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Griffin Mining Ld (GFM)

  Print          Annual reports

Wednesday 17 June, 2020

Griffin Mining Ld

Final Results

RNS Number : 1667Q
Griffin Mining Ld
17 June 2020
 

 

 

Royal Trust House, 54 Jermyn Street, London SW1Y 6LX, United Kingdom

Telephone: + 44 (0)20 7629 7772 Facsimile:  + 44 (0)20 7629 7773

E mail: [email protected]

 

17th  June 2020

 

2019 Results  

Annual Report & Accounts

 

Griffin Mining Limited ("Griffin" or the "Company") has today published its annual report and financial statements for the year ended 31 December 2019 which are available on the Company's web site wwww.griffinmining.com. The release of these were delayed by travel restrictions within and to China imposed by authorities to contain the Coronavirus pandemic preventing Company personnel and the auditors completing their work at Caijiaying.

 

In 2019, the Company and its subsidiaries (together the "Group") recorded;

 

· Revenues of $82,267,000 (2018: $99,067,000);

 

· Operating profit of $14,225,000 (2018: $35,555,000);

 

· Profit before tax of $11,712,000 (2018: $34,798,000);

 

· Profit after tax of $6,084,000 (2018: $25,477,000); and

 

· Earnings of 3.52 cents per share (2018: 14.83 cents).

 

Lower profits in 2019 were primarily caused by falling zinc prices and significantly higher smelter treatment charges resulting in lower zinc metal in concentrate prices received by the Group.

 

Despite greater quantities of zinc metal in concentrate being produced and sold, zinc metal in concentrate sales before royalties and resource taxes in 2019 amounted to $55,627,000 compared with $78,821,000 in 2018. Lead and precious metal in concentrate sales amounted to $29,850,000 compared with $24,920,000 in 2018.

 

In 2019, metal in concentrate sales were:

 

· Zinc 37,811 tonnes (2018: 36,672 tonnes);

· Gold 17,712 ounces (2018: 16,206 ounces);

· Silver 333,093 ounces (2018: 279,632 ounces); and

· Lead 1,221 tonnes (2018: 1,027 tonnes).

 

Average prices achieved in 2019 were:

 

· Zinc metal per tonne of $1,471 (2018: $2,149);

· Gold metal per ounce of $1,318 (2018: $1,173);

· Silver metal per ounce of $13.8 (2018: $12.60); and

· Lead metal per tonne of $1,575 (2018: $2,250).

 

Cost of sales of $48,609,000 in 2019 were up 6.1% on that incurred in 2018 of $45,798,000. This increase may be attributed higher mining costs with additional rock bolting and meshing costs and additional depreciation provisions reflecting increased costs capitalised being depreciated. Haulage costs were broadly in line with that incurred in 2018 and processing (milling) costs were marginally down on that incurred in 2018.

 

Administration expenses (including those of the Caijiaying Mine) rose $1,719,000 (9.7%) from $17,714,000 in 2018 to $19,433,000 in 2019. This increase arises mainly from inflationary increases;  the pursuit of the mining licence over Zone II; levies and  other costs in complying with Chinese health, safety and environmental requirements; and the expansion of activities of China Zinc in investigating potential ventures elsewhere in China.

 

Foreign exchange losses of $93,000 (2018: gains $42,000) were recorded in 2019.

 

Interest of $171,000 (2018: $223,000) was received on bank deposits in 2019 whilst $51,000 (2018: $Nil) was paid on short term bank loans.

 

Losses on the disposal of fixed assets of $305,000 (2018: $939,000) were recorded.

 

Provision of $1,985,000 (2018: $Nil) has been made to fully provide against the costs capitalised in respect of Hebei Sino Anglo's exploration licence area. Griffin intends to agree a contractual right to the licence to be transferred to Griffin's joint venture partner, prior to expiry of the licence in July 2020.

 

Finance costs on the lease of the dry tailings facility at Caijiaying Mine and the London and Perth offices totalling $326,000 (2018: $283,000) were incurred.

