• Thursday 6th May 2010

Preliminary Results

Preliminary Results

Griffin Mining Limited (“Griffin” or “the Company”) has today published its preliminary results for the year ended 31 December 2009.

Highlights:

  • Return to profitability following suspension of operations in first five months of 2009.
  • Profit before tax and minority interests of $7.2 million, compared with $7.0m in 2008.
  • 17,167 tonnes of zinc in concentrate produced in 2009, compared to 22,922 tonnes in 2008.
  • 3,726 ounces of gold in concentrate produced in 2009, compared to 2,421 ounces in 2008.
  • 89,227 ounces of silver in concentrate produced in 2009, compared to 171,888 ounces in 2008.
  • 500 tonnes of lead in concentrate produced in 2009, compared to 1,127 tonnes in 2008.
  • 276,880 tonnes ore mined in 2009, compared to 433,274 tonnes in 2008
  • 320,883 tonnes of ore processed in 2009, compared with 491,848 tonnes in 2008

Overview

Griffin Mining Limited (the “Company”) and its subsidiaries (together the “Group”) recorded a profit before tax for the year of $7,246,000 (2008: $6,959,000). This was a commendable performance in light of the suspension of operations in the first half of 2009 and the dramatic fall in commodity prices in late 2008.

Although the Global Financial Crisis caused a dramatic and sustained fall in commodity prices in 2008/2009, the Company was able to weather these economic conditions to place itself in an enviable position to benefit from an improved economic climate. This was foreseen by suspending operations at Caijiaying in the first half of 2009, when the opportunity cost of a shut-down was relatively low, which allowed for ore block modelling, long term structural maintenance and an operational efficiency review to be completed at Caijiaying. The rewards of this work were felt immediately on resumption of production with increased ore grades, production and revenues, resulting in the Group returning rapidly to profitability in the second half of 2009. The full benefit of this foresight will be felt when production rates are increased in the second half of 2010 with the completion of the plant upgrade.

The maximization of operational productivity failed to be achieved throughout 2009 due to the continuing delay in obtaining a mining permit to mine below the 1300 level at Caijiaying. This restricted mining operations to the upper levels of the mine where the ore lenses are less continuous than below the 1300 level. Such continuity allows for more mechanised mining and higher extraction rates. Accordingly, the permitting delays lessened the immediate need to upgrade the processing plant to a planned throughput capacity of 750,000 tonnes of ore per annum. With the receipt of the new mining licence in January 2010, the Group began immediately with the completion of the plant upgrade including the installation of a second primary ball mill, new crushing circuit, thickener and third tailings storage facility, construction of which should be completed by the autumn 2010.

Group profitability benefited from an increasing zinc price throughout 2009, as quoted on the London Metals Exchange (“LME”), beginning the year at $1,200 per tonne and ending the year at $2,500 per tonne. Whilst historically Griffin has never hedged its zinc production, to protect the Company from any adverse effects of any future fall in the zinc rice, Griffin has purchased put options over a significant portion of its next 12 month zinc production from Caijiaying.

Griffin benefited from interest receipts of $253,000 during 2009 (2008: $4,670,000). Interest receipts have declined from that received in 2008 as a result of reduced interest rates and a reduction in cash balances following the buy-back of shares in the Company from Citadel Equity Fund Ltd in May 2008.

Foreign exchange gains of $1,956,000 were recorded in 2009 (2008: losses of $3,221,000) primarily on sterling deposits held to cover sterling commitments. The gains follow the increase in the value of sterling in the later part of 2009, since reversed in early 2010.

Griffin’s 39.2% share of the losses of Spitfire Oil Limited (“Spitfire”) of $517,000 has been recognised. In the autumn of 2009, testwork and investigations into Spitfires’ proprietary L2VTM process to extract oil and other products from the lignite at Salmon Gums highlighted the need for additional research in refining and finalising the process for commercial production. As a result, active development work was suspended pending the conclusion of a full technical and economic review including all viable options being evaluated for the project including the use of alternative technologies, technical and financial joint venture partners and the sale of the Salmon Gums lignite tenements.

Chairman’s Statement:

Following the unforeseeable catastrophe of the Global Financial Crisis in the final quarter of 2008 and the subsequent collapse in commodity prices, the Company decided to shut down mining operations at Caijiaying, place staff on temporary leave and undertake long term maintenance and extensive geological work whilst the economic opportunity cost of doing so was minimal. Further, a concerted effort was made at this time to ensure the economic performance of the mine was enhanced once production restarted by seeking to cut any extraneous costs. Whilst these measures are not apparent in the 2009 results, which were impacted by the suspension of mining, costs have been declining per tonne of metal produced since the restart of operations.

Operations recommenced after a five month shutdown in the first week of June 2009. This led to an immediate return to profitability with profit before tax in the secondhalf of 2009 being $8.6 million compared to a loss of $6.1 million in the second half of 2008.

