11th Jul 2007 07:00
Avocet Mining PLC11 July 2007 PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2007 FOCUSING ON EXPANSION IN SOUTH EAST ASIA Year to Year to Year to Year to Year to 31 March 31 March 31 March 31 March 31 March 2003 2004 2005 2006* 2007 US$'000 US$'000 US$'000 US$'000 US$'000 Turnover 48,547 68,844 71,060 90,493 108,236Operating cash flow 9,876 23,036 17,092 19,942 25,844Gross profit 6,788 17,064 18,559 18,182 22,740Pre-tax profit 3,647 15,592 15,803 15,905 22,689Profit after tax and minority 2,157 11,280 11,686 10,819 16,517interestsBasic earnings per share 3.03c 12.20c 11.26c 10.30c 13.82cGold produced (oz) 134,580 179,930 172,938 208,530 178,318Total cash cost (US$/oz) 219 232 278 300 428 * restated for FRS20, see note 1 • Turnover up 20% at US$108.2 million • Pre-tax profit increases 43% to US$22.7 million • Operating cash flow increases 30% to US$25.8 million • ZGC sale completed, exceptional profit up to US$20.0 million • Transaction agreed to buy into 9 Indonesian exploration projects • Bakan, Indonesian environmental impact study approved, new mine in the making __________________________________________________________________________________________________________________ For further information please contact: Avocet Mining PLC Buchanan Communications Grant Thornton Corporate FinanceJonathan Henry, Chief Executive Officer Bobby Morse, Director Fiona Kindness, DirectorMike Norris, Finance Director Nick Melson, Manager 020 7728 3414020 7907 9000 020 7466 5000 www.grant-thornton.co.ukwww.avocet.co.uk www.buchanan.uk.com Chairman's Statement Avocet is one of the largest gold producing companies listed on AIM. We havestrengthened management and operational teams. We also have a robust balancesheet, generate strong profits and cash flows, and have a defined focus onprojects in South East Asia that have the potential to expand resources and goldproduction in the region and elsewhere. Following a review in 2006, your Boardwill leverage off these strengths and deliver capital growth for shareholders. Following his appointment last July, our new Chief Executive initiated a fullreview of our assets. In November 2006 a decision was taken to sell ZGC inTajikistan. It was felt that this would allow the Group to focus on itsproducing mines in Indonesia and Malaysia, as well as the expansion of itsproject portfolio in South East Asia. This expansion includes the developmentof the Bakan mine and the recently acquired Banda properties in Indonesia. Ourcore strengths and proven track record have been in South East Asia and now,following the sale of ZGC, we intend to harness these strengths to achieve ourgoals and expand our business in line with our strategy of developing a ten yearreserve base. The Way Forward The completion of the disposal of ZGC on 9 July represents an importantmilestone for Avocet. Recent approval of the environmental impact study for theBakan project in Indonesia allows us to proceed with the completion of thefeasibility study and the commencement of a second mine in that country. Havingdivested of our interest in ZGC and the associated problems concerning cashcosts and general operational uncertainty that went with this asset, Avocet iswell placed to expand its existing interests in South East Asia. In addition,the recent acquisition of the Banda properties highlights the Company's abilityto tap into significant new opportunities in its core region of South East Asia.This is the first of many initiatives in the region. Governance In my statement last year I highlighted the appointments of Jonathan Henry asChief Executive Officer, Eric Vesel as Chief Operating Officer and Mike Donoghueas Non-Executive Director. In February 2007, we welcomed Robbie Robertson tothe Board as Non-Executive Director. I am pleased to announce that Mike Norris,who joined the Group as Chief Financial Officer in February 2007 from AngloAmerican, has now joined the board as Finance Director. Gordon Toll has retiredas a director of the Company due to other commitments. I thank Gordon for hisvaluable input over the last two years and wish him continued success in hisbusiness interests. These changes allow the Company to remain focused on the highest appropriatelevel of corporate governance, while strengthening our ability to respond to newchallenges in the areas of production, costs, health, safety and environment,employee and community welfare and sustainable development. The Gold Market We have enjoyed continuing high gold prices that have followed the trend ofcommodities in general, buoyed by strong global demand and the significantweakening of the US dollar during 2006. Following final sales in the firstquarter of 12,000 ounces into our old $312/oz hedge position, we have beenexposed to spot prices throughout the year. The collar