April 2013

Griffin Mining Limited (“Griffin” or the “Company”) has today published its preliminary results for the year ended 31 December 2012. Griffin and its subsidiaries (together the “Group”) recorded:

• Revenues of $76.9 million (2011 – $79.1 million).
• Profits before tax and interest $31.2m (2011 – $36.8m).
• Profits after tax $19.7m (2011 – $27.7m).
• Attributable profits after tax $14.8m (2011 – $15.8m)

Overview

Despite record throughput, base metal and silver production, revenues and operating profits in 2012 were impacted by lower metal prices. As a result of this and decreased gold production, revenues fell to $76,860,000 (2011 – $79,062,000) with profits from operations of $31,174,000 (2011 – $36,832,000). In summary, production results were as follows:

• A record 789,692 tonnes of ore were mined, compared to 695,848 tonnes in 2011, a 13.5% increase;
• A record 800,288 tonnes of ore were processed, compared to 715,955 tonnes in 2011, an 11.8% increase;
• A record 40,581 tonnes of zinc metal in concentrate were produced, compared to 36,283 tonnes in 2011, an 11.8% increase;
• A record 409,596 ounces of silver in concentrate were produced, compared to 312,509 ounces in 2011, a 31.1% increase;
• A record 2,402 tonnes of lead in concentrate were produced, compared to 1,909 tonnes in 2011, a 25.8% increase; and
• 8,322 ounces of gold in concentrate were produced, compared to 10,281 ounces in 2011, a 19.1% decrease.

The average market price for zinc fell 11% in 2012 from that in 2011. As a result, the average price per tonne of zinc metal in concentrate received by the Group in 2012 fell by 11% to $1,374 (2011 – $1,546). The average price received for silver declined 13% to $22.80 per ounce (2011 – $26.22) and that for lead by 10% to $1,855 per tonne (2011 – $2,054). The average price received for gold increased by 4% to $1,499 per ounce (2011 – $1,438).

Costs of sales increased 9% in 2012 to $34,795,000 (2011 – $31,918,000). With throughput increasing 11.8%, some economies of scale were achieved despite increasing costs as the lower mine levels continue to be accessed.

Group operating costs, including Caijiaying Mine site administration costs, rose 5.6% to $10,891,000 (2011 – $10,312,000) reflecting inflationary cost pressures in China.

Profits before tax declined to $27,239,000 (2011 – $39,953,000) reflecting not just lower operating profits, but also interest charges not incurred in prior years of $3,411,000, foreign exchange losses of $904,000 (2011 – gains of $2,588,000) as well as lower interest receipts.

Cash balances were utilised in 2012 in the transaction to fund the acquisition of the non-controlling interests in and extension of, the Hebei Hua Ao joint venture. As a result, interest receipts declined to $495,000 (2011 – $616,000).

Bank loan facilities in China were drawn down in 2012 to fund the payment of dividends used in the transaction to purchase the non controlling interests in and extension of the Hebei Hua Ao joint venture. As a result, interest costs of $3,411,000 (2011 – nil) were incurred.

With outstanding dividends due from Hebei Hua Ao denominated in Renminbi being paid and used in the transaction as part of the acquisition of the non controlling interests in, and extension of, the Hebei Hua Ao joint venture at a time of declining values in the US dollar, foreign exchange losses of $904,000 (2011 – gains of $2,588,000) were recorded.

Griffin’s 39.2% share of the losses of Spitfire Oil Limited (“Spitfire”) of $163,000 (2011 – $118,000) have been recognised.

Income taxes of $7,532,000 (2011 – $12,256,000) have been charged. The decrease from 2011 reflects not just reduced profits subject to Chinese income tax, but also a reduction in Chinese withholding tax from 10% to 5% on dividends paid to certain jurisdictions outside China.

The non controlling interests’ share of Hebei Hua Ao’s profits of $4,872,000 (2011 – $11,882,000) has been provided for, resulting in attributable profits to Griffin of $14,835,000 (2011 – $15,815,00). The reduction in the non controlling interests’ reflects a reduction in profits received commensurate to the reduction in its equity interests from 40% to 11.2% with effect from the 25th June 2012.

