RNS Number:8249N
Avocet Mining PLC
23 July 2003
AVOCET MINING PLC
PRELIMINARY AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2003
HIGHLIGHTS
* Pre-tax profit before exceptional items up 150 per cent
* Gold production up 25 per cent to 134,580 ounces
* Record gold production (108,905 ounces) at Penjom in Malaysia
* Acquisition of 49 per cent interest and control of Tajikistan gold
mine
* Completion of bankable feasibility study at North Lanut in Indonesia
* Divestment of tungsten business undertaken
Year to Year to Year to Year to
31 March 31 March 31 March 31 March
2000 2001 2002 2003
#'000 #'000 #'000 #'000
Turnover 22,341 24,770 25,465 31,377
Operating cash flow 4,718 3,339 3,989 6,383
Gross profit 2,778 2,610 2,798 4,387
Pre-tax profit before exceptional items 802 195 941 2,357
Profit/(loss) after tax and minority interests (452) 26 (10,927) 1,394
Basic earnings/(loss) per share (0.6p) 0.04p (16.63p) 1.96p
Gold produced (ozs) 89,830 99,750 107,340 134,580
Total cash cost (US$/oz) 188 225 225 219
AVOCET MINING PLC
CHAIRMAN'S STATEMENT
The year ended 31 March 2003 has seen a rapid transformation of the Company's
fortunes.
The main achievements during the year, and since the year-end, have been:
* Record profits reflecting a firmer gold price, gold production at record
levels and decreasing costs at Penjom in Malaysia.
* Acquisition of 49 per cent and management control of the Zeravshan Gold
Company in Tajikistan.
* Completion of a bankable feasibility study at the North Lanut gold project
in Indonesia.
* Divestment of a majority stake in the tungsten assets.
In addition to the above developments, our move from the Official List to AIM in
July 2002 has supported our corporate objectives and the achievement of our
targeted gold production of 300,000 ounces by 2006.
The profit for the year would have been greater if we had not been delayed in
the divestment of our loss making tungsten assets by regulatory hurdles in
Canada. With the announcement, since the year-end, of the sale of the Group's
remaining tungsten assets to Primary Metals Inc. and the subsequent dilution of
Avocet's interest in Primary Metals to below 50 per cent, we are now in a
position which will reflect the true value of our gold assets.
Financial Results
Turnover increased by 23 per cent to #31.4 million reflecting, in part, the
addition of five months of gold sales from the Zeravshan Gold Company (ZGC).
Gold sales increased by 22 per cent to a record 130,120 ounces, together with a
12 per cent increase in the average price per ounce received of US$327/oz. The
Group sold all its gold into the spot market during the year.
Gross profit increased by 57 per cent to #4.4 million, even after the tungsten
business's loss of #704,000 (2002: #55,000 loss before impairment provision)
attributable to the tungsten operations. The cost of gold sold decreased at
Penjom in Malaysia by 12 per cent due to lower production costs and an
increasing mining resource extending the life-of-mine rate of depreciation. The
total cost of gold sold was US$239/oz, including sales from ZGC which has a
higher cost base than Penjom. The total cost of gold sold at Penjom for the year
was US$220/oz.
Operating profit increased by 77 per cent to #2.8 million, excluding the
provision for Beralt in the previous year. Overhead costs increased by #0.3
million during the year with the expansion of head office personnel in order to
allow for the increased needs of the Group's expansion into both Indonesia and
Tajikistan.
The Group's pre-tax profit for the year was #2.4 million. This compares with a
loss of #10.9 million for the prior year, or a 150 per cent increase in
underlying profits before exceptional items. The gold operations had an
operating profit of #3.6 million for the year. The Group's profit after
taxation and minority interests was #1.4 million or 1.96p per share (2002: #10.9
million loss or 16.63p per share loss).
