1st Quarter Results

SouthernEra First Quarter Results Company Reports a Net Profit of $0.4m (1c per share) Shares Issued and Outstanding: 61,593,793 TSX: SUF AIM: SRE TORONTO, May 20 /CNW/ - The Board of SouthernEra Resources Limited announced the following highlights from the first quarter of 2003: - SouthernEra secures C$69.75 million in equity financing - SouthernEra announces support for Messina Limited debt restructuring - Messina upgrades Phase 1 probable mineral reserve - SouthernEra appoints Williams de Broe as UK Nominated Advisor and Broker Subsequent to March 31: - SouthernEra appoints Senior Vice President and CFO - SouthernEra releases Messina Platinum first quarter development report The Company realized a net profit for the three months to March 31 of $0.4 million (1 cent per share) on revenue of $1.1 million, compared to a loss of $1.4 million (4 cents per share) on revenue of $0.6 million in the first quarter of 2002. Cash flow used in operations for the quarter was $5.7 million (10 cents per share), compared to a use of $1.5 million (4 cents per share) in the first quarter of 2002. Operations Update At the Company's 50 percent-owned Klipspringer Diamond Mine, fissure development and mining is now the focus of activity. In the first quarter, tonnage throughput was 78,800 tonnes. Average grade in the quarter was 37 carats per hundred tonnes, yielding 29,400 carats. The Company's subsidiary Messina Platinum continued to make good progress in developing the Phase 1 Mine. During the first quarter of 2003, Messina's now fully commissioned Main Shaft hoisted 156,000 tonnes, of which 81,549 were development waste tonnes and 74,454 were reef tonnes from both production and development levels. Production during the quarter came from the 150 and 200 metre levels. Development is currently focused on the 275 and 350 metre levels. Based on progress to date, the Company believes Messina is on track to meet the previously published 2003 production build-up targets of 40,000 tonnes per month by the end of June and 80,000 tonnes per month by the end of September. During the quarter, exploration activities continued at the Company's platinum and diamond exploration projects. Following continued drilling at the Millennium Platinum Project in South Africa the Company is on track to report an expanded resource prior to the end of June. Drilling also continues at the Company's Canadian diamond exploration projects. Results from this program are expected in the months ahead. Following the conclusion of an airborne survey at the Company's diamond and precious metals projects in Gabon, a drilling program is set to commence. Drilling is also expected to commence at the Company's diamond projects in South Africa and Australia. SouthernEra secures C$69.75 million equity financing The Board of Directors accepted a bought deal equity proposal to issue 9 million common shares at C$7.75/share for gross proceeds of $69.75 million to a syndicate led by Griffith's McBurney & Partners. The proceeds of the financing are being used to support remaining development at Messina Platinum and future expansions, debt restructuring at Messina Limited, working capital requirements and general corporate purposes. SouthernEra supports Messina Limited debt restructuring The Board of Directors announced that it has resolved to support its subsidiary, Messina Limited, in its endeavours to restructure its balance sheet with a view to the reduction of Messina's debt. SouthernEra will support and underwrite a Messina rights offer. Support is subject to agreement with Messina on the terms of a rights offer as well as the associated regulatory process in South Africa. Probable Mineral Reserve Upgraded at Messina Platinum's Phase 1 Mine The Company announced an upgraded Probable Mineral Reserve for Messina Platinum's Phase 1 (Voorspoed Section) of 24.5 million tonnes at 4.98 grams per tonne 5PGE plus gold. Williams de Broe appointed as Company's UK nominated advisor and broker in UK The Board of Directors announced that Williams de Broe Plc has been appointed to act as nominated advisor and broker to SouthernEra Resources Limited in respect of the Company's listing on the London Stock Exchange's AIM. SouthernEra Resources is an independent producer of platinum group metals and diamonds. The company also has an extensive PGM and diamond exploration program. The common shares are listed on the Toronto Stock Exchange and the London Stock Exchange's AIM market. The full, unaudited financial statements are available at www.southernera.com SouthernEra Resources Limited Consolidated balance sheets (in thousands of United States dollars) March 31, December 31, 2003 2002 ------------------------------------------------------------------------- Assets (unaudited) Current assets: Cash and equivalents $ 32,094 $ 2,870 Restricted cash 