Namibian Minerals Corporation has released its diamond production and financial results (in United States dollars) for the year ended Dec. 31, 2001.
Twelve-month overview and results:
a loss of $56-million, which includes an impairment of assets of $19.0-million (70 cents per share), on revenues of $12.5-million;
diamond production of 85,589 carats;
the company’s subsidiaries that were placed in provisional liquidation in February, 2001, were discharged from provisional liquidation by August, 2001;
a total of $27-million was raised in March, 2001;
recommencement of company operations;
implementation of a recovery program;
rescheduling of the company debts and the raising of further financing from LL Mining Corporation BV (LLM), a member of the Leviev Group of companies; and
the start of exploration with the NamDrill sampling system aboard the MV Zacharias.
The company suffered a critical operational set back in January, 2001, when an accident occurred to its NamSSol mining system, which adversely affected the company’s cash flow. The deterioration in the company’s financial position resulted in the company breaching the terms of its loans with senior lenders. The company attempted to agree to moratorium terms with its senior lenders, but when such terms could not be agreed, significant new financing through Canaccord Capital was withdrawn.
Several of the company’s Southern African subsidiaries were placed in provisional liquidation in late February, 2001. In March, 2001, the company managed to reach accord with its senior lenders and was subsequently able to raise $27-million in financing. This included a $15-million investment from LLM, which has become the company’s major shareholder.
By August, 2001, the company’s subsidiaries that had been placed in provisional liquidation in February, 2001, were discharged from provisional liquidation. Five of these subsidiaries were discharged from provisional liquidation through schemes of arrangement, which were accepted by creditors of these companies and sanctioned by the courts.
The company’s mining vessel, the MV Ya Toivo, recommenced operations in April, 2001, and the MV Namibian Gem, resumed production in August, 2001. Mining exploration with the NamDrill sampling system on board the MV Zacharias commenced in September, 2001, to extend the company’s diamond resources.
In July, 2001, the company developed a recovery program, which included as its objectives rescheduling of its debt, raising of additional financing from LLM, increasing production and settling its business interruption insurance claim arising from the accident to the NamSSol mining tool. The company has to date met the objectives of its recovery program in that:
it has rescheduled its debt with its senior lenders;
it has rescheduled the repayment terms to holders of convertible debentures that were placed as part of the company’s fundraising initiatives in March and April, 2001, and with LLM in respect of a $2.6-million loan;
the company has concluded a $10-million loan facility with LLM;
the company has maintained budgeted mining production levels and has commenced and is continuing to conduct sampling in order to increase the company’s diamond resources; and
the company received $9.3-million following the success of its business interruption insurance claim.
Both the rescheduling agreement with the company’s senior lenders and the $10-million loan facility with LLM are subject to the fulfilment of certain procedural and documentary conditions. The company is in the process of fulfilling these conditions.
The net loss for 2001 was $56-million, (70 cents per share), reflecting the company’s difficult year, compared with a net loss of $45,000 (0.01 cent per share) in 2000. Cash outflow from operations was $22.9-million, compared with an inflow of $14.5-million in 2000. Investment in the business was $2.6-million at year-end (2000: $52.8-million). Cash on hand at year-end was $2.6-million, compared with a cash position of $4.4-million at the end of 2000. Long-term debt, including the current portion, was $55.7-million (2000: $54.2-million).
The company concluded an exclusive marketing agreement with the Leviev Group following its $15-million investment in the company in March, 2001. In the third quarter of 2001, the Leviev Group began marketing the company’s diamond production following termination of the company’s distribution agreement with IDC (Holdings) Ltd.
Total operating costs for 2001 were $31.2-million, compared with $23.6-million in 2000. The higher costs incurred in 2001 were due to the start of the new production vessel MV Ya Toivo, increased charter rates for MV Ya Toivo and MV Zacharias and the expensing of exploration costs in relation to the MV Zacharias. Following the accident to the NamSSol on Jan. 7, 2001, the MV Kovambo, the support vessel for NamSSol, has been stationed in Cape Town harbour and did not operate during 2001. The $9.3-million proceeds from settlement of the company’s business interruption claim have been used to cover the costs of maintaining the vessel while in port. Repairs to the damaged NamSSol system have commenced. The company plans to resume operations before the end of the second quarter of 2002.
The company, as part of its review of the financial results for 2001, performed an assessment of the carrying values of its good will and its previously capitalized development costs. This assessment was performed pursuant to the company’s significant operational setbacks in 2001, the decline in diamond prices over the past 12 months and the refinancing of the company following the discharge of a number of the company’s subsidiaries from provisional liquidation. As a result of the assessment, the company recorded an impairment of $15-million against good will and a further $4-million against development costs. The fair value of the good will was determined based on discounted future cash flows of the company over a period of 10 years. The assumptions supporting the estimated future cash flows, including the discount rate, reflect management’s best estimates. The impairment of development costs was determined with reference to the probable reserves and expected contributions relating thereto.
