Griffin Mining Limited

Interim / Quarterly Report • May 13, 2014

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RNS Number : 8886G

Griffin Mining Ld

13 May 2014

60 St James's Street, London SW1A 1LE, United Kingdom

Telephone: + 44 (0)20 7629 7772  Facsimile:  + 44 (0)20 7629 7773

E mail: [email protected]

13th May 2014

PRELIMINARY RESULTS

OPERATING PROFIT OF $20.3 MILLION

RECORD GOLD PRODUCTION

Griffin Mining Limited ("Griffin" or the "Company") has today published its preliminary results for the year ended 31st December 2013. Griffin and its subsidiaries (together the "Group") recorded:

·     Operating profit of $20,293,000 in 2013 (2012 $31,174,000);

·     Profit before tax of $14,827,000 in 2013 (2012 $27,239,000);

·     Profit after tax of $9,756,000 in 2013 (2012 $19,707,000); and

·     Profit after non-controlling interests of $8,157,000 in 2013 (2012 $14,835,000)

Overview

Record amounts of ore were mined, hauled and processed in 2013.  With the upper mine levels being mined to maximise the extractable amount of ore, grades were lower resulting in lower zinc, lead and silver production in 2013.  Gold grades and recoveries have improved such that record gold production was achieved in 2013. 

Revenues were further impacted by lower prices for all metals.  As a result revenues in 2013 fell to $71,071,000 (2012 $76,860,000).

Whilst processing costs and administration costs have been contained, mining and haulage costs have risen with increased production and further mine development. With lower revenues and increased costs, profits from operations fell to $20,293,000 in 2013 (2012 $31,174,000). 

In summary, production in 2013 was as follows:

·     A record 877,803 tonnes of ore were mined, compared to 789,692 tonnes in 2012, a 11.3% increase;

·     A record 838,431 tonnes of ore were processed, compared to 800,288 tonnes in 2012, a 4.8% increase;

·     A record 11,468 ounces of gold in concentrate were produced, compared to 8,322 ounces in 2012, a 37.8% increase;

·     39,724 tonnes of zinc metal in concentrate were produced, compared to 40,581 tonnes in 2012;

·     323,808 ounces of silver in concentrate were produced, compared to 409,596 ounces in 2012; and

·     1,553 tonnes of lead in concentrate were produced, compared to 2,402 tonnes in 2012.

In 2013, the average market price for zinc fell 2% from that in 2012. With increased treatment charges, the average price per tonne of zinc metal in concentrate received by the Group in 2013 fell by 5.2% to $1,302 (2012: $1,374). The average price received for silver declined 26.3% to $16.8 per ounce (2012: $22.8), for lead by 12.0% to $1,633 per tonne (2012: $1,855), and for gold by 17.7% to $1,233 per ounce (2012: $1,499)

Cost of sales have increased 15.2% in 2013 to $40,078,000 (2012: $34,795,000).   A significant amount of this cost increase may be attributed to increased amounts of ore being mined, hauled and processed. Further cost increases resulted from mine development with lower mine levels being accessed and increased contractor rates for mining and haulage.

Group operating costs in 2013 of $10,700,000 were in line with that in 2012 of $10,891,000, despite inflationary cost increases in China.

Profits before tax declined to $14,827,000 (2012: $27,239,000) reflecting not only lower operating profits but also increased charges of $3,651,000 (2012: $3,414,000) arising from the new dry tailings facility at Caijiaying and the loss of $2,229,000 on the disposal of Griffin's interest in Spitfire Oil Limited at the end of 2013.  The Group benefited from interest receipts of $145,000 (2012: $495,000), foreign exchange gains of $107,000 (2012: losses of $904,000) and other income of $162,000 (2012: $48,000).

Income taxes of $5,071,000 (2012: $7,532,000) were charged.  This includes a deferred taxation provision of $297,000 (2012: nil).

The non controlling interests share of Hebei Hua Ao's profits of $1,599,000 (2012: $4,872,000) were provided, resulting in attributable profits to Griffin of $8,157,000 (2012: $14,835,00).  The reduction in non controlling interests reflects not only a reduction in profits but also a reduction in the non controlling party's equity interest from 40% to 11.2% with effect from the 25th June 2012. 

Basic earnings per share in 2013 was 4.63 cents  (2012: 8.46 cents) with diluted earnings per share of 4.63 cents in (2012: 8.36 cents).

