Half yearly report for the six months to 30 September 2014

Chairman’s Statement and Management Report

The half year to end of September 2014 has been a difficult period for the resource industry and for the company. Labrador Iron Mines (“LIM”) did not mine any ore in the half year and reported a very large non-cash impairment in the carrying value of its assets.  LIM has indicated that it is seeking to complete a financial restructuring under a plan of arrangement. The share price of LIM continued to fall during the period and this is reflected in these accounts as a non-cash diminution in value on the balance sheet and as a loss on the income statement.

On a positive note the company entered into an arrangement in late May whereby it took an effective working control in the Swedish company Grangesberg Iron AB (“GIAB”) which is working towards the development of an underground iron ore mine in central Sweden based around previous mining operations. Since taking over management an Indicated and Inferred resource estimate compliant with the Canadian requirements of NI 43-101has been produced by GIAB. Further development work continues.

At Parys Mountain in North Wales physical activities on site have been fairly limited but progress is being made in planning for a potential mine development programme supported by the expected strength of the zinc concentrate market.

The company reported an unaudited loss of £879,000 for the half year of which £693,000 related to the reduction in value of LIM. Direct operating expenses at £152,000 were almost 25% lower than for the same period in the previous year.

There is undoubtedly stress in the resources industry at present with prices for precious metals and bulk minerals in particular suffering badly. This is having a negative impact on investor sentiment towards the sector in general which is reflected in the capital and equity markets with almost every share price, Anglesey being no exception, being badly eroded. However the markets for base metals,  zinc in particular, have stood up fairly well during this difficult time and we have reasonable expectations in the short to medium term that this strength will continue. We look for a longer term recovery in the price of iron ore.

Labrador Iron

Since January 2014 the spot price of iron ore has fallen over 45% to around US$70 per tonne today, compared to an average price of US$135 per tonne in 2013 (62% Fe fines on a CFR China basis).

LIM did not recommence mining operations for the 2014 operating season due to the prevailing low price of iron ore and an assessment of the current economics of its iron ore projects. There was a strategic shift in corporate focus towards establishing a lower cost operating framework while concurrently re-negotiating the commercial terms of major contracts and seeking additional capital investment and working capital. LIM continues to focus on the development of the Houston Mine.

At period end LIM had a very significant working capital deficit and had not met certain financial obligations. It urgently needs to secure additional financing arrangements in order to fund or restructure its current working capital deficit and to fund its continuing operations, planned development programmes and corporate administration costs so as to continue as a going concern. A financial restructuring and refinancing is required.

LIM is currently seeking to negotiate a potential support arrangement with RBRG Gerald Metals, an existing creditor and off-take partner, that, if successfully entered into, is expected to provide working capital financing to fund LIM’s ongoing activities, to provide potential future project development financing and to enable LIM to continue as a going concern.

If LIM is unable to complete a potential financial restructuring and to obtain adequate additional financing on a timely basis, which may require commercial relief on certain major contracts, then it will be required to curtail all its operations and development activities and may be required to liquidate its assets under a formal process. Under such circumstances Anglesey’s investment in LIM would likely be further impaired.

Grangesberg Iron

In late May 2014 Anglesey entered into agreements giving it the right to acquire a controlling interest in the Grangesberg iron ore mine situated in the mineral-rich Bergslagen district of central Sweden about 200 kilometres north-west of Stockholm. Until its closure in 1989 due to prevailing market conditions Grangesberg had mined in excess of 150 million tonnes of iron ore.

In a series of agreements Anglesey purchased for US$145,000 a direct 6% interest in GIAB, a private Swedish company founded in 2007 which, using our investment and assistance, had recently completed a financial and capital restructuring. GIAB holds a 25 year exploitation permit covering the previously mined Grangesberg underground mining operations granted by the Swedish Mining Inspectorate in May 2013.

At the same time we negotiated a 12 month option to acquire 51% of the enlarged share capital of GIAB for the issue of new ordinary shares of Anglesey to the value of US$1.75 million priced at a minimum of 3.375 pence per share. We also entered into shareholder and cooperation agreements such that during the term of the option Anglesey holds management control and operatorship of GIAB and has appointed three out of five directors to the board of GIAB.