Total production in 2001 was 85,589 carats, compared with 221,000 carats in 2000.
The company reduced its bank debt position to the senior lenders from $54.2-million in 2000 to $49.5-million in 2001, primarily through the sale of MV Ivan Prinsep for gross proceeds of $3.7-million. In addition, in April, 2001, the company entered into a new charter agreement with the owners of the MV Zacharias, in terms of which the company is obliged to purchase the MV Zacharias by no later than the end of March, 2003, for an amount of $5-million.
Fourth quarter results
The fourth quarter loss, before the impairment of assets, was $10.6-million, 11 cents per share, compared with a loss of $1.6-million, four cents per share in 2000. Diamond sales of 16,473 carats (2000: 60,200 carats) generated revenues of $2.3-million (2000: $10.6-million). The average sales price achieved was $140 per carat, compared with $176 per carat a year earlier. Operating cash inflow was $933,000. Diamond production was 32,920 carats (2000: 57,500 carats).
Recent events
In December, 2001, the company concluded a rescheduling agreement with its senior lenders. Under that agreement monthly capital repayments in respect of the company’s loans are to recommence from March, 2003, until December, 2008. Interest on the loans is to be serviced monthly by the company. The company also concluded a $3-million bridging loan facility with the Leviev Group in November, 2001. This facility has been replaced by a $10-million facility, which is convertible into shares at a price of 22 cents per share. The company has also concluded an agreement on rescheduled terms of convertible debentures issued in March, 2001, and April, 2001, of $7,798,000 in principal amount. The maturity date has been extended to Sept. 23, 2008, and Oct. 30, 2008, for the March, 2001, and April, 2001, debentures, respectively. The principal is to be repaid within the extended period by way of 10 equal six-month instalments, commencing in March, 2004, and April 2004, respectively. Interest at 10 per cent is payable in June, 2003, and thereafter, every six months. The company has also rescheduled the terms of repayment of the $2.6-million credit facility from the LLM on substantially the same terms as those reached with the convertible debentureholders. LLM has agreed to the cancellation of the warrants granted to LLM as part of the $15-million investment in the company and 11,136,364 of the 15,151,515 warrants granted to LLM in terms of the $2.6-million credit facility.
After giving effect to the transactions relating to the rescheduling of the company’s debt, and the conclusion of a $10-million loan facility with the LLM, the company on a fully diluted basis will have approximately 273,471,280 common shares outstanding. The ownership of the LLM in Namco can be summarized as follows:
a total of 37,727,273 common shares;
a $2.6-million loan convertible at 22 cents per share into 11,818,182 common shares;
warrants on 4,015,151 common shares exercisable at a price of 33 cents per share;
a $10-million loan convertible at 22 cents per share into 45,454,545 common shares; and
warrants on 45,454,545 common shares exercisable at a price of 22 cents per share.
Additionally, pursuant to the terms of the $2.6-million loan and the $10-million loan, the LLM is also entitled to receive common shares in lieu of cash in respect of interest.
Upon completion of the foregoing and assuming the exercise and conversion of the securities owned by LLM, LLM would own approximately 144,469,696 common shares. This would represent approximately 69.97 per cent of the outstanding shares on a partially diluted and approximately 52.83 per cent on a fully diluted basis. LLM continues to hold its security in the company for investment purposes and may increase or decrease its interest in the company in the future based on market circumstances.
Given recent events, the risks and uncertainties with regard to the company’s liquidity and capital resources, its future and the quantifiable effects and delays from the provisional liquidation of its operating companies are significant. To meet its continuing obligations and maintain its operations, the company needs to restore profitable operations and improve its cash flow position, with the continuing support of its main shareholders. The company has implemented a recovery program to stabilize the business and improve liquidity, which includes optimizing production levels, cost-cutting initiatives, support from shareholders and rescheduling proposals to senior lenders. As part of this program, it is likely that additional financing will be required as the company works through the consequences and effects of the NamSSol accident, of the provisional liquidation and of delays to its resource development programs.
Outlook
The year 2001 has been an extremely difficult year for the company. The accident to the NamSSol 1 in January, 2001, developed into a multidimensional crisis.
