• Monday 28th May 2012

Preliminary Results – Record 256% increase in 2011 profit to $39.95 million & record zinc, gold, silver and lead produced

Preliminary Results – Record 256% increase in 2011 profit to $39.95 million & record zinc, gold, silver and lead produced

Griffin Mining Limited has today published its preliminary results for the year ended 31 December 2011.

Highlights

  • Record revenues of $79.06 million (2010: $41.05 million) and profits before tax and minority interests of $39.95 million (2010: $11.24 million).
  • Record 715,955 tonnes of ore processed compared to 420,928 tonnes in 2010, a 70% increase.
  • Record metal in concentrate production of 36,283 tonnes of zinc; 10,281 ounces gold; 312,509 ounces silver; and 1,909 tonnes lead.

Overview

Griffin Mining Limited (“Griffin” or the “Company”) and its subsidiaries (together the “Group”) achieved record results in 2011 with record production and record profit before tax of $39,953,000 (2010: $11,236,000). The record results follow the completion of processing plant upgrades, increased mining rates with uninterrupted production throughout the year.

Revenues increased to a record $79,062,000 (2010 $41,050,000) with record metal in concentrate sales resulting in increased profits from operations of $36,832,000 in 2011 from $13,143,000 in 2010. In summary:

  • Record 695,848 tonnes of ore were mined, compared to 389,496 tonnes in 2010, a 79% increase;
  • Record 715,955 tonnes of ore were processed, compared to 420,928 tonnes in 2010, a 70% increase;
  • Record 36,283 tonnes of zinc metal in concentrate were produced, compared to 22,044 tonnes in 2010, a 65% increase;
  • Record 10,281 ounces of gold in concentrate were produced, compared to 7,067 ounces in 2010, a 45% increase;
  • Record 312,509 ounces of silver in concentrate were produced, compared to 157,679 ounces in 2010, a 98% increase; and
  • Record 1,909 tonnes of lead in concentrate were produced, compared to 690 tonnes in 2010, a 177% increase.

Despite market prices for zinc metal in 2011 remaining generally unchanged from 2010, the average price per tonne of zinc metal in concentrate received increased to $1,546 in 2011 from $1,409 in 2010, indicating increased demand for zinc concentrate within China. The average price received for all other metals in concentrate sold in 2011 also improved over that achieved in 2010 with the average price received for gold being $1,438 per oz (2010 – $1,027), silver $26 per oz (2010 – $13.50) and lead $2,054 per tonne (2010 – $1,741).

Costs of sales increased in 2011 to $31,918,000 from $16,780,000 in 2010 due to increased production and mining and haulage costs increasing as lower mine levels were accessed. With the commissioning of the upgraded processing facilities, processing costs per tonne fell during 2011 as economies of scale begin to be felt with increased production.

Group operating costs, including mine site administration costs, fell in 2011 to $10,312,000 from $11,127,000 in 2010.

With cash balances averaged some $79 million in 2011 the Group benefited from interest receipts on those funds of $616,000 in 2011 (2010 – $350,000).

Foreign exchange gains of $2,588,000 were recorded in 2011 (2010 – $38,000). These gains arose on Renminbi accounts and sterling bank deposits. The Group is now permitted to hold Renminbi funds in Group bank accounts in Hong Kong.

Griffin’s 39.2% share of the losses of Spitfire Oil Limited (“Spitfire”) in 2011 was $118,000 (2010 – $109,000).

The increasing upward trend in metal prices led to no metal put options being purchased in 2011. The residual value of zinc put options purchased in 2010 of $14,000 was written off in 2011 (2010 – $2,224,000).

Income taxes in 2011 were $12,256,000 (2010 – $2,376,000). This increase reflects larger profits and an increase in PRC income tax from 12.5% to 25% due to the end of the pre-construction tax concessions enjoyed by Hebei Hua Ao Mining Company Limited (“Hebei Hua Ao”) and the PRC withholding tax of 10% on dividends paid overseas.

The minority party’s share of Hebei Hua Ao’s profit of $11,882,000 (2010 – $6,116,000) resulted in an attributable profit to Griffin of $15,815,000 (2010 – $2,744,00).

The Company’s basic earnings per share improved to 8.96 cents per share from 1.51 cents per share in 2010 with diluted earnings per share of 8.76 cents per share in 2011 (2010 – 1.49 cents per share).

During 2011, 5,040,000 (2010 – 1,580,000) ordinary shares were bought back on market for cancellation at a cost of $4,977,000 (2010 – $1,146,000) thereby reducing the number of Griffin shares in issue to 175,501,830.

Net cash inflow in 2011 increased to $23,433,000 (2010 outflow of $370,000) despite the share buyback programme, due to increased profits and lower capital expenditure.

Attributable net assets increased to 87 cents per share as at 31 December 2011 (2010 – 78 cents per share).

Chairman’s Statement

What began as a remarkable journey in 1997 has now culminated in the Company’s 88.8% ownership of a world class, extraordinarily long mine life, operating mine and a mineral province whose potential has only just begun to be tapped.

