Namibian Minerals experienced a profit for the third quarter ended Sept. 30, 2002. The profit for the quarter was $96,000 (U.S.), 0.1 U.S. cent per share (2001: loss $940,000 (U.S.), one U.S. cent per share). Revenues of $15,214,000 (U.S.) were earned through the sale of 126,713 carats, compared with revenue of $3,995,000 (U.S.) from diamond sales of 30,600 carats for the same period in 2001. Operating cash outflow for the quarter was $1,244,000 (U.S.), compared with $9,008,000 (U.S.) for the same period in 2001. At the end of the quarter, the company had $993,000 (U.S.) in cash, with diamond stocks of 19,141 carats.
The mining vessel, Kovambo, which is equipped with the NamSSol mining tool, resumed diamond production in July. The resumption of mining was the culmination of an 18-month process to repair, improve and recommission the mining tool. The Kovambo commenced operations on Namco’s mining lease ML36A in Baker Bay, off the Namibian south coast.
During the quarter, the company’s crawler-equipped production vessels, the Ya Toivo and Kovambo, produced 85,444 carats and 30,560 carats, respectively. The Namibian Gem, which is equipped with airlift technology, produced 829 carats. The exploration vessel, the Zacharias, contributed 217 carats from sampling activity.
The Namibian Gem operated until July 13, when the vessel was withdrawn from service due to failure of its main propulsion engines, which are more than 20 years old. Subsequent efforts to obtain necessary spare parts to effect repairs were unsuccessful, as no suitable parts were available. The MV Namibian Gem was towed to Saldanha Bay in South Africa, where it is being maintained on a care and maintenance basis pending a decision on its future. Most of the crew of the Namibian Gem has been redeployed across the Namco fleet. Some contracted staff employment has been terminated. The vessel is being maintained with minimal staffing level to minimize holding costs.
The company is assessing options that range from selling the vessel to replacing the main engines and upgrading the plant and equipment on the MV Namibian Gem, in order to improve its productivity to justify the necessary additional capital expenditure. In any event, the company currently does not possess the financial means to carry out any level of repairs. A decision on its future will depend largely on the outcome of continuing negotiations to inject further financing into the company.
Production during the third quarter exceeded combined production for the first six months by 30 per cent and constitutes the best quarterly production results to-date, bettering the previous record of 116,560 carats recovered during the first quarter of 1999. Furthermore, the Ya Toivo produced 16,417 carats on a single day’s mining in Namco’s Hottentot Bay grant (HBG) feature 22. This eclipsed the one-day production record of 16,271 carats set by the Kovambo in the first quarter of 1999. While these results are both pleasing and encouraging, the company does not regard them as being representative of its sustainable production capability going forward, given its present circumstances. The company has identified the necessity to invest in both its exploration and production capacities in order to secure its future and to date no such investments have been obtained.
During the second quarter, the company entered into discussions with its principal shareholder, LL Mining Corporation BV, the company’s senior lenders and the government of Namibia, with a view to obtaining additional funding. Discussions between the company, LL Mining and the company’s senior lenders are continuing, however with the exception of advance payments for diamond sales, the company has received no additional finance to date. The Namibian government has agreed to a waiver of royalty payments for a period of up to 36 months as part of an overall refinancing package for the company. This waiver came into effect during the third quarter, however its continuance is conditional in part upon the provision of additional support for the company by the other principal stakeholders.
In the absence of such financing, the company has grave concerns regarding its ability to sustain its exploration and production programs at requisite levels. In particular, the company is concerned that mechanical problems with the electrical generators aboard the exploration vessel Zacharias continue to restrict that vessel’s availability, adversely affecting the company’s sampling program, which has fallen behind schedule. The company plans to replace the generators to eliminate this problem, but this investment is subject to necessary financing becoming available. This shortfall in the sampling program effects on the company’s determination of its mining reserves. Namco is reliant on the Zacharias sampling program to delineate new probable reserve areas and also to upgrade diamondiferous resource that currently does not qualify to be included as a probable reserve.
The company is undertaking a general re-evaluation of its reserve estimates. In recent months, the company has changed its sample processing procedure aboard the MV Zacharias to reduce the possibility of sample contamination. The company wishes to check the accuracy of previous sampling data by resampling in certain areas. In the meantime, it is reviewing sampling results achieved last year in Baker Bay (ML 36A) and will demote areas from probable reserve status where doubt exists over sample results, pending resampling. The effect of this re-evaluation will be to reduce the company’s probable reserve inventory. Results will be independently checked and reported when the work is completed.
