Final Results
Vane Minerals PLC
03 May 2007
3rd May 2007
VANE Minerals Plc (AIM: VML)
('VANE' or 'the Company')
Financial Results for Period Ending 31 December 2006
Highlights
• Full year of production at Diablito silver/gold mine in Mexico
• Mill construction underway, expected to be completed Q3 2007 -
significant reduction in schedule bottlenecks and transportation costs
• Acquisition of uranium pipe targets increased number of properties to
29
• Further drilling permits granted for the Big Red Pipe and the Rabbit
target in the breccia pipe district
• £750,000 raised through a convertible loan note agreement to
accelerate uranium developments and finance mill construction
Post Period
• Drill programme completed at North Wash, confirming the mineralisation
• 25-hole drilling programme began in early April 2007 at the Happy Jack
property in south-eastern Utah
• Number of uranium pipe targets increased to 32 - further acquisitions
under consideration
• Freeport Agreement extended for a further two years to 30 June 2009.
• £1 million fixed-rate unsecured convertible loan note secured with
Geiger Counter Limited
Michael Spriggs, Chairman of VANE Minerals Plc, commented: 'The past year was a
formative one for VANE as we are generating ongoing revenues from the Diablito
mine and have substantially developed our uranium portfolio in the US. Our share
price performance is indicative of our progress and we are looking to continue
to create and maximise value for shareholders going forward. We are now in a
strong cash position from which we can explore and develop our projects across
our portfolio and we look forward to further developments in the coming year.'
Enquiries:
VANE Minerals Plc Ambrian Partners Limited
Matthew Idiens Richard Brown
+44 (0) 20 7667 6322 +44 (0) 20 7776 6417
Parkgreen Communications Daniel Stewart & Co
Cathy Malins / Annabel Leather Katie Shelton
+44 (0) 20 7851 7480 +44 (0)20 7776 6550
Chairman's and CEO's Statement
We are pleased to present our report to shareholders for the year ended 31st
December 2006. This has been a progressive period in which your Company has
reached important milestones at its Diablito mine in Mexico, furthered
exploration at our other properties in Mexico and Paraguay and continued to
evaluate and add to the Company's significant uranium projects. More recently,
we have gained additional external funding as we look to accelerate the value
creation within the uranium portfolio in order to capitalise on the strong
position we have in this key commodity.
The steady build-up in production during the second half of 2006 at the Diablito
high-grade silver/gold mine in Mexico has allowed our 100% owned subsidiary,
Minerales VANE SA de CV, to continue to generate stable revenues for the
Company. As a result we continue to be cash flow positive outside of our
accelerated uranium acquisition and exploration and Diablito mill construction
programmes.
This cash flow offers us the flexibility to pursue a range of opportunities,
including accelerating drilling in our uranium portfolio, adding to our existing
portfolio, realising the value of these assets through exploration or
development towards production, sale to a third party, or potentially providing
the option for the creation of additional stand-alone companies.
The main driving force for the company and a key reason behind our share price
performance has been our strong uranium portfolio, to which we have diverted the
majority of funding and time over the past twelve months. We are very excited
about the continued strength of the uranium market and the potential value
creation that our exploration portfolio offers.
Diablito
In 2006 the Company achieved the first full year of production from the
underground Diablito mine; a high-grade, narrow-vein silver/gold deposit,
located in Nayarit State, west-central Mexico. Production during the year
averaged 1,326 tonnes a month against our target figure of 1,500 tonnes. The
production shortfall was temporary and primarily caused by a change of the
mining contractor in May, which affected production for several months,
hurricane rains in July to September and development work in the mineralised
vein leading to some dilution in grade. Since May 2006, the new operator,
Contratista Minera Villagomez ('CoMinVi'), has gained a great deal of further
knowledge of the deposit and during the first quarter of 2007, the mine produced
1,793 tonnes per month on average. The average grades achieved in the first
quarter were 5.17g/t gold and 475g/t silver, with the gold element being
significantly higher than the 2006 average of 4.72 g/t gold and 602 g/t silver.