11,790 11,055 Accounts receivable 7,760 7,359 ------------------------------------------------------------------------- 51,644 21,284 Property, plant and equipment 6,879 7,110 Exploration projects 10,284 8,994 Mining and development projects 138,973 121,260 Future income taxes 2,994 2,794 ------------------------------------------------------------------------- $ 210,774 $ 161,442 ------------------------------------------------------------------------- Liabilities and shareholders' equity Current liabilities: Accounts payable and accrued liabilities $ 9,638 $ 12,671 Income taxes payable 8,982 8,086 Camafuca loan 2,493 2,448 Messinaloans 11,216 5,729 ------------------------------------------------------------------------- 32,329 28,934 Long-term liabilities: Messinaloans 46,327 46,926 Future income taxes 2,312 2,429 Non-controlling interests 8,538 7,813 Environmental rehabilitation provision 776 740 ------------------------------------------------------------------------- 90,282 86,842 ------------------------------------------------------------------------- Shareholders' equity: Common shares 174,335 130,628 Contributed surplus 1,635 1,635 Deficit (57,483) (57,869) Cumulative translation adjustments 2005 206 ------------------------------------------------------------------------- 120,492 74,600 ------------------------------------------------------------------------- $ 210,774 $ 161,442 ------------------------------------------------------------------------- The accompanying notes form an integral part of, and should be read in conjunction with, these consolidated financial statements. SouthernEra Resources Limited Consolidated statements of operations (in thousands of United States dollars, except income (loss) per share amounts) (unaudited) FOR THE THREE MONTHS ENDED MARCH 31 2003 2002 ------------------------------------------------------------------------- Diamond sales revenue $ 1,086 $ 578 Direct costs: Mining operations (1,851) (775) Amortization (345) (347) ------------------------------------------------------------------------- (2,196) (1,122) ------------------------------------------------------------------------- Loss from mining operations (1,110) (544) General and administration expenses (924) (403) ------------------------------------------------------------------------- Loss before the undernoted (2,034) (947) Foreign exchange gain (loss) 2,021 (620) Interest income 280 93 ------------------------------------------------------------------------- Income (loss) before income taxes 267 (1,474) Income taxes: Current - (11) Future recovery 117 79 ------------------------------------------------------------------------- Income (loss) after income taxes 384 (1,406) Non-controlling interests 2 24 ------------------------------------------------------------------------- Net income (loss) for the period $ 386 $ (1,430) ------------------------------------------------------------------------- Basic and diluted net income (loss) per common share $ 0.01 $ (0.04) ------------------------------------------------------------------------- Consolidated statements of deficit, contributed surplus and cumulative translation adjustments (in thousands of United States dollars) (unaudited) FOR THE THREE MONTHS ENDED MARCH 31 2003 2002 ------------------------------------------------------------------------- CUMULATIVE CUMULATIVE CONTRIBUTED TRANSLATION CONTRIBUTED TRANSLATION DEFICIT SURPLUS ADJUSTMENTS DEFICIT SURPLUS ADJUSTMENTS ------------------------------------------------------------------------- Beginning of period $(57,869) $1,635 $206 $(48,910) $1,044 $(4,529) Conversion rights - - - 591 - Translation gains (losses) net for the period - - 1,799 - - (152) Net income (loss) for the period 386 - - (1,430) - - ------------------------------------------------------------------------- End of period $(57,483) $1,635 $2,005 $(50,340) $1,635 $(4,681) ------------------------------------------------------------------------- ------------------------------------------------------------------------- The accompanying notes form an integral part of, and should be read in conjunction with, these consolidated financial statements. Consolidated statements of cash flows (in thousands of United States dollars) (unaudited) FOR THE THREE MONTHS ENDED MARCH 31 2003 2002 ------------------------------------------------------------------------- Net income (loss) for the period $ 386 $ (1,430) Adjustments for non-cash items: Amortization 346 347 Future income taxes (117) (79) Gain on sale of fixed assets (12) Foreign currency translation loss (gain) (2,021) 620 Non-controlling interest 2 24 ------------------------------------------------------------------------- (1,417) (518) Change in non-cash working capital balances (4,281) (964) ------------------------------------------------------------------------- Cash