 

Income taxes of $5,628,000 (2018: $9,321,000) have been charged in 2019. This includes a deferred taxation charge of $380,000 (2018: credit $343,000).

 

Basic earnings per share in 2019 was 3.52 cents (2018: 14.83 cents) and diluted earnings per share was 3.24 cents (2018 13.35 cents).

 

Cash generated from operations of $21,639,000 (2018:  $20,439,000) have been used in further developing the Caijiaying Mine and facilities.

 

Attributable net assets per share at 31 December 2019 was $1.24 (2018: $1.22)

 

 


Chairman's Statement:

 

Although 2019 turned out to be a successful year operationally for the Company, very low commodity prices coupled with very high treatment charges produced a below average financial result.  In addition, as has been the case for far too many years to remember, any success was overshadowed by the continuing failure of regulatory authorities in China to issue the Company with its new mining licence over Zone II at the Caijiaying Mine.

 

Production of zinc, gold, silver and lead all increased in 2019 but prices received for zinc, gold and lead all decreased sharply leading to a 17% fall in revenue and a subsequent 60% fall in operating profit. For anyone who has ever read one of my Annual Report missives, my standard comment every year is that mining is a fixed cost business. Provided we can control our costs and maintain our production, we are at the vagaries of world commodity prices for our financial success, and even more importantly, to treatment charges offered by smelters in China.  Unfortunately, 2019 was a particularly bad year for both.

 

Operationally, the focus was on developing Zone III for greater, and more efficient, production and that was achieved by the continued development and linking of the North and South Declines and associated infrastructure down to the 1000mRL; the development of the South Haulage Drive in preparation for the commencement of development into Zone II; significant mine ventilation improvements including two new 5 metre diameter ventilation shafts developed from surface together with an underground 5 metre diameter ventilation shaft down to the 1175mRL level and the completion of three ventilation shafts (the Underground Fresh Air Shaft totalling 126 metres, the Main Exhaust Ventilation Shaft totalling 305 metres and the Central Fresh Air Shaft totalling 176 metres) significantly improving ventilation and the working environment underground.

 

Geologically, the resource base continued to expand. Even more astonishingly, the conversion rate at the Caijiaying Mine from an Inferred to a Measured or Indicated Resource is effectively 157% based on a comparison of previous and current Mineral Resource Estimate reports. This means that exploration and resource definition drilling is not only successfully converting existing Inferred mineralisation to higher categories, but also defining new Measured or Indicated mineralisation. This is an extraordinary statistic and gives enormous comfort for the ultra-long mine life the Company will enjoy at the Caijiaying Mine.

 

In addition, ongoing exploration has utilised knowledge gained from the evolving structural model at Zone III to enable re-interpretation of structure in the adjacent zones. This is allowing the resource models for Zones II and VIII to be more accurately measured, leading to the probability of new resource estimates to be released in 2020 for these zones.

 

Yet, in light of all the above progress, 2019 has been overshadowed by the extraordinary beginning to 2020, the effects which remain with us still and will do for at least the next decade and perhaps forever. At the Company level, the declaration of a pandemic by the government of the People's Republic of China on the 24 January 2020 due to the Coronavirus COVID-19 outbreak forced mining and underground development operations not to restart after the traditional 2 week mining shutdown for the Chinese New Year holidays. Ore stockpiled at surface was processed until exhausted on the 30 January 2020, at which time the mill was placed on care and maintenance. Operations restarted on the 21 February 2020. Underground mining operations reached 100% of planned rates by the 13 March 2020 and, with a new supply of ore, processing operations by late March 2020.  Nevertheless, international travel restrictions remain in place preventing foreign personnel returning to the Caijiaying due to the prohibition of entry into China to anyone other than Chinese citizens and permanent residents. This is currently having only a limited impact upon operations at the Caijiaying Mine.