Mine production for 2007 - continuing at the production rate of over 50 tonnes a
day / 1,500 tonnes per month - is scheduled to amount to 2,700oz gold and
348,000oz silver, generating stable gross margins of approximately £108,700
(US$200,000) per month. This compares with production during 2006 of 308,116oz
silver and 2,415oz gold.
A 19-hole drilling programme was completed in mid-2006 which increased the
measured, indicated and inferred resources at Diablito to approximately 142,000
tonnes of ore at an undiluted average grade of 684g/t silver and 6.07g/t gold.
Maintaining a production rate of 1,500 tonnes a month, this increase in resource
has extended the projected mine life to over seven years. The geology also
reported the possibility of further extensions and the Company will consider
more drilling as required.
Operating costs have fluctuated over the past year due to the varying amounts of
development work necessary for the extraction of the ore. Production costs are
currently running at approximately US$125 per tonne of ore.
At present, broken ore from Diablito is transported for toll treatment to the
Cosala mill, 350km from the mine. Whilst this has served the Company well to
date, in order to eliminate scheduling bottle necks and reduce overall
production and transportation costs, VANE is constructing a 100tpd mill and
treatment plant at San Dieguito de Arriba, only 18km from the mine. The major
components of the beneficiation equipment required for this have been purchased
and construction is currently expected to be completed during the third quarter
of 2007.
Uranium Projects
During the past year, VANE's wholly owned US subsidiary, VANE Minerals (US) LLC,
has continued to add to its impressive portfolio of properties in the major
uranium districts in south-western US, which have a renowned history of uranium
production. This growing momentum parallels the continuing surge of strength in
the international uranium market, which over the past year has seen the price of
uranium more than double.
While negotiations to increase the number of exploration projects are
continuing, systematic exploration programmes are underway on selected areas and
drilling programmes have commenced since the year end. The properties comprise a
total land package of almost 6,000 specifically selected acres extending over
areas considered by your Board to be highly prospective. They are all 100% owned
and include projects offering production within 18 months along with strong
exploration potential. VANE is fortunate to have assembled a highly experienced
uranium exploration team to expedite these programmes.
The focus of these programmes is on properties in the Colorado Plateau uranium
district, which includes the stratabound uranium-vanadium deposits of South
Eastern Utah and South Western Colorado along with the Northern Arizona uranium
breccia pipe district.
In the Colorado Plateau, an area of major historic production, VANE has been one
of the first companies to initiate a recent exploration drilling programme. At
the Company's North Wash uranium/vanadium property in south-eastern Utah, a
5-hole drill programme initiated in January 2007, and now completed, confirmed
the tenor and distribution of the uranium and vanadium mineralisation. This had
been investigated previously in the 1970's by Cotter Corporation and which
yielded a limited, but indicated the potential for a much larger, ore resource.
Additional drilling is now planned to expand this as yet unquantified resource,
where the potential is considered to be 1 million lbs uranium (U3O8) and 7.5
million lbs vanadium (V2O5). Following this, the Company will proceed with a
pre-feasibility study to define the economics of mining this deposit.
A 25-hole drilling programme began in early April 2007 at the Happy Jack uranium
mine project in south-eastern Utah. Although not mined since the 1980s, basic
mine infrastructure is intact and this project is ideally situated with regard
to production following successful future drilling. Happy Jack also offers
considerable additional exploration potential.
Pending state approvals, VANE also plans to undertake a 25-hole drilling
campaign at the North Alice Extension project in the Lisbon Valley Uranium
District of south-eastern Utah. Further acquisition opportunities are being
pursued on other prospective uranium properties in this area.
