Last checked at 30 Apr 2009 07:00
GRIFFIN MINING LIMITED
60 St James's Street, London SW1A 1LE, United Kingdom
Telephone: + 44 (0)20 7629 7772 Facsimile: + 44 (0)20 7629 7773
E mail: griffin@griffinmining.com
30th APRIL 2009
PRELIMINARY RESULTS
Griffin Mining Limited ("Griffin" or "the Company") has today published its preliminary results for the year ended 31 December 2008.
Highlights:
Profit before tax of $7.0 million on a declining zinc price, compared with $26.8m in 2007.
22,922 tonnes of zinc in concentrate produced in 2008, compared to 21,781 tonnes in 2007.
2,421 ounces of gold in concentrate produced in 2008, compared to 15 ounces in 2007.
171,888 ounces of silver in concentrate produced in 2008, compared to 6,470 ounces in 2007.
1,127 tonnes of lead in concentrate produced in 2008, compared to 13 tonnes in 2007.
433,274 tonnes ore mined in 2008, compared to 430,891 tonnes in 2007
491,848 tonnes of ore processed in 2008, compared with 409,193 tonnes in 2007
Overview
Griffin Mining Limited and its subsidiaries (together the "Group") recorded a profit before tax for the year of $6,959,000 (2007: $26,762,000).
All mining companies faced serious challenges during 2008, however, the Group was positioned better than the vast majority of its fellow industry participants in maintaining a low cost, long life mine and retaining substantial cash balances. The Group has benefited from receiving 100% of the profits of the Caijiaying Zinc-Gold Mine (the "Mine") over the three years to July 2008 and obtaining a net gain of over $30 million, recognised through reserves and not in the profit for the year, by repurchasing $121.5 million of its own shares for cancellation in May 2008 from Citadel Equity Fund Ltd ("Citadel") having issued those same shares for $151.7 million in August 2007.
With the Group's primary income generated by the Mine, profitability was severely impacted by the fall in the price of zinc. During 2008, the zinc price quoted on the London Metals Exchange fell from $2,500 per tonne to $1,100 per tonne. Due to this price decline and the Group remaining unhedged to both metals and currency, a decision was taken to suspend operations in the first quarter of 2009 to allow much needed maintenance and capital work to be undertaken with relatively little economic loss being incurred by the Group.
Griffin benefited from interest receipts of $4,670,000 during 2008 (2007: $5,607,000), however, this income has decreased during 2009 with declining interest rates world-wide. Griffin also benefited from a C$2.5 million break free on the Company's aborted acquisition of Yukon Zinc Corporation.
Foreign exchange losses of $3,220,000 were recorded in 2008 (2007: gains of $1,012,000) primarily on sterling deposits held to cover sterling commitments. The losses follow the fall in the value of sterling in the year.
On 27th November 2008, Griffin acquired 16,666,667 ordinary shares at £0.15 per share for a total cost of £2,500,000 ($4,542,000) in Spitfire Oil Limited ("Spitfire"). This represents 39.2% of the issued share capital of Spitfire. Spitfire's principal asset is the Salmon Gums Lignite deposits in Western Australia from which Spitfire is intending to produce fuel oil, distillates and other by-products This relatively modest investment provides Griffin with an entrée into a long term, large scale project that spreads the Company's political and commodity risk.
Chairman's Statement:
2008 will go down as one of the most catastrophic years for all involved in the mining, financial and industrial markets. Almost every institution, company and individual was affected, some irrevocably, and your company, Griffin Mining Limited ("Griffin" or the "Company") was no exception. Even in this difficult environment, the Company was still able to produce a profit before tax of almost $7 million, a truly remarkable result considering the zinc price fell 46% in 2007 and a further 50% in 2008. This is a testament to the quality of the Caijiaying mine, its people and the management of the Company.
2008 was unique, not in that it produced the beginning of a severe and prolonged recession. It is the task of any competent management to foresee such likelihood. Rather it was the complete breakdown of the financial system, including the banking, equity and debt markets, that produced a scenario that none of us had ever seen before and brought the world to the edge of financial calamity. The ensuing ricochet effects caused the current recessionary environment and, for mining companies, the unfortunate end to booming commodity prices. In a fixed cost business such as mining, the resulting dramatic fall in revenues caused by declining commodity prices was reflected directly in a corresponding fall in the profitability of the Company.
