Final Results

Celtic Resources Holdings PLC 23 June 2003 CELTIC ANNOUNCES AGREEMENT TO ACQUIRE BALANCE OF NEZHDANINSKOYE GOLD MINE AND PRE TAX PROFITS OF US$2.32 MILLION FOR 2002 Financial Highlights • Pre tax profit up US$2 million to US$2.32 million • First year of profit after tax and earnings per share of US4.2 cents • Net asset value increased from US$20 million to US$42.2 million Nezhdaninskoye Gold Mine, Russia (50%) • Share swap deal to increase Celtic's ownership of Nezhdaninskoye gold mine to 100% • IG Alrosa, a subsidiary of Russia's Alrosa, the world's second largest diamond producer will become a 23% shareholder of Celtic in return for 50% of the shares in Nezhdaninskoye • Alrosa will offer a project loan of US$20million • Deal expected to close in summer subject to legal documentation, due diligence, government and shareholder approvals Suzdal Gold Mine, Kazakhstan (100%) •Poured 37,176 ounces of gold at total costs of US$169/ounce •Sulphide project started with a combination of open pit and underground mining to produce at 100,000 oz/year rate by late 2004 Zherek Gold Mine, Kazakhstan (75%) •First gold poured June 2003, from 2000 tonne per day open pit and heap leach, five months after construction started at capital cost of US$1.5 million •Expected production this year of 20,000 ounces of gold Please find Chairman's statement and financial results accompanying this highlights page. The company's annual report and accounts will be distributed to shareholders this week and available shortly thereafter on our Web site. For more information please contact: Kevin Foo / Kate Dexter Smith Cindy Dennis Celtic Resources Holdings Plc Capital PR, London Tel: + 44 (0) 20 7593 0001 Tel: + 44 (0) 20 7618 7887 londonoffice@celticresources.com cindy@capitalww.com ---------------------------------- --------------------- Joe Nally / David Newton Williams de Broe Tel: +44 (0)20 7588 7511 Joe.Nally@wdebroe.com ----------------------- www.celticresources.com ------------------------- CHAIRMAN'S STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 Fellow shareholders, In June 2002 I was pleased to accept the appointment as Chairman of the Board of Celtic Resources Holdings when it was decided that it was appropriate to split this function from the position of Managing Director, which Kevin Foo retains. In last year's letter to shareholders we declared our key target and I reaffirm that it remains: "To grow into a profitable, resources based company with an attractive portfolio of producing and developing mines and hydrocarbon properties in Russia and Central Asia". For the year to 31 December 2002, Celtic has reported a pre tax profit in excess of US$2.32 million, which is a very gratifying result. This is the second consecutive year that we have declared a pre tax profit and after tax, our profit was $890,000. I will take this opportunity to review the progress we have made towards achieving our targets and to indicate what our plans are for the future. As you know, we operate in the Former Soviet Union, an area of rapidly growing economic activity that offers unmatched opportunities in the resources industry as is evidenced by major capital commitments from western resources companies. We believe that we are in a very special situation, with over 11 years operating experience in the region and a management team that continues to demonstrate the ability to find, develop and operate successful resource projects at very low cost. This is the driving force of the company and has been responsible for our rapid growth over the last three years. In 2002, we continued to make progress through asset acquisition and building gold production. Kazakhstan Our primary objective in Kazakhstan continues to be to increase gold production to more than 100,000 oz/year by end 2004. The development of the Suzdal sulphide ores and the acquisition of the Zherek gold mine should help to achieve this objective. We will also seek to build our gold reserve base by acquisitions. Suzdal Gold Mine In 2002, Celtic increased its ownership in Suzdal to 100% because we believe in the outstanding potential of this mine. Gold production from the oxide heap leach last year was 37,176 ounces. Ore mined was 232,880 tonnes at 5.7g/t Au and ore agglomerated and stacked was 346,744 tonnes at 4.3g/t Au. Gold was produced at a total cost of $169/oz. The sulphide project has been the focus of an in-house study that detailed plans to increase Suzdal production to 100,000 oz/year by late 