Quarterly Operations and Explorations Update

11 August 2016                                                

Asa Resource Group plc

("Asa Resource," "the Group" or "the Company")

Quarterly Operations and Explorations Update for the quarter ended 30 June 2016 (Q1 FY2017)

Operational Highlights

The following operational highlights are supported by important insights described in the Chairman's commentary that follows. These offer additional context and forward guidance in several areas.

 

Gold - Freda Rebecca Gold Mine (Zimbabwe)

·      Gold sales were 2% higher at 14,463 oz, compared to previous quarter (Q4 FY2016: 14,114 oz). This increase is due to higher head grade

·      Head grade was 9% higher at 1.96g/t  (Q4 FY2016: 1.80g/t)

·      Average realised gold sale price was US$1,275/oz (Q4 FY2016: US$1,210), reflecting a 5% increase in gold price this quarter

·      Recovery 2% lower at 83% (Q4 FY2016: 85%)

·      C1 cash costs for gold decreased by 23% to US$933/oz (Q4 FY2016: US$1,215/oz), and all-in-sustaining C3 costs for gold decreased by 7% to US$1,153/oz (Q4 FY2016: US$1,240/oz)

 

Nickel - Trojan Nickel Mine (Zimbabwe)

·      Production of nickel in concentrate decreased in Q1 FY2017 by 31% to 1,555/t (Q4 FY2016: 2,246t), primarily due to a decrease in average head grade and recoveries.

·      Head grade was 23% lower at 1.76% (Q4 FY2016: 2.30%)

·      The average net realised nickel in concentrate price was US$5,728/t (Q4 FY2016: US$5,520/t), reflecting a 4% increase in global nickel prices this quarter

·      Recovery was 4% lower at 87.0% (Q4 FY2016: 90.8%)

·      C1 cash costs for nickel in concentrate increased by 36% to US$5,736/t (Q4 FY2016: US$4,226/t), and all-in sustaining C3 costs of nickel in concentrate increased by 42% to US$6,489/t (Q4 FY2016: US$4,586/t)

Diamonds - Klipspringer Mine (South Africa)

 

·      Diamond sales increased by 73% from 17,440cts (Q4 FY2016) to 30,888cts (Q1 FY2017)

·      Average realised fine diamonds sale price was up by 155% for Q1 FY2017 at US$ 55.90/ct, compared with 21.95/ct in Q4 FY2016

·      Tonnes treated from Klipspringer's throughput of Marsfontein fine residue tailings increased by 68% from 31,251t (Q4 FY2016) to 52,403t (Q1 FY2016)

·      Average realised fine diamonds production cost for the quarter of 10.80/ct versus the previous quarter of 18.05/ct

Mr Yat Hoi Ning, Executive Chairman gives the following commentary on Q1 FY2017 results:

"It has been less than a month since I gave a comprehensive overview of our operations, restructuring process and future plans. I'm pleased to report that since that announcement, existing shareholders have given positive feedback as well as raising interest from new potential investors. This is encouraging and suggests the Group is slowly re-establishing its credibility.

Gold - Freda Rebecca
In the first quarter of our new financial year, gold stabilised around an average price of $1,275/oz. Since then it has moved higher with most analysts expecting it to attract solid support around $1,350 - $1,400/oz over the coming months. Although gold sales at Freda Rebecca were marginally ahead at 14,463 for Q1 FY2017 (Q4 FY2016: 14,114), it's true to say that we were on target to achieve higher output for the last two quarters, but for the incident we referred to in our annual review that temporarily impacted production. Up to that point, Freda's output was consistent with its new annual target of 70,000/oz characterised by the trend set in the preceeding three quarters of FY2016.

