CONTENTS
CHAIRMAN’S STATEMENT
OVERVIEW
CAIJIAYING
INTRODUCTION
DEVELOPMENT
MINERAL RESOURCE ESTIMATE
GEOLOGY
EXPLORATION
OPERATIONS
COMMUNITY INVESTMENT & PARTNERSHIP
FINANCIAL
STRATEGIC REVIEW
CAIJIAYING
ACQUISITIONS AND FURTHER PROJECTS
DIRECTORS
SENIOR EXECUTIVES
DIRECTORS’ REPORT
REPORT OF THE INDEPENDENT AUDITOR
CONSOLIDATED INCOME STATEMENT
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
CONSOLIDATED CASH FLOW STATEMENT
ACCOUNTING POLICIES
NOTES TO THE FINANCIAL STATEMENTS
CORPORATE INFORMATION
REPORT AND ACCOUNTS 2016
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47
60
Griffin Mining Limited is a mining and investment company whose principal asset is the Caijiaying zinc-gold mine.
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).
Registered in Bermuda, number: 13667.
Registered Office: Clarendon House, 2 Church Street, Hamilton, HM11, Bermuda
United Kingdom Office: 8th Floor, Royal Trust House, 54 Jermyn Street, London, SW1Y 6LX
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G R I F F I N M I N I N G L I M I T E D
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Caijiaying Mine Site, Autumn 2016
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G R I F F I N M I N I N G L I M I T E D
CHAIRMAN’S STATEMENT
It gives me great pleasure to present to you, the
register a supply deficit, short 268,000 tonnes in 2016
shareholders and owners of Griffin Mining Limited
and, in January 2017, already short 27,000 tonnes
(“Griffin” or the “Company”), the Annual Report
with storage at the London Metal Exchange declining
and Accounts of the Company for the 2016 calendar
31,000 tonnes. This is being reflected in lower smelter
and financial year. It was a year when the aberration
charges and a higher overall zinc price.
of our first loss in a decade in 2015 was cast aside and
profitability was restored.
Most pleasing, on the 14th December 2016 and in
the presence of the Australian Ambassador to China
Financially,
the Company made an operating
and senior officials from the Ministry of Land and
profit of $15.2 million, profit before tax of $10.4
Resources and Zhangjiakou City, an agreement was
million and after profit tax of almost $6 million.
signed whereby the Company was granted the right to
Operationally, a record number of tonnes were mined
and processed whilst cost of sales fell significantly,
even though only low grade ore could be processed
via stockpiles during the cessation of mining activity
and, upon recommencement of mining, only from
residual low grade ore in the higher mine levels.
Notably, gold production reached a new record high of
12,654 ounces in concentrate.
Further good news included the completion of the
upgrade on the 28th January 2016 to the mine and
processing facilities to a 1.5 million tonne throughput
capacity, the addition of a second 35,000 volt grid
power line to site, a new safety permit over the lower
levels of Zone III and the continuing drive to improve
efficiencies with the commissioning of a new, electro
hydraulic longhole drill rig.
Non-operationally, almost $15 million of debt was
repaid in 2016.
Although I believe share price is a very poor indicator
of a Company’s value and performance, it is pleasing to
see that the share price has increased over 115% in the
past 12 months.
Critically, the fundamental outlook for zinc continues
to improve. According to the International Lead
and Zinc Study Group, the zinc market continues to
explore, in particular, the Shitouhulun and Sangongdi
areas near the Caijiaying Mine. Both areas share the
same geological signatures as the known orebodies at
the Caijiaying Mine and high hopes exist for exploration
success once work begins on these regions.
It would, of course, be disingenuous of me to
hide the fact that our overwhelming, continuing,
disappointment lies in the failure to be granted a
mining licence over Zone II and thereby increase our
throughput to our now expanded processing capacity.
It has become a frustrating reality in the mining world
that mining licences are taking ever longer to obtain
due to administrative labyrinths, constant legislative
changes, environmental issues needing over-addressing
and native concerns being constantly satisfied. China
is no different in this respect. The overwhelming
question asked by shareholders is when will the licence
be granted? I have made predictions in the past and
have been proved horribly wrong. I will merely state I
have high hopes for 2017.
It would be unfair of me not to thank the directors, staff
and contractors who continue to strive to make the
Company an even greater success than it has already
become. Any organization is only as competent and
dynamic as the people who work, think and act solely
in the best interest of the Company. Ours are some of
the best in the industry, and in country, and we thank
them for their outstanding efforts.
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REPORT AND ACCOUNTS 2016
Finally and traditionally, I wish to thank you, the
and which we believe will exponentially and excitingly
shareholders and owners of the Company. Contrary
grow in the coming years. I look forward to delivering
to what we may witness in the world around us too
that success.
often in these troublesome times, faith can be the most
amazing of things. It is your faith in your Company
which has nurtured the success we have had to date
Mladen Ninkov
Chairman
5th April 2017
Mladen Ninkov (Chairman) and He Yuquing (Captain of the Third Geological Brigade of Hebei Province)
signing the Co-operation Agreement for the exploration and development of the Shitouhulun and Sangongdi
areas, with in attendance from left to right: Sun Huiguang, (Director of the 3rd Brigade); Jin Shengchang,
(Deputy Chairman of Hebei Hua Ao); Wu Xiaohong, (Party Secretary of the 3rd Brigade); Zhao Rongsheng,
(Division Chief of Hebei Bureau of Geology and Mineral Resources “BGMR”); Li Chunsheng, (Chief Geologist
of Hebei BGMR); He Xi, (Deputy Chief of Hebei BGMR); Lu Feng, (Vice Mayor of Zhangjiakou Municipal
Government); Zhang Guojun, (Deputy Director of General Hebei Ministry of Land and Resources); Zhang
Junjie, (Chief of Hebei BGMR): Australian Ambassador to China the Honorable Jan Adams; Rupert Crowe,
(Director of Griffin), Bo Zhou, (Griffin Chief Representative China); Michael Hulmes, (General Manager
of Caijiaying); Ben Jarvis, (Counselor at the Australian Embassy Beijing) and a further Australian
consular official.
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G R I F F I N M I N I N G L I M I T E D
OVERVIEW
Griffin Mining Limited (“Griffin” or “the Company”)
is a mining and investment company, incorporated in
Bermuda, whose shares are quoted on the Alternative
Investment Market of the London Stock Exchange
(“AIM”).
The Company also holds 90% of Hebei Sino Anglo
Mining Development Company Limited (“Hebei
Anglo”), which holds 27.5 square kilometres of
exploration licences immediately surrounding the
Hebei Hua Ao Licence Area.
The major asset of the Company is an 88.8% interest
in Hebei Hua Ao Mining Industry Company Limited
(‘Hebei Hua Ao’), which holds 9.9 square kilometres
of mining and exploration licences including the
mine and processing facilities at Caijiaying in the
People’s Republic of China (the “Caijiaying Mine”).
The Company continues to aggressively explore,
expand and develop the Caijiaying Mine, whilst also
investigating further potential acquisitions of mining
projects that are capable of being brought into
production and to meet historically preset, economic
returns to shareholders.
Caijiaying Mine Location, People’s Republic of China
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CAIJIAYING
INTRODUCTION
The Caijiaying Mine is an operating zinc, gold,
silver and lead mine, together with a processing
plant, camp and supporting facilities,
located
approximately 300 kilometres by road, north-west of
Beijing in Hebei Province in the People’s Republic
of China. The Caijiaying Mine is easily accessible by
freeway from Beijing. The site has significant water
supplies, two 35 thousand volt “kv” power lines
connected to the electricity grid, full connectivity
to fixed and mobile tele-communications systems
and broadband access for internet services. It is 63
kilometres from Chongli, the host city of the 2022
Winter Olympic Games to which a high speed train
link from Beijing is currently being constructed.
Climatic conditions are not severe with warm
summers and cold, dry winters, enabling Caijiaying
to operate for 365 days a year.
DEVELOPMENT
Hebei Hua Ao is a contractual co-operative joint
venture company entity established in 1994. Initially,
Griffin held 60% of Hebei Hua Ao (through a
wholly owned subsidiary) with the remaining
40% held by the Zhangjiakou Guoxin Enterprise
Management and Service Center (“Guoxin”), the
previously named Zhangjiakou Caijiaying Lead Zinc
Mining Company, the shareholders of which remain
the Zhangjiakou City People’s Government and the
Third Geological Brigade of Hebei Province (the
“3rd Brigade”).
The initial term of Hebei Hua Ao was 25 years and
was due to expire in 2019. In light of the continuing
increase in the resources base and production profile
of the Caijiaying Mine, the Company, through
its wholly owned subsidiary China Zinc Limited,
purchased an additional 28.8% interest in Hebei
Hua Ao from Guoxin in 2012. Griffin now holds
an 88.8% equity interest in Hebei Hua Ao and
Guoxin retains an 11.2% residual interest with a fee
for services rendered, resulting in Hebei Hua Ao
being in the nature of a subsidiary of the Company
REPORT AND ACCOUNTS 2016
with a service contract to Guoxin for accounting
purposes. In addition, and as part of this purchase
agreement, the term of the Hebei Hua Ao
joint venture was extended to October 2037.
In January 2004, a second contractual joint venture
company, Hebei Anglo, was formed to hold the
mineral rights to the area surrounding the original
Hebei Hua Ao licence area and any other areas of
interest in Hebei Province. Griffin, through its
wholly owned UK subsidiary, Panda Resources
Limited, has a 90% interest in Hebei Anglo whilst
Guoxin holds 10%. Griffin, through Hebei Hua
Ao and Hebei Anglo, has a controlling interest in
mining and exploration licences over approximately
37.4 square kilometres at Caijiaying.
extensive
exploration,
Following
resource
delineation drilling, a number of scoping studies, a
feasibility study, financing and construction, Griffin
successfully commissioned the Caijiaying Mine on
time and within budget in 2005 with an initial design
production throughput rate of 200,000 tonnes of ore
per annum.
Numerous upgrades
the Caijiaying Mine
to
and processing facilities have taken place since
commissioning. In January 2016, the Company
completed a further upgrade of the processing
facilities at the Caijiaying Mine and the construction
of two new 35kv power lines connected to the main
grid enabling a new third primary ball mill to be
commissioned. This latest upgrade has taken name
plate mill throughput capacity to 1.5 million tonnes
of ore per annum.
Underground development continues with the
expansion of the existing mining operations at Zone
III. Access to the Zone II area to the south of Zone
III has been constructed allowing for underground
drilling and further exploration work at Zone II.
The mining and development of Zone II is subject
to the successful granting of a new mining licence
over that area.
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G R I F F I N M I N I N G L I M I T E D
Hebei Hua Ao directors and shareholders meeting. Front row from left to right: Li Chunsheng,
(Chief Geologist of Hebei Provincial BGMR); Fang Jibin, (Executive Deputy Secretary General of
Zhangjiakou Municipal Government); Zhang Junjie, (Chief of Hebei Provincial BGMR);
Mladen Ninkov, Chairman; Dal Brynelsen, Director.
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REPORT AND ACCOUNTS 2016
Back row starting from left to right: Sun Huiguang, (Director of Hebei Hua Ao); Jin Shengchang,
(Deputy Chairman of Hebei Hua Ao); He Yuqing, (Captain of the 3rd Brigade of the Hebei Province);
Zhou Bo, (Director of Hebei Hua Ao); Gao Feng, (Director of Zhangjiakou State Assets
Administration and Monitoring Commission); Sun Xiaoyan, Interpreter.”
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G R I F F I N M I N I N G L I M I T E D
MINERAL RESOURCE ESTIMATE
In June 2013, a Mineral Resource estimate for Caijiaying
was reported. The continuing success of the exploration
programme in conjunction with infill drilling and on-
going development, is anticipated to lead to an upgrade
of the Mineral Resource estimate for the Caijiaying Mine
in the future. The 2016 Mineral Resource estimate, based
on the 2013 estimate at a zinc cut-off grade of 1% and,
as amended for mining depletion, is summarised below:
Caijiaying Zone III Remaining Mineral Resources 31 December 2016
Grade Tonnage Reported above a Cut off Grade of 1.0% Zn
Tonnes Zn
(%)
(Mt)
Pb
(%)
Ag
(g/t)
Au
(g/t)
Zn Metal Pb Metal Ag Metal
(t)
(Oz)
(t)
12.3
7.8
7.7
27.8
4.9
4.4
4.2
4.6
0.3
0.2
0.2
0.2
26.1
22.2
18.5
22.9
0.8
0.7
0.5
0.7
598,000
348,000
322,000
1,269,000
36,000
13,000
12,000
62,000
10,307,000
5,598,000
4,551,000
20,455,000
Caijiaying Zone II Remaining Mineral Resources 31 December 2016
Grade Tonnage Reported above a Cut off Grade of 1.0% Zn
Au Metal
(Oz)
296,000
167,000
129,000
591,000
Au Metal
(Oz)
Tonnes Zn
(%)
(Mt)
Pb
(%)
Ag
(g/t)
Au
(g/t)
-
4.1
15.6
19.6
-
3.0
3.3
3.3
-
0.7
0.8
0.7
-
24.9
24.5
24.6
-
0.3
0.3
0.3
Zn Metal Pb Metal Ag Metal
(t)
(Oz)
(t)
-
-
-
-
123,000
516,000
638,000
27,000
3,242,800
39,300
117,000
144,000
12,276,700
15,519,600
124,200
163,500
Caijiaying Combined Global Remaining Mineral Resources
Grade Tonnage Reported above a Cut off Grade of 1.0% Zn
Tonnes Zn
(%)
(Mt)
Pb
(%)
Ag
(g/t)
Au
(g/t)
12.3
11.9
23.2
47.4
4.9
4.0
3.6
4.0
0.3
0.3
0.6
26.1
23.1
22.5
0.4
23.6
0.8
0.5
0.3
0.5
Zn Metal Pb Metal Ag Metal
(t)
(Oz)
(t)
598,000
471,000
36,000
40,000
10,307,000
8,841,000
838,000
129,000
16,827,000
Au Metal
(Oz)
296,000
206,000
253,000
1,908,000
206,000
35,975,000
755,000
Zone III
Category
Measured
Indicated
Inferred
Sub-Total
Zone II
Category
Measured
Indicated
Inferred
Sub-Total
Combined
Category
Measured
Indicated
Inferred
Total
Notes:
Zone II Mineral Resource includes 1.49 million tonnes at 3.09% zinc oxide material.