Fortunately for Griffin, prudent management has ensured that a significant cash balance has been maintained in the Company, no debt exists on the balance sheet and the Caijiaying mine is managed as one of the world's lowest cost zinc producers. With the continuing depressed commodity prices, the Company took the opportunity to temporarily suspend operations at Caijiaying to undertake long overdue heavy maintenance and complete construction associated with the expansion of production facilities. The economic cost of suspending operations was relatively small compared to suspending operations at a time of high commodity prices. By the beginning of June, full operations should have resumed at Caijiaying.
The current environment does, however, provide some unique acquisition opportunities which the Company would like to pursue. In a booming commodity market, mining companies and mining assets are given astronomical valuations. Even the small number of assets the Company thought met the financial, political, structural, metallurgical and geological parameters set by the Company, were financially out of reach. The current economic crisis has savagely slashed these companies' valuations and, in some cases, left them in a precarious financial predicament with little or no cash and no hope of raising further funding to survive. It is these companies that management has been evaluating and attempting to acquire.
The Company made a number of acquisition attempts during the year. On the plus side, in May 2008, the Company bought back its own shares from Citadel Investment Group, realising a gain of over $30 million. From the same seller, Griffin was able to acquire, for £2.5 million, over 39% of Spitfire Oil Limited, a company listed on the AIM of the London Stock Exchange. This company is attempting to economically extract fuel oils and other by-products from the huge Salmon Gums lignite deposit in Western Australia. This is a long term, high risk venture. But the economic rewards, should Spitfire Oil Limited be successful, will be enormous and Company transforming.
Less successfully, in April 2008, the Company negotiated an agreed merger with Yukon Zinc Corporation, which was subsequently frustrated by a higher takeover bid by Northwest Non Ferrous International Investment Company Limited and Jinduicheng Molybdenum Group Limited. Nevertheless, the Company was still able to walk away from the transaction with a C$2.5 million break-up fee. Finally, and probably most disappointingly, in March 2009, the Company made an unsolicited bid for a Canadian company, Ivernia Inc, the owner of the suspended Magellan Lead Mine in Western Australia. That company's management took the unfathomable decision to deliver effective control, through massive dilution of its share capital, to a related party without shareholder approval. That made the acquisition of Ivernia uneconomic and unpalatable for Griffin.
None of this has dampened the Company's enthusiasm to make further acquisitions in this recessionary environment where the Company's cash has inordinate value, particularly before commodity prices start to rise again and the valuation of mining assets become so high as to make any acquisition of these assets prohibitively difficult and uneconomic.
Even without any further acquisition, the Company's future looks assured. The industrialization of China and its spectacular growth rate, although temporarily slowed, should return and re-ignite the "super cycle" in commodity prices. The Company's balance sheet is very strong with a large cash balance and no debt. The Company is beginning to increase throughput at Caijaying towards 750,000 tonnes per annum and Caijiaying continues to be a low cost mine with the potential to become a world class mining region, particularly with further exploration between Zones II and III at Caijiaying.
Dividend
In view of the fall in commodity prices resulting in the decline in profitability, current suspension of operations at Caijiaying and the need to preserve cash, a dividend is not being paid.