position we entered intoin January 2006 has reduced to 210,000 ounces with put and call strike prices ofUS$450/oz and US$700/oz respectively maturing at a rate of 10,000 ounces permonth over the next 21 months. We continue to monitor the situation to ensurewe are well placed to respond appropriately to changes in the gold price. Outlook Our operating performance has seen an improving trend over the last severalmonths, and we are confident of further production efficiencies and cost savingsat Penjom and North Lanut. In addition, the gold price continues to trade abovethe average price received of US$607/oz for the last year. Following thedisposal of ZGC, which incurred operating losses of US$4.2 million last year, welook forward to another year of increasing profitability. With a more focused portfolio of operations, the generation of strong cash flow,a flexible balance sheet, and a strengthened operational team, Avocet remainsconfident of being able to grow the Company significantly over the coming years. People I would like to take this opportunity to recognise the hard work and dedicationof all our employees, and to thank them for their efforts over the past year. Ibelieve they represent our greatest asset, and I look forward to working withthem in the coming year as Avocet expands its business in South East Asia. Nigel McNair Scott10 July 2007 Chief Executive Officer's Statement Following my appointment in July 2006, we have undertaken a review of ourvarious business units and made changes to the way we run our business and theinternal management of those business units. I am delighted to welcome MikeNorris to the board as Finance Director, together with a number of other seniorappointments, giving us a much stronger team to expand our business and realisea number of exciting opportunities. I believe, following the sale of ZGC, wehave a clear focus on our core business which now consists of a pipeline ofexcellent projects and two producing mines in South East Asia. Both the peopleand the projects, combined with our strong balance sheet, can bring Avocet tonew levels in our goal of generating significant capital growth for shareholdersthrough a combination of organic growth and strategic acquisitions. We intend tobe a leading mid-tier gold producer within five years. This will come throughmaximising the returns on existing production, while seeking new opportunitiesto generate long term earnings growth. Focus on South East Asia The decision to sell ZGC in November 2006 followed a detailed strategic andoperational review of the business following a number of years of losses andinsufficient progress in addressing certain production and cost challenges atZGC. The review concluded that the ZGC assets required significant investment aswell as major management input over many additional years in an area whereAvocet had little strategic advantage. As Avocet has enjoyed success indeveloping and acquiring projects in South East Asia, it was decided that theprime strategy would be to focus on the Company's geographic strengths.Accordingly, the Board decided to dispose of ZGC and to pursue additionalaccretive acquisitions in South East Asia. This resulted in the acquisition ofthe highly prospective Banda properties in Indonesia. The Banda properties represent exploration and mining rights over a combinedland position of 410 square kilometres predominantly located in North Sulawesi,the location of the Company's North Lanut mine and Bakan project. Theseproperties include advanced projects which have been reported as containingcombined non-JORC compliant resources of 2.2 million ounces of gold. Avocethas already commenced exploration on two of the prospects. The strongrelationships that Avocet's management in Indonesia has developed with localcommunities and local government, and the Company's track record in buildingmines in South East Asia, mean that the Company is well placed to successfullydevelop the Banda properties. The review also precipitated the sale of the dormant Damar project in Malaysiawhere we have realised significant value. We have recently completed thistransaction and now own an investment of just below 20% in Monument Mining, aTSX Venture Exchange listed company with plans to develop the Selinsing mine,located to the south of Damar's Buffalo Reef prospect. We are also indiscussions with a number of parties concerning the potential divestment of theIdenburg project in West Papua, Indonesia. All these transactions have been facilitated through a new corporate financeteam based in London and demonstrate Avocet's focus on optimising its strategicadvantage in geographic territories where we have a proven track record andexcellent management teams. The Company will continue to concentrate on bothoperational excellence and growth, with care taken to