmers said in a statement.

CEO Gordon Miller said the cost increases were to be expected. “The group remains vulnerable to high cash costs by virtue of being in a development cycle and not yet at steady state production levels,” he said.

Simmers shares were down nearly four percent at a morning low of 195 cents on the JSE.

The mine stepped up production by five percent to 61,654 oz and revenue rose two percent to R455m. Its operating loss widened to R35m from R11m. The mine accounts for 93% of Simmers' gold output, with the rest coming from a small surface operation in Mpumalanga province.

Simmers is finalising life-of-mine plans for each of the operations.

Group production was up five percent at 66,295 oz and revenue rose 16% to R499m. Total cash costs, however, increased by 17% to R542m, with the operating loss widening to R44m from R35m.

During the period Simmers completed the rehabilitation of Five Shaft at a cost of R60m. This gives the company access to high-grade areas that were blocked off by an earthquake when the mine was owned by DRDGOLD.

Simmers is undertaking a rationalisation programme of its shafts and Buffels should produce between 27,000 and 28,000 oz/quarter. The company has started a Section 189 process whereby it engages unions on job cuts.

Simmers has stopped work at five of its nine shafts at Buffels, cutting out high-cost production.

Deon van der Mescht, director of gold operations, said this was only trimming its reserves by three percent, but would contribute towards bringing costs currently around R257,000/kg to below R200,000/kg by March 2010, including the synergies unlocked with Tau Lekoa.

He raised the prospect that the transfer of mining rights from AngloGold to Simmers for Tau Lekoa might be a bit later than expected and the two companies were meeting this week to discuss how to handle the delay.

Simmers’ production profile will change with the inclusion of Tau Lekoa from early in 2010, which will add 130,000 oz to group output once the mining rights are transferred. On average, Tau Lekoa will contribute an average 90,000 oz/year over the life of mine.

If things are tough at an operational level, they’re even tougher higher up at the company, with the major shareholder Xelexwa Investment Holdings, which is wholly owned b y Vulisango, demanding an extraordinary general meeting to vote in a new board and vote our four of the current six directors. Xelexwa owns about 22% of Simmers.

Among the people Vulisango has spoken to and persuaded to join the board as independent non-executive directors if it manages to remove four directors are former Harmony Gold CEO Bernard Swanepoel, who would be chairman; David Brown, CEO of Impala Platinum; Stuart Murray, CEO of Aquarius Platinum and the former head of African Rainbow Minerals’ coal division William Osae.

In a letter to the Simmers board on 13 November calling for an extraordinary general meeting (EGM), Vulisango outlined its grievances over the way the junior gold company was being run, its unhappiness with the board, its business decisions. It wants Gordon Miller, the CEO, Nigel Brunette, chairman, Adrian Meyer and John Berry to be removed.

Vulisango is deeply unhappy with what it calls “poor governance”, “a series of poor operational decisions” and a “litany of broken promises.”

Van der Mescht called some of the Vulisango accusations in their letter naive and misleading. The company is looking to replace three former directors with suitably qualified historically disadvantaged South Africans.

Vulisango, he said, suggested Simmers buy DRDGOLD's remaining underground operation, Blyvooruitzicht, which has just recently been put into judicial management because of cost escalations and a fall of ground hampering access to a high-grade area of the mine.