Continuing falls in interest rates during the year and a small reduction in net
borrowings reduced the Group's net interest expense by 27 per cent to #0.5
million. Capital expenditure increased from #1.8 million to #2.8 million as the
Group expanded its operations with the acquisition of ZGC in Tajikistan and
completed a feasibility study at North Lanut in Indonesia. Capital expenditure
was reduced at Penjom as the majority of projects in the plant, designed to
optimise recoveries and throughput further, were completed successfully during
the year.
The year ending 31 March 2004 will see the Company repay over US$6.0 million of
debt. The movement of this debt to short-term creditors, and the increase in
creditors following the ZGC acquisition, reduced the Group's net current assets
from #5.4 million to #4.3 million. However, cash balances increased from #2.3
million to #3.8 million. The first repayment of US$1.5 million, under the
revised US$11.5 million loan facility with ING Capital, was made before 30 June
2003 as per the terms of the restructured loan agreement.
Group shareholders' funds increased to #10.6 million from #6.1 million of which
#3 million was attributable to the Company's acquisition of ZGC.
The Gold Market
In the last eighteen months, gold prices have experienced a long awaited
revival. This has allowed a number of small mining companies, like ours, to
look to the future with more enthusiasm than has been seen for a number of
years. Gold is now back in favour as the hedge against deflation and is
underpinned by the devaluation of the US Dollar and global uncertainties.
During the year, gold prices rose from a previous year average of US$278/oz to a
level as high as US$382/oz in February 2003, with an average for the year of
US$325/oz. Since the year end the price has continued at average levels higher
than this. The Group sold all its gold into the spot market during the year and
continues to roll its spot deferred hedge position of 80,000 ounces, which is
only 15 per cent of the Group's estimated gold resources. The current average
contracted price of this hedge position is just over US$297/oz.
Penjom
Production at Penjom was once again a record at 108,905 ounces. Ore grades were
higher and recoveries increased to just below 90 per cent. Plant throughput was
slightly reduced as the trend towards harder rock was experienced. However, the
installation of a secondary ball mill late in the year should improve throughput
for the future. With a reducing waste-to-ore strip ratio, unit mining costs
decreased by 15 per cent, reducing total cash operating costs to US$204/oz.
This included total unit cash operating costs of US$197/oz for the year's second
half compared with US$212/oz for the first half.
At the start of the year, the Company hired a new chief geologist, Peter
Flindell, from Newmont Mining Corporation. Under his management, the Company
has conducted a re-evaluation of Penjom's exploration potential. This has led
to a better understanding of Penjom's complex geology and, with the use of
modern exploration techniques not previously applied at Penjom, a number of
targets amenable to surface and underground mining have been identified for an
intensive drilling campaign. Since little exploration drilling was done during
the year, Penjom's ore resources remain much the same as reported this time last
year. Nevertheless, a reinterpretation of the mineral resource by an
independent consultant, and improved economic assumptions, have increased the
resource within the current life of mine open pit limits by 25 per cent to
533,280 ounces. This allows for production during the past year and includes
stockpiles. The current resource now meets the standards established under JORC
(Australasian Code for the Reporting of Mineral Resources and Ore Reserves).
Zeravshan Gold Company
Since the decision to focus on gold, a number of projects have been reviewed.
These have included late stage exploration targets and fully operational mines,
or mines that have been recently mothballed for one reason or another. For some
time we have been looking closely at Central Asia for the huge potential the
area has for gold mining projects and the excellent exploration projects
abandoned by the Russians when the Soviet Union was dismantled in the early
1990s.
In November 2002, we completed the acquisition of a 44 per cent interest and
management control of ZGC, an operating gold mining company that has been
producing between 60,000 and 100,000 ounces of gold per year since 1996. Close
to the year-end we also acquired an additional 5 per cent of ZGC from the
International Finance Corporation (IFC). With both of these purchases, the
Group also acquired 100 per cent of the cashflow from ZGC through the
acquisition of all debts owed by ZGC, totalling US$100 million, now owed to
Avocet Group companies. The main focus of our due diligence prior to the
purchase was on approximately 500,000 ounces of resources located in and around
existing open pits and an underground development. The exploration potential of
ZGC's area of interest (approximately 3,000 sq kms) is vast with in situ gold
resources reported to be over eight million ounces in a number of deposits,
including two developed underground gold mines, Chore and Taror. However, some
of the most significant potential exists in the immediate area of the existing
open pits where we are now identifying new mineralised zones and, therefore,
exploration in the short-term is focusing on extending the current near pit
resources.