 

At the operational level, we are grateful that we find our operations based in north-west China where COVID-19 virtually did not appear nor did it severely disrupt economic activity.  Further, we operate, and our commodities are sold, in China where the economy has virtually returned to full production, albeit not with the projected economic growth estimated in 2019.  It has been particularly pleasing to see the treatment charges start to fall significantly in the last 2 months, inevitably due to the lack of imports of foreign sourced concentrates by Chinese smelters.

 

At the Company level, thanks must be extended to the prudency of the directors with their long experience in the mining sector and the nature of the cyclical nature of commodities who only allowed debt to be incurred at the operational level to build or expand the operations at the Caijiaying Mine.  Retained earnings, which also could have been paid out in dividends, were retained for the same capital needs.  In addition, borrowings were never taken at the Griffin holding company level to buy back stock, something which will not only bankrupt a multitude companies, but also many industries, including the US Airline industry, without massive government assistance.

 

The COVID-19 crisis, debt laden balance sheets and the continuing low commodity price environment has shown the words of Warren Buffet to be truer than ever, "Only when the tide goes out do you discover who's been swimming naked."  The last 3 months has seen a large closure of marginal zinc mines and world zinc production falling by at least 10%.  This trend will inevitably get worse before it gets better, but it bodes well for the zinc price.

 

With the expectation of the granting of the new mining licence and the doubling of production, the Company appointed a new Nominated Advisor and Broker, Numis Securities Limited.  We look forward to a long and successful relationship as the Company takes the next giant step in its growth.

Penultimately, it's my privilege to thank the people who have gone, and continue to go, the extra yard to maintain the Company's status as the only foreign owned mining company operating in China.  That is an achievement almost none can imagine in its complexity, intricacy, difficulty and exhausting nature.  It deserves all of our thanks.  From the truly outstanding Company directors, our Chinese joint venture directors, our senior foreign staff, our Chinese operational staff, our contractors, consultants, Chinese government officials, spouses, partners and their children, I thank you for your time, excellence and dedication on behalf of the shareholders.  You have been extraordinary.

 

 

 

Further information

 

 

Griffin Mining Limited  Telephone: +44 (0)20 76290 7772

Mladen Ninkov  -  Chairman

Roger Goodwin  -  Finance Director

 

Numis Securities Limited:  Telephone: +44 (0)20 7260 1000

  John Prior

  Alamgir Ahmed

 

 

Griffin Mining Limited's shares are quoted on the Alternative Investment Market (AIM) of the London Stock Exchange (symbol GFM).

The Company's news releases are available on the Company's web site: www.griffinmining.com

 

The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No.596/2014.

 



 

Griffin Mining Limited

Summarised Consolidated Income Statement

For the year ended 31 December 2019

(expressed in thousands US dollars)

 


2019


2018


Audited


Audited


$000


$000




Revenue

82,267

99,067




Cost of sales

(48,609)

(45,798)








Gross profit

33,658

53,269




Administration expenses

(19,433)

(17,714)







Profit from operations

14,225

35,555




Losses on disposal of plant and equipment

(305)

(939)

Impairment of intangible assets

(1,985)

-

Foreign exchange(losses) /  gains  

(93)

42

Finance income

171

223

Finance costs

(377)

(283)

Other income

76

200







Profit before tax

11,712

34,798




Income tax  expense

(5,628)

(9,321)







Profit for the year

6,084

25,477







Basic earnings per share (cents)

3.52

14.83




Diluted earnings per share (cents)

3.24

13.35



Griffin Mining Limited

Summarised Consolidated Statement of Comprehensive Income

For the year ended 31 December 2019

(expressed in thousands US dollars)

 

 



2019


2018



Audited


Audited



$000


$000






Profit for the year


6,084


25,477






Other comprehensive (expenses) / income that will be reclassified to profit or loss










Exchange differences on translating foreign operations


(2,324)


(5,856)






 

Other comprehensive (expenses) / income for the year, net of tax


 

(2,324)


 

(5,856)






 

Total comprehensive income for the year


 

3,760


 

19,621


 


Griffin Mining Limited

Summarised Consolidated Statement of Financial Position

As at 31 December 2019

(expressed in thousands US dollars)

