Anglo Asian Mining Results : News from McNeill.org.uk

Anglo Asian Mining Results

23 May 2012
Anglo Asian Mining Results

Anglo Asian Mining plc - Final Results

Anglo Asian Mining plc, the AIM listed gold producer in Azerbaijan, is pleased to announce its final results for the year ended 31 December 2011.

Overview

  • Increased profit before tax of US$31.6 million (2010: US$19.8 million) on revenue of US$83.8 (2010: US$72.0 million)
  • Increased gross profit of US$43.0 million (2010: US$31.4 million)
  • Increased operating cash flow before movement in working capital of US$55.8 million (2010: US$47.0 million)
  • Total gold production of 57,068 ounces (2010: 67,267 ounces)
  • Gold sales of 49,304 ounces (2010: 57,398 ounces) completed at an average of US$1,573 per ounce (2010: US$1,241 per ounce)
  • Gold produced at an average cash operating cost of US$448 per ounce (2010: US$358 per ounce)
  • Silver dore production totalled 39,086 ounces (2010: 43,356 ounces)
  • 842,751 tonnes of dry ore transferred onto the leach pad with an average gold content of 3.29 g/t during FY 2011 (2010: 821,176 tonnes with an average gold content of 4.33 g/t)
  • Significant increase in total copper concentrate produced which exceeded forecast - 611 tonnes of copper, 134,240 ounces of silver and 200 ounces of gold (2010: 182.5 tonnes of copper, 46,940 ounces of silver and 833 ounces of gold)
  • Post year end, Q1 2012 gold production totalled 9,925 ounces - targeted to produce circa 54,000 ounces for FY 2012
  • Upgraded JORC resource by 50% at Gedabek post-year end to over 1 million ounces in the Measured and Indicated categories
  • Focus on exploration upside potential at Gedabek: 24,567 metres of drilling planned to increase resource base - a JORC compliant ore reserve report is planned to be completed in Q2 2012
  • Continuing to develop Gosha Contract Area into a profitable, high grade underground gold mine - development anticipated to commence H2 2013
  • Notice of Discovery in 462 sq km Ordubad Contract Area - further exploration planned to advance project
  • Reduced net debt to US$3.2 million at 31 December 2011 (2010: US$25.5 million)
  • Solid cash position as at 31 December 2011 of US$9.9 million (2010: US$5.1 million)

Chairman's Statement

During the period under review Anglo Asian made excellent progress as a significant gold/copper/silver producer in Caucasia. With a solid production profile and low operating costs at our flagship Gedabek gold/copper/silver mine ('Gedabek') located in western Azerbaijan, as well as favourable commodity prices, we have enjoyed a period of increasing profitability for the year to 31 December 2011 ('FY 2011'). To this end, I am delighted to report that the Company recorded a 60% increase in profit before tax of US$31.6 million (2010: US$19.8 million) and a 37% increase in gross profit of US$43.0 million (2010: US$31.4 million).

In addition, in line with our strategy to build a multiple gold mine company and unlock our intrinsic value, we have implemented defined exploration and development programmes across our 1,962 sq km portfolio of prospective copper and gold assets in Azerbaijan. At Gedabek, we accomplished a milestone post-period end, announcing a 50% upgrade in our JORC resource to over 1 million ounces of gold in the Measured and Indicated classifications; at our 300 sq km Gosha Contract located 50 km away from Gedabek, we announced that the Government of Azerbaijan had approved a development and production programme and we are now continuing with exploration with a view to establishing our second mining project in Azerbaijan; and at our Ordubad Contract Area we announced a Notice of Discovery in April 2012.

In terms of gold and silver production from Gedabek's open pit, heap leach operation in FY 2011, the mine produced 57,068 ounces of gold at an average cash operating cost of US$448 per ounce. This positions Gedabek as a low cost producer. Additionally, the Company produced 39,086 ounces of silver. During the year we sold 49,304 ounces of gold at an average price of US$1,573 per ounce and 34,593 ounces of silver at an average price of US$35 per ounce. The difference between gold sold and gold produced is for two reasons. Firstly, the Government of Azerbaijan takes title to 12.75% of all produced metals and secondly, there is usually a timing difference between gold production and gold sales.