The Mineral Resource estimate is based on 2,470 underground diamond drill holes and 579 surface drill holes.
The underground drilling was carried out using nominal fan patterns of 20m by 20m, grading to a 40m by 40m pattern at depth. Resource
wireframes were interpreted by CSA Global Pty Ltd in consultation with Griffin’s geologists. The resource outlines were based on mineralisation
envelopes prepared on cross-sections using a nominal 1% Zn cut-off grade. The Mineral Resource has been depleted using a three-dimensional
survey “As Built” wireframe which models all of the mined out voids at they stand at 31st December 2016.
The Caijiaying Mineral Resources are based on resource modelling work completed by CSA Global Pty Ltd in 2013 and reported in accordance
with JORC 2012 guidelines.
The information in this report that relates to Mineral Resources is based on information compiled by Mr. Steve Rose, who is a Fellow of the
Australasian Institute of Mining and Metallurgy (AusIMM). Mr. Rose is a full-time employee of CSA Global Pty Ltd and has sufficient
experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as
a Competent Person as defined in the 2012 Edition of the “Australasian Code for Reporting of Mineral Resources and Ore Reserves”. Mr. Rose
consents to the inclusion of such information in this report in the form and context in which it appears.
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GEOLOGY
Mineralisation at Caijiaying is believed to be related
to a Jurassic igneous event that affected the 2.3 billion
year old metamorphic basement rocks. Base metal and
gold mineralisation associated with Jurassic intrusives
have replaced favourable horizons in the metamorphic
rocks, most notably calcsilicates and marble. Porphyry
sills and dykes intruding along faults have then cut
across the sequence.
Ongoing exploration in the area surrounding the
Caijiaying Mine and within Hebei Hua Ao’s and Hebei
Anglo’s tenement boundary continues to confirm the
area to be highly prospective, indicating significant
potential for further base metal and gold deposits.
EXPLORATION
The exploration programme at Caijiaying in 2016
continued to expand existing areas of mineralisation,
providing new targets with the aim of ensuring an
ongoing supply of ore, and an update to the Mineral
Resource estimate. This involved prioritising targets
into the following categories:
• In-mine areas between or adjacent to known
orebodies;
• Near-mine targets, mainly within reach of
underground drilling from existing or planned
drives; and
• Regional targets both within and adjacent to
existing licences.
Hebei Hua Ao Mining and Exploration Area
Extensive ongoing underground diamond drilling
continues to target extensions of known deposits and
areas adjacent to known deposits. These near mine
targets include extensions of known zinc, lead and gold
rich lodes within Zone III. In 2016, 220 underground
diamond drill holes were drilled for a total of 30,779
metres, utilising three underground electric drill
rigs. These results will be incorporated in the next
resource update.
There was no surface exploration drilling activity
during 2016, however, previously reported surface
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REPORT AND ACCOUNTS 2016
drilling to the north of Zone III shows that the main
ore bodies, defined by Zones II and III, extend at
least another 300 metres north beneath thickening
cover sequences. This recent discovery, named Zone
VIII, contains similar rock types and mineralisation
styles already seen in Zones II and III. Further
drilling from the surface at Zone VIII is planned for
the 2017 summer drill season.
Three key geological
undertaken in 2016:
technical
studies were
• On-going geological structural studies to enable
an updated 3D geological model and exploration
target matrix continued throughout 2016. This
work included detailed relogging and multi-
element geochemistry of selected underground
diamond drill holes combined with detailed
geological mapping of underground workings
across three key cross sections through the
Caijiaying Mine.
for
• Detailed geochemistry studies aimed to identify
hydrothermal breccias
that are potentially
mineralising plumbing feeders to the Caijiaying
ore bodies and to investigate the effectiveness
lode
of multi-element geochemistry
characterisation and its application for near mine
exploration targeting. The geochemistry data
accurately maps pathfinder element assemblages,
alteration indices and lithology discriminators
at the Caijiaying Mine. This, in combination
studies,
with
has provided high priority near mine exploration
targets that have been successfully targeted
throughout 2016 and will continue to be
developed and drill tested in 2017.
geological
structural
the
• Detailed geochemistry, lode characterisation, and
geological studies into the gold bearing lodes at the
Caijiaying Mine. The aim of these ongoing studies
is to improve the overall understanding of the
lithological and structural controls to gold
mineralisation to provide potential geochemical
vectors that can be used to develop specific
gold targets.
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G R I F F I N M I N I N G L I M I T E D
Long section 3D view of the Zone III Mineral Resource wireframes (blue)
and underground development and stoping (red) looking west.
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Plan view of Caijiaying Mine’s Zone III.
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G R I F F I N M I N I N G L I M I T E D
Plan view of Zone II, V and VIII exploration targets, lease boundaries and local infrastructure
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Hebei Anglo Exploration Area
During 2016, regional exploration activities included
historical data compilation and review, geological
mapping and surface geochemical surveys. Regional
target generation continued in 2016 with geochemical
surveys conducted both within and adjacent to
existing licences. The results of these surveys
were very encouraging and have resulted in the
identification of anomalous areas with geochemical
signatures similar to that observed in drill core data
from the Caijiaying Mine area. Further sampling
and analysis will continue to develop and prioritise
targets for future drilling.
Shitouhulun and Sangongdi
On 17th March 2016, an agreement was signed
between Griffin’s wholly owned subsidiary, China
Zinc Limited, and the 3rd Brigade for co-operation
in exploration outside the Caijiaying Mine area
and regionally throughout Hebei Province. This
provides a unique opportunity for the Company to
investigate the region’s economic mineral potential
and unlock areas of interest within Hebei Province.
two areas of particular
On the 14th December 2016, a further agreement
was signed between the same parties specfically
identifying
interest,
Shitouhulun, approximately 30 kilometres south
west of the Caijiaying Mine, and Sangongdi, 11
kilometres to the north west of the Caijiaying Mine.
Both share the same geological signatures as the
known orebodies at the Caijiaying Mine.
Exploration of both these areas is expected to begin
in the northern hemisphere spring with shallow
auger drilling.
2017 Exploration
analysis will
continue within
Geochemical
the under-
to
the Caijiaying Mine
standing of
the orebody.
the complexity of
Regional exploration will continue with surface
geochemical sampling and analysis to evaluate
increase
REPORT AND ACCOUNTS 2016
targets for further consideration and drilling. Surface
diamond drilling will be carried out at Zone VIII
which is located to the north and along strike of Zone
III. This drilling follows on from that completed
in 2015.
OPERATIONS
The underground mine and surface processing plant
operated safely and reliably during 2016. However,
two separate fatal accidents in 2015 resulted in the
temporary suspension of underground operations
from 12th October 2015 to 20th January 2016. D
uring this period, low grade stockpiled ore was
treated and this resulted in a reduced head grade
with a commensurate impact on metal production.
A third new main 750,000 tonne ball mill
was commissioned on the 28th January 2016
following the connection of a new 35kv electrical
power line to the Caijiaying Mine. As a result,
available grinding capacity
increased to 1.5
million tonnes of ore per annum. This enabled
a record mill throughput to be achieved in
2016, despite zinc metal production being lower
than in 2015 due to the mine shutdown and
the consequent inability to undertake capital
development to prepare ore for extraction. This
led to the milling of available low grade ore
and the depletion of stopes above the allowable
1260 metre mining level. Zinc production was
augmented by increased gold production which
was sourced from the recently discovered Yuan
Lode which typically produces higher gold grades
than found elsewhere in the Caijiaying Mine.
In October 2016 a new safety permit was
received from the regulatory authorities for
a fresh panel of higher grade zinc ore to be
accessed between the 1175 metre level and the
1260 metre level. Mining of this panel was able
to be commenced immediately as all of the
associated declines, pump stations, electrical
infrastructure and cross cuts were installed during
the process of the granting of the new permit.
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G R I F F I N M I N I N G L I M I T E D
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REPORT AND ACCOUNTS 2016
Griffin Mining Limited directors from left to right Dal Brynelsen,
Rupert Crowe, Adam Usdan and Mladen Ninkov (Chairman) at Sangongdi.
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G R I F F I N M I N I N G L I M I T E D
In summary, production in 2016 was as follows:
COMMUNITY INVESTMENT
• 817,506 tonnes of ore were mined, compared to
571,815 tonnes in 2015;
• 874,983 tonnes of ore were processed, compared
to 839,713 tonnes in 2015;
• 31,948 tonnes of zinc metal in concentrate were
produced, compared to 38,560 tonnes in 2015;
• A record 12,654 ounces of gold in concentrate
were produced, compared to 10,363 ounces in
2015;
• 310,610 ounces of silver in concentrate were
produced, compared to 343,575 ounces in 2015;
and
• 1,439 tonnes of
lead
produced, compared to 1,785 tonnes in 2015.
in concentrate were
In light of the continuing increasing production
profile, a transition has begun to the use of more
modern mining equipment. This has led to the
introduce more
adoption of a programme to
mechanisation in the Caijiaying Mine. To this end,
two new remote control load, haul, dump units were
acquired to improve ore recovery from stopes and
improve operator safety. A new electro hydraulic
longhole drill was also ordered in 2016 and was
commissioned in the first quarter of 2017. This will
replace a number of older compressed air units and
improve productivity as well as improving operator
safety and comfort. This follows the purchase of an
electro hydraulic development drill in 2015
Underground development work was significantly
increased from previous years, with 5,506 metres of
capital development and 5,165 metres of operational
development completed in 2016.
Long hole open stoping continues to be the
predominant mining method. The resulting voids
are then backfilled with cemented hydraulic fill in
the case of primary stopes or development waste in
secondary stopes.
18
& PARTNERSHIP
The Company, through Hebei Hua Ao, has invested
heavily in the local community and continues to
maintain and further implement best practices
regarding the protection of the environment. This
includes:
• Controls to prevent the discharge of waste into
the environment;
• All processed water and water from the mine
being recycled;
• Boiler flue gases being treated by a dust and
sulphur extraction system to prevent the emission
of pollutants into the atmosphere;
• Waste rock and mill tailings being used to the
maximum for backfilling underground stope
voids. This minimises the mine footprint by
reducing the need for larger tailings and waste
storages;
• Noise and dust from operations from the
Caijiaying Mine being strictly controlled;
• The Company funding the state endorsed
“greening” project, including the planting of
trees by local villagers in the Caijiaying area;
• Approval from the relevant authorities to increase
the capacity of the dry tailings storage without an
increase in the footprint of the facility via modern
design practices;
• A dedicated rubbish disposal building to store
Caijiaying Mine rubbish prior to sorting and
collection;
• Provision of coal to the local primary and
secondary schools for heating during the winter;
and
• Collaboration with local brick manufactures to
supply mill tailings for brick manufacturing in
Zhangbei.
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REPORT AND ACCOUNTS 2016
During 2016, Hebei Hua Ao paid Rmb 81 million
($13 million) in taxes, royalties, social security fees,
fines and other duties to Chinese Governmental
authorities and agencies.
FINANCIAL
Griffin Mining Limited (the “Company”) and its
subsidiaries (together the “Group”) returned to
profitability in 2016 with increased turnover and
lower cost of sales. The Group recorded;
• Revenues of $66,270,000
in 2016
(2015
$59,779,000);
• Operating profit of $15,201,000 in 2016 (2015
$4,301,000);
• Profit before tax of $10,382,000 in 2016 (2015
loss $940,000); and
• Profit after tax of $5,914,000 in 2016 (2015 loss
$2,186,000)
Although record throughput was achieved in 2016,
lower zinc, lead and silver head grades caused by
restricted mine access following the suspension of
mining operations, resulted in lower zinc, lead and
silver in concentrate being produced and sold than in
2015. However, gold in concentrate production was
up 22.1% on 2015 to a record 12,654 ozs.
in
concentrate prices
received were
Metal
significantly higher in 2016 than in 2015 with zinc
metal in concentrate prices received of $1,520 per
tonne up 27.6% on that received in 2015 of $1,191;
silver of $13.25 per oz was up 10.9% from that
received in 2015 of $11.95; and gold of $1,154 per oz
up 10.6% on that received in 2015 of $1,043. This
reflects higher market prices and a tightening of
concentrate supply in China.
