SouthernEra advances Messina, raises C$77m (November 27, 2003)

Toronto-based SouthernEra Resources (SUF-T) continues to make good progress developing its Messina platinum assets, situated 250 km northeast of Johannesburg on the eastern limb of South Africa’s Bushveld igneous complex.

These assets are held though the company’s 73%-owned, Johannesburg-listed subsidiary Messina Ltd., of which SouthernEra acquired a majority stake (since added to) from Impala Platinum a couple of years ago. Messina, in turn, owns 100% of Messina Platinum Mines Ltd. (MPM).

MPM’s Messina Platinum Project is divided into four phases which represent major fault blocks, of which only Phase 1 is currently in production. MPM holds licences for phases 1,2 and 4, and is a 50-50 partner with the Black Empowerment Group Mvelaphanda Resources for phase 3.

At the Phase 1 mine, SouthernEra sunk its Main shaft last year to 430 metres, and is now producing from the 150, 200, 275 and 350-metre levels. A decline ramp from the 350-metre to the 430-metre level is now under construction.

During the third quarter, the Main shaft hoisted 142,381 tonnes of both development and ore material, producing 14,000 oz. of 3 platinum group elements and plus gold, as well as 145.5 tonnes of nickel and 106.1 tonnes of copper. (Generally, the credits are broken down between: platinum, 44%; palladium, 34%; ruthenium, 9%; rhodium 6%; iridium 5%; gold 2%; nickel, 0.22%; and copper, 0.13%.).

The average head grade for the quarter was 3.572 grams 3PGE per tonne and SouthernEra expects this figure to continue improving as the mine approaches steady-state production of 120,000 tonnes per month in the first half of 2004.

At last count at the Phase 1 area , the probable reserves, to a depth of 1 km, stood at 10.0 million tonnes of Merensky reef grading 4.78 grams 5PGE+gold per tonne and 15.5 million tonnes of UG2 reef grading 5.13 grams 5PGE plus gold, for a total of 3.93 million contained ounces. The measured resources to the same depth boast similar tonnages and slightly higher grades.

The Phase 1 mine develops both the Merensky and UG2 reefs together in a ratio of approximately 60 to 40, respectively. Conventional long-hole stoping methods are used to exploit the Merensky reef while the UG2 is mainly mined using sublevel open stoping methods.

The two ore types are fed through the plant as a combined stream, something that is currently unique in the South African PGE industry, and recoveries during the recent quarter averaged 85.6%, in line with projections.

Concentrate is trucked across to the western limb of the Bushveld to Implats’ facilities in Rustenburg. The toll smelting arrangement, whose details are still confidential, was part of the original sales agreement for Implats’ stake in Messina.

Implats markets the resulting metal, and has an offtake agreement with a major auto manufacturer for 160,000 oz. of Phase 1 PGE production per year for a minimum of 5 years starting in 2002. The agreement includes locked-in floor and ceiling metal prices. For platinum, there is a floor of US$400 per oz. and a ceiling of US$600 per oz. for 80% of the 160,000 oz., while for palladium, 100% of the 160,000 oz. has a floor averaging US$370 per oz. and a ceiling of US$658 per oz.

Meanwhile, MPM has been awarded a mining license at the adjacent 6.3 million-oz. Phase 2 project, and the MPM-Mvelaphanda JV has been awarded a prospecting permit for the 7.9-million-ounce Phase 3 project.

In support of a Phase 2/3 feasibility study due in the first half of next year, a drilling campaign is now underway. The first part of the program, consisting of 12 drill holes drilled to a depth of 500 metres has already been completed over a 6-km strike length. Results are expected in December.

Based on a Phase 2/3 scoping study completed by SRK Consulting in 2002, SouthernEra anticipates building a 240,000-tonne-per-month mine that will access the combined 15.9-million-oz. resource at Phases 2 and 3, producing in excess of 340,000 oz. of 5PGEs plus gold for at least 30 years.

Another drilling program over the Phase 4 area is also underway and is due for completion early next year.

SouthernEra also has its Millennium Platinum project in South Africa, where recent drilling has outlined an indicated resource of 30.6 million tonnes grading 3.76 grams per tonne, containing 3.7 million ounces of 5PGEs plus gold.

On the financial front, there was a successful conclusion to a Messina Ltd. rights offering in mid October. Messina’s minority shareholders subscribed for an aggregate of 1 million shares, bringing in some US$8.5 million to the company.

On Nov. 17, SouthernEra closed a C$77.1-million bought-deal equity financing with a syndicate led by RBC Capital Markets and BMO Nesbitt Burns. The financing consisted of 12.05 million units priced at C$6.40 per unit. A single unit comprises one share and half a warrant, with a full warrant entitling the holder to buy another share for C$10.00 within five years.

The company says it will use the money to repay debt, further develop the Messina Platinum project and for general corporate purposes.

As of Nov. 26, 2003, there were 74.2 million SouthernEra shares issued and outstanding.

In the same region of South Africa, SouthernEra also operates its 50% owned Klipspringer diamond mine, which is co-owned with De Beers and a Black Empowerment Group.

Production at the mine was hampered during the third quarter by a labour strike, which was resolved on July 21 with the conclusion of a new wage agreement and a commitment by the National Union of Mineworkers to support continuous operations.

Klipspringer’s tonnage throughput in the third quarter was 40,583 tonnes while the average grade was 39.65 carats per hundred tonnes, yielding 16,082 carats.

In October, SouthernEra announced its discovery of a “substantial gold anomaly” at its 625-sq.-km Koumba gold property in Gabon, West Africa, about 160 km southeast of the capital Libreville, where gold mineralization appears to be associated with vertically dipping single or stockwork vein systems.

The company, which has been exploring for PGEs, diamonds and gold in the country since 1999, is already following up on the Koumba results with a drilling campaign, having finished two of twenty planned holes.

SouthernEra describes the Koumba region as having historically supported both alluvial and primary gold mining, stretching from the current widespread artisanal activity, back to commercial primary and alluvial extraction attempts between 1935 and 1954, when over 1.5 tons of gold was extracted.

For the third quarter ended Sept. 30, SouthernEra posted a net loss of US$4.2 million (C7 per share) on US$628,000 in diamond sales revenue compared to a net loss of US$666,000 (C1 per share) on diamond revenue of US$887,000 in the third quarter of 2002. In a big swing, cash flow provided by operations was $5.5 million (9 per share) in the quarter, up from a use of $3.0 million (6 per share) a year earlier.

For the first nine months of 2003, the company lost US$2.3 million (C7 per share) on US$2.3 million in diamond sales compared to a loss of US$4.3 million (C1 per share) on US$2.2 million is diamond sales in the same period last year.

The company says its Messina and Klipspringer operations continue to be impacted by the unusual strength of the South African rand, which appreciated a further 4.7% relative to the U.S. dollar during the recent quarter.