27th Apr 2010 07:00
AFRICAN BARRICK GOLD PLCLSE: ABGFirst Quarter Report 201027 April 2010
Based on IFRS and expressed in US Dollars
African Barrick Gold plc ("ABG'') reports first quarter results
Highlights
* On 24 March 2010, ABG completed its initial public offering (the "IPO") of approximately 25% of its issued ordinary share capital on the London Stock Exchange at an offer price of 575 pence per share. On 15 April 2010, ABG issued a further 5,756,232 ordinary shares pursuant to the partial exercise of an over-allotment option granted in connection with the IPO. ABG received total net proceeds of $48 million from the exercise. * A 143% increase in first quarter EBITDA of $100 million compared to the prior year period of $41 million. The Q1 net earnings increased 356% from $12 million in 2009 to $53 million in 2010. * A 40% increase in first quarter attributable gold production of 177,095 ounces compared to the prior year period of 126,860 ounces. 2010 Q1 ounces sold of 184,724 ounces outpaced production and increased 43% over the prior year period of 128,799 ounces sold. * ABG confirms production and cash cost guidance of 800,000 to 850,000 ounces at $450 to $500 cash cost per ounce respectively for 2010. * A 4% decrease in first quarter attributable cash cost per sold ounce at US$516 per ounce compared to the prior year period of $537 per ounce. * As at 31 March 2010 ABG had cash and cash equivalents of $320 million and generated $67 million from operations for Q1 2010. * There has been further investment in development work on identified organic expansion opportunities at or near current operating mines. * The takeover offer for all of the ordinary shares of the Australian-listed company Tusker Gold Limited ("Tusker") was declared free from all conditions on 20 April 2010. The offer period ends on 27 April 2010.
Commenting on the results, Greg Hawkins, Chief Executive Officer, said:
"I am pleased to report our first quarter results. It has been an exciting time for ABG. We have successfully completed a listing on the London Stock Exchange. We are starting life as a LSE Main Market listed company with a strong balance sheet, and we now have the operational flexibility to achieve our full potential. We have four high quality operating assets located in Tanzania and today's results confirm our optimism for the future."
Initial Public Offering
On 24 March 2010, ABG completed its IPO of approximately 25% of its issued ordinary share capital on the London Stock Exchange at an offer price of 575 pence per share.
On 15 April 2010, ABG issued a further 5,756,232 ordinary shares pursuant to the partial exercise of an over-allotment option granted in connection with the IPO. ABG received total net proceeds of $48 million. The proceeds obtained from the exercise of the over-allotment option will be used to assist ABG in the funding of maintenance capital, internal growth projects and general corporate purposes.
Operating update
Q1 2010 production of 177,095 ounces was 40% higher than the prior year period and cash costs were $516 per ounce sold which was 4% lower than the prior year period. First quarter ounces sold was 184,724 ounces which is 43% higher than the prior year period which totalled 128,799 ounces. The increase in production was primarily driven by the contribution from Buzwagi which started commercial production in May 2009. The decrease in ABG's cash costs was a result of: (i) higher production at Bulyanhulu and (ii) reduced energy and maintenance costs combined with a lower production strip ratio.
ABG reported EBITDA of $100 million for the quarter compared to $41 million for the prior year period. The Buzwagi production in Q1 2010 contributed significantly to the additional EBITDA over Q1 2009 when the operation was still in the project execution phase. Increased revenue was also driven by increased realised gold prices which saw the average realised gold price for the first quarter increasing to $1,110/per ounce compared to $886/per ounce for the prior year period.
Bulyanhulu production was negatively impacted during Q1 2010 by a tragic rock fall incident that resulted in three employee fatalities. A team of senior investigators from Barrick Gold Corporation ("Barrick") was dispatched to undertake a full and thorough investigation of the accident. ABG is committed to the safety of each of its employees and will continue to make safety the top priority at its mines. Barrick had not suffered any employee safety-related fatalities since 2006 in Tanzania. ABG suspended mining activities on 16 March 2010 for the rescue and recovery mission and a period of mourning and mining activities were resumed by 19 March 2010.