These environmental best practices have been
recognised in the past by the Chinese Government
with Hebei Hua Ao being presented with the
Environmental Award at the 2010 China Mining
Conference and the Mine Development Outstanding
Achievement Award at the 2011 China Mining
Conference.
In terms of further community interaction, Hebei
Hua Ao provides a direct water supply to the
local villagers, has constructed sealed roads to the
Caijiaying Mine and nearby villages, financed the
construction of a local kindergarten, an old peoples
rest home and assisted with other infrastructure
projects.
In 2013, Griffin, through Hebei Hua Ao, instigated
a programme to create a long term industry for the
Caijiaying local village, in particular, to provide a
more sustainable annual income less reliant on the
seasonality of crops grown in the short summer
months. To that end, Hebei Hua Ao purchased on
behalf of the local community 170 cows, which were
already pregnant, creating a sizeable initial herd of
217 cattle for the creation of a dairy and cattle farm.
In 2015 Hebei Hua Ao purchased another 183 cows
for the local community to bring the total herd size
to over 500 head of cattle. The venture has been an
outstanding success.
Hebei Hua Ao has also assisted in the upgrade of
facilities at the local township school and set up
“Project Hope” to provide scholarships to local
students for ongoing study at primary, secondary and
tertiary levels. Expatriate workers also donate their
valuable time every week to teach English at the local
township school in their off duty hours.
Griffin estimates that the Caijiaying Mine currently
provides direct and indirect employment to over
1,000 Chinese nationals. The employment of
expatriate personnel is confined to a small number
of five professionals with specialist technical and
managerial expertise.
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G R I F F I N M I N I N G L I M I T E D
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REPORT AND ACCOUNTS 2016
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New Sandvik Jumbo
21
G R I F F I N M I N I N G L I M I T E D
In summary, metal in concentrate sales in 2016 were:
• 31,864 tonnes zinc compared with 38,514 tonnes
in 2015;
• 1,439 tonnes lead compared with 1,800 tonnes in
2015;
• 310,611 ozs silver compared with 346,711 ozs in
2015; and
• 12,654 ozs gold compared with 10,406 ozs in
2015.
Cost of sales of $37,851,000 in 2016 was down on
that incurred in 2015 of $42,948,000. This reflects
some economies of scale following the installation of
the new ball mill and non-productive costs during
the suspension in mining in 2015.
874,983 tonnes of ore were processed in 2016 up
35,270 tonnes (4.2%) from 2015 of 839,983 tonnes.
Despite this increase in throughput processing costs
fell by 5.8% in 2016 with costs per tonne of ore
processed down by 9.6%.
863,077 tonnes of ore were mined in 2016 up
291,262 (50.9%) from 2015 of 571,815. Mining costs
rose 4.8% which with increased tonnage resulted in
significantly lower costs per tonne of ore mined.
Much of this reduction in costs may be attributed
to non-productive mine service costs during the
suspension in mining activities in the later part of
2015 with no ore extracted.
817,506 tonnes of ore were hauled in 2016 up 220,445
(36.9%) from 2015 of 597,061. Haulage costs rose
26.5%, which again with increased tonnage resulted
in significantly lower costs per tonne of ore hauled.
Much of this reduction in costs reflects shorter
distances hauled from higher mine levels.
Administration expenses (including those of the
Caijiaying site) have risen 5.5% from $12,530,000
in 2015 to $13,218,000
in 2016. Underlying
administration costs have fallen 12.5% with lower
share based option charges, a fall in the value of the
Renminbi and other cost savings. However, service
fees to Guoxin based upon Hebei Hua Ao’s profits
have increased from a credit of $307,000 in 2015 to a
charge of $1,983,000 in 2016.
With a return to profitability, bank loans are
being repaid as quickly as possible resulting in
finance charges falling from $5,084,000 in 2015 to
$4,286,000 in 2016.
A fall in the value of the Chinese Renminbi and
British Pound in 2016 caused foreign exchange losses
of $532,000 (2015 $447,000) to be incurred.
Losses on the disposal of plant and equipment
of $224,000 were recorded in 2016 compared to
$48,000 in 2015.
Income taxes of $4,468,000 (2015 $1,246,000) have
been charged in 2016. This includes a deferred
taxation provision of $151,000 (2015 $813,000) and
a charge of $573,000 in respect of deductions made
in prior years since disallowed by the Chinese tax
authorities.
Basic earnings per share in 2016 was 3.30 cents (2015
loss 1.22 cents) and diluted earnings per share was
3.26 cents (2015 loss 1.22).
Bank loans of $14,891,000 were repaid in 2016
(2015 $3,171,000 drawn down) whilst cash and
cash equivalents fell by $10,711,000 in 2016 (2015
reduction $1,520,000) with:
• Net cash inflow from operating activities in 2016
of $22,544,000 (2015 $26,139,000); and
• $11,104,000 invested in mine development and
plant upgrades in 2016, (2015 $16,044,000).
Attributable net assets per share at 31st December
2016 was 80 cents (2015 78 cents).
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STRATEGIC REVIEW
In view of the significant potential of the Caijiaying
Mine and surrounding areas and given
the
Company’s knowledge and expertise in China, the
directors and management have focused on the
further development of Caijiaying, investigation
of prospective areas near to Caijiaying and other
potential projects in China.
CAIJIAYING
infrastructure development
Caijiaying’s short and long term metal production
capability has been augmented with the expansion
of the grinding and flotation circuits, ongoing
underground
and
exploration work. Exploration has been focussed
on identifying geological targets and evaluating the
potential for significant additional resources. Whilst
the existing Mineral Resource estimate confirms the
availability of extensive resources at the Caijiaying
Mine for increased production, further resource
additions will also provide an opportunity to further
increase production at the Caijiaying Mine. This will
require further licences and permits from various
Chinese authorities which is proving increasingly
complex and time consuming to obtain.
Currently with the 1.5 million tonne upgrade
completed, every effort is being made to obtain
permits to enhance production and obtain a new
mining licence at Zone II. This will allow all the
known resources in Zones II and III to be extracted
over time. Development work underground from
the main Zone III area towards Zone II has enabled
further resource definition underground drilling to
be undertaken. A new haulage drive was completed
during 2016 with the dual purpose of improving
ventilation and removing previous bottlenecks
caused by having only a single haulage decline to
surface. Development work at Zone II is planned to
begin as soon as the new mining licence is received.
It is expected that this work will be completed in
2017 and that this will enable significant production
increases from 2018 onwards.
REPORT AND ACCOUNTS 2016
The two declines accessing the lower sections of
Zone III terminate on the 1175 metre level. These
declines will be extended to the 1000 metre level
during 2017 and 2018 in order to access the Mineral
Resource between the 1175 metres and 1000 metre
horizons to provide long term mill feed. Work is
expected to commence on these declines in the
second quarter of 2017.
ACQUISITIONS AND FURTHER
PROJECTS
Whilst the Company continues to develop the
Caijiaying Mine and explore the surrounding area,
the directors and management continue to search
for, and investigate, the potential acquisition of
base metals projects that may be brought into long
term, economic production for a capital cost that
provides a substantial and justifiable return on equity
to shareholders, particularly in a rising commodity
price market.
A new master agreement was signed on the 17th March
2016 between the 3rd Brigade and Hebei Hua Ao, to
examine their extensive database for existing known
deposits and prospective mining areas and enter
into commercial arrangements on those projects.
The Company entered into a further agreement
with the 3rd Geological Brigade to specifically
investigate and explore the Shitouhulun licence area
(held by the 3rd Brigade) and the Sangongdi area on
the 19th December 2016. Both of these areas have
considerable potential for mineralisation and are
proximal to the Caijiaying Mine.
for many
consummated
Furthermore a large number of potential projects
have been analysed worldwide. None have been
successfully
reasons
including; negative findings during due diligence; an
insufficient return calculated for the risk shareholders
would need to accept in funding the project to
production; overall risk profile; and various other
deficiencies in grade, tonnes, metallurgy, depth and
difficulty in mining.
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Rupert Crowe, Director, Australian, aged 68, is a
graduate geologist from Trinity College, Dublin. He
was the founding chairman and managing director of
CSA Global Pty Ltd, a mining consultancy company
founded in Ireland in 1983 and now headquartered in
Australia. He is a specialist in zinc-lead exploration
and was involved as a principal in the discovery and
development of several notable mines. He has served
on the board of four public companies listed in
Dublin, London, Vancouver and Australia.
Adam Usdan, Director, USA, aged 55, holds
an MBA from the Kellogg Graduate School of
Management at Northwestern University with
majors in Finance, Marketing and Accounting, and
a BA in English from Wesleyan University. He is the
President of Trellus Management Company LLC,
an equity hedge fund based in the USA. Mr Usdan
founded Trellus Management in January 1994 and
has been in the investment advisory industry for over
25 years. Mr Usdan began his investment career in
1987 at Odyssey Partners, where he was responsible
for managing long/short U.S. equity (small to mid-
cap) pools of capital.
G R I F F I N M I N I N G L I M I T E D
DIRECTORS
Mladen Ninkov, Chairman, Australian, aged 55,
holds a Master of Law Degree from Trinity Hall,
Cambridge University and Bachelor of Laws (with
Honours) and Bachelor of Jurisprudence Degrees
from the University of Western Australia. He is
the 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
the Chairman and Managing Director of the Dragon
Capital Funds management group, a director and
Head of International Corporate Finance at ANZ
Grindlays Bank 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 has been chairman and director of a
number of both public and private mining and oil and
gas companies.
Roger Goodwin, Finance Director, British, aged
61, 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.
Dal Brynelsen, Director, Canadian, aged 70, 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, development
and operation of several underground gold mines
during his career. Mr. Brynelsen is the President and
a director of Vangold Resources Limited.
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SENIOR EXECUTIVES
Mark Hine, Chief Operating Officer, Australian,
aged 58, is a mining engineer having graduated
from the Western Australia School of Mines. He is
a member of the Australian Institute of Company
Directors and a member of the Australian Institute
of Mining and Metallurgy. He has extensive mining
experience with over 25 years of senior management
roles in both surface and underground mining
operations. He has held a number of senior positions
in the mining industry including Chief Operating
Officer of Focus Minerals Ltd, Chief Executive
Officer of Golden West Resources Ltd, Executive
General Manager of Mining Macmahon Contractors
Pty Ltd, Chief Executive Officer of Queensland
Industrial Minerals Ltd, Chief Executive Officer
of Consolidated Rutile Ltd and General Manager
Pasminco of Broken Hill / Elura Mines.
Wendy Zhang, Chief Financial Officer, Hebei
Hua Ao, aged 43, holds a Master of Accounting
degree from Macquarie University. She is a Certified
Practising Accountant of Australia and a qualified
member of the Chinese Institute of Certified Public
Accountants for 11 years. Prior to joining Griffin,
she spent the previous 4 years as Financial Controller
of Golden Tiger Mining’s joint venture operations
in China. Previously she was Chief Accountant for
Shanghai Silk Group and subsequently Ann Taylor
Shanghai
REPORT AND ACCOUNTS 2016
Dr Bo Zhou, General Manager China, Australian,
aged 54, holds a PhD in exploration geology from
Sydney University and a BSc in economic geology
from Peking University. He was Managing Director
of Sinovus Mining Ltd, an ASX listed company with
mineral interests in China. Prior to that he was the
General Manager for Guangxi Golden Tiger Mining,
a Sino-Australian JV gold company focussed on
Guangxi, China, controlled by Golden Tiger Mining
NL, an ASX listed company. He has also worked as
the Senior Geologist for Silk Road Resources (A
Toronto listed company), responsible for evaluating
various gold properties in Gansu Province in central
western China. Dr Zhou has considerable experience
in the Chinese resources sector.
Michael Hulmes, General Manager of the
Caijiaying Mine, Australian, has an engineering
degree from the Royal School of Mines in London
and an MBA from Deakin University. He has over
30 years’ experience in the mining industry having
held senior management roles in Australia, Portugal,
Papua New Guinea and Saudi Arabia including
General Manager of Lundin Mining in Portugal,
General Manager of Ok Tedi Mining in Papua New
Guinea and Chief Operating Officer of Citadel
Resources in Australia. He has extensive experience
in zinc, copper, gold and nickel mining operations.
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G R I F F I N M I N I N G L I M I T E D
Back row left to right: Wendy Zhang (Chief Financial Officer - Hebei Hua Ao), Mark Hine (Chief Operating Officer),
Michael Hulmes (Operations Manager - Caijiaying), Bo Zhou (General Manager - China).
26
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REPORT AND ACCOUNTS 2016
Front row left to right: Roger Goodwin (Finance Director), Adam Usdan (Director),
Mladen Ninkov (Chairman), Rupert Crowe (Director), Dal Brynelsen (Director).
27
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G R I F F I N M I N I N G L I M I T E D
DIRECTORS’ REPORT
The Directors submit their report together with the audited consolidated financial statements of Griffin Mining Limited (“the
Company”) and its subsidiaries (“the Group”) for the year ended 31 December 2016.