A replacement LHD which was damaged in the incident is due from Canada by mid-August 2016 and will start to return output to around 17,500/oz per quarter. To compensate for this loss of revenue, FRGM has made an insurance claim for consequential business loss amounting to $3.6m. Taking into account the issues Freda has encountered since February, it has performed relatively well this quarter, reducing C1 and C3 (AISC) costs to 993/oz ($1,215/oz) and $1,153/oz ($1,240) respectively. Head grade increased to 1.96g/t (1.80g/t), whilst recovery was marginally down 2% to 83%. The net positive difference between AISC ($1,153/oz) and average gold price received ($1,275 /oz) for the quarter was $122 per ounce. When output returns to its median trend of 17,500/oz per quarter, Freda should achieve its important C3 target of $950 - $1,000/oz.. Whilst it may take a couple of quarters to optimise these averages, regular observers will note that management reported a C3 figure of $988 in Q3 FY 2016, suggesting that it is a realistic target when grades, input costs and milling capacities are under control. The gold price has moved higher in the intervening time and this gives more scope to increase FRM's profitability from here on.

As mentioned in the annual review, Freda Rebecca's milling capacity (1.2m/t per annum) has been out of sync with mining capacity (1.8m/t per annum) ever since it was taken out of care and maintenance. The lack of adequate milling capacity has been the cause of some poor performing quarters in the past-as the slightest technical mill issue causes costs to increase and lowers profitability. The commissioning of two additional mills is a significant development, adding 0.6m/t pa equalising mine and mill capacities exactly. Freda Rebecca's original plant design had the capability to produce 90,000/oz to 100,000/oz per annum and it's the Group's intention to increase output to take full advantage of a rising gold price. These two mills have been sourced within the Group and could come on stream as soon as August or September this year.

Gold - Zani-Kodo JV (Democratic Republic of Congo)

Asa Resource holds a gold mineral JORC resource of 2.97Moz in Zani-Kodo, a region proven to have world-class gold deposits. As part of its strategy to diversify regionally and capitalise on a strong gold price, the Group is aggressively pursuing its options for a mine operation. These vary from a gravity-flotation operation with low capital and operating costs to a more ambitious CIL processing plant. The grades at Zani-Kodo are at least 50% higher than at Freda Rebecca and management is carefully weighing up the cost-benefit analysis of which mine operation to recommend. The Group has deployed a senior engineering team in DRC to direct and assess each option and to engage with government to expedite our plans.

 

Zani-Kodo is situated in the north-east of DRC where major gold producers already have established mining operations, such as Randgold's Kibali project. The potential to build a major gold resource is significant. In time the Group intends to  fully exploit its 1,605 square kilometres of mining rights. If the gold price remains at current levels, this resource may come to define the Group's true long-term future.

(For more on Zani-Kodo: http://www.asaukplc.com/operations-and-exploration/drc/zani-kodo-project")

 

Nickel - Bindura (Trojan) 

Nickel remained stubbornly close to its 5-year low of around $8,800/t for most of Q1 FY 2017, but since July it has outperformed most base commodities. Analysts had expected this long-awaited move to occur much sooner and it's now not surprising to see solid support for nickel well above $10,000/t. It's important to note that this nickel re-rating range will benefit BNC from Q2 and subsequent quarters.

Against a very low nickel price, BNC's Trojan mine achieved an exceptional result in its previous quarter (Q4 FY2016) when both C3 costs and nickel sales performed much better than their long-term historical average. Any comparison therefore between the last quarter (Q4 FY2016) and this quarter (Q1 FY2017) is going to appear disappointing. I should add, that whilst this quarter (Q1 FY2017) was below expectations, when compared to the long-term average, the decrease in sales, recovery and grades are a lot less dramatic. The main reason for Trojan's under performance was reduced access to higher ore zones. This contributed to a reduction in nickel in concentrate of 1,555/t from 2,246/t (Q4 FY2016) and head grade to 1.76% from 2.30% (Q4 FY2016). Additionally, recovery was marginally lower at 87% (90.8% Q4 FY2016) due to low dump truck vehicle availability as a result of a contractor not being able to meet its normal commitments. Access to the higher grade areas and dump truck capacity have since been restored and improved.