During 2013, 260,000 (2012: 50,000) ordinary shares were bought back in the market for cancellation at a cost of $119,000 (2012: $24,000). 3,900,000 ordinary shares were issued on the exercise of options by directors and management in 2013 bringing the number of Griffin shares on issue to 179,091,830.

Net cash inflow from operating activities in 2013 amounted to $27,997,000 (2012: $32,244,000).  $20,227,000 was invested in 2013, (2012: $125,419,000 including $117,459,000 to purchase the Chinese non controlling interests and extend the Hebei Hua Ao joint venture term).

Attributable net assets per share at 31st December 2013 was 84 cents ( 2012: 79 cents).   

The directors have recommended that no dividend be declared at this time in view of the need for the use of the Company's financial resources for further investment in the Caijiaying Mine, repayment of bank loans and settlement of amounts due to non controlling interests.

Chairman's Statement:

A company is judged by continually improving financial results and although the Company's operations performed extraordinarily well, the new JORC resource was world class, the upgrade and mining licence approvals continued to progress and certain operating records were broken, the continuing slump in the price of the commodities mined produced a diminished financial result, albeit the Company produced its ninth year of continued profitability.

Griffin and its subsidiaries (together the "Group") recorded an operating profit of $20,293,000 in 2013, profit before tax of $14,827,000, profit after tax of $9,756,000 and profit after non-controlling interests of $8,157,000.  Impressively, record amounts of ore were mined, hauled and processed in 2013 and a record 11,468 ounces of gold in concentrate were produced, a 37.8% increase on the previous year and a record for the Caijiaying Mine.

Profitability was affected by, a 15.2% increase in the cost of sales, particularly due to increased treatment charges, and decreased metal prices.  In 2013, the average price per tonne of zinc metal in concentrate received by the Group fell by 5.2%, for silver by 26.3%, for lead by 12.0% and for gold by 17.7%. 

One of the most significant events during 2013 was the release of the latest JORC resource estimate for the Caijiaying Mine.  It confirmed a total resource of 49.4 million tonnes of ore containing 2 million tonnes of zinc, 212,000 tonnes of lead, 37.9 million ounces of silver and 825,000 ounces of gold.  The extensive and defined ore resources at the Caijiaying Mine, together with the extension of the term of the Hebei Hua Ao joint venture to 2037, provided the confidence and time to expand the current mining and processing capabilities to catch the expected upturn in the zinc price cycle and provide the maximum return to shareholders.

With this in mind, the Caijiaying Mine is now in the active construction stage of increasing the mining and processing of ore to 1.5 million tonnes per annum.   Significant progress continues to be made in the application for a new mining licence at Zone II and the area between Zone II and Zone III.  Although delayed due to the change in Chinese central government leadership and administrative changes ensuing from that change, the mining licence is expected to be granted by the Autumn of 2014.

In the interim, the detailed upgrade plans have been completed and the lead contractor appointed.  Tenders for the large capital machinery, with long lead times to delivery, have been granted.  Ground work for the upgrade has commenced with the foundation earthworks ceremony having taken place, with all appropriate Chinese government officials present, on the 8th of April 2014.  All above ground, new, expanded facilities, including ball mills, floatation tanks and a new power sub-station, should be installed during the summer months ready for completion by the 31st October 2014 to enable winter work to continue indoors and underground.  Development work has commenced to access the Zone II area underground from both the rehabilitation of the Fox decline and from the main Zone III decline.  The total upgrade is expected to be completed by the end of 2014.  It is hoped that throughput will slowly be expanded towards the equivalent of 1.5 million tonnes of ore per annum in 2015.     

Of course, Griffin, through Hebei Hua Ao, continues to be a responsible and vital member of the Caijiaying community.  In addition to all the previous and ongoing community programmes, in 2013 a new initiative was begun to create a long term industry which would provide a more sustainable annual income for villagers less reliant on the seasonality of crops grown in the short summer months.  Consequently, Hebei Hua Ao purchased for the Caijiaying village area, 170 cows, which were already pregnant with 47 offspring, establishing a sizeable initial herd of 217 cattle for the creation of a dairy and cattle farm.  To date, the venture has been an outstanding success and it is planned to purchase another 183 cows by June next year to complete the programme and finalise a new industry for the local population.