FINANCIAL RESULTS
The Group profit before taxation for 2016 amounted to US$10,382,000 (2015 loss US$940,000). Taxation of US$4,468,000
(2015 US$1,246,000) has been provided. No dividend was paid in 2016 (2015 nil). US$5,914,000 has been credited to reserves
(2015 debited US$2,186,000).
The basic earnings per share amounted to 3.30 cents (2015 loss 1.22 cents). The attributable net asset value per share at 31
December 2016 amounted to 80 cents (2015 78 cents).
With cash flows from operations directed to repaying Chinese banking facilities, the directors do not recommend the payment
of a dividend at this time.
PRINCIPAL ACTIVITIES
The principal activity of the Group is that of mining and exploration. A review of the Group’s operations for the year ended 31
December 2016 and the indication of likely future developments are set out on pages 6 to 23.
DIRECTORS
The Directors of the Company during the year were:
Mladen Ninkov – Australian – Chairman
Roger Goodwin – British - Finance Director
Dal Brynelsen – Canadian
Rupert Crowe - Australian/Irish
Adam Usdan – American (USA)
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 2016 and their immediate families in the share capital of
the Company were as follows:
Name
At 31 December 2016
At 1 January 2016
Ordinary
shares,
number
33,001
382,001
1
Options over ordinary
shares, number
exercisable at
30 pence
40 pence
Ordinary
shares,
number
Options over ordinary
shares, number
exercisable at
30 pence
40 pence
-
3,500,000
33,001
12,000,000
3,500,000
900,000
900,000
-
-
382,001
1
900,000
900,000
-
-
Mladen Ninkov
Dal Brynelsen
Rupert Crowe
Roger Goodwin
877,830
1,500,000
500,000
877,830
1,500,000
500,000
Adam Usdan
30,584,556
3,500,000
-
30,574,556
3,500,000
-
All of the Directors’ interests detailed are beneficial.
On 6th May 2016 vested options over 4,000,000 shares in the Company together with unvested options over 8,000,000 shares
in the company both exercisable at 30 pence per share, were sold by Mladen Ninkov for a consideration of 0.5 pence per option.
28
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DIRECTORS’ REPORT
REPORT AND ACCOUNTS 2016
On 13 February 2014 options (the “40 pence options”) over 5,000,000 new ordinary shares were granted to directors and key
employees of the Company in order to retain and incentivise key personnel with managerial and operating experience in non-
standard jurisdictions in a tight mining employment market.
Each 40 pence option will entitle the holder to subscribe for new ordinary shares in the Company at an exercise price of £0.40
per share on or before 31 December 2018. One third of these options vested on 31 December 2014, one third vesting on 31
December 2015, and one third on 31 December 2016.
On 6 February 2015 the Board resolved to adopt a new share option scheme (the “30 pence options”) over a total of 20,000,000
new ordinary shares in the Company in order to retain and incentivise the Company’s directors and management.
Each 30 pence option will entitle the holder to subscribe for new ordinary shares in the Company at an exercise price of 30 pence
per new ordinary share on or before 31 December 2020. One third of these options vested immediately upon being granted, one
third of these options vested on 31st December 2016, and a further third of each holder’s options will vest on the granting of a
new mining licence over Zone II at the Caijiaying mine.
The 30 pence options will not vest if an employee or a director resigns or leaves the Company for cause prior to the vesting event
taking place.
All the 30 pence options will vest immediately upon a takeover offer being made; or a substantial change in the business of the
Company or its subsidiaries; or the sale of a substantial asset of the Company or by its subsidiaries; or a change in substantial
control of the Company taking place prior to the options expiring.
REMUNERATION POLICY
The remuneration of all executive and non-executive directors, officers and senior employees of the Group is determined by the
board of directors.
The Company is committed to remunerating senior executives in a manner that is market-competitive and consistent with
“Best Practice” including the interests of shareholders. Remuneration packages are based on fixed and variable components,
determined by the executives’ position, experience and performance, and may be satisfied via cash or equity.
Non-executive directors are remunerated at a level that is consistent with market and industry standards. The cash remuneration
of non-executive directors consists only of directors’ fees and no retirement benefits are payable.
The Group’s remuneration policy has been based on industry practice rather than Group performance and takes into account the
risk and liabilities assumed by the directors and executives as a result of their involvement in the speculative activities undertaken
by the Group. Directors and executives are fairly compensated for the extensive work they undertake.
No performance based bonuses were issued during the reporting year.
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G R I F F I N M I N I N G L I M I T E D
DIRECTORS’ REPORT
PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties facing the Group are set out below, together with details of how these are currently mitigated.
Further information on how the Group manages risk is given on page 55 to 58.
Risk
Comment
Business
Impact
Mitigation
Economic Risk
Exposure to a fall in zinc,
gold and to a lesser extent
silver and lead metal prices.
Revenue is dependent upon metal
prices.
High
In common with other mining companies
operating in China the Group sells its
products by auction to local smelters
and agents, however, Griffin continues
to review the appropriateness of hedging
and indicative cost of put options.
Exposure to fluctuations in
the Renminbi / US dollar
exchange rate.
A fall in the value of the Renminbi
would reduce the US dollar value
of revenues, whilst an increase in
the value of the Renminbi would
increase operating cost.
Moderate
The Renminbi is loosely pegged to the
US dollar.
The Group is subject to increases
in the market prices for materials,
services and equipment.
Moderate
The Group seeks to agree long term
contracts for all major services and goods
supplied.
Exposure
increases
to
in the market prices of
materials, equipment and
services the Group uses.
Country risks
Exposure to political and
social risks in the Peoples
Republic of China (“the
PRC”).
Griffin’s assets are located in the
PRC and therefore exposed to any
adverse changes in the political
and social situations there.
Exposure
changes
to
in fiscal and regulatory
regime.
In addition to political/social risks,
the Group is exposed to changes in
permitting, environmental, health
and safety, and tax regulations
in the PRC which may result in
a more challenging, or costly,
operating environment.
Low
High
The Group has operated in the PRC for
19 years in which time the country has
been relatively stable.
Griffin actively engages with the local
PRC authorities and agencies to identify
and minimise the impact of changes in
PRC regulations.
Operational risk
Reliance on Third Party
Contractors
30
Griffin uses a number of unrelated
contractors, particularly
its
for
mining, haulage
and drilling
activities. Each of these activities
has inherent risk, including injury or
death to the contractor’s employees.
Such events cause a total shutdown
of all operational activities which
may take a substantial time to
recommence.
Moderate Griffin has an extensive Occupational
Health and Safety Department
in
conjunction with a Mining Manager
and his team of underground foreman
who constantly oversee all contractors’
activities.
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DIRECTORS’ REPORT
REPORT AND ACCOUNTS 2016
Risk
Comment
Business
Impact
Mitigation
Operational risk continued
Exposure to mining
hazards
The Group is exposed to a number of
risks and hazards typically associated
with mining for example rock falls,
flooding and mechanical breakdowns.
Moderate
Reliability of Mineral
Resources and Ore
Reserves
The calculation of Mineral Resources
and Ore Reserves involves significant
assumptions and estimates that may
prove inaccurate.
Low
to
Griffin’s operational teams continually
monitor mining and other risks, and
report
senior management who
report to the Board of directors, taking
immediate and appropriate measures
to minimise any such risks and hazards
identified. In addition,
the Group’s
operations are regularly monitored by the
PRC Safety Bureaus.
Griffin’s Mineral Resources and Ore Reserve
estimates are prepared by third party
consultants, based in Australia, who are
deemed “experts” under the JORC Code.
Other
Exposure to a single
operation
is reliant upon a single
Griffin
the Caijiaying
operation, being
zinc gold mine in the PRC. Factors
affecting operations at Caijiaying
have an impact upon the Group.
Licence administration Griffin,
its
through
subsidiary
companies, holds a number of mining,
exploration and other licenses and
permits to operate. These normally
include
for ongoing
periodic
operation
renewal. Renewals are not guaranteed.
conditions
and
require
Finance
Key management
The Group has through its local
subsidiary drawn down bank loans
which
in common with general
banking practice in the PRC are
for one year. The renewal / rolling
over of these loans each year is not
guaranteed.
The management of Caijiaying is
reliant on a small number of key
executives, both inside and outside
of China. Their death, retirement or
departure may have a significant effect
on the operations of the Company.
Moderate
High
It is the Company’s policy to pursue
growth opportunities through expansion
in the Caijiaying area, as well as reviewing
acquisition opportunities which can be
shown to be value accretive.
All licensing requirements are kept under
review with operational staff liaising with
local PRC authorities to ensure conditions
are adhered to and applications made
timely and in good order.
Moderate
The Group seeks to comply with all
loan requirements, including the prompt
payment of
interest, and maintains
good relations with the banks providing
facilities to the Group.
Moderate
Griffin has contractual arrangements with
all key employees which are renewed on a
regular basis.
Geological and
Historical Information
loss of historical
The
and/or
geological information would have
a very significant impact on the
operations of the Company,
Low
Griffin has instituted a complete back
up system relating to all geological and
operational data in Perth with CSA
Global. It is updated on a daily basis.
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G R I F F I N M I N I N G L I M I T E D
DIRECTORS’ REPORT
CORPORATE GOVERNANCE
Although the Company is not required to comply with the UK Corporate Governance Code, it attempts to follow best practice
as far as possible within the limitations of the Company’s size. In particular, in view of the Company’s size and the limited number
of directors, the Company has not formally established: an audit committee; a remuneration committee; and a nominations
committee. However, the non-executive directors informally fulfil the roles and responsibilities normally expected of such
committees.
The board of directors includes a number of non-executive directors who, with the exception of Adam Usdan, other than their
shareholding, are considered to be independent as their shareholdings are less than 0.2% of the Company’s issued share capital and
are free from any business or other relationship which could materially interfere with the exercise of their independent judgement.
The Board meets regularly 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
regular review of commodity prices and assessment of hedging requirements
AUDITOR
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.
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DIRECTORS’ REPORT
REPORT AND ACCOUNTS 2016
STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ACCOUNTS
Bermudan 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
•
prepare 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 and enable them to ensure that the financial statements comply with the Bermuda Companies Act
1981 as amended. 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.
The directors are responsible for the maintenance and integrity of the corporate and financial information included in the
Company’s website. Legislation in Bermuda and the United Kingdom governing the preparation and dissemination of financial
statements may differ from the legislation in other jurisdictions.
This report was approved by the Board and signed on its behalf by:
Roger Goodwin
Finance Director and Company Secretary
5th April 2017
GM 16 AnnualRept latest.indd 33
33
04/04/2017 18:55
G R I F F I N M I N I N G L I M I T E D
REPORT OF THE INDEPENDENT AUDITOR
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF GRIFFIN MINING LIMITED
We have audited the Group financial statements (the ‘financial statements’) of Griffin Mining Limited for the year ended 31st
December 2016 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the
consolidated statement of financial position, the consolidated statement of changes in equity, the consolidated cash flow statement,
the accounting policies and the related notes. The financial reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.
This report is made solely to the Company’s members, as a body, in accordance with section 90(2) 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 auditor’s 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 AUDITOR
As explained more fully in the Statement of Directors’ Responsibilities in respect of the accounts set out on page 33, the directors
are responsible for the preparation of the financial statements which give a true and fair view. Our responsibility is to audit and
express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK
and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.
SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable
assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes
an assessment of: whether the accounting policies are appropriate to the group’s circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall
presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report
to identify material inconsistencies with the audited financial statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the
audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
OPINION ON THE FINANCIAL STATEMENTS
In our opinion, the financial statements give a true and fair view of the state of the Group’s affairs as at 31 December 2016 and of
its profit for the year then ended in accordance with IFRSs as adopted by the European Union.
Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
5th April 2017
34
GM 16 AnnualRept latest.indd 34
05/04/2017 13:18
REPORT AND ACCOUNTS 2016
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2016
(expressed in thousands US dollars)
Notes
2016
$000
2015
$000
Revenue
Cost of sales
Gross profit
Administration expenses
Profit from operations
Losses on disposal of plant and equipment
Foreign exchange (losses)
Finance income
Finance costs
Other income
Profit / (loss) before tax
Income tax expense
66,270
59,779
(37,851)
(42,948)
28,419
(13,218)
16,831
(12,530)
1
1
1
2
4
5
6
7
15,201
(224)
(532)
178
(4,286)
45
10,382
8
(4,468)
4,301
(48)
(447)
202
(5,084)
136
(940)
(1,246)
Profit / (loss) after tax
5,914
(2,186)
Basic earnings / (loss) per share (cents)
Diluted earnings / (loss) per share (cents)
9
9
3.30
3.26
(1.22)
(1.22)
GM 16 AnnualRept latest.indd 35
35
04/04/2017 18:55
G R I F F I N M I N I N G L I M I T E D
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2016
(expressed in thousands US dollars)
Profit / (loss) for the year
2016
$000
5,914
2015
$000
(2,186)
Other comprehensive income that will be reclassified to profit or loss
Exchange differences on translating foreign operations
(3,299)
(2,967)
Other comprehensive income for the period, net of tax
(3,299)
(2,967)
Total comprehensive income for the period
2,615
(5,153)
36
GM 16 AnnualRept latest.indd 36
04/04/2017 18:55
REPORT AND ACCOUNTS 2016
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2016
(expressed in thousands US dollars)
ASSETS
Non-current assets
Property, plant and equipment
Intangible assets – Exploration interests
Current assets
Inventories
Receivables and other current assets
Cash and cash equivalents
Total assets
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Share capital
Share premium
Contributing surplus
Share based payments
Shares held in treasury
Chinese statutory re-investment reserve
Other reserve on acquisition of non controlling interests
Foreign exchange reserve
Profit and loss reserve
Total equity attributable to equity holders of the parent
Non-current liabilities
Long-term provisions
Deferred taxation
Finance lease
Current liabilities
Trade and other payables
Finance lease
Bank loans
Total current liabilities
Notes
2016
$000
2015
$000
10
11
12
13
14
15
18
19
20
21
20
22
204,491
1,792
206,283
6,148
8,232
13,218
27,598
210,252
1,870
212,122
7,182
3,194
24,062
34,438
233,881
246,560
1,790
71,310
3,690
2,072
(3,875)
1,583
(29,346)
4,871
91,174
143,269
2,277
2,607
3,791
8,675
34,466
2,783
44,688
81,937
1,790
71,310
3,690
1,363
(3,875)
1,595
(29,346)
8,068
85,350
139,945
2,433
2,630
7,454
12,517
28,977
1,982
63,139
94,098
Total equities and liabilities
233,881
246,560
Attributable net asset value per share to equity holders of parent
23
$0.80
$0.78
The accounts on pages 35 to 59 were approved by the Board of Directors and signed on its behalf by:
Mladen Ninkov
Chairman
5th April 2017
Roger Goodwin
Finance Director
GM 16 AnnualRept latest.indd 37
37
04/04/2017 18:55
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38
GM 16 AnnualRept latest.indd 38
04/04/2017 18:55
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2016
(expressed in thousands US dollars)
Notes
Net cash flows from operating activities
Profit / (loss) before taxation
Foreign exchange losses
Finance income
Finance costs
Adjustment in respect of share based payments
Depreciation, depletion and amortisation
Losses on disposal of equipment
Decrease in inventories
(Increase) / decrease in receivables and other current assets
Increase in trade and other payables
Taxation paid
Net cash inflow from operating activities
Cash flows from investing activities
Interest received
Payments to acquire – mineral interests
Payments to acquire – plant and equipment
Payments to acquire – office equipment
Payments to acquire intangible fixed assets – exploration interests
Net cash outflow from investing activities
Cash flows from financing activities
Purchase of shares for treasury
Interest paid
Finance lease repayments
Proceeds from bank loans
Repayment of bank loans
Net cash outflow from financing activities
5
6
16
10
5
10
10
10
11
REPORT AND ACCOUNTS 2016
2016
$000
10,382
532
(178)
4,286
709
8,526
224
1,034
(6,251)
3,280
(641)
21,903
178
(7,361)
(3,776)
(102)
(43)
(11,104)
-
(3,684)
(2,935)
-
(14,891)
(21,510)
2015
$000
(940)
447
(202)
5,084
1,047
6,808
48
10,295
804
2,748
(974)
25,165
202
(8,960)
(7,215)
(3)
(68)
(16,044)
(3,875)
(4,324)
(2,573)
3,171
-
(7,601)
(Decrease) / increase in cash and cash equivalents
(10,711)
1,520
Cash and cash equivalents at the beginning of the year
Effects of exchange rates
Cash and cash equivalents at the end of the year
Cash and cash equivalents comprise bank deposits
Bank deposits
24,062
(133)
13,218
23,371
(829)
24,062
13,218
24,062
Included within net cash flows of $10,711,000 (2015 $1,520,000) are foreign exchange losses of $532,000 (2015 losses $447,000)
which have been treated as realised.
GM 16 AnnualRept latest.indd 39
39
04/04/2017 18:55
G R I F F I N M I N I N G L I M I T E D
ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accounts have been prepared in accordance with applicable International Financial Reporting Standards as issued by the
International Accounting Standards Board and as adopted by the European Union. The significant accounting policies adopted
are detailed below:
ACCOUNTING CONVENTION
The accounts have been prepared under the historical cost convention, except for certain financial assets which are measured at
fair value.
NEW AND REVISED STANDARDS THAT ARE EFFECTIVE FOR ANNUAL PERIODS BEGINNING ON OR
AFTER 1 JANUARY 2016
The Group has not adopted any new standards or amendments that have a significant impact on the Group’s results or financial
position. The amendments to IFRS11 ‘Accounting for Acquisitions of Interests in Joint Operations’ have not had any impact on
the Group.
STANDARDS, AMENDMENTS AND INTERPRETATIONS TO EXISTING STANDARDS THAT ARE NOT
YET EFFECTIVE AND HAVE NOT BEEN ADOPTED EARLY BY THE GROUP
At the date of authorisation of these financial statements, certain new standards, and amendments to existing standards have been
published by the IASB that are not yet effective, and have not been adopted early by the Group. Information on those expected
to be relevant to the Group’s financial statements is provided below.
Management anticipates that all relevant pronouncements will be adopted in the Group’s accounting policies for the first period
beginning after the effective date of the pronouncement. New standards, interpretations and amendments not either adopted or
listed below are not expected to have a material impact on the Group’s financial statements.
IFRS 9 ‘Financial Instruments’
The new standard for financial instruments (IFRS 9) introduces extensive changes to IAS 39’s guidance on the classification and
measurement of financial assets and introduces a new ‘expected credit loss’ model for the impairment of financial assets. IFRS 9
also provides new guidance on the application of hedge accounting.
Although this is not expected to have a significant impact on the Group’s financial statements, management has started to assess
the impact of IFRS 9 but is not yet in a position to provide quantified information. At this stage the main areas of expected impact
are as follows:
•
the classification and measurement of the Group’s financial assets will need to be reviewed based on the new criteria that
considers the assets’ contractual cash flows and the business model in which they are managed.
•
if the Group continues to elect the fair value option for certain financial liabilities (see Note 20), fair value movements will be
presented in other comprehensive income to the extent those changes relate to the Group’s own credit risk.
IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018.
IFRS 15 ‘Revenue from Contracts with Customers’
IFRS 15 presents new requirements for the recognition of revenue, replacing IAS 18 ‘Revenue’, IAS 11 ‘Construction Contracts’,
and several revenue-related interpretations. The new standard establishes a control-based revenue recognition model and provides
additional guidance in many areas not covered in detail under existing IFRSs, including how to account for arrangements with
multiple performance obligations, variable pricing, customer refund rights, supplier repurchase options, and other common
complexities.
Management do not consider that this will have a significant impact on the Group’s financial statements.
IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018.
40
GM 16 AnnualRept latest.indd 40
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ACCOUNTING POLICIES
REPORT AND ACCOUNTS 2016
STANDARDS, AMENDMENTS AND INTERPRETATIONS TO EXISTING STANDARDS THAT ARE NOT
YET EFFECTIVE AND HAVE NOT BEEN ADOPTED EARLY BY THE GROUP (CONTINUED)
IFRS 16 ‘Leases’
IFRS 16 will replace IAS 17 and three related interpretations. It completes the IASB’s long-running project to overhaul lease
accounting. Leases will be recorded in the statement of financial position in the form of a right-of-use asset and a lease liability.
Management is yet to fully assess the impact of the Standard and therefore is unable to provide quantified information.
However, in order to determine the impact the Group are in the process of:
• performing a full review of all agreements to assess whether any additional contracts will now become a lease under IFRS 16’s
new definition.
• deciding which transitional provision to adopt; either full retrospective application or partial retrospective application (which
means comparatives do not need to be restated). The partial application method also provides optional relief from reassessing
whether contracts in place are, or contain, a lease, as well as other reliefs. Deciding which of these practical expedients to
adopt is important as they are one-off choices.
• assessing their current disclosures for finance leases and operating leases as these are likely to form the basis of the amounts
to be capitalised and become right-of-use assets.
• determining which optional accounting simplifications apply to their lease portfolio and if they are going to use these exemptions.
• assessing the additional disclosures that will be required.
IFRS 16 is effective from periods beginning on or after 1 January 2019.
GOING CONCERN
The financial statements have been prepared on a going concern basis. As at 31 December 2016, Hebei Hua Ao (a subsidiary of
the Company) had bank loans outstanding of $44,688,000. Having previously rolled over each of the bank facilities, Hebei Hua
Ao expects to roll over the existing facilities for a further 12 months and since 31 December 2016 has demonstrated its ability
to service these by paying all interest when falling due and rolling over loans of Rmb 195m ($28m) since 31st December 2016.
Having considered the cash resources, banking facilities and forecasts for the remainder of the Hebei Hua Ao contract term, the
directors do not expect any going concern issues to arise.
CONSOLIDATION BASIS
The Group accounts consolidate the accounts of the Company and all its subsidiary undertakings drawn up to 31 December each
year. Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain
benefits from its activities. The Group obtains and exercises control through voting rights.
Management has reassessed its involvement in Hebei Hua Ao and Hebei Sino Anglo in accordance with IFRS 10’s revised control
definition and guidance. It has concluded that it has significant influence but not outright control. In making its judgement,
management considered the Group’s voting rights, the relative size and dispersion of the voting rights held by other shareholders
and the extent of recent participation by those shareholders in general meetings.
Unrealised gains on transactions between the Group and its subsidiaries are eliminated. Unrealised losses are also eliminated
unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements
of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.
Acquisitions of subsidiaries are dealt with by the acquisition method. The acquisition method involves the recognition at fair
value of all identifiable assets and liabilities, including contingent liabilities of the subsidiary, at the acquisition date, regardless of
whether or not they were recorded in the financial statements of the subsidiary prior to acquisition. On initial recognition, the
assets and liabilities of the subsidiary are included in the consolidated statement of financial position at their fair values, which
are also used as the bases for subsequent measurement in accordance with the Group accounting policies. Goodwill is stated after
separating out identifiable intangible assets.
Non controlling interests, presented as part of equity, represent the excess of the purchase price paid to acquire rights over the
non-controlling interests in subsidiary companies.
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G R I F F I N M I N I N G L I M I T E D
ACCOUNTING POLICIES
REVENUE
Revenue is measured by reference to the fair value of consideration received or receivable by the Group and comprises amounts
received, net of VAT and production royalties, from sales of metal concentrates to third party customers. Sales are made on a
delivery / collection basis and are recognised on agreement following open auction of metals in concentrate and where delivery
is delayed the Group ensures it is compliant with IAS18 under the bill and hold arrangement.
NON CURRENT ASSETS
Intangible assets – exploration cost
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 both technically feasible and commercially viable reserves within
each area of interest and the necessary finance in place, at which time such costs are transferred to property, plant and equipment
to be amortised over the expected productive life of the asset. The Group’s intangible assets are subject to periodic review at
least annually by the directors for impairment. Exploration, appraisal and development costs incurred in respect of each area of
interest which are determined as unsuccessful are written off to the income statement.
Property, plant and equipment
Mine development expenditure for the initial establishment of access to mineral reserves, together with capitalised exploration,
evaluation and commissioning expenditure, and costs directly attributable to bringing the mine into commercial production are
capitalised to the extent that the expenditure results in significant future benefits. Property, plant and equipment are shown at
cost less depreciation and provisions for the impairment of value (see note 10).
Residual values
Material residual value estimates are updated as required, but at least annually whether or not the asset is re-valued.
Depreciation
On 21 May 2012 the term of Hebei Hua Ao’s business licence was extended to 12 October 2037 effective from 25 June 2012.
The pre existing business licence terminated in 2019. Prior to 25 June 2012, all costs capitalised (mineral interests, mill and mine
equipment) within an area of interest, were amortised over the current estimated economic reserve of the area of interest on a
unit of production basis.
In view of the extension of Hebei Hua Ao’s business licence, thereby increasing the term of Hebeu Hua Ao, the economic lives
of all non current tangible assets have been reassessed and depreciation rates have been revised with effect from 25 June 2012 to
reflect the increased term of operations, extractable resource, and economic lives of the assets as follows:
1.
2.
3.
4.
5.
Mine acquisition, development, licence, pre production and land use rights - on a unit of production
Plant and buildings - over 25 years on a straight line basis with a 10% residual value
Dry tailings facility held under finance lease- over 15 years on a straight line basis with no residual value
Mechanical equipment - over 10 years on a straight line basis with a 10% residual value
All other equipment, including vehicles - over 5 years on a straight line basis with a 10% residual value
Impairment
A review for impairment indicators at each reporting date is undertaken. In the event of impairment indicators being identified,
an impairment test is carried out to assess whether the net book value of the capitalised costs in each area of interest is covered
by the discounted future cash flows from reserves within that area of interest. An impairment loss is recognised for the amount
by which the asset’s carrying amount exceeds its recoverable amount, which is the higher of fair value less costs of disposal and
value-in-use. To determine the value-in-use, management estimates expected future cash flows from each cash-generating unit
and determines a suitable discount rate in order to calculate the present value of those cash flows. The data used for impairment
testing procedures are directly linked to the Group’s latest approved budget, adjusted as necessary to exclude the effects of
future reorganisations and asset enhancements. Estimate and assumptions used in the determining whether an asset has become
impaired are set out overleaf.
