Griffin Mining Ltd.
Annual Report 2004

Plain-text annual report

CONTENTS Chairman’s Statement Review of Operations Directors and Senior Executives Directors’ Report Report of the Independent Auditors Consolidated Profit and Loss Account Consolidated Balance Sheet Statement of Total Recognised Gains and Losses Consolidated Cash Flow Statement Accounting Policies Notes to the Financial Statements Corporate Information Page 4 6 19 21 24 25 26 27 28 29 31 39 Registered number: EC13667 Bermuda. Registered Office: Clarendon House, 2 Church Street, Hamilton HM11, Bermuda Principal Office: 60 St James’s Street, London SW1A 1LE. UK 1 REPORT AND ACCOUNTS 2004Griffin Mining Limited is a mining development and investment company whose principal asset is the Caijiaying zinc-gold mine, located 200 kilometres north-west of Beijing, China. The mine and processing facilities are currently in the process of being commissioned. Further information on the Company is available on the Company’s web site: www.griffinmining.com. Griffin Mining Limited’s shares are quoted on the Alternative Investment Market (AIM) of the London Stock Exchange (symbol GFM) 2 GRIFFIN MINING LIMITED The processing plant at Caijiaying 3 REPORT AND ACCOUNTS 2004CHAIRMAN’S STATEMENT Mladen Ninkov, Chairman, at Caijiaying The last 7 years have shown management to have made some significant and positive decisions. The Company now has a project almost in production with no debt on its balance sheet, no hedging commitments and substantial cash balances. This is a unique and extremely strong financial position for the Company to find itself in. The Company is not hampered by penury commercial bank covenants, nor the need to pay interest on any debt and has not been hamstrung by the obligation to sell forward its base and precious metals production. Significantly, the Company was able to avoid the need to appoint an EPCM contractor to build the Caijiaying facilities on a "fixed price" contract basis, a usual requirement of bank financing. Instead the Company itself has controlled the building of Caijiaying due to its strong balance sheet position. The cost savings to shareholders have been substantial. The history of the junior mining company market is one often characterized by endless capital This does not mean, of course, that the Company raisings, on-going drilling programs, promises will rest on its laurels. The Company operates on made and promises broken and, in the end, failure. the well known expression, "If you are not moving But ever so rarely, one small junior mining forwards, then you are moving backwards." company with a project usually belittled by its However, unlike so many other mining peers, journalists and mining analysts, rises from companies, the success of Caijiaying will not be the ashes to shake the very foundations of the dissipated by leveraging into an unwise acquisition mining industry. Such a company is Griffin or joint venture. Caijiaying still has enormous, Mining Limited ("Griffin" or the "Company"). untapped potential. After a long, arduous and frantic 7 years, having In the first instance, the Company will weathered the doom merchants and scare immediately start examining the viability of mongers, the Company stands ready to finally expanding its production to 150% of its planned deliver on its promises with completion of first year throughput. That will be a primary construction of the Caijiaying processing facilities focus of the Company. Secondly, a huge amount and the developed underground mine workings at of ground within the Company’s licence areas at Caijiaying. As we go to press, dry commissioning Caijiaying require both primary and secondary has begun at Caijiaying and, by the time of the exploration for precious and base metals. That Annual General Meeting of the Company, full also remains another primary focus of the production should have commenced. To our Company. Thirdly, the Company will continue knowledge, Caijiaying will be the first foreign to investigate, conduct due diligence and make owned and built, new hard rock mining operation calculated decisions on any future mining in China in over 100 years. acquisitions. These may occur anywhere the 4 GRIFFIN MINING LIMITED management believes it can find extraordinary The employees and quasi-employees, past and value with a project which can weather a present, of both the Company and the Hebei Sino commodities downturn and provide the Australian Mining Development Company necessary shareholder returns. Inevitably, our Limited joint venture, who have worked so long first country of interest has been, and will and hard, should be recognized. In the early days remain, China. Although we have examined Bo Zhou and subsequently Jeff Sun, Ruilin Ji, Qi many acquisitions in China, none has yet met the Chengxiao, and Jin Shengchang. Western staff mining, metallurgical and financial criteria we including Stan Rogers, Campbell Powell, Bill have set for the Company. The Company Rankin, Roy Elliott and Les Hogan. Special remains optimistic that such a project will be mention should be made of our Chief Geologist, offered in due course following the Warren Woodhouse, who can now be officially commissioning of Caijiaying. classified as the "old man" of the site having been there longer than almost anyone. Finally, an achievement like Caijiaying could not have been achieved with anything other than a The various experts and consultants who have remarkable, cohesive and talented group of traveled to China consistently over the last year. individuals. It would be remiss of me not to Mention needs to be made of Alan Senior, Gary mention just a few of these people. Patrick, Doug Cooper and many, many others. The financial advisors who have supported the Company In the mining world every project must have a over the years including our nominated advisor and champion. Someone who truly believes in a broker, Charles Stanley and Company Limited, and project through all its adversities. Someone who in particular Giles Leather, and all the staff at Ocean says it will work and then makes it work. Someone Equities, in particular Guy Wilkes. who proves the soothsayers wrong. For Caijiaying that person is Rupert Crowe of CSA Australia Pty Finally, you the owners of the Company must be Limited. Although on secondment to Griffin as its thanked. For it has been your commitment to the Project Manager, Rupert has been Caijiaying’s Company and your financial support which has seen champion from the beginning and must be Caijiaying come to fruition. A number of financial recognized as such. institutions have been staunch and long term supporters of the Company and they need to be The board of directors (both past and present) recognized and thanked. In particular Adam Usdan have laid their reputations on the line and at Trellus Management LLC has been the pillar on worked tirelessly, many years without which this Company has been built. compensation, to fulfil their dream of a mine in China. That contribution needs to be All that remains now is for the market to recognized. That includes past directors Craig understand and value the unique project and Niven, John Goodger, Gordon Montgomery position Griffin has in China. We await the day. and John Steele and the long standing current directors Dal Brynelsen, Bill Mulligan and Roger Goodwin. In that regard, no-one has worked harder and longer for the Company Mladen Ninkov, Chairman than Roger. 9th May 2005 5 REPORT AND ACCOUNTS 2004REVIEW OF OPERATIONS Introduction Caijiaying Area Griffin is a mining and investment company listed on the Alternative Investment Market of the London Stock Exchange. Griffin, through two joint ventures, has a controlling interest in mining and exploration licences over 67 square kilometres in the Caijiaying area of the Hebei Province ("Caijiaying") in the Peoples Republic of China ("China" or "the PRC"). Commissioning of the mine and processing facilities at Caijiaying has commenced with an initial production rate of 200,000 tonnes of ore per annum to produce some 22,000 tonnes of zinc metal plus gold, silver and other associated metals for at least 14 years. The Company’s management is investigating ways to increase production at Caijiaying as soon as possible. The area surrounding Caijiaying and within Griffin’s tenement area is highly prospective, indicating significant potential for further economic base and precious metals mineralization. Caijiaying mine location Caijiaying is located approximately 200 km north west of Beijing in the Hebei Province of the PRC. The site is easily accessible by sealed road, has adequate water supplies available from underground sources and is connected to the electricity grid. The Caijiaying area is on the south-east edge of the Mongolian Plateau. Conditions are not severe although winters are cold and dry. Panorama of Caijiaying processing plant during construction in the winter 6 GRIFFIN MINING LIMITED Legal Structure PRC when it was granted a mining licence over 1.56 square kilometres of the original 11.3 square Griffin’s initial interest in Caijiaying was obtained kilometre licence area at Caijiaying. In April 2005 through its local Chinese subsidiary company the this licence was renewed for a 15 year period to 14 Hebei Hua' Ao Mining Development Company April 2020. Limited ("Hebei Hua-Ao"). The Company has long recognized the Hebei Hua-Ao is a contractual joint venture entity exploration potential of the area surrounding the established in 1994 in which Griffin, through its original 11.3 square kilometre licence area at wholly owned Australian subsidiary company Caijiaying. On 5 June 2000 an exploration China Zinc Pty Ltd ("China Zinc"), holds a 60% licence was granted covering an area of over equity interest and the Chinese joint venture 102.2 square kilometres of highly prospective partners (which include the Zhangjiakou City ground surrounding the existing licence area at People’s Government, the Hebei Bureau of Caijiaying. This licence area has since been Geology and Mineral Resources and the Third reduced to discard the non-prospective areas and Geological Brigade) have a 40% interest. a new 2 year exploration licence was granted Significantly, for the first 3 years of commercial covering 55.7 square kilometres in January 2003. production 100% of the cash flows accrue to This licence has since been renewed for a further China Zinc and ipso facto Griffin. 