Investors seek complete transparency when explaining our off-take model in relation to nickel sales and the price realised. I referred to this in the annual review, but I wish to explain it again so that shareholders fully understand it in the context of our quarterly results. Without a smelter, BNC produces nickel in concentrate and realises approximately 65% of the market price. In this quarter (Q1 FY2017) the average nickel price BNC realised was $5,728/t (nickel in concentrate) - this computes to a LME market price of $8,800/t. Though Trojan's C3 (all in sustaining) costs increased to $6,489/t (Q1 FY2017), BNC's stated medium-term C3 target remains in the range of $5,000/t - $6,000/t over the medium-term. If, as many expect, the nickel price stays above $10,000/t, investors can clearly calculate the price dynamics shifting in Trojan's favour. Additionally, once the smelter is in full production next year, BNC's percentage of the market price increases demonstrably. Couple this with transport savings, arising from shipping leach alloy instead of the much bulkier concentrate, and margins increase steadily.

In this respect, management believes BNC has weathered the worst of the storm. Operating costs are well under control and with the smelter coming on stream at a time when the nickel price is normalising, it's reasonable to expect BNC's future to be much brighter than in the recent past.

It has been well reported that both the Philippines and China have major environmental concerns over nickel production. This could accelerate the supply deficit and place upward pressure on the nickel price - should this happen, this would open further opportunities for the Group.

Diamonds - Klipspringer (South Africa) 

The quarter-on-quarter results from the diamond production from fine tailings (slimes) retreatment were more than satisfactory with sales increasing by 73% to 30,888 cts, realising an average fine diamond price of US$ 55.90/ct, up an impressive155%. The life of the slime tailing retreatment is expected to come to an end in the next two to three months (Q2 FY2017), but its production will be replaced by that of the coarse tailings dam in the complex, set to start producing in the same quarter.

The Group previously held an equity stake of 69.77% at its Klipspringer diamond mine. However, when the Group injected fresh capital last year, our JV partner opted not to participate, with the unintended consequence of pushing our stake over the threshold permitted under South African's Black Economic Empowerment (BEE) regulations. This in most cases would be a very desirable result, but now means that the Group will need to sell at least 8% of its holding to comply with our mining licence. The group is seeking to resolve this issue as soon as possible so that it can vigourously pursue its plans to re-start the underground mine operation, especially as there is an improving outlook for diamonds.

 

Agriculture - Asa Meats (South Africa)

Whilst the acquisition of an abattoir in South Africa is understandably not considered as a core mining activity, I am confident it will prove to be a sound business investment decision and will make an important contribution towards our income stream in the coming years. The Group is developing the value chain by utilising its land bank and securing the appropriate operating licences. The abattoir commenced trading under Asa Meat (SA) Pty Ltd on 1 July 2016. The value this operation has to help build local community engagement as well as the reputation of Asa Resource should not be underestimated.

 

Summary

To summarise, this was a contrasting quarter for our operating mines with a net positive outcome - the fundamentals and momentum are strong. With challenging market conditions persisting in the first half of 2016, we continue to focus on short-term cost management actions as well as accelerating longer-term structural initiatives. As a result, the Board expects the Group's performance in the second half of 2016 to be stronger than in the first half and is confident of its progress for the remaining part of FY2017 and beyond."

Please find below more supporting information from local management on each of our operating mines.

 

MANAGEMENT REPORT

Gold - Freda Rebecca Gold Mine (Zimbabwe)

Freda Rebecca Mine		Quarter ended June 2016	Quarter ended  March 2016	Quarter ended Dec 2015	Quarter ended Sept 2015
Tonnes mined	t	321,630	260,413	267,448	336,026
Tonnes milled	t	274,474	287,261	308,953	309,102
Head grade	g/t	1.96	1.80	2.19	2.15
Recovery	%	83	85	85	84
Gold sales	oz	14,463	14,114	18,506	18,067
Average gold price received	US$/oz	1,275	1,210	1,096	1,121
Cash cost (C1)	US$/oz	993	1,215	820	870
All-in sustaining cost (C3)	US$/oz	1,153	1,240	988	1,023

 

Figures shown are unaudited and may vary upon final audit.