 


2019


2018


Audited


Audited


$000


$000

ASSETS




Non-current assets




Property, plant and equipment

228,287


213,140

Intangible assets - exploration interests

322


2,016


228,609


215,156

Current assets




Inventories

3,839


4,951

Receivables and other current assets

1,861


2,819

Cash and cash equivalents

19,885


28,452


25,585


36,222





Total assets

254,194


251,378





EQUITY AND LIABILITIES




Equity attributable to equity holders of the parent




Share capital

1,728


1,727

Share premium

68,455


68,442

Contributing surplus

3,690


3,690

Share based payments

2,072


2,072

Shares held in treasury

(917)


(917)

Chinese statutory re-investment reserve

2,500


2,386

Other reserve on acquisition of non controlling interests

(29,346)


(29,346)

Foreign exchange reserve

1,703


4,027

Profit and loss reserve

165,059


159,161

Total equity attributable to equity holders of the parent

214,944


211,242





Non-current liabilities




Long-term provisions

2,150


2,302

Deferred taxation

2,731


2,393

Finance lease

479


258


5,360


4,953

Current liabilities




Trade and other payables

31,769


33,632

Finance lease

2,121


1,551

Total current liabilities

33,890


35,183





Total equities and liabilities

254,194


251,378





Attributable net asset value per share to equity holders of parent

1.24


$1.22

 

 


Griffin Mining Limited

Summarised Consolidated Statement of Changes in Equity.

For the year ended 31 December 2019

(expressed in thousands US dollars)

 


Share

Share

Contributing

Share

Shares

Chinese

Other

Foreign

Profit

Total


Capital

Premium

surplus

Based

held in

Re-investment

reserve on

Exchange

and loss

attributable to





Payments

Treasury

Reserve

acquisition of

Reserve

reserve

equity holders








non-controlling



of parent








interests





$000

$000

$000

$000

$000

$000

$000

$000

$000

$000

 

At 1 January 2018

1,790

71,310

3,690

2,072

 

(3,875)

1,583

 

(29,346)

4,871

91,174

143,269

 

Regulatory transfer for future investment

-

-

-

-

 

-

288



(288)

-

Issue of shares on exercise of options

27

1,147

-

-

-

-

-

-

-

1,174

Purchase of shares held in treasury

-

-

-

-

(917)

-

-

-

-

(917)

Transaction with owners

27

1,147

-

-

(917)

288

-

-

(288)

257

 

Profit for the year

-

-

-

-

 

-

-

 

-

-

25,477

25,477

Other comprehensive expense:











Exchange differences on translating foreign operations

-

-

-

-

 

-

(106)

 

-

(5,750)

-

(5,856)

Total comprehensive income

-

-

-

-

-

(106)

-

(5,750)

25,477

19,621

 

At 1 January 2019

1,727

68,442

3,690

2,072

 

(917)

2,386

 

(29,346)

4,027

159,161

211,242

 

Regulatory transfer for future investment

-

-

-

-

 

-

153



(153)

-

Issue of shares on exercise of options

1

13

-

-

-

-

-

-

-

14

Transaction with owners

1

13

-

-

-

153

-

-

(153)

14

 

Profit for the year

-

-

-

-

 

-

-

 

-

-

6,084

6,084

Adjustment for adoption of IFRS 16 leases









(33)

(33)

Other comprehensive expense:











Exchange differences on translating foreign operations

-

-

-

-

 

-

(39)

 

-

(2,324)

-

(2,363)

Total comprehensive income

-

-

-

-

-

(39)

-

(2,324)

6,051

3,688

 

At 31 December 2019

1,728

68,455

3,690

2,072

 

(917)

2,500

 

(29,346)

1,703

165,059

214,944


Griffin Mining Limited

Summarised Consolidated Cash Flow Statement

For the year ended 31 December 2019

(expressed in thousands US dollars)

 


2019


2018


Audited


Audited


$000


$000





Net cash flows from operating activities




Profit  before taxation

11,712


34,798

Foreign exchange losses / (gains)