It should not be thought, however, that the Company's only focus is the expansion of the Caijiaying Mine.  Exploration continues unabated both underground and on the land holdings north, south, east and west of the current operations.  Furthermore, the Company remains totally committed to searching, investigating, analysing and negotiating the acquisition of low cost, base or precious metals mining projects that have the potential to be brought into long term, economic production for a capital cost that provides a substantial and justifiable return on equity to shareholders.  Such projects are rare and getting rarer.  Nevertheless, a considerable number of projects and ventures have been reviewed and investigated during the past year.  None as yet have been successfully consummated, mainly due to the discovery of negative findings during due diligence or an insufficient return calculated for the risk shareholders would need to accept in funding the project to production.

In terms of the Company's current operations and possible future acquisitions, the strategy being pursued is supported by the projected outlook for the world zinc price. 2014/2015 is expected to see world demand for zinc exceed supply by 400,000 tonnes, continuing for the  foreseeable future.  Demand is expected to expand 4.5% - 5.5% to 13.6 million tons this year whilst supply is being substantially affected by a limited number of small new mines in the planning stage and a series of very large mine closures including Glencore Xstrata's Perseverance and Brunswick mines, Vedanta's Lisheen operation and MMG's Century Zinc mine.  This can only be positive for the world zinc price.

In terms of the perennial question of dividends, the Company continues to follow the advice of the Chairman and CEO of one of its largest shareholders, Larry Fink of Blackrock who, in an open letter to UK listed companies, urged firms to resist influence by shareholder short term pressures and not make  short term dividends a priority over long term strategic goals but to invest in capital expenditure to boost long term growth.  Needless to say, when the growth phase of the Company comes to an end, then dividends are an absolute legitimate use of excess shareholders funds.

The Company is delighted to welcome a totally new management team on site headed by our new Operations manager, Mr Maoheng Zhang, supported by CSA Global in Perth.  To date, his new on-site team have met all of our expectations and everyone is excited by what lies ahead.  They have our total support.  Our thanks also go to all at Caijiaying staff and contractors, for their untiring efforts to make Caijiaying the world class mine it seemed destined to become.

Further information

Griffin Mining Limited

Mladen Ninkov - Chairman                                               Telephone: +44(0)20 7629 7772

Roger Goodwin - Finance Director

Panmure Gordon (UK) Limited                                                           Telephone: +44 (0) 20 7886 2500

Dominic Morley

Griffin Mining Limited's shares are quoted on the Alternative Investment Market (AIM) of the London Stock Exchange (symbol GFM).

The Company's news releases are available on the Company's web site: www.griffinmining.com

Griffin Mining Limited

Summarised Consolidated Income Statement

For the year ended 31 December 2013

(expressed in thousands US dollars)

		2013		2012
		$000		$000
Revenue		71,071		76,860
Cost of sales		(40,078)		(34,795)
Gross profit		30,993		42,065
Net operating expenses		(10,700)		(10,891)
Profit from operations		20,293		31,174
Share of losses of associated company		-		(163)
Loss on disposal of interest in associated company		(2,229)		-
Foreign exchange gains / (losses)		107		(904)
Finance income		145		495
Finance costs		(3,651)		(3,411)
Other income		162		48
Profit before tax		14,827		27,239
Income tax  expense		(5,071)		(7,532)
Profit after tax		9,756		19,707
Attributable to non-controlling interests		1,599		4,872
Attributable to equity share owners of the parent		8,157		14,835
		9,756		19,707
Basic earnings per share (cents)		4.63		8.46
Diluted earnings per share (cents)		4.63		8.36

Griffin Mining Limited

Summarised Consolidated Statement of Comprehensive Income

For the year ended 31 December 2013

(expressed in thousands US dollars)

		2013		2012
		$000		$000
Profit for the year		9,756		19,707
Other comprehensive income that will be reclassified to profit or loss
Exchange differences on translating foreign operations		841		545
Other comprehensive income for the period, net of tax		841		545
Total comprehensive income for the period		10,597		20,252
Attributable to non-controlling interests		1,683		4,960
Attributable to equity share owners of the parent		8,914		15,292
		10,597		20,252

Griffin Mining Limited

Summarised Consolidated Statement of Financial Position

As at 31 December 2013

(expressed in thousands US dollars)