In late September an NI 43-101Technical Report was prepared by Roscoe Postle Associates Inc (“RPA”) showing a compliant resource estimate for the Grangesberg Mine of 115.2 million tonnes at 40.2% Fe in the indicated category and 33.1 million tonnes at 45.2% Fe in the inferred category. RPA concluded that the Grängesberg iron ore deposit hosts a significant iron resource that has excellent potential for expansion at depth.

A programme is currently being progressed to look closely at geo-mechanical and hydro-geological aspects of the site which will be critical components of the permitting regime required for the dewatering and reopening of the mine.

In the coming months, under Anglesey’s direction GIAB will complete a review and update of its previous pre-feasibility study on the project incorporating inputs from the compliant resource estimate and from the geo-technical investigations and this will be a key determinant in our decision to exercise the option on the GIAB majority share block.

Parys Mountain

We are continuing to review development options at the 100% owned Parys Mountain zinc-copper-lead deposit in North Wales, UK where a JORC Code-compliant resource of 2.1mt at 6.9% combined base metals in the indicated category and 4.1mt at 5.0% combined in the inferred category was published in November 2012. A detailed review of the resource base for the entire mine property has been prepared by Micon International and these results are being evaluated.

The company is of the view that the market for zinc and zinc concentrates will further strengthen particularly in Europe in the next two years and on that basis believes that it is now an appropriate time to seriously consider the commencement of production at Parys Mountain. We are actively looking at suitable second hand processing facilities that can be readily and simply incorporated into an on-site plant at Parys Mountain.

The directors acknowledge that financing Parys Mountain at this time of depressed investor interest in the resources sector will not be simple. We believe that the strength of the resource base coupled with the project’s UK location with its inherent political and financial stability and with the widely held expectation of a resurgence in interest in zinc could enable a financing package to be put together.

Financial Results

There was a net loss for the period of £0.88 million (2013 loss £3.21 million); approximately £0.69 million of this 2014 loss was in respect of the diminution in the value of the investment in LIM resulting from a fall in the share price of that company. Administration expenses at £0.15 million were significantly lower than the comparative period in 2013. The group had no revenue for the period. At the period end cash resources had been reduced due to activities related to the GIAB acquisition and stood at £31,000. Additional funds will need to be raised in the immediate future. However GIAB is well funded to carry out its planned programmes.

Outlook

The prospects for the iron ore price in the short term are not encouraging with a continuing surplus of supply over demand resulting from the recent completion of large expansion projects by the major producers in Australia and Brazil. This is likely to keep prices pegged at low levels at least until the spring of 2015. The future of LIM and the maintenance of the value of our investment in that company will be dependent upon some resurgence in the iron ore price.

In the longer term we believe that the iron ore price will recover once the current expansion in production is absorbed by continuing growth in China, India and other developing countries and by production cutbacks from current producers, which should bring the supply-demand situation back to a balance position by around 2017.  It can be expected that the iron ore price should have recovered significantly by that time, and would then benefit GIAB which could be in a position to recommence initial production by around 2018.

We feel that the outlook for base metals and particularly for zinc, the major source of initial revenue from Parys Mountain, will improve. There are a number of major zinc mines scheduled for closure and this should lead to a shortage of zinc concentrate for smelters outside China which will move the zinc price upward. In this scenario smelters and metal traders will be more aggressive in the search for new concentrate supply and will be prepared to assist with finance for new production such as from Parys Mountain.

John F Kearney

Chairman

25 November 2014

For a downloadable pdf version of this report please go to http://angleseymining.co.uk/accounts/index.html

Unaudited condensed consolidated income statement

Notes Unaudited six months ended 30 September 2014 Unaudited six months ended 30 September 2013
All operations are continuing £ £
Revenue
Expenses (152,230) (196,480)
Impairment of investment 10 (692,702) (2,440,187)
Exchange difference on
investment impairment
10 20,850 (527,771)
Investment income 1,044 14,267
Finance costs (56,200) (57,149)
Foreign exchange gain/(loss) 330 (1,566)
Loss before tax (878,908) (3,208,886)
Tax 8
Loss for the period (878,908) (3,208,886)
Loss per share
Basic – pence per share (0.5)p (2.0)p
Diluted – pence per share (0.5)p (2.0)p