During the quarter, the Buzwagi mine continued to work through transition ore, which has lower grades and reduced mill recoveries than the primary sulphide ore. We expect to process an increasing amount of primary and sulphide ore during Q2 2010.
Tulawaka saw a decline in production largely due to lower equipment availability which reduced the material hoisted to surface and saw an increase in the processing of lower grade stockpiles. North Mara operating performance continued as planned with the waste stripping in the Gokona pit.
ABG incurred capital expenditure of $38 million during the quarter compared to $48 million for the prior year. Of this, $18 million was related to expansion projects relating to North Mara deferred stripping, Buzwagi mining fleet expansion and Tulawaka underground development. The remaining portion was incurred in sustaining the current operations including ongoing underground development at Bulyanhulu.
Financial update
At quarter end ABG had cash and cash equivalents of $320 million. ABG's production and reserves are 100% unhedged and it is ABG's intention to provide shareholders maximum exposure to changes in the gold price. ABG will manage its balance sheet conservatively, and together with strong cash flow generation at current gold prices, has appropriate financial flexibility to invest in the sustainability of current operations, fund organic growth projects, as well as take advantage of external growth opportunities that may arise.
Exploration and Corporate Development Update
ABG plans to grow gold production to over 1.0 million ounces with lower cash costs by 2014, and to double 2009 production in the next 10 years. To achieve these targets, ABG expects to increase production through brown field expansion at existing infrastructure, aggressively explore its large, prospective Tanzanian exploration ground, and in time expand within Africa with opportunistic exploration earn-ins and acquisitions.
ABG has approved a $20 million exploration budget for 2010 to optimize and leverage the four established producing mines by increasing incremental production and to expand its reserves and resources. In Q1 2010 ABG spent $1.8 million on exploration in the aforementioned projects.
Exploration drilling commenced on near mine targets at Tulawaka, although field activities at most projects in Tanzania were restricted during the quarter due to a lack of access as a result of high rainfall from the current wet season. The majority of other exploration work for the quarter focused on preparations for upcoming drill programs at Golden Ridge and Gokona-Nyabigena (North Mara) where feasibility and underground scoping studies are underway, respectively.
At Tulawaka, reverse circulation drilling at the Mojamoja target, approximately 4km northwest of the Tulawaka plant has identified a new zone of gold mineralisation. "Tulawaka style" quartz veining was encountered in several drill holes, with visible gold observed in RC chips associated with higher grade gold assays. Significant intercepts included better results of 12m @ 11.5g/t Au from 89m (including 2m @ 57.1g/t Au), 5m @ 36.4g/t Au from 76m (including 2m @77.5g/t Au), and 1m @ 67.3g/t Au from 48m. Additional step-out and infill drilling will be required prior to resource estimation work.
In addition, the underground exploration drill program at Tulawaka East Zone continued to identify extensions to the known high grade shoots in the AZM-124 Zone. Better results included, 4m @ 18.45g/t Au and 4.6m @ 34.5g/t Au (down-hole intersected width represents approximate true width) between Level 9 and Level 10. These high-grade intersections indicate the potential to identify extensions of the underground reserves and resources beyond currently defined levels, and further extend the Tulawaka mine life beyond 2010.
On 20 April 2010, the takeover offer made by BUK Holdco Limited ("BUK"), a wholly-owned subsidiary of ABG, for all of the ordinary shares of Tusker was declared free from all conditions. The offer period ends on 27 April 2010. BUK commenced the compulsory acquisition process to acquire the Tusker shares that were not tendered into the takeover offer (the "Compulsory Acquisition") on or around 21 April 2010. BUK expects to complete the Compulsory Acquisition by early June 2010. The total consideration payable by BUK to shareholders to acquire 100% of Tusker is approximately $75 million (based on an assumed exchange rate of $ 1 to A$ 1.08).