During the five months under Avocet's ownership, ZGC produced 25,675 ounces of
gold at a cash operating cost of US284/oz. The integration of the operation and
its management into the Group has progressed rapidly. ZGC employed a number of
technically skilled individuals who have joined the Group in various positions.
These include Johan Oelofse who was the General Manager at ZGC at the time of
the acquisition. Johan is now the Company's Chief Operating Officer and has
recently joined the Board of the Company. We welcome his experience and
expertise to the Group.
North Lanut
During the year the Company completed a pre-feasibility study and has since
completed a bankable feasibility study at its 80 per cent owned North Lanut
project. This is one of a number of potential gold properties on the Contract
of Work (CoW) in North Sulawesi, Indonesia acquired from Newmont Mining
Corporation in January 2002. Results of these studies were positive regarding
the development of a low cost open pit operation utilising dump leaching for the
production of approximately 50,000 ounces of gold per year over a period of at
least five years. Further upside exists in the nearby Effendi deposit.
At a gold price of US$350/oz, and given a capital cost of US$11 million, pre-tax
financial results show an internal rate of return of 45 per cent. The initial
US$400,000 acquisition price, not including a deferred royalty on production
payable to Newmont, added to the fact that there is scope for improvements in
the results of the feasibility study, is indicative of the potential returns the
Company can achieve.
Tungsten
The tungsten market remained depressed for most of the year, with Beralt's
survival dependent on long-term contracts, allowing it to receive prices well
above the market on account of floor price mechanisms built into the contracts.
Production for the year was similar to the previous year. However, production
costs increased by 21 per cent owing largely to a strengthening Euro/US Dollar
exchange rate.
The residual post closure monitoring and maintenance obligations at Bishop in
California were not part of the sale to Primary Metals. There was little
activity during the year and the directors have not changed their opinion that
the funds held in the environmental bond will be sufficient to satisfy any and
all future environmental requirements. The reclamation provision of #1 million
will be left in the accounts as a continued prudent measure.
Outlook
At the time of the interim announcement in November 2002, we reported that the
foundations for our goal of attaining 300,000 ounces of production before 2006
had been established. We are now building on those foundations.
Penjom continues to meet or exceed its targets, both in terms of production and
cash costs. The first quarter production is estimated to be 28,350 ounces, and
the current annual production rate should be maintained. Recoveries are now
close to 90 per cent and a reduction in the stripping of waste should further
reduce cash operating costs. Following the review of exploration in and around
Penjom, the drill rigs are once again turning and we hope to be able to increase
the mine life further this year to beyond the current forecast of just over four
years. A decision has recently been made to proceed underground below the
existing pit floor. This will enable us to explore for and mine high-grade ore
shoots and deeper extensions to the main ore body. We are cautiously optimistic
about the results. A total of US$2.5 million has been budgeted in the Penjom
area and regionally during the year for exploration, including the underground
project. We shall also proceed with grass roots exploration at the recently
acquired Sungai Luit property where we hope to have drill targets by the end of
the year. We are also currently negotiating a number of other property deals in
Malaysia.
