Last checked at 26 Jun 2008 07:00
26 June 2008 AIM:AAZ
ANGLO ASIAN MINING PLC
('Anglo Asian' or 'the Company' together with its subsidiaries 'the Group')
RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007
Highlights for the year
Feasibility study completed and necessary approvals obtained for the construction of Gedabek heap leach gold/copper mine
Submission of Notice of Discovery under Production Sharing Agreement (PSA) with the government of Azerbaijan, provides the Group with mining and exploration rights over the 300 km2 Gedabek Contract Area for a period of up to 25 years
Exploration work is to continue on Gedabek and other contract areas during 2008, with some gold, copper and polymetallic prospects yet to be evaluated
CIL plant sold and the proceeds form part of the financing for the Gedabek development
Price forecasts remain optimistic for metals of primary interest to the Group
Subsequent events
Credit facilities of US$25 million agreed with International Bank of Azerbaijan ('IBA') to fund development of Gedabek
Development of Gedabek underway with forecast initial production in 2008
Financial results 2007
Loss after tax US$ 14.7 m (2006: $4.4m)
Provision for impairment of mining rights and exploration expenditure $6.7m (2006: $0.2m)
Write down of held for sale CIL plant $3.3m (2006: $nil)
Cash at end of year $ 6.8m (2006: $6.4m) and no debt
The full report and accounts for 2007, with a modified opinion for going concern, are available on our website www.aamining.com and will be posted to shareholders early next week.
Khosrow Zamani, Chairman of Anglo Asian, commented: 'I am delighted to be in a position to report on the progress that the Group has made during 2007 and in the period since the end of the year. We are now in the process of fast tracking the development of our Gedabek gold and copper project and look forward to initial production later this year.'
Mr Zamani continued 'We are grateful to the IBA for providing the loan facilities which in conjunction with the cash obtained from the sale of the CIL plant is forecast to provide the necessary funding to meet the capital costs of the development, although the Board understand the current inflationary pressures in the mining industry and the risk of delays to the development which may result in additional funding requirements: the Board will take steps to ensure adequate funding is secured. I look forward to updating the shareholders with our planned progress towards construction during the remainder of this year.'
Enquiries:
| Anglo Asian Mining PLC | Numis Securities Limited | Parkgreen Communications |
| Gordon Lewis, Chief Executive Richard Round, Finance Director | John Harrison | Justine Howarth |
| T: +994 12 5963350 | T: +44 20 7776 1590 | T: +44 20 7851 7480 |
| T: + 44 1525 211988 | ||
| www.aamining.com |
CHAIRMAN'S STATEMENT
I am pleased to report to you on the Company's progress during the past year.
As incoming Chairman half way through 2007, I have witnessed an interesting year in Azerbaijan, where the Company was able to consolidate its strategic position in the country and fulfil its obligations under the Production Sharing Agreement ("PSA") it shares with the Government. Our most important development has been the advancement of the Gedabek gold/copper project, for which we commenced construction after identifying an indicated resource in November 2006.
During the last twelve months the demand for base and precious metals has remained strong, led by the extraordinary growth of the Indian and Chinese economies. Gold prices have remained buoyant over the period, reaching new highs in early 2008, fuelled by soaring oil prices and power outages in South Africa.
Despite record prices for gold, silver and copper, the mining industry is struggling to keep pace with the high demand for metals. The time from discovery to production has increased significantly as companies struggle over land title issues, changes to tax laws, environmental constraints, shortages of qualified mining individuals and extra long lead times on key items of equipment.
Gedabek
At Gedabek, our Company has been fortunate in being able to fast-track this gold and copper mining project, requiring small and available machinery, with minimal delays through the approval processes. We obtained feasibility study approval in June 2007, the environmental approval in September 2007 and put the financing in place in early 2008. The project is now poised to deliver its first gold production before the end of 2008 with copper production following shortly thereafter.
The Gedabek project consists of an open pit mine producing 1.5 million tonnes of ore each year, a heap leach pad and processing facility for the recovery of gold, copper and silver. The stripping ratio is low at around 1.5 to 1.0, enabling the flat lying ore deposit to be readily accessed and higher grades mined early in the project's life. The project should return its capital investment very quickly due to the high grades scheduled to be leached during 2009.
The products from Gedabek, in the form of gold doré and copper/silver rich concentrates will be exported for further processing and refining. The Company has no restrictions on these exports under the terms and conditions of the PSA.
The Gedabek feasibility study was completed in June 2007 and the Development and Production Plan was submitted to the Government and approved in the third quarter. Environmental approvals were also obtained from the Ministry of Ecology and Natural Resources during the third quarter. These approvals required the completion of a base-line study and an environmental impact study and included a local environmental hearing at which the residents of Gedabek were able to express their overwhelming support for the project. The Company is determined to maintain the highest environmental standards at the mine, recognising that it is located close to a populated area.
I am pleased to report that the Group has continued to assist the local community at Gedabek. Following severe weather damage to schools and public buildings earlier this year, we purchased roofing materials which enabled repairs to be carried out in a timely manner. We also partnered with a local company in Azerbaijan to join the USAID Farmer-to-Farmer programme to improve the productivity and income of over 800 families in the Gedabek region.