93


(42)

Finance income

(171)


(223)

Finance costs

377


283

Depreciation, depletion and amortisation

12,343


10,328

Impairment of intangible assets

1,985


-

Losses on disposal of equipment

305


939

Decrease in inventories

1,112


917

Decrease / (increase) in receivables and other current assets

959


(1,059)

Increase / (decrease) in trade and other payables

4,016


(12,917)

Taxation paid

(11,092)


(12,585)

Net cash inflow from operating activities

21,639


20,439





Cash flows from investing activities




Interest received

171


223

Proceeds on disposal of equipment

1


351

Payments to acquire - mineral interests

(18,883)


(10,669)

Payments to acquire - plant and equipment

(8,193)


(6,134)

Payments to acquire office, office furniture &  equipment

(69)


-

Payments to acquire intangible fixed assets - exploration interests

(308)


(81)

Net cash outflow from investing activities

(27,281)


(16,310)





Cash flows from financing activities




Issue of ordinary shares on exercise of options

14


1,174

Purchase of shares for treasury

-


(917)

Interest paid

(52)


-

Finance lease advance

65



Finance lease repayments

(2,762)


(2,728)

Net cash outflow from financing activities

(2,735)


(2,471)





(Decrease) / increase in cash and cash equivalents

(8,377)


1,658





Cash and cash equivalents at the beginning of the year

28,452


26,518

Effects of exchange rates

(190)


276

Cash and cash equivalents at the end of the year

19,885


28,452





Cash and cash equivalents comprise bank deposits.




Bank deposits

19,885


28,452

 

 

Included within net cash flows of $8,377,000 (2018 $1,658,000) are foreign exchange losses of $93,000 (2018: gains $42,000) which have been treated as realised.


Notes:

 

This statement has been prepared using accounting policies and presentation consistent with those applied in the preparation of the statutory financial statements of the Company.

 

The summary financial statements set out above do not constitute statutory financial statements 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 2019 and the Summarised Consolidated Income Statement, Summarised Consolidated Statement of Comprehensive Income, Summarised 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 audited 2019 statutory financial statements.

 

The annual report and accounts for 2019 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, 8th Floor, 54 Jermyn Street, London, SW1Y 6LX and are available on Griffin Mining Ltd's web site www.griffinmining.com

 

The Group has one business segment, the Caijiaying zinc gold mine in the People's Republic of China.  All revenues and costs of sales in 2019 and 2018 were derived from the Caijiaying zinc gold mine.

 

 


2019


2018


$000


$000

REVENUES




China

82,267


99,067





Zinc concentrate sales

55,627


78,821

Lead and precious metals concentrate sales

29,850


24,920

Royalties and resource taxes

(3,210)


(4,674)


82,267


99,067





COST OF SALES: CHINA




Mining costs

17,652


16,680

Haulage costs

8,277


8,374

Processing costs

10,019


10,423

Depreciation (excluding depreciation in administration costs)

11,462


9,652

Stock movements

1,199


669


48,609


45,798





ADMINISTRATION EXPENSES




China

14,253


13,122

Australia

414


442

UK / Bermuda

4,766


4,150


19,433


17,714

 

All revenues, cost of sales and operating expenses charged to profit relate to continuing operations.



Notes (continued):

 

TOTAL ASSETS

2019


2018


$000


$000

China

248,119


245,505

Australia

686


924

UK / Bermuda

5,389


4,949


254,194


251,378





CAPITAL EXPENDITURE

2019


2018


$000


$000

China

27,076


16,803

Australia

65



UK / Bermuda

4


-


27,145


16,803

 

FINANCE INCOME

2019


2018


$000


$000

Interest on bank deposits

171


223

 

FINANCE COSTS

2019


2018


$000


$000

Interest payable on short term bank loans

51


-

Finance lease interest

326


283


377


283

 

OTHER INCOME

2019


2018


$000


$000

Scrap and sundry other sales

76


200

 

