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Aflease Gold and Uranium Resources Limited - Mid-Year Review
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16 August 2005 11:02
AFL
Aflease Gold and Uranium Resources Limited - Mid-Year Review
Aflease Gold and Uranium Resources Limited
(Formerly The Afrikander Lease Limited)
(Incorporated in the Republic of South Africa)
AFL (JSE) AFLUY (NASDAQ)
(Registration number 1921/006955/06)
ISIN: ZAE000061461 & JSE Share Code: AFL
Aflease Gold and Uranium Resources Limited
Mid-Year Review
As we enter the second half of 2005, Aflease is pleased to provide its
shareholders and stakeholders with an update on current corporate initiatives
and developments.
Uranium
Market Conditions
Global uranium market fundamentals remain robust. Electrical utilities around
the world are turning increasingly to nuclear power, as fossil fuel costs
continue to skyrocket and environmental pressures to reduce greenhouse gas
emissions intensify. New sources of uranium supply are constrained, however,
given the regulatory and environmental hurdles associated with new mine
development, and utilities" stockpiles are rapidly depleting. As a result,
uranium prices have tripled since 2003. With 440 nuclear power reactors in
operation around the world, and an additional 60 expected to be commissioned
over the next 15 years, further uranium price appreciation is widely expected.
Dominion Reefs
Over the last 18 months, Aflease has been positioning itself to take advantage
of these favourable market fundamentals. Our primary focus continues to be the
development of our Dominion Reefs uranium property. This property hosts one of
the world"s largest undeveloped uranium deposits - a total inferred resource of
over 113 million pounds of contained U3O8, at an average grade of 0.64 kg/t, and
a total measured and indicated resource of more than 10 million pounds at an
average grade of 0.45 kg/t. In June 2005, our board approved the development
and construction of the Dominion Reefs uranium mine and plant and we remain
committed to delivering uranium to the market in the first quarter of 2007, when
we anticipate uranium market conditions to be more favourable than they are
currently.
Most of the net proceeds from last month"s US $20.5 million private placement
will be applied to Dominion Reefs mine design and development, including the
funding of our US $2.16 million bankable feasibility study to be completed by
April 2006. The balance of the capital required for the Dominion Reefs project
will be funded with a combination of equity and debt financing. We have
identified a number of alternatives for the debt funding, ranging from pure
project financing to end-user financing, and over the next six months we will
seek the most attractive terms and structures available.
In South Africa, our board has recently approved a five year US $9.5 million
exploration program, intended to delineate additional ore reserves.
sxr URANIUM ONE
The completion later this year of our recently proposed merger with Toronto
Stock Exchange-listed Southern Cross Resources will give us an additional suite
of highly attractive uranium properties. These include two projects in South
Australia: Honeymoon, which is a fully-permitted property with indicated
resources of 9.3 million pounds of uranium, and Goulds Dam, with an indicated
resource of 4.4 million pounds and an inferred resource of 7.9 million pounds,
as well as uranium exploration property interests in Canada"s prolific Athabaska
basin.
The proposed merger with Southern Cross will mark a significant stage in our
evolution. It will give the combined company, sxr URANIUM ONE, geographical
diversification, with assets in three of the world"s major uranium producing
countries. In addition, two of those assets will be two of the only three
uranium projects in the world which have near-term production visibility and are
not owned by a major company. The merger will also give sxr URANIUM ONE the
international capital markets profile and access necessary to develop and bring
these assets to account. We are also pleased that the merged company, with its
operating base in South Africa and a listing on the JSE, will remain firmly
rooted in South Africa.
We anticipate completion of the merger within the next three months, subject to
regulatory and shareholder approvals, following which, we will look to make a
development decision on Honeymoon.
Other
With a solid South African uranium asset base, we have focused on growing our
South African mineral rights portfolio, and to date have identified several
promising uranium prospects. In this regard, Aflease has a number of pending
prospecting rights for which the applications have already been lodged.
Having effectively set out a road map in South Africa, we are actively seeking
out new value propositions, through assets that are geographically diverse.
Accordingly, we recently announced a strategic alliance with Altius Minerals,
which has a number of advanced uranium exploration projects in Canada.
Gold
Aflease Gold
On the gold side of our business, we believe that the most value accretive
option for our shareholders is to locate our gold assets in a separate
subsidiary, controlled by Aflease but with an asset base and a critical mass
sufficient to support its own public listing. In coming to this conclusion, we
considered several other options, including disposing of our Modder East gold
asset for cash, or developing that asset within Aflease. In our view, however,
it would be difficult, given current market conditions in South Africa, to sell
Modder East at a value appropriate to the quality of this asset. Developing
Modder East within Aflease, while it would deliver full value in the longer
term, would result in additional dilution to Aflease shareholders and is
moreover not a course of action which is fully aligned with Aflease"s primary
strategic focus on uranium.