Basic earnings per share in 2012 was 8.46 cents per share (2011 – 8.96 cents) with diluted earnings per share of 8.36 cents in 2012 (2011 – 8.76 cents).

During 2012, 50,000 (2011 – 5,040,000) ordinary shares in Griffin were bought back on market for cancellation at a cost of $24,000 (2011 – $4,977,000), thereby reducing the number of Griffin shares on issue to 175,451,830.

Net cash inflow from operating activities in 2012 amounted to $32,244,000 (2011 – $43,346,000). $125,419,000 was invested in 2012, which included $117,459,000 in the transaction to purchase the non controlling interests in, and extend the term of, the Hebei Hua Ao joint venture.

Attributable net assets per share at 31st December 2012 was 79 cents ( 2011 – 87 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:

It has been a remarkable year for Griffin in spite of further decreases in metals prices, continuing global economic turmoil, virtually no real growth in the western world, the continuing destruction of true wealth worldwide and stalled real growth in China. Yet in spite of all this economic negativity, Griffin was still able to achieve a memorable year.

Griffin and its subsidiaries recorded: An operating profit of $31,174,000; profit before tax of $27,239,000; profit after tax of $19,707,000 and profit after non controlling interests of $14,835,000 (a reduction of less than a million dollars from the previous year). This all occurred whilst the average market price for zinc fell 11%, silver by 13% and lead by 10%.

Impressively, the Group achieved record throughput and record zinc, lead and silver production. In summary, and in comparison with the 2011 results, there were 13.4% more tonnes of ore mined, 11.8% more ore processed, 11.8% more zinc metal in concentrate produced, 31.1% more silver in concentrate produced and 25.8% more lead in concentrate produced. Only gold in concentrate produced decreased by 19.1% as the throughput of gold bearing ore was minimized until the various gold mineralologies of the different orebodies were examined and forward planning completed to ensure extraction of the highest possible recoveries going forward.

As expected, the first half of 2012 was primarily focused on the transaction to increase Griffin’s interest in Hebei Hua Ao Mining Industry Company Limited (“Hebei Hua Ao”) to 88.8% and extend the term of the joint venture through to October 2037. Subsequently, significant time was dedicated to restructuring site management and solidifying reporting procedures from the Caijiaying Mine following the diminution of Chinese involvement in the day to day management of Hebei Hua Ao.

The Company is now focused on the extensive process of increasing the mining and processing of ore at the Caijiaying Mine to 1.5 million tonnes per annum. This will include an expansion of the processing facilities, the underground development of Zone II and an expansion of the existing mining operations at Zone III. These developments are all subject to the successful granting of a mining licence over Zone II, which licence area will also include the area between Zone II and Zone III, and which is not expected to occur prior to the end of the first quarter of 2014. By that time, the boundary survey, feasibility study and environmental impact study should have all been completed and underground development work at both Zones II and III will be well under way. The total upgrade is expected to be completed by the end of 2014.

Critically, all capital costs associated with the upgrade will be funded from cash flow from existing operations. The Company expects to continue its extraordinary record of not raising any new net equity for a decade and, as such, prevent any dilution to shareholders. Unfortunately, that also means a decision not to declare a dividend yet again this year. Obviously, I am well aware of a number of shareholders desire for the Company to begin paying dividends both for personal income requirements and the financial discipline such an action imposes upon management. The Company has every intention to do so when circumstances allow, however, shareholders short term need or desire to have cash returned to them cannot cause an under investment in the future growth of the Company. It seems abundantly clear that, for now, further investment in the Caijiaying Mine represents the best use of Griffin’s available resources. Having reviewed many potential acquisitions and having carefully considered the potential of Caijiaying and the future market for metals, particularly zinc, it is clear that further investment in the Caijiaying Mine will generate higher returns for the Company and its shareholders than any new, low return/high risk investment elsewhere.

This is even more true when considering the number and size of the major world zinc mines reaching the end of their economic lives and the substantial reduction in the future supply of zinc. Assuming the return of world, or at least Chinese, growth in the near future, then a rise in zinc prices should follow. Accordingly, it is expected that the further investment to increase production at the Caijiaying Mine will result in significant returns to the Company and to its shareholders, at which time the Company’s dividend policy will be reassessed.