Tusker holds a 49% interest in the Nyanzaga joint venture in Tanzania, with ABG owning the remaining 51%. Upon completion of the Compulsory Acquisition, ABG's interest in the Nyanzaga joint venture will be increased to 100%. The Nyanzaga project covers more than 350 square kilometres in the Lake Victoria Goldfields and is located approximately 35 kilometres northeast of the Bulyanhulu mine.
The consolidation of the Nyanzaga JV provides ABG with advanced-stage exploration properties that can be advanced to development with ABG as the 100% owner, and provides the opportunity to add significant production ounces to ABG's future profile. The Company believes that the Tusker deposit has the potential to become a mine with certain key similarities to the Buzwagi mine.
Regulatory Update
The Tanzanian Parliament passed a new Mining Law on April 23, 2010, which has not yet been signed by the President. The new law provides for an increase in royalties payable on gold sales, which the company does not believe will affect its current mines in the country because its existing Mineral Development Agreements ("MDAs") remain unchanged. The MDAs between the Government of Tanzania and each of the company's mines ensures fiscal stability for the respective mine. The company continues to review the new law to understand its scope and application for future projects and will update the market to the extent necessary following the completion of its review.
Conference call
There will be a conference call for analysts and investors on 27 April 2010 at 12.00 pm (noon) London time. The dial in details are as follows:
Participant dial +44 (0) 203 003 2666 in: Password: African Barrick Gold or ABG
There will be a replay facility available until 4 May 2010. Access details are as follows:
Replay number: +44 (0) 208 196 1998
Replay PIN: 9865365# Operating resultsAfrican Barrick Gold Three months ended Year ended (in US$ '000) 31 March 31 December (Unaudited) 2010 2009 2009 Sales 210,660 119,695 693,412 Cost of sales 1 (125,512) (89,816) (469,257) Gross profit 85,148 29,879 224,155 Corporate administration (7,617) (10,123) (48,464) Exploration and (1,828) (1,476) (8,871)evaluation Other charges (3,260) 4,438 (10,714) Profit before net 72,443 22,718 156,106finance costs Finance income 152 23 361 Finance expense (487) (2,725) (6,062) Net profit before 72,108 20,016 150,405taxation Taxation expense (19,055) (6,275) (84,388) Net profit 53,054 13,741 66,017
Net profit attributable to equity shareholders 53,054 11,631 58,577
1 - Included in cost of sales is an amount of $ 27.4 million ($ 18.3 million Q1 2009) relating to depreciation and amortisation.
Other financial information summary
African Barrick Gold Three months ended Year ended (in US$ '000 except per 31 March 31ounce and per share Decemberfigures) (Unaudited) 2010 2009 2009 Cash and cash equivalents 320,132 39,684 69,726 Cash generated from/(utilised in) operating 67,324 (2,886) 193,961activities Capital expenditure 37,644 47,703 223,268 EBITDA 99,694 40,981 249,456 Cash costs per ounce 516 537 533 Basic earnings per share 0.13 n/a n/a
Improved gold prices and significantly increasing ounces sold drove ABG's EBITDA from $41 million in Q1 2009 to $100 million in Q1 2010. ABG was able to slightly reduce its overall cash costs through higher by-product revenues and lower cash costs at both Bulyanhulu and North Mara. The increase in EBITDA was helped by decreased expenditures on corporate activities in the first quarter of 2010. Both exploration and corporate costs will increase over the remainder of the year to account for the additional costs of operating a stand alone publicly listed company and the execution of an aggressive exploration program to advance the organic growth opportunities.
Key statisticsAfrican Barrick Gold Three months ended Year ended (in US$000) 31 March 31 December (Unaudited) 2010 2009 2009 Operating results 1
Gold production (thousands of ounces) 177 127 716 Gold sales (thousands of ounces) 185 129 684 Per ounce data 2 Average spot gold price 1,109 908 972 Average realised gold price 1,110 886 974 Total cash costs per ounce sold 516 537 533 Amortisation and other per ounce sold 137 128 125 Total production costs per ounce sold 653 665 658
1 - Operating results excludes 30% outside equity gold production ounces at Tulawaka.
2 - Per ounce data excludes 30% outside equity costs.