The company overcame these difficulties due to a focused effort of its stakeholders and new investors who provided significant funds at times when very few believed the company would survive. The challenges the company faces on the operational level and the continuous effects of the events of the beginning of the year resulted in working capital and cash flow difficulties. These occurred simultaneously with technological challenges faced by the company in commissioning and recommencement of operations of the most advanced tools in marine mining and exploration, being Nam 2 and the NamDrill.
The efforts to meet the challenges facing the company are being carried out by new management. The fleet is being commissioned and production reinstated with the objective of increasing the production to the levels comparable with the company’s performance in the year 2000. The recovery program, introduced in July, 2001, has been substantially implemented and has resolved major commercial obstacles that arose following the accident being resolved.
The company’s intention was to substantially increase its production capacity during 2001 by bringing into commissioning the MV Ya Toivo and start exploration using the NamDrill. However, the accident involving the NamSSol 1 and subsequent events adversely affected this program. As a result, the company’s operating costs increased without the benefit of increased operating capacity. The company plans to have the MV Kovambo back in production by June, 2002, which, in line with its plans, will significantly increase the company’s available production capacity. The overriding objective of the company is to position itself so as to obtain the benefits of this increase in available production capacity and through full use of its technology.
In the past, the company’s mining operations were focused in Feature 19, however, the development of the company’s overall ore reserve were somewhat limited. In the second half of 2001 the company launched what it considers to be the most advanced sampling technology — the NamDrill. The company’s exploration program now is focused on the development of an efficient mining plan taking into account the capabilities of the company’s mining tools, using this advanced technology, and in order to expand and improve the company’s ore reserve position. This is the most important task on the company’s strategic agenda.
Going forward, the company will focus on stabilization and efficient use of its existing assets, which will include the reduction of costs. In addition, the company will have to rely on the development of economically viable and low-risk new initiatives. The successful implementation of the recovery program will be followed by an essential development program, which will take the company into the future.
WARNING: The company relies upon litigation protection for “forward-looking” statements.
OPERATING RESULTS SUMMARY
Three months ended Dec. 31
(in U.S. dollars)
2001 2000
Diamond
production
(carats) 32,920 57,500
Diamond
sales
(carats) 16,473 60,200
Sales value
($/carat) $ 140 $ 176
Cash costs
($/carat) (1) $ 412 $ 139
OPERATING RESULTS SUMMARY
Year ended Dec. 31
(in U.S. dollars)
2001 2000
Diamond
production
(carats) 85,589 221,000
Diamond
sales
(carats) 83,852 237,000
Sales value
($/carat) $ 149 $ 176
Cash costs
($/carat) (1) $ 431 $ 147
CONSOLIDATED STATEMENT OF OPERATIONS
AND RETAINED EARNINGS
Year ended Dec. 31
(thousands of U.S. dollars)
2001 2000
Income (Restated)
Revenue
from
diamond
sales $ 12,461 $ 41,769
Interest
earned 248 789
Gain on
marketable
securities – 30
———- ———-
12,709 42,588
———- ———-
Expenses
Direct
production
costs 25,863 23,629
Commissioning
costs 5,304 –
Royalty
payment 830 3,308
Marketing
costs 480 976
General office
costs,
including
salaries 5,179 4,755
Writedown of
marketable
securities 97 45
Amortization
Capital assets 11,413 5,778
Deferred costs 1,350 477
Impairment
Development
costs 4,000 –
Interest paid
— long-term
debt 5,000 1,924
Other 1,808 240
Loss on
disposal of
capital assets 291 –
———- ———-
(61,615) (41,132)
———- ———-
Unusual items
Proceeds from
insurance
claim (9,300) –
Provisional
liquidation
costs 1,656 –
———- ———-
7,644 –
———- ———-
Earnings (loss)
for the year
before taxes
and good will (41,262) 1,456
Recovery of
income taxes 2,247 900
———- ———-
Earnings (loss)
for the year
before
good will (39,015) 2,356
Good will
amortization
and
impairment (17,413) (2,401)
Minority
interest 400 –
———- ———-
Earnings (loss)
for the year (56,028) (45)
Accretion on
equity
component of
exchangeable
debentures – –
Dividend – (1,406)
Retained
earnings
(deficit) at
beginning of
year as
restated (1,747) (296)
———- ———-
Retained
earnings
(deficit)
at beginning
of year
— as previously
stated 5,098 5,497
Change in
accounting
policy (6,845) (5,793)
———- ———-
Retained
earnings
(deficit)
— end of year $ (57,775) $ (1,747)
========== ==========
Basic (loss)
earnings per
share for
the period
before
good will $ (0.49) $ 0.05
Basic (loss)
earnings per
share for
the period
after
good will $ (0.70) $ 0.00
Fully diluted
(loss)
earnings per
share for
the period $ (0.70) $ 0.00