The integration of ZGC into the Group will continue, with the aim of using our
resources to help increase production to over 100,000 ounces and decrease costs
to below US$250/oz. We have commenced negotiations with the Tajikistan
Government, owners of 51 per cent of ZGC, with a view to restructuring the
company and increasing our equity. Negotiations are likely to be long and
protracted, but initial responses to our proposals have been positive. In
parallel to a restructuring we are looking at various options open to ZGC that
will allow us to increase production. We have already completed bulk trials on
dump leaching of low-grade ore. The results to date have been encouraging and
the potential to build a full-scale dump leaching operation alongside the
current carbon-in-leach operation is being examined closely. We are increasing
exploration expenditure in Tajikistan with the aim of expanding the mining
resource as quickly as possible, while also examining other exploration targets
in the area, of which there are many. The recent purchase of a new reverse
circulation drill rig will assist this effort. Meanwhile no additional work has
been undertaken to date on the two underground developed deposits, which have a
combined resource of three million ounces of gold equivalent. With a
satisfactory outcome to negotiations with the Tajikistan Government and gold
prices continuing at current levels, it is likely that we can proceed to
re-examine the feasibility of mining these deposits.
The completion of a bankable feasibility study at North Lanut in Indonesia, in
just over one year since the acquisition of the property, shows the Company's
commitment to this project and to Indonesia as a new country that can be part of
the Company's expansion plans. We are now proceeding to obtain all the necessary
permits that are required to construct and operate the mine. A construction and
mine management team is being assembled and the Company has commenced
discussions with various parties on a financial package for the mine's
construction and working capital requirements. A positive outcome to these
issues should allow North Lanut to come into production during 2004.
As you will see in the notice of the Annual General Meeting, one of the
resolutions we are asking shareholders to approve at the AGM is the issue of up
to 100 per cent of the issued share capital of the Company for acquisitions.
Although it is not the directors' intention, if approved, at this time, to
undertake such an acquisition, approval will allow the Company to move
expeditiously should such an opportunity arise. We are also considering our
options with regard to a restructuring of the Company's balance sheet. Although
not possible under existing banking covenants, this could allow us to pay
dividends in future years.
The acquisition of our interest in ZGC and the completion of the feasibility
study in Indonesia have increased the employees of the Company and its
subsidiaries to over 1,800. We have also made some changes in key operational,
administrative and management positions. We now have the technical resources
within the Group to undertake detailed feasibility work and look at further
expansion opportunities. It is these employees who will drive the future of
Avocet and I thank them for their hard work and dedication over the past year
and I extend my best wishes for a successful year ahead.
Nigel McNair Scott
22 July 2003
AVOCET MINING PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MARCH 2003
Note 2003 2002
#000 #000
Turnover
Continuing operations 22,214 21,820
Acquisitions 5,127 -
27,341 21,820
Discontinued operations 4,036 3,645
31,377 25,465
Cost of sales (26,990) (22,667)
Gross profit 4,387 2,798
Provision for impairment of tangible fixed assets - (11,874)
Other administrative expenses (1,539) (1,188)
Total administrative expenses (1,539) (13,062)
Operating profit/(loss)
Continuing operations 3,496 1,665
Acquisitions 56 -
3,552 1,665
Discontinued operations (704) (11,929)
Operating profit/(loss) 2,848 (10,264)
Net interest and similar charges (491) (669)
Profit/(loss) on ordinary activities before taxation 2,357 (10,933)
Tax on profit/(loss) on ordinary activities (1,080) (9)
Profit/(loss) on ordinary activities after taxation 1,277 (10,942)
Equity minority interest 117 15
Profit/(loss) for the financial year retained 1,394 (10,927)
Earnings/(loss) per share 2 1.96p (16.63p)
Diluted earnings per share 2 1.89p -
Earnings per share before non-recurring exceptional item 2 1.96p 1.44p
AVOCET MINING PLC
CONSOLIDATED BALANCE SHEET