BulyanhuluOperational resultsBulyanhulu Three months ended Year ended (in US$ '000) 31 March 31 December (Unaudited) 2010 2009 2009 Underground ore tonnes Ktpa 244.7 208.9 966.9hoisted Ore milled Ktpa 231.1 209.0 959.2 Head grade g/t 9.04 9.39 8.75 Mill recovery % 91.9 93.3 92.1 Ounces produced Oz 61,669 58,854 248,911 Ounces sold Oz 67,193 61,456 255,121 Cash costs/ounces sold US$/oz $513 $584 $651
During Q1 2010, Bulyanhulu experienced more stable production and produced 4.7% more ounces than the prior year's quarter when the operation experienced a serious paste-fill line blockage interrupting the underground mine production. However, Bulyanhulu production was negatively affected in the quarter by a tragic rock fall incident that resulted in three employee fatalities. Lower mill recoveries were due to lower head grade processed in Q1 2010 vs. Q1 2009.
Cash costs were 12.1% lower than the prior year period due to improved by-product credits from improved copper prices and lower costs of consumables.
Management is advancing the prefeasibility study to access the Upper East zone to seek to increase annual gold production by 2014. A production decision is expected to be taken in early 2011.
North MaraOperational resultsNorth Mara Three months ended Year ended (in US$ '000) 31 March 31 December (Unaudited) 2010 2009 2009 Tonnes mined Ktpa 1,951 3,894 15,888
Ore tonnes mined Ktpa 683 1,177
Ore milled Ktpa 647 677 2,605 Head grade g/t 3.19 3.10 3.18 Mill recovery % 81.2 79.6 79.7
Ounces produced Oz 53,908 53,659 212,358 Ounces sold Oz 54,468 52,502 209,495 Cash costs/ounces sold $US/oz $445 $527 $508
During Q1 2010, North Mara increased head grade by 3% while decreasing tonnes milled by 4.4% over the same period in 2009. Improvements in process equipment and operating practices supported increased metal recovery. Lower cash costs per ounce were achieved as a result of a lower production strip ratio, reduced energy costs from utilizing the national power grid over diesel generated power and lower maintenance costs incurred on the new mining fleet.
In the second half of 2010, a scoping study is expected to be advanced on the economic potential of the Gokona and Nyabigena underground ore body extensions.
BuzwagiOperational resultsBuzwagi Three months ended Year ended (in US$ '000) 31 March 31 December (Unaudited) 2010 2009 2009 Tonnes mined Ktpa 4,562 - 19,843 Ore milled Ktpa 890 - 2,671 Head grade g/t 2.23 - 2.52 Mill recovery % 80.2% - 87.4 Ounces produced Oz 51,304 - 189,031 Ounces sold Oz 51,082 - 153,682 Cash costs/ounces sold $US/oz $585 - $422
The Buzwagi operation began commercial production in the second quarter of 2009. During Q1 2010, the Buzwagi mine continued to work through transition ore, which has lower grades and reduced mill recoveries than the primary sulphide ore. We expect to process an increasing amount of primary sulphide ore during Q2 2010. Cash costs were higher in Q1 than the expected average for 2010 due to this mine sequencing. Lower recoveries and increased cyanide consumption from processing transition ore resulted in higher unit costs compared to the processing of primary sulphide ore.
The Golden Ridge project is a satellite shallow ore body located 50 kilometres from the Buzwagi operation. The project is currently moving into the feasibility study phase and the project team has been mobilized to perform sample drilling, metallurgical, environmental, and social studies. A production decision is expected to be taken in early 2011.
TulawakaOperational resultsTulawaka (reflected as Three months ended Year ended70%) (inUS$ '000) 31 March 31 December (Unaudited) 2010 2009 2009 Underground ore tonnes Ktpa 19.3 24.4 83.4hoisted Ore milled Ktpa 83.1 71.3 311.8 Head grade g/t 4.09 6.70 7.0 Mill recovery % 93.6 93.3 94.1 Ounces produced Oz 10,214 14,347 65,926 Ounces sold Oz 11,980 14,841 65,389
Cash costs/ounces sold $US/oz $558 $379 $413
Tulawaka underground operation experienced a 21% decline in tonnes hoisted to surface in Q1 2010 compared to the same period in 2009. This was mainly driven by lower equipment availability and the processing of lower grade stock pile ore to offset the mine production shortfall driving down the head grade milled, resulting in a 29 % reduction of ounces produced compared to the previous year.