		2013		2012
				Restated
		$000		$000
ASSETS
Non-current assets
Property, plant and equipment		193,444		177,470
Intangible assets - Exploration interests		1,852		1,707
Investment in associated company		-		3,596
		195,296		182,773
Current assets
Inventories		7,981		6,231
Receivables and other current assets		4,214		4,168
Cash and cash equivalents		26,278		16,764
		38,473		27,163
Total assets		233,769		209,936
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Share capital		1,791		1,755
Share premium		71,339		70,037
Contributing surplus		3,690		3,690
Share based payments		2,748		3,055
Chinese statutory re-investment reserve		1,683		1,313
Other reserve on acquisition of non controlling interests		(29,346)		(29,346)
Foreign exchange reserve		11,212		10,485
Profit and loss reserve		84,614		76,797
Total equity attributable to equity holders of the parent		147,731		137,786
Non-controlling interests		3,004		4,757
Total equity		150,735		142,543
Non-current liabilities
Long-term provisions		2,591		2,535
Deferred taxation		1,646		1,316
Finance lease		12,012		-
		16,249		3,851
Current liabilities
Taxation payable		2,878		3,840
Trade and other payables		14,215		12,590
Finance lease		487
Bank loans		49,205		47,112
### Total liabilities		66,785		63,542
Total equities and liabilities		233,769		209,936
### Attributable net asset value per share to equity holders of parent		$0.84		$0.79

Griffin Mining Limited

Summarised Consolidated Statement of Changes in Equity.

For the year ended 31 December 2013

(expressed in thousands US dollars)

	Share	Share	Contributing	Share	Chinese	Other	Foreign	Profit	Total	Non	Total
	Capital	premium	surplus	Based	re investment	reserve on	Exchange	and loss	attributable to	Controlling	Equity
				Payments	Reserve	acquisition of	Reserve	Reserve	equity holders	Interests
						non controlling			of parent
						interests
	$000	$000	$000	$000	$000	$000	$000	$000	$000	$000	$000
At 1st January 2011	1,755	70,061	3,690	3,030	1,300	-	10,041	63,131	153,008	12,523	165,531
Prior period adjustment	-	-	-	-	-	-		(1,169)	(1,169)	(147)	(1,316)
At 1st January restated	1,755	70,061	3,690	3,030	1,300	-	10,041	61,962	151,839	12,326	164,215
Acquisition of non controlling interests	-	-	-	-	-	(29,346)	-	-	(29,346)	(18)	(29,364)
Purchase of shares for cancellation	-	(24)	-	-	-	-	-	-	(24)	-	(24)
Cost of share based payments	-	-	-	25	-	-	-	-	25	-	25
Transfer in respect of dividends	-	-	-	-	-	-	-	-	-	(12,561)	(12,561)
Transaction with owners	-	(24)	-	25	-	(29,346)	-	-	(29,345)	(12,579)	(41,924)
Profit for the year	-	-	-	-	-	-	-	14,835	14,835	4,872	19,707
Other comprehensive income:
Exchange differences on translating foreign operations	-	-	-	-	13	-	444	-	457	88	545
Total comprehensive income	-	-	-	-	13	-	444	14,835	15,292	4,960	20,252
At 31st December 2012 (restated)	1,755	70,037	3,690	3,055	1,313	(29,346)	10,485	76,797	137,786	4,757	142,543
Regulatory transfer for future investment	-	-	-	-	340	-	-	(340)	-	-	-
Purchase of shares for cancellation	(3)	(116)	-	-	-	-	-	-	(119)	-	(119)
Issue of shares on exercise of options	39	1,228	-	-	-	-	-	-	1,267	-	1,267
Transfer on exercise of options	-	190	-	(190)	-	-	-	-	-	-	-
Buy out of share purchase options	-	-	-	(117)	-	-	-	-	(117)	-	(117)
Transfer in respect of dividends	-	-	-	-	-	-	-	-	-	(3,436)	(3,436)
Transaction with owners	36	1,302	-	(307)	340	-	-	(340)	1,031	(3,436)	(2,405)
Profit for the year	-	-	-	-	-	-	-	8,157	8,157	1,599	9,756
Other comprehensive income:
Exchange differences on translating foreign operations	-	-	-	-	30	-	727	-	757	84	841
Total comprehensive income	-	-	-	-	30	-	727	8,157	8,914	1,683	10,597
At 31st December 2013	1,791	71,339	3,690	2,748	1,683	(29,346)	11,212	84,614	147,731	3,004	150,735

