Half yearly report 2011

Chairman’s statement
and management report – November 2011

We are very pleased to be able to report further significant progress at the 33% owned Labrador Iron Mines (LIM) operations in the period since the last report to shareholders. Stripping and mining operations have proceeded well, the processing plant frequently exceeded its design throughput and the first shipment of iron ore left the port of Sept-Isles bound for China on 3 October 2011. The substantial group profit of £16.7 million for the period is largely due to the success of the investment in LIM.  Meanwhile at Parys Mountain we plan to start a drilling and geophysical programme in the immediate future as the first step in a fresh approach to this property.

Labrador Iron

The highlights at the Schefferville properties for the period ended 30 September 2011 were:

  • 723,000 tonnes of ore mined and trucked to Silver Yards during the half year
    including 212,000 tonnes of direct railable ore (DRO) at an average grade of 65% iron
  • James mining operations operated ahead of schedule
  • Silver Yards processing plant throughput exceeded 8,000 tonnes per day
  • A second phase processing plant expansion was completed increasing recoveries
    by the production of high quality sinter fines
  • A second train has increased the tonnage carried on the railway to Sept-Iles.

Details of production to date are shown in the following table:

Quarter ended 30 September 2011 Half year ended 30 September 2011
Tonnes Grade % Fe Tonnes Grade % Fe
Ore Mined 612,596 60.2 722,980 59.9
Including DRO 177,863 65.3 212,069 65.1
Waste Mined 1,536,368 2,262,050
Plant Feed 310,107 57.4 328,210 57.3
Lump Ore 52,179 64.8 60,435 64.7
Sinter Fines 112,951 63.0 119,587 63.0
Total Railed 208,461 65.1 213,945 65.1

The first ship carrying 167,167 wet tonnes of direct railable ore at a grade of 64.8% Fe departed from the port of Sept-Iles on 3 October 2011 bound for China and the second shipment departed on 2 November carrying 172,743 wet tonnes of sinter fines at a grade of 64.9% Fe, also destined for China. LIM expects a third similar sized shipment to depart at the end of November, and possibly another smaller shipment to depart in December.

James Mine Operations

Mining at the James Mine commenced in June 2011 and is continuing to operate well. To the end of September, a total of 723,000 tonnes of ore had been mined and trucked to the Silver Yards area ahead of processing or transport to the port.  The grade of the James ore in the upper benches of the mine continues to be generally in excess of expectations.  Of the total production to the end of September, some 212,000 tonnes was DRO at an average grade of around 65% iron of which 175,000 tonnes had been railed directly to Sept-Iles without further processing.

Ore mining operations at the James Mine will continue through the remainder of 2011 at an average rate of approximately 16,000 tonnes per day and, depending upon the weather, it is expected that a total of about 1.6 million tonnes will have been mined by the end of December with about 3 million tonnes of waste mined in the same period.  Ore mining operations are expected to continue during the winter months, but at a reduced rate.

Silver Yards processing

Following commissioning and start-up in June 2011 the Silver Yards processing plant gradually improved its performance and frequently achieved over 8,000 tonnes per day in September and October. The completion of a second phase expansion of the Silver Yards plant during the second quarter was designed specifically for fine material and has resulted in an improved throughput and recovery rate.

The Silver Yards plant was shut down for the season in early November as wet processing is not planned in winter conditions. Further plant modification and installation of additional equipment as part of the phase three expansion is continuing and is designed to increase Silver Yards’ production capacity to about 2 million tonnes per year. It is expected that the planned plant expansion will be in place by mid-2012.

It is also estimated that, subject to weather conditions, approximately 600,000 tonnes of saleable product will be railed to Sept-Iles for calendar 2011 and will all be sold to the Iron Ore Company of Canada (IOC). In addition to these shipments, it is expected that a further 600,000 tonnes of iron ore will be held in inventory at Silver Yards and be available for treatment and shipping in 2012, including about 200,000 tonnes of DRO.

LIM 2011 exploration programme

The 2011 LIM exploration program has progressed successfully and is now winding down.  Three rigs were in operation and by the end of September about 8,200 metres had been drilled on a number of deposits with the Houston deposit being the main focus. It is expected that about 11,500 metres of reverse circulation drilling will be completed before the onset of winter. Exploration support programs including 650 metres of trenching, 65 test pits and air-borne geophysics will also be completed during the current season.

LIM 2012 Outlook

Mining will continue at the James North and James South deposits in the year 2012, with a planned total ore mined of between 2.0 and 2.5 million tonnes, together with about 3.5 million tonnes of waste.