2 year period. In October 1998 Hebei Hua-Ao was the first In January 2004 a second contractual joint venture foreign controlled joint venture to be awarded a company, the Hebei Sino Anglo Mining new exploration licence for a hard rock deposit in Development Company Limited ("Hebei Anglo"), the PRC when it received an exploration licence was formed to hold the above exploration licence covering an area of 11.3 square kilometres at over 55.7 square kilometres and any further areas Caijiaying. of interest in the Hebei Province. Griffin, through its wholly owned UK subsidiary company, Panda On 21 March 2002, Hebei Hua-Ao became the Resources Limited, has a 90% interest in Hebei first foreign controlled joint venture to be granted Anglo. The other Chinese shareholders remain the a mining licence over a base metals deposit in the same as in Hebei Hua-Ao. From left to right: Jen Shengchang (CFO Hebei Hua-Ao); Xu Weiwem ( Foreign affairs director Zhangjiakou City Government); Jeff Sun (General Manager Griffin China); Roger Goodwin (Finance Director Griffin); Gao Jinhao (Mayor Zhangjiakou); Mladen Ninkov (Chairman Griffin); Zhang Baoyi (Chairman Zhangjiakou People Congress); Rupert Crowe ( Project Manager); Qi Chagxiao (Deputy General Manager Hebei Hua-Ao). 7 REPORT AND ACCOUNTS 2004Enhanced satellite and air-photo imagery of the Caijiaying region Caijiaying Geology system has been confirmed with mineralization displaying many features in common with other The Caijiaying zinc mineralization is believed to economic epithermal deposits. have been emplaced 131-204 million years ago during a volcanic episode that affected ancient, 2.3 The main mineralization occurs within distinct billion-year-old metamorphic rocks, along a major north-south trending altered corridors separated by northeast-trending structure. zones of barren rock. These are situated within synclinal folds, formed as part of a conjugate set of The base metal mineralization is believed to have structures in response to movement along the been caused by replacement of certain horizons in the regionally important F45 Fault. This fault trends metamorphic rocks by hot metal-bearing solutions east-northeast across the area south of the main during the early stage of a volcanic system. Some deposits. The line of this fault is believed to be on a gold may have been deposited at this time, but the zone of crustal weakness which is thought to have main gold event is interpreted to have occurred later acted as a conduit for rising mineralizing fluids. as a hot-spring or epithermal type of mineralization towards the end of the volcanic period. This type of Caijiaying Discovery epithermal mineralization usually consists of gold and silver (with minor base-metals) deposited in veins and Mineralization was first identified in the Caijiaying breccias with extensive alteration of the surrounding area during the Chinese "Cultural Revolution" in rock by the hot fluid. The epithermal nature of the the late 1960’s. Subsequently, the Third 8 GRIFFIN MINING LIMITED Geological Brigade of the now defunct Ministry of Development of Caijiaying Geology and Mineral Resources (predecessor to the Ministry of Land and Natural Resources, a Since 1994, China Zinc, through Hebei Hua-Ao, shareholder in Hebei Hua-Ao), conducted 10 has expended some $5 million on Caijiaying on years of exploration work on Caijiaying, including exploration and pre development work, again 95,000 metres of diamond drilling. mostly on zone III. This includes the cost of a pre- feasibility study, a mining scoping study, resource Within the original 11.3 sq km licence area at statements, approximately 10,000 metres of Caijiaying, the Third Brigade defined 5 separate diamond drilling, 300 metres of underground mineralized zones. Zone III, covering an area of drive, ore-body modelling, metallurgical test work some 1.5 square kilometres, has been the main and various geological, metallurgical, engineering, focus of exploration and development activity. environmental, power and transport studies. This The other zones have not been intensively culminating in the completion of a full feasibility explored, but drilling and other work, in particular study in August 2003. in zones II and V, have indicated significant potential for further economic mineralization. Underground trial mining in the southern section of zone III completed in 2000 revealed that instead The Caijiaying project has had a long of dipping south, the main mineralized bodies exploration history because of the complex trend north, parallel to the drill grid. nature of the mineralization, which was first Consequently, the project was reassessed as being interpreted by Chinese geologists of the Third more amenable to smaller scale underground Brigade as forming a series of E-W trending, mining and, in 2000, the Company commissioned fairly steeply (-50° to -70°) southerly-dipping a mining scoping study from CSA Australia Pty lenses from 0-500 metres below surface, and Ltd ("CSA") in conjunction with Gillespie Mining which led to the Chinese drill grid being Services Limited. This indicated that an economic orientated in the wrong direction, parallel to the underground mine could be brought into main mineralized zones. production at Caijiaying. Early surface drilling of Caijiaying ore-body 9 REPORT AND ACCOUNTS 2004In 2002 a program of diamond drilling was or: undertaken in the correct east-west orientation for * An indicated resource of 6.95 million tonnes at the first time. This showed that the mineralized 11.58% zinc and 0.64g/t gold; and lodes occur within the north-south corridors and that they dip 75-80º to the west. Recognition of this geometry then allowed a new geological resource model to be interpreted by CSA which then formed the basis of a new resource estimate. Resource Estimate The results of the 2002 drilling program together with the drill hole data from past work enabled a new resource statement to be compiled by independent consultants Micromine Pty Ltd Consulting Division ("Micromine") in accordance with the guidelines set out in the Australasian Code for Reporting of Mineral Resources and Ore Reserves (The JORC Code) with the following results: * An indicated resource of 16.9 million tonnes at 7.84% zinc and 0.75g/t gold; and * An inferred resource of 6.68 million tonnes at 8.69% zinc and 0.5g/t gold; * An inferred resource of 3.602 million tonnes at 11.73% zinc and 0.49g/t gold; * For a total resource of 10.56 million tonnes at 11.63% zinc and 0.59 g/t gold at a 7% zinc cut-off grade These resource estimates cover only zone III. The interpretation of steep north-trending lode orientations is consistent with the outcropping mineralization at zone II, which is situated 1 kilometre to the south of the main zone III deposit. This similarity of geometry strongly suggests that the two deposits maybe continuous, opening up a large area for further exploration. The mine has been designed to enable this area to be accessed for mining if exploration proves successful. The diamond drilling program undertaken by Griffin in the summer of 2002 also encountered significant gold intercepts which taken together, with earlier gold results allowed Micromine to * For a total resource of 23.6 million tonnes at compile separate inferred estimates for the gold 8.08% zinc and 0.68g/t gold at a 4% zinc cut- resource at zone III, including 2.61 million tonnes at off grade 6.78 g/t at a 3 g/t cut off. The Chairman, Project Manager and Chief Geologist examining mineralisation underground at Caijiaying 10 GRIFFIN MINING LIMITED General layout of the Caijiaying mine and processing plant site Feasibility study modular Australian design to treat a precious- metals concentrate from which both gravity and With the benefit of the above resource statement cyanide-extracted