Griffin Mining Limited

Summarised Cash Flow Statement

For the year ended 31 December 2013

(expressed in thousands US dollars)

		2013		2012
		$000		$000
Net cash flows from operating activities
Profit before taxation		14,827		27,239
Share of associated company losses		-		163
Loss on disposal of interest in associated company		2,229		-
Foreign exchange (gains) / losses		(107)		904
Finance (income)		(145)		(495)
Finance costs		3,651		3,411
Adjustment in respect of share based payments		-		25
Depreciation, depletion and amortisation		7,184		6,762
(Increase) in inventories		(1,750)		(1,623)
Decrease / (increase) in receivables and other current assets		563		(1,663)
Increase / (decrease) in trade and other payables		1,545		(2,479)
Net cash inflow from operating activities		27,997		32,244
Taxation paid		(5,692)		(11,435)
### Cash flows from investing activities
Interest received		145		495
Payments to extend joint venture term and acquire non controlling interests		-		(117,459)
Payments to acquire - mineral interests		(4,883)		(4,206)
Payments to acquire - plant and equipment		(2,499)		(4,129)
Payments to acquire - office equipment		-		(3)
Payments to acquire intangible fixed assets - exploration interests		(110)		(117)
Net cash (outflow) from investing activities		(7,347)		(125,419)
Cash flows from financing activities
Issue of ordinary share capital on exercise of options		1,150		-
Purchase of shares for cancellation		(119)		(24)
Interest paid		(3,651)		(3,411)
Finance lease		(354)		-
Dividends paid to non controlling interests		(3,436)		(12,561)
Proceeds from bank loans		15,508		47,112
Repayment of bank loans		(13,415)		-
Net cash inflow from financing activities		(4,317)		31,116
Increase / (decrease) in cash and cash equivalents		10,641		(73,494)
Cash and cash equivalents at the beginning of the year		16,764		91,089
Effects of exchange rates		(1,127)		(828)
Cash and cash equivalents at the end of the year		26,278		16,764
Cash and cash equivalents comprise bank deposits.
Bank deposits		26,278		16,764

Notes:

1.   This statement has been prepared using accounting policies and presentation consistent with those applied in the preparation of the statutory accounts of the Company.

2.   The summary accounts set out above do not constitute statutory accounts as defined by Section 84 of the Bermuda Companies Act 1981 or Section 435 of the UK Companies Act 2006.  The summarised consolidated statement of financial position at 31st December 2013 and the summarised consolidated income statement, summarised statement of comprehensive income, consolidated statement of changes in equity and the summarised consolidated cash flow statement for the year then ended have been extracted from the Group's 2013 statutory financial statements upon which the auditors' opinion is unqualified. The results for the year ended 31st December 2012 have been extracted from the statutory accounts for that period, which contain an unqualified auditors' report.

3.   The annual report and accounts for 2013 are being sent by post to all registered shareholders.  Additional copies of the annual report and accounts are available from the Company's London office, 6th Floor, 60 St James's Street, London, SW1A 1LE.

4.   The calculation of the basic earnings per share is based on the earnings attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year.   The calculation of diluted earnings per share is based on the basic earnings per share on the assumed conversion of all dilutive options and other dilutive potential ordinary shares.

Reconciliation of the earnings and weighted average number of shares used in the calculations are set out below:

				2013						2012
	Earnings $000			Weighted Average number of shares		Per share amount (cents)		Earnings $000		Weighted Average number of shares		Per share amount (cents)
Basic earnings per share
Earnings attributable to ordinary shareholders	8,157			176,015,707		4.63		14,835		175,456,077		8.46
Dilutive effect of securities
Options				-						2,021,897
Diluted earnings per share	8,157			176,015,707		4.63		14,835		177,477,974		8.36

5.   A prior period adjustment of $1,316,000 has been charged to profit and loss reserve in respect of financial periods to 31st December 2010. A third Statement of financial Position has not been presented as this does not impact the profits or losses for the years ended 31st December 2011 or 2012 and the impact of this is reflected in the Statement of Changes in Equity. The consolidated Statement of Financial Position at 31st December 2012 has been restated to reflect this.  This charge relates to deferred taxation at 25% on accelerated depreciation for Chinese tax purposes during which time Hebei Hua Ao enjoyed advantageous tax rates in the PRC tax.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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