Commentary

C1/C3 costs 
C1 cash cost includes costs for mining, processing, administration, accounting movements for stockpiles and gold-in-circuit, and net proceeds from by-product credits. C1 costs exclude capital costs for exploration, mine development or processing mill capital works and royalties. C3 (all-in sustaining) costs reflects C1 costs plus depreciation and amortisation, thus incorporating the capital cost of production plus interest, other indirect costs and royalties. All-in sustaining costs represent all costs attributable to gold production over the period.

Mining
Tonnes mined increased by 24% from Q4 FY2016.

 

Milling
The temporary reduction from 287,261t (Q4 FY2016) to 274,474t (Q1 FY2017) is due to the plant down time and poor performance by the engineering manager, whose services have now been terminated. The plant down time is related to Mill 2's pinion which was replaced mid-June 2016. Mill 1's end shield was noted to be at critical exposure and needing urgent remedy in June 2016. Procurement of a replacement feed end shield has taken place.

 

Head Grade
The head grade has continued to improve as 930 higher grade stope was introduced.

 

Recovery
Gold recovery decreased marginally by 2% in Q1 FY2017, to 83% compared with Q4 FY2016 at 85%.

 

Sales
Gold sales increased from 14,114 oz to 14,463 oz in Q1 FY2017 due to the increase in head grade.

 

Comparative price
The average gold price received in Q1 FY2017 was US$1,275/oz (versus US$1,210/oz (Q4 FY2016) in line with the upward trend in the global gold price.

 

Costs
Costs have been controlled and reduced by limiting hauling, drilling and development contractors to minimum tonnes and metres.

 

Nickel - Trojan Nickel Mine (Zimbabwe)

Trojan Mine		Quarter ended June 2016	Quarter ended  March 2016	Quarter ended Dec 2015	Quarter ended Sept 2015
Tonnes mined	t	97,689	97,335	86,794	95,802
Tonnes milled	t	101,433	107,421	101,804	101,701
Head grade	%	1.76	2.30	1.78	1.62
Recovery	%	87.0	90.8	87.3	87.6
Ni in concentrate	t	1,555	2,246	1,584	1,442
Nickel sales	t	1,493	2,274	1,577	1,494
Average nickel price	US$/t	5,728	5,520	6,121	6,847
Cash cost (C1)	US$/t	5,736	4,226	4,933	6,895
All-in sustaining cost (C3)	US$/t	6,489	4,586	6,349	7,539

Figures shown are unaudited and may vary upon final audit.

Commentary 

C1/C3 costs
C1 cash cost per tonne includes costs for mining, processing, administration, offtake costs and penalties, transport costs, accounting movements for stockpiles, and net proceeds from by-product credits. It excludes capital costs for exploration, mine development or processing mill capital works, and, the cost of royalties

All-in sustaining C3 cost reflects cash cost per tonne plus depreciation and amortisation, thus incorporating the capital cost of production, plus interest, other indirect costs and royalties. All-in-sustaining cost represents all costs attributable to nickel production over the period.

Note: the Company has amended the reporting of the nickel price received, cash cost and all-in sustaining cost. The average nickel price received reflects the actual price received rather than the actual average price for the quarter as previously reported. Cash costs and all-in sustaining costs are now reported as actual costs incurred - previously these costs were adjusted for the opportunity cost forgone as a result of selling a nickel concentrate rather than a nickel cathode.

Mining
Mined tonnage was marginally higher with a 0.4% increase at 97,689t (Q4 FY2016: 97,335t).

 

Milling
Though Q1 FY2017 (101,433/t) is lower than Q4 FY2016 (107,421t), milled tonnage was augmented by upgraded waste rock material from waste dump. The upgraded material has the advantage of low percentage magnesium oxide ("%MgO") content; which assists in reducing the %MgO in the mill feed as the run-of-mine ore comes in with higher %MgO.

 

Grade
The decrease in head grade by 23% can be attributed to less access to high grade areas in Q1FY2016 of 1.76% compared to Q4 FY2016 of 2.30%, due to slow development caused by low dump truck availability. The company engaged a contractor to speed up development. The grade is expected to continue on a recovery path as mining works into high grade zones and should be on plan Q2 going onwards

 

Recovery
Nickel recovery of 87.0% for Q1 FY2017was 4% lower than Q4 FY2016 (90.8%).

