Nordgold Reports Q2 2011 Financial Results

Nordgold, an established pure-play gold producer focussed on emerging markets and a wholly-owned subsidiary of OAO Severstal, announces results for the periods.

Highlights

  • Further strong production growth driven by increase in processing volumes particularly at the heap leach operations in Russia and the Lefa mine in Guinea
  • Strong revenues EBITDA1 margins and operating cash flows supported by improved gold price
  • Awarded Bissa Gold Project license in Burkina Faso: project has JORC compliant resources amounted to approximately 2.9 million ounces of gold and production scheduled to commence in 2H 2013
  • Extensive drilling program underway to expand reserves and resource base and improve efficiency at existing operations

Q2 Financial Highlight

  • Production increased by 43.7% to 198,092 gold equivalent ounces (Q2 2010: 137,807 ounces)
  • Sales of 197,934 gold equivalent ounces, an increase of 44.1% over the same period last year (Q2 2010: 137,356 ounces)
  • Revenue increased 81.0% year on year to US$299.4 million (Q2 2010: US$165.4 million)
  • Normalized EBITDA increased by 49.5% toUS$133.4 million versus Q2 2010 (Q2 2010: US$89.2 million). EBITDA margin2 was 44.5% versus 54.0% in Q2 2010
  • Total cash cost3 per ounce of gold was US$719 (Q2 2010: US$467 per ounce)

Half Year Financial Highlight

  • Production increased by 50.7% to 372,285 gold equivalent ounces (6M 2010: 247,048 ounces) Sales were 371,864 gold equivalent ounces, an increase of 43.0% over the same period last year (6M 2010: 259,994 ounces)
  • Revenue amounted to US$543.4 million and increased 80.7% compared to 6M 2010 (6M 2010: US$ 300.7 million)
  • Normalized EBITDA came to US$268.3 million 72.4% higher than 6M 2010 levels (6M 2010: US$155.7 million) EBITDA margin was 49.4% (6M 2010: 51.8%)
  • Capex increased by 86.4% to US$106.6 million compared to 6M 2010 (6M 2010: US$57.2 million)
  • Cash flow from operating activity increased 108.2% to US$174.3 million compared to 6M 2010 (6M 2010: US$83.7 million)

Nikolai Zelenski commented:

We have worked hard on improving the efficiency and productivity of our existing facilities and our impressive results reflect our achievements in these areas. I am extremely pleased with the progress we have made in the first half of 2011 and I look forward to continuing this momentum throughout the remainder of the year. This quarter we have generated our record operating cash flows in excess of US$94 million. Our EBITDA margins remain high despite being impacted by lower head grades and recoveries at some of the mines, foreign exchange and inflation pressure and the cost of two major maintenance repairs at the Lefa mine. The expansion of our reserve and asset base remains a priority for the Company for this year and we were pleased to announce in July that we had been awarded a mining license for the Bissa gold project by the governmental authorities of Burkina Faso. We look forward to updating the market on our progress at this exciting project.

Nikolai Zelenski, Chief Executive of Nordgold

Summary of financial and operating results

 

Three months
ended
June 30

Increase / (Decrease)

Six months
ended
June 30

Increase / (Decrease)

2011

2010

2011

2010

Ore processed

kt

4,514

2,253

100.4%

7,483

3,216

132.7%

Head grade

g/t

1.81

2.46

(26.4%)

1.95

2.83

(31.1%)

 

 

 

 

 

 

 

 

Total gold equivalent ounces – produced

oz

198,092

137,807

43.7%

372,285

247,048

50.7%

Total gold equivalent ounces – sold

oz

197,934

137,356

44.1%

371,864

259,994

43.0%

 

Revenue

US$ mln

299.4

165.4

81.0%

543.4

300.7

80.7%

Revenue per ounce

US$/oz

1,512.6

1,203.9

25.6%

1,461.3

1,156.6

26.3%

Total cash cost

US$ mln

140.6

63.8

120.4%

247.5

117.1

111.4%

Total cash cost per ounce

US$/oz

719

467

54.0%

672

478

40.6%

Normalized EBITDA

US$ mln

133.4

89.2

49.5%

268.3

155.7

72.4%

Normalized EBITDA margin

%

44.5%

54.0%

 

