19 June 2012

Vatukoula Gold Mines plc

 

("Vatukoula" or "the Company")

 

Operational Update for the Third Quarter and Nine Months ended 31^st May 2012

 

Vatukoula Gold Mines Plc (AIM:VGM), the AIM listed gold  producer, is pleased to announce its unaudited preliminary operational results from its 100% owned Vatukoula Gold Mine in Fiji for the third quarter ended 31^st May 2012 ("Q3") and nine months ended 31^st May 2012.

 

·        Cash generated from operations for the nine months of £4.68 million (for Q3 £0.3 million)

·        Capital Development metres continue to increase

o  106% rise compared to the nine months ended May 2011

o  45% rise compared to the three months ended Feb 2012

 

Financial Highlights:	9 months ended May 2012	9 months ended May 2011
Revenue (£'000)	43,229	35,668
EBITDA (£'000)	293	334
Cash generated from operating activities (£'000)	4,675	834
Underlying operating (loss) (£'000)	(4,337)	(2,203)
Cash cost per ounce shipped (US$/ounce)	1,609	1,297
Average realised gold price (US$/ounce)	1,656	1,368
Basic (loss) per share (pence)	(5.51)	(2.14)
Capital Investment (£'000)	10,322	6,801
Cash and Cash equivalents (£'000)	6,588	6,892

 

David Paxton, CEO of Vatukoula Gold Mines, commented:

In Q3 we were able to increase the rate of combined capital and strike drive development metres, making progress towards our near term and long term production and cost control targets,

 

As previously reported in our Half Year Interim Results heavy rain in Fiji affected our production for the quarter ended May 2012 and we shipped just over 12,500 ounces. As a consequence we also saw an increase in cash costs for Q3, the majority of which are temporary.  We expect to achieve our previously guided cash costs of approximately US$ 1,400 per ounce for the remainder of the fiscal year.

 

The essential capital development program which will provide long term flexibility for underground mining operations is beginning to bear fruit. New long-term stoping sections are being prepared for mining in H1 of next year and should help provide long-term flexible underground mining at Vatukoula."

 

Webcast

The Company will host a live investor and analyst webcast at 9:30 am BST, today 19 June 2012. The webcast can be accessed from a link on the Company's website, www.vgmplc.com, and via the below dial-in details: UK Access: +44(0)20 3106 7162 /Access Code: 1192406 . A replay facility will also be available shortly after the conclusion of the presentation as an audio file on the Company's website. In addition a copy of the presentation will be available on the Company's website.

 

Operating Results

 

 

Underground Production and Development

Total waste, ore and capital mined for the nine months ended 31^st May 2012 increased by 16% to 357,472 tonnes compared to the nine months ended 31^st May 2011. The higher tonnages were driven by increases in both strike drive and capital development which increased from 869 metres and 1,663 metres to 3,375 metres and 3,431 metres respectively. For Q3 the total waste, ore and capital mined was 2% lower than Q2. This reduction was in part due to the heavy rainfall the mine experienced in early April which impacted underground mining. Nonetheless capital development metres were increased from 1,004 metres in Q2 to 1,453 metres in Q3.  This was offset by a reduction in strike drive metres as we gradually introduce footwall drives to replace strike drives.

 

The ore delivered from underground for the nine months ended 31^st May 2012 was 234,622 tonnes, a 4% decrease compared to the same period last year. This reduction in ore delivered was a result of the heavy rainfall, which reduced shaft capacity on the Smith Shaft for 12 days. The reduced shaft capacity was also reflected in the lower Q3 ore delivered figure which was 69,283 tonnes (Q2: 79,158 tonnes).

The average underground grade for the nine months was 5.22 grams per tonne, which was in line with the same period last year (5.26 grams per tonne). For Q3 the average underground grade was 4.12 grams per tonne (Q2: 5.70 grams per tonne). The reduction in grade can be attributed to the heavy rains at the start of April which limited access to some high grade areas at the mine.

Underground operations have remained focused on the development of infrastructure to enable the mine to produce at our long-term projected rate. Capital development for the nine months was 3,431 meters, a 106% increase over the nine months ending in May 2011.  Strike Drive development has also increased over the nine month period to over 3,375 meters. Currently we have approximately 600 metres of available face length which puts us on target to have 1,000 metres of available face length in Q4 2013.

 

The 18 level Philip Shaft decline, part of the capital development program, advanced to 245 metres.  We anticipate shaft holing at the 20 level to be on schedule in Q1 2013.

 

As mentioned in our Half Year Interim Results we commenced several initiatives to increase mine pumping capacity which will make it possible to gain access earlier than previously expected to some higher grade areas of the mine that have been flooded for many years. These areas include the lower levels of the Smith Shaft workings (20L to 23L) and the 19L Philip area.

