Final results for the 12 months to 31^st of August 2009 were released on the 26^th of February with the highlight being the booking of the company’s maiden gross profit of £1.4 million.  This profit came on the back of the company producing 33,757 ounces of gold, up 163% on the corresponding period in 2008, and at an average gold price of $881 per ounce.

As operations underground were at various times interrupted and expanded, Vatukoula began sourcing additional ore from an easily accessible low grade waste dump.  Believed to have in excess of 200,000 tonnes of material at a grade of 1.75 g/t gold, the company’s processing plant required minor modifications to accept the waste dump’s oxide ore.  Further in-situ oxide material has since been discovered at surface which the company will be treating in due course.

On the 10th June 2009 Vatukoula signed a memorandum-of-understanding with The Fijian Sugar Authority for the future purchase of power from their proposed Bagasse power project at the Rarawai Mill.   Alternative power sources are also being evaluated with the relevant authorities as Vatukoula seeks to augment, if not replace, its diesel powered electricity generators.

Revenue increased from £3.8 million in the 12 months to 31^st August 2008 to £18.8 million for 2009.  With higher production and lower operating costs, the company generated its first gross profit of £1.4 million a marked improvement on the £0.6 million gross loss incurred in 2008.  However, this profit was eliminated by higher administrative (£3.1 million vs £1.3 million) and depreciation & amortisation costs (£3.9 million vs £0.8 million), a £2.7 million provision for doubtful debts and £1.1 million in share based payments, with the result being a pre tax loss of £10.0 million (loss of £4.1 million in 2008).  The loss per share rose by 43% to 0.43p from 0.30 in 2008.  Aside from a £0.51 million convertible loan, Vatukoula was debt free and held cash and cash equivalents of £1.09 million as at 31^st August 2009 (£2.25 million at 31^st August 2008).

Post balance sheet date, Vatukoula has been busy with further upgrades, updates and exploration.  The company embarked on a capital expenditure programme to acquire refurbished underground equipment including an additional five underground dump trucks and six underground loaders, more reliable power generating capacity and spare pumping capacity.  The programme, funded through the £11 million raised in September and October, is generating tangible results with not only higher production levels achieved, but lower operating costs through economies of scale. 

Meanwhile, an independent assessment of Vatukoula’s reserves and resources was carried out by AMC Consultants with the result being a decrease in total gold to 4.3 million ounces, but a greater understanding of, and confidence in, the resource. 

The company established a Social Assistance Trust to support previous employees of the Vatukoula mine unable to find work since its closure in December 2006.  Vatukoula will pay F$6 million (approximately £3 million) into the fund during the next 5 years and, in return, will receive various concessions and exemptions from the government. 

Finally a 10 hole exploration programme was initiated around the President Dyke, an historical surface mine site.

Vatukoula is targeting the production of 60,000 ounces of gold in the 2009/10 financial year, ahead of an annualised production rate of 100,000 ounces of gold by the beginning of 2011.  Cash costs for 2009/10 are expected to be between $550 and $600 per ounce, while long term, with the implementation of alternative power sources and higher total output, we expect cash costs to continue trending down.  Management has done a commendable job of modernising the Vatukoula gold mine, but are under no illusions as to the work ahead.  We retain our confidence in the company’s ability to deliver on its goals and thus reiterate our stance of speculative buy with 4p target price.