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REPORT AND ACCOUNTS 2016
ACCOUNTING POLICIES
NON CURRENT ASSETS (CONTINUED)
Impairment assessments are based upon a range of estimates and assumptions:
ESTIMATES / ASSUMPTIONS BASIS
Future production
Commodity prices
Exchange rates
Discount rates
MINE CLOSURE COSTS
Proven and probable reserves and resource estimates together with processing capacity
Forward market and longer term price estimates
Current market exchange rates
Cost of capital risk
Mining operations are generally required to restore mine and processing sites at the end of their lives to a condition acceptable to
the relevant authorities and consistent with the Group’s environmental policies. Whilst the Group strives to maintain, and where
possible, enhance the environment of the Group’s processing sites, provision is made for site restoration costs in the accounts in
accordance with local requirements.
INVENTORIES
Inventories are valued at the lower of cost or net realisable value.
Costs incurred in bringing each product to its present location and condition are accounted for as follows:
1.
2.
3.
Consumable stores and spares, at purchase cost on a first in first out basis
Concentrate stockpiles at cost of direct materials, power, labour, and a proportion of site overhead
Ore stockpiles at cost of direct material, power, labour contractor charges and a proportion of site overhead
FINANCIAL ASSETS
Financial assets held by the Group are loans and receivables.
Financial assets are assigned to the different categories on initial recognition, depending on the characteristics of the instrument
and its purpose. A financial instrument’s category is relevant for the way it is measured and whether resulting income and
expenses are recognised in profit or loss or in other comprehensive income.
Financial assets are reviewed by management individually and an assessment of whether a financial asset is impaired is made at
least at each reporting date. All income and expense relating to financial assets are recognised in the income statement line item
“finance costs” or “finance income” respectively.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active
market. They are classified as current assets or non-current assets based on their maturity date. Loans and receivables are
classified as either ‘trade and other receivables’, ‘cash’, or ‘other financial assets’ in the statement of financial position. On initial
recognition loans and receivables are recognised at fair value plus transaction costs. They are subsequently measured at amortised
cost using the effective interest method, less provision for impairment. Any change in their value is recognised in profit or loss.
The Group’s other receivables fall into this category of financial instruments.
FINANCIAL LIABILITIES
The Group’s financial liabilities include bank loans, trade and other payables, which are measured at amortised cost using the
effective interest rate method. On initial recognition financial liabilities are recognised at fair value net of transaction costs.
Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument.
All interest related charges and, if applicable, changes in an instrument’s fair value that are reported in profit or loss are included
in the income statement line items “finance costs” or “finance income”.
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G R I F F I N M I N I N G L I M I T E D
ACCOUNTING POLICIES
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 and associates, operate in China, the United Kingdom, and Australia. The functional
and presentation currency of the parent is US dollars.
Foreign currency transactions by Group companies are recorded in their functional currencies at the exchange rate ruling at the
date of the transaction.
Monetary assets and liabilities have been translated at rates in effect at the statement of financial position date. Any realised or
unrealised exchange adjustments have been charged or credited to profit or loss. Non-monetary items measured at historical cost
are translated using the exchange rate at the date of the transaction. Non-monetary items measured at fair value are translated
using the exchange rates at the date when the fair value was determined.
On consolidation the accounts of overseas subsidiary undertakings are translated into the presentation currency of the Group
at the rate of exchange ruling at the reporting date and income statement items are translated at the average rate for the year.
The exchange difference arising on the retranslation of opening net assets is recognised in other comprehensive income and
accumulated in the foreign exchange reserve. All other translation differences are taken to profit or loss.
The balance of the foreign currency translation reserve relating to an operation that is disposed of is reclassified from equity to
profit or loss at the time of the disposal.
EQUITY
Equity comprises the following:
1.
2.
“Share capital” represents the nominal value of equity shares.
“Share premium” represents the excess over nominal value of the fair value of consideration received for equity shares,
net of expenses of the share issue.
3.
“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.
4.
5.
6.
“Share based payments” represents equity-settled share-based remuneration until such share options are exercised.
“Foreign exchange reserve” represents the differences arising from translation of investments in overseas subsidiaries.
“Chinese statutory re-investment reserve” represents a statutory retained earnings reserve under PRC law for future
investment by Hebei Hua-Ao.
7.
“other reserves on acquisition of non controlling interests” represents the excess of the purchase price paid to acquire non
controlling interest rights over the non controlling interests in subsidiary companies.
8.
“Profit and loss reserve” represents retained profits and losses.
EQUITY SETTLED SHARE BASED PAYMENTS
All goods and services received in exchange for the grant of any share-based remuneration are measured at their fair values. Fair
values of services are indirectly determined by reference to the fair value of the share options awarded. Their value is appraised at
the grant date and excludes the impact of non-market vesting conditions (for example, production upgrades).
All share-based remuneration is ultimately recognised as an expense in profit or loss with a corresponding credit to “Share based
payments” in the statement of financial position.
If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best
available estimate of the number of share options expected to vest.
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ACCOUNTING POLICIES
REPORT AND ACCOUNTS 2016
EQUITY SETTLED SHARE BASED PAYMENTS (CONTINUED)
Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from
previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any
expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting.
Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital.
For the financial year ended 31 December 2016 the total expense recognised in profit or loss arising from share based transactions
was $709,000 (2015: $1,047,000).
SIGNIFICANT JUDGEMENTS AND ESTIMATES
In formulating accounting policies the directors are required to apply their judgement, and where necessary engage professional
advisors, with regard to the following significant areas:
•
•
•
•
•
Impairment review assumptions, property, plant and equipment (note 10). Impairments are assessed by comparison of the
cash generating unit (the Caijiaying Mine) carrying amounts against the value of future discounted cash flows expected to
be derived from this unit. The value of the cash flows are estimated by direct reference to the current prevailing value of
the commodities extracted. Based on current production and costs the directors have determined that the Group requires
the market price of zinc to be above $2,080 per tonne with gold, silver and lead prices remaining at current prevailing
levels, to avoid an impairment charge. Non-impairment of all assets is conditional upon continued mining licences and
permits which the directors consider will be maintained or obtained as appropriate.
Impairment review assumptions, exploration interests (note 11). Impairments are assessed by reference to exploration
results carried out in an area of interest. Where such exploration indicates that there are no indications of mineralisation
within the area of interest, provision is made for impairment in value. There were no indicators of impairment in the
Group’s areas of interest.
Provision for mine closure costs (note 18) have been made in accordance with the rules and regulations of the Peoples
Republic of China at a rate of Rmb0.5 per tonne of estimated resources. The expected amount of resource due to be
extracted during the life of the mine is based on estimated rates of extraction which take into account reported measured,
indicated and inferred levels of resource, the term of the Hebei Hua Ao business licence and current capability of the
extractive machinery currently in use at the mine.
The determination of the value of Finance Leased Asset (note 10), and attributable Finance Lease Interest (note 20)
is assessed from future expected utilisation of the asset, assuming half of all tailings will be treated by the asset and the
Group’s inherent rate of interest on bank loans in China.
Non-controlling interests (note 28) are determined by reference to the underlying agreements and practice, with the
allocation of the purchase consideration on acquisition of non-controlling interests and extension of the Hebei Hua Ao
business licence between that capitalised to mineral interests and that charged to reserves by reference to the impact
of future cashflows. Following the acquisition of Griffin’s Chinese partner’s equity interests in the Hebei Hua Ao Joint
Venture in 2012 and a reappraisal of the arrangements with the Chinese partners, the relationship with them is now in the
nature of a service provider facilitating Hebei Hua Ao’s operations in China rather than that of non-controlling interests.
In line with this new arrangement an annual service charge is paid to the Chinese partners, however, due to the potential
variables the Directors are unable to estimate what, if any, this will be in any future year.
The directors continually monitor the basis on which their judgements are formulated. Where required they will make
amendments to these judgements. Where judgements and estimates are amended between accounting periods, full disclosure of
the financial implications are given within the relevant notes to the Group accounts.
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G R I F F I N M I N I N G L I M I T E D
ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash on hand and demand deposits, together with other short-term, highly liquid investments
that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.
DIVIDENDS
Dividend distributions payable to equity shareholders are included in “other short term financial liabilities” when the dividends
are approved in a directors meeting prior to the reporting date.
TAXATION
Current tax is the tax currently payable based on taxable profit for the year.
Deferred income taxes are calculated using the liability method on temporary differences. Deferred tax is generally provided on
the difference between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax is not provided on
the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business
combination or affects tax or accounting profit. Deferred tax on temporary differences associated with shares in subsidiaries,
associates and joint ventures is not provided if reversal of these temporary differences can be controlled by the Group and it is
probable that reversal will not occur in the foreseeable future. In addition, tax losses available to be carried forward as well as
other income tax credits to the group are assessed for recognition as deferred tax assets.
Deferred tax liabilities are provided in full, with no discounting. Deferred tax assets are recognised to the extent that it is probable
that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred
tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they
are enacted or substantively enacted at the reporting date.
Changes in deferred tax assets or liabilities are recognised as a component of the tax expense in the income statement, except
where they relate to items that are recognised in other comprehensive income (such as the revaluation of land) in which case the
related deferred tax is also charged or credited directly to other comprehensive income or equity.
SEGMENT REPORTING
In identifying its operating segments, management generally follows the Group’s service lines, which represent the main products
produced by the Group. Management consider there to be only one operating segment being the operations at the Caijiaying Mine
based in China with production of zinc concentrate, and lead concentrate with associated precious metals credits. All activities of the
Group are reported through management and the executive directors to the Board of directors of the Company. The measurement
policies the Group uses for Segment reporting under IFRS 8 are the same as those used in its financial statements.
Corporate assets which are not directly attributable to the business activities of Caijiaying Mine are not allocated to the Chinese
segment but are reviewed in light of operating expenses by the region in which they occur. In the financial periods under review,
this primarily applies to the Group’s head office and intermediary holding companies within the Group.
There have been no changes from prior periods in the measurement methods used to determine reported segment profit or loss.
LEASED ASSETS
Finance leases
The economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards
of ownership of the leased asset. Where the Group is a lessee in this type of arrangement, the related asset is recognised at the
inception of the lease at the fair value of the leased asset or, if lower, the present value of the lease payments plus incidental
payments, if any. A corresponding amount is recognised as a finance lease liability.
See accounting policy on non-current assets and depreciation and note 10 for the depreciation methods and useful lives for assets
held under finance leases. The interest element of lease payments is charged to profit or loss, as finance costs over the period of
the lease.
46
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REPORT AND ACCOUNTS 2016
NOTES TO THE FINANCIAL STATEMENTS
1. SEGMENTAL REPORTING
The Group has one business segment, the Caijiaying zinc gold mine in the People’s Republic of China. All sales and costs of
sales in 2016 and 2015 were derived from the Caijiaying zinc gold mine.
REVENUES
China
Zinc concentrate sales
Lead and precious metals concentrate sales
Royalties and resource taxes
COST OF SALES
China
ADMINISTRATION EXPENSES
China
Australia
European Union
2016
$000
66,270
48,430
21,116
(3,276)
66,270
2015
$000
59,779
45,727
17,487
(3,435)
59,779
(37,851)
(42,948)
(8,410)
(474)
(4,334)
(13,218)
(7,433)
(320)
(4,777)
(12,530)
2015
$000
244,496
340
1,724
246,560
16,243
3
16,246
2015
$000
59
55
2
2
6,478
1,047
No.
371
All revenues, cost of sales and operating expenses charged to profit and loss relate to continuing operations.
TOTAL ASSETS
China
Australia
European Union
CAPITAL EXPENDITURE
China
European Union
2. PROFIT FROM OPERATIONS
Profit from operations is stated after charging
Fees for audit of the Company
Fees for the audit of the subsidiaries
Tax compliance
Other non-audit fees
Staff costs
Fair values of options granted to directors and management
Average number of persons employed by the Group in the year
2016
$000
231,894
499
1,488
233,881
11,137
102
11,239
2016
$000
64
55
2
8
6,444
709
No.
385
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G R I F F I N M I N I N G L I M I T E D
NOTES TO THE FINANCIAL STATEMENTS
3. DIRECTORS’ AND KEY PERSONNEL REMUNERATION
The following fees and remuneration were receivable by the Directors holding office and key personnel engaged during the year:
Share Total
Fees Salary Pension
& social
2016
based
security payments
Fees Salary Pension
& social
Share
based
security payments
Total
2015
costs
costs
$000
$000
$000
$000
$000
$000
$000
$000
$000
$000
Mladen Ninkov*
Dal Brynelsen
Rupert Crowe
105
186
82
-
-
-
-
-
-
Roger Goodwin
105
440
100
Adam Usdan
Key personnel
82
-
560
440
-
1,248
560
1,688
-
100
11
111
430
30
30
54
116
535
216
112
699
198
112
198
102
112
87
-
-
-
474
-
660 1,760
611
474
49 1,308
-
1,298
-
-
-
109
-
109
14
642
41
41
82
158
964
83
709 3,068
611
1,772
123
1,047
754
239
143
777
245
2,158
1,395
3,553
*Keynes Capital, the registered business name of Keynes Investments Pty Limited as trustee for the Keynes Trust, received fees
under a consultancy agreement of $1,868,000 (2015 $1,878,000), for the provision of advisory and support services to Griffin
Mining Limited and its subsidiaries during the year. Mladen Ninkov is a director and employee of Keynes Investments Pty
Limited.
