Normandy, TVX clean up balance sheets

Writedowns on non-performing assets have left Normandy Mining (NDY-T) with a significant quarterly loss, with affiliate TVX Gold (TVX-T) incurring a smaller loss as it brings its balance sheet back to health.

For the fiscal year 2000-2001, which ended June 30, Normandy reported a loss of A$154.6 million (US$83.2 million based on an average exchange rate of US53.8 over the period). Revenue was A$1.54 billion (US$831.2 million), and costs attributable to the mines left operating profits of A$339.2 million. The loss represents a loss per share of A7.

By comparison, Normandy took in A$1.32 million in revenue and made a net loss of A$282.3 million in fiscal 1999-2000.

Normandy’s principal financial move was to cut its dividend in half, citing the better tax treatment afforded capital gains in Australia and the decreasing amount of domestic tax credit available to the company as the fraction of foreign gold production in its revenue increased.

Normandy paid out US1.25 per share as an interim dividend in April but does not plan to pay out any more this year. Annual dividends in subsequent years are planned to be near US1.5. High dividends have been costly to Normandy’s balance sheet: in 1999, the last year Normandy made a net profit, dividends on common shares took 78% of net earnings.

The cut to the dividend comes as Normandy absorbs assets from Franco-Nevada Mining (FN-T), which traded US$48 million in cash, its one producing gold mine, and a package of Australian royalties for a 20% shareholding in Normandy.

Normandy’s losses included writedowns of A$289 million (US$147 million based on an exchange rate of US51 at fiscal year-end). The most significant writedown was A$159 million (US$79 million) against the carrying value of Normandy’s interest in the Kasese cobalt project in Uganda. Subsidiary Banff Resources (bff-t) wrote down US$71 million, which included US$13 million in capitalized operating costs.

Kasese, which was designed to process stockpiled cobalt concentrate using bio-leaching, solvent extraction, and electrowinning, has performed below design since opening in 2000. Cobalt recoveries have been low, and the plant has suffered several equipment failures. Banff wrote down US$4 million against the project’s value in the first quarter of 2001.

Normandy, which owns an 85% interest in Banff, has advanced working capital to its subsidiary, but Banff conceded that the increasing debt and the low current price for cobalt make it “unclear whether the operating subsidiary [Kasese Cobalt, owned 61% by Banff and 39% by the Ugandan government] will be able to pay any dividends over the life of the Kasese operation.”

Still, Normandy’s deal with Franco left it with a vastly healthier balance sheet at year-end. Long-term debt decreased by A$271 million to A$1.85 billion (US$942 million) and cash, receivables and current assets were up A$128 million at A$800 million (US$408 million).

Normandy operations were strong, with the company’s attributable gold production up to 634,843 oz., from 557,531 oz. in the corresponding quarter of 2000. A large part of the gain came from the inclusion of the Midas property in Nevada, which was part of the Franco-Nevada deal.

Cash costs were US$148 per oz. and total production costs, US$227.

Normandy’s affiliate, TVX Gold, lost US$2.5 million in the second quarter and is showing US$1.2 million in earnings for the first half of 2001. First-half revenue shrank to US$79.3 million this year, from US$88.8 million in 2000, while costs remained stable. Consequently, first-half operating earnings were down to US$6.1 million, from US$15 million a year before.

TVX’s quarterly loss came on revenue of US$40 million, down from US$46.7 million in the second quarter of 2000, when TVX made US$790,000. Realized gold prices fell to US$309 per oz. from US$346 in the second quarter of 2000, with TVX’s premium over spot shrinking to US$41 from US$66. Realized silver prices were US$3.90, US50 below spot and US6 less than a year ago.

TVX has also been less successful at the bank, with interest expenses increasing as interest income fell. The company also put US$800,000 into restructuring its hedge book, converting 390,000 oz. in gold put options, exercisable at US$360 per oz., to a 550,000-oz. put option position at US$250. The earlier puts had been financed using a gold lease rate swap. A further 350,000 oz. in financed puts at US$280 were paid off, with the moves eliminating US$17.6 million in long-term debt.

TVX’s quarterly production was down to 56,700 oz. from 64,700 in the second quarter of 2000. Unscheduled mill downtime at the La Coipa mine in Chile, which TVX shares with Placer Dome (PDG-T), brought production there down 24%, to 68,000 oz. gold (including silver-equivalent). Recoveries were lower, as was mill throughput.

Similarly, at the Brasilia open pit in Brazil, repairs to two of the operation’s five primary mills decreased mill throughput, so production was 41,600 oz., down 21% from the previous year.

The biggest improvement in operating performance came from the one gold mine TVX manages itself — New Britannia in Snow Lake, Man. The mine, where TVX shares ownership with junior High River Gold (hrg-t), produced 27,600 oz. gold in the second quarter, an increase of 13% over the corresponding period last year, as both head grades and recoveries increased. Unit cash costs fell to US$187 per oz. and total costs were US$290 per oz.

Production was much higher at the Stratoni lead-zinc-silver mine in Greece, where 83,000 tonnes of ore were processed during the quarter. A change to continuous milling and to a 6-day underground schedule brought the mill throughput up by 33,000 tonnes, compared with the second quarter of 2000.

Stratoni produced 533,500 oz. silver, 6,750 tonnes lead and 8,160 tonnes zinc during the period; quarterly production of silver more than doubled that in the second quarter of 2000, and production of both lead and zinc were up more than 70%.

TVX had US$130 million in current assets and has reduced its current liabilities to US$46.4 million. Long-term liabilities fell to US$186.4 million, from US$201.6 million at year-end. A meeting of noteholders in June approved the conversion of a US$250-million convertible note into 321 million shares, which will take a US$240-million item off the company’s balance sheet in the next quarter.

TVX recently returned to the Toronto Stock Exchange’s TSE 300 composite index, and the New York Stock Exchange is monitoring the U.S.-dollar price of TVX shares to see whether it can be maintained above the exchange’s minimum of US$1 per share.