Unaudited condensed consolidated statement of comprehensive income

Loss for the period (878,908) (3,208,886)
Other comprehensive income:
None
Total comprehensive loss
for the year
(878,908) (3,208,886)

All attributable to equity holders of the company

Unaudited condensed consolidated statement of financial position

Notes Unaudited 30 September 2014 Audited 31 March 2014
£ £
Assets
Non-current assets
Mineral property exploration and evaluation 9 14,854,707 14,802,048
Property, plant and equipment 204,687 204,687
Investments 10 803,092 1,257,985
Deposit 122,806 122,596
15,985,292 16,387,316
Current assets
Other receivables 20,530 17,017
Cash and cash equivalents 31,556 289,097
52,086 306,114
Total assets 16,037,378 16,693,430
Liabilities
Current liabilities
Trade and other payables (266,303) (99,647)
(266,303) (99,647)
Net current (liabilities)/assets (214,217) 206,467
Non-current liabilities
Loan (2,475,073) (2,418,873)
Long term provision (42,000) (42,000)
(2,517,073) (2,460,873)
Total liabilities (2,783,376) (2,560,520)
Net assets 13,254,002 14,132,910
Equity
Share capital 11 7,116,914 7,116,914
Share premium 9,848,949 9,848,949
Retained losses (3,711,861) (2,832,953)
Total shareholders’ equity 13,254,002 14,132,910

All attributable to equity holders of the company

Unaudited condensed consolidated statement of cash flows

Notes Unaudited six months ended 30 September 2014 Unaudited six months ended 30 September 2013
£ £
Operating activities
Loss for the period (878,908) (3,208,886)
Adjustments for:
Investment income (1,044) (14,267)
Finance costs 56,200 57,149
Impairment of investment 10 692,702 2,440,187
Exchange difference on
investment impairment
10 (20,850) 527,771
Foreign exchange movement (330) 1,566
(152,230) (196,480)
Movements in working capital
(Increase)/decrease in receivables (3,513) 2,168
Increase/(decrease) in payables 13,877 (10,123)
Net cash used in operating activities (141,866) (204,435)
Investing activities
Investment income 834 14,017
Mineral property exploration and evaluation (41,899) (46,568)
Investment in Grangesberg (74,940)
Net cash used in investing activities (116,005) (32,551)
Loan received
Net decrease in cash
and cash equivalents
(257,871) (236,986)
Cash and cash equivalents at start of year 289,097 670,345
Foreign exchange movement 330 (1,566)
Cash and cash equivalents at end of year 31,556 431,793

All attributable to equity holders of the company

Unaudited condensed consolidated statement of changes in group equity

Share
capital
£
Share
premium
£
Retained earnings
£
Total
£
Equity at 1 April 2014 – audited 7,116,914 9,848,949 (2,832,953) 14,132,910
Total comprehensive
income for the period:
Loss for the period (878,908) (878,908)
Total comprehensive
income for the period:
(878,908) (878,908)
Equity at 30 September 2014 – unaudited 7,116,914 9,848,949 (3,711,861) 13,254,002
Comparative period
Equity at 1 April 2013 – audited 7,116,914 9,848,949 4,340,750 21,306,613
Total comprehensive
income for the period:
Loss for the period (3,208,886) (3,208,886)
Total comprehensive
income for the period:
(3,208,886) (3,208,886)
Equity at 30 September 2013 – unaudited 7,116,914 9,848,949 1,131,864 18,097,727

All attributable to equity holders of the company

Notes to the accounts

1.  Basis of preparation

This half-yearly financial report comprises the unaudited condensed consolidated financial statements of the group for the six months ended 30 September 2014. It has been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial Services Authority, the requirements of IAS 34 – Interim financial reporting (as adopted by the European Union) and using the going concern basis and the directors are not aware of any events or circumstances which would make this inappropriate. It was approved by the board of directors on 25 November 2014. It does not constitute financial statements within the meaning of section 434 of the Companies Act 2006 and does not include all of the information and disclosures required for annual financial statements. It should be read in conjunction with the annual report and financial statements for the year ended 31 March 2014 which is available on request from the company or may be viewed at www.angleseymining.co.uk.