There were a number of momentous developments for the Company in 2009/2010. The first was the receipt of the new mining licence to mine below the 1300 level. This immediately enabled larger and higher grade ore lodes to be accessed via more extensive mechanised mining which led to increased extraction rates. The new licence also justified the decision to complete the processing plant upgrade, including the installation of a new primary ball mill, a new crushing circuit, the construction of a very large third tailings dam and all ancillary equipment, to allow a minimum throughput capacity of 750,000 tonnes per annum. This upgrade is scheduled to be completed by the 10th of August 2010. The economic benefits which should flow should be substantial. Needless to say, the Company decided not to declare a dividend for the 2009 year to enable the retention of funds in China to finance this plant upgrade and expansion of operations.

Secondly, the publication of the new JORC reported Mineral Resource for Zone III at Caijiaying, confirmed the very extensive mine life available at Zone III at the higher production levels expected to be obtained in the late summer of 2010. This does not even take into account the ore believed to be contained at the lower levels of Zone III, the known ore at Zone II and the significant resources believed to be housed in the area between Zones II and III.

Of course, mining continues to be a fixed cost business whose profitability continues to be governed by the swings inherent in commodity prices. Although the zinc price has been stable since the recommencement of operations, serious concerns still exist in the global economy with huge public debt levels, rising interest rates, a liquidity and associated housing bubble in China and world zinc supply outstripping demand. To lessen the impact to the Company’s financial health should some economic shock reoccur and zinc prices deteriorate as in 2008/2009, in 2010 the Company purchased put options over the next year’s production at a very modest cost. This was considered to be a prudent course of action whilst not in any way limiting the upside potential to the Company should the zinc price continue to rise.

As has come to be expected, the Company continues to aggressively investigate, evaluate and negotiate a myriad of mining companies and projects to find the next long life, profitable mine for its shareholders. The task continues to be a difficult one with many poor quality assets and companies available, but few projects uncovered of the standard which the shareholders of the Company have come to deserve and expect. The Company will continue to undertake this task energetically in 2010.

With respect to the Company’s investment in Spitfire Oil Limited (“Spitfire”), enough progress has been made to recognise the need to bring in a strategic partner capable of providing, primarily, the technical expertise needed to progress the development of the process for the commercial production of oil from the Salmon Gums lignite deposit. In the interim, overhead costs have been minimised and all efforts have been placed on the strategic path needed to make Spitfire a commercial success.

Dividend

In view of the suspension of operations at Caijiaying in the first half of 2009 and requirement to finance the expansion of operations at Caijiaying, a dividend is not being paid.

Griffin Mining Limited Summarised Consolidated Income Statement For the year ended 31 December 2009 (expressed in thousands US dollars)

  2009 2008
  $000 $000
Revenue 25,368 32,061
Cost of sales (11,909) (18,438)
Gross profit 13,459 13,623
Net operating expenses (7,940) (10,517)
Profit from operations 5,519 3,106
Share of losses of associated company (517) (39)
Foreign exchange gains / (losses) 1,956 (3,221)
Finance income 253 4,670
Other income 35 2,533
Interest payable (90)
Profit before tax 7,246 6,959
Income tax expense (1,013) (637)
Profit after tax 6,233 6,322
Attributable to minority interests 2,621
Attributable to equity share owners of the parent 3,612 6,322
  6,233 6,322
Basic earnings per share (cents) 1.99 2.87
Diluted earnings per share (cents) 1.97 2.83

Griffin Mining Limited
Summarised Consolidated Statement of Comprehensive Income
For the year ended 31 December 2009
(expressed in thousands US dollars)

  2009 2008
  $000 $000
Profit for the year 6,233 6,322
Other comprehensive income    
Exchange differences on translating foreign operations 87 4,090
Other comprehensive income for the period, net of tax 87 4,090
Total comprehensive income for the year 6,320 10,412
Attributable to minority interests 2,616
Attributable to equity owners of the parent 3,704 10,412
  6,320 10,412

Griffin Mining Limited
Summarised Consolidated Statement of Financial Position
As at 31 December 2009
(expressed in thousands US dollars)

  2009 2008
  $000 $000
ASSETS    
Non-current assets    
Property, plant and equipment 63,214 56,885
Intangible assets – Exploration interests 1,422 1,313
Investment in associated company 3,986 4,503
  68,622 62,701
Current assets    
Inventories 2,780 3,227
Other current assets 5,279 5,564
Cash and cash equivalents 67,630 67,193
  75,689 75,984
Total assets 144,311 138,685
EQUITY AND LIABILITIES    
Equity attributable to equity holders of the parent    
Share capital 1,817 1,816
Share premium 75,984 75,950
Contributing surplus 3,690 3,690
Share based payments 4,790 5,826
Other reserves 759 711
Foreign exchange reserve 7,234 7,142
Profit and loss reserve 40,440 35,345
Total equity attributable to equity of the parent 134,714 130,480
Minority interests 2,616
Total equity 137,330 130,480
Non-current liabilities    
Long-term provisions 743 98
Current liabilities    
Taxation payable 1,572
Trade and other payables 4,666 8,107
Total liabilities 6,238 8,107
Total equities and liabilities 144,311 138,685
Number of shares in issue 181,688,497 181,589,731
Attributable net asset value / total equity per share $0.74 $0.72