gold will be won. Griffin commissioned CSA Australia to complete a full feasibility study ("the Study") on zone III at The Study demonstrated that the project is Caijiaying, which was completed in August 2003. robust and is capable of generating significant This Study broadly followed the plan that was profits even at historically low world zinc prices. presented in the scoping study completed in 2000 Operating costs are expected to be amongst the for a zinc-gold mine with an initial throughput of lowest of any underground zinc mining 200,000 tonnes per annum using a western-style operation in the world. decline and low-cost Chinese mining methods to feed a process plant to produce a zinc The Study shows life of mine production of concentrate. A gold processing plant was 314,250 tonnes of zinc metal and 108,450 included in the design to produce gold dore bars kilograms of silver in 586,300 tonnes of on site for refining and sale. concentrates grading 53.6% zinc and 185 g/t silver. In addition, 39,850 ounces of gold will be The basic design of the mine incorporates a produced in bullion. It is anticipated that gold Chinese built process plant using conventional production will be increased as the mine develops. crushing, grinding and flotation technology to produce a standard zinc concentrate for sale to the The mine has been designed so that an upgrade of local market. However, the gold circuit is of mine production can be readily implemented. 11 REPORT AND ACCOUNTS 2004With the benefit of 100% of the cash flows further combined zinc/gold blocks will be generated by Caijiaying accruing to China Zinc in delineated by stope drilling ahead of mining. the first 3 years of commercial production, preferential local tax rates (including no income Tests have shown that the majority of the taxes payable in the first 2 years of commercial contained gold is free although a portion occurs production), the Company is planning to increase within the sulphides. With mining costs covered production as soon as practicable. by the zinc production, gold production costs are The Study indicated the need for total pre- production and working capital of US$15.7 Construction expected to be minimal. million. The Study was conducted using mainly Australian experts for the mine process plant and infrastructure and the leading base-metal Chinese base-metal engineering institute the Beijing Engineering Non Ferrous Institute (ENFI) for the mine design so as to ensure compliance with Chinese regulations. Reserves The ore reserves have been optimized by Datamine Consulting and CSA and estimated by ENFI according to the mine plan. Only those reserves that relate to Phase I of the Caijiaying mine development (i.e. the first 14.5 years) have been included in the ore reserves. The result is a Processing plant site preparation May 2004 Probable Ore Reserve (under the Australian JORC With the benefit of the feasibility study, in Code classification) of 2,570,000 tonnes at 12.59% February 2004 Griffin completed a private placing zinc, 0.42g/t gold and 445.63g/t silver. This with institutional investors to raise £8.75 million reserve is based on an optimized resource block (US$16.2 million), before placing fees and model at a 7% minimum zinc cut off and expenses, to fund the development of the incorporates 8% mining dilution and 8% ore loss. underground mine and the above ground processing and other facilities at Caijiaying. In addition to the above computer-generated reserve, the mining plan incorporates a manually Detailed design work commenced immediately interpreted inferred resource block of higher upon completion of the fund raising and work grade gold mineralisation of 330,000 tonnes at started on refurbishing, widening and lengthening 8.61% zinc, 2.47g/t gold and 36.35g/t silver. This the existing exploration decline constructed in resource block does not include significant other 1999 / 2000. At the same time work commenced gold intersections such as hole ZK313-14 falling on refurbishing and upgrading the support outside the current ore reserve and mine plan but facilities and infrastructure at Caijiaying. Work close to the area of initial mining, which produced was also started on the sinking of a ventilation and 8 metres at 11.65 g/t gold, 7.12% Zinc and 31.13 access shaft for the underground drives to the g/t silver from 118 metres. It is expected that north east of the area to be mined. 12 GRIFFIN MINING LIMITED up the production decline direct to the processing plant site. Work continues on the production decline to the lower levels and to the north of the area of initial mining. This is to the main area of mineralisation in zone III indicated from earlier exploration work and surface drilling. In May 2004 work commenced on construction of the main processing plant buildings, administration and office buildings and supporting service facilities. Crucially these were structurally completed before the onset of winter allowing for the installation of plant and equipment during the winter months. This was a Accomodation block With the widening and lengthening of the significant achievement as the main processing existing exploration decline, work commenced on plant building comprises an interior of some developing a production and ventilation drive at 69,000 cubic metres and was constructed using the 1400 level, approximately 100 metres below in excess of one million bricks. the surface, to join up with the northern ventilation shaft and provide access to the ore bodies. Subsequently, a number of cross cuts were driven and a sub-incline driven to the lower 1355 level. A cross cut drive has also been put in to connect the 1368 level to the main production decline to allow early production of ore from below the 1400 level. The northern ventilation shaft has been sunk to the 1355 level and a cross cut driven from the bottom of the shaft. Stope development has now commenced at a number of levels with ore being extracted and stock piled ready for commissioning of the process plant. Ore stockpile ready for processing In July 2004 work commenced on driving the During the summer of 2004 the initial tailings dam main production decline from the processing was excavated, the sides built up and lined in plant area to the workings being developed from readiness for commissioning of the process plant. the existing exploration decline. In January 2005 this production decline reached the main By April 2005 all major items of plant and production drive at the 1400 level allowing machinery had been installed and plant dry haulage of ore from the underground workings commissioning commenced. 13 REPORT AND ACCOUNTS 2004defining high-grade lodes in locations not originally included in the feasibility study ore reserve. Crucially this drilling has found ore at shallower levels allowing for early extraction of ore and enabling ore to be stock piled in advance of the processing plant being commissioned. This will have a significant positive impact on the economics of the Caijiaying mine. Over 10,000 metres have been drilled under this drilling program. The main focus of the drilling programme since July 2004 has been to define ore to be mined first, above the 1400 level. Mineralization and specifically the "Fu Long lode" (Rich Dragon), has been identified above the 1400 level which was not included in the feasibility study ore reserve. Further lodes, namely the Jin Long lode to the west and below the main 1400 level and the Chang Long lode crossing the 1400 level to the north, have also since been identified. The drilling program has delineated the Fu Long and Jin Long lodes down to the 1300 level, to the east and west of the 1400 drive respectively. A resource estimate and reconciliation with the Feasibility Study estimate is currently underway on the Fu Long lode. The drilling programs on the Jin Long and Chang Long lodes are continuing as both lodes are turning out to be more extensive than originally believed from surface drilling. Given the success of the underground drilling programs, attention is now being given to expanding the production rate. This will require the continuation of an aggressive underground drilling campaign over the coming months together with continued upgrading of the geology department to enable it to cope with the demands of production at the same time as the exploration drilling program. The geometry of the Jin Long and Chang Long lodes appear to make them more amenable to bulk mining. View of processing plant from the tailings dam The development of the mine and commissioning of the processing plant is broadly on target and the costs in line with that estimated in the feasibility study. Mine development Main production portal With access enabled from the underground drives, an ongoing program of systematic underground stope-definition diamond drilling is being undertaken. The results from this underground drilling to date has exceeded expectations in 14 GRIFFIN MINING LIMITED Administration and Management The Griffin management team, working in combination with ENFI, continue to provide a cost effective and flexible