49.4%

51.8%

 

Net profit

US$ mln

45.4

26.2

73.9%

130.0

39.5

229.1%

Cash flows from operating activity

US$ mln

94.3

64.4

46.4%

174.3

83.7

108.2%

Capital expenditures

US$ mln

67.7

35.0

93.4%

106.6

57.2

86.4%

Revenue from metal sales was US$299.4 million in the second quarter of 2011, versus US$165.4 million during the same period in 2010, an increase of 81.0%. Half year revenues increased by 80.7% to US$ 543.4 million (6M 2010: US$300.7million), reflecting increased production volumes and stronger average realized gold price of US$1,512.6 per ounce, 25.6% higher than in the comparable period in 2010.

Cash flow from operating activity was US$94.3 million in the second quarter of 2011, versus US$64.4 million during the same period in 2010, an increase of 46.4%. For the six months ended June 2011 cash flow from operating activity was US$174.3 million (6M 2010: US$83.7 million) which can be mainly attributed to the acquisition of Crew Gold Corporation and the implementation of operational improvements.

In the second quarter normalized EBITDA reached $133.4 million. EBITDA margin remains high at 44.5%, which is however lower than 54.0% achieved in Q2 2010. With the recently increased gold price, we expect EBITDA margin in the second half 2011 to improve.

Capital expenditure was US$67.7million for second quarter of 2011, compared with US$35.0 million for the same period last year. Total Capex for the first six months of 2011 reached US$106.6 million (6M 2010: US$57.2 million). Investment in exploration expenses for the first half of 2011 was US$42.6 million, an increase of 143.4% versus the same period in 2010, as Nordgold aims to at improve its reserve and resource base.

Exploration activity is currently underway at a number of sites including Gross, Irokinda and Lefa. More complete information will be obtained towards the end of the year and we look forward to providing an update as this becomes available.

Total cash cost per ounce of gold (“TCC”) increased by 53.9% to US$719, compared with US$467 in 2Q of 2010 due predominantly to the consolidation of the Lefa mine which is currently operating above average TCC. TCC was also affected by lower head grades and recoveries at some of the mines and foreign exchange inflation pressure.

 

Operational Review

The Improvement of safety across all mines continues to be the Company’s top priority, however Nordgold must regretfully report one fatality which occurred at the Suzdal mine on the 15 May 2011. This was followed by another two fatal incidents, in July and August 2011 at Zun-Holba mine. The results of up-to-date improvements implemented can be already seen through the Lost Time Injury Frequency Rate (LTIFR) in the first half of 2011, which equaled to 1.83x and demonstrated a decrease of 36.2% over the same period last year (6M 2010: 2.87x)

Operationally, Nordgold has had a strong quarter. Overall production for the quarter reached 198 koz, 43.7% higher than in Q2 2010 Despite lower head grade and lower recovery rate at some of the mines, increase in processing volumes, particularly at our heap leach operations and Lefa mine have led to the record production in Q2 2011. Year to date Nordgold production stands at 372 koz.

With average sales price at US$1,512.6 per ounce, Nordgold has achieved revenue of $299.4 million which is 81.0% higher than in the second quarter 2010.

By EBITDA margin Nordgold remained amongst industry leaders with 44.5% in Q2 2011 and 49.4% in first half 2011.

 

Outlook

Nordgold production guidance for 2011 is in line with our previous estimations. We expect to produce 800,000 – 840,000 gold equivalent ounces in 2011.

Nordgold’s capital expenditure budget for 2011 remains at the level of US$305.6 million, with US$129 million going into the exploration and evaluation.

 

Enquiries:

A conference call for investors and analysts hosted by Nikolai Zelenski, Chief Executive Officer, and Sergey Zinkovich, Chief Financial Officer, will be held today at 9.00am (London) / 12.00pm (Moscow). The press release and presentation will be published on Nordgold’s website www.nordgold.com at 7.00am (London) / 10.00am (Moscow).

Participant dial in: +7 495 705 9451 (Russia)
Participant dial in: +44 (0)20 7784 1036 (UK)
Conference ID: 1954969

 

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