Our interests in the uranium deposits in the northern Arizona breccia pipe
district - an area which historically has produced over 20 million lbs of U3O8 -
are economically attractive exploration targets as the deposits are typically
compact and very high-grade. These mineralised breccia pipes have the resource
potential of between 1 million and 6 million lbs U3O8, but their evaluation
requires deep drilling, typically to depths of 1,200-2,000ft.
The Company has successfully developed surface exploration techniques by which a
large number of targets in this district have been identified. Of these, four
(the Miller, Red Dike and Big Red Pipes, and the Rabbit target) have been
permitted, and a drilling programme is currently underway.
The results from these programmes will be published as soon as their evaluation
is complete. Drilling permit applications on a number of additional targets have
been submitted.
During 2006, the Company continued an aggressive programme to identify and
acquire additional pipe targets, raising its number of targets acquired to 29,
an increase of 70%. Moving into 2007, this total has since increased to 32 and
negotiations and reconnaissance continue for additional pipe targets. Several
of these new targets exhibit strong surface indications consistent with
ore-bearing breccia pipes.
As announced on the 12th April 2007, the company is undertaking a strategic
review of its options in order to maximise shareholder benefit from its uranium
portfolio. The Board recognises the rising interest, particularly in the US and
Canada, of institutions and other parties in companies operating in the uranium
sector. This has led to substantial valuations and major fundraising
opportunities for some asset-rich uranium companies in those markets.
There is no certainty as to the outcome of any such review but in the current
environment the Board considers that it has a duty in the best interests of
shareholders to explore what options may be available to extract optimum value
from its now sizeable uranium portfolio.
Other Projects
Guadalcazar
Following the Company's 19-hole drilling programme undertaken during 2005 and
2006, the Guadalcazar property in the state of San Luis Potosi, Mexico (from the
Freeport-McMoRan Databank), was identified as being a major tonnage,
hydrothermal gold-silver occurrence of very large areal extent. Results to date
have reported sub-economic grades although the property's geologic
characteristics are considered sufficiently attractive to warrant further
drilling. Due to the size of this target, further drilling would require
considerable additional funding and VANE is currently looking for a joint
venture partner with whom to initiate further exploratory work. A number of
potentially interested parties have been approached.
Paraguay
The Company continued its regional scale gold-copper exploration programme in an
under-explored but highly prospective region of eastern Paraguay, the western
part of the highly mineralised Pre-Cambrian shield. VANE holds Investigation
Permits on three exploration blocks over a total area of 3,445 km2. A large
number of surface gold anomalies have been identified in this rapid, low-cost
programme, and individual targets are being selected for further exploration.
Investigation Permits are being transferred into an Exploration Permit covering
22,600 hectares (55,845 acres) which will allow us to drill identified targets
during 2007.
Freeport Agreement
The Company's annual agreement with Freeport-McMoRan Copper and Gold Co.,
provides continued access to the latter's international exploration database,
excluding Indonesia, and this forms a valuable part of VANE's ongoing
exploration strategy. A recently signed document has been agreed, extending
this Agreement for a further two year period to 30 June 2009.
Financial
Revenues from the Diablito mine have placed the Company in a solid financial
position, providing a flow of cash resources to further exploration programmes.
This revenue stream was complemented in 2006 with a convertible loan agreement
with City Natural Resources High Yield Trust Plc and Geiger Counter Limited
which enabled the Company to vigorously pursue the uranium opportunities in the
US detailed above and also to proceed towards the purchase of the mill site and
milling/concentrating equipment required to install the Company's own mill at
Diablito.
Reflecting the shift in emphasis in the nature of the Company's activities and
the structure of its balance sheet, the 2006 after tax net loss of £893,587 or
0.61p per share (compared with £870,185 or 0.60p per share in 2005) is therefore
somewhat academic. The discontinuance of the Mina Charay project and resulting
impairment of the intangible asset by £317,000, plus the amortisation of the
tangible asset representing the Diablito Mine of £516,000, contributed
substantially to the reported loss. At the 31st December year-end, the Company
retained a cash balance of £0.62 million.