ensure that we remainfocused on continuous performance improvement while aggressively growing ourbusiness. Production ounces and cash costs remain the key performanceindicators. We have taken into account the resources needed to explore fullyand eventually exploit the Banda properties, as well as other sources of growth,both organic and through acquisitions. With a strong balance sheet and theability to gear up due to our strong cash flow, we remain highly flexible inbroadening the project pipeline of the business. Financial Results Group earnings were ahead of expectations. Revenue grew by 20% to US$108.2million as a consequence of higher gold prices, while pre-tax profits grew by43% to US$22.7 million. Earnings also benefited from an exchange gain on thetranslation into dollars of funds raised in Sterling in May 2006, as well asfrom interest on these funds. Earnings per share were up 34% on last year at13.8 cents. Production and Unit Costs Gold production of 178,318 ounces was 14% below the prior year. This wasprincipally as a result of the decision to increase the size of the Penjom pitto exploit an increase in resources. This required waste stripping to beprioritised with the result that the mill was fed from lower grade stockpiles.At North Lanut, unseasonal heavy rainfall required the mine to conduct somere-engineering of the waste dumps and storm water ponds for the dump leach,which involved equipment being diverted from ore production. At ZGC, productionand costs were affected by increased waste stripping from the high wall of theJilau open pit. Overall average unit costs were US$428/oz. Excluding ZGC, theaverage for Penjom and North Lanut reduces to US$352/oz compared with US$229/ozfor the prior year. This cost increase, while primarily a reflection of lowergold production, also reflects industry-wide operational cost increases. Thegold industry has seen average cash costs increase from below US$200/oz at thestart of this decade to a reported US$317/oz for 2006 as a consequence of higherconsumable prices, including diesel, steel, tyres, reagents and power costs. InIndonesia, the increase in diesel costs was exacerbated by the cancellation ofgovernment-funded fuel subsidies. In Malaysia, cash cost increases partlyreflected the impact of higher gold prices which contributed to a rise inroyalties from US$26/oz in the prior year to US$44/oz in the year to March 2007.The latter also reflected a full year of higher royalty rates following changein Malaysian legislation in January 2006. The Company is committed to reducingunit cash costs to below industry average, and steps have been made in thisdirection in the second half of the year and the first quarter of the currentyear. At both Penjom and North Lanut, performance in the second half of the year wassignificantly improved from the first half. This positive trend has continuedinto the first quarter of this financial year. In 2007, efforts to improveproduction and reduce unit costs will focus firstly on maximizing gold ouncesproduced. Secondly, capital investment at Penjom of approximately US$20 millionduring the current year, to expand the pit and increase capacity through theprocessing plant, will help in achieving these objectives. At North Lanut,production will also benefit from the introduction of contractor Volvo ADT's(dump trucks) capable of operating in wet conditions. People The buoyant mining industry demand for experienced technical personnel is anongoing issue which management continues to address. The Company has andcontinues to put the appropriate structures in place to make Avocet a rewardingplace to work so that any risk of lack of manpower to achieve our goals can beavoided. We continue to hire excellent people, to supplement our existinghighly skilled and professional teams, as the business expands in South EastAsia. Jonathan Henry10 July 2007 CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH 2007 note 2007 2006 total restated US$000 US$000 TurnoverContinuing operations 86,818 73,360Discontinued operations 2 21,418 17,133 108,236 90,493Cost of sales (85,496) (72,311) Gross profit 22,740 18,182 Administrative expenses (3,636) (3,280) Share based payments 1 (961) (341) Total administrative expenses (4,597) (3,621) Operating profit/(loss)Continuing operations 22,337 21,418Discontinued operations 2 (4,194) (6,857) Operating profit/(loss) 18,143 14,561 Profit on disposal of fixed asset investments - 1,423 Net interest and similar charges 4,546 (79) Profit on ordinary activities before taxation 22,689 15,905 Tax on profit on ordinary activities (6,447) (5,750) Profit on ordinary activities after taxation 16,242 10,155 Equity minority interest 275 664 Profit for the financial year retained 16,517 10,819 Basic earnings per share 3 13.82c 10.30c Diluted earnings per share 3 13.55c 