REG-Anglesey Mining PLC: Half-yearly Report <Origin Href="QuoteRef">AYM.L</Origin>
26/11/2014 07:11
Half yearly report for the six months to 30 September 2014
Chairman's Statement and Management Report
The half year to end of September 2014 has been a difficult period for the
resource industry and for the company. Labrador Iron Mines ("LIM") did not mine
any ore in the half year and reported a very large non-cash impairment in the
carrying value of its assets. LIM has indicated that it is seeking to complete
a financial restructuring under a plan of arrangement. The share price of LIM
continued to fall during the period and this is reflected in these accounts as
a non-cash diminution in value on the balance sheet and as a loss on the income
statement.
On a positive note the company entered into an arrangement in late May whereby
it took an effective working control in the Swedish company Grangesberg Iron AB
("GIAB") which is working towards the development of an underground iron ore
mine in central Sweden based around previous mining operations. Since taking
over management an Indicated and Inferred resource estimate compliant with the
Canadian requirements of NI 43-101 has been produced by GIAB. Further
development work continues.
At Parys Mountain in North Wales physical activities on site have been fairly
limited but progress is being made in planning for a potential mine development
programme supported by the expected strength of the zinc concentrate market.
The company reported an unaudited loss of £879,000 for the half year of which £
693,000 related to the reduction in value of LIM. Direct operating expenses at
£152,000 were almost 25% lower than for the same period in the previous year.
There is undoubtedly stress in the resources industry at present with prices
for precious metals and bulk minerals in particular suffering badly. This is
having a negative impact on investor sentiment towards the sector in general
which is reflected in the capital and equity markets with almost every share
price, Anglesey being no exception, being badly eroded. However the markets for
base metals, zinc in particular, have stood up fairly well during this
difficult time and we have reasonable expectations in the short to medium term
that this strength will continue. We look for a longer term recovery in the
price of iron ore.
Labrador Iron
Since January 2014 the spot price of iron ore has fallen over 45% to around
US$70 per tonne today, compared to an average price of US$135 per tonne in 2013
(62% Fe fines on a CFR China basis).
LIM did not recommence mining operations for the 2014 operating season due to
the prevailing low price of iron ore and an assessment of the current economics
of its iron ore projects. There was a strategic shift in corporate focus
towards establishing a lower cost operating framework while concurrently
re-negotiating the commercial terms of major contracts and seeking additional
capital investment and working capital. LIM continues to focus on the
development of the Houston Mine.
At period end LIM had a very significant working capital deficit and had not
met certain financial obligations. It urgently needs to secure additional
financing arrangements in order to fund or restructure its current working
capital deficit and to fund its continuing operations, planned development
programmes and corporate administration costs so as to continue as a going
concern. A financial restructuring and refinancing is required.
LIM is currently seeking to negotiate a potential support arrangement with RBRG
Gerald Metals, an existing creditor and off-take partner, that, if successfully
entered into, is expected to provide working capital financing to fund LIM's
ongoing activities, to provide potential future project development financing
and to enable LIM to continue as a going concern.
If LIM is unable to complete a potential financial restructuring and to obtain
adequate additional financing on a timely basis, which may require commercial
relief on certain major contracts, then it will be required to curtail all its
operations and development activities and may be required to liquidate its
assets under a formal process. Under such circumstances Anglesey's investment
in LIM would likely be further impaired.
Grangesberg Iron
In late May 2014 Anglesey entered into agreements giving it the right to
acquire a controlling interest in the Grangesberg iron ore mine situated in the
mineral-rich Bergslagen district of central Sweden about 200 kilometres
north-west of Stockholm. Until its closure in 1989 due to prevailing market
conditions Grangesberg had mined in excess of 150 million tonnes of iron ore.
In a series of agreements Anglesey purchased for US$145,000 a direct 6%
interest in GIAB, a private Swedish company founded in 2007 which, using our
investment and assistance, had recently completed a financial and capital
restructuring. GIAB holds a 25 year exploitation permit covering the previously
mined Grangesberg underground mining operations granted by the Swedish Mining
Inspectorate in May 2013.
At the same time we negotiated a 12 month option to acquire 51% of the enlarged
share capital of GIAB for the issue of new ordinary shares of Anglesey to the
value of US$1.75 million priced at a minimum of 3.375 pence per share. We also
entered into shareholder and cooperation agreements such that during the term
of the option Anglesey holds management control and operatorship of GIAB and
has appointed three out of five directors to the board of GIAB.
In late September an NI 43-101Technical Report was prepared by Roscoe Postle
Associates Inc ("RPA") showing a compliant resource estimate for the
Grangesberg Mine of 115.2 million tonnes at 40.2% Fe in the indicated category
and 33.1 million tonnes at 45.2% Fe in the inferred category. RPA concluded
that the Grängesberg iron ore deposit hosts a significant iron resource that
has excellent potential for expansion at depth.
