Wanetsha Mosinyi
1 April 2008
An impairment charge of P619.357 million recorded at Mupane Gold Mine has caused a net loss of P278.281 million at its parent company, IAMGold, for the year ended 2007.
Joseph Conway, president and CEO of IAMGold said in a press release on Friday that adjusted net earnings for 2007 were P380.736 million, a huge loss compared to adjusted net earnings of P489.801 million recorded in 2006. If impairment charges are included, the Canadian-based gold producer's net loss for the year was P278.281 million or $0.14 per share compared to net earnings of P479.225 million or $0.39 per share for 2006. "The value of our Mupane mine was recognised as a result of the decline in the cash flows expected to be generated over the life of the mine," said Conway in the statement. As a result, the mine schedule for Mupane was developed and cash flows calculated, resulting in an impairment charge.
The impairment charge consisted of a reduction of goodwill of over P216.808 million, a reduction of P53 million to other long-term assets (stockpiles) and a reduction of P349.7 million in the carrying value of the Mupane mine. Conway said the operating costs at the mine rose substantially, mainly due to higher labour and mining costs in Botswana, rising prices of consumables. The under-performance resulted in a full review of the mine operations and an update to the Life of Mine (LOM) Plan, which was completed during the second quarter of 2007. Conway said the review considered the exploration potential of the area, the current mineral resources, the projected operating costs, metallurgical performance and gold price. "These served as inputs into pit optimisations to determine which resources could be economically mined and be considered as mineable mineral reserves," he said.
The statement said the net estimated future cash flows from the Mupane mine were calculated on an undiscounted basis. The calculation was based on best estimates of future gold production, which were estimated using long-term gold prices from $550 to $700 per ounce, increased cost estimates based on revised operating levels.
Gold recovery at Mupane is estimated to be 87 percent to 91 percent depending on the rock type and pit source. It is expected operations will continue to mid-2010, including the processing of stockpiled ore.
Future expected operating costs, capital expenditures, and asset retirement obligations were based on the updated life of mine plan. The fair value was calculated by discounting the estimated future net cash flows using a five percent interest rate, commensurate with the risk. During 2007, IAMGold continued exploration programme from GGL indicated that the exploration results were unsuccessful in achieving an increase to the mine's resource base. "This resulted in a decision to significantly reduce the exploration program including the termination of the majority of the region's exploration personnel," Conway explained. The mine significantly diverged from the LOM Plan used during the initial valuation. The largest variation occurred when the mine changed from softer oxide ore to harder primary sulphide ore.
Last year, Business Today reported that IAMGold was looking at further ore deposits around.Mupane Gold Mine, to prolong its life span. IAMGold country manager in Botswana, Isaac Mangole, said then that Mupane is running out of gold deposits and the mine has only a lifespan of three years. He said the company aims to start mining the deposits at Signal Hill immediately with other possible complementary deposits at Golden Eagle and Molomolo. He said the company needed to recover its investment after purchasing Mupane from Gallery Gold. Production at these satellite mines will not bring any significant increase in the lifespan of Mupane because the deposits can last only 10 months.
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