Income Tax Expense


2019


2018


$000


$000

Profit for the year before tax

11,712


34,798





Expected tax expense at a standard rate of PRC income tax of 25% (2018 25%)

2.929


8,699

Adjustment for tax exempt items :




- Income and expenses outside the PRC not subject to tax

746


629





Adjustments for short term timing differences :




- In respect of accounting differences

(234)


(704)





Adjustments for permanent timing differences re prior year adjustments

-


(185)

Adjustments for permanent timing differences other

1,757


1,154





Withholding tax on intercompany dividends and charges

50


71





Current taxation expense

5,248


9,664





Deferred taxation expense / (credit)




Correction of provision brought forward

18


(674)

Origination and reversal of temporary timing differences

362


331


380


(343)





Total tax expense

5,628


9,321

Notes (continued):

 

INCOME TAX EXPENSE (continued)

 

The parent company is not resident in the United Kingdom for taxation purposes.  Hebei Hua-Ao paid income tax in the PRC at a rate of 25% in 2019 (25% in 2018) based upon the profits calculated under Chinese generally accepted accounting principles (Chinese "GAAP").

 

 

EARNINGS PER SHARE

 

Reconciliation of the earnings and weighted average number of shares used in the calculations are set out below:

 




2019






2018




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

 

6,084

 

 

172,748,831

 

 

13.52

 

 

25,477

 

 

171,842,166

 

 

14.83

Dilutive effect of securities

 

 

 

 

 

 

 

 

 

 

 

Options

-

 

15,107,500

 

(0.28)

 

-

 

16,494,541

 

(1.30)

Diluted earnings per share

 

6,084

 

 

187,856,331

 

 

3.24

 

 

25,477

 

 

188,336,707

 

 

13.53

 

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.

 



Notes (continued):

 

Property, plant and equipment

 


Mineral

Interests


Mill and mobile mine equipment


Office furniture & equipment


Total

 

At 1 January 2018

 

167,046


 

47,567


 

82


 

214,695

Foreign exchange adjustments

(4,450)


(2,291)


-


(6,741)

Additions during the year

10,669


6,134


-


16,803

Disposals

-


(1,289)


-


(1,289)

Depreciation charge for the year

(5,927)


(4,374)


(27)


(10,328)

At 1 January 2019

167,338


45,747


55


213,140

Foreign exchange adjustments

(1,611)


(786)


-


(2,397)

Additions during the year

18,883


8,193


69


27,145

Change in estimate of mine closure costs

 

(115)


 

-


 

-


 

(115)

Adjustment for adoption of IFRS 16 leases

 

-


 

-


 

370


 

370

Adjustment for change in accounting estimate on finance lease

 

-


 

2,792


 

-


 

2,792

Disposals

-


(305)


-


(305)

Depreciation charge for the year

(6,912)


(5,268)


(163)


(12,343)

 

At 31 December 2019

 

177,582


 

50,373


 

331


 

228,287









At 31 December 2017








Cost

200,708


72,366


134


273,208

Accumulated depreciation

(33,662)


(24,799)


(52)


(58,513)

Net carrying amount

167,046


47,567


82


214,695









At 31 December 2018








Cost

205,840


72,028


134


278,002

Accumulated depreciation

(38,502)


(26,281)


(79)


(64,862)

Net carrying amount

167,338


45,747


55


213,140









At 31 December 2019








Cost

222,588


80,935


573


304,097

Accumulated depreciation

(45,006)


(30,562)


(242)


(75,810)

Net carrying amount

177,582


50,373


331


213,140

 

Mineral interests comprise the Group's interest in the Caijiaying ore bodies including costs on acquisition, plus subsequent expenditure on licences, concessions, exploration, appraisal and construction of the Caijiaying mine including expenditure for the initial establishment of access to mineral reserves, commissioning expenditure, and direct overhead expenses prior to commencement of commercial production and together with the end of life restoration costs.

 

Property, plant and equipment includes $1,997,000 (2018: $15,034,000) of assets under construction yet to be depreciated.