2004. Diamond drilling of the ore bodies and assessment of data by Celtic and its consultants has confirmed the Suzdal reserve at some 5.2 million tonnes, averaging 9g/t Au (containing some 1.5 million ounces). Mining will be a combination of open pit and underground. The Suzdal sulphides are classified as refractory and the primary process route will consist of crushing, grinding, flotation and bacterial oxidation. Bacterial oxidation has been used successfully at several mines to liberate gold from sulphide ores and our test work indicates that overall gold recoveries will be 80-85%. Cash operating costs are estimated to be approximately $170/ounce. The expected capital cost of this project is now US$21 million and the finance necessary to exploit the rich sulphide ores has been agreed with Narodny Bank in Kazakhstan. Zherek Gold Mine In November 2002, we acquired a 75% interest in Zherek LLP. This company owns the 675,000-ounce Zherek mine, approximately 28 km from Suzdal. This mine was acquired with long-term finance from Bank Centre Credit OJSC of Kazakhstan. Zherek has Russian quantified resources of 2 million tonnes of oxide ores averaging 2.8g/t Au and sulphide ores estimated at 2.8 million tonnes at 5.5g/t Au. I hope that you are as delighted as the board in acknowledging the outstanding achievement of our Kazakhstan operating team. They have started this mine, built and commissioned a 2000tpd agglomeration and heap leach facility in less than 5 months, for a total capital outlay of $1.5 million. Furthermore, the first gold from Zherek has been poured this month and planned production for 2003 is approximately 20,000 ounces. Shorskoye Molybdenum Project We have a 65% interest in this project. Preliminary drilling and resource estimates have indicated that Shorskoye, a massive molybdenum porphyry in stockwork, could be one of the largest deposits of its type in the world. Tonnages and grades for the main zone are estimated at 315 million tonnes averaging 0.24% molybdenum oxide. Limited drilling over last summer confirmed grades in the main zone and further drilling and test work is planned. Other Properties The assessment of our other exploration properties in Kazakhstan is continuing and we are investigating a number of options for their development. We expect plans to be finalised later this year. Oil and Gas In Kazakhstan, we progressed well testing at the Tamdykol oil project and evaluated additional oil opportunities sourced by members of our oil and gas team. There was no commercial oil production at Tamdykol and the well test results from the shallow deposits proved to be disappointing. However, further seismic surveys were justified and are underway. In our North Sea gas interests GDF Britain, a subsidiary of Gaz de France, farmed into the licenses and is conducting a full data review with the aim of identifying a drilling target by September 2003. This was an encouraging development. Celtic has a 5% interest in this project at present. Our oil and gas strategy is currently under review with a view to adding shareholder value through mergers and acquisitions. Russia Nezhdaninskoye Gold Mine Nezhdaninskoye contains a 28 million ounce gold resource (including 13.9m oz classified as measured, indicated and inferred to JORC standards) located in Yakutia, northern Russia. In 2002, using some $12 million of shareholders funds we completed the mine refurbishment, rebuilt a large part of the treatment plant and rehabilitated the power and heating plants. We also acquired ownership of mine assets on behalf of the South Verkhoyansk Mining Company (SVMC). Furthermore, limited gold production was achieved during plant trials. An operating plan was produced by the company and accepted by Standard Bank who committed to a $12 million loan for the project, subject to due diligence and approval by SVMC shareholders. Increased Ownership of Nezhdaninskoye In late 2002, it became clear to us and to our partners in SVMC that the 50/50 ownership of the mine, with Celtic funding 100% of the project was not workable. Negotiations to seek a satisfactory solution were then held and preliminary agreements were reached in early 2003 and negotiating teams established. Whilst these negotiations were taking place, the mine was on standby and all necessary operating licenses maintained by our partners. I am pleased to report that we now have an agreement for Celtic to acquire the other 50% of shares in SVMC. These will be obtained by issuing Celtic shares to our