We believe that the creation of a separate, gold-focused entity would enhance
the visibility and, in due course, the valuation of the gold assets contained
within it. It would also enable us to leverage our gold assets to support the
gold business, through the issue of equity after that business is listed, while
preserving for the Aflease group the ongoing benefits of a significant exposure
to gold. The new subsidiary, provisionally named Aflease Gold, would have its
assets in South Africa - these would be near-surface, low risk and high margin -
and would also be South African listed.
We took feedback from the markets into consideration in developing our strategy.
While a strong uranium focus is welcome, there is little support for the total
disposal of our pure gold assets. There is an appreciation that exposure to
the pure gold assets diversifies risk. Certain institutions are also less
constrained when investing in a company that has both a gold and a uranium
portfolio.
We therefore remain on track to separate our pure gold assets, Modder East and
Weltevreden, from the uranium-bearing assets in the Klerksdorp area into a JSE-
listed subsidiary of Aflease. The subsidiary will have its assets in South
Africa, and will provisionally be called Aflease Gold.
Modder East
The core asset of Aflease Gold would be the Modder East deposit. This is a high
quality, shallow gold asset with a reserve in excess of 1 million ounces and a
cash cost structure of US $200/oz. Ongoing drilling associated with the current
Modder East feasibility study process continues to be very gratifying - the
latest borehole values range from 1.48 gm/tonne over 29 centimetres to 22.19
g/tonne over 87 centimetres for the Buckshot Pyrite Leader Zone, 0.20 g/tonne
over 286 centimetres to 1.12 g/tonne over 724 centimetres for the Blanket and
Channel Facies, and 1.06 g/tonne over 15 centimetres to 60.48 g/tonne over 29
centimetres for the UK9a Reef.
Bonanza South
Our Bonanza South mine, which returned to production in late June, would not
form part of the Aflease Gold asset base - given the uranium by-product in the
Bonanza ore, it will remain part of the assets supporting our uranium business.
Weltevreden
The Weltevreden deposit would be Aflease Gold"s second significant asset.
Weltevreden, which we agreed to purchase from AngloGold Ashanti in July of this
year, has an indicated resource of 3.1 million ounces, grading at 4.75 g/tonne.
This transaction will be funded through the issue of approximately 23.6 million
shares, priced at R 3.62 per share (the 30 day volume-weighted moving average at
the time we submitted our purchase offer). This will give AngloGold Ashanti a
shareholding in Aflease just in excess of 5%. The transaction is subject to
the usual regulatory approvals.
Black Economic Empowerment
We were pleased to finalize our agreement earlier this year with our BEE
partners - an Aflease workers" trust and a Klerksdorp community trust, each
holding 30% of the BEE consortium, plus Africa Vanguard Resources with a 20%
interest, and four additional groupings each holding 5% - Indalo Resources,
Emseni Investments, Umlilo Mining and Finance and Magumo Investments.
The agreement provides for the sale from September 1, 2005 of an undivided 26%
stake in our Dominion and Bonanza operations at Klerksdorp. While we will be
financing the acquisition on an interest-free loan basis, our agreement with our
empowerment partners requires them to repay this loan from their share of future
profits from the Klerksdorp assets, with the first such payment being due within
three years of the first distribution of profits. Under the agreement, the
value of the loan is adjusted on each repayment to ensure that the payments
reflect the lower of market value or net present value at the payment date. In
this way, we can do our part to contribute to empowerment in the communities
where our assets our located, in compliance with the requirements of the Mining
Charter, while substantially protecting the investment of our current
shareholders from any value erosion.
The empowerment transaction is subject to the approval of our shareholders and
we are in the process of finalizing a circular to be sent to shareholders in
this regard. In the meantime, further information concerning this transaction
is available on our website.
Conclusion
We are excited by the strides we have made this year to position the Company as
a global player in the uranium business, whilst maximizing the value of our gold
assets. With the prospects for uranium and gold looking bright, we look forward
to continuing to grow our business, in South Africa and around the world, and to
build value for all our shareholders and stakeholders.
Forward-Looking Statement
This press release contains certain forward-looking statements. These forward-
looking statements are subject to a variety of risks and uncertainties beyond
the Company"s ability to control or predict, which could cause actual events or
results to differ materially from those anticipated in such forward-looking
statements. In this news release, predictions about transactions being approved
and finalized are forward-looking statements. Accordingly, readers should not
place undue reliance on forward-looking statements. Mineral resources which are
not mineral reserves do not have demonstrated economic viability.
For further information
Neal Froneman +27 83 628 0226
John Fraser +27 82 331 7330
Carol Smith +27 82 338 2228
Date: 16/08/2005 11:03:10 AM Produced by the JSE SENS Department
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