used in operations (5,698) (1,482) ------------------------------------------------------------------------- Financing activities: Messinaloans 1,758 8,771 Issue of common shares for cash 43,707 4,456 ------------------------------------------------------------------------- Cash provided by financing activities 45,465 13,227 ------------------------------------------------------------------------- Investing activities: (Increase) decrease in restricted cash (735) 145 Exploration and development projects (1,484) (823) Messina platinum project (8,698) (9,297) Property, plant and equipment (424) (60) ------------------------------------------------------------------------- Cash used in investing activities (11,341) (10,035) ------------------------------------------------------------------------- Increase in cash 28,426 1,710 Foreign exchange gain on cash held in foreign currency 798 120 Cash and equivalents - beginning of period 2,870 6,513 ------------------------------------------------------------------------- Cash and equivalents - end of period $ 32,094 $ 8,343 ------------------------------------------------------------------------- Cash and cash equivalents comprise: Cash $ 694 $ 1,543 Short-term investments 31,400 6,800 ------------------------------------------------------------------------- $ 32,094 $ 8,343 ------------------------------------------------------------------------- Supplementary information: Interest paid $ 20 $ 68 ------------------------------------------------------------------------- The accompanying notes form an integral part of, and should be read in conjunction with, these consolidated financial statements. Notes to consolidated financial statements In the opinion of management, the unaudited consolidated financial statements present fairly the Company's financial position as at March 31, 2003 and the results of its operations and its cash flows for the three months ended March 31, 2003. The results of operations and cash flows are not necessarily indicative of the future results of operations or cash flows. 1. ACCOUNTING POLICIES The accounting policies followed by the Company are set out in Note 2 to the audited consolidated financial statements included in the Company's 2002 Annual Report and have been consistently followed in the preparation of these interim financial statements. 2. PROPERTY, PLANT AND EQUIPMENT ACCUMULATED December 31 AMORTI- March 31 2002 COST ZATION 2003 NET ------------------------------------------------------------------------- South Africa - Buildings, plant and equipment $ 13,078 $ (6,255) $ 6,823 $ 7,064 Toronto - Fixtures and fittings 327 (271) 56 46 ------------------------------------------------------------------------- $ 13,405 $ (6,526) $ 6,879 $ 7,110 ------------------------------------------------------------------------- 3. EXPLORATION PROJECTS Accumulated Carrying Value ------------------------------------------------------------------------- March 31, December 31, 2003 2002 ------------------------------------------------------------------------- Canada Yamba Lake - NWT $ 2,930 $ 2,855 Back Lake - NWT 615 557 Superior - Ontario 1,218 1,115 Other 473 365 ------------------------------------------------------------------------- 5,236 4,892 ------------------------------------------------------------------------- Foreign South Africa 1,793 1,458 Gabon 2,646 2,048 Australia 609 596 ------------------------------------------------------------------------- 5,048 4,102 ------------------------------------------------------------------------- $ 10,284 $ 8,994 ------------------------------------------------------------------------- 4. MINING AND DEVELOPMENT PROJECTS ------------------------------------------------------------------------- Accumulated Carrying Value ------------------------------------------------------------------------- March 31, December 31, 2003 2002 ------------------------------------------------------------------------- Messina platinum project $ 123,830 $ 106,312 Camafuca project 15,143 14,948 ------------------------------------------------------------------------- $ 138,973 $ 121,260 ------------------------------------------------------------------------- 5. MESSINA LOANS March 31, December 31, 2003 2002 ------------------------------------------------------------------------- Senior Debt $ 51,516 $ 45,643 Loans from a South African public company 3,562 4,252 Rio Tinto API underwriting guarantee advance 2,465 2,465 Other - 295 ------------------------------------------------------------------------- 57,543 52,655 Less current portion of loans (11,216) (5,729) ------------------------------------------------------------------------- $ 46,327 $ 46,926 ------------------------------------------------------------------------- Senior Debt The Senior Debt provided by a South African banking