As outlined so often in the past, the Company continues to investigate a large number of potential mining ventures worldwide, pursuing any mining opportunity which shows the necessary economic returns demanded by the Company’s shareholders. Such opportunities are rare and, geologically speaking, becoming rarer, as any brownfields exploration prospect has inevitably been explored long ago and greenfields exploration becomes far more difficult, deeper and more expensive. Hope exists that, as the equity markets remain generally closed to the junior mining market, a hidden gem will be found either in junior public mining companies or in private organizations incapable of raising new equity in private or public markets.

Griffin Mining Limited
Summarised Consolidated Income Statement
For the year ended 31 December 2012
(expressed in thousands US dollars)

		2012		2011
		$000		$000
Revenue		76,860		79,062
Cost of sales		(34,795)		(31,918)
Gross profit		42,065		47,144
Net operating expenses		(10,891)		(10,312)
Profit from operations		31,174		36,832
Share of losses of associated company		(163)		(118)
Foreign exchange (losses) / gains		(904)		2,588
Finance income		495		616
Finance losses		–		(14)
Finance costs		(3,411)		–
Other income		48		49
Profit before tax		27,239		39,953
Income tax expense		(7,532)		(12,256)
Profit after tax		19,707		27,697
Attributable to non-controlling interests		4,872		11,882
Attributable to equity share owners for the parent		14,835		15,815
		19,707		27,697
Basic earnings per share (cents)		8.46		8.96
Diluted earnings per share (cents)		8.36		8.76

 

Griffin Mining Limited
Summarised Consolidated Statement of Comprehensive Income
For the year ended 31 December 2012
(expressed in thousands US dollars)

 

		2012		2011
		$000		$000
Profit for the year		19,707		27,697
Other comprehensive income
Exchange differences on translating foreign operations		545		2,417
Other comprehensive income for the period, net of tax		545		2,417
Total comprehensive income for the period		20,252		30,114
Attributable to non-controlling interests		4,960		12,691
Attributable to equity owners of the parent		15,292		17,423
		20,252		30,114

Griffin Mining Limited
Summarised Consolidated Statement of Financial Position
As at 31 December 2012
(expressed in thousands US dollars)

 

		2012		2011
		$000		$000
ASSETS
Non-current assets
Property, plant and equipment		177,470		85,291
Intangible assets – Exploration interests		1,707		1,573
Investment in associated company		3,596		3,759
		182,773		90,623
Current assets
Inventories		6,231		4,608
Receivables and other current assets		4,168		2,505
Cash and cash equivalents		16,764		91,089
		27,163		98,202
Total assets		209,936		188,825
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Share capital		1,755		1,755
Share premium		70,037		70,061
Contributing surplus		3,690		3,690
Share based payments		3,055		3,030
Other reserve on acquisition of non controlling interests		(29,346)		–
Other reserves		1,313		1,300
Foreign exchange reserve		10,485		10,041
Profit and loss reserve		77,966		63,131
Total equity attributable to equity holders of the parent		138,955		153,008
Non-controlling interests		4,904		12,523
Total equity		143,859		165,531
Non-current liabilities
Long-term provisions		2,535		806
Current liabilities
Taxation payable		3,840		11,631
Trade and other payables		12,590		10,857
Bank loans		47,112		–
Total current liabilities		63,542		22,488
Total equities and liabilities		209,936		188,825
Number of shares in issue		175,451,830		175,501,830
Attributable net asset value / total equity per share		$0.79		$0.87

 

Griffin Mining Limited
Summarised Consolidated Statement of Changes in Equity.
For the year ended 31 December 2012
(expressed in thousands US dollars)

 