management system, maintaining management control for the benefit of Griffin whilst at the same time accessing Chinese expertise in designing and installing their own equipment. This system has helped keep costs under control and maintain timetables. With the development of the mine and processing facilities at Caijiaying, Hebei Hua-Ao has Northern ventilation shaft employed over 40 staff and has contracted with a number of local entities for the provision of authorities is already bringing significant supporting services, building and plant economic benefits to Caijiaying and construction, and mine development. When in surrounding areas. full operation Caijiaying will have a complement of some 240 people. During construction of the In addition to local staff, a foreign mine manager processing plant buildings over 500 people were has been employed together with a foreign Chief engaged at the Caijiaying site. It is the intention Accountant. A number of foreign geologists have of Griffin to employ local people and use local also been engaged to work at the Caijiaying site contractors wherever possible. This together with as well as an underground drill supervisor and improvements in infrastructure by the local mine superintendent. Some of the Hebei Hua-Ao staff underground at Caijiaying 15 REPORT AND ACCOUNTS 2004Caijiaying Exploration Potential The Company has long recognised the exploration potential of the Caijiaying area particularly for gold. Now that the Caijiaying mine is coming into production, Griffin is setting its priorities for future exploration. Griffin intends to initially focus on increasing already identified deposits, thereby enabling the current planned mine production to be enhanced thereby, increasing profitability. The main objectives of future exploration will be to: 1. Prove up additional high-gold and moderate- zinc grade ore blocks within the mine area; 2. Prove up wider underground zinc ore blocks by underground drilling, to enable mine throughput to be increased as soon as practical; 3. Explore for gold and zinc in the surrounding prospects with the aim of proving up additional resources that can be added to the ore stream (zones II & V); 4. Explore between the present mine (zone III) and zone II where there are indications that significant mineralization may exist between the two; 5. Re-evaluate the previous data and conduct further exploration work in the original licence area for further zinc deposits that were not discovered by the wrongly oriented previous drill holes; and 6. Conduct a regional epithermal gold exploration program for stand-alone new deposits. Main areas of interest following ground magnetic image survey 16 GRIFFIN MINING LIMITED As indicated above, a program of underground Zone V drilling is well underway to achieve the first two parts of the plan. Exploration of the nearby prospects at zone V, containing old underground workings, will be tested by a program of surface drilling. Following completion of this drilling program a decision will then be made as to whether to de-water the old workings and conduct further exploration from underground. Area between zones III and II A staged approach will be used to evaluate the large area between zones III and II as this will take some time. The first stage will be by surface reverse- circulation drilling of wide-spaced holes. If a sufficiently encouraging picture emerges, the next Underground resource definition drilling stage will be to drive underground towards this area During the summer of 2004, an induced more densely spaced resource definition drilling. from the existing main production decline to allow polarisation ("IP") orientation survey was conducted over zone III and following this, a Zone II comprehensive IP survey was conducted over the area between zones II and III. A short program of Work at zone II will be integrated with the results three surface holes was implemented before winter of the program between zone III and zone II. It is to test some of the anomalies. On the regional expected that it will eventually be re-drilled to programme, a reconnaissance ground magnetic assess its suitability as a separate source of ore on survey (at 200 metre line spacing) was completed possible enlargement of the process plant. over the area of epithermal gold anomalies. This has yielded excellent results and a follow-up Re-evaluation of existing data detailed survey (at 50 metre line spacing) is now being conducted which will be used to define Now that the correct geometry of the drill targets. mineralization is better understood Griffin expects to re-evaluate the data on the original licence area. Griffin is now planning an extensive drilling This will be an ongoing task as there is a large program for the forthcoming summer using a amount of previous data and there are many western-style reverse-circulation rig. This will targets to investigate. allow much more cost-effective testing of the various targets, particularly the regional Regional epithermal gold targets epithermal gold zones. Future exploration work on the areas surrounding zone III at Caijiaying will The regional epithermal gold targets that were focus on the following: delineated by geochemical surveys in 2002 will be tested with the reverse-circulation drill during the coming summer. 17 REPORT AND ACCOUNTS 2004The Future Financial The commissioning of Caijiaying lays the The Group recorded a profit for the year of foundation not only for Griffin to become a $398,000 (2003 loss $20,000). profitable mining company, but also gives it the potential to further expand its influence in the Operating costs in 2004 were $1,048,000 (2003 mining sector of the world’s largest mineral $586,000). producer China. With Caijiaying coming into production and with Griffin having invested Foreign exchange gains of $939,000 were recorded in $20m into China, Griffin and its management 2004 (2003 $476,000) on foreign currency deposits. have established a good reputation in China as a result of which Griffin is being offered other Shareholders’ funds increased from $13,365,000 at 31 high class mining projects by various arms of December 2003 to $29,336,000 at 31 December t h e P R C ’ s l o c a l , p r o v i n c i a l a n d c e n t r a l 2004, with the benefit of the profit for the year, a governments for development, modernisation placing of 35,000,000 new ordinary shares, and the and operation. As Caijiaying progresses, it is the exercise of options and warrants over 7,100,000 new intention to acquire further economically robust ordinary shares, to raise a total of $15,630,000 after mining projects to expand operations. expenses. With completion of these capital raisings, which fully fund construction of the mine and Griffin will continue to initiate and investigate processing facilities at Caijiaying, exploration and transactions both within its traditional mining development costs incurred to date of $6,419,000 b a s e a n d o t h e r a r e a s w h e r e i t s s t a f f a n d have been reclassified as tangible fixed assets. Further consultants have particular expertise, in order to expenditure of $10,037,000 was incurred in add further value to the Company. constructing the mine and processing facilities to 31 December 2004. 18 The Chairman by the main ball mill GRIFFIN MINING LIMITED DIRECTORS AND SENIOR EXECUTIVES DIRECTORS: Mladen Ninkov, Chairman, holds a Masters of Law Degree from Trinity Hall, Cambridge and Bachelor of Laws (with Honours) and Bachelor of Jurisprudence Degree from the University of Western Australia. He is a principal of Keynes Capital. He has a mining, legal, fund management and investment banking background and is admitted as a barrister and solicitor of the Supreme Court of Western Australia. He was a director and Head of International Corporate Finance at ANZ Grindlays Bank Plc in London, a managing director of Maxwell Central and East European Partners plc in London and a Vice President of Prudential-Bache Securities Inc. in New York. He also worked at Skadden Arps Slate Meagher & Flom in New York and Freehill Hollingdale & Page in Australia. He was Chairman of Westgold Resources NL and a director of Ramsgate Resources NL, both companies listed on the Australian Stock Exchange, and was also a director of Mt Monger Gold Project Pty Ltd, Castle Hill Resources NL and Matu Mining Pty Ltd. Roger Goodwin, Finance Director, British, is a Chartered Accountant. He has been with the Company since 1996 having previously held senior positions in a number of public and private companies within the natural resources sector. He has a strong professional background, including that as a manager with KPMG, with considerable public company and corporate finance experience, and experience of emerging markets particularly in Africa, the CIS and Eastern Europe. Roger was named as one of the top 100 UK finance directors of 2004 by Finance Week magazine. Dal Brynelsen, Director, Canadian, is a graduate of the University of British Columbia in Urban Land Economics. Mr. Brynelsen has been involved in the resource industry for over 30 years. He has been