10.13c CONSOLIDATED BALANCE SHEET AS AT 31 MARCH 2007 2007 2006 restated US$000 US$000 Fixed assetsNegative goodwill (1,347) (1,424)Positive goodwill 4,888 4,395 3,541 2,971Intangible assets 12,224 6,521Tangible assets 47,297 37,670Investments 1,937 1,937 64,999 49,099 Current assetsStocks 26,421 23,783Debtors due within one year 6,303 3,073Debtors due after more than one year 2,053 1,773Cash at bank and in hand 65,299 12,918 100,076 41,547 Creditors: amounts falling due in less than oneyear (17,869) (12,526) Net current assets 82,207 29,021 Total assets less current liabilities 147,206 78,120 Creditors: amounts falling due in after morethan one year (138) (793) Provisions for liabilities and charges (8,051) (6,748) 139,017 70,579 Capital and reservesCalled up share capital 9,867 8,445Share premium account 52,834 133Other reserves 17,909 17,909Investment in own shares (2,130) (732)Investment in treasury shares (1,426) -Profit and loss account 61,240 43,826 Equity shareholders' funds 138,294 69,581Equity minority interests 723 998 139,017 70,579 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2007 2007 2006 US$000 US$000 Net cash inflow from operating activities 25,844 19,942 Returns on investment and servicing of financeInterest received 2,424 228Interest paid (112) (181) Net cash inflow from returns on investmentand servicing of finance 2,312 47 Taxation (4,669) (6,254) Capital expenditure and financial investmentPurchase of tangible fixed assets (13,264) (6,365)Deferred exploration costs (9,203) (5,268) Net cash outflow from capital expenditureand financial investment (22,467) (11,633) Acquisitions and disposalsSale of investments - 1,423Purchase of investments - (1,937)Deferred consideration (1,196) (812) Net cash outflow from acquisitions and disposals (1,196) (1,326) FinancingProceeds from issue of ordinary shares 56,733 935Costs of issue of ordinary shares (2,610) -Investment in own shares (1,794) (307)Investment in treasury shares (1,426) -Capital repayments on finance leases (580) (440) Net cash inflow from financing 50,323 188 Increase in cash 50,147 964 CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES AND RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS FOR THE YEAR ENDED 31 MARCH 2007 2007 2006 note restated US$000 US$000Consolidated statement of total recognised gains and losses Profit for the financial year 16,517 10,819Exchange translation adjustments (64) 159 Total recognised gains and losses 16,453 10,978 Reconciliation of movements in Group shareholders' fundsTotal recognised gains and losses 16,453 10,978New capital subscribed (net of costs) 54,123 935Investment in own shares (1,398) (19)Investment in treasury shares (1,426) -Share based payments 1 961 341Net change in shareholders' funds 68,713 12,235 Opening shareholders' funds 69,581 57,346 Closing shareholders' funds 138,294 69,581 Notes to the Financial Statements 1. FRS20 share based payments The Group has applied the requirements of Financial Reporting Standard 20 (FRS20), Share-Based payments, in accordance with transitional provisions, to allequity instruments granted after 7 November 2002 that had not vested as of 1April 2006. As a result, certain amounts have been restated as at 31 March 2006and for the year then ended. The consolidated Profit and Loss Account for 2006has been restated to include a charge for Share-Based payments of US$341,000,reducing the profit before tax for the year from US$16.246 million to $15.905million. There has been no impact on the net assets or cash inflow. 2. Discontinued operations Discontinued operations represent the results of Commonwealth & British Minerals(UK) Limited and JV Zeravshan LLC the disposal of which was announced on 28 Junewith completion occurring on 9 July 2007. 3. Earnings per ordinary share The calculation is based on profits of US$16,517,000 (2006: restatedUS$10,819,000) and on a weighted average number of shares in issue of119,543,971 (2006: 105,064,092). The fully diluted calculation of earnings per share is based on profits ofUS$16,517,000 (2006: restated US$10,819,000) and 121,893,361 shares (2006:106,749,575 shares). 4. Financial Information The financial information set out in this preliminary announcement does notconstitute statutory accounts as defined in Section 240 of the Companies Act1985. The consolidated balance sheet at 31 March 2007 and the consolidated profit andloss account, consolidated cash flow statement and other primary statements andassociated notes for the year then ended have been extracted from the Group's2007 statutory financial statements (which have not yet been filed withCompanies House) upon which the auditors' opinion is unqualified, and does notinclude any statement under Section 237 of the Companies Act 1985. 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