	Share Capital	Share premium	Contributing surplus	Share based payments	Chinese re investment Reserve	Other reserve on acquisition of non controlling interests	Foreign exchange reserve	Profit and loss reserve	Total attributable to equity holders of parent	Non controlling interests	Total equity
	$000	$000	$000	$000	$000	$000	$000	$000	$000	$000	$000
At 31 December 2010	1,804	74,948	3,690	2,513	938	–	8,480	47,631	140,004	6,218	146,222
Regulatory transfer for future investment	–	–	–	–	315	–	–	(315)	–	–	–
Issue of share capital	1	40	–	–	–	–	–	–	41	–	41
Purchase of shares for cancellation	(50)	(4,927)	–	–	–	–	–	–	(4,977)	–	(4,977)
Cost of share based payments	–	–	–	517	–	–	–	–	517	–	517
Transfer in respect of distributions	–	–	–	–	–	–	–	–	–	(6,386)	(6,386)
Transaction with owners	(49)	(4,887)	–	517	315	–	–	(315)	(4,419)	(6,386)	(10,805)
Retained profit for the year	–	–	–	–	–	–	–	15,815	15,815	11,882	27,697
Other comprehensive income:
Exchange differences on translating foreign operations	–	–	–	–	47	–	1,561	–	1,608	809	2,417
Total comprehensive income for the year	–	–	–	–	47	–	1,561	15,815	17,423	12,691	30,114
At 31 December 2011	1,755	70,061	3,690	3,030	1,300	–	10,041	63,131	153,008	12,523	165,531
Regulatory transfer for future investment	–	–	–	–	–	–	–	–	–	–
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 distributions	–	–	–	–	–	–	–	–	–	(12,561)	(12,561)
Transaction with owners	–	(24)	–	25	–	(29,346)	–	–	(29,345)	(12,579)	(41,924)
	–		–		–		–
Retained 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 for the year	–	–	–	–	13	–	444	14,835	15,292	4,960	20,252
At 31st December 2012	1,755	70,037	3,690	3,055	1,313	(29,346)	10,485	77,966	138,955	4,904	143,859

 

Griffin Mining Limited
Summarised Cash Flow Statement
For the year ended 31 December 2012
(expressed in thousands US dollars)

 

		2012		2011
		$000		$000
Net cash flows from operating activities
Profit before taxation		27,239		39,953
Share of associated company losses		163		118
Foreign exchange losses / (gains)		904		(2,588)
Finance (income)		(495)		(616)
Finance losses		–		14
Finance costs		3,411		–
Adjustment in respect of share based payments		25		517
Depreciation, depletion and amortisation		6,762		5,900
(Increase) / decrease in inventories		(1,623)		(1,472)
(Increase) / decrease in receivables and other current assets		(1,663)		(1,226)
(decrease) / increase in trade and other payables		(2,479)		2,746
Net cash inflow from operating activities		32,244		43,346
Taxation paid		(11,435)		(1,637)
Cash flows from investing activities
Interest received		495		616
Payments to extend joint venture term and non-controlling interests		(117,459)		–
Payments to acquire tangible assets – mineral interests		(4,206)		(6,073)
Payments to acquire tangible assets – plant and equipment		(4,129)		(3,605)
Payments to acquire tangible assets – office equipment		(3)		(2)
Payments to acquire intangible assets – exploration interests		(117)		(19)
Net cash (outflow) from investing activities		(125,419)		(9,083)
Cash flows from financing activities
Issue of ordinary share capital		–		41
Purchase of shares for cancellation		(24)		(4,977)
Interest paid		(3,411)		–
Dividends paid to non controlling interests		(12,561)		(4,257)
Proceeds from bank loans		47,112		–
Net cash inflow / (outflow) from financing activities		31,116		(9,193)
(Decrease) / increase in cash and cash equivalents		(73,494)		23,433
Cash and cash equivalents at the beginning of the year		91,089		66,450
Effects of exchange rates		(831)		1,206
Cash and cash equivalents at the end of the year		16,764		91,089
Cash and cash equivalents comprise bank deposits.
Bank deposits		16,764		91,089

Included within net cash flows of $73,495,000 (2011 $23,433,000) are foreign exchange gains of $904,000 (2011 $2,588,000) which have been treated as realised.

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 31 December 2012 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 2012 statutory financial statements upon which the auditors’ opinion is unqualified. The results for the year ended 31 December 2011 have been extracted from the statutory accounts for that period, which contain an unqualified auditors’ report.
3. The annual report and accounts for 2012 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:

				2012						2011
	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	14,835			175,456,077		8.46		15,815		176,499,620		8.96
Options				2,021,897						3,981,592
Diluted earnings per share	14,835			177,477,974		8.36		15,815		180,481,212		8.76