All amounts expressed in United States dollars.
Namibian Minerals has released financial results for the year ended Dec. 31, 2000.
Twelve-month highlights and results consist of the following:
earnings of $1.0-million, two cents per share, on revenues of $41.8-million;
diamond production of 221,000 carats;
a 17-per-cent increase in average realized diamond prices to $176 per carat;
completion of MV Ya Toivo conversion, construction of new Nam 2 seabed crawler and the start of commissioning in Namibia;
increased shareholding in Ocean Diamond Mining Holdings Ltd., (ODM) to 97.7 per cent, completing the acquisition;
completion of the modernization of MV Namibian Gem;
and the start of limited exploration with the new dedicated exploration vessel MV Zacharias.
Earnings in 2000 of $1.0-million, two cents per share (1999: $17.1-million, 43 cents per share), reflected lower production levels, increased costs of operating an expanded fleet and costs associated with the ODM acquisition. Revenues from the sale of 237,000 carats (1999: 283,000 carats) were $41.8-million, compared with $42.8-million a year earlier. The 17-per-cent increase in diamond price achieved for the year at $176 per carat (1999: $151 per carat) reflects improved market conditions and larger stone sizes obtained in mining licence 36, acquired from ODM. Direct operating costs rose to $22.1-million (1999: $13.7-million). Amortization, including good will, increased from $4.0-million to $9.1-million. Operating cash flow for the year was $15.9-million, 34 cents per share, compared with $22.7-million, 56 cents per share in 1999. At year-end 2000 the company had $4.4-million in cash (1999: $20.0-million) and $54.2-million in long-term debt (1999: $31.1-million).
Diamond production in 2000 was 221,000 carats (1999: 273,700 carats), of which 47 per cent or 102,700 carats was contributed from the airlift vessels (1999: 17,300 carats(1)) acquired from ODM. The airlift vessels substantially outperformed historical annual production levels of approximately 55,000 carats per annum, primarily due to the $5-million upgrade completed on MVNamibian Gem to enhance its productivity and by relocating MV Ivan Prinsep into higher grade areas for the three months while MVNamibian Gem was in port. The overall average stone size recovered during the year was 0.35 carats, although the average stone size in mining licence 36 improved to 0.38 carats. Operating cash costs, including royalty and marketing, were $111 per carat (1999: $65 per carat), representing a 60-per-cent margin on the $176 per carat average sales price achieved.
Fourth quarter results
Fourth quarter revenues from the sale of 60,200 carats were $10.6-million compared with sales of 53,700 carats for revenues of $8.4-million (U.S) in 1999. A loss of $1.6-million, four cents per share (1999: earnings of $1.1-million, two cents per share), reflects increased costs over the comparative period in 1999, including a full amortization charge on good will and concessions acquired from ODM. The average sales price per carat was $176 (1999: $156). Production in the fourth quarter was 57,500 carats (1999: 65,900 carats). Operating cash flow was $8.5-million (1999:$2.1-million).
Substantial investment in new projects
The company invested $50.0-million in new projects in 2000, principally on the construction of the new Nam 2 seabed crawler mining system and the conversion of its support vessel MV Ya Toivo ($29.1-million), a new exploration tool and conversion of its support vessel MV Zacharias ($13.0-million), and the modernization of MV Namibian Gem and its airlift mining equipment ($5-million). These figures include capitalization of interest and holding costs through the year. The projects were financing through a mix of cash flow and principally from bank facilities. Delays and cost overruns reflect the innovative and pioneering nature of these projects, exacerbated by late delivery of MV Ya Toivo, underestimation of Ya Toivo’s structural steel requirements and the increase in the weight of the Wirth tool and consequent upgrade of its launch and recovery system.
The refurbishment of MV Namibian Gem took approximately three months and it returned to operation in third quarter when productivity doubled as a result of the technical enhancements effected.
Although the commissioning of MV Ya Toivo was delayed until fourth quarter and was further delayed due to the provisional liquidation earlier this year, performance is in line with expectation at this early stage of production buildup. With its more powerful dredging capacity, new horizontal mining method, cutter heads and wider tracks, the company expects its Nam 2 technology to mine lower grade resources and operate in previously inaccessible thicker sediments and softer footwall conditions.
Similarly, delays to the startup of the new drilling system negatively affected the company’s exploration program during the year, however, a number of promising targets have been identified and airlift sampling was started as a means of building the company’s resource base.
