Vatukoula Gold Mines (VGM:AIM) Turning a Corner as Production Cash Costs Fall and Gold Production Increases
Vatukoula Gold Mines (VGM:AIM) today posted its operational update to the First Quarter ended 30 November 2013.
Investors and shareholders will be pleased to see a small rise in production but more importantly the fact that VGM has now stabilised its production costs to circa $1,300 oz per ounce.
For the 3 months ended 30th Nov 2013 cash costs per ounce were $1,363 and for the three months ended August 2013 they were $1,393 per ounce.
These figures are significant in that Vatukoula has always taken pride in its accounting policy, where factoring the majority of its direct operating costs into its cash cost per ounce.
Gold production was up by 2% in the quarter and importantly there was a 13% rise in the Sulphide ore delivered to the Sulphide Plant, with sulphide head grade now stabilising at over 5 grams per tonne (5.3) Q1 2013 (5.85) Q4 2013. Oxide head grade is 3.97 grams per tonne
With the Zhongrun financing now in place, VGM is now properly capitalised for really what is the first time in its history since it re-started the mine back in 2007.
VGM, like all gold miners, will be hoping to see a re-trace in the gold price to levels closer to 1,400 USD per ounce.
This could well be possible, given the fact US Equities are viewed by some commentators as over priced. It is clear that investors who flooded into gold during the financial crises have in 2013 reduced their investment exposure to gold and have been the main reason why the gold price has fallen in 2013. Demand for gold is increasing, particularly from Asia and production entering the market from new mines is only slightly increasing. Total gold supply to the market in Q3 2013 was
down 3% compared to the same period in 2012, with recycling experiencing a decline
of 13% or 158 tonnes.
With the VGM stock currently trading at 6p, and with the Fiji operation now properly capitalised, an upward gold price swing could have a real impact on VGM's share price further into 2014.
Fingers crossed
Vatukoula Gold Mines plc
("Vatukoula" or "the Company")
Operational Update for the First Quarter ended 30 November 2013
Vatukoula Gold Mines Plc. (AIM:VGM), the AIM-listed gold producer, is pleased to announce its unaudited preliminary operational results from its 100% owned Vatukoula Gold Mine in Fiji for the first quarter ended 30 November 2013 ("Q1").
· Completed the first tranche of the US$ 40 million investment agreement with Zhongrun International Mining Co. Ltd ("Zhongrun") - US$20 million in November 2013
· Quarterly production of 11,090 ounces gold, with 11,415 ounces shipped. This represents a 2% increase in gold shipped compared to the previous quarter
· 14% increase in underground ore mined to 62,073 compared to the previous quarter
Operating Results
|
3 months ended Nov 2013 (Q1)
|
3 months ended Aug 2013 (Q4)
|
3 months ended May 2013 (Q3)
|
3 months ended Feb 2013 (Q2)
|
3 months ended Nov 2012 (Q1)
|
Total underground tonnes mined (ore, waste & capital)
|
104,805
|
96,701
|
94,793
|
89,341
|
117,160
|
Strike drive development (metres)
|
315
|
395
|
405
|
342
|
540
|
Capital development (metres)
|
1,327
|
1,131
|
976
|
765
|
1,625
|
Ore processed (tonnes)
|
107,115
|
111,936
|
100,182
|
103,916
|
112,944
|
Average ore head grade (grams/tonne)
|
3.97
|
3.96
|
3.48
|
3.70
|
3.88
|
Total recovery
|
79.37%
|
79.44%
|
79.76%
|
74.82%
|
71.86%
|
Gold produced
|
11,090
|
11,442
|
9,005
|
8,861
|
10,549
|
Gold shipped
|
11,415
|
11,219
|
8,704
|
9,113
|
10,482
|
Unaudited Financial Highlights:
|
3 months ended November 2013
|
3 months ended November 2012
|
Revenue (£'000)
|
9,256
|
11,335
|
EBITDA (£'000)
|
(2,493)
|
380
|
Cash (used) / generated from operating activities (£'000)
|
(1,367)
|
834
|
Underlying operating (loss) (£'000)
|
(4,450)
|
(1,257)
|
Cash cost per ounce shipped (US$/ounce)
|
1,363
|
1,590
|
Average realised gold price (US$/ounce)
|
1,285
|
1,721
|
Basic loss per share (pence)
|
(2.00)
|
(1.17)
|
Capital Investment (£'000)
|
3,002
|
5,171
|
Cash and Cash equivalents (£'000)
|
9,382
|
3,998
|
David Paxton, CEO of Vatukoula Gold Mines, commented:
"The quarter was highlighted by the completion of the US$ 20 million equity portion of the US$40 million investment agreement with our majority shareholder Zhongrun.
With the funds we have placed the orders to return our stock levels of vital spares at the mine and have arranged for a comprehensive refurbishment program for the underground mining fleet. These steps ensure that we can complete the essential development as detailed in our long term plans. Other vital maintenance programs have been scheduled as required.
The US$40 million will provide us with the balance sheet flexibility to embark on our capital investment programme in this fiscal year and we look forward to working with Zhongrun as we deliver our Company strategy to grow our production to sustainable and profitable levels."