Management has mobilized additional haulage trucks from its other operations and expects the mine to make its original budgeted production. Cash costs per ounce for the first quarter 2010 increased compared to the prior year period as a result of the lower production base.
Additional funding has been approved for an aggressive exploration drilling program for both the underground and open pit resources. Additional equipment for mine development has been mobilized for delivery to site.
For further information, please visit our website: www.africanbarrickgold.comor contact:African Barrick Gold plcc/o Shearman & Sterling LLPBroadgate West9 Appold StreetLondon EC2A 2APGreg Hawkins, CEO +44 (0)207 655 5580 Kevin Jennings, CFO +44 (0)207 655 5581
Finsbury (Financial public relations + 44 (0)20 7251 3801
firm) Andrew MitchellCharles ChichesterAbout ABG
ABG is headquartered in London and is listed on the Main Market of the London Stock Exchange under the symbol ABG. ABG is the largest gold producer in Tanzania and the fifth largest in Africa, growing from no production in 2000 to approximately 716,000 attributable ounces in 2009, with 16.8 million ounces of reserves. It has four producing mines, all located in northwest Tanzania, and seven principal exploration projects.
ABG has substantial gold mining experience and expertise, from exploration and development to mine construction and operation. It has modern, well invested operations that have benefited from the experience, technology and high standards of its majority shareholder, Barrick.
ABG's four mines are:
Bulyanhulu: an underground gold mine, which began production in April 2001;
Buzwagi: an open pit gold mine, which began production in May 2009; North Mara: an open pit gold mine consisting of three open pit deposits, which began production in April 2002; and Tulawaka: an open pit gold mine that has transitioned to an underground operation, which began production in March 2005.
The ABG's recent exploration focus has been on advancing the exploration opportunities around its existing mines in order to increase the ABG's reserves and resources. Historically and prior to ABG's listing on the London Stock Exchange, the operations of the ABG comprised the Tanzanian gold mining business of Barrick.
BASIS OF PREPARATION
The financial information has been prepared in accordance with International Reporting Standards ("IFRS") as adopted by the European Union except as described below, while its parent, Barrick, reports under US GAAP. Due to the difference in reporting methods there may be differences in the reported numbers of each entity.
ABG was not constituted as a separate legal group prior to 24 March 2010. The combined historical financial information prepared specifically for the purposes of this quarterly report is prepared on a basis that combines the results and assets and liabilities of each of the companies constituting the ABG group by applying the principles underlying to the consolidation procedures of IAS 27 (revised) `Consolidation and Separate Financial Statements' ("IAS 27R") for each of the periods to 31 March 2010 and 31 March 2009 and for the year to 31 December 2009. On such a basis the combined information sets out the ABG group's financial position as at 31 March 2010, 31 March 2009 and 31 December 2009 and results of operations and cash flows for the three periods then ended.
IFRS as adopted by the EU does not provide for the preparation of combined historical information, and accordingly in preparing the combined historical financial information certain accounting conventions commonly used for the preparation of historical financial information for inclusion in investment circulars as described in the Annexure to SIR 2000 (Investment Reporting Standard applicable to public reporting engagements on historical financial information) issued by the UK Auditing Practices Board have been applied. The application of these conventions results in the following material departures from IFRS. In all other respects IFRS has been applied.
- As explained above, the combined historical financial information is prepared on a combined basis and therefore does not comply with the requirements of IAS 27R. The financial information has therefore been prepared on a combined basis applying the principles underlying the consolidation procedures of IAS 27R.