No share options were exercised by the directors in 2016 or 2015
4. LOSS ON DISPOSAL OF PLANT AND EQUIPMENT
Loss on disposal of plant and equipment
5. FINANCE INCOME
Interest on bank deposits
6. FINANCE COSTS
Interest payable on short term bank loans
Finance lease interest
7. OTHER INCOME
Scrap and sundry other sales
48
2016
$000
224
2016
$000
178
2016
$000
3,684
602
4,286
2016
$000
45
2015
$000
48
2015
$000
202
2015
$000
4,324
760
5,084
2015
$000
136
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NOTES TO THE FINANCIAL STATEMENTS
8. INCOME TAX EXPENSE
Profit / (loss) for the year before tax
2016
$000
10,382
Expected tax expense at a standard rate of PRC income tax of 25% (2015 25%)
2,596
Adjustment for tax exempt items:
- Income and expenses outside the PRC not subject to tax
Adjustments for short term timing differences:
- In respect of accounting differences
- Other
Adjustments for permanent timing differences re prior year costs disallowed
Adjustments for permanent timing differences other
Withholding tax on intercompany dividends and charges
Current taxation expense
Deferred taxation expense
Origination and reversal of short term timing differences
Total tax expense
843
(545)
135
573
695
20
4,317
151
151
4,468
REPORT AND ACCOUNTS 2016
2015
$000
(940)
(235)
662
(202)
78
-
113
17
433
813
813
1,246
The parent company is not resident in the United Kingdom for taxation purposes. Hebei Hua-Ao paid income tax in the PRC
at a rate of 25% in 2016 (25% in 2015) based upon the profits calculated under Chinese generally accepted accounting principals
(Chinese “GAAP”).
9. EARNINGS / LOSS PER SHARE
The calculation of the basic earnings / loss per share is based upon the earnings / losses attributable to ordinary shareholders
divided by the weighted average number of shares in issue during the year. The calculation of diluted earnings per share is based
on the basic earnings per share on the assumed conversion of all dilutive options and other dilutive potential ordinary shares.
Reconciliation of the earnings and weighted average number of shares used in the calculations are set out below:
2016
2015
Earnings Weighted Per share
amount
(cents)
$000
Average
number of
shares
Loss Weighted Per share
amount
Average
$000
(cents)
number of
shares
Basic earnings per share
Earnings attributable
to ordinary shareholders
Dilutive effect of securities
Options
5,914 179,091,830
3.30
(2,186) 179,091,830
(1.22)
-
2,248,862
(0.04)
-
-
-
Diluted earnings per share
5,914 181,340,692
3.26
(2,186) 179,091,830
(1.22)
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G R I F F I N M I N I N G L I M I T E D
NOTES TO THE FINANCIAL STATEMENTS
10. PROPERTY, PLANT AND EQUIPMENT
At 31 December 2014
Foreign exchange adjustments
Additions during the year
Transfer rehabilitation deposit
Disposals
Depreciation charge for the year
At 31 December 2015
Foreign exchange adjustments
Additions during the year
Transfer rehabilitation deposit
Disposals
Depreciation charge for the year
At 31 December 2016
At 31 December 2014
Cost
Accumulated depreciation
Net carrying amount
At 31 December 2015
Cost
Accumulated depreciation
Net carrying amount
At 31 December 2016
Cost
Accumulated depreciation
Net carrying amount
Mineral
interests
Mill and
mobile mine
equipment
Office
furniture &
equipment
Total
$000
159,851
(4,528)
8,960
32
-
(3,696)
160,619
(5,113)
7,361
27
-
(4,750)
158,144
180,536
(20,685)
159,851
184,078
(23,459)
160,619
185,252
(27,108)
158,144
$000
48,476
(2,913)
7,215
-
(48)
(3,108)
49,622
(3,164)
3,776
-
(224)
(3,772)
46,238
64,558
(16,082)
48,476
67,676
(18,054)
49,622
67,009
(20,771)
46,238
$000
$000
12
-
3
-
-
(4)
11
-
102
-
-
(4)
109
98
(86)
12
101
(90)
11
133
(24)
109
208,339
(7,441)
16,178
32
(48)
(6,808)
210,252
(8,277)
11,239
27
(224)
(8,526)
204,491
245,192
(36,853)
208,339
251,855
(41,603)
210,252
252,394
(47,903)
204,491
Mineral interests comprise the Group’s interest in the Caijiaying ore bodies including cost 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 and together with the end of life restoration costs.
The office furniture and equipment disclosed above relates solely to the fixed assets of the Company and China Zinc Pty Limited.
During 2013 plant and equipment with a deemed value of $12,880,000 were acquired under a finance lease, upon which
depreciation of $2,466,000 (2015 $1,820,000) has been provided. At 31 December 2016 the net carrying amount of this
equipment was $8,980,000 (2015 $10,408,000).
The Group assesses the carrying value of the mineral interests, mill and mobile mine equipment at least annually, and more
frequently in the event of any indications of impairment, by reference to discounted cash flow forecasts of future revenue and
expenditure for each business segment. These forecasts are based upon both past and expected future performance, available
resources and expectations for future markets. The directors have reassessed the net carrying value of capitalised costs at 31st
50
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NOTES TO THE FINANCIAL STATEMENTS
REPORT AND ACCOUNTS 2016
10. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
December 2016 and in estimating the discounted future cash flows from the continuing operations at the Caijiaying mine the
following principal assumptions were made:
-
Future market prices for zinc of $2,500 per tonne and gold of $1,150 per troy ounce.
- Mine life to end of the business licence in 2037 with ore mined and processed with grades based upon the 2015 depleted
mineral resource estimate summarised on page 10.
-
Costs based upon past performance and that budgeted for 2017.
- Discount interest rate of 6.14%.
-
Continued maintenance and grant of applicable licences and permits.
11. INTANGIBLE ASSETS
China – Zinc / gold exploration interests
At 1 January 2015
Foreign exchange adjustments
Additions during the year
At 31 December 2015
Foreign exchange adjustments
Additions during the year
At 31 December 2016
$000
1,914
(112)
68
1,870
(121)
43
1,792
Intangible assets represent cost 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
profit or loss. 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 and necessary licences and permits will be required to bring such discoveries into production. At 31
December 2016 $nil (2015 $nil) had been provided and charged to the income statement in respect of the above exploration costs.
12. INVENTORIES
Underground ore stocks
Surface ore stocks
Concentrate ore stocks
Spare parts and consumables.
2016
$000
3,192
236
188
2,532
6,148
All inventories are expected to be sold, used or consumed within one year of the balance sheet date.
13. RECEIVABLES AND OTHER CURRENT ASSETS
Receivables
Advance to Zhangjiakou Guoxin Enterprise Management and Service Center
Other receivables
Taxation
Prepayments
2016
$000
3,677
2,461
343
-
1,751
8,232
2015
$000
2,381
2,340
82
2,379
7,182
2015
$000
-
1,343
150
1,127
574
3,194
During the year $1,983,000 was incurred (2015 $307,000 credited) in service charges with Zhangjiakou Guoxin Enterprise
Management and Service Center.
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G R I F F I N M I N I N G L I M I T E D
NOTES TO THE FINANCIAL STATEMENTS
14. SHARE CAPITAL
AUTHORISED:
2016
2015
Number
$000
Number
$000
Ordinary shares of US$0.01 each
1,000,000,000
10,000
1,000,000,000
10,000
CALLED UP ALLOTTED AND FULLY PAID:
Ordinary shares of US$0.01 each
At 1 January and 31 December
179,041,830
1,790
179,041,830
1,790
15. SHARES HELD IN TREASURY
At 1 January
Bought back in during the period
At 31 December
2016
Number
8,703,103
-
$000
3,875
-
8,703,103
3,875
2015
Number
$000
-
8,703,103
8,703,103
-
3,875
3,875
On 11 February 2015 3,000,000 of the Company’s ordinary shares were purchased at a price of 26.5p per share.
On 13 February 2015 4,203,103 of the Company’s ordinary shares were purchased at a price of 26.5p per share.
On 1 May 2015 1,500,000 of the Company’s ordinary shares were purchased at a price of 40.0p per share.
16. SHARE OPTIONS AND WARRANTS
At 1 January
2016
Number
Granted/
(Exercised) /
(lapsed)
Number
Options exercisable at 30 pence per share to 31 December 2020
20,000,000
Options exercisable at 40 pence per share to 31 December 2018
5,000,000
25,000,000
-
-
-
At 31 December
2016
Number
20,000,000
5,000,000
25,000,000
The following table shows the number and weighted average exercise price of all the unexercised share options and warrants
at the year end:
2016
Number Weighted average
exercise price
Pence
2015
Number
Weighted average
exercise price
Pence
Outstanding at 1 January
25,000,000
Lapsed during the year
Granted during the year
-
-
Outstanding at 31 December
25,000,000
32.2
-
-
32.2
15,000,000
(10,000,000)
20,000,000
25,000,000
43.3
45.0
30.0
32.2
The estimated value of the options exercisable at 40p up to 31 December 2018, which vested in 3 tranches of 1,666,667 each,
were 7.4p, 7.9p and 8.4p.
The estimated value of the options exercisable at 30p up to 31 December 2020, which vested in 3 tranches of 6,666,666 each,
were 6.2p, 7.2p and 6.8p
52
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NOTES TO THE FINANCIAL STATEMENTS
16. SHARE OPTIONS AND WARRANTS (CONTINUED)
Inputs into the Binomial valuation model were as follows:
Share price
Exercise price
Expected volatility
Risk free yield
Dividend yield
REPORT AND ACCOUNTS 2016
Options expiring
31 December 2020
Options expiring
31 December 2018
26.5p
30.0p
35%
0.9%
0%
33.0p
40.0p
36%
1.3%
0%
Expected volatility was determined by calculating the historical volatility of the Company’s share price with reference to the
correlation with the zinc price and zinc price volatility over the same period. The Binomial model used assumes that the
options will be exercised early when the share price exceeds the exercise price by a multiple of two.
The Group recognised a total expense of $709,000 (2015 $1,047,000) during the year ended 31 December relating to equity
settled share option scheme transactions.
17. DIVIDENDS
No dividends were paid in 2016 (2015 nil).
18. LONG-TERM PROVISIONS
PROVISIONS FOR MINE CLOSURE COSTS
At 1 January
Transfer property plant and equipment (note 10)
Foreign exchange adjustments
At 31st December
2016
$000
2,433
27
(183)
2,277
2015
$000
2,582
32
(181)
2,433
Provision for mine closure and rehabilitation costs have been made in accordance with the laws and regulations of China at a
rate of Rmb 0.5 per tonne of estimated resources.
19. DEFERRED TAXATION
At 1 January
Foreign exchange adjustments
Charge for the year
At 31 December
2016
$000
2,630
(174)
151
2,607
2017
$000
1,953
(136)
813
2,630
Deferred taxation is provided in full on temporary timing differences under the liability method using a tax rate of 25%.
The deferred taxation provision arises on accelerated depreciation in the PRC deductable for taxation purposes.
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G R I F F I N M I N I N G L I M I T E D
NOTES TO THE FINANCIAL STATEMENTS
20. FINANCE LEASE
Amounts falling due in more than one year
Amounts falling due within one year
2016
$000
3,791
2,783
6,574
2015
$000
7,454
1,982
9,436
Under the terms of an agreement Hebei Hua Ao pays Rmb21.32 per wet tonne treated by a dry tailings facility at Caijiaying.
At the end of the agreement term in February 2021, this facility becomes the property of Hebei Hua Ao with no further
payment. In determining the total liability it is assumed that one half of future production over the term of the agreement
will be treated by the dry tailings facility. In determining the value of the dry tailings facility and applicable interest a deemed
interest rate of 6.6% has been applied.
21. TRADE AND OTHER PAYABLES
Trade creditors
Other creditors
Taxation payable
Amounts due to Zhangjiakou Guoxin Enterprise Management and Service Centre
Accruals
2016
$000
14,946
4,527
2,549
5,968
6,476
34,466
2015
$000
16,715
6,739
-
4,325
1,198
28,977
All amounts are short term. The carrying values of all trade and other payables are considered to be a reasonable approximation
of fair value.
22. BANK LOANS
Bank loans falling due within one year
2016
$000
44,688
2015
$000
63,139
The bank loans are repayable within one year under revolving facilities and are unsecured. The bank loans carried interest as
follows:
Zhangjiakou Commercial Bank
Bank of Communications
Bank of China
2016
$000
8,649
%
8.7
2015
$000
15,400
%
8.7
15,857
4.785
23,100
4.785
20,182
44,688
5.22
24,639
5.82
63,139
23. ATTRIBUTABLE NET ASSET VALUE / TOTAL EQUITY PER SHARE
The attributable net asset value / total equity per share has been calculated from the consolidated net assets / total equity of the
Group at 31 December 2016 of $143,269,000 ($139,945,000 at 31 December 2015) divided by the number of ordinary shares
in issue at 31 December 2016 of 179,041,830 (179,041,830 at 31 December 2015).
