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A significant decline in basic earnings, a fatality at its Buffelsfontein mine resulting in a safety stoppage and a possible closure, together with an asset sale, are hefty setbacks to incur in just one month for JSE-listed miner Village Main Reef.

The company announced that its basic earnings per share of R5.92 for the period ended 31 December 2012, compared to R16.57 ended 31 December 2011 aggregated to a 64% decline.

Joint CEO Marius Saaiman explained that the decline was a result of many operational challenges. “Our results for the half year were characterised by two very distinct quarters from an operational perspective. In the September quarter we achieved record production at both our Tau Lekoa and Consolidated Murchison operations, driven by strong increases in volume and good grade control.”

These positive gains were however reversed in the second quarter, where the Village operations did not escape the impact of industrial action that spread throughout the South African mining industry.

Saaiman pointed out that the unprotected strikes, coupled with safety related stoppages, resulted in gold production, on a like-for-like basis, excluding its Blyvooruitzicht operation, decreasing by 8% compared to the same period last year.

He said that as a result, the companys lower production translated to a R162 million loss in revenue. He did however highlight, that despite these operational difficulties, Village Main Reef was able to generate cash of R183 million, an improvement of 110% over the same period.

Meanwhile, the company was given the go ahead by the Department of Mineral Resources inspectorate in the North West, to resume production at its Buffelsfontein gold mine following a safety stoppage owing to a fatality in a fall of ground accident.

Running at a loss

Village Main Reef is looking to close its Buffelsfontein gold mine, siting its unlikely possibility to return significant profit as the major reason. Saaiman said that it would cost too much to invest in the operation to tap into virgin ore blocks.

The Buffelsfontein mine produced 10 359 oz of gold in the December quarter, a 10% increase from the 9425 oz in the previous quarter, while the mines revenue increased by 17% to R151 million quarter on quarter.

Nonetheless, the mine is still running at a loss with the cost of producing a kilogram of gold falling to R502.182/kg from 602.376/kg.

“It can never be a great proposition if you have to rely on the gold price to make you profitable because thats not a sustainable business,” conceded Saaiman.

The company has also put its Consolidated Murchison gold and antimony mine up for sale and expected to make an announcement on the transaction by June this year. “Our focus has never just been to acquire distressed assets and turn them around, but rather to source undervalued assets and implement operational strategies to help them realise their full potential, and Consolidated Murchison has always been perfectly aligned with this strategy,” said Saaiman.

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