AS AT 31 MARCH 2003
2003 2002
#000 #000
Fixed assets
Intangible assets 1,618 811
Tangible assets 13,736 12,337
Investments 280 -
15,634 13,148
Current assets
Stocks 8,880 5,496
Debtors due within one year 1,016 1,002
Debtors due after more than one year 3,571 2,833
Cash at bank and in hand 3,822 2,267
17,289 11,598
Creditors: amounts falling due in less than one
year
(12,958) (6,239)
Net current assets 4,331 5,359
Total assets less current liabilities 19,965 18,507
Creditors: amounts falling due after more than one
year
(4,524) (9,982)
Provisions for liabilities and charges (2,216) (2,591)
13,225 5,934
Capital and reserves
Called up share capital 19,924 16,424
Share premium account 23,600 23,600
Other reserves 11,330 12,590
Profit and loss account (44,296) (46,526)
Equity shareholders' funds 10,558 6,088
Equity minority interests 2,667 (154)
13,225 5,934
AVOCET MINING PLC
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH 2003
2003 2002
#000 #000
Net cash inflow from operating activities 6,383 3,989
Returns on investment and servicing of finance
Interest received 29 81
Interest paid (539) (728)
Net cash outflow from returns on investment
and servicing of finance (510) (647)
Taxation (579) (73)
Capital expenditure and financial investment
Purchase of tangible fixed assets (1,757) (1,699)
Deferred exploration costs (794) (71)
Purchase of investments (280) -
Net cash outflow from capital expenditure
and financial investment (2,831) (1,770)
Acquisitions and disposals
Purchase of subsidiary undertakings (764) (164)
Net cash from purchase of subsidiary undertakings 245 -
Net cash outflow from acquisitions (519) (164)
Financing
Repayments of borrowings (99) (408)
Capital repayments on finance leases (238) (256)
Net cash outflow from financing (337) (664)
Increase in cash 1,607 671
AVOCET MINING PLC
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES AND
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
FOR THE YEAR ENDED 31 MARCH 2003
2003 2002
#000 #000
Statement of total recognised gains and losses
Profit/(loss) for the financial year 1,394 (10,927)
Exchange translation adjustments 836 (139)
Total recognised gains and losses 2,230 (11,066)
Prior year adjustment - (991)
Total recognised gains and losses since the last financial statements 2,230 (12,057)
Reconciliation of movements in Group shareholders' funds
Total recognised gains and losses 2,230 (11,066)
New capital subscribed 3,500 -
Acquisition reserve (1,260) -
Net change in shareholders' funds 4,470 (11,066)
Opening shareholders' funds 6,088 17,154
Closing shareholders' funds 10,558 6,088
AVOCET MINING PLC
Notes to the Financial Statements
1. Financial Reporting Standards and Accounting Policies
The financial information complies with the relevant financial reporting
standards and the accounting policies are applied on a basis consistent with
those applied in the annual financial statements and in the prior year.
2. Earnings/(loss) per ordinary share
The calculation is based on profits of #1,394,000 (2002: #10,927,000 loss) and
on a weighted average number of shares in issue of 71,028,037 (2002:
65,696,530).
The calculation of earnings per share before the non-recurring exceptional item
is based on profits of #1,394,000 (2002: #947,000 profit) and on a weighted
average number of shares in issue of 71,028,037 (2002: 65,696,530).
The fully diluted calculation of earnings per share is based on profits of
#1,394,000 and on 73,748,037 shares.
3. Financial Information
The financial information set out in this preliminary announcement does not
constitute statutory accounts as defined in Section 240 of the Companies Act
1985.
The consolidated balance sheet at 31 March 2003 and the consolidated profit and
loss account, consolidated cash flow statement and other primary statements and
associated notes for the year then ended have been extracted from the Group's
2003 statutory financial statements (which have not yet been filed with
Companies House) upon which the auditors opinion is unqualified, and does not
include any statement under Section 237 of the Companies Act 1985.
__________________________________________________________________________________________________
For further information please contact:
Avocet Mining PLC 4C Communications Ltd
John Catchpole (Chief Executive) Carina Corbett
Jonathan Henry (Finance Director)020 7907 4761
020 7907 9000 020 8949 7171
www.avocet.co.uk
This information is provided by RNS
The company news service from the London Stock Exchange
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