Shaft Sinkers Holdings PLC : Interim Management Statement

14 November 2013

Shaft Sinkers Holdings plc

("Shaft Sinkers" or "the Group")

Interim Management Statement

Shaft Sinkers Holdings plc (LSE:SHFT), the international shaft sinking and underground construction group, announces its Interim Management Statement covering the Period from 30 June to 16 September ("the Period").

Summary

·    Good performance from international operations was offset by underperformance in South Africa as a result of project cancellations and contract variations

·    Revenues in the Period were in line with management expectations, although full year revenues are likely to be lower than 2012 due to several factors including adverse currency movements

·    The Group believes it should achieve full year profitability targets, subject to the successful conclusion of discussions on outstanding project variations and a number of other factors  

·    Net debt of GBP7.6 million at the end of the Period

·    Collaboration agreement signed with China Nonferrous Metal Industry's Foreign Engineering and Construction Co., Ltd. ("NFC"), one of the largest Chinese Engineering, Procurement and Construction Management ("EPCM") companies

·    2 million fatality free shifts achieved across Shaft Sinkers' operations

Overview

Revenues during the Period were in line with management expectations, with revenues year to date of approximately GBP119 million. However, the Group's full year 2013 revenues are likely to be lower than expected due to a combination of factors, including the decline in the value of the Rand against Sterling over the course of the year, delays to the award of expected new contracts and the termination of several mining projects in South Africa.

Whilst the Group considers that it will achieve expected levels of profitability for FY 2013, achieving this result is subject to a number of factors such as: the successful conclusion of discussions with clients over outstanding variations (GBP2.3 million); the completion of the disposal of property, plant and equipment (GBP0.9 million); improved performance at the Group's Hindustan Zinc Limited project ("HZL"); and the initiation of mobilisation at Kazchrome.

Following the successful completion of the Shaft 16 project for Impala, the Group has seen a number of projects impacted by uncertain market conditions, including the curtailment of the Moab project by AngloGold Ashanti and Hernic Ferrochrome's decision to not proceed with its Bokfontein project. Impala has also decided to end the development work the Group was undertaking at the Impala 17 Fridge Shaft, although the Group continues to work on the remainder of the Impala 17 project.

Variations to the scope of work on both the Impala 17 and Styldrift projects have impacted operational efficiency and caused significantly higher costs than expected. Discussions with clients about these outstanding variations are ongoing and the Group is confident that they will be successfully completed prior to the end of 2013. However, there is a risk that an agreement could be delayed beyond the end of the year and materially affect full year profitability.

The overall performance of Shaft Sinkers' international projects was ahead of expectations during the Period. Performance at the HZL project significantly improved following steps taken to address underperformance by local civil engineering contractors. Although the HZL project remains behind schedule, the Group is confident that the causes of these delays have now been addressed. Work at the Kibali Project in the Democratic Republic of Congo proceeded broadly in line with target and the main sink phase commenced during the Period. Negotiations on the finalisation of the Kazchrome JSC's Skipovaya vertical shaft development contract are progressing.

A number of initiatives were undertaken during the Period to reduce operating costs, resulting in savings of GBP0.8 million, although this was offset by higher legal fees. In addition, Shaft Sinkers has entered into sale processes for the disposal of property as well as some project plant and equipment. Both initiatives are expected to conclude before the end of the year.

Financial Position

As at 16 September 2013, the Group's net debt position was GBP7.6 million, comprising gross cash and equivalents on hand of GBP5.0 million, bank overdraft of GBP4.1 million and interest bearing debt of GBP8.5 million. The evolution of the Group's cash position over the remainder of 2013 is subject to a number of factors which include the outcome of discussions with clients over outstanding variations, the timing of the conclusion of negotiations with Kazchrome and the conclusion of the disposals described above.

EuroChem Arbitration Proceedings

Shaft Sinkers continues to robustly contest EuroChem's claims and to pursue itsown USD16 million claim for outstanding amounts payable. Arbitration hearings are expected to take place in the summer of 2014 and the outcome is expected some time thereafter.

Health & Safety

A number of significant positive milestones were achieved during the Period, such as the achievement of 2 million fatality free shifts across Shaft Sinkers' operations, a full year worked with no injuries at Lonmin's Saffy project and 1 million fatality free shifts at the Group's Learning Academy.

Unfortunately, the Group's Lost Time Injury Frequency Rate declined to 4.75 (year to date) from 4.0 in the same period of 2012. A new safety and behaviour campaign was introduced which is aimed at creating greater awareness of safety standards and procedures in the Group.

Outlook

Shaft Sinkers continued to deliver on certain core elements of its strategy during the Period with the expected Kazchrome contract award bringing increased commodity and geographic diversification. The Group also concluded a collaboration agreement with NFC, one of the largest Chinese EPCM companies, to jointly service the shaft sinking market in China. This is a very important territorial shift for Shaft Sinkers into a major new market where a growing number of mines are expected to move to underground mining in the near future.

Despite the challenging capital investment environment in the mining industry, the increased focus by many mining companies on extending the life of existing mines, combined with the progressive depletion of near surface deposits, means demand for the Group's expertise and services remains strong and a number of tenders remain active.

ENDS

For further information:

Shaft Sinkers Holdings plc +44 (0) 787 595 1362

Alon Davidov, Chief Executive Officer

Chris Hall, Chief Financial Officer

Aura Financial+44 (0) 207 321 0000

Michael Oke / Andy Mills

Notes to editors

Shaft Sinkers

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; RampuraAgucha for Hindustan Zinc Limited and Kibali Goldmines.