In April 2007 the Company also announced the issue, subject to shareholder
approved at an EGM to be held on the 8th May, 2007, of a second fixed-rate
unsecured convertible loan note, again with Geiger Counter Limited, for £1
million with an 8% coupon, convertible at £0.29 per share. These further funds
will enable the Company to accelerate the uranium exploration and drilling
programmes, in particular the investigation of the Northern Arizona breccia pipe
targets. If the new loan note is approved then the existing £750,000 loan notes
will be converted into ordinary shares at the agreed price of £0.12 per share.
Key Performance Indicators
There are a number of key performance indicators that are reviewed regularly by
the Board as set out below in respect of 2006:-
Item Target Actual Comment
Production monthly tonnage 1,500 1,326 The average monthly production for 2006
was just short of the target owing to a
change of contractor mid-year. Current
production is running at 1,793 tons per
month, ahead of target.
Maintenance of Mineral Grades 4.00 Au 4.72 Au The contractor is currently achieving
550 Ag 602 Ag grades averaging 5.17 Au and 475 Ag
Monthly Gross Margin £108.7k ($200k) £53.2k ($97.9k) Gross margin achieved over the year was
lower than target owing to disruption in
milling process which resulted in large
inventories at the year-end £0.579m
($1.066m).
Cash balances £0.731m £0.624m The company's objective was to end the
year with no less cash than at the
beginning of the year. With the shortfall
in production, the decision to build our
own mill, and the accelerated uranium
programme this was only possible with the
convertible loan note raised in August
2006.
Employee recruitment and Although the company has no quantitative
retention target for the number of employees it
needs or retains, this metric is closely
monitored. The company has an excellent
record of retaining key staff, and
recruiting new members to the team as
required.
Outlook
At this time last year, mining markets were entering a period of considerable
volatility, reflecting uncertainties about the duration and strength of the
demand-led boom in the current commodity cycle. The mining sector of the AIM
market suffered a sharp correction in May / June last year, but has made a
continued recovery, bolstered by strong metals markets and long term demand /
supply fundamentals.
While the future course of the gold price is impossible to predict, it is
significant that its recent price history shows a closer correlation with the
rise in base metal commodities than at any time over the past 25 years.
The economics of the uranium market are more transparent, and the relentless
rise in the U3O8 price reflects the widening gap between committed world demand
and potential supply - this was in part exaggerated by major production setbacks
at the Cigar Lake property and flooding in Australia due to heavy rain. The
recent run-up in the price shows no sign of abating, even though these levels
are now causing some concern for those nuclear utilities (particularly in the
US) that do not have long term contracts with producers.
During the year the Group created a project team to look at the impact of
implementing IFRS on both the reporting function and the financial statements in
2007. The project is still ongoing and initial results indicate the key areas
that may affect the financial statements are intangibles and share based
payments. Further areas are currently being reviewed and the Group is confident
that it will be well positioned for the transition.
Overall, we believe the coming year will see continuing resilience in base metal
commodity markets, and that this momentum will provide a solid support for VANE
Minerals. Your Company anticipates a further year of vigorous exploration and
development activity, built around its strong portfolio of high quality projects
and a strong management team.
It has been gratifying to witness the growing strength of our share price, and
we offer our sincere thanks to our fellow Directors and staff who continue to
work tirelessly towards fulfilling our strategy.
MJ Spriggs Chairman
SD Van Nort Chief Executive Officer
CONSOLIDATED PROFIT AND LOSS ACCOUNT
Notes Restated
2006 2005
£ £
TURNOVER 2 1,592,632 286,075
Cost of sales (957,740) (391,612)
Gross profit 634,892 (105,537)
Operating expenses (including exceptional impairment of (1,500,558) (963,283)
intangible fixed assets of £316,825)
OPERATING LOSS (865,666) (1,068,820)
Interest receivable 19,381 83,302
Interest payable and similar charges (25,598) -
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (871,883) (985,518)
Taxation (21,704) 115,333
LOSS ON ORDINARY ACTIVITIES AFTER TAXATION (893,587) (870,185)
LOSS PER SHARE
Basic and diluted 3 (0.61p) (0.60p)
The operating loss for the year arises from the Group's continuing operations.
