Mladen Ninkov at Caijiaying

Welcome to Griffin Mining Ltd’s web site. Griffin Mining Limited through its subsidiary companies has been operating in China since 1997 and remains one of the few foreign mining companies operating in China.

In 2005 Griffin brought the Caijiaying zinc gold mine into production and since then has striven to increase production from initial an throughput of 200,000 tonnes of ore per annum to rates in excess of 750,000 tonnes of ore per annum. Plans are now being formulated to develop the ore bodies not only deeper and in the immediate areas being mined but also towards the Zone II area of mineralisation, some 1.5 kilometers to the south, and to further upgrade the processing plant to increase capacity to as much as 1,500,000 tonnes of ore per annum.

Whilst 2011 did not progress as originally envisaged due to factors outside the control of the Company, the Group still managed to record a profit before tax for the year of $11.24 million compared to $7.25 million in 2009.   This included a 40.6% increase in ore processed, a 28% increase in zinc concentrate produced, a 77% increase in silver produced in concentrate and a 90% increase in gold produced in concentrate, a record for gold production at Caijiaying.

The increase in profit and production was particularly noteworthy as it was achieved despite the suspension of all activities at Caijiaying for 4 months following the death of two men employed by the mining contractor at Caijiaying.   Although the Company’s subsidiary, Hebei Hua Ao Mining Industry Company Limited (“Hebei Hua Ao”), was exonerated from primary fault, Griffin has, and continues to provide, its full co-operation and support to the Chinese individuals and government departments touched by this unfortunate occurrence and continues to seek to improve safety at Caijiaying above and beyond that recommended by the Chinese authorities.

Although construction of the upgraded processing facilities at Caijiaying was completed in August 2010, the unfortunate deaths of the 8th August 2010 delayed commissioning of the new ball mill and crushing circuit until the first quarter of 2011.  As with the previous construction of processing facilities at Caijiaying, it is expected that the upgrade of the processing facilities should enable significantly more throughput to be processed than the designated 750,000 tonnes of ore per annum.

It is expected that part of that substantially increased throughput, over and above 750,000 tonnes of ore per annum, will be provided from the new resource at Zone II.  In January 2011, a new JORC reported Mineral Resource Estimate for Caijiaying was produced which showed an 18% increase in the mineral resource at Zones II and III representing a 30 plus year mine life at the increased throughput rate. This gave Hebei Hua Ao sufficient confidence to commence the necessary extra infill drilling, reports and work to support an application for a mining licence at Zone II with a view to extracting a further 500,000 tonnes of ore per annum from that area.

In this modern age, it is vital for a mining company to be a good citizen of the community and country in which it operates.  To that end, Hebei Hua Ao has provided direct water supplies to the local villagers, constructed sealed roads to the Caijiaying mine and nearby villages, financed the construction of a local kindergarten and old people's rest home and assisted with other infrastructure projects. Hebei Hua Ao has also assisted in the upgrade of facilities at the local township school and set up "Project Hope" to provide scholarships to local students. Griffin estimates that the Caijiaying mine has provided employment directly and indirectly to over 1,000 Chinese nationals whilst minimizing the employment of foreign personnel. Griffin has striven to protect the local environment and in that regard Hebei Hua Ao’s activities in China were formally recognized when it was presented with the environmental award at the 2010 China Mining conference. Griffin, through Hebei Hua Ao, has shown itself to be a responsible partner and operator in China.

Unfortunately, the Company does not operate in an economic vacuum.  As has been mentioned numerous times in past missives, mining is generally a fixed cost business whose profitability is largely dependent on a predetermined commodity price.  With China now acquiring 60% of the world’s iron ore and 40% of its base metals production, neither China nor the world’s economy can be ignored, even at the microeconomic level at which Griffin operates.

Unfortunately the world’s economy has been shown to be, at best, brittle and, at worst, structurally unsound.  The global financial crisis of 2008 has demonstrated that the USA and Europe are on the downward slope of their economic power without the political or economic bipartisanship will to undertake the reforms critical to stave off economic decline.  The huge transference of private to public debt in the USA reaching a staggering $14.3 trillion, unfunded Medicare and pension liabilities and the need to raise the national debt ceiling merely to pay recurring expenditure and interest obligations on US government debt, does not bode well for the world’s largest economy.  Europe continues to try to live with the unliveable with a European Central Bank setting monetary policy over wayward individual country members setting their own fiscal policies.  The inevitable consequences have become apparent with Ireland, Portugal and Greece with more surely to follow.  China remains the world’s economic powerhouse although with the advent of rapid inflation coupled with a fixed exchange rate, its export driven economy will inevitably suffer.  It is also worthy to note the questionable status of the Chinese banking system and the level of non-performing loans in that country.

What this means for Griffin is the need for patience.  Although the Company has significant financial resources, real value is created by purchasing assets below their true intrinsic value at the low end of an economic cycle or in a severe financial downturn.  It is the view of the Company that mineable resources are scarce and becoming ever harder to find.  It is also true that China and India are in the midst of a large urbanization process which will cause commodity prices to remain buoyant in the long term.  When commodity prices are high, mining asset values are even higher.  No economic growth process in history has been linear and the Company expects a significant correction in this progression in the near future.  It is therefore the Company’s task to assemble the right acquisition targets, human capital and capital markets support to make these acquisitions when the inevitable correction occurs.  The Company remains dedicated to only acquiring further assets where they provide real value over a long period of time with substantial added value to shareholders.

It is also likely that the Company will list its shares on the Hong Kong Stock Exchange at some point in the future.  That date will be driven by the Company’s need for capital should the next acquisition require additional funds.  History has shown that unless liquidity is provided in a new listing through a new issue of shares, that company’s stock will trade thinly and without any real interest by Hong Kong institutions and retail investors.  Needless to say, an acquisition would never be made, a capital raising completed or a listing sought unless it was genuinely in the best long-term interest of shareholders.

In that same vein, the directors have agonized, after extensive consultation with shareholders, over the reinstatement of a dividend to shareholders.  Whilst understanding and agreeing with the discipline and financial need of many shareholders for a dividend, the Company still believes that the better use of internal funds can be made on the acquisition of assets that may become available in the near future.  In the interim, to alleviate some shareholders need for capital and to allow each individual shareholder to deal with his or her tax position, the Company has continued its share buy-back programme.