Recent developments
As previously reported, the company suffered a critical operational setback in January, 2001, when an accident to its NamSSol mining system suspended mining operations. While the new Nam 2 system was in its commissioning phase, the effect of the accident was accentuated by the loss of the principal source of cash flow. The company is continuing its discussions with the underwriters regarding the insurance claims resulting from the accident.
The company’s financial position was severely weakened as a result of this accident, after a year of considerable capital expenditure and debt buildup in 2000. Following a breach of a loan repayment term and despite an advanced new finance raising, moratorium terms could not be agreed with senior lenders. Several subsidiaries filed for provisional liquidation in late February, 2001. All mining operations ceased while the company continued to pursue financing initiatives. The company reached accord with its senior lenders and raised gross financings of $27.0-million by May, 2001, including a $15.0-million subscription from the Leviev Group, which has become the company’s new major shareholder and the exclusive marketer of the company’s diamonds.
In April, 2001, operations resumed with MV Ya Toivo and in May, 2001, the Namibian subsidiaries and one South African subsidiary were discharged from provisional liquidation. MV Ivan Prinsep was sold for approximately $4.4-million to reduce the debt position of the company’s senior lenders. It is anticipated that, subject to court sanction and creditor approval, the South African subsidiaries could be discharged from provisional liquidation by the end of July, 2001.
Outlook
The company anticipates that 2001 will be another challenging year. Progress will depend on close monitoring of the financial situation, cost controls, rebuilding production levels, and starting exploration and mine planning with the drilling system.
The company will advise a production target for the remainder of the year once the effect of provisional liquidation is fully quantified and all operations have resumed. MV Ya Toivo has resumed commissioning and MV Namibian Gem is expected to resume operations by the third quarter 2001. Meanwhile the company has commenced the rebuilding process for the damaged NamSSol, with anticipated completion in the fourth quarter.
MV Zacharias started exploration with the airlift last weekend and is expected to deploy the Wirth drilling system by July, 2001.
The company’s earnings in 2001 will be significantly negatively affected by the loss of production from the NamSSol and the consequences of the provisional liquidation including the suspension of operations. The company will incur a full year of costs but only benefit from less than half a year of production.
Despite the company’s recent setbacks and the continuing effect, management remains focused on realizing the value of its competitive advantages, being the application of significantly improved technology to efficiently mine and explore its concessions.
“Recovery from provisional liquidation and overcoming delays in exploration are immediate challenges. I welcome the strength and expertise of our new shareholders as we now start to realize the substantial investment of the past two years,” said Namco’s chairman and chief executive officer, Alastair Holberton.
WARNING: The company relies upon litigation protection for “forward-looking” statements.
CONSOLIDATED STATEMENT OF OPERATIONS
AND RETAINED EARNINGS
Twelve months ended Dec. 31
(in United States dollars)
2000 1999
Income
Revenue from
diamond sales $ 41,769 $ 42,808
Interest earned 789 632
Gain on
marketable
securities 30 354
———- ———-
42,588 43,794
———- ———-
Expenses
Direct
production
costs 22,149 13,717
Royalty payment 3,308 3,732
Marketing costs 976 866
General office
costs, including
salaries 4,755 3,762
General
exploration
and development
costs – –
Writedown of
marketable
securities 45 –
Amortization
Capital
assets 5,778 3,665
Exploration
and development
costs 428 –
Deferred costs 477 60
Interest paid
Long-term
debt 1,924 460
other 240 138
———- ———-
(40,080) (26,400)
———- ———-
Earnings (loss)
for the period
before taxes and
good will 2,508 (17,394)
Recovery of
income taxes 900 –
———- ———-
Earnings (loss)
for the period
before good will 3,408 17,394
Good will
amortization (2,401) (256)
———- ———-
Earnings (loss)
for the
period 1,007 17,138
Retained earnings
(deficit)
beginning of
period 5,497 (10,607)
Accretion on
equity component
of exchangeable
debenture (net
of tax) – (276)
Dividend (1,406) (758)
———- ———-
Retained
earnings
(deficit)
end of
period $ 5,098 $ 5,497
========== ==========
Basic earnings
(loss) per
share for
the period
before good will $ 0.07 $ 0.43
Basic earnings
(loss) per
share for
the period
after good will $ 0.02 $ 0.43
Fully diluted
earnings
(loss) per
share for the
period $ 0.02 $ 0.40
Dividend
per share $ 0.03 $ 0.02
