ASA Resource Group PLC Operations and Explorations Update for Q2 (4271O)

TIDMASA

RNS Number : 4271O

ASA Resource Group PLC

07 November 2016

7 November 2016

Asa Resource Group plc

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

Operations and Explorations Update for Q2 ended 30 September 2016 (Q2 FY2017)

Asa Resource Group plc is pleased to provide an update on operations and exploration activity for the quarter ended 30 September 2016.

Highlights

The Chief Executive Officer's statement, which follows the operational highlights, offers forward guidance and progress in several areas of the Group. The detailed performance figures for each mine and relevant additional commentary is quoted in the latter part of this update.

ASA Gold - Freda Rebecca Gold Mine (Zimbabwe)

   --      Gold sales were 10% higher at 15,904oz in Q2 FY2017 (Q1 FY2017: 14,463oz) 
   --      Average head grade increased by 16.3% to 2.28g/t (Q1 FY2017: 1.96g/t) 
   --      Tonnes mined increased 13% to 363,082 t (Q1 FY2017: 321,630 t) 
   --      Tonnes milled decreased by 4% to 262,633t (Q1 FY2017: 274,474t) 
   --      Recovery rate increased by 2% to 84% (Q1 FY2017: 83%) 
   --      C1 cash costs were 5% lower at US$944/oz (Q1 FY2017: U$993/oz). 
   --      All-in sustaining C3 costs decreased by 3% to US$1,115/oz (Q4 FY2016: US$1,153/oz) 
   --      Average gold price was 5% higher US$1,341/oz (Q1 FY2017: US$1,275/oz) 
   --      New replacement LHD [loader] arrived on site in the latter part of Q2 
   --      New CIL Plant 2 milling unit on target to come on stream in Q3 FY2017 

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

-- Equipment for a gravity plant being assembled for dispatch to DRC before the end of 2016, with a view to starting a basic operation in early 2017

   --      Environmental and community studies undertaken to validate mining licenses 

-- Legal counsel mandated to confirm OHADA compliance (Organisation for the Harmonization of Business Law in Africa)

ASA Nickel - Trojan Nickel Mine (Zimbabwe)

-- Production of nickel in concentrate increased by 20% in Q2 FY2017 to 1,866t (Q1 FY2017: 1,555t), primarily due to an increase in average head grade and recoveries.

   --      Head grade was 15% higher at 2.016% (Q1 FY2017: 1.763%) 
   --      Recovery was 2% higher at 89.1% (Q1 FY2017: 87.0%) 

-- The average net realised nickel in concentrate price was US$6,668/t (Q1 FY2017: US$5,728/t), reflecting a 16% increase in global nickel prices this quarter

   --      Nickel sales volume were 32% higher at 1,971t (Q1 FY2017: 1,493t) 

-- C1 cash costs for nickel in concentrate decreased by 17% to US$4,782/t (Q1 FY2017: US$5,736/t)

-- All-in sustaining C3 costs of nickel in concentrate decreased by 21% to US$5,151/t (Q1 FY2017: US$6,489/t)

ASA Diamonds - Klipspringer (South Africa)

   --      Diamond sales increased by 21% to 36,282cts (Q2 FY2017) from 29,872cts (Q1 FY2017) 

-- Average realised fine diamonds sale price down 14% to US$18.53/ct, compared with US$21.48/ct (Q1 FY2017). Please note correction to Q1 price previously quoted.

-- Average realised fine diamonds production cost reduced 18% to $8.88/ct from the previous quarter of $10.80/ct (Q1 FY2017).

   --      Tonnes treated decreased by 8% to 47,873t (Q2 FY2017) from 52,264t (Q1 FY2017) 
   --      Results of bulk sample indicate coarse tailing contains higher grade than anticipated 
   --      Coarse tailing processing to start in December 2016 

Corporate & financial

-- Mr Yat Hoi Ning stepped down as Executive Chairman and has been appointed Group Chief Executive Officer

   --      Mr David Murangari has been appointed to the board as non-Executive Chairman of the Group 
   --      Rationalising subsidiaries into defined commodity groups well advanced 

-- Offices closed in Johannesburg and Harare further reducing Group corporate overhead to an all-time historical low of approximate $3m per annum (excluding project exploration and licencing fees)

CEO STATEMENT

Mr Yat Hoi Ning, Group Chief Executive Officer, gives the following commentary on Q2 results for the quarter ended 30 September 2016 (Q2 FY2017):

"Shareholders will be pleased to hear that the executive and senior management have been extremely active over the last three months and I can report solid progress at our operating mines, as seen in our operational highlights. Before I comment on each commodity, I will firstly take shareholders through important points for the wider Group.