consortium ranks above all other debt in Messina. It is secured in favour of the banks by all the assets of Messina. Repayment of capital and/or interest to any other lender to Messina, whether a lender in terms of the loan arrangements noted above or for any other reason including any trade or other credit granted, may only be settled by Messina with the banks' consent while any amounts due to the banks, including interest, remain outstanding. While the Senior Debt is outstanding, Messina may not incur additional debt, acquire or dispose of assets or engage in activities outside the parameters of the establishment of the Messina Platinum Project, or deviate from the planned development of the project, without the consent of the banks. The Senior Debt comprises two, South African Rand (R) denominated, tranches making up a total of R345 million ($43 million), Tranche A of R270 million ($34 million) and Tranche B of R75 million ($9 million). Both tranches were drawn upon simultaneously and, other than for interest determination, can be regarded as a single loan. Drawdown commenced on September 18, 2001, and monthly drawdowns continued until the final drawdown on September 30, 2002. Interest accrues on the loan and is capitalized to the loan balance outstanding. The repayment schedule includes an element of principal and interest in each repayment instalment with the first instalment scheduled for February 29, 2004 and with semi-annual payments thereafter until the final instalment on August 31, 2008. The interest rate in respect of Tranche A is fixed at 14.51% and in respect of Tranche B, fluctuates with the average of a basket of long-term South African money market rates (19% at March 31, 2003). Loans from a South African public company This loan of $3.6M is denominated in Rand and is unsecured and subordinate to the Senior Debt provided by the banking consortium. The loan bears interest at South African market-related rates (19% at March 31, 2003) and interest is payable monthly in arrears. Capital repayments commenced in January 2002 and, under renegotiated terms, are repayable in monthly instalments of not less than R2.5 million ($0.3 million) per month from February 2003. The banking consortium has consented to this repayment schedule subject to continued satisfactory progress of the Messina Platinum Project and such financial support as might be necessary from SouthernEra. Accelerated Production Initiative (API) and API guarantee As part of the overall Messina Platinum Project funding, an API, comprised of a small concentrator plant and early stage trial mining, was developed. The API was designed to conduct trial mining and make a financial contribution to the overall project. The construction and commissioning of the API plant was completed in August 2001 and trial mining commenced in the last quarter of 2001 and continued into the third quarter of 2002. The API plant and initial underground development costs of approximately R63 million were funded by the South African public company loan and cash in Messina. The API contribution is specifically defined as the net cash proceeds received, measured on a quarterly basis commencing December 31, 2001, from sales of PGM concentrate produced by the API, less certain defined marginal costs of operating the API plant. In addition, the funding arrangements with the banking consortium provide that the contribution of R121 million to be made by the API be fully underwritten. Rio Tinto PLC and Rand Merchant Bank (RMB) provided such underwriting guarantees to the extent of R58 million and R63 million respectively. The guarantees were provided for the period September 2001 to September 30, 2002, being the required period of API contribution. The Rio Tinto guarantee ranked first in the event of underwriting claim and was to be fully drawn before the RMB guarantee became effective. In January 2002, $2.4 million (R27.8 million) was drawn against Rio Tinto under their guarantee. The advance so provided became a United States dollar denominated liability of the Company which, in turn, advanced these funds to Messina by way of inter group loan account. The loan was fully repaid in April 2003. 