responsible for the discovery, several development and operation of underground gold mines during his career. Mr. Brynelsen is the President and a director of Vangold Resources Limited and provides independent consulting services to private clients and institutions. William Mulligan, Director, USA, has a BSc from Thomas Clarkson University, an MS in Geological Engineering from the University of Connecticut and an MBA from NYU Bernard Baruch School of Business Administration. He is currently the Managing Director for Global Projects and Political Risk at AIG Global Trade and Political Risk Insurance Company, a wholly owned subsidiary of American International Group Inc., and a director of AIG Investment Bank (ZAO) Ltd based in Moscow. From 1994 to 1996 he was Executive Vice President for Corporate Development at Latin American Gold Limited. He is a director of Arcon International Plc, the Dublin based company which operates the Galmoy zinc mine in Ireland. SENIOR EXECUTIVES: Rupert Crowe, Project Manager, Australian and Irish, has been seconded from CSA Australia Pty Ltd to act as Caijiaying Project Manager. He gained a BSc (Hons) from Trinity College, Dublin. He has 30 years of experience as a geologist and has managed gold and base metal exploration and development projects in Australia, SE Asia and Africa. He was Exploration Manager for Aquitaine Mining in Ireland in the 80s and established CSA in both Ireland and Australia. He played a key role in the development of the Lisheen zinc mine in Ireland and the Double A gold mine in Australia. He has been a director of Ivernia West, Golden Tiger Resources and Maiden Gold. Jeff Haitian Sun, General Manager China, Chinese, is a Professor of Geology based in Beijing. He holds a PhD and MSc in mineral deposits from the Chinese University of Geosciences and has undertaken postdoctoral research in geology at the Norwegian University of Technology. Jeff has worked on a number of mineral projects both in China and overseas. Prior to joining Griffin he was engaged by Mundoro Mining Inc of Canada as a senior geologist. Stanley Rogers, Mine Manager, British, has many years of experience in managing mines in developing countries. Previously he managed the Wassa Gold Mine of Glencar in Ghana. He worked at the Kilembe copper mine in Uganda, was Mine Manager of the Pendarves tin mine in Cornwall, Project Manager of a Sudanese gold mine, General Manager of a Kenyan gold mine and Operations Manager of the Mahd ad Dhahab gold mine in Saudi Arabia. 19 REPORT AND ACCOUNTS 200420 Main production decline at the Caijiaying mine GRIFFIN MINING LIMITED DIRECTORS’ REPORT The Directors submit their report together with the audited consolidated accounts of Griffin Mining Limited ("the Company") and its subsidiaries ("the Group") for the year ended 31 December 2004. Financial results The Group profit on ordinary activities before taxation, amounted to US$398,000 (2003 - loss US$20,000). No taxation was charged (2003 - nil). The Group profit after taxation amounted to US$398,000 (2003 - loss US$20,000) and has been credited to reserves. The profit per share amounted to 0.23 cents (2003 - loss 0.02 cents). The attributable net asset value per share at 31 December 2004 amounted to 17 cents (2003 - 10 cents). The Directors do not recommend the payment of a dividend. Principal activities The principal activity of the Group is that of mining, exploration and development. A review of the Group’s operations for the year ended 31 December 2004 and the indication of likely future developments are set out on pages 6 to 18. Directors The Directors of the Company during the year were: Mladen Ninkov – Australian – Chairman Roger Goodwin – British - Finance Director Dal Brynelsen – Canadian William Mulligan – American (US) Under the bye laws of the Company, the Directors serve until re-elected at the next Annual General Meeting of the Company. Being eligible all the Directors currently in office offer themselves for re-election at the forthcoming Annual General Meeting of the Company. The beneficial interests of the Directors holding office at 31 December 2004 and their immediate families in the share capital of the Company were as follows: Name At 31 December 2004 At 1 January 2004 Ordinary shares no. Options over Ordinary shares no. ordinary shares no.* Options over ordinary shares no. Mladen Ninkov Roger Goodwin Dal Brynelsen William Mulligan 33,001 311,163 1 300,001 6,000,000 1,700,000 600,000 600,000 33,001 311,163 1 1 6,000,000 800,000 0 300,000 The options granted to the Directors entitle the holder to subscribe for new ordinary shares in the Company at 30 pence per share on or before the 28 February 2007. *These options vest with each option holder in 3 separate and equal instalments triggered by the following events: a. b. The first third of each holder’s options vest immediately; The second third of each holder’s options will vest upon the commissioning of the plant at Caijiaying, China with an initial throughput of 200,000 tonnes per annum; and 21 REPORT AND ACCOUNTS 2004DIRECTORS’ REPORT c. The last third of each holder’s options will vest upon the announcement of an upgrade in the throughput of the Caijiaying plant from 200,000 tonnes per year to 500,000 tonnes per year. The new options will not vest if an employee or a director resigns or leaves the Company prior to the vesting event taking place. All the new options will vest immediately upon a takeover offer being made or a change in substantial control of the Company taking place prior to the new options expiring. On 1 March 2004 Great Welland Corporation exercised options over 6,000,000 new ordinary shares at an exercise price of 5 pence per share. These options were acquired by Great Welland Corporation on 27 February 2004 from Frick Pty Ltd (a company associated with the Chairman of Griffin, Mr Mladen Ninkov). On 1 March 2004 William Mulligan exercised options over 300,000 new ordinary shares at an exercise price of 5 pence per share. All of the Directors’ interests detailed are beneficial. Post Balance Sheet Events On 14 February 2005 1,000,000 new ordinary shares in the Company were allotted at 20 UK pence each on the exercise of warrants On 14 April 2005 Hebei Hua-Ao’s mining licence at Caijiaying was renewed for a period of 15 years to 14 April 2020. In April 2005 dry commissioning of the processing plant at Caijiaying commenced. Corporate Governance Although incorporated in Bermuda and therefore not obliged to comply with the code of best practice established by the Combined Code issued by the Committee on Corporate Governance, the Company has reviewed and broadly supports this code. The Company does not comply where compliance would not be commercially justified allowing for the practical limitations relating to the Company’s size. The Board of directors includes a number of non executive directors who are independent and free from any business or other relationship which could materially interfere with the exercise of their independent judgement. The Board meets regularly, at least once a quarter, and is responsible for the overall strategy of the Group, its performance, management and major financial matters. All directors are subject to re appointment annually at each annual general meeting of the Company’s shareholders. Various safeguards and checks have been instigated as part of the Company’s system of financial control. These include: • • • • • preparation of regular financial reports and management accounts preparation and review of capital and operational budgets preparation of regular operational reports prior approval of capital and other significant expenditure regular review and assessment of foreign exchange risk and requirements As part of these procedures all costs incurred on behalf of and by Hebei Hua-Ao are independently audited and checked by the Chinese authorities and approved by the directors of Hebei Hua-Ao. Auditors Grant Thornton UK LLP have indicated their willingness to continue in office as auditors to the Company and a resolution proposing their appointment will be put to the forthcoming Annual General Meeting. 22 GRIFFIN MINING LIMITED DIRECTORS’ REPORT Statement of directors’ responsibilities in respect of the accounts Bermuda company law and generally accepted best practice requires the Directors to prepare accounts for each financial year which give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period. In preparing these accounts, the Directors have: • • • • selected suitable accounting policies and applied them consistently; made judgements and estimates that are reasonable and prudent; stated whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the accounts; and prepared the financial statements on a going concern basis unless it is inappropriate to presume the Company will continue in business. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. This report was approved by the Board and signed on its behalf by: Roger Goodwin Finance Director and Company Secretary 9 May 2005 London 23 REPORT AND ACCOUNTS 2004REPORT OF THE INDEPENDENT AUDITORS Report of the Independent Auditors to the Members of Griffin Mining Limited We have audited the financial statements of Griffin Mining Limited for the year ended 31 December 2004 which comprise the consolidated profit and loss account, the consolidated balance sheet, the statement of total recognised gains and losses, the consolidated cash flow statement, the accounting policies, and notes 1 to 22. These financial statements have been prepared in accordance with International Financial Reporting Standards and under the accounting policies set out therein. This report is made solely to the Company's members, as a body, in accordance with Section 90 of the Bermuda Companies Act 1981. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective Responsibilities of Directors and Auditors The Directors' responsibilities for preparing the Annual Report and the financial statements in accordance with applicable Bermuda law and International Financial Reporting Standards are set out in the statement of directors' responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and United Kingdom auditing standards. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with International Financial Reporting Standards. We also report to you if, in our opinion, the directors' report is not consistent with the financial statements, if the Company has not kept proper accounting records, or if we have not received all the information and explanations we require for our audit. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. This other information comprises the Chairman's statement, review of operations and directors' report. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of Opinion We conducted our audit in accordance with United Kingdom auditing standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements give a true and fair view of the state of affairs of the Group at 31 December 2004 and of its profit for the year then ended in accordance with International Financial Reporting Standards. GRANT THORNTON UK LLP REGISTERED AUDITORS CHARTERED ACCOUNTANTS SOUTHAMPTON 9 May 2005 24 GRIFFIN MINING LIMITED REPORT OF THE INDEPENDENT AUDITORS The maintenance and integrity of the Griffin Mining Limited website is the responsibility of the directors:(cid:13) the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statement may differ from legislation in other jurisdictions.(cid:13) 24a R EPORT AND ACCOUNTS 2004CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 31 December 2004 (expressed in thousands US dollars) Turnover Cost of sales Gross Profit Net operating expenses Operating (loss) Foreign exchange gains Interest receivable and similar income Profit / (loss) on ordinary activities before taxation Taxation on profit / (loss) on ordinary activities Profit / (loss) for the financial year Earnings / (loss) per share (cents) Notes 2004 $000 2003 $000 1 2 4 5 17 6 - - - - - - (1,048) (586) (1,048) (586) 939 507 398 - 398 476 90 (20) - (20) 0.23 (0.02) 25 REPORT AND ACCOUNTS 2004CONSOLIDATED BALANCE SHEET As at 31 December 2004 (expressed in thousands US dollars) Notes 2004) $000) 2003) $000) Non-current assets Intangible assets – exploration interests Tangible assets – mineral interests Tangible assets – plant and equipment Tangible assets – other Current assets Portfolio investments Accounts receivable Prepaid expenses Cash and deposits Creditors: Amounts falling due within one year Net current assets Total net assets Capital and reserves Share capital Share premium Contributing surplus Investment revaluation reserve Foreign exchange reserve Profit & loss account Shareholders equity interests 7 8 8 8 9 10 11 13 14 15 16 17 39 11,770 5,109 15 16,933 27 108 168 12,985 13,288 (885) 12,403 6,285 - 171 3 6,459 62 33 66 6,831 6,992 (86) 6,906 29,336 13,365 1,773 36,594 3,690 (846) (143) 1,352 21,385 3,690 (811) (121) (11,732) (12,130) 29,336 13,365 Number of shares in issue 177,327,731 135,227,731 Attributable net asset value per share 19 $0.17 $0.10 The accounts on pages 25 to 37 were approved by the Board of Directors and signed on its behalf by: Mladen Ninkov Chairman 9 May 2005 26 Roger Goodwin Finance Director GRIFFIN MINING LIMITED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 31 December 2004 (expressed in thousands US dollars) Profit / (loss) for the financial year Unrealised (losses) / gains on investments Currency translation differences on foreign currency net investments Total gains and losses recognised in the year Notes 15 16 18 2004) $000) 398 (35) (22) 341 2003) $000) (20) 33 (133) (120) Losses and profits for the financial year are the same as those on an historical cost basis. 27 REPORT AND ACCOUNTS 2004CONSOLIDATED CASH FLOW STATEMENT For the year ended 31 December 2004 (expressed in thousands US dollars) Net cash inflow / (outflow) from operating activities Investing activities Interest received Payments to acquire intangible fixed assets Payments to acquire tangible fixed assets – mineral interests Payments to acquire tangible fixed assets – plant and equipment Payments to acquire tangible fixed assets – other Net cash (outflow) from investing activities Notes 4 7 8 8 8 2004) $000) 611 507 (557) (5,082) (4,938) (17) (10,087) 2003) $000) (227) 90 (760) - (171) (2) (843) Net cash (outflow) before financing (9,476) (1,070) Financing Issue of ordinary share capital Expenses paid in connection with share issue Increase in cash and cash equivalents Reconciliation of operating (loss) to net cash inflow / (outflow) from operating activities Operating loss Depreciation (Increase) in debtors Increase / (decrease) in creditors Exchange differences 11/13 13 10 2 16,391 (761) 15,630 6,452 (288) 6,164 6,154 5,094 (1,048) 5 (177) 799 1,032 611 (586) 1 (76) (1) 435 (227) 28 GRIFFIN MINING LIMITED ACCOUNTING POLICIES Basis of accounting The accounts have been prepared in accordance with applicable International Financial Reporting Standards. The significant accounting policies adopted are detailed below: Accounting convention The accounts have been prepared under the historical cost convention modified for the revaluation of portfolio investments. Consolidation basis The Group accounts consolidate the accounts of the Company and all its subsidiary undertakings drawn up to 31 December each year. The results of subsidiary undertakings acquired are included from the date of acquisition. Profits or losses on intra-group transactions are eliminated in full. On acquisition of a subsidiary, all of the subsidiary’s assets and liabilities which existed at the date of acquisition are recorded at their fair values reflecting their condition at that date. Under the terms of the joint venture contract establishing the Hebei Hua’ Ao Mining Development Company Limited, the Company is entitled to 100% of the net cash flows of the subsidiary for the first three years after commencement of commercial production reverting thereafter to 60% being the Company's share of the equity interest. No minority interest in Hebei Hua’ Ao Mining Development Company Limited is recognised in these financial statements as the minority interest's share of capital is extinguished by accumulated losses. Non current assets Intangible assets Expenditure on licences, concessions and exploration incurred on areas of interest by subsidiary undertakings are carried as intangible assets until such time as it is determined that there are commercially exploitable reserves within each area of interest and the necessary finance in place, at which time such costs are transferred to tangible fixed assets to be amortised over the expected productive life of the asset. The Group’s intangible assets are subject to periodic review by the Directors. Exploration, appraisal and development costs incurred in respect of each area of interest determined as unsuccessful are written off to the profit and loss account. Tangible assets Mine development expenditure for the initial establishment of access to mineral reserves, together with capitalised exploration, evaluation and commissioning expenditure, and direct overhead expenses prior to commencement of commercial production are capitalised to the extent that the expenditure results in significant future benefits. An impairment test is carried out at each balance sheet date to assess whether the net book value of the capitalised costs in each area of interest, together with the costs of development of undeveloped reserves, is covered by the discounted future net revenues from reserves within that area of interest. Any deficiency arising is provided for to the extent that, in the opinion of the Directors, it is considered to represent a permanent diminution in value of the related asset, and where arising, is dealt with in the profit and loss account as additional depreciation. 