 

The offices, office furniture and equipment disclosed above relates solely to the fixed assets of the Company and China Zinc  Pty Limited.

Notes (continued):

 

Property, plant and equipment (continued)

 

During 2013 plant and equipment with a value of $11,381,000, revalued in 2019 to $14,150,000, were acquired under a finance lease, upon which depreciation of $5,123,000 (2018: $4,035,000) has been provided. At 31 December 2019 the net carrying amount of this equipment was $9,027,000 (2018: $7,534,000).  In 2019 the Company's London office lease was capitalised to comply with IFRS 16 with a value of $371,000 upon which depreciation of $114,000 has been provided in 2019. At 31 December 2019 the net carrying amount of this office was $247,000. 

 

The Group assesses the carrying value of the mineral interests, mill and mobile mine equipment at least annually, and more frequently in the event of any indications of impairment, most notably metal prices, by reference to discounted cash flow forecasts of future revenue and expenditure for each business segment.  These forecasts are based upon both past and expected future performance, available resources and expectations for future markets.

 

The directors have reassessed the net carrying value of capitalised costs at 31 December 2019, particularly in view of the decline in metal prices for zinc and smelter treatment charges experienced in 2019. In estimating the discounted future cash flows from the continuing operations at the Caijiaying mine the following principal assumptions were made:

 

· Future market prices for zinc of $2,425 per tonne, gold of $1,500 per troy ounce and silver of $15 per troy ounce;

· Zinc treatment charges of 30% of market prices;

· Extraction of measured and indicated resources at Zone III at Caijiaying of 30 million tonnes with ore mined and processed at a rate of 1.2 million tonnes of ore per annum;

· Operating costs, recoveries and payables based upon past performance and that budgeted for 2020;

· Capital costs based upon that initially scheduled with sustaining capital based on future scheduling:

· Discount interest rate of 10%; and

· Continued maintenance and grant of applicable licences and permits. This assumes that Hebei Hua Ao will be converted to an equity joint stock company with an indefinite life without compensation to the Chinese Joint Venture Partner and that the business licence will be renewed at no significant cost.

 



Notes (continued):

 

Intangible Assets

 

China - mineral exploration interests






$000

At 1 January 2018





2,035

Foreign exchange adjustments





(100)

Additions during the year





81

At 1 January 2019





2,016

Foreign exchange adjustments





(17)

Additions during the year





308

Impairment during the year





(1,985)

At 31 December 2018





322

 

Intangible assets represent cost on acquisition, plus subsequent expenditure on licences, concessions, exploration, appraisal and development work in respect to regional exploration in China. Where expenditure on an area of interest is determined as unsuccessful such expenditure is written off to profit or loss. The recoverability of these assets depends, initially, on successful appraisal activities, details of which are given in the report on operations. The outcome of such appraisal activity is uncertain. Upon economically exploitable mineral deposits being established, sufficient finance will be required to bring such discoveries into production.  At 31 December 2019 impairment charges of  $1,985,000 (2018: $Nil) had been provided and charged to the income statement in respect of the above exploration costs previously capitalised by Hebei Sino Anglo. Griffin intends to agree a contractual right to transfer the exploration licence to Griffin's joint venture partner, Yuanrun, prior to expiry of the licence.

 

POST BALANCE SHEET EVENTS

 

Since the year end operations at Caijiaying were suspended for a month from 24 January to comply with restrictions instigated by the PRC authorities to contain the COVID 19 pandemic. Operations at Caijiaying recommenced on 21 February 2020 and have since steadily increased such that underground mining operations reached 100% of planned rates by mid-March and processing operations by late March. Since the re-commencement of operations at Caijiaying, restrictions in place to contain the coronavirus pandemic throughout China have relaxed, and as a result Hebei Hua Ao has been able to sell its output. As a result of these events, production and sale of metals in concentrate, and profitability was impacted in the first quarter of 2020, but has returned to planned levels subsequently.

 

As at 31 December 2019 there were no adjusting post balance sheet events (2018: none).


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