Anglesey Mining plc
A UK mining company listed on the London Stock Exchange
Anglesey is the founder and holder of 15% of Toronto-listed Labrador Iron Mines Holdings Limited (TSX:LIM) which is producing iron ore from its James deposit, one of LIM’s direct shipping iron ore deposits in western Labrador and north-eastern Quebec. Development of other deposits is planned and production of the high grade hematite iron ore is targeted to grow from 1.7 million tonnes in 2012 to between 1.75 and 2 million tonnes in 2013.
Anglesey is carrying out exploration, development and pre-feasibility work at its 100% owned Parys Mountain underground zinc-copper-lead-silver-gold deposit in North Wales, UK.
Anglesey owns 19.3m LIM shares (15%) and has issued 161m of its own shares all of which are admitted to trading on the London Stock Exchange.
In a year of difficult trading conditions in all resource sectors I am pleased to report that the company is weathering the storm and will see through the remainder of this current downturn. At Labrador Iron which we formed in 2007 and is today Canada’s only independent iron ore producer, the significant variability in iron ore prices during the second half of 2012 resulted in large reported losses and put a drain on the cash resources of that company. However four major funding events in late 2012 and early 2013 provided LIM with the necessary capital to enable it to enter its third year of mining operations which I am happy to report is now well under way. At Parys Mountain, following last summer’s successful exploration programme, we are taking the opportunity to review all the information available on the project and to consider the best alternatives whilst minimising expenditure at the current time.
All mining stocks are suffering in the current marketplace and both Labrador Iron and Anglesey Mining have been part of this severe downturn. We hope that as LIM demonstrates its current production capability, and with the benefit of a price protection programme in place to guard against any repeat of last year’s low prices, that the market will recognise the inherent value in LIM which should be reflected in the Anglesey share price.
There is undoubtedly pressure on commodity prices largely as a result of some reduction in the growth rate in China, however we do not support the notion that there will be a return to the levels of the early years of this century. Iron ore prices have come off from their all-time highs but remain relatively strong and it is far from certain that the forecast increase in supply will actually occur since many of the previously announced large undeveloped projects are likely to find financing impossible to obtain. Meanwhile base metals, which have slipped from their highs, also remain firm and with limited new production coming on line or even planned, we look for significant improvement in the middle term.
Our strategy therefore is to weather the current turbulent times, to retain cash where possible, to maintain our holding in Labrador Iron which today has a market value of almost £7 million and to leave ourselves ready and able to move forward when metal prices and capital markets return to more positive territory.
Following the initial production year in 2011, 2012 began well and production was on target to meet the target of 2.0 million tonnes of saleable product. However a major downturn in iron ore prices in August and September which saw spot prices for 62% Fe CFR China fall from around $120 per tonne to $85 per tonne in just four weeks left LIM in a vulnerable position in which it had no alternative but to cut all expenditure and curtail some production. Nevertheless iron ore sales for the year amounted to just over 1.5 million tonnes and LIM reported revenues from mining operations of C$96 million.
Last year was also very successful on the exploration front with new techniques permitting more and better drilling to be carried out for lower costs, and all this new information led to significant increases in compliant resources particularly on the Houston and Malcolm deposits, which will form the core of the next ten years production, and on the development of a maiden 620 million tonne taconite deposit close to LIM’s current infrastructure.
After the financial difficulties in late 2012 it was necessary to rebuild the LIM balance sheet and I am pleased to report that very encouraging support was received from the market place and $C59 million was raised in two equity issues in late 2012 and early 2013. LIM also entered into a strategic agreement with Tata Steel Canada regarding cooperation on a number of matters including the sale of a 51% interest in the Howse property which will result in the payment to LIM of $C30 million on completion. After the end of the financial year LIM also received a $35 million prepayment from RB Metalloyd as part of a two year iron ore sales agreement.
LIM began its third year of mining operations in late March 2013 and is now in full swing. Sales of between 1.75 and 2.0 million tonnes of iron ore are targeted this year. To guard against what now looks to be an annual dip in iron ore prices during the autumn period, LIM has put in place a price protection programme for 825,000 tonnes of iron ore at a floor price of $105 per tonne.
During the summer of 2012 we completed a successful exploration drilling programme at Parys Mountain. This work demonstrated that mineralisation at economic grades exists across at least 1.5 kilometres from the Morris Shaft area in the west of the property to the Pearl engine house area in the east. This work was followed by the production by Micon International of a JORC compliant resource estimate on the majority of the known and readily reachable development targets. Micon had produced a JORC resource for White Rock previously but this new estimate also brought both the Engine zone and Garth Daniel resources into a modern compliant basis compared to the historical estimates upon which the company had been reliant since 1990.
Micon had also made progress on a scoping study for Parys Mountain but given the current market conditions the company has decided to have a fundamental review of the technical and geological information available and to evaluate all the options for moving this project forward to production.
In July 2012 a net profits royalty on production from Parys Mountain was bought out and cancelled and outstanding advance royalty payments of £759,680 were settled for a cash payment of £630,000 and the issue of 2,000,000 ordinary shares. Cancellation of that royalty will improve both the economics and the ability to finance the Parys Mountain project.
We hold freehold title to the area of Parys Mountain that contains all our known resources and infrastructure. We have very low on-going cash commitments and these remain well within the current financial capability of the company, allowing us the benefit of time to make assessment without any risk of loss of resources.
We continue to closely watch base metal markets both from a price perspective as well as from materials supply view. We remain confident that the zinc copper and lead in Parys Mountain will improve firstly in relative demand which will flow through to higher prices in the medium term and we will be well prepared to take advantage of this at the appropriate time.
There was a large loss after tax of £31,451,398 for the year ended 31 March 2013. This compared to a profit of £19,386,555 reported in 2012. In both years a major factor was non-cash charges in respect of the accounting treatment of deemed disposals in LIM. These arise when LIM issues new shares to third parties; in 2012 they resulted in profits and in 2013 in losses due to the lower share prices at which these issues were made in that year. In addition, LIM reported significant operating losses in 2013 as well as amortisation charges and write downs in intangible assets.
During the year the group’s holding in LIM was diluted from 26% to 15% as a result of the new share issues by LIM. Consequently LIM ceased to be treated as an associate for accounting purposes and an accounting loss of £16,149,722 was recorded on recognition of the associate as an investment accounted for at fair value through profit and loss. There was a further non-cash loss of £3,791,439 over the period following the reclassification as an investment at fair value.
The group’s cash balance at 31 March 2013 was £670,345 (2012 – £3,150,644). The decrease from last year was due to the investment in LIM shares in November 2012 for £950,927, the buy-out of the Parys net profits royalty, Parys development expenditures and administrative expenses.
The group’s operating and administrative costs for the year were £398,428 (2012 – £396,807).
It would be remiss of me not to mention that Ian Cuthbertson will be leaving us at the end of July. Ian has been with Anglesey since its flotation in 1988 and has been much involved with all the developments with their highs and lows since then. During this time he has held the posts of accountant, company secretary and finance director. However this does not tell the full story and during this 25 year period of service he has been a central part, and indeed for much of that time the major part, of the management of the company. Ian will still be available give us on-going advice using his extensive knowledge of the history and activities of the company – we wish him the very best of good fortune in his retirement and in the years to come.
We are in a period in which patience will be a great virtue. We certainly need to see how LIM develops during 2013 but with its current year production plan well under way and with autumn prices protected we remain comfortable that an improvement is ahead. At Parys Mountain we do have the benefit of time if needed and we will take that opportunity to develop the most rational approach available under current and predicted price and market scenarios.
John F. Kearney
23 July 2013