In the past year, the Company has striven to deliver on its promised potential. Financially, Griffin achieved a record profit before tax of $39,953,000, a 256% increase from the $11,236,000 result recorded in 2010.

Operationally, a record 715,955 tonnes of ore were processed compared to 420,928 tonnes in 2010, a 70% increase. A record 36,283 tonnes of zinc metal in concentrate were produced, compared to 22,044 tonnes in 2010, a 65% increase; a record 10,281 ounces of gold in concentrate were produced, compared to 7,067 ounces in 2010, a 45% increase; a record 312,509 ounces of silver in concentrate were produced, compared to 157,679 ounces in 2010, a 98% increase; and a record 1,909 tonnes of lead in concentrate were produced, compared to 690 tonnes in 2010, a 177% increase.

Geologically, the announcement of the new JORC Resource for Zones II and III at Caijiaying displayed the true potential of the orebody with a 32% increase in the Mineral Resource from 38.6 to 51.2 million tonnes, representing a 50 plus year mine life at an increased throughput rate. Not only was the Mineral Resource increased in Zone III, even with the mine depletion, by 8% from 29.1 to 31.5 million tonnes, but the Mineral Resource at Zone II was increased by 107% from 9.4 to 19.6 million tonnes. This is highly significant in that it will provide a second source of ore for the mill to service a planned increase in throughput in the near future. Further drilling results since the calculation of the new JORC Resource have only increased the likelihood of even further resource upgrades in the future.

Of course, the major achievement of 2011 was the announcement on the 10th May 2012 that the Company had entered into an agreement to increase its majority in Hebei Hua Ao Mining Industry Company Limited (“Hebei Hua Ao”) to 88.8% and extend the term of the Hebei Hua Ao joint venture through to 2037 (“the Transaction”). The enormity of this Transaction should not be lost. Firstly it allows for full management control to now rest with Griffin staff with the “government” layers of management abolished. Secondly, it allows planning with confidence to now proceed to apply for, and obtain, a mining licence at Zone II and to plan for an upgrade to the processing facilities and the necessary below ground development to increase throughput at Caijiaying up to 1.5 million tonnes per annum. All this with the security of knowing the Company will be at Caijiaying at least until 2037 and reaping the vast majority of the profits emanating from the Caijiaying mine.

Corporately, the Company continues to examine a vast array of possible corporate and asset acquisitions to see if they can meet the stringent financial, operating and political criteria demanded by the Company. In addition, the Company continues to evaluate and discuss the listing of Griffin on the Hong Kong Stock Exchange with a significant number of investment banks in Hong Kong.

As I have mentioned far too many times, all mining companies are subject to the vagaries of commodity prices. In normal circumstances, these prices are substantially governed by supply and demand equations and, to a lesser extent, commodity traders. Unfortunately, since the Global Financial Crisis in 2008 and the fiscal irresponsibility of investment banks, commercial banks and all levels of government, economic growth, so often driven by debt, has faltered. Whilst China and the emerging markets continue to grow and demand raw materials, the outlook looks rosy, particularly for the supply deficit predicted in the zinc market in the next 2 years. However, uncertainty remains with the mountain of debt in the public sector, the undercapitalized banking sector and the contracting economies of the European Union and the inevitable consequences for world trade, growth and commodities demand. We can only sit and wait to see what will be the outcome of this fiasco.

Dividend

The directors do not recommend payment of a dividend at this time in view of the use of the Company’s financial resources to acquire a further 28.8% interest in Hebei Hua Ao Mining Industry Company Limited and an extension of the term of this Joint Venture.

Griffin Mining Limited
Summarised Consolidated Income Statement
For the year ended 31 December 2011
(expressed in thousands US dollars)

  2011   2010
    $000   $000
       
Revenue   79,062   41,050
       
Cost of sales   (31,918)   (16,780)
       
       
Gross profit   47,144   24,270
       
Net operating expenses   (10,312)   (11,127)
       
       
Profit from operations   36,832   13,143
       
Share of losses of associated company   (118)   (109)
Foreign exchange gains   2,588   38
Finance income   616   350
Finance losses   (14)   (2,224)
Other income   49   38
       
       
Profit before tax   39,953   11,236
       
Income tax expense   (12,256)   (2,376)
       
       
Profit after tax   27,697   8,860
       
Attributable to non-controlling interests   11,882   6,116
       
Attributable to equity share owners for the parent   15,815   2,744
       
 
    27,697   8,860
       
Basic earnings per share (cents)   8.96   1.51
       
Diluted earnings per share (cents)   8.76   1.49

 

Griffin Mining Limited

Summarised Consolidated Statement of Comprehensive Income
For the year ended 31 December 2011
(expressed in thousands US dollars)

    2011   2010
    $000   $000
       
Profit for the year   27,697   8,860
       
Other comprehensive income      
       
Exchange differences on translating foreign operations   2,417   1,374
 
       
Other comprehensive income for the period, net of tax   2,417   1,374
       
Total comprehensive income for the period   30,114   10,234
       
Attributable to non-controlling interests   12,691   6,218
       
Attributable to equity owners of the parent   17,423   4,016
       
       
    30,114   10,234

Griffin Mining Limited
Summarised Consolidated Statement of Financial Position
As at 31 December 2011
(expressed in thousands US dollars)