29 REPORT AND ACCOUNTS 2004ACCOUNTING POLICIES Plant and equipment, office furniture and equipment and motor vehicles are shown at cost less depreciation and provisions for impairment in value (see note 8). Depreciation All costs capitalised within an area of interest, together with an appropriate estimate of the future costs to be incurred in developing the estimated economic reserves will be amortised once production has commenced over the current estimated economic reserve of the area of interest on a unit of production basis. Office equipment is depreciated over four years on a straight line basis. Investments Current asset investments are valued as follows: Portfolio investments Marketable securities listed or traded on a recognised stock exchange, are valued at the bid market price on such exchange or market. Unrealised gains and losses on revaluation are taken direct to an investment revaluation reserve. Unquoted investments are initially valued at cost. A reduction in the value of an unquoted investment will be made if considered appropriate in the light of a company’s condition or prospects. It is not practicable to ascertain the fair value of unquoted investments. Realised gains and losses on sales of investments are calculated based on the average cost of the investment and are reflected in income when realised. Foreign currency transactions The accounts have been prepared in United States dollars being the local currency of Bermuda. Whilst registered in Bermuda the Company, together with its subsidiaries, operate in China, the United Kingdom, and Australia. Investments and monetary items have been translated at rates in effect at the balance sheet date. Foreign currency transactions have been translated at the rate in effect at the date of transaction. Any realised or unrealised exchange adjustments have been charged or credited to income. The accounts of overseas subsidiary undertakings are translated at the rate of exchange ruling at the balance sheet date and profit and loss account items are translated at the average rate for the year. The exchange difference arising on the retranslation of opening net assets is taken directly to the foreign exchange reserve. All other translation differences are taken to the profit and loss account. Equity compensation Griffin operates an equity compensation plan under which directors and certain key management are granted options to subscribe for new ordinary shares in the Company as described in the Directors' report on page 21 and 22. In accordance with current accounting standards the Company does not make a charge to staff costs in connection with share options issued to directors and employees. 30 GRIFFIN MINING LIMITED NOTES TO THE FINANCIAL STATEMENTS 1. Segmental reporting The Group’s principal project is the Caijiaying zinc gold project in the Peoples Republic of China. There were no sales of mineral concentrates from this project in 2004. All operating costs in respect of the Caijiaying zinc gold project have been capitalised in accordance with the Group’s accounting policies. Operating costs charged to profit are in respect of administration costs incurred by Griffin Mining Limited. 2. Net operating expenses Net operating costs comprise: Depreciation Staff costs Other administrative costs Total operating expenses Average number of persons employed by the Group in the year All operating expenses charged to profit relate to continuing operations. 2004 $000 (5) (244) (799) (1,048) No. 41 3. Directors’ remuneration The following fees and remuneration were receivable by the Directors holding office during the year: Mladen Ninkov Dal Brynelsen Roger Goodwin William Mulligan Fees $000 - 50 - 50 Salary $000 - - 173 - Total 2004 $000 - 50 173 50 2003 $000 (1) (218) (367) (586) No. 6 Total 2003 $000 - - 114 - Keynes Capital, the registered business name of Keynes Investments Pty Limited as trustee for the Keynes Trust, received fees under a consultancy agreement of $420,000 (2003 $225,000), for the provision of advisory and support services to Griffin Mining Limited and its subsidiaries during the year, 60% of which fees are charged to Hebei Hua-Ao and capitalised. Mladen Ninkov is a director and employee of Keynes Investments Pty Limited. On 1 March 2004 Great Welland Corporation exercised options over 6,000,000 new ordinary shares at an exercise price of 5 pence per share. These options were acquired by Great Welland Corporation on 27 February 2004 from Frick Pty Ltd (a company associated with the Chairman of Griffin, Mr Mladen Ninkov). On 1 March 2004 William Mulligan exercised options over 300,000 new ordinary shares at an exercise price of 5 pence per share. On 9 March 2004 the Directors agreed to grant new options to the Directors and certain key management and on 22 March 2004 a total of 9,500,000 new options were granted to the Directors and certain key employees of the Company. Each new option entitles the holder to subscribe for new ordinary shares in the Company at 30 pence per share on or before the 28 February 2007. The new options vest with each option holder in 3 separate and equal instalments triggered by the following events: 31 REPORT AND ACCOUNTS 2004NOTES TO THE FINANCIAL STATEMENTS a. b. c. The first third of each holder’s new options vest immediately; The second third of each holder’s new options will vest upon the commissioning of the plant at Caijiaying, China with an initial throughput of 200,000 tonnes per annum; and The last third of each holder’s new options will vest upon the announcement of an upgrade in the throughput of the Caijiaying plant from 200,000 tonnes per year to 500,000 tonnes per year. The options will not vest if an employee or a director resigns or leaves the Company prior to the vesting event taking place. All the new options will vest immediately upon a takeover offer being made or a change in substantial control of the Company taking place prior to the new options expiring. The directors options have been allocated as follows: Mladen Ninkov Roger Goodwin Dal Brynelsen William Mulligan Total 4. Interest receivable and similar income Bank and short term interest 5. Taxation on profit / (loss) on ordinary activities Taxation on profit / (loss) on ordinary activities The Company is resident for corporation tax purposes in the United Kingdom. Factors affecting total current corporate tax charge for the year Profit / (loss) on ordinary activities multiplied by the UK standard rate of corporation tax 30% (2003: 30%) Expenses not deductible for tax purposes (Losses) brought forward / losses carried forward Current tax charge for the year No. 6,000,000 1,700,000 600,000 600,000 8,900,000 2003 $000 90 2003 $000 - 2003 $000 (7) 2 5 - 2004 $000 507 2004 $000 - 2004 $000 119 4 (123) - The Company has unutilised tax losses estimated at $6.6m, and capital losses estimated at $2.6m, in respect of which no deferred tax asset has been recognised because of the uncertainty of future taxable income against which these losses may be utilised. 6. Earnings/ (Loss) per share The earnings per share has been calculated on the basis of the net profit after taxation of US$398,000 (loss US$20,000 in 2003) and the weighted average number of shares in issue in the year ended 31 December 2004 of 170,646,361 (114,682,774 in 2003). There is no material dilutive effect of share purchase options. 32 GRIFFIN MINING LIMITED NOTES TO THE FINANCIAL STATEMENTS 7. Intangible assets Exploration interests China – Zinc / gold COST / VALUATION At 1 January 2004 Foreign exchange adjustments Additions during the year Transfer to tangible assets At 31 December 2004 NET BOOK VALUE At 31 December 2004 At 31 December 2003 $000 6,285 (384) 557 (6,419) 39 39 6,285 Intangible assets represent fair values on acquisition, plus subsequent expenditure on licences, concessions, exploration, appraisal and development work. Where expenditure on an area of interest is determined as unsuccessful such expenditure is written off to the profit and loss account. The recoverability of these assets depends, initially, on successful appraisal activities, details of which are given in the report on operations. The outcome of such appraisal activity is uncertain. Upon economically exploitable mineral deposits being established, sufficient finance will be required to bring such discoveries into production. 8. Tangible assets COST At 1 January 2004 Foreign exchange adjustments Additions during the year Transfer from intangible assets At 31st December 2004 DEPRECIATION At 1 January 2004 Provided during the year At 31 December 2004 NET BOOK VALUE At 31 December 2004 At 31 December 2003 Mineral Interests $000 - 269 5,082 6,419 11,770 - - - 11,770 - Mill and mobile mine equipment $000 171 - 4,938 - 5,109 Office furniture and equipment $000 23 - 17 - 40 - - - 5,109 171 20 5 25 15 3 Total $000 194 269 10,037 6,419 16,919 20 5 25 16,894 174 Mineral interests comprise the Group’s interest in the Caijiaying ore bodies including fair values on acquisition, plus subsequent expenditure on licences, concessions, exploration, appraisal and construction of the Caijiaying mine including expenditure for the initial establishment of access to mineral reserves, commissioning expenditure, and direct overhead expenses prior to commencement of commercial production. The tangible assets remain in the course of construction at 31 December 2004 and consequently no depreciation has been charged during the year. 33 REPORT AND ACCOUNTS 2004NOTES TO THE FINANCIAL STATEMENTS 9. Portfolio investments Quoted (cost $873,000 - 2003 $873,000) 2004 $000 27 2003 $000 62 Quoted securities are valued at the bid market price. Unquoted investments have been fully provided against. Quoted and unquoted investments are classified as available for sale. 10. Cash and deposits Analysis of changes in cash and cash equivalents At 1 January Net cash inflow At 31 December 2004 $000 6,831 6,154 12,985 2003 $000 1,737 5,094 6,831 Included within the net cash inflows of $6,154,000 (2003 inflow $5,094,000) is $939,000 (2003 $476,000) of foreign exchange gains on cash deposits which have been treated as realised. 