Restructuring

The process of rationalising subsidiaries into defined commodity groups is well advanced; some of these matters are legally quite complex due to entities being registered in different jurisdictions.

At Group level, we continue to streamline functions, centralise procurement and eradicate duplication. Certain responsibilities have been moved from mine to corporate level and vice versa, resulting in a pooling of responsibilities and a more agile management structure. Streamlining the UK and Hong Kong offices is more or less complete and in this quarter we further rationalised our African administrative function by closing Johannesburg and Harare, bringing important duties closer to our operating mines in Bindura. The Group's corporate overhead is now at an all-time historical low of approximately $3m per annum (excluding project exploration and licensing fees). Whilst I'm pleased with this hard-earned performance, we must be constantly vigilant about controlling costs and to remove unnecessary waste. A low-cost base will benefit us when commodity prices start to rise again.

This reorganisation has also helped drive down costs at mine level and the executive believe that opportunities remain to impact further on C1/C3 costs, especially at Freda Rebecca. When one considers that the combined AISC annual costs at our operating mines are in the region of $120m, any potential savings could be significant. For example, if a further 5-10% reduction could be achieved from operations, annual savings could be sufficient to start one of the Group's other assets or help maintain our many valuable exploration licenses.

Throughout this year the Board has specifically set out to engage much more with shareholders. It recognises it may have cut costs too far in certain areas, such as investor relations and corporate communications, however, in an effort to redress this, part of the savings from restructuring is being re-invested. For example, in the coming quarters we will launch a new website and invest in improved investor communications. The benefit of keeping stakeholders informed of our progress is reflected in our much-improved market cap and the positive feedback we continue to receive from many shareholders and advisors.

In our AGM announcement, I mentioned that it's the board's wish to initiate a succession plan for the CEO position. I don't intend to give a running commentary on this matter each quarter, suffice to say that the Nomination Committee's work has commenced. We will more than likely not report again until well into next year, when plans are likely to be more advanced.

ASA GOLD

Freda Rebecca (Zimbabwe)

I would describe the overall performance at Freda Rebecca as steady in Q2. There was a modest increase in gold sales and minor decreases in C3 costs. The new replacement LHD arrived on site in the latter part of the quarter and helped to increase tonnes mined by 13%, however a cracked journal on Mill 1, in late August, slowed throughput and contributed to a decrease in tonnes milled. The additional CIL Plant 2 mentioned in Q1 is coming on stream and will offset this issue in the short-term. When Mill 1 is back online and the new additional mill reaches full capacity this will boost revenues in the second half of this financial year (FY 2017) particularly from Q4 onwards. We expect gold sales to improve slightly in Q3 with much improved results in Q4. When gold output returns to its target of 17,500/oz (or higher) later in this financial year, Freda Rebecca should reach its all-in sustaining and all-important target of $1,000/oz. As mentioned in Q1 update, we always anticipated it would take several quarters to achieve this ambitious C3 target. Regular observers will note that management reported a C3 (AISC) figure of $988/oz in Q3 FY 2016 when gold output reached 18,506/oz.

Over the next few years the additional mill capacity will process an extra 0.6m/t pa, matching our mine and mill capacities for the first time in almost a decade. Freda Rebecca's original plant design had the capability to produce 90,000/oz to 100,000/oz per annum and it is the Group's intention to steadily increase gold sales towards this long-term target. The new milling equipment was sourced from within the Group.

Freda Rebecca made an insurance claim for business interruption following an incident at the start of this year originally amounting to $3.6m. The amount of this claim has been increased and we will update the market in due course.

Zani-Kodo JV (Democratic Republic of Congo)

As part of our strategy to diversify regionally and capitalise on the positive outlook for gold, we continue to actively progress our plans for a mine operation. Our senior engineering team has spent a great deal of time in Zani-Kodo in the last few months. I can report that equipment for a gravity plant is being assembled (at Freda Rebecca) and it should be on site by the end of this year. The necessary environmental and community studies have been undertaken to validate our mining licenses. Our legal counsel has been mandated to confirm our operation will be OHADA compliant. OHADA is a body that oversees business law in Africa in order to guarantee legal and judicial security for investors and companies in its member states - more information can be sought online from http://www.ohada.org/index.php/en/ohada-in-a-nutshell/general-overview.

With these measures in place, we hope to have a basic gravity operation in place by early 2017. Part of our rationale for expediting these plans is to save on the substantial licensing fees the Group pays for not converting its licenses from exploration to a mining status. These charges can amount to as much as $3m per annum.