 

Surface Production

Production from surface oxides and a sulphide waste pile situated near Philip Shaft for the nine months delivered 123,476 tonnes at a grade of 1.78 grams per tonne. For Q3, surface production was 44,482 tonnes at an average grade of 1.84 grams per tonne. The surface material is a supplemental source of gold production and will be phased out over the coming year.

 

Vatukoula Treatment Plant ("VTP")

During the nine months, the VTP processed 357,375 tonnes of ore which was in line with the same period last year (358,539 tonnes). For Q3 the VTP processed 114,091 tonnes of ore which was marginally lower than Q2 (115,919), and included a 16% increase in the oxide ore delivered to the mill.

 

The average grade increased from 4.01 grams of gold per tonne in the nine months ending May 2011, to 4.38 grams of gold per tonne in the nine months ending May 2012. This was driven by higher grades delivered from surface mining operations. For Q3 the grade decreased to 3.55 grams per tonne from 5.01 grams per tonne in Q2, as a result of lower grades delivered from surface and underground.

 

Recoveries for the nine month period and Q3 ran at 79.1% and 76.4% respectively. For the nine months the recovery was lower than the comparable period last year as a result of the mixed nature of the material delivered from the surface waste dump. This is somewhat higher grading than the traditional oxide material but is a mixture of sulphide and oxide material, which results in a lower recovery in the CIP circuit. For Q3 lower recoveries compared to Q2 are attributable to the lower sulphide grade delivered to the mill during the period, which had the effect of lowering the recovery rates.

 

Financial Highlights

Revenue for the nine months ending 31 May 2012 of £43.2 million was higher than the same period last year (£35.7 million). The Group's year on year sales volume decreased marginally, however the Group benefited from significant increase in gold prices. The average realised gold price was US$1,656 in the nine months ended May 2012 compared to US$1,368 per ounce in the same period in 2011.

 

The underlying loss increased to £(4.3) million from £(2.2) million in the same period last year. This increase is attributed to an increase in cost of sales which reduced the gross profit by
£0.5 million, an increase in depreciation and amortisation expenses of just under £1 million and a lower non-cash foreign exchange gain on the intercompany loan.

 

The net cash generated in operating activities increased from £0.8 million in the nine months ended May 2011 to £4.7 million in the nine months ended May 2012. Prior to movements in working capital these figures are £0.5 million and £1 million respectively. The movements in working capital are represented by a decrease in gold inventories of £1 million as we sold gold stock over the period and increase of accounts payable of £2.4 million which is a result of the mine moving to 30 day payment terms, and some delays in regulatory approval for foreign supplier payments.

 

Capital investment increased from £6.8 million in the nine months ended May 2011 to £10.3 million in the nine months ended May 2012. This increase is mainly attributable to an increase in resource and reserve drilling activities of £2.7 million and an increase in mine development of £2.1 million.

 

Cash costs for Q3 were US$2,034 per ounce shipped (Q2: US$1,426 per ounce shipped). The main reasons for the increase in the cash costs per ounce is the decrease in grade and recovery from the mill and the increase in cash costs per tonne mined and milled from US$171 in Q2 to US$224 in Q3. The increase in cash cost per tonne was driven by the relatively fixed total costs associated with the underground mine and the lower tonnage mine and milled as a result of the heavy rainfall in early April. The combined effect of this was an temporary increase in unit costs of US$35 per tonne with the remaining US$18 increase attributable to higher pumping costs associated with accessing the deeper levels at the mine and higher heavy vehicles costs, in particular tyre costs.

 

Outlook

Notwithstanding the increased development program, and the short term mine plan to achieve increased production for the remainder of the year, the recovered grades have not yet achieved our forecast levels.  This may result in lower than expected gold shipped in Q4 and for the overall year ending in August 2012.

 

Qualified Person

Qualified Person Kiran Morzaria B.Eng. (ACSM), MBA, has reviewed and approved the information contained in this announcement. Kiran holds a Bachelor of Engineering (Industrial Geology) from the Camborne School of Mines and an MBA (Finance) from CASS Business School. Kiran is the Finance Director of VGM.

 

Enquiries:
Vatukoula Gold Mines plc		Cannacord Genuity Limited
David Paxton	+ 44 (0)20 7440 0643	John Prior	+ 44 (0)20 7523 8350
Kiran Morzaria		Sebastian Jones
W.H. Ireland Limited		Pelham, Bell Pottinger
James Joyce	+ 44 (0)20 7220 1666	Daniel Thöle	+ 44 (0)20 7861 3232
James Bavister		Philippe Polman