11. Share capital AUTHORISED: Ordinary shares of US$0.01 each CALLED UP ALLOTTED AND FULLY PAID: Ordinary shares of US$0.01 each At 1 January Issued during the year At 31 December 2004 2003 Number $000) Number $000 1,000,000,000 10,000 1,000,000,000 10,000 135,227,731 42,100,000 177,327,731 1,352 421 1,773 103,557,248 31,670,483 135,227,731 1,036 316 1,352 On 24 February 2004, 35,000,000 new ordinary shares in the Company were allotted at 25 UK pence ($0.45) per ordinary share for cash to raise $15,664,000 before expenses on an equity placing. On 1 March 2004 6,300,000 new ordinary shares in the Company were allotted at 5 UK pence ($0.09) per ordinary share on the exercise of options. On 31 March 2004, 300,000 new ordinary shares in the Company were allotted at 5 UK pence ($0.09) per ordinary share on the exercise of options. On 27 October 2004, 500,000 new ordinary shares in the Company were allotted at 15 UK pence ($0.27) per ordinary share on the exercise of warrants. 34 GRIFFIN MINING LIMITED NOTES TO THE FINANCIAL STATEMENTS 12. Share options and warrants COST Options exercisable at 5 pence per share at anytime upto 31 March 2004. Warrants exercisable at 15 pence at anytime upto 30 September 2004. Warrants exercisable at 20 pence at anytime upto 30 September 2004. Warrants exercisable at 20 pence at anytime upto 31 August 2005. Warrants exercisable at 30 pence at anytime upto 31 December 2004. Warrants exercisable at 35 pence from 1 January 2005 to 30 June 2005. Warrants exercisable at 40 pence from 1 July 2005 to 31 December 2005. Options exercisable at 30 pence per share at anytime upto 28 February 2007. Options exercisable at 30 pence per share from commencement of production to 28 February 2007. Options exercisable at 30 pence per share from upgrade in throughput of Caijiaying mine to 500,000 tonnes of ore per annum to 28 February 2007. 13. Share premium At 1 January Premium on shares issued in year Expenses paid in connection with share issues At 31 December 14. Contributing surplus At 1 January and 31 December At 1 January 2004 Number Granted in year Number Exercised At 31st / lapsed December 2004 Number Number 6,600,000 500,000 250,000 6,000,000 - - - - - - - - - - 500,000 500,000 500,000 3,166,666 3,166,667 3,166,667 (6,600,000) (500,000) (250,000) - - - - - - - - - - 6,000,000 500,000 500,000 500,000 3,166,666 3,166,667 3,166,667 13,350,000 11,000,000 (7,350,000) 17,000,000 2004 $000 21,385 15,970 (761) 36,594 2004 $000 3,690 2003 $000 15,537 6,136 (288) 21,385 2003 $000 3,690 The Contributing surplus is a statutory reserve for the maintenance of capital under Bermuda company law and was created on a reduction in the par value of the Company’s ordinary shares on 15 March 2001. 35 REPORT AND ACCOUNTS 2004NOTES TO THE FINANCIAL STATEMENTS 15. Investment revaluation reserve At 1 January Movements during the year At 31 December 2004 $000 (811) (35) (846) Unrealised appreciation and depreciation of portfolio investments are reflected in the investment revaluation reserve. 16. Foreign exchange reserve At 1 January Transfer profit and loss account Movements during the year At 31 December 2004 $000 (121) - (22) (143) 2003 $000 (844) 33 (811) 2003 $000 152 (140) (133) (121) Exchange differences arising on the retranslation of opening net assets of overseas subsidiary undertakings, whose accounts are prepared in local currencies, are reflected in the foreign exchange reserve. The transfer to the profit and loss account in 2003 is in respect of foreign exchange gains on the translation of the net assets of overseas subsidiary undertakings disposed of during 2003. 17. Profit and loss account At 1 January Transfer foreign exchange reserve Profit / (loss) for the financial year At 31 December 18. Reconciliation of movements in shareholders’ funds Total gains and (losses) recognised in the year Issue of ordinary shares in the year Net additions to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds 2004 $000 (12,130) - 398 (11,732) 2004 $000 341 15,630 15,971 13,365 29,336 2003 $000 (12,250) 140 (20) (12,130) 2003 $000 (120) 6,164 6,044 7,321 13,365 19. Attributable net asset value per share The attributable net asset value per share has been calculated from the consolidated net assets of the Group divided by the number of ordinary shares in issue at 31 December 2004 of 177,327,731 (135,227,731 at 31 December 2003). 36 GRIFFIN MINING LIMITED NOTES TO THE FINANCIAL STATEMENTS 20. Post Balance Sheet Events On 4th February 2005 1,000,000 new ordinary shares in the Company were allotted at 20 UK pence ($0.38) per ordinary share on the exercise of warrants. 21. Financial instruments The Group finances its operations primarily from equity issues. The Group does not enter into derivative transactions such as interest rate swaps, forward rate agreements or forward currency contracts. The Group has no borrowings other than trade creditors and funds in excess of immediate requirements are placed in US dollar and sterling short term fixed and floating rate deposits. The Group has overseas subsidiaries operating in China and Australia, whose costs are denominated in local currencies. Liabilities are primarily incurred in US dollars, or Chinese Reminbi which is currently pegged to the US dollar. In the normal course of its operations the Group is exposed to foreign currency and interest rate risks. The Group places funds in excess of immediate requirements in US dollar and sterling deposits with a number of banks to spread currency, interest rate and bank risk. These deposits are kept under regular review to maximise interest receivable and with reference to future expenditure and future currency requirements. 22. Subsidiary companies At 31 December 2004, Griffin Mining Limited had interests in the share capital of the following principal subsidiary companies. Name China Zinc Pty Limited Class of shares held Proportion of shares held Nature of business Country of incorporation Ordinary 100% Holding company Australia Hebei Hua’ Ao Mining Development Company Limited* 100% (reducing to 60% after 3 years from commercial production) ** Zinc mining and development China Panda Resources Limited Ordinary Hebei Sino Anglo Mining Development Company Ltd* 100% 90% Holding company England Gold exploration and development China * China Zinc Pty Ltd and Panda Resources Ltd are directly owned by the Company. China Zinc Pty Ltd has a controlling interest in Hebei Hua’ Ao Mining Development Company Ltd, see below, and Panda Resources Ltd has a 90% controlling interest in Hebei Sino Anglo Mining Development Company Ltd. ** The joint venture contract establishing the Hebei Hua’ Ao Mining Development Company Ltd provides that 100% of the cash flows generated by the joint venture in the first three years from commencement of commercial production be paid to the foreign party. Thereafter the foreign party will receive 60% of the cash flows, in accordance with its share in the equity interest in the joint venture. 37 REPORT AND ACCOUNTS 2004The interior of the processing plant 38 GRIFFIN MINING LIMITED Principal office: Registered office: China Zinc office: Directors: CORPORATE INFORMATION 6th & 7th Floors, 60 St James’s Street, London. SW1A 1LE. UK. Telephone: + 44 (0)20 7629 7772 Facsimile: + 44 (0)20 7629 7773 Email: griffin@griffinmining.com Web site: www.griffinmining.com Clarendon House, 2 Church Street, Hamilton. HM11. Bermuda. Level 9, BGC Centre, 28 The Esplanade, Perth, WA 6000. Australia. Telephone: + 61(0)8 9321 7143 Facsimile: + 61 (0)8 9321 7035 Mladen Ninkov (Chairman) Roger Goodwin (Finance Director) Dal Brynelsen William Mulligan Company Secretary: Roger Goodwin Nominated Adviser and Broker for AIM: Auditors: Solicitors: Bankers: Charles Stanley and Company Limited 25 Luke Street, London. EC2A 4AR. UK. Grant Thornton UK LLP 31 Carlton Crescent, Southampton. SO15 2EW. UK. Mallesons Stephen Jaques Unit 12, Level 5, Tower E1, The Towers Oriental Plaza No, 1 East Chang an Avenue, Dong Cheng District, Beijing 100738. PRC Conyers Dill & Pearman Clarendon House, Church Street, P.O. Box HM 666, Hamilton. HMCX. Bermuda. National Westminster Bank PLC. St James’s and Piccadilly, London. W1A 2DG. UK. Anglo Irish Bank Corporation plc 10 Old Jewry, London. EC2R 8DN. UK. UK Registrars & Transfer Agents: Capita IRG plc Bourne House, 34 Beckenham Road, Beckenham, Kent. BR3 4TU. UK. 39 REPORT AND ACCOUNTS 2004Caijiaying processing plant 

Continue reading text version or see original annual report in PDF format above