SouthernEra reduces debt with share issue

The international arm of Rand Merchant Bank has agreed to convert another US$2 million of debt owed by SouthernEra Resources (SUF-T) into shares.

RMB International (Dublin) is to receive 1.5 million shares, reducing to fewer than 31.2 million the number of SouthernEra shares outstanding. Another US$1 million of convertible debt remains outstanding.

In 2000, SouthernEra issued US$5 million worth of Exchangeable Capital Units to RMB partly to fund its purchase of a 70.4% interest in the advanced Messina platinum group metals project in South Africa. The bank was subsequently contracted to arrange for project financing.

Resting on the eastern limb of the Bushveld igneous complex, the Messina project is divided into two sections: Voorspoed and Doornvlei. Only the former is being developed, though the latter may be advanced in the future.

Reserves are pegged at 26.4 million tonnes averaging 6.3 grams PGM plus gold. With targeted production of 159,000 oz. precious metals annually, the deposit is sufficient for 17 years of production.

Life-of-mine cash costs are projected at US$150 per oz.

To take advantage of currently robust metal prices, SouthernEra is fast-tracking Messina to production. Starting in August, miners will begin hauling 20,000 tonnes of ore to surface each month, increasing this to the targeted 80,000 tonnes in 2003.

The accelerated plan is expected to generate US$1 million in cash flow.

During the three months ended March 31, SouthernEra lost $1.3 million (or 4 per share) on revenue of $2.5 million, compared with a loss of $1.7 million (6 per share) on $8.8 million in the corresponding period of 2000.

Similarly, SouthernEra had a cash flow deficiency of $391,000, compared with positive cash flow of $7.2 million a year ago.

The Marsfontein farm churned out 15,405 carats during the recent period, 40% of which went to SouthernEra, with the remainder attributable to De Beers Consolidated Mines (DBRSY-Q) and its South African partner. The last batch of primary kimberlite ore was processed in January, with stockpiled gravels and diabase having been treated ever since.

During the quarter, SouthernEra and its Marsfontein partners expanded their agreement to include the developing Klipspringer project, which produced 10,043 carats during the quarter. Consequently, SouthernEra now owns a half-interest in the entire project, and De Beers and its partner are funding the remaining underground development.

Reserves at Klipspringer are pegged at 3.6 million tonnes averaging 50 carats per 100 tonnes. The deposit is sufficient for 13 years of production.

Revenue over the 13 years of expected production is projected to be US$166 million; the internal rate of return, 42.9%; and the payback period, 1.5 years after full production begins. Mined diamonds are expected to fetch US$100 per carat on the market.

SouthernEra and partners have applied for a mining permit at the Camafuca diamond project in Angola. SouthernEra holds a 32% carried interest in the project, though this would rise to 65% if Welox, a private company affiliated with the Leviev diamond-trading group, decides to pull out.

SouthernEra dealt Welox the option to earn its 33% interest last year, in exchange for US$7 million in project financing and a commitment to take on half of SouthernEra’s obligations. Also, Welox received warrants on half a million SouthernEra shares.

The remaining interest in Camafuca is divided among Nacional de Diamantes, with 20%, and Lucapa, with 15%. Two Angolan companies jointly hold a 14% net profits interest.

On March 31, SouthernEra had a working capital deficiency of $13.3 million.