  2011   2010
    $000   $000
ASSETS      
Non-current assets      
Property, plant and equipment   85,291   77,745
Intangible assets – Exploration interests   1,573   1,481
Investment in associated company   3,759   3,877
    90,623   83,103
Current assets      
Inventories   4,608   3,136
Other current assets   2,505   3,423
Cash and cash equivalents   91,089   66,450
    98,202   73,009
       
Total assets   188,825   156,112
       
EQUITY AND LIABILITIES      
Equity attributable to equity holders of the parent      
Share capital   1,755   1,804
Share premium   70,061   74,948
Contributing surplus   3,690   3,690
Share based payments   3,030   2,513
Other reserves   1,300   938
Foreign exchange reserve   10,041   8,480
Profit and loss reserve   63,131   47,631
Total equity attributable to equity holders of the parent   153,008   140,004
       
Non-controlling interests   12,523   6,218
       
Non-current liabilities      
Long-term provisions   806   768
       
Current liabilities      
Taxation payable   11,631   1,011
Trade and other payables   10,857   8,111
       
Total current liabilities   22,488   9,122
       
Total equities and liabilities   188,825   156,112
       
Number of shares in issue   175,501,830   180,408,496
       
Attributable net asset value / total equity per share   $0.87   $0.78

Griffin Mining Limited
Summarised Consolidated Statement of Changes in Equity
For the year ended 31 December 2011
(expressed in thousands US dollars)

  Share Capital Share Premium Contri-buting Surplus Share Based Payment Other Reserves 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
                     
At 31 December 2009 1,817 75,984 3,690 4,790 759 7,234 40,440 134,714 2,616 137,330
                     
Regulatory transfer for future investment 153 (153)
Issue of share capital 3 94 97 97
Purchase of shares for cancellation (16) (1,130) (1,146) (1,146)
Cost of share based payments 2,323 2,323 2,323
Transfers in respect of share based payments (4,600) 4,600
Transfers in respect of distributions (2,616) (2,616)
Transaction with owners (13) (1,036) (2,277) 153 4,447 1,274 (2,616) (1,342)
                     
Profit for the year 2,744 2,744 6,116 8,860
Other comprehensive income:                    
Exchange differences on translating foreign operations  

26

1,246 1,272  

102

1,374
Total comprehensive income for the year 26 1,246 2,744 4,016 6,218 10,234
                     
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
Transfers in respect of distributions (6,386) (6,386)
Transaction with owners (49) (4,887) 517 315 (315) (4,419) (6,386) (10,805)
                     
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

Griffin Mining Limited
Summarised Cash Flow Statement
For the year ended 31 December 2011
(expressed in thousands US dollars)

    2011   2010
    $000   $000
       
Net cash flows from operating activities      
Profit before taxation   39,953   11,236
Share of associated company losses   118   109
Foreign exchange (gains)   (2,588)   (38)
Finance (income)   (616)   (350)
Finance losses   14   2,224
Adjustment in respect of share based payments   517   2,323
Depreciation, depletion and amortisation   5,900   2,151
(Increase) / decrease in inventories   (1,472)   (356)
(Increase) / decrease in other current assets   (1,226)   (747)
Increase / (decrease) in trade and other payables   2,746   3,445
       
Net cash inflow from operating activities   43,346   19,997
       
Taxation paid   (1,637)   (2,936)
       
Cash flows from investing activities      
Interest received   616   350
Payments to acquire intangible assets – exploration interests   (19)   (10)
Payments to acquire tangible assets – mineral interests   (6,073)   (10,162)
Payments to acquire tangible assets – plant and equipment   (3,605)   (4,285)
Payments to acquire tangible assets – office equipment   (2)   (36)
Payments to acquire put options     (2,239)
Net cash (outflow) from investing activities   (9,083)   (16,382)
       
Cash flows from financing activities      
Issue of ordinary share capital   41   97
Purchase of shares for cancellation   (4,977)   (1,146)
Dividends paid to non controlling interests   (4,257)  
Net cash (outflow) from financing activities   (9,193)   (1,049)
       
Increase / (decrease) in cash and cash equivalents   23,433   (370)
       
Cash and cash equivalents at the beginning of the year   66,450   67,630
Effects of exchange rates   1,206   (810)
Cash and cash equivalents at the end of the year   91,089   66,450
       
Cash and cash equivalents comprise bank deposits.      
Bank deposits   91,089   66,450

Included within net cash flows of $23,423,000 (2010 $370,000) are foreign exchange gains of $2,588,000 (2010 $38,000) 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 2011 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 2011 statutory financial statements upon which the auditors’ opinion is unqualified. The results for the year ended 31 December 2010 have been extracted from the statutory accounts for that period, which contain an unqualified auditors’ report.
  3. The annual report and accounts for 2011 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:
  2011       2010    
  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 15,815 176,499,620 8.96    

2,744

   

181,579,409

   

1.51

Dilutive effect of securities            
Options 3,981,592       2,648,124  
Diluted earnings per share 15,815 180,481,212 8.76    

2,744

   

184,227,533

   

1.49