Subject to final operating plan and budget approval, it is now expected that between 1.8 and 2.0 million tonnes of ore, including material from stockpiles, will be treated in 2012 and this is expected to yield up to 1.5 million tonnes of saleable product. In addition, it is expected that about 500,000 tonnes of direct railable ore from both the 2011 stockpile and from 2012 mining operations will also be available in 2012, for a total production target of over 2.0 million tonnes of iron ore to be shipped and sold in 2012. A third train will be introduced in 2012 to enable this production of iron ore to be railed to the port of Sept-Iles.

LIM has signed a MOU with the Sept-Iles Port Authority for the use of the Pointe-aux-Basques terminal for handling and ship loading of LIM’s iron ore however these arrangements for 2012 and future years remain subject to evaluation and finalization.

Iron ore produced in 2011 is being sold to IOC and delivered to Asian markets and re-sold by IOC’s marketing organization on the spot market. LIM continues to review its options for marketing its iron ore production for 2012 and subsequent years and is evaluating the optimum route to achieve these sales, while still maintaining maximum flexibility and independence. LIM has not yet concluded any agreements for the sale of any iron ore beyond 2011.

Parys Mountain

Towards the end of the period a review of the Parys Mountain project commenced and a drilling programme to expand and assist this review is planned to commence in the immediate future; this will target areas close to the shaft which could form part of a small mine chiefly focussed in the White Rock area. This concept was the subject of a scoping study prepared by Micon Consultants in June 2007. The directors believe that the outlook for zinc and lead prices is positive over the next few years and that work to further develop the White Rock area as an early route to the full development of the project is justified.

Financial results

LIM’s fundraising of C$121 million in April 2011 resulted in the reduction of our stake in that company from 41% to 33%, and the operation of accounting standards means that this dilution is treated for accounting purposes as a ‘deemed disposal’ or partial sale; because of the low LIM cost base we have recorded a profit on this non-cash transaction of £19.6 million in the period (2010 – nil). After taking into account operating expenses and other items there was a net profit for the period of £16.7 million (2010 – loss – £0.76 million) despite a significant increase in administrative and start-up expenses attributable to LIM. The group’s UK administrative expenses excluding LIM increased to £213,422 from £161,955 in the comparable period of 2010. There are no seasonal effects in these results.

The group has no revenues from the operation of its properties. At the period end the cash resources of the group were £3.4 million (31 March 2011 – £3.7 million) and LIM had in excess of C$37.9 million or £23.5 million (31 March 2011 – C$7.5 million or £4.8 million).

Outlook

After a number of years in which the group has concentrated its efforts largely on LIM we are now expanding our review of Parys Mountain with the aim of forming a clear view on the best way to move its development forward. Whilst there is considerable financial uncertainty in the world, the price of copper which represents the major potential revenue from Parys Mountain, remains firm, and there is a continuing consensus that prices for zinc and lead, which are likely to provide revenues in the early years of the mine, is positive over the medium term.

LIM has taken a major step during the last six months as it has moved into production and is planning a major increase in the sale of iron ore products in 2012 and beyond. The price of iron ore, after a very steady summer, has become somewhat erratic as both miners and Chinese steel mills reassess their positions. The directors remain confident that LIM will perform well in 2012 and continue to provide a fundamental basis for the continuing well-being of the group.

John F Kearney

Chairman

28 November 2011

Condensed consolidated income statement

Notes Unaudited six months ended 30 September 2011 Unaudited six months ended 30 September 2010
All operations are continuing £ £
Revenue
Expenses (213,422) (161,955)
Share of loss of associate 11 (2,635,673) (407,016)
Gains on deemed disposals in associate 11 19,607,503 17,279
Investment income 20,566 5,394
Finance costs (56,059) (59,860)
Foreign exchange loss (67,700) (149,974)
Profit/(loss) before tax 16,655,215 (756,132)
Tax 9
Profit/(loss) for the period 16,655,215 (756,132)
All attributable to equity holders of the company
Profit/(loss) per share 7
Basic – pence per share 10.5 p (0.5)p
Diluted – pence per share 9.9 p (0.5)p
Consolidated statement of comprehensive income
Profit/(loss) for the period 16,655,215 (756,132)
Other comprehensive income:
Exchange difference on
translation of foreign holding
(595,891) (1,213,105)
Total comprehensive (loss)/income
for the period
16,059,324 (1,969,237)
All attributable to equity holders of the company

A copy of the half yearly report in pdf format can be found on this website by clicking here.

For further information, please contact:

Bill Hooley, Chief Executive +44 (0) 1492 541981;

Ian Cuthbertson, Finance Director +44 (0) 1248 361333;

Samantha Harrison / Shaun Whyte, Ambrian Partners Limited +44 (0) 2076 344700;

Emily Fenton / Jos Simson,

Tavistock Communications +44 (0) 20 7920 3155 / +44 (0) 7788 554035.

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