The financial information contained in this report in respect of the year ended 31 March 2014 has been extracted from the report and financial statements for that year which have been filed with the Registrar of Companies. The report of the auditors on those accounts did not contain a statement under section 498(2) or (3) of the Companies Act 2006 and was not qualified. The half-yearly results for the current and comparative periods are unaudited.

2.  Significant accounting policies

The accounting policies applied in these unaudited condensed consolidated financial statements are consistent with those set out in the annual report and financial statements for the year ended 31 March 2014. The following amendments to interpretations were effective in the current period and have been adopted:

IFRS 10 Consolidated Financial Statements: Original issue; Issued October 2012; Effective – Annual periods beginning on or after 1 January 2014

IFRS 11  Joint Arrangements: Original issue; Issued – May 2011; Effective – Annual periods beginning on or after 1 January 2014

IFRS 12  Disclosure of Interests in Other Entities: Original issue; Issued – May 2011; Effective – Annual periods beginning on or after 1 January 2014

IAS 27  Separate Financial Statements (as amended in 2011): Original issue; Issued – May 2011; Effective – Annual periods beginning on or after 1 January 2014

IAS 28 Investments in Associated and Joint Ventures: Original issue; Issued – May 2011; Effective – Annual periods beginning on or after 1 January 2014

The adoption of the following amendments and new interpretations has not resulted in a change to the accounting policies nor had a material effect on the financial performance and position of the group. In preparing these financial statements any accounting assumptions and estimates made by management were consistent with those applied to the aforesaid annual report and financial statements.

IAS 32  Financial Instruments: Presentation: Amendments relating to the offsetting of assets and liabilities; Issued – December 2011; Effective – Annual periods beginning on or after 1 January 2014

IAS 36  Impairment of Assets: Amendments arising from Recoverable Amounts Disclosure for Non-financial Assets; Issued – 2004, Amended – May 2013; Effective Annual periods beginning on or after 1 January 2014

IAS 39  Financial Instruments: Amendments for novation of derivatives; Amended June 2013; Effective for Annual periods beginning on or after 1 January 2014

IAS 39 Financial Instruments: Recognition and Measurement; Original issue; Issued – June 2013; Effective for Annual periods beginning on or after 1 January 2014

IFRIC 21 Levies; Effective – Annual periods beginning on or after 1 January 2014

3.  Risks and uncertainties

The principal risks and uncertainties set out in the group’s annual report and financial statements for the year ended 31 March 2014 remain the same for this half-yearly financial report and can be summarised as: development risks in respect of mineral properties, especially in respect of permitting and metal prices; liquidity risks during development; and foreign exchange risks. More information is to be found in the 2014 annual report – see note 1 above.

4.  Statement of directors’ responsibilities

The directors confirm to the best of their knowledge that: (a) the unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of IAS 34 Interim financial reporting (as adopted by the European Union); and (b) the interim management report includes a fair review of the information required by the FSA’s Disclosure and Transparency Rules (4.2.7 R and 4.2.8 R). This report and financial statements were approved by the board on 25 November 2014 and authorised for issue on behalf of the board by Bill Hooley, Chief Executive Officer and Danesh Varma, Finance Director.

5.  Activities

The group is engaged in mineral property development and currently has no turnover. There are no minority interests or exceptional items.

6.  Earnings per share

The loss per share is computed by dividing the loss attributable to ordinary shareholders of £0.9 million (loss to 30 September 2013 £3.2m), by 160,608,051 (2013 – unchanged) – the weighted average number of ordinary shares in issue during the period. Where there are losses the effect of outstanding share options is not dilutive.

7.  Business and geographical segments

There are no revenues. The cost of all activities charged in the income statement relates to exploration and development of mining properties. The group’s income statement and assets and liabilities are analysed as follows by geographical segments, which is the basis on which information is reported to the board.

Income statement analysis

Unaudited six months ended 30 September 2014 Unaudited six months
ended 30 September 2013
UK Canada – investment Total UK Canada – investment Total
£ £ £ £ £ £
Expenses (152,230) (152,230) (196,480) (196,480)
Loss on fair value of investment (692,702) (692,702) (2,440,187) (2,440,187)
Exchange difference on loss above 20,850 20,850 (527,771) (527,771)
Investment income 1,044 1,044 14,267 14,267
Finance costs (56,200) (56,200) (57,149) (57,149)
Exchange rate movements 330 330 (1,566) (1,566)
Loss for the period (207,056) (671,852) (878,908) (240,928) (2,967,958) (3,208,886)

There are no income statement items to report in respect of Grangesberg.