 

Sales
Nickel sales are down due to temporary decrease in tonnes milled.

 

Market price
The market price for nickel is increasing as expected though later than originally predicted by analysts.

 

Costs
The increase in C1 and C3 costs is attributable to low production achieved.

Diamonds - Klipspringer Diamond Mine (South Africa)

 

Klipspringer Mine		Quarter ended June 2016	Quarter ended  March 2016	Quarter ended Dec 2015	Quarter ended Sept 2015
Tonnes treated	t	52,403	31,251	54,596	52,797
ROM diamonds recovered	carats	30,888	17,791	29,211	37,385
Diamond sales	carats	26,386	17,440	19,398	34,560
Average diamond production cost	US$/ct	10.80	18.05	14.71	13.90
Average diamond sale price	US$/ct	55.90	21.95	18.18	16.62

Figures shown are unaudited and may vary upon final audit.

Commentary 

 

Tailings
The life of the slime tailing retreatment is expected to come to an end in the next two to three months (Q2 FY2017), but its production will be replaced by that of the coarse tailings dam in the complex, set to start producing in the same quarter. The residue sample from the coarse tailings was carried out during Q1 and the results are expected in the next quarter.

 

Mine production

While the main diamond mine at Klipspringer remains under care and maintenance, the Group is aggressively working on a re-start plan inline with its previous announcements. There are a number of options under consideration and further developments are likely to be announced in Q2 or Q3.

 

Ownership

When the Group injected fresh capital last year into its subsidiary, our JV partner Southern Era Diamonds Inc opted not to participate. This meant that Asa Resource's equity stake in the subsidiary increased above the threshold permitted under South African's BEE regulations.

About Asa Resource's Strategic vision

Our strategic vision is to be a fully integrated pan-African commodity group, strengthening each commodity group through exploiting Asa Resource's wide portfolio of mining interests. We also continue to engage with trusted partners in many regions to help us exploit the true value of our assets.

The process of segmenting assets at Group level and integrating resources operationally is fundamental to both our short and long-term strategies. Over time we seek to shift our focus to having individual exposure in each of our key commodities including nickel, gold, copper and diamonds. Shareholders can have an interest in the whole Group or on a single-commodity basis. Our interests in agriculture and property will add valuable income during times of low commodity prices.

This strategy is already showing promise with significant efficiencies achieved through a transfer of skills at mine level and considerable efficiencies across our entire portfolio.

These developments would not be made possible without the commitment, versatility and expertise of management at all levels. This new vision has inspired us all within the Group to double our efforts to re-build Asa Resource Group plc as a strong and sustainable company.

 

For a copy of the full results please visit the company's website: http://www.asaukplc.com/ or contact Communications@asaukplc.com

 

London

Asa Resource Group plc.                                                           

One Fleet Place, London EC4M 7W

Yim Kwan, Finance Director

Tel: +44 (0) 203 696 5470

Hong Kong

Asa Resource Group plc.

Units 509-510, Level 5, Core E, Cyberport 3, 100 Cyberport Road, Hong Kong

Samuel Ng, Investment Manager

Tel: +852 25662638

 

Nominated Adviser and Joint Broker

SP Angel Corporate Finance LLP

Prince Frederick House, 35-39 Maddox Street, London W1S 2PP

John Mackay, Jeff Keating, Caroline Rowe

Tel: +44 (0) 20 3470 0470

 

Financial Adviser and Joint Broker

Cantor Fitzgerald Europe                                                      

1 Churchill Place, Canary Wharf, London E14 5RB

Stewart Dickson, Patrick Pittaway

Tel: +44 (0) 20 7894 7000

 

Cautionary Statement

This Quarterly Update has been prepared solely to provide additional information to enable shareholders to assess the Group's strategy and business objectives and the potential for the strategy and objectives to be fulfilled. It should not be relied upon by any other party or for any other purpose. This Quarterly Update contains certain forward-looking statements and has been made by the Directors in good faith based on information available to them at the time of their approval of this update. These statements should therefore be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying such forward-looking information.