Further information
Griffin Mining Limited
Mladen Ninkov - Chairman Telephone: +44(0)20 7629 7772
Roger Goodwin - Finance Director
Investec Investment Banking:
Gerard Kisbey-Green Telephone: +44 (0)20 7597 5167
Stephen Cooper +44 (0)20 7597 5104
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 2008
(expressed in thousands US dollars)
| 2008 | 2007 | |||
| $000 | $000 | |||
| Revenue | 32,061 | 37,989 | ||
| Cost of sales | (18,438) | (7,768) | ||
| Gross Profit | 13,623 | 30,221 | ||
| Net operating expenses | (10,517) | (10,078) | ||
| Profit from operations | 3,106 | 20,143 | ||
| Share of losses of associated company | (39) | - | ||
| Foreign exchange (losses) / gains | (3,221) | 1,012 | ||
| Finance income | 4,670 | 5,607 | ||
| Other income | 2,533 | - | ||
| Interest payable | (90) | - | ||
| Profit before tax | 6,959 | 26,762 | ||
| Income tax expense | (637) | - | ||
| Profit after tax attributable to equity share owners for the financial year | 6,322 | 26,762 | ||
| Basic earnings per share (cents) from continuing operations | 2.87 | 12.08 | ||
| Diluted earnings per share (cents) from continuing operations | 2.83 | 11.97 |
Griffin Mining Limited
Summarised Consolidated Balance Sheet
As at 31 December 2008
(expressed in thousands US dollars)
| | | 2008 | | 2007 |
| | | $000 | | $000 |
| ASSETS | | | | |
| Non-current assets | | | | |
| Property, plant and equipment | | 56,885 | | 44,381 |
| Intangible assets – exploration interests | | 1,313 | | 751 |
| Investment in associated company | | 4,503 | | - |
| | | 62,701 | | 45,132 |
| Current assets | | | | |
| Inventories | | 3,227 | | 4,639 |
| Other current assets | | 5,564 | | 4,155 |
| Cash and cash equivalents | | 67,193 | | 199,949 |
| | | 75,984 | | 208,743 |
| | | | | |
| Total assets | | 138,685 | | 253,875 |
| | | | | |
| EQUITY AND LIABILITIES | | | | |
| Equity attributable to equity holders of the parent | | | | |
| Share capital | | 1,816 | | 2,615 |
| Share premium | | 75,950 | | 196,637 |
| Contributing surplus | | 3,690 | | 3,690 |
| Share based payments | | 5,826 | | 4,426 |
| Other reserves | | 711 | | 579 |
| Foreign exchange reserve | | 7,142 | | 3,109 |
| Profit and loss reserve | | 35,345 | | 37,106 |
| Total equity | | 130,480 | | 248,162 |
| | | | | |
| Non-current liabilities | | | | |
| Long-term provisions | | 98 | | - |
| | | | | |
| Current liabilities | | | | |
| Trade and other payables | | 8,107 | | 5,047 |
| Short term bank overdrafts | | - | | 666 |
| | | | | |
| Total liabilities | | 8,107 | | 5,713 |
| | | | | |
| Total equities and liabilities | | 138,685 | | 253,875 |
| | | | | |
| Number of shares in issue | | 181,589,731 | | 261,509,549 |
| | | | | |
| Attributable net asset value / total equity per share | | $0.72 | | $0.95 |
Griffin Mining Limited
Summarised Consolidated Statement of Changes in Equity
For the year ended 31 December 2008
(expressed in thousands US dollars)
| Share | Share | Contributing | Share | Other | Foreign | Profit | ||
| Capital | premium | surplus | based | Reserves | Exchange | and loss | Total | |
| payments | Reserve | Reserve | ||||||
| $000 | $000 | $000 | $000 | $000 | $000 | $000 | $000 | |
| At 31 December 2006 | 1,841 | 39,166 | 3,690 | 2,553 | 297 | 479 | 16,432 | 64,458 |
| Exchange differences on translating foreign operations | - | - | - | - | 20 | 2,630 | - | 2,650 |
| Net income recognised directly to equity | - | - | - | - | 20 | 2,630 | - | 2,650 |
| Profit for the year | - | - | - | - | - | - | 26,760 | 26,760 |
| Total recognised income and expenses in the year | - | - | - | - | 20 | 2,630 | 26,762 | 29,412 |
| Dividend paid | - | - | - | - | - | - | (5,826) | (5,826) |
| Regulatory transfer for future investment | - | - | - | - | 262 | - | (262) | - |
| Exercise of options | - | 1,042 | - | (1,042) | - | - | - | - |
| Issue of share capital | 774 | 156,429 | - | - | - | - | - | 157,203 |
| Cost of share based payments | - | - | - | 2,915 | - | - | - | 2,915 |