The other effect on resource inventory is the possible long-term withdrawal from service of the Namibian Gem and the effect of the loss of its airlift mining capacity (some mining resource currently included in the company’s probable reserves is not suitable for mining with tractor crawler technology). The withdrawal from service of the Namibian Gem does not materially effect the company’s cash flow position, as the vessel has been marginally profitable.
Certain South African subsidiary companies are subject to taxation queries arising from taxation assessments relating to periods up to 1997. The queries could give rise to taxation being payable, as well as penalties and interest. The company’s tax advisers estimate the potential liability to be between $2-million (U.S.) and $3-million (U.S.). The company is working with the South African Revenue Service to resolve this matter.
WARNING: The company relies upon litigation protection for “forward-looking” statements.
CONSOLIDATED STATEMENT OF OPERATIONS
AND RETIANED EARNINGS (DEFICIT)
Three months ended Sept. 30
(In thousands of U.S. dollars)
2002 2001
Income
Revenue
from
diamond
sales $ 15,214 $ 3,995
Interest
earned 23 77
——– ——–
15,237 4,072
——– ——–
Expenses
Direct
production
costs 9,452 5,528
Commissioning
costs – 2,652
Royalty
payment 33 334
Marketing
costs 533 58
General
office costs,
including
salaries 1,212 1,036
Amortization
of capital
assets 2,241 1,840
Amortization
of deferred
costs 280 349
Interest
on long-term
debt 1,986 1,346
Interest —
other 6 131
Other cost (45) (2)
——– ——–
(15,698) (13,272)
——– ——–
Other income
(expense)
Proceeds
from
insurance
claim 897 9,000
Provisional
liquidation
costs 16 (329)
——– ——–
913 8,671
——– ——–
Profit
(loss) for
the period
before taxes
and good
will 452 (529)
Income taxes
(expense)
recovery (356) 192
——– ——–
Profit
(loss) for
the period
before good
will 96 (337)
Good will
amortization
and
impairment – (603)
——– ——–
Income
(loss) for
the period 96 (940)
(Deficit)
retained
earnings —
beginning
of period (90,057) (19,986)
Cancellation
of warrants – –
Adjustment
to
conversion
privileges – –
——– ——–
Deficit —
end of
period (89,961) (20,926)
——– ——–
Basic (loss)
earnings per
share for
the period
before good
will $0.00 $ 0.00
Basic (loss)
earnings per
share for
the period
after good
will 0.00 (0.01)
Fully
diluted
(loss)
earnings
per share
for the
period 0.00 (0.01)
CONSOLIDATED STATEMENT OF OPERATIONS
AND RETIANED EARNINGS (DEFICIT)
Nine months ended Sept. 30
(In thousands of U.S. dollars)
2002 2001
Income
Revenue
from
diamond
sales $ 27,249 $ 10,205
Interest
earned 98 191
——– ——–
27,347 10,396
——– ——–
Expenses
Direct
production
costs 27,029 24,619
Commissioning
costs – 2,652
Royalty
payment 1,049 783
Marketing
costs 943 326
General
office costs,
including
salaries 3,777 3,788
Amortization
of capital
assets 6,712 5,461
Amortization
of deferred
costs 1,071 849
Interest
on long-term
debt 5,806 3,670
Interest —
other 15 193
Other cost (43) 133
——– ——–
(46,359) (42,474)
——– ——–
Other income
(expense)
Proceeds
from
insurance
claim 1,799 9,000
Provisional
liquidation
costs – (1,729)
——– ——–
1,799 7,271
——– ——–
Profit
(loss) for
the period
before taxes
and good
will 17,213 (24,807)
Income taxes
(expense)
recovery 88 592
——– ——–
Profit
(loss) for
the period
before good
will (17,125) (24,215)
Good will
amortization
and
impairment (15,685) (1,809)
——– ——–
Income
(loss) for
the period (32,810) (26,024)
(Deficit)
retained
earnings —
beginning
of period (57,775) 5,098
Cancellation
of warrants 694 –
Adjustment
to
conversion
privileges (70) –
——– ——–
Deficit —
end of
period (89,961) (20,926)
——– ——–
Basic (loss)
earnings per
share for
the period
before good
will $(0.17) $ (0.33)
Basic (loss)
earnings per
share for
the period
after good
will (0.33) (0.35)
Fully
diluted
(loss)
earnings
per share
for the
period (0.33) (0.35)