The Board is carefully weighing up the cost-benefit analysis of having a more ambitions investment programme and will make its recommendation in due course.

For those who are not aware, the Group holds an 80% interest in a gold mineral JORC resource of 2.97Moz (at 2.43g/t based on a cut-off grade of 0.5g/t) in Zani-Kodo northeast DRC. The licence areas have the potential to host world-class gold deposits and are located between the Kibali Project (Randgold - 22Moz) and the Mongbwalu Project (AngloGold/Ashanti). 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 and if gold remains over $1,300/oz, this resource may come to define the Group's true long-term future.

ASA NICKEL

Trojan Nickel Mine (Zimbabwe)

Nickel stabilised around $10,000/t for much of Q2 (YE2017), supported by news that up to 20 top nickel producers face suspension in the Philippines. This higher nickel price contributed to BNC's Trojan mine achieving a 16% improvement in average net realised nickel in concentrate.

As was anticipated, BNC outperformed in all key-operating areas. Nickel in concentrate production increased by 20% primarily due to an increase in average head grade and recoveries; all-in sustaining C3 costs of nickel in concentrate decreased by 21%. The decreases in both C1 and C3 costs are attributable to an increase in overall production, cost control measures and a 15% higher head grade. As the availability of equipment gradually improves, BNC has a reasonable expectation that production will improve from Q3 FY2017 onwards.

The restart programme for the smelter is progressing. In my last statement (Q1), I explained that once the smelter was in full production BNC's percentage of the market price would increase from the current 65% to circa 85%, subject to contractual terms. To fully understand the marginal benefits of the smelter, one must factor in its running costs, including the extra cost of electricity. Nickel from the smelter is produced in the form of matte and the terms BNC can expect to secure for its matte varies according to prevailing market conditions. The higher the nickel price, the better the contract terms. There is a significant transport saving when moving matte as opposed to concentrate, as it has approximately eight times less bulk. It is important to emphasise that the long-term strategic value of the smelter is when the nickel price is more elevated than it is today. Additionally, when prices are higher, third party toll feed tends to be in greater supply. While we are not dependent on any one of these factors to re-start the smelter, they nonetheless contribute to the revenue model. The formula for calculating revenue has many variables and it is prudent not to take an over simplistic approach. BNC continues to explore discussions to enhance toll income over the medium-term and once the smelter is fully operational next year and the outlook for nickel becomes clearer, we will be able to offer more accurate guidance on net margins and operating costs. Having our refinery operating gives full control over the value chain and would further enhance income. A feasibility study to re-start part of the refinery is underway and it remains our medium-term ambition to re-establish BNC as the only fully integrated nickel producer in Africa.

On a separate note, most investors will be aware that BNC is quoted on the Zimbabwe Stock Exchange (ZSE) and its share price has been performing better lately. Even at the current ZSE price, BNC's market cap is still much lower than it was two years ago. Management believes BNC's re-rating is justified especially considering AISC are at an all-time low.

Nickel - market outlook

Stainless steel production rebounded strongly in the first half of this year driven by China where demand has been lifted by the government's latest stimulus package to push infrastructure and construction projects. Stainless steel is a core driver of demand for nickel, a market that is currently focused on shifting supply dynamics arising from government policy in Indonesia and the Philippines.

Indonesia was the major supplier of nickel ore for China's production of nickel pig iron, a form of the metal used for stainless production. The country banned ore exports in 2014 in a drive to force its miners down the value chain. The policy has been only partly successful. There has been some build-out of smelter capacity but other smelter projects have struggled to get off the ground and the government is now reviewing whether to relax the ban for those that have started construction work.

The Philippines filled the ore supply gap after the Indonesian ban, but the country's nickel production has been thrown into disarray by an environmental review of its miners. A quarter of the country's miners have been closed with another 20 of them under the threat of suspension, many of them nickel operations. This brings into question how China's stainless steel producers will secure sufficient nickel to feed such strong output. This may be one of the reasons why Chinese nickel demand is up eight percent so far this year and global usage six percent, according to the International Nickel Study Group.

This may also have a bearing on why BHP has suggested that the nickel market should start to rebalance this year, leading to a potential recovery in prices over the next few years.

ASA DIAMONDS

Klipspringer (South Africa)

Quarter-on-quarter sales diamond production from fine tailings (slimes) retreatment increased again, by 21% to 36,282 cts. While the realised average price decreased to US$18.53/ct compared to US$21.48/ct (Q1 FY2017), the cost of processing reduced by 18%. Please note the average fine diamond price was overstated in error in Q1: it should have been US$21.48/ct.