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
Restated
2006 2005
£ £
Loss for financial period (893,587) (870,185)
Currency translation (losses) / profits on foreign currency net (277,779) 188,437
investments
Total recognised gains and losses for the year (1,171,366) (681,748)
Prior year adjustment in respect of share option charge (95,100)
Total recognised gains and losses since last annual report (1,266,466)
CONSOLIDATED BALANCE SHEET
Notes Restated
2006 2005
£ £
FIXED ASSETS
Intangible assets 7,828,224 7,990,975
Tangible assets 3,737,359 4,171,297
11,565,583 12,162,272
CURRENT ASSETS
Stocks 579,668 122,893
Debtors 344,029 413,374
Cash at bank and in hand 624,374 731,932
1,548,071 1,268,199
CREDITORS: Amounts falling due within one year (198,982) (156,658)
NET CURRENT ASSETS 1,349,089 1,111,541
TOTAL ASSETS LESS CURRENT LIABILITIES 12,914,672 13,273,813
CREDITORS: Amounts falling due after one year (683,928) -
NET ASSETS 12,230,744 13,273,813
CAPITAL AND RESERVES
Called up share capital 14,614,382 14,614,382
Share option reserve 143,769 95,100
Other reserves 79,628 -
Profit and loss account (2,607,035) (1,435,669)
EQUITY SHAREHOLDERS' FUNDS 4 12,230,744 13,273,813
CONSOLIDATED CASH FLOW STATEMENT
Notes
2006 2005
£ £
Cash flow from operating activities 5a (425,180) (1,054,002)
Returns on investments and servicing of finance 5b (115) 83,302
Taxation (6,875) -
Capital expenditure and financial investment 5b (400,726) (830,058)
CASH OUTFLOW BEFORE MANAGEMENT OF LIQUID RESOURCES AND FINANCING (832,896) (1,800,758)
Management of liquid resources 5b 158,927 1,734,398
Financing 5b 750,000 -
INCREASE/(DECREASE) IN CASH IN THE PERIOD 76,031 (66,360)
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
2006 2005
£ £
Increase/(decrease) in cash in the period 76,031 (66,360)
Cash inflow from change in liquid resources (158,927) (1,734,398)
Cash inflow from increase in debt (676,474) -
Change in net funds resulting from cash flows (759,370) (1,800,758)
New finance lease (8,386) -
Effect of foreign exchange rate changes (24,662) 188,437
Movement in net funds in the period (792,418) (1,612,321)
NET FUNDS AT 31 DECEMBER 2005 731,932 2,344,253
NET (DEBT)/FUNDS AT 31 DECEMBER 2006 5c (60,486) 731,932
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December 2006
1 BASIS OF PREPARATION
The financial information for the year ended 31 December 2006 has not been
audited and does not constitute the Company's statutory financial statements
within the meaning of S240 of the Companies Act 1985. This preliminary
announcement was approved by the Board on xx April 2007.
The statutory financial statements for the year ended 31 December 2006 have not
been filed with the Registrar of Companies nor reported on by the Company's
auditors. They will be circulated to shareholders in May 2007 and the Annual
General Meeting is arranged to take place on 14 June 2007.
The comparative results for the year ended 31 December 2005 are an abridged
version of the audited financial statements which have been filed with the UK
Registrar of Companies and on which the auditors issued an unqualified audit
report with the exception of the prior year adjustment noted below.