54
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NOTES TO THE FINANCIAL STATEMENTS
REPORT AND ACCOUNTS 2016
24. RISK MANAGEMENT
The Group is exposed to a variety of financial risks which result from its operating and investing activities. The Group’s risk
management is coordinated by its senior management and executive directors and focuses on actively securing the Group’s short
to medium term cash flows.
Foreign Currency Risk
The majority of the Group’s operational and financial cash flows are denominated in Chinese Renminbi and United States
Dollars with sterling bank deposits held to cover future sterling expenditure estimates.
Currently the Group does not carry out any significant operations in currencies outside the above.
The Group currently does not have a foreign currency hedging policy. However, the management monitors foreign exchange
exposure and will consider hedging significant foreign currency exposure should the need arise. In addition, the conversion of
Renminbi into foreign currencies is restricted and subject to the rules and regulations of foreign exchange control promulgated
by the government of the Peoples Republic of China.
Sterling bank deposits translated into United States Dollars at the closing rate are as follows:
Short term bank deposits
2016
$000
168
2015
$000
571
The following table illustrates the sensitivity of the net results for the year and equity in regards to the Group’s sterling deposits
and the sterling US Dollar exchange rate. It assumes a + / - 15% (2015 10%) change in the sterling exchange rate for the year
ended 31 December 2016. These changes are considered to be reasonable based on observation of current market conditions for
the year ended 31 December 2016. The sensitivity analysis is based upon the Group’s sterling deposits at each reporting date.
If sterling had strengthened against the US Dollar by 15% (2015 10%) this would have had the following impact:
Net result for the year and on equity
2016
$000
30
If sterling had weakened against the US Dollar by 15% (2014 10%) this would have the following impact:
Net result for the year and on equity
2016
$000
(22)
2015
$000
63
2015
$000
(52)
Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the
analysis above is considered to be indicative of the Group’s exposure to currency risk.
With the Renminbi exchange rate linked to the value of the US dollar and with relatively small amounts held in Australian
dollars, the effect on the net results and equity of changes in Renminbi and Australian dollar exchange rates are not expected to
be significant.
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G R I F F I N M I N I N G L I M I T E D
NOTES TO THE FINANCIAL STATEMENTS
24. RISK MANAGEMENT (CONTINUED)
Foreign Currency Risk (continued)
Foreign currency denominated financial assets and liabilities, translated into US Dollars at the closing rate, are as follows:
2016
GBP
$000
Rmb
AusD
$000
$000
GBP
$000
2015
Rmb
$000
885
15,065
(213)
(79,493)
501
(54)
896
32,385
(250)
(96,965)
672
(64,428)
447
646
(64,580)
AusD
$000
338
(11)
327
Financial assets
Financial liabilities
Short term exposure
Interest rate risk
The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s bank deposits with floating
interest rates. The Group currently does not have an interest rate hedging policy.
The following table illustrates the sensitivity of the net results for the year and equity to a reasonably possible change in interest
rates of + 300% and - 100% (2015 + 300% - 100%), with effect from the beginning of the year. These changes are considered to
be reasonable based on observation of current market conditions within which the Group operates.
The sensitivity analysis is based upon the Group’s deposits at each balance sheet date:
Net result for the year
2016
2015
Plus 300% Minus 100%
Plus 300% Minus 100%
$000
313
$000
(178)
$000
620
$000
(202)
Fixed and non interest bearing financial assets and liabilities are as follows:
2016
2015
Floating Non interest
bearing
interest rate
Total
Floating Non interest
bearing
interest rate
Total
$000
$000
$000
$000
$000
$000
Financial Assets
Cash at bank
Other receivables
13,218
-
13,218
24,062
-
24,062
-
8,322
8,322
-
3,194
3,194
Total Financial Assets
13,218
8,322
21,540
24,062
3,194
27,256
Bank loans
Finance lease liabilities
(44,688)
(6,574)
-
-
(44,688)
(6,574)
(63,139)
(9,436)
-
-
(63,139)
(9,436)
Trade and other payables
-
(34,466)
(34,466)
-
(28,977)
(28,977)
Total Financial Liabilities
(51,262)
(34,466)
(85,728)
(72,575)
(28,977)
(101,552)
Net Financial (liabilities)
(38,044)
(26,144)
(64,188)
(48,513)
(25,783)
(74,296)
56
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REPORT AND ACCOUNTS 2016
NOTES TO THE FINANCIAL STATEMENTS
24. RISK MANAGEMENT (CONTINUED)
Commodity risk
The Group is exposed to the risk of changes in commodity prices and in particular that for zinc, gold and to a lesser extent silver
and lead. The Group currently sells its metal concentrate production by way of open auctions in China. The Group did not hedge
its metal production in 2016 or in 2015.
The following table illustrates the sensitivity of the net results for the year and equity to a reasonably possible change in the
market price of zinc, gold and silver of plus 20% and minus 20% (2015 plus 20% and minus 20%), with effect from the beginning
of the year. These changes are considered reasonable based upon observation of current market conditions within which the
Group operates. This sensitivity analysis is based upon the Group’s sales in each year.
Net result for the year - zinc
7,120
(7,120)
6,742
(6,742)
2016
2015
Plus 20% Minus 20%
Plus 20% Minus 20%
$000
$000
$000
$000
Net result for year - gold
Net result for year - silver
Credit risk
2,190
(2,190)
1,656
(1,656)
617
(617)
632
(632)
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading
to a financial loss. The Group is exposed to credit risk from its financing activities, including deposits with banks and financial
institutions, foreign exchange transactions and other financial instruments. The Group does not normally have trade receivables
and does not hold collateral as security.
Credit risk from balances with banks and financial institutions is managed by the Board. Investment of surplus funds are made
only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed
by the Griffin Board on a regular basis. The limits are set to minimise the concentration of risks and therefore mitigate financial
loss through potential counterparty failure. No material exposure is considered to exist by virtue of the possible non performance
of the counterparties to financial instruments.
25. CAPITAL MANAGEMENT AND PROCEDURES
The Group’s capital management objectives are:
• To ensure the Group’s ability to continue as a going concern;
• To increase the value of the assets of the Group: and
• To enhance shareholder value in the Company and returns to shareholders.
The achievement of these objectives is undertaken by developing existing ventures and identifying new ventures for future
development. The Company will also undertake other transactions where these are deemed financially beneficial to the Company.
The directors continue to monitor the capital requirements of the Group by reference to expected future cash flows. Capital for
the reporting periods under review is summarised in the consolidated statement of changes in equity. The directors consider the
capital of the Group to be the total equity attributable to the equity holders of the parent of $143,269,000 at 31st December 2016.
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G R I F F I N M I N I N G L I M I T E D
NOTES TO THE FINANCIAL STATEMENTS
26. FINANCIAL INSTRUMENTS
The Group does not enter into derivative transactions such as interest rate swaps, forward rate agreements or forward currency
contracts. Funds in excess of immediate requirements are placed in US dollar, Chinese Renminbi, 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.
In the normal course of its operations the Group is exposed to commodity price, foreign currency and interest rate risks.
The Group places funds in excess of immediate requirements in US dollar, Chinese Renminbi, 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.
Commodity prices are monitored on a regular basis to ensure the Group receives fair value for its products.
The Group held the following investments in financial assets and financial liabilities:
FINANCIAL ASSETS
Loans and receivables
Cash and cash equivalents
FINANCIAL LIABILITIES
Loans
Trade and other payables
2016
$000
8,232
13,218
21,450
51,262
34,466
85,728
2015
$000
3,194
24,062
27,256
72,575
28,977
101,552
27. LIQUIDITY RISK ANALYSIS
Liquidity risk is that the Group might not be able to meet its obligations. The Group manages its liquidity needs by monitoring
forecast cash inflows and outflows on a weekly and monthly basis for the year ahead and by reference to scheduled debt servicing
payments and other commitments. Forecast net cash balances and requirements are compared with available borrowing facilities
to determine any headroom for repayment of debt or shortfall for additional facilities. This analysis shows that with management
expecting to roll over short term banking facilities (see note 22) available banking facilities are expected to be sufficient over the
lookout period.
The Group’s objective is to maintain cash and marketable securities to meet its liquidity requirements for the year ahead. This
objective has been met for the reporting periods. The Group considers expected cash flows from financial assets in assessing and
managing liquidity risk, in particular its cash resources and trade receivables which are receivable from customers on sale and
collection of concentrates.
At 31st December 2016, the Group’s non-derivative financial liabilities have contractual maturities, including interest payments
where applicable) as follows:
Bank borrowings
Finance lease obligations
Trade and other payables
Total
58
Current
Non-current
within one year
$000
44,688
2,783
34,466
81,937
$000
-
3,791
-
3,791
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NOTES TO THE FINANCIAL STATEMENTS
REPORT AND ACCOUNTS 2016
28. SUBSIDIARY COMPANIES
At 31 December 2016 , Griffin Mining Limited had interests in the share capital of the following principal subsidiary companies.
Name
China Zinc Pty Ltd
China Zinc Limited
Hebei Hua’ Ao Mining
Industry Company Ltd*
Class of
Share held
Ordinary
Ordinary
Panda Resources Ltd
Ordinary
Hebei Sino Anglo Mining
Development Company Ltd*
Proportion of
shares held
100%
100%
88.8% **
100%
90%
Nature of
business
Country of
incorporation
Service company
Australia
Holding company
Hong Kong
Base and precious metals
mining and development
China
Holding company
England
Mineral
exploration and development
China
* China Zinc Ltd, China Zinc Pty Ltd and Panda Resources Ltd are directly owned by the Company. China Zinc Ltd has a
controlling interest in Hebei Hua’ Ao Mining Industry Company Ltd, see below, and Panda Resources Ltd has a 90% controlling
interest in Hebei Sino Anglo Mining Development Company Ltd.
** The contract establishing the Hebei Hua’ Ao Mining Industry Company Ltd originally provided that the foreign party (China
Zinc) received 60% of the cash flows, in accordance with its share in the equity interest in the joint venture. With effect from 25
June 2012, the Chinese party receives a minimum fee of Rmb 25m subject to various force majeure provisions and a maximium
11.2% of profits and cashflows of Hebei Hua Ao. On 21 May 2012 the term of the Hebei Hua Ao’s business licence extended to
12 October 2037.
Under the terms of the agreement dated 21 May 2012, Griffin’s Chinese Partners are obliged to provide various services to
facilitate Hebei Hua Ao’s operations in China and as such the amounts payable of $1,983,000 (2015 credited $307,000) are
included in net operating costs rather than attributable to non-controlling interests. Likewise the amounts due at 31st December
2016 of $5,968,000 (2015 $4,325,000) are included in other payables rather than due to non-controlling interests within equity
within the Consolidated Statement of Financial Position.
29. COMMITMENTS
At 31 December 2016 the Group had capital commitments of $556,000 (31 December 2015 $4,029,000).
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G R I F F I N M I N I N G L I M I T E D
CORPORATE INFORMATION
Principal office:
8th Floor, Royal Trust House, 54 Jermyn Street, London, SW1Y 6LX. UK.
Telephone: + 44 (0) 20 7629 7772 / Facsimile: + 44 (0) 20 7629 7773
Email: griffin@griffinmining.com / Website: www.griffinmining.com
Registered office:
Clarendon House, 2 Church Street, Hamilton, HM11. Bermuda.
China Zinc Pty Ltd office:
Level 9, BGC Centre, 28 The Esplanade, Perth, WA 6000. Australia.
Telephone: + 61(0) 8 9321 7143 / Facsimile: + 61 (0) 8 9321 7035
Directors:
Mladen Ninkov (Chairman)
Roger Goodwin (Finance Director)
Dal Brynelsen
Rupert Crowe
Adam Usdan
Company Secretary:
Roger Goodwin
Nominated Adviser
And Broker for AIM:
Panmure Gordon (UK) Limited
One New Change, London, EC4M 9AF, UK.
Joint Broker
Auditors:
Solicitors:
Cantor Fitzgerald Europe
1 Churchill Place, Canary Wharf, London, E14 5RB, UK.
Grant Thornton UK LLP
Grant Thornton House, Melton Street, London, NW1 2EP. UK.
Bird and Bird
8/F China World Office 1, Jianguomenwai Dajie,
Chao Yang District, Beijing 10004. PRC.
Conyers Dill & Pearman
Clarendon House, 2 Church Street, Hamilton, HM11. Bermuda.
Addleshaw Goddard LLP
Milton Gate, 60 Chiswell Street, London, EC1Y 4AG. UK.
King & Wood Malleson
9/F, Hutchison House, 10 Harcourt Road, Central, Hong Kong.
Bankers:
HSBC Bank plc
27-32 Poultry, London, EC2P 2BX. UK.
The Hong Kong and Shanghai Banking Corporation Limited
HSBC Main Building, 1 Queen’s Road Central, Hong Kong.
HSBC Bank of Bermuda Ltd
6 Front Street, Hamilton, HM11. Bermuda.
UK Registrars
And Transfer Agents:
Capita Registrars (Jersey) Limited
12 Castle Street, St Helier, Jersey, JE2 3RT. UK.
60
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