The slime tailings retreatment will end this November (Q3 FY2017).

The bulk residue sampling tests for the new coarse tailings project were more encouraging than expected and we are hopeful that this will improve earnings from Q4 (Jan-Mar 2017) onwards. This allows Klipspringer to extend its contract with our current JV treatment partner, Greenhurst Mining & Exploration. This is a much larger retreatment programme than the slimes. It will commence in early in 2017 and continue for about three years.

The Group reported previously that it is seeking to reduce its stake by 8% or more to comply with the 74% threshold permitted under South African's Black Economic Empowerment (BEE) law. This may be an opportunity to introduce a new JV partner to re-start our underground mine operation.

OTHER BUSINESSES

There is nothing of significance to report on either our JV Copper venture or our agribusiness in this quarter.

SUMMARY

This has been a most encouraging quarter with steady progress across the board. While some challenging market conditions persist our momentum is growing. We continue to optimise our gold and nickel operations, focusing on short-term cost management actions as well as accelerating our longer-term strategy. As a result, the Board expects the Group's performance to be stronger in the second half of its financial year (FY2017)."

MANAGEMENT REPORT

ASA Gold - Freda Rebecca Gold (Zimbabwe)

 
                                   Quarter      Quarter   Quarter     Quarter 
                                     ended        ended     ended       ended 
                                 Sept 2016    June 2016     March    Dec 2015 
                                                             2016 
-------------------  --------  -----------  -----------  --------  ---------- 
 Tonnes mined         t            363,082      321,630   260,413     267,448 
-------------------  --------  -----------  -----------  --------  ---------- 
 Tonnes milled        t            262,633      274,474   287,261     308,953 
-------------------  --------  -----------  -----------  --------  ---------- 
 Head grade           g/t             2.28         1.96      1.80        2.19 
-------------------  --------  -----------  -----------  --------  ---------- 
 Recovery             %                 84           83        85          85 
-------------------  --------  -----------  -----------  --------  ---------- 
 Gold sales           oz            15,904       14,463    14,114      18,506 
-------------------  --------  -----------  -----------  --------  ---------- 
 Average gold 
  price received      US$/oz         1,341        1,275     1,210       1,096 
-------------------  --------  -----------  -----------  --------  ---------- 
 Cash cost (C1)       US$/oz           944          993     1,215         820 
-------------------  --------  -----------  -----------  --------  ---------- 
 All-in sustaining 
  cost (C3)           US$/oz         1,115        1,153     1,240         988 
-------------------  --------  -----------  -----------  --------  ---------- 
 

Figures shown are unaudited and may vary upon final audit.

1. 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.

2. 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.

Management comments

Management offers additional comments on their operation performance for Q2 (FY 2017):

-- Gold production increased by 10% in Q2 FY2017 to 15,904oz compared to 14,463oz in the previous quarter as a result of a 63% and 2% increase in feed grade and gold recovery rate.

-- Tonnes mined for the quarter under review increased by 13% to 363,082t from 321,630t in Q1 FY2017. The increase was due to improvement in availability of loading units.

-- Tonnes milled declined by 4% to 262,633t in Q2 FY2017 (Q1 FY2017 - 274,474t) on the backdrop of a 12% decrease in mill running time as a result of mill 1 feed-end journal breakdown and a 4% decrease in throughput due to coarse feed material due feeder restrictions to the secondary crusher.

-- The feed grade for Q2 FY2017 increased by 16.3% to 2.28g/t from 1.96g/t in Q1 FY2017. The increase in feed grade was attributed to mining from stopes with high confidence in grade.

-- Gold recovery for Q2 FY2017 increased to 84% from 83% in Q1 FY2017 due to the controls introduced to eliminate carbon fines.

-- C1 Cash costs decreased by 5% to US$944/oz from US$993/oz in Q1 FY2017 as a result of a 10% increase in gold production. However, all-in sustaining costs realised a net decrease of 3% from $1,153/oz in Q1 FY2017 to $1,115/oz, a result of a 6%

Asa Nickel - BNC Trojan Nickel Mine (Zimbabwe)

