• Thursday 11th April 2013

Preliminary Results – Profit before tax and interest of $31.2 million – Record zinc, silver & lead produced

Preliminary Results – Profit before tax and interest of $31.2 million – Record zinc, silver & lead produced

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