Operating Results
3 months ended Nov 2013 (Q1)
|
3 months ended Aug 2013 (Q4)
|
3 months ended May 2013 (Q3)
|
3 months ended Feb 2013 (Q2)
|
3 months ended Nov 2012 (Q1)
| |
Underground Mining
| |||||
Total underground tonnes mined (ore, waste & capital)
|
104,805
|
96,701
|
94,793
|
89,341
|
117,160
|
Operating development (metres)
|
2,886
|
3,199
|
3,666
|
3,419
|
3,360
|
Strike drive development (metres)
|
315
|
395
|
405
|
342
|
540
|
Capital development (metres)
|
1,327
|
1,131
|
976
|
765
|
1,625
|
Total development (metres)
|
4,528
|
4,725
|
5,047
|
4,526
|
5,525
|
Sulphide Plant
| |||||
Sulphide ore delivered (tonnes)
|
62,073
|
54,637
|
59,456
|
64,023
|
62,040
|
Sulphide head grade (grams/tonne)
|
5.30
|
5.85
|
4.53
|
4.55
|
5.19
|
Oxide Plant
| |||||
Oxide ore delivered (tonnes)
|
47,593
|
57,076
|
40,424
|
41,017
|
50,530
|
Oxide head grade (grams/tonne)
|
2.06
|
2.15
|
2.36
|
2.36
|
2.28
|
Total (sulphide + oxide)
| |||||
Ore processed (tonnes)
|
107,115
|
111,936
|
100,182
|
103,916
|
112,944
|
Average ore head grade (grams/tonne)
|
3.97
|
3.96
|
3.48
|
3.70
|
3.88
|
Total recovery
|
79.37%
|
79.44%
|
79.76%
|
74.82%
|
71.86%
|
Gold produced
|
11,090
|
11,442
|
9,005
|
8,861
|
10,549
|
Gold shipped
|
11,415
|
11,219
|
8,704
|
9,113
|
10,482
|
Cash Costs
| |||||
Cash cost per ounce shipped (US$)
|
1,363
|
1,393
|
1,812
|
1,688
|
1,590
|
Cash cost per tonne mined and milled (US$/tonne)
|
145
|
140
|
157
|
148
|
148
|
Average realised gold price (US$/ounce)
|
1,285
|
1,317
|
1,474
|
1,636
|
1,721
|
Underground Production and Development
The initial funds from the Zhongrun investment were received in late October and early November, hence for the majority of the quarter capital was constrained and our planned capital development programme was not initiated as we restocked key supplies.
Total tonnes of ore, waste and capital mined for the quarter ended 30 November, 2013 decreased by 13% to 104,805 tonnes compared to the same period last year, but was 8% higher than the previous quarter ended August 2013. Once again limited availability of the underground mining fleet due to cash constraints limited our underground production. Total development, when measured by distance advanced was 4% lower than the previous quarter and 20% lower than the equivalent period last year. Development advance was also affected by the limited availability of the underground mining fleet.
The ore delivered from underground for the quarter ended 30 November, 2013 was 62,073 tonnes, a 14% increase compared to the previous quarter and approximately the same level for the same period last year.
The average underground grade for the quarter ended 30 November 2013 was 5.30 grams per tonne 9% lower than the previous quarter and 2% higher than the same period last year.
We are currently mining a mix of historic low grade stopes and newer areas as they are opened. The grade delivered will continue to be erratic until we have established sufficient new ore mining areas, which is the focus of the current development program.
Surface Production
Production from surface oxides and sulphide waste piles for the three months delivered was 47,593 tonnes at a grade of 2.06 grams gold per tonne. Surface mining produces both oxide material from open pit mining and sulphide material from old waste dumps. During the quarter we terminated the surface oxide mining, to focus on the higher grade sulphide waste dumps available in the mine area. This ore is currently processed as sulphide material. The termination of the oxide mining led to drop of 17% in ore delivered from surface mining compared to the previous quarter.
Vatukoula Treatment Plant ("VTP")
During the three months, the VTP processed 107,115 tonnes of ore which was a 4% reduction compared to the previous quarter (111,936 tonnes), and a 6% reduction to the same period last year (112,944 tonnes).
Gold recovery for the three-month period was 79.37%, which was similar to the previous quarter (79.44%). The composition of surface oxide ore has changed with more sulphide material in the surface waste dumps that has not been fully oxidised. Although the surface waste material has a higher grade (2.06 grams per tonne), the gold recovery is much lower due to the locked gold in sulphide.
As previously detailed, surface waste dump material production is being maintained while the underground ore production is limited. Mining of this material will cease once underground production is established.
Unaudited Financial Highlights
Revenue for Q1 was £9.3 million, lower than the same period last year (£11.3 million). This was primarily as a result of a decrease in the market price of gold, a 30% year on year decrease in US$ value. The average realised gold price was US$1,285 in Q1 compared to US$1,721 per ounce in the same period in 2012.
The net cash generated in operating activities decreased from £0.8 million generated Q1 last year to £1.4 million used Q1 this year. Prior to movements in working capital these figures are £0.9 million generated and £0.03 million used respectively. The large movement in working capital (cash used of £ 1.4 million in Q1) is a result of restocking of stores and returning the majority of our creditors to normal trading terms.
Capital investment decreased from £5.2 million in Q1 last year to £3 million in Q1 this year. This decrease is mainly attributable to a lack of working capital during the majority of the quarter while we completed the first tranche of the US$40 million investment agreement.
Cash costs for Q1 were US$1,363 per ounce shipped (Q1 last year: US$1,590 per ounce shipped). The main reason for the decrease in cash costs per ounce is the increase in grade and recovery from the mill and in addition a 2% decrease cash costs per tonne mined and milled from US$148 in Q1 last year to US$145 in Q1 this year.
Despite the decrease in the cost of sales the drop in gold price and changes in £ / F$ exchange rates (which resulted in a non-cash £1.5 million charge to our intercompany loan) resulted in a loss for the period of £4.4 million.