Assets and liabilities

` Unaudited 30 September 2014
UK Sweden investment Canada investment Total
£ £ £ £
Non current assets 15,182,200 216,959 586,133 15,985,292
Current assets 52,086 52,086
Liabilities (2,783,376) (2,783,376)
Net assets 12,450,910 216,959 586,133 13,254,002
Audited 31 March 2014
UK Sweden investment Canada investment Total
£ £ £ £
Non current assets 15,129,331 1,257,985 16,387,316
Current assets 306,114 306,114
Liabilities (2,560,520) (2,560,520)
Net assets 12,874,925 1,257,985 14,132,910

8.  Deferred tax

There is an unrecognised deferred tax asset of £1.2 million (31 March 2014 – £1.2m) which, in view of the group’s results, is not considered to be recoverable in the short term. There are also capital allowances, including mineral extraction allowances, exceeding £11 million (unchanged from 31 March 2014) unclaimed and available. No deferred tax asset is recognised in the condensed financial statements.

9.  Mineral property exploration and evaluation costs

Mineral property exploration and evaluation costs incurred by the group are carried in the unaudited condensed consolidated financial statements at cost, less an impairment provision if appropriate. The recovery of these costs is dependent upon the successful development and operation of the Parys Mountain project which is itself conditional on finance being available to fund such development. During the period expenditure of £53,159 was incurred (six months to 30 September 2013 – £34,377). There have been no indicators of impairment during the period.

10.  Investments

Labrador (quoted) Grangesberg (unquoted) Total
£ £ £
At 31 March 2013 7,964,532 7,964,532
Impairment resulting from
adjustment to fair value
(5,451,267) (5,451,267)
Exchange difference arising
on adjustment above
(1,255,280) (1,255,280)
At 31 March 2014 1,257,985 1,257,985
Addition during period 216,959 216,959
Impairment resulting from
adjustment to fair value
(692,702) (692,702)
Exchange difference arising
on adjustment above
20,850 20,850
At 30 September 2014 586,133 216,959 803,092

Labrador: Labrador Iron Mines Holdings Limited (LIM) (TSX quoted) is the 100% owner and operator of a series of iron ore properties in Labrador and Quebec, many of which were formerly held and initially explored by the group. The group treats its 15% holding in LIM as an investment. The published fair value of this investment based on the quoted market price at 30 September 2014 is £0.6 million (31 March 2014 – £1.3 million). The group holds this investment as a strategic non-controlling interest, not held for trading and classified as ‘available for sale’.

Grangesberg: In May 2014 the group entered into a series of agreements in connection with the potential acquisition of iron ore properties at Grangesberg in Sweden. Certain expenditures which have resulted in the group having a 6% holding in Grangesberg Iron AB (an unquoted Swedish company) and an option to purchase shares amounting to 51% of that company have been treated in these statements as an investment held at fair value through the income statement.

11.  Share capital

Ordinary shares of 1p Deferred shares of 4p Total
Issued and
fully paid
Nominal
value £
Number Nominal
value £
Number Nominal
value £
At 31 March 2013, 2014 and 30 September 2014 1,606,081 160,608,051 5,510,833 137,770,835 7,116,914

12.  Financial instruments

Group Available for sale assets Assets at fair value through income statement Loans & receivables
Unaudited 30 September 2014 31 March 2014 Unaudited 30 September 2014 31 March 2014 Unaudited 30 September 2014 31 March 2014
£ £ £ £
Financial assets
Investments 586,133 1,257,985 216,959
Deposit 122,806 122,596
Other debtors 20,530 17,017
Cash and cash
equivalents
31,556 289,097
586,133 1,257,985 216,959 174,892 428,710
Unaudited 30 September 2014 31 March 2014
£ £
Financial liabilities
Trade creditors (40,231) (34,863)
Other creditors (142,019)
Loans due to Juno (2,475,073) (2,418,873)
(2,657,323) (2,453,736)

13.  Events after the reporting period

None.

14.  Related party transactions

None.

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