- The combined historical financial information does not constitute a set of general purpose financial statements under paragraph 3 of IAS 1 `Presentation of Financial Statements' ("IAS1") and consequently ABG does not make an explicit and unreserved statement of compliance with IFRS as contemplated by paragraph 14 of IAS 1. A company is only permitted to apply the first time adoption rules of IFRS 1 `First time Adoption of International Financial Reporting Standards' ("IFRS1") in its first set of financial statements where such an unreserved statement of compliance has been made. Although such a statement has not been made, the combined financial information has been prepared as if the date of transition to IFRS is 1 January 2007, the beginning of the first period presented, and the requirements of IFRS 1 have been applied as of that date.
NON-IFRS MEASURES
ABG has identified certain measures that are not measures defined under IFRS. Non-IFRS financial measures disclosed by management are provided as additional information to investors in order to provide them with an alternative method for assessing ABG's financial condition and operating results. These measures are not in accordance with, or a substitute for, IFRS, and may be different from or inconsistent with non-IFRS financial measures used by other companies. These measures are explained further below.
Cash costs and cash costs per ounce
Cash costs per ounce sold are a non-IFRS financial measure. Cash costs include all costs absorbed into inventory, as well as royalties, by product credits, and production taxes, and exclude capitalised production stripping costs, inventory purchase accounting adjustments, unrealised gains/losses from non hedge currency and commodity contracts, depreciation and amortisation. The presentation of these statistics in this manner allows ABG to monitor and manage those factors that impact production costs on a monthly basis. ABG calculates cash costs based on its equity interest in production from its mines. Cash costs per ounce sold are calculated by dividing the aggregate of these costs by gold ounces sold. Cash costs and cash costs per ounce sold are calculated on a consistent basis for the periods presented.
EBITDA
EBITDA is a non-IFRS financial measure. ABG calculates EBITDA as net profit or loss for the period excluding:
- Income tax expense;- Interest expense;- Interest income; and
- Depreciation and amortisation (including impairment).
EBITDA is intended to provide additional information to investors and analysts, and does not have any standardised meaning prescribed by IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. EBITDA excludes the impact of cash costs of financing activities and taxes, and the effects of changes in operating working capital balances, and therefore is not necessarily indicative of operating profit or cash flow from operations as determined under IFRS. Other companies may calculate EBITDA differently.
FORWARD LOOKING STATEMENT
This report includes "forward-looking statements" that express or imply expectations of future events or results. Forward-looking statements are statements that are not historical facts. These statements include, without limitation, financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future production, operations, costs, products and services, and statements regarding future performance. Forward-looking statements are generally identified by the words "plans," "expect," "anticipates," "believes," "intends," "estimates" and other similar expressions.
All forward-looking statements involve a number of risks, uncertainties and other factors, and ABG cannot give assurances that such statements will prove to be correct. Risks, uncertainties and other factors could cause actual events or results to differ from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to differences between the actual results, performance and achievements of ABG include, but are not limited to, general economic and business conditions, industry trends, competition, fluctuations in the spot and forward price of gold or certain other commodity prices, changes in regulation, currency fluctuations (including the US dollar, South African rand and Tanzanian shilling exchange rates), ABG's ability to successfully integrate future acquisitions, to recover its reserves or develop new reserves, including its ability to convert its resources into reserves and its mineral potential into resources or reserves, changes in its business strategy and political and economic uncertainty, as well as risks and hazards associated with the business of mineral exploration, development and mining.
Although ABG's management believes that the expectations reflected in such forward-looking statements are reasonable, investors are cautioned that forward-looking information and statements are subject to various risks and uncertainties, many of which are difficult to predict and generally beyond the control of ABG, that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements contained in this report.
Investors should not place reliance on forward looking statements in this report.
The forward looking statements in this report reflect information available at the time of preparing this report. Subject to the requirements of, the Disclosure and Transparency Rules and the Listing Rules or applicable law, ABG explicitly disclaims any obligation or undertaking publicly to release the result of any revisions to any forward-looking statements in this report that may occur due to any change in ABG's expectations or to reflect events or circumstances after the date of this report.
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