Griffin Mining Limited
Summarised Consolidated Statement of Changes in Equity.
For the year ended 31 December 2009
(expressed in thousands US dollars)

  Share Capital Share Premium Contributing surplus Share based payments Other reserves Foreign Exchange Reserve Profit and loss reserve Total attributable to equity holders of parent Minority Interests Total Equity
  $000 $000 $000 $000 $000 $000 $000 $000 $000 $000
At 31 December 2007 2,615 196,637 3,690 4,426 579 3,109 37,106 248,162 248,162
Regulatory transfer for future investment 75 (75)
Dividend paid (8,008) (8,008) (8,008)
Purchase of shares for cancellation (799) (120,687) (121,486) (121,486)
Cost of share based payments 1,400 1,400 1,400
Transaction with owners (799) (120,687) 1,400 75 (8,083) (128,094) (128,094)
Retained profit for the year 6,322 6,322 6,322
Other comprehensive income:                    
Exchange differences on translating foreign operations 57 4,033 4,090 4,090
Total comprehensive income for the year 57 4,033 6,322 10,412 10,412
At 31 December 2008 1,816 75,950 3,690 5,826 711 7,142 35,345 130,480 130,480
Regulatory transfer for future investment 48 (48)
Dividend paid
Issue of share capital 1 41 42 42
Purchase of shares for cancellation (7) (7) (7)
Cost of share based payments 495 495 495
Transfer (1,531) 1,531
Transaction with owners 1 34 (1,036) 48 1,483 530 530
Retained profit for the year 3,612 3,612 2,621 6,233
Other comprehensive income:                    
Exchange differences on translating foreign operations 92 92 (5) 87
Total comprehensive income for the year 92 3,612 3,704 2,616 6,320
At 31 December 2009 1,817 75,984 3,690 4,790 759 7,234 40,440 134,714 2,616 137,330

Griffin Mining Limited
Summarised Cash Flow Statement
For the year ended 31 December 2009
(expressed in thousands US dollars)

  2009 2008
  $000 $000
Net cash flows from operating activities    
Profit before taxation 7,246 6,959
Share of associated company losses 517 39
Foreign exchange (gains) / losses (1,956) 3,221
Finance income (253) (4,670)
Adjustment in respect of share based payments 495 1,400
Depreciation, depletion and amortisation 1,533 2,844
Provisions 98
Decrease in inventories 446 1,412
Decrease / (increase) in other current assets 285 (1,101)
(Decrease) / increase in trade and other payables (2,882) 3,059
Net cash inflow from operating activities 5,431 13,261
Taxation paid (637)
Cash flows from investing activities    
Interest received 253 4,670
Payments to acquire intangible fixed assets – exploration interests (105) (388)
Payments to acquire tangible fixed assets – mineral interests (5,944) (9,393)
Payments to acquire tangible fixed assets – plant and equipment (1,298) (1,681)
Payments to acquire interest in associated company (4,542)
Net cash (outflow) from investing activities (7,094) (11,334)
Cash flows from financing activities    
Issue of ordinary share capital 42
Purchase of shares for cancellation (7) (121,486)
  35 (121,486)
Dividends paid (8,008)
(Decrease) in cash and cash equivalents (1,628) (128,204)
Cash and cash equivalents at the beginning of the year 67,193 199,283
Effects of exchange rates 2,065 (3,886)
Cash and cash equivalents at the end of the year 67,630 67,193
Cash and cash equivalents comprise bank deposits.    
Bank deposits 67,630 67,193
Short term bank overdrafts
Total 67,630 67,193

Included within net cash flows of $1,628,000 (2008 $128,204,000) are foreign exchange gains of $1,956,000 (2008 losses $3,221,000) 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 2009 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 2009 statutory financial statements upon which the auditors’ opinion is unqualified. The results for the year ended 31 December 2008 have been extracted from the statutory accounts for that period, which contain an unqualified auditors’ report.
  3. The annual report and accounts for 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:

  2009 2008
  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 3,612 181,560,512 2.87 6,322 220,587,242 2.87
Dilutive effect of securities
Options   1,906,603     3,090,342  
Diluted earnings per share 3,612 183,467,115 2.83 6,322 223,677,584 2.83