| At 31 December 2007 | 2,615 | 196,637 | 3,690 | 4,426 | 579 | 3,109 | 37,106 | 248,162 |
| Exchange differences on translating foreign operations | - | - | - | - | 57 | 4,033 | - | 4,090 |
| Net income recognised directly to equity | - | - | - | - | 57 | 4,033 | - | 4,090 |
| Profit for the year | - | - | - | - | - | - | 6,322 | 6,322 |
| Total recognised income and expenses in the year | - | - | - | - | 57 | 4,033 | 6,322 | 10,412 |
| Dividend paid | - | - | - | - | - | - | (8,008) | (8,008) |
| Regulatory transfer for future investment | - | - | - | - | 75 | - | (75) | - |
| Purchase of shares for cancellation | (799) | (120,687) | - | - | - | - | - | (121,486) |
| Cost of share based payments | - | - | - | 1,400 | - | - | - | 1,400 |
| At 31 December 2008 | 1,816 | 75,950 | 3,690 | 5,826 | 711 | 7,142 | 35,345 | 130,480 |
Griffin Mining Limited
Summarised Consolidated Cash Flow Statement
For the year ended 31 December 2008
(expressed in thousands US dollars)
| 2008 | 2007 | |||
| $000 | $000 | |||
| Net cash flows from operating activities | ||||
| Profit before taxation | 6,959 | 26,762 | ||
| Share of associated company losses | 39 | - | ||
| Foreign exchange losses / (gains) | 3,221 | (1,012) | ||
| Taxation paid | (637) | - | ||
| Finance income | (4,670) | (5,607) | ||
| Adjustment in respect of share based payments | 1,400 | 2,915 | ||
| Depreciation, depletion and amortisation | 2,844 | 1,351 | ||
| Provisions | 98 | - | ||
| Decrease / (increase) in inventories | 1,412 | (3,535) | ||
| (Increase) in other current assets | (1,101) | (3,091) | ||
| Increase in trade and other payables | 3,059 | 711 | ||
| Net cash inflow from operating activities | 12,624 | 18,494 | ||
| Cash flows from investing activities | ||||
| Interest received | 4,670 | 5,607 | ||
| Payments to acquire intangible fixed assets - exploration interests | (388) | (126) | ||
| Payments to acquire plant and equipment - mineral interests | (9,393) | (9,056) | ||
| Payments to acquire plant and equipment - plant and equipment | (1,681) | (1,854) | ||
| Payments to acquire interest in associated company | (4,542) | - | ||
| Net cash (outflow) from investing activities | (11,334) | (5,429) | ||
| Cash flows from financing activities | ||||
| Issue of ordinary share capital | - | 157,211 | ||
| Expenses paid in connection with share issue | - | (7) | ||
| Purchase of shares for cancellation | (121,486) | - | ||
| (121,486) | 157,204 | |||
| Dividends paid | (8,008) | (5,826) | ||
| Increase in cash and cash equivalents | (128,204) | 164,443 | ||
| Cash and cash equivalents at the beginning of the year | 199,283 | 34,081 | ||
| Effects of exchange rates | (3,886) | 759 | ||
| Cash and cash equivalents at the end of the year | 67,193 | 199,283 | ||
| Cash and cash equivalents comprise: | ||||
| Bank deposits | 67,193 | 199,949 | ||
| Short term bank overdrafts | - | (666) | ||
| Total | 67,193 | 199,283 |
Notes:
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 240 of the UK Companies Act 1985. The summarised consolidated balance sheet at 31 December 2008 and the summarised consolidated income statement, 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 2008 statutory financial statements upon which the auditors' opinion is unqualified. The results for the year ended 31 December 2007 have been extracted from the statutory accounts for that period, which contain an unqualified auditors' report.
3. The annual report and accounts for 2008 together with the notice of the Annual General Meeting to be held on 12 June 2009 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:
| 2008 | 2007 | ||||||||||
| 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 | 6,322 | 220,587,242 | 2.87 | 26,762 | 221,441,986 | 12.08 | |||||
| Dilutive effect of securities | |||||||||||
| Options | 3,090,342 | 2,153,244 | |||||||||
| Diluted earnings per share | 6,322 | 223,677,584 | 2.83 | 26,762 | 223,595,230 | 11.97 | |||||