PRIOR YEAR ADJUSTMENT
The adoption of FRS20 Share Based Payments required a prior year adjustment to
be made with the comparative figures being restated. This has created a share
option reserve at 31 December 2005 of £95,100 and reduced the retained profits
at that date by £95,100; of this amount, £57,411 was charged to the profit and
loss account for the period ended 31 December 2005.
2 SEGMENTAL INFORMATION
Net Assets Turnover Losses
Restated
2006 2005 2006 2005 2006 2005
£ £ £ £ £ £
UK (319,998) 563,216 - - (573,359) (530,161)
USA 1,252,102 1,092,646 - - (528,532) (545,657)
Mexico 11,173,393 11,617,951 1,592,632 286,075 208,304 205,633
Paraguay 125,247 - - - - -
Total 12,230,744 13,273,813 1,592,632 286,075 (893,587) (870,185)
The above table shows the geographic segmentation of the Group. Activities in
Mexico are currently concerned with gold and silver mining and exploration.
Activities in the USA are split between research of the Freeport database and
other sources for further gold and silver properties, and research and
evaluation of potential uranium properties. Activities in Paraguay are concerned
with gold and copper exploration. Activities in the United Kingdom are concerned
with administration and management of the Group.
3 LOSS PER ORDINARY SHARE
The calculation of basic and diluted loss per ordinary share is based on the
following loss and number of shares.
Restated
2006 2005
£ £
Loss for the financial period (893,587) (870,185)
2006 2005
No. of shares No. of shares
Weighted average number of shares 146,143,823 146,143,823
Due to the loss incurred in the year, there is no dilutive effect from the
subsisting share options.
4 RECONCILIATION OF MOVEMENT IN EQUITY SHAREHOLDERS' FUNDS
Restated
2006 2005
£ £
Loss for the financial period (893,587) (870,185)
Share option reserve movement 48,669 57,411
Equity element of convertible loan note 79,628 -
Exchange rate adjustments (277,779) 188,437
Net reduction in shareholders' funds (1,043,069) (624,337)
Opening shareholders' funds 13,273,813 13,898,150
Closing shareholders' funds 12,230,744 13,273,813
5 CASH FLOWS
Restated
2006 2005
£ £
a Reconciliation of operating loss to net cash outflow from
operating activities
Operating loss (865,666) (1,068,820)
Decrease/(increase) in debtors 33,518 (181,948)
Increase in creditors 41,392 90,580
Increase in stock (456,775) (122,893)
Depreciation 518,963 154,564
Impairment of intangible fixed asset 316,825 17,104
Share based payments 48,669 57,411
Effect of foreign exchange rate changes (62,106) -
Net cash outflow from operating activities (425,180) (1,054,002)
b Analysis of cash flows for headings netted in the cash flow 2006 2005
£ £
Returns on investments and servicing of finance
Interest received 19,381 83,302
Interest paid (19,496) -
Net cash (outflow)/ inflow from returns on investments and
servicing of finance (115) 83,302
Capital expenditure and financial investment
Purchase of intangible fixed assets (252,520) (815,152)
Purchase of tangible fixed assets (148,206) (14,906)
Net cash outflow from capital expenditure and financial (400,726) (830,058)
investment
Management of liquid resources
Cash withdrawn from 7 day deposit 158,927 1,734,398
Net cash inflow from management of liquid resources 158,927 1,734,398
Financing
Proceeds from issue of convertible loan notes 750,000 -
Net cash inflow from financing 750,000 -
At 31 At 31
December Cash- Non cash Exchange December
c Analysis of net funds 2005 flow Changes Movement 2006
£ £ £ £ £
Cash at bank and in hand 180,539 76,031 - (24,631) 231,939
Cash on deposit 551,393 (158,927) - (31) 392,435
Finance lease - - (8,386) - (8,386)
Convertible loan note - (676,474) - - (676,474)
731,932 (759,370) (8,386) (24,662) (60,486)
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