 
 Trojan Mine                   Quarter   Quarter   Quarter   Quarter 
                                ended     ended     ended     ended 
-------------------  -------  --------  --------  --------  -------- 
                               Sep-16    Jun-16    Mar-16    Dec-15 
-------------------  -------  --------  --------  --------  -------- 
 Tonnes mined         t        104,018   97,689    97,335    86,794 
-------------------  -------  --------  --------  --------  -------- 
 Tonnes milled        t        103,857   101,433   107,421   101,804 
-------------------  -------  --------  --------  --------  -------- 
 Head grade           %        2.016     1.76      2.3       1.78 
-------------------  -------  --------  --------  --------  -------- 
 Recovery             %        89.1      87.00     90.8      87.3 
-------------------  -------  --------  --------  --------  -------- 
 Ni in concentrate    t        1,866     1,555     2,246     1,584 
-------------------  -------  --------  --------  --------  -------- 
 Nickel sales         t        1,971     1,493     2,274     1,577 
-------------------  -------  --------  --------  --------  -------- 
 Average nickel 
  price               US$/t    6,668     5,728     5,520     6,121 
-------------------  -------  --------  --------  --------  -------- 
 Cash cost (C1)       US$/t    4,782     5,736     4,370     4,933 
-------------------  -------  --------  --------  --------  -------- 
 All-in sustaining 
  cost (C3)           US$/t    5,151     6,489     4,934     6,349 
-------------------  -------  --------  --------  --------  -------- 
 

Figures shown are unaudited and may vary upon final audit.

1. C1 cash cost per tonne includes costs for mining, processing, administration, off-take 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.

2. All-in sustaining C3 cost reflects the 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

3. 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.

Management comments

Management offers additional comments on their operation performance for Q2 (FY 2017):

-- Mined tonnage was 6% higher at 104,018t (Q1 FY2017: 97,689t). Hoisting improved in the second quarter helped by increased scooping and fixed plant stability.

-- Mining constraints for the second quarter included low availability of LHDs and dump trucks at 64% and 60% respectively.

-- A decision was taken to outsource development to a contractor in June 2016 to improve performance. Development was lagging behind and therefore negatively affecting ore source availability. The contractor purchased two new 20t Dump Trucks but experienced delays in the delivery and commissioning of the units resulting in poor performance. Work is in progress and spares have been sourced to commission the second dump truck in the third quarter.

-- Production is expected to improve in the third quarter as equipment availability is expected to improve. The contractor has improved the equipment and its maintenance team to ensure sustained performance in the future. In addition, the contractor purchased a new LHD truck which was commissioned at the end of September with the additional swing machine increasing scooping and availability.

-- Availability of additional sources of massives is expected to increase production in the third quarter and thereafter.

Asa Diamonds - Klipspringer Diamond Mine (South Africa)

 
    Klipspringer                             Quarter      Quarter      Quarter        Quarter      Quarter 
     Mine                                      ended        ended        ended          ended        ended 
                                           September         June        March       Dec 2015         Sept 
                                                2016         2016         2016                        2015 
---------------------  ------------- 
    Tonnes treated         t                  47,873       52,403       31,251         54,596       52,797 
---------------------  -------------  --------------  -----------  -----------  -------------  ----------- 
    ROM diamonds 
     recovered             carats             23,832       30,888       17,791         29,211       37,385 
---------------------  -------------  --------------  -----------  -----------  -------------  ----------- 
    Diamond sales          carats             36,282       29,872       17,440         19,398       34,560 
---------------------  -------------  --------------  -----------  -----------  -------------  ----------- 
    Average diamond 
     production cost         US$/ct             8.88        10.80        18.05          14.71        13.90 
---------------------  -------------  --------------  -----------  -----------  -------------  ----------- 
    Average diamond 
     sale price            US$/ct              18.53        21.48        21.95          18.18        16.62 
---------------------  -------------  --------------  -----------  -----------  -------------  ----------- 
 

Ratio of Run of Mine (ROM) diamonds delivered to diamonds in stock (DIS) after sieving, cleaning and sorting.

Figures shown are unaudited and may vary upon final audit.

Management comments

Management offers additional comments on their operation performance for Q2 (FY 2017):

-- The coarse dump was sampled to determine the feasibility of re-treating: a total of 2,829 tonnes was sampled and the grade results ranged from 5.41 to 7.15 cpht (carats per hundred tonnes)

-- Correction: Please note the average fine diamond price was overstated in error in Q1 - it should have been US$21.48/ct and not US$55.90/ct.

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 them 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.

Contact

For more information please visit http://www.asaukplc.com/ or contact us below:

London

Asa Resource Group plc.

One Fleet Place, London EC4M 7W

Niall Henry, non-Executive Director (Investor Relations)

[e-mail]

Hong Kong

Yim Kwan, Finance Director

Asa Resource Group plc.

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

[e-mail]

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: [phone]

This information is provided by RNS

The company news service from the London Stock Exchange

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November 07, 2016 02:00 ET (07:00 GMT)