Shaft Sinker Hdg plc (SHFT) - Interim Management Statement
RNS Number : 1709R
Shaft Sinkers Holdings Plc
15 November 2012
15 November 2012
Shaft Sinkers Holdings plc
("Shaft Sinkers"; the "Group" or the "Company")
Interim Management Statement
Shaft Sinkers Holdings plc (LSE:SHFT), the international shaft sinking and
underground construction group, is pleased to issue the following Interim
Management Statement covering the period from 1 July 2012 to today.
The recent illegal strikes in the mining industry in South Africa have been
well documented both in the press and by companies with operations in the
country. The Company experienced disruption to its operations at two
projects, however, all of the illegal strikes have now ended and the situation
in South Africa has in the main part returned to normal. The Company
previously warned that the illegal strikes could have a negative impact on
margins earned on its South African operations, and this, coupled with the
depreciation of the Rand, the later start of international projects and
operational issues highlighted at the half year, has impacted profitability in
the second half of the current financial year.
Despite the difficult working conditions, the Company has focused on resolving
the operational issues that affected it in the first half, and was successful
in securing another major international project during the period. The outlook
for the rest of the current financial year remains positive notwithstanding
the lower than expected results for this financial year.
South African Operations
South Africa labour situation
The Company's operations in South Africa have largely returned to normal,
although there are on-going discussions with its workers and unions to ensure
a lasting agreement is reached and maintained. More broadly, the Labour
situation in South Africa is improving every day, although there are still
pockets where it remains unsettled.
At Lonmin's Saffy shaft workers returned to work from the illegal strike on
Monday 29 October. In total, 11 working days were lost as a result of this
action, which resulted in a negative impact on the project's margins.
At AngloGold Ashanti's Moab project, workers reported for duty and operations
were back to normal on 30 October 2012. In total, 25 working days were lost as
a result of this action. The Company is in discussions with the client
regarding costs incurred during this period.
Technically, the project continues to perform at expected levels and
discussions with Lonmin are on-going with respect to the rates related to the
The Company's work at Impala 17 shaft showed improvement and has returned to
normal operating levels. Management is satisfied with the progress made during
this period. Although progress has been made at Impala 16 shaft, which is in
the development phase, new management has been introduced to strengthen the
experience of the workforce and continue to improve operational performance in
order to return to profitability. We reported on 30 October 2012 that the
Company had been awarded additional work on both shafts adding, in total,
£17.25 million to the order book.
The Leeuwkop project continues on-track, reaching a depth of 325 metres, and
the Company is in discussions with Afplats regarding the next phases of the
The Styldrift project continues to perform in accordance with operational and
financial targets. The project has reached a depth of 600 metres and both
shafts have broken away in to the horizontal development phase.
The Hernic Ferrochrome project at the Bokfontein mine is on-track and
performing in accordance with management's expectations.
Hindustan Zinc Limited
The main shaft box cut at the Rampura Agucha project has been completed and is
in preparation for main sink. The excavation of the North ventilation shaft
box cut has commenced. The first advance was received in August 2012, which
made sufficient cash flow available to fund the first phase of capital
procurement and working capital.
The Company announced on 20 September 2012 that it had been selected byKibali
Goldmines, a joint venture between operator Randgold Resources Limited and
AngloGold Ashanti Limited, to initiate mobilisation activities for the Kibali
gold mine in the Democratic Republic of the Congo. This was followed by the
announcement on Monday 12 November 2012 that the Company had been awarded the
vertical shaft contract. The contract is scheduled to be completed in 2016 and
is an "Agreed Target Cost" contract. The combined mobilisation and vertical
shaft contracts have a total value of £82.3 million.
On 5 October 2012 the Company responded to the announcement by EuroChem that
it had filed a claim against Shaft Sinkers (Pty) Ltd in relation to its
project with EuroChem which was terminated with effect from 20 April 2012. The
Company has reviewed the arbitration claims, and after consultation with legal
counsel, continues to believe that the claims are without merit, and will
contest them robustly. A claim for a net amount of $15 million has been
submitted to EuroChem for amounts still owing under the contract.
Safety remains of paramount importance and the Group continues to ensure it is
implementing best practice in this area. The Lost Time Injury Frequency Rate
is currently at 1.36 compared to 0.86 for the second quarter to 30 June 2012,
which is below the benchmark of 3.60.
On 30 August 2012 the Company announced the appointment of Mr. Stephen Oke as
Chairman of the Group, with Mr. Amre Youness resigning as director.
In the shaft sinking industry it is not uncommon for variation orders to arise
and this may on occasion put pressure on cash balances where the nature of the
variation orders require extended debate with the client before agreement is
reached on the payment thereof. The Company is currently carrying an unusually
high amount of approximately £21 million of variation orders in accounts
receivable. Management is aiming to collect the majority of these amounts
prior to the end of the current financial year. Gross cash balances are
currently in the region of £8 million and debt is around £14 million. On 5
October 2012, the Company paid an interim dividend of 2.4 pence per share
amounting to £1.2million.
The profitability of the Company's South African operations in the second half
has been impacted by the labour unrest. This has been partly offset by the
gradual return to normal productivity levels at Impala 16 and 17 shafts and by
the start-up of the Hindustan Zinc and Kibali projects. The weakening Rand
compared to Sterling has also dampened results. The signing of new US
Dollar-based contracts should help to offset the effect of the weakening Rand
in the future.
As a consequence, management expect results for the current financial year to
be lower than previous market expectations.
The tender pipeline for new work remains strong at approximately £1.1 billion.
Speaking today, Alon Davidov, Chief Executive, said:
"Shaft Sinkers is taking action to restore operational productivity and the
Company is continuing to deliver on its strategy to diversify into new end
markets alongside geographic expansion. Although recent performance has been
disappointing, the board believes that we have addressed this year's
shortcomings and we have the right strategy in place to deliver growth in
For further information:
Shaft Sinkers Holdings plc +44 (0) 787 595 1362
Alon Davidov, Chief Executive Officer
Chris Hall, Chief Financial Officer
M:Communications +44 (0) 20 7920 2330
Notes to editors
Shaft Sinkers Holdings specialises in the sinking of particularly deep and
wide vertical and decline shafts and the development of underground
infrastructure, used primarily in mining and hydropower applications.
The Group is a world leader in vertical shaft sinking with a focus on
particularly deep and/or wide vertical shafts. It has the capability to sink
shafts through all types of rock strata, including running sands and clay. The
Group works principally for established mining and infrastructure companies.
Historically, the Group has completed projects in over 20 countries worldwide
across Africa, Europe, South America, the Middle East, Asia and Australia. The
Group was responsible for sinking one of the deepest ever man and material
South African shafts, a secondary shaft at the Western Deep Levels to a depth
of 3,131 metres below bank.
Major current projects and customers include the Shaft 16 and 17 complexes for
Impala Platinum, Leeuwkop for Afplats, the Styldrift project for Anglo
Platinum and Royal Bafokeng Resources, the Lonmin projects include Karee 3,
Hossy and Saffy, the Hernic Ferrochrome project, the Moab project for
AngloGold Ashanti; Rampura Agucha for Hindustan Zinc Limited and Kibali
Goldmines for Randgold Resources and AngloGold Ashanti.
This information is provided by RNS
The company news service from the London Stock Exchange
IMSGGGGAGUPPPGC -0- Nov/15/2012 07:01 GMT
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