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Avgold needs to shine upLAST May, Anglovaal's mining division announced it was to incorporate its gold interests into Target Exploration and rename it Avgold. Target was R20 then - now it is 920c. After the overwhelming support of all concerned shareholders, Avgold incorporated Harties, ET Cons and Loraine, as well as mineral rights, boasting "ounces in the ground" or "blue sky" potential in the Sun and Oribi prospects of the northern Free State. But now the dropping share price concerns shareholders: one voiced the thoughts of many at the presentation of Avgold's quarterly results this week. Since May, Avgold has fallen by more than 50% against a 30% decline in the all-gold index. Avgold's management was accused of not selling itself well enough domestically and offshore, so that foreign investors have voted with their feet and sold out. The public relations leaves something to be desired: the mine does not organise analysts' visits, the mines' managers are kept as underground troglodytes and never invited to presentations to answer questions (all the other mining houses trot theirs out), nor do they have incentives to perform. Phew. Avgold managing director Jurie Geldenhuys did his best to explain the fall in the share price, reminding members that there is no quick fix for ageing gold mines and that Avgold is for the longer run. Before the merger, Harties traded on a 9% dividend yield. The dividend policy for Avgold is yet to be set and newly appointed financial director David Kovarsky will play a role here. Kovarsky spent years in the financial department of JCI, chairing Consolidated Metallurgical Industries, before moving to Times Media and then into his own business dealing in Walt Disney merchandise. (This led to quips from the analysts about "one Mickey Mouse company to another". Kovarsky's experience on dividend policy is also limited: CMI seldom made a profit, let alone declared a dividend, during the early 1990s.) Geldenhuys says Harties shareholders, especially those in Brussels who came aboard via pyramid Zandpan, have sold their new Avgolds because the dividend yield will not be anything like what they got from Harties. At the opposite end of the spectrum, the marginal Loraine was a pure gold play to many investors and speculators. The element of speculation has been reduced now Loraine is only a small part of Avgold. Once again, shareholders have moved out. Gold has also taken a $20+/oz knock since Avgold was formed, which has not helped the gold market in general. "We are disappointed with Avgold's underperformance, but we are not totally surprised. We remain positive that shareholders will come back and invest in Avgold in the future," says Geldenhuys. He says both top and middle management on the mines participate in incentive schemes and there is a lot of enthusiasm. Analysts might see it themselves next quarter as Geldenhuys undertook to consider inviting them to the presentation of results. Geldenhuys says the management team had an "impossibly busy" six to nine months obtaining shareholder approval for the group's restructure and travelling the globe explaining the consequences of Avgold's formation to the different types of shareholders. Chairman Rick Menell, speaking for the major shareholders Avmin and Anglovaal, says they are extremely pleased with the way Avgold has performed. "It had the overwhelming support of all shareholders and now we need to prove it was a good idea." During the quarter to December, Avgold earned R77-million before capital expenditure of R28-million, against the R47-million profit and R24-million capex of the September quarter (all figures pro forma). Although tonnage, grade and gold production all slipped, due to a bit of hedging Avgold got a good gold price of R56 488/kg - the best in the industry - and reduced total costs (excluding amortisation) by R8-million to R376-million. Uranium oxide sales at Harties earned a profit of R17-million. An underground fire at Harties and Christmas holidays will adversely affect results in the current quarter. Loraine struggled with a lower grade which is likely to persist, but ET Cons's yield moved smartly higher to 7,3g/t and that division made a profit.
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GRAPHS