Transformed Kalgold is bullish on earnings
No need for borrowings but group wants to spend more on exploration, writes JULIE WALKER
CE Ted Grobicki notes that with the commissioning of the carbon in leach (CIL) plant in the June quarter, the character of Kalgold's operations changed. The opencast mine started gold production from heap leaching; this is expected to contribute only 15% of future production now the CIL plant is running.
Operating costs were charged directly against income for the first time in the June quarter after previously being capitalised. Kalgold's 542kg of gold earned R27.1-million against costs of R21.7-million.
Kalgold does not hedge its gold sales; it earned just short of R50 000/kg or $300.15/oz against total cash costs of R39 984/kg or R240.06/oz. Exchange rates averaged R5.20 to the dollar in the quarter. "We look forward to a big increase, even with a flat dollar price of gold," says Grobicki.
There is still room to improve efficiency of operations: the feed grade should average 2.3g/t, and the recovery needs to be lifted from the current 88%; tonnage is also short of the target.
Capital expenditure on mining assets declined for the second quarter in a row to R7-million: "Hopefully, we are over the hump now, and capex will fall. Investors ask us whether our cash (raised at listing last year) will last; we believe we are at the lowest point of our net cash position at R2-million, and we won't have to incur borrowings hereon out."
While Kalgold does not need cash, Grobicki would like to spend a lot more on exploration, and means of funding this are sought: "Our conviction is that we sit on a major goldfield unexplored in the past," he says, adding that the same kind of area in Australia would enjoy a much higher level of interest.
The only other mine on the Kraaipan schist is disgraced Amalia, which is in liquidation; Kalgold has put in a "cheeky" bid. "We're interested in the mineral rights." Kalgold was trading at 233c on Friday after touching 240c.
In the Gold Fields of South Africa stable, Northam finally had its day. Chairman Peter Janisch expressed his "absolute delight" with the R40.6-million earned by the platinum mine during the June quarter. It meant Northam made a profit after capital expenditure of more than R7-million in the financial year to June 1998 - the first glimmer of hope after 11 years and some R2-billion invested.
GFSA is disposing of or unbundling assets. Janisch says Northam has suspended shaft-deepening to access ore below 12 level. "We have about six years of reserves in the current lease area," says Janisch in a move seen as signalling merging Northam with another producer.
Janisch expects Northam's grade to be higher at about 6.2g/t in the forthcoming quarters; he notes that the market value of R107-million worth of finished stock is closer to R150-million, and that Northam has R35-million cash in hand. Northam added 25c to 370c on the results.
Gold Fields Coal improved on last quarter's poor performance, making R5-million out of its own operations against a small loss to March in spite of almost no opencast mining as the contractor went into liquidation. Income from non-managed joint venture Matla edged up to R7.2-million and GF Coal earned R6.2-million net sundry revenue, mainly on the R7-million sale of some New Clydesdale rights to the adjacent Douglas mine from which access is simpler.
Chairman Barbara Day notes the terrible coal market, saying she would not be surprised if prices fell to $22/ton. Australian exporters are shipping coal at almost any price to Europe, where they never used to compete with SA exporters, because Asian customers are buying less.
The GF Coal Cosmos project is being funded on debt. Day notes that the depreciating rand raises the price of capital equipment which is almost all imported, while higher interest charges are also painful. Progress was made in terms of rail tariffs to export coal through Maputo, and GF Coal has resumed railing; Day says tariffs are nowhere near where she would like them.
On GF Coal, Day says there has been very positive interest from local and international companies. She expects to announce something in six to eight weeks. Elsewhere in GFSA, Zincor, Black Mountain and O'Okiep all made substantially better profits which, together with Northam and GF Coal, aggregate to taxed profit of R85.9-million for the quarter.
Harmony made a spectacular R45-million profit for the June quarter. Analysts note that chief executive Bernard Swanepoel was the manager at recently bought Evander during its heyday, and expect his influence to make a difference at the former Gold Fields Ltd mine.
Avgold and Durban Deep restructured their gold hedges to take advantage of a higher rand gold price.