[miningmx.com] – VILLAGE Main Reef (VMR) was unlikely to rush into new investments in the current financial year despite its billing as an investment company on the hunt for new assets as it sought to stabilise its balance sheet.
This follows a R95m cash outflow in the year ended June 31, and a near R1.2bn reversal in its profit profile to a R909m loss – a performance informed by some R525m in write-downs of the group’s gold assets, Buffelsfontein and Blyvooruitzicht. Operating losses totalled R373m compared to an operating profit of R410m in the previous financial year.
“There’s no need to rush in. We don’t see significant new investments in the short-term. But I think the important thing is to find other investments like Conti (Continental Coal, Australian-listed firm in which VMR has a 19.9% stake) so we will be looking at assets at the bottom of the price cycle,’ said Ferdi Dippenaar, CEO of VMR.
“We certainly don’t expect a cash outflow this year,’ he said.
Dippenaar took the reins of VMR from his former Harmony Gold colleague, Bernard Swanepoel on August 12 who in turn became non-executive chairman, replacing outgoing chairman, Roy Pitchford.
It was a re-shuffle that also included the resignation of the company’s CFO, a position temporarily occupied by Marius Saaiman who is also reviewing his personal circumstances in repect of the company. The management changes reflect a difficult 12 months for VMR in which its share price weakened 64%.
The depleted cash and weakness of the share price effectively means VMR has had its expansionary wings trimmed. It is left to rebuild its cash flow, and investor confidence, although Pitchford insisted that the decline in the firm’s share price was consistent with the performance of other junior miners on the JSE.
Dippenaar said the closure and pending liquidation of its gold assets Buffels and Blyvoor would allow its remaining operating assets – Tau Lekoa and Consolidated Murchison – to restore VMR’s positive cash flow.
“Between them, Buffels and Blyvoor were responsible for cash operating losses of R300m (R190m from Blyvoor). I think we had to clean up the portfolio in the last financial year and make some difficult decisions,’ Dippenaar said.
The immediate future of VMR, therefore, falls squarely on the performance of Tau Lekoa, especially as Cons Murch is viewed as a long-life but less significant contributor to cash generation.
Dippenaar estimated it had an all-in sustaining cost breakeven of about $1,000/oz. “That provides us with a margin of about 25% which is pretty healthy. And we think it can produce sustainably between 940 to 950 kilograms of gold per quarter.’
That would result in a quarterly cash inflow of about R103m at the current gold price and rand/dollar exchange rate which would mean VMR could more than double its cash holdings of R171m by the interim stage.
This is crucial to the company’s future, especially as Pitchford in his last chairman’s letter to shareholders today styled VMR as an investment holding company. Of the R171m, some R105m is locked up for rehabilitation liabilities.
Pitchford reflected that VMR should have paid a lower special dividend to shareholders in the last financial year in order to protect the company’s flexibility.