Russian partners, Investment Group Alrosa (IGA). The net result of this all share deal will be that Celtic will own 100% of Nezhdaninskoye and IGA will become a significant shareholder in Celtic, with a 23% interest in the company and will have the right to nominate two directors to the Celtic board. The transaction will of course be subject to documentation, due diligence, government and shareholder approvals and is expected to close over the summer. Specifically, IGA will receive 5.12 million ordinary shares on closing, representing about 13% of Celtic stock at present and a further 3.94 million shares, approximately 10% of Celtic stock, six months after closing, subject to certain milestones. IGA will also receive 7.58 million preferred shares, which in 2010 will convert to 3.79 million ordinary shares. As part of the agreement, IGA will also arrange a loan to SVMC of $20 million on terms agreeable to Celtic. I want to emphasise to shareholders the importance and great significance that this transaction will have on Celtic. We will have 100% ownership of Nezhdaninskoye, one of the world's largest gold mines and IG Alrosa will become Celtic's largest shareholder. IGA is a subsidiary of AK Alrosa, the world's second largest diamond producer. Its shareholder base includes the Russian Federal Government and the Republic of Sakha (Yakutia) where Alrosa's diamond mines and our Nezhdaninskoye mine are located. Celtic's policy is to maximize the use of local resources and management at our operations and we are very comfortable with this approach for Nezhdaninskoye. The presence of a large Russian company backing Celtic will greatly enhance our plans for the rapid development of Nezhdaninskoye and its surrounding infrastructure. This will also open up the prospect of extending our interests with a powerful and motivated partner and shareholder. It is a very important fact that our Russian partner chose to become a significant shareholder in Celtic in return for its interest in Nezhdaninskoye. We feel that this association with IG Alrosa will also put Celtic in a strong position to participate in the ongoing consolidation of the Russian gold industry. Financial The admission of Celtic shares to trading on AIM, with the accompanying placing and open offer, was accomplished in October 2002. The process absorbed considerable management time and effort, and was hampered by the uncertainties in the markets that existed throughout 2002. We raised £5.04 million, which was less than we had hoped for. However, I would remind shareholders of our outstanding growth over the last three years. In late 1999 when Kevin Foo took the helm, we had a market capitalisation of about £0.5 million and currently it is approximately £50 million. Early in 2003, we completed a private placing at £1.10 per share with Deutsche Bank AG London, Special Situations Group, which raised some $4.7 million. The Future Our specific plans for 2003-4 are to: - Develop the sulphide deposits at Suzdal with a mine production target of 100,000 oz/year of gold by end 2004. - Develop Zherek gold mine to full production at a planned annual rate of 50,000 ounces by 2005. - Bring Nezhdaninskoye into production with an initial target through 2004 of 45,000 ounces. - Continue to add to our gold reserves and production capabilities. - Add value to our hydrocarbon assets. We believe that the acquisition of the other 50% of the Nezhdaninskoye gold mine will represent a major milestone in Celtic's history. After a very successful three years of rebuilding, Celtic is now a profitable gold producer with a 30 million ounce resource base. With this very large asset, activities in both Russia and Kazakhstan, a respected management and board, strategic partners and shareholders such as Alrosa, we are in a strong position to take advantage of the current low valuations placed on resource assets in the FSU to build a major company with significant cash flows. Thanks As usual, without the unstinting efforts of all within the company, none of the above would be possible and I thank our employees at the mines and regional offices. I should particularly like to thank our shareholders for their loyal and patient support of the company and our Board for their efforts over the last year. Yours sincerely, Peter Hannen Chairman Celtic Resources Holdings Plc audited results for the year ended 31 December 2002 CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2002 2002 2001 $000 $000 Turnover - acquisitions 9,272 -- Cost of sales - acquisitions (4,105) -- -------- -------- Gross profit - acquisitions 5,167 - -------- -------- Administrative expenses - continuing operations 2,387 1,350 - acquisitions 813 103 -------- -------- 3,200 1,453 -------- -------- Operating profit/( loss) - continuing operations (2,387) (1,350) - acquisitions 4,354 (103) -------- -------- 1,967 (1,453) Share of associated company's profit before tax 349 1,792 Loan interest payable (52) (32) Interest receivable 60 27 -------- -------- PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 2,324 334 Taxation (1,434) (596) -------- -------- PROFIT/(LOSS) AFTER TAXATION 890 (262) Minority interest - 26 -------- -------- Retained Profit/(Loss) of the group 890 (236) -------- -------- Earnings per share Profit/(loss) per share $0.0426 $(0.0002) -------- -------- Fully diluted profit/(loss) per share $0.0413 $(0.0002) -------- -------- CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2002 2002 2001 $000 $000 FIXED ASSETS Intangible assets 41,119 20,148 Tangible assets 5,508 1,954 Financial assets 2 899 -------- -------- 46,629 23,001 -------- -------- CURRENT ASSETS Stock 1,901 120 Debtors 4,250 2,199 Cash at bank and in hand 2,433 943 -------- -------- 8,584 3,262 Creditors: (amounts falling due within one year) (10,911) (6,285) -------- -------- Net current liabilities (2,327) (3,023) Creditors: (amounts due after more than one year) (2,148) - -------- -------- Net Assets 42,154 19,978 -------- -------- Financed by: CAPITAL AND RESERVES Called up share capital - equity 6,716 3,910 - non equity 3,184 3,184 Capital conversion reserve 61 61 Share premium - equity 38,234 19,677 Profit and loss account - equity (9,891) (10,459) ------- -------- Shareholders' funds 38,304 16,373 Minority interest - equity 3,850 3,605 ------- -------- 42,154 19,978 ------- -------- CONSOLIDATED CASHFLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 Notes 2002 2001 $000 $000 -------- NET CASH INFLOW FROM OPERATING ACTIVITIES (a ) 4,222 2,311 -------- -------- RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received 60 27 Interest paid (1,197) (20) Dividends received - 585 -------- -------- NET CASH (OUTFLOW)/INFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (1,137) 592 -------- -------- TAX PAID (1,434) (96) -------- -------- CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Payments to acquire intangible fixed assets (14,858) (7,602) Proceeds on disposal of tangible assets 160 90 Payments to acquire tangible fixed assets (2,181) (1,746) Purchase of subsidiary undertakings (2,208) (1,000) -------- -------- NET CASH OUTFLOW FROM CAPITAL EXPENDITURE AND (19,087) (10,258) FINANCIAL INVESTMENT -------- -------- -------- NET CASH OUTFLOW BEFORE FINANCING (17,436) (7,451) -------- -------- FINANCING Issue of ordinary share capital 22,999 5,578 Costs associated with shares issued during the (2,059) (224) year -------- -------- 20,940 5,354 Loan received - 2,598 Loans repaid (2,208) (640) -------- -------- NET CASH INFLOW FROM FINANCING 18,732 7,312 -------- -------- -------- -------- INCREASE/(DECREASE) IN CASH (b) 1,296 (139) -------- -------- NOTES TO CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2002 (a) Reconciliation of operating loss to net cash inflow/ 2002 2001 (outflow) from operating activities $000 $000 Operating profit/(loss) 2,351 (1,453) Depreciation and fixed asset write down 1,775 61 Decrease/(increase) in stocks 480 (97) (Increase)/decrease in debtors (887) 1,628 Increase in creditors 580 1,940 Exchange movements (77) 38 ------- ------- 4,222 2,311 ------- ------- (b) Analysis of net funds At 2001 Acquisition Cash flow At 2002 $000 $000 $000 $000 Cash in hand and at 943 193 1,296 2,433 bank Debt due within 1 year (2,208) - 2,208 - -------- ---------- --------- --------- (1,265) 193 3,504 2,433 -------- ---------- --------- --------- (c) Reconciliation of net cash flow to movement 2002 2001 in net funds $000 $000 Increase/(decrease) in cash in the period 1,296 (139) Cash inflow/(outflow) from increase/(decrease) in 2,208 (1,958) debt ------- ------- Change in net funds resulting from cash flows 3,504 (2,097) Cash inflow on acquisition of subsidiary 194 - ------- ------- Movement in net funds in the period 3,698 (2,097) Net funds at start of year (1,265) 832 ------- ------- Net funds at end of year 2,433 (1,265) ------- ------- This information is provided by RNS The company news service from the London Stock Exchange

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