We also enjoyed strong copper production at Gedabek from our Sulphidisation, Acidification, Recycling and Thickening ('SART') plant. In FY 2011 we exceeded our target of 525 tonnes of copper and produced 611 tonnes of copper, 134,240 ounces silver and 200 ounces of gold. Total sales of copper concentrate of US$5.0 million were recorded in FY 2011 (2010: nil). The Company's copper concentrate stockpiles currently total 743 tonnes copper, 200 ounces gold and 162,000 ounces of silver. Anglo Asian is in detailed discussions with various parties regarding finding a long-term sales partner and will update on this progress in due course.

Production was restricted to 9,925 ounces of gold post period end for Q1 2012, due to an unusually harsh winter. However, we still expect that the reduced level of production for the first quarter 2012 will be compensated for during the course of the year and that our internal target of 54,000 ounces of gold for 2012 will be achieved. Silver production from our heap leach operation remained on track totalling 7,670 ounces for the quarter. Copper, silver and gold production from our SART operations totalled 148 tonnes of copper concentrate, 34,666 ounces of silver and 27 ounces of gold for the first quarter.

To ensure the long-term success of Gedabek as a producing entity and obtain the best return for shareholders, we are looking to improve gold recovery rates and in turn to extend the life of mine. In May 2012, following a pre-feasibility study carried out by Arcadis Chile, the Company announced that it intends to construct an agitation leaching plant at Gedabek. The plant will have the capacity to treat 100 tph of ore and has an expected capital cost of US$52 million including construction of the tailings dam and all related infrastructure. The Company is in the process of seeking approval from the Government of Azerbaijan for construction of the agitation leaching plant.

Gedabek is an open pit mining operation, which currently utilises a conventional heap leach process and a resin adsorption recovery plant. The heap leach process required less capital than the proposed agitation leaching plant to establish. However, heap leaching has limitations with regards to the size of ore being leached (-25mm), which results in gold recoveries of circa 70% with leaching cycles extending up to typically a year depending on the ore mineralogy. In comparison, agitation leaching of milled ore can deliver higher recoveries with the immediate production of gold.

The agitation leaching plant will process high grade ore and additional resources that are not suitable for Gedabek's current heap leaching processing operation, together with spent ore from the leach heaps to further improve total gold recoveries. Agitation leaching recovery rates have been initially estimated at 85% for oxide material and 69% for sulphide material although the company is carrying out further tests to see if these recovery rates can be improved. In May 2012, the International Bank of Azerbaijan ('IBA') provided a US$7.5 million loan at an annual interest rate of 12% as part of the finance required for this project. The Company is in advanced discussions regarding additional debt funding and will update shareholders in due course.

As I mentioned briefly, in April 2012, we were delighted to announce a resource upgrade to 48,138,979 tonnes at 0.825 g/t gold for 1,276,422 ounces of gold in the measured, indicated and inferred categories (a 61% increase from the previous JORC resource estimate dated October 2010); 0.197 % copper for 94,890 tonnes (a 93% increase); and 6.66 g/t silver for 10,305,653 ounces (a 36% increase) at a cut-off grade of 0.3 g/t gold. Recent drilling completed since the resource estimate indicates the significant potential to continue upgrading and increasing the size of the Gedabek deposit. Consequently, we are planning to conduct a further 24,567 metre drilling programme and complete a JORC compliant ore reserves estimate in Q2 2012.

On the corporate front, we continue to work closely with the Government of Azerbaijan. We are grateful for the level of support it gives us as we continue to develop Gedabek, the first gold mine in Azerbaijan in modern times, and to advance our other Contract Areas, Gosha and Ordubad, with the vision of commissioning future mining operations and building a mid-tier gold and base metal mining company in the country.

In terms of financing, we have a strong relationship with IBA, which is majority owned by the Government of Azerbaijan. With our increasing profitability in FY 2011 we significantly reduced our debt (which peaked at US$43.7 million in March 2010 following the Gedabek's mine development in 2008-2009) to US$13.1 million as at 31 December 2011 (2010: US$30.6 million). Net debt, being interest-bearing loans and borrowings less cash and cash equivalents, reduced to US$3.2 million at 31 December 2011 (2010: US$25.5 million) and cash in the bank stood at US$9.9 million (2010: US$5.1 million). In addition, during 2011, the Company repaid its US$1.0 million loan from the Company's CEO Reza Vaziri bringing the outstanding loan balance to US$ nil.