6. INCOME (LOSS) PER SHARE AND PRO FORMA INCOME (LOSS) PER SHARE Basic and diluted income (loss) per share is calculated using the income (loss) for the quarter of $0.4 million (2002 - ($1.4) million) with the weighted average number of common shares outstanding during the period of 56,395,726 shares (2002 - 40,302,147). The exercise of stock options would dilute earnings per share in the current and possibly future periods. The effect of the potential dilution does not reduce earnings per share in the current quarter and would be anti-dilutive in the comparable period of 2002. The fair value assigned to the portion of 550,000 stock options vesting in the current quarter but granted to employees in the first quarter of 2002 was $0.1 million. Had this value been charged to earnings in the current quarter, income per share would be nil. 7. SEGMENTED INFORMATION The Company operates in the diamond and PGM industries. The operations of the Company are managed and grouped, by industry, on a geographic basis. The Company's reportable operating segments comprise the diamond mining and exploration activities at Klipspringer in South Africa, as well as in Angola and Canada, and the Messina Platinum Project in South Africa. The Canadian segment includes the head office operation and associated administration costs. SEGMENTED INFORMATION March 31, March 31, 2003 2002 ------------------------------------------------------------------------- Revenue from diamond sales: Klipspringer $ 1,086 $ 578 ------------------------------------------------------------------------- Interest income Klipspringer $ 4 $ 2 Messina 17 81 Canada 259 10 ------------------------------------------------------------------------- $ 280 $ 93 ------------------------------------------------------------------------- Amortization Klipspringer $ 341 $ 336 Canada 4 11 ------------------------------------------------------------------------- $ 345 $ 347 ------------------------------------------------------------------------- Segment loss (income) Klipspringer $ 2,142 $ 1,532 Messina 10 (80) Canada (2,616) 176 Other 197 154 ------------------------------------------------------------------------- Reported enterprise income loss before income taxes $ 267 $ (1,474) ------------------------------------------------------------------------- Segment capital expenditure Messina $ 9,029 $ 9,297 Klipspringer 275 87 Angola 151 251 Canada 517 312 Other 634 88 ------------------------------------------------------------------------- $ 10,606 $ 10,035 ------------------------------------------------------------------------- March 31, December 31, 2003 2002 Identifiable assets Messina $ 120,620 $ 103,088 Klipspringer 9,617 9,498 Angola 15,143 14,948 Canada 62,088 31,171 Other 3,306 2,737 ------------------------------------------------------------------------- Total reported enterprise assets $ 210,774 $ 161,442 ------------------------------------------------------------------------- 8. DIFFERENCES BETWEEN CANADIAN GAAP AND IFRS The Company prepares its financial statements in accordance with Canadian GAAP, which generally conform to International Financial Reporting Standards (IFRS) except for the following significant differences: a) Under Canadian GAAP pre-development incidental revenue and associated costs are deferred and amortized over the life of the mine. Under IFRS incidental revenue and associated costs are recognized in the statement of operations. As a result of this difference, the Company would have recognized additional revenue derived from PGM sales at Messina Phase I. Mining costs approximated the income earned and, therefore, there would be no material effect on net income or earnings per share. b) Under Canadian GAAP a provision for reclamation costs is expensed over the life of the mine on a unit of production basis when an estimate of costs is reasonably determinable. Under IFRS, a reclamation provision is accrued when the liability is incurred with a corresponding debit to the related asset. As a result of this difference the Company's unaudited, condensed consolidated balance sheet under IFRS would be presented as follows: March 31, December 31, 2003 2002 ------------------------------------------------------------------------- Assets Current assets $ 51,644 $ 21,284 Property, plant and equipment 6,879 7,110 Exploration projects 10,284 8,994 Mining and development projects 140,026 122,235 Future income taxes 2,994 2,794 ------------------------------------------------------------------------- $ 211,827 $ 162,417 ------------------------------------------------------------------------- Liabilities and shareholders' equity Current liabilities $ 32,329 $ 28,934 Long-term liabilities Messina loans 46,327 46,926 Future income taxes 2,312 2,429 Non-controlling interests 8,538 7,813 Environmental rehabilitation provision 1,829 1,715 ------------------------------------------------------------------------- 91,335 87,817 ------------------------------------------------------------------------- Shareholders' equity 120,492 74,600 ------------------------------------------------------------------------- $ 211,827 $ 162,417 ------------------------------------------------------------------------- For further information: SouthernEra Resources Limited: Patrick C. Evans, President and CEO; or Dr. Sally Eyre, Vice President, Corporate Affairs, Telephone: (416) 359-9282, Fax: (416) 359-9141, E-mail: inbox(at)southernera.com (SUF.)

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