A programme is currently being progressed to look closely at geo-mechanical and
hydro-geological aspects of the site which will be critical components of the
permitting regime required for the dewatering and reopening of the mine.
In the coming months, under Anglesey's direction GIAB will complete a review
and update of its previous pre-feasibility study on the project incorporating
inputs from the compliant resource estimate and from the geo-technical
investigations and this will be a key determinant in our decision to exercise
the option on the GIAB majority share block.
Parys Mountain
We are continuing to review development options at the 100% owned Parys
Mountain zinc-copper-lead deposit in North Wales, UK where a JORC
Code-compliant resource of 2.1mt at 6.9% combined base metals in the indicated
category and 4.1mt at 5.0% combined in the inferred category was published in
November 2012. A detailed review of the resource base for the entire mine
property has been prepared by Micon International and these results are being
evaluated.
The company is of the view that the market for zinc and zinc concentrates will
further strengthen particularly in Europe in the next two years and on that
basis believes that it is now an appropriate time to seriously consider the
commencement of production at Parys Mountain. We are actively looking at
suitable second hand processing facilities that can be readily and simply
incorporated into an on-site plant at Parys Mountain.
The directors acknowledge that financing Parys Mountain at this time of
depressed investor interest in the resources sector will not be simple. We
believe that the strength of the resource base coupled with the project's UK
location with its inherent political and financial stability and with the
widely held expectation of a resurgence in interest in zinc could enable a
financing package to be put together.
Financial Results
There was a net loss for the period of £0.88 million (2013 loss £3.21 million);
approximately £0.69 million of this 2014 loss was in respect of the diminution
in the value of the investment in LIM resulting from a fall in the share price
of that company. Administration expenses at £0.15 million were significantly
lower than the comparative period in 2013. The group had no revenue for the
period. At the period end cash resources had been reduced due to activities
related to the GIAB acquisition and stood at £31,000. Additional funds will
need to be raised in the immediate future. However GIAB is well funded to carry
out its planned programmes.
Outlook
The prospects for the iron ore price in the short term are not encouraging with
a continuing surplus of supply over demand resulting from the recent completion
of large expansion projects by the major producers in Australia and Brazil.
This is likely to keep prices pegged at low levels at least until the spring of
2015. The future of LIM and the maintenance of the value of our investment in
that company will be dependent upon some resurgence in the iron ore price.
In the longer term we believe that the iron ore price will recover once the
current expansion in production is absorbed by continuing growth in China,
India and other developing countries and by production cutbacks from current
producers, which should bring the supply-demand situation back to a balance
position by around 2017. It can be expected that the iron ore price should
have recovered significantly by that time, and would then benefit GIAB which
could be in a position to recommence initial production by around 2018.
We feel that the outlook for base metals and particularly for zinc, the major
source of initial revenue from Parys Mountain, will improve. There are a number
of major zinc mines scheduled for closure and this should lead to a shortage of
zinc concentrate for smelters outside China which will move the zinc price
upward. In this scenario smelters and metal traders will be more aggressive in
the search for new concentrate supply and will be prepared to assist with
finance for new production such as from Parys Mountain.
John F Kearney
Chairman
25 November 2014
Unaudited condensed consolidated income statement
Unaudited six Unaudited six
Notes months ended months ended
30 September 30 September
2014 2013
All operations are continuing £ £
Revenue - -
Expenses (152,230) (196,480)
Impairment of investment 10 (692,702) (2,440,187)
Exchange difference on
investment impairment 10 20,850 (527,771)
Investment income 1,044 14,267
Finance costs (56,200) (57,149)
Foreign exchange gain/(loss) 330 (1,566)
Loss before tax (878,908) (3,208,886)
Tax 8 - -
Loss for the period (878,908) (3,208,886)
Loss per share
Basic - pence per share (0.5)p (2.0)p
Diluted - pence per share (0.5)p (2.0)p
Unaudited condensed consolidated statement of comprehensive income
Loss for the period (878,908) (3,208,886)
Other comprehensive income:
None
Total comprehensive loss (878,908) (3,208,886)
for the year
All attributable to equity holders of the company
Unaudited condensed consolidated statement of financial position
Unaudited 30
Notes September Audited 31
2014 March 2014
£ £
Assets
Non-current assets
Mineral property exploration and evaluation 9 14,854,707 14,802,048
Property, plant and equipment 204,687 204,687
Investments 10 803,092 1,257,985
Deposit 122,806 122,596
15,985,292 16,387,316
Current assets
Other receivables 20,530 17,017
Cash and cash equivalents 31,556 289,097
52,086 306,114
Total assets 16,037,378 16,693,430
Liabilities
Current liabilities
Trade and other payables (266,303) (99,647)
(266,303) (99,647)
Net current (liabilities)/assets (214,217) 206,467
Non-current liabilities
Loan (2,475,073) (2,418,873)
Long term provision (42,000) (42,000)
(2,517,073) (2,460,873)
Total liabilities (2,783,376) (2,560,520)
Net assets 13,254,002 14,132,910
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