Namibian Minerals experienced a loss for the first quarter ended March 31, 2001, and minimal diamond production due to the impacts of the NamSSol accident in January and the provisional liquidation of certain operating subsidiaries.
Financial results
A loss of $12.2-million (U.S.), 26 U.S. cents per share, on revenues of $4.7-million (U.S.), compared with first quarter 2000 earnings of $2.2-million (U.S.), five U.S. cents per share, on revenues of $12.2-million (U.S.). Lower revenues in 2001 reflected the interruption to production as a result of the NamSSol accident and the subsequent suspension of all operations at the end of February. Direct production costs increased to $11.3-million (U.S.), compared with $5.9-million (U.S.) a year earlier. This cost includes $2.4-million (U.S.) of year-end 2000 diamond stocks which were expensed during the quarter. The company had no diamond stocks at quarter-end. All operational costs incurred in the first quarter of 2001 were fully expensed, including the costs of MV Ya Toivo and MV Zacharias. The average diamond price from the sale of 28,100 carats (2000: 66,500 carats) was $168 (U.S.) per carat, compared with $182 (U.S.) per carat in the first quarter of 2000.
As previously announced, the company’s financial position was severely weakened as a result of the accident and after a year of considerable capital expenditure and debt buildup in 2000. Despite an advanced fundraising effort in February, moratorium terms could not be agreed with senior lenders and the fundraising could not be completed. Nine subsidiary companies filed for provisional liquidation in late February, 2001, and all mining operations ceased while the company pursued financing initiatives. The company reached accord with its senior lenders and raised $9.4-million (U.S.) from a private placement of securities in late March. By May, 2001, further fundraisings were completed for total gross proceeds of $27.0-million (U.S.), including a $15.0-million (U.S.) investment from the Leviev Group, which has become the company’s new major shareholder. At the end of the first quarter, the company had $5.6-million (U.S.) in cash and $56.6-million (U.S.) in long-term debt, compared with cash of $4.4-million (U.S.) and debt of $54.2-million (U.S.) at the end of 2000.
Operating results
Diamond production during the quarter was 10,700 carats (2000: 52,900 carats). MV Kovambo did not produce after Jan. 7, 2001, while MV Ya Toivo’s commissioning was interrupted at the end of February when the operating subsidiaries were placed in provisional liquidation. All mining operations ceased for approximately two months.
MV Ivan Prinsep was withdrawn from operation at the end of January and was sold as a term of the banking moratorium for approximately $4.1-million (U.S.) to reduce the company’s debt position.
Corporate developments
Following completion of the financings and after the end of the first quarter, the Namibian subsidiaries and one South African subsidiary were discharged from provisional liquidation.
During the quarter, a group of trade creditor representatives who had initially agreed to a 12-month moratorium on repayment, withdrew their moratorium agreement.
The company intends to discharge the remaining subsidiaries through a court sanctioned, creditor-approved compromise, which may be completed in the third quarter of 2001.
As previously disclosed, the company entered into an exclusive marketing agreement with the Leviev Group during the quarter.
Progress on insurance claim
Following the NamSSol accident, the company progressed two insurance claims. The company was advised this week that its claim under the all risks policy in respect of damage to NamSSol has been accepted and that costs associated with the repair of NamSSol will be covered under the policy. These costs are estimated to be $1.5-million (U.S.).
Cover under the business interruption policy is dependent on acceptance of the all risks policy claim. The company is continuing to progress its discussions with the underwriters of the business interruption policy and although there can be no certainty of payment, the company believes its claim is soundly based.
Outlook
The company has experienced a loss of skilled personnel, lack of access to spares and services and general uncertainty arising from the provisional liquidation process which has led to delays in restarting work and which continue to affect operations. Commissioning resumed on board MV Ya Toivo in April, 2001, once the Namibian companies were discharged from provisional liquidation and MV Namibian Gem is expected to return to operation by the third quarter 2001. The company has commenced the rebuilding of the damaged NamSSol with anticipated completion in the fourth quarter of 2001.
Exploration resumed using the airlift equipment on board MV Zacharias in May, 2001, and is focused on testing extensions of known resource areas in mining licence 51 and mining licence 36. It is anticipated that the drilling system will resume exploration in the third quarter following completion of repairs to its hydraulic levelling system.
The company continues to focus on the many challenges it is facing to recover from the impact of the accident to the NamSSol, deterioration of its financial position and the provisional liquidation.
WARNING: The company relies upon litigation protection for “forward-looking” statements.
CONSOLIDATED STATEMENT OF OPERATIONS
AND RETAINED EARNINGS
Three months ended March 31
(thousands of U.S. dollars)
2001 2000
Income
Revenue from
diamond sales $ 4,728 $ 12,166
Interest earned 22 285
Gain on marketable
securities 7 –
——— ———
4,757 12,451
——— ———
Expenses
Direct production
costs 11,326 5,850
Royalty
payment 329 891
Marketing
costs 227 197
General office
costs, including
salaries 901 1,053
Corporate
finance fee 280 –
Provisional
liquidation
costs 700 –
Amortization
Capital assets 1,335 1,136
Deferred costs 128 63
Interest paid
Long-term debt 1,276 664
Other 65 –
——— ———
16,567 9,854
——— ———
Earnings (loss)
for the period
before taxes
and good will (11,810) 2,597
Recovery of
income taxes 200 210
——— ———
Earnings (loss)
for the period
before good will (11,610) 2,807
Good will
amortization (603) (562)
——— ———
Earnings (loss)
for the period (12,213) 2,245
Retained earnings
(deficit) —
beginning
of period 5,098 5,497
——— ———
Retained
earnings
(deficit) —
end of period $ (7,115) $ 7,742
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