Exploration
Although the Company focused most of its resources on the Gedabek deposit during 2007, exploration efforts continued both in Ordubad in the south and at the Gosha property, which is located to the north west of Gedabek.
At Gosha, further test sampling and ore grade comparisons with Russian data confirmed that potentially economic mineralisation exists. The area around Gosha was mapped and sampled during the year as part of a reconnaissance programme in search of further mineralised areas.
The exploration work in Ordubad was focused around mapping and sampling of some of the smaller deposits in the area which are considered prospective for copper and molybdenum. Soils and sediment sampling was also taken out in areas between the known mineral occurrences.
The Company has until April 2009 to further evaluate the properties it has been granted under the PSA, with the possibility of an extension to this time period. We look forward to more exploration success, especially if in the future we can explore three more prospects located in the Occupied Territories of western Azerbaijan.
Sale of CIL plant
Following extensive advertising, the CIL plant purchased by the Company in 2005 was sold to a Kazakhstan gold producer for a consideration of $7.5 million, before sales costs. Although the sale value of the plant was less than expected, the cash inflow occurred at a critical time for the Company. The proceeds greatly assisted with financing the Gedabek project and enabled the project team to continue with the planning and infrastructure requirements.
Financing
The strategy on the further financing requirement of $25 million for the Gedabek project was to first explore local Azeri sources of debt. The Azerbaijan economy receives increasingly substantial revenues from the oil and gas sector and local banks are well placed to assist with the funding of ventures to support growth in other sectors of the economy.
Through extensive discussions and a strong relationship with the IBA, the Company was able to obtain an unsecured $5 million credit line from the bank in January 2008 to add to its own internal funding. In April 2008 the IBA also committed to a $20 million term loan, which has subsequently been executed and enables the Company to build the mine at Gedabek. The IBA funding is considered a major breakthrough for the Group.
The current forecasts demonstrate that the existing cash resources and available debt provide sufficient funds to complete the construction of the mine at Gedabek. The Board is aware of the current inflationary pressures in the mining industry and the risk of delays to the development, production and revenue falling short of expectations. If there are either cost overruns or delays which result in a funding shortfall then the Board will have to take steps to ensure there is adequate funding in the period to 30 June 2009. The major shareholders on the Board have confirmed that they would be willing to provide additional funding in such an event and also consider that further working capital facilities could be negotiated with the IBA. The Company is seeking the approval of the shareholders, at the AGM on 23 July to increase the borrowing capacity under the Articles of Association to four times the Adjusted Capital and Reserves and also to increase the ability to allot for cash up to 10% of the current share capital on a non pre-emptive basis. Approval of these Special Resolutions will if necessary facilitate the ability to raise additional funds. For these reasons the Directors continue to adopt the going concern basis in preparing the Financial Statements (see note 1 to the consolidated financial statements). The projected cash flows commencing in the first quarter of 2009 will put the Company in a strong position to pay back the debt quickly and generate funds for future growth.
Financial results
The Group reported a loss of $14,683,306 (2006: $4,428,073). The operating loss resulted from the costs of administrative expenses of $4,935,566 (2006: $4,824,096), a provision for impairment of exploration expenditure and mining rights of $6,692,218 (2006: $185,053) and the write-down of the CIL plant held for sale of $3,273,887 (2006: $nil).
Net interest income in the year was $218,365 (2006:$581,126).
Exploration and evaluation expenditure of $2,035,970 (2006: $6,017,138) was capitalised in the year.
At the year end the Group retained cash balances of $6,810,902 (2006: $6,354,102): there was no borrowing.
Board and management
In July 2007 I joined the Board as Chairman following the departure of Mr Graham Mascall. It was with great pleasure that I was able to assist in the challenging process of raising the necessary funds to develop the Gedabek project.
I would like to take this opportunity to thank Graham Mascall for his term as Chairman, during which time the Company's strategic focus was identified and executed.
Following the Company securing its financing, the management team in Azerbaijan was enhanced with experienced individuals from Kazakhstan to supplement a number of competent Azeri staff for the development phase of the project. This combination has subsequently been boosted by engaging a Turkish construction management group to supervise the construction of the mine.
Tim Eggar has advised the Board that he will not be offering himself up for re-election at the AGM scheduled for 23 July and will step down from the Board at that time. Tim has been on the Board for the three years following the IPO and on behalf of the whole Board I would like to thank him for his significant contribution during this period. At the same time Richard Round will step down from his executive duties as Finance Director and take up a position as a Non-executive Director also filling the vacancy of Chairman of the Audit Committee currently held by Tim. This follows the conclusion that we will need a full time CFO based in Azerbaijan as we head towards production. We have already appointed John Gibson to the non-board position of interim CFO and the search for a full time CFO is underway.
I would like to thank all of our employees for their persistence and hard work during 2007. I believe the uncertain phase for the Company is behind us and we can look forward to building a strong foundation during the coming year.
Khosrow Zamani
Chairman
25 June 2008