It must be noted that we have a Production Sharing Agreement in place with the Government of Azerbaijan based on the established Azeri oil industry model. Up until the time we have recovered all of our carried forward, unrecovered costs, the Government of Azerbaijan effectively takes 12.75% of commercial products of any mine we bring into production, with Anglo Asian taking 87.25%. We expect to continue retaining 87.25% of the commercial products until at least the end of 2012 based on costs incurred to date and with the construction of the agitation leaching plant, this level of recovery is expected to continue beyond 2012.

In 2011 Anglo Asian generated revenues of US$83.8 million (2010: US$72.0 million) as a result of gold, silver and copper concentrate sales from the Gedabek mine. US$78.8 million of the revenue (2010: US$72.0 million) was generated from the sale of Anglo Asian's share of the production of dore bars for the year which comprised 49,304 ounces of gold and 34,593 ounces of silver (2010: 57,398 ounces of gold and 35,922 ounces of silver) at an average price of US$1,573 per oz and US$35 per oz respectively (2010: US$1,241 per oz and US$22 per oz). In addition, Anglo Asian generated revenue from the sale of copper concentrate of US$5.0 million (2010: nil).

The Company incurred mining cost of sales of US$40.7 million (2010: US$40.6 million) and therefore reported a gross profit of US$43.0 million for 2011 (2010: US$31.4 million).

Maintaining a good health, safety, social and environmental standards is a top priority for the Company and accordingly we have a Health, Safety, Environment and Technology Committee ('HSET') at Board level, under the chairmanship of Professor John Monhemius, a Non-executive Director of the Company. This committee, which meets at least twice a year, has the responsibility to oversee all aspects of the HSET performance of the Company and to make recommendations to the Board. We have approximately 500 personnel working in the Company.

The local community remains an important focus for us. Our main project in 2011 was to fund and construct a school for 300 students in Arixdam, the closest village to the Gedabek mine. This is now up and running successfully. Additionally, we continue to finance and train beekeepers, run a free internet café, and provide computer training courses to the local population. The Company has also financed and arranged the improvement of sections of roads in Arixdam and Duzyurd as well as the construction of a bridge and the building of a new pipeline to provide a potable water supply to the households residing within the vicinity of Gedabek mine.

In summary, the past financial year has seen Anglo Asian cement its footprint in Caucasia as a significant gold producer in the region. Both solid production and a favourable gold/ copper price has resulted in a strong financial performance for your Company, which enabled us to accelerate the repayment of loans, reduce debt ahead of schedule and build a strong cash position, which stood at US$9.9 million at 31 December 2011. With significant stockpiles of copper concentrate carried forward into the new financial year, this opens up potential further cash flow for FY 2012 when sale contracts have been secured.

Looking ahead to 2012 and beyond, whilst we remain committed to improving the operational efficiency and gold recovery rates at Gedabek, we expect to see continued solid gold, silver and copper production for the year.

We are also focussed on producing a JORC compliant reserve estimate at Gedabek in Q2 2012 and will continue exploration and infill drilling throughout the remainder of the year to improve and upgrade the resource base. Furthermore, we remain committed to establishing a second mining project in Azerbaijan, Gosha, which will be another significant step for Anglo Asian as we focus on delivering exploration upside to become a leading mid-tier gold producer in Caucasia. We look forward to reporting on these developments in due course.

I would like to take this opportunity to thank our Anglo Asian employees, our partners, the Government of Azerbaijan, my fellow Directors, advisers and shareholders for their continued support and I look forward to updating shareholders regularly on our progress as we continue to build ourselves as a highly profitable, significant gold-copper- silver producer in Azerbaijan.

Khosrow Zamani
Non-executive Chairman

Chief Executive Review

During the course of 2011 we continued to focus on the development of our flagship Gedabek mine. Our first aim was to realise our internal management target of circa 60,000 ounces of gold for the year. Our second aim was to continue exploring the greater Gedabek area to re-classify the mineral resource and ore reserves categories. And our third aim was to consider future mineral processing options such as agitation leaching to optimise gold recovery at the mine.

Additionally, in line with our strategy to establish other mining operations within Azerbaijan, we conducted exploration work at our other two Contract Areas, Gosha, which is located 50 km away from Gedabek, and Ordubad, which is located in the autonomous Nakchivan Republic region of Azerbaijan.

Full News Release and Results on London Stock Exchange website