Pahtavaara has generated EBITDA of more than SEK 60 million during 2010.
Fourth quarter 2010
* Sales were 44.3 MSEK (47.8 MSEK)
* Result before depreciation was 4.2 MSEK (-10.7 MSEK)
* Net loss was -24.5 MSEK (-21.5 MSEK) and has been adversely affected by a
write-down of the concentrate inventory at Ersmarksberget of 8.4 MSEK
* Basic result per share was -0.29 (-0.26)
* Gold production for the quarter was 5,795 ounces (6,521 ounces)
* Mineral reserves at Pahtavaara were 577,000 tonnes at 2.74 g/t of gold
(678,000 tonnes, 2.79 g/t of gold)
* Measured and indicated resources in Ersmarksberget was at the end of
2011, 519 tons with 3.25 g/t of gold plus an inferred mineral resource of
143 thousand tons with 4.24 g/t of gold.
January - December 2010
* Sales were 192.1 MSEK (121.4 MSEK)
* Result before depreciation was 19.9 MSEK (-61.9 MSEK)
* Net loss was -44.2 MSEK (-87.9 MSEK)
* Basic result per share was -0.53 (-1.05)
* Gold production was 23,778 ounces (21,862 ounces)
Comments from CEO, Kjell Larsson
"Annual production for Pahtavaara was 23,778 ounces of gold which has generated
a profit, before amortization, in excess of 60 million SEK.
In Ersmarksberget new estimates resulted in an expansion of the mineral
resources. The positive result means that we now continue drilling and
investigates the conditions to start gold production in early 2012.
Our view is that external debt financing of Fäboliden, on acceptable terms by
the company, is today limited. Lenders would apply a gold price which is
significantly below current price in their evaluations. We have therefore
decided to temporarily postpone our efforts to complete the feasibility study."
Highlights during the fourth quarter 2010
* During the fourth quarter gold production was 5,795 ounces, which was
slightly lower than in the third quarter. Both the gold grades of ore and
the recovery in the processing plant have been better than expected in
October and November. In December there were minor rock mechanical problems
which resulted in lower production. These were addressed in early January,
and production has now been stabilized. For the full year 2010 gold
production was 23,778 ounces, equivalent to 740 kg gold and 60 kg of gold
above the 2009 production.
* The Golder Associates scoping level optimization study indicates that the
gold occurrence in Fäboliden at a gold price of 1,400 USD per ounce has a
net present value of SEK 1.4 billion before taxes. The assessment is based
on a discount rate of 8% and is subject to the successful upgrading of
inferred mineral resources to measured and indicated mineral resources with
gold grades over the "cut-off used in the study. The definitive feasibility
study (DFS) is estimated to cost approximately 26 million to complete.
* On October 18 the company also reported that a comprehensive efficiency
program is implemented. The measures undertaken during the autumn are
expected to reduce costs on an annualized basis by at least 10 million SEK.
The full effect of the efficiency program is expected by mid 2011. The
efficiency program includes measures such as staff reductions, redeployment
of the underground ramp at Pahtavaara and smaller consolidated offices at
the head office in Lycksele.
* The mineral reserve at year end at Pahtavaara was 577,000 tonnes, with 2.74
g/t gold (382,000 tonnes of 2.64 g/t gold is classified as proven and
194,000 tonnes with 2.93 g/t gold as probable mineral reserves).
* At year end, the measured and indicated mineral resources at Ersmarksberget
was 519,000 tonnes with 3.25 grams of gold per ton (421,000 tonnes of
measured mineral resources with 3.60 g/t gold and 98 tonnes of indicated
mineral resources with 1.76 g/t gold). In addition there is an inferred
mineral resource of 143,000 tonnes with 4.24 g/t gold.
Subsequent events
Both gold production and the estimates of mineral resources and mineral reserves
in Pahtavaara and mineral resources in Ersmarksberget have been reported in
January 2011. As the results are based exclusively on the business in 2010, they
have been included in "Highlights during the fourth quarter of 2010".
Pahtavaara
Sales during the fourth quarter 2010 were SEK 44.3 (Q4/2009 - 47.8) million and
result before depreciation was SEK 13.8 (5.2) million. Capital expenditures were
SEK 11.9 (9.2) million. During the fourth quarter gold production was 5,795
ounces. Both grades of gold in the ore and the recoveries in the mill were
higher than budgeted in October and November. During December there were minor
rock mechanical problems which resulted in lower gold production. The problems
were addressed in early January and production is now stable.
Despite production disruptions in the second quarter, Pahtavaara gold production
for the year reached 23,778 ounces (21,860 ounces), an increase of 9 percent.
The higher production and higher gold prices in 2010 resulted in a revenue
increase of 78.9 million from the Pahtavaara operation.
During the year, 26,000 meters of core drilling has been conducted primarily
underground, but also on surface. The drilling defined the near surface Länsi
that could be included in the measured and indicated mineral resource at
Pahtavaara. The proven and probable ore reserves at Pahtavaara were estimated to
577,000 tonnes of 2.74 g / t Au.
The mineral resource and ore reserve are estimated by Åsa Corin, geologist at
Lappland Goldminers Oy, under supervision of Thomas Lindholm, GeoVista AB,
independent consultant and by SveMin and FinMin approved as qualified person,
QP. The estimation is carried out according to the rules of SveMin and FinMin
which are in compliance with the Canadian NI 43-101 reporting and disclosure.
The concentrate from Pahtavaara has historically been delivered to a few
customers in Europe and Asia. To ensure that the mine has a long term customer
base for its production the company considers starting producing a new
concentrate that is better adapted to the European smelters and thereby increase
the number of customers. The new concentrate will be a mixture of the previously
separate high grade and the low grade gravity concentrate that has historically
been produced. The conversion to a new concentrate will increase short term
working capital in Pahtavaara but increase possibilities for smelting agreements
and payment terms.
Fäboliden
The work on a feasibility study is continuing as planned and in December the
results of the optimization work on a scoping level, carried out by Golder
Associates in the fall, was presented. The optimization resulted in the
following;
* Selective open pit mining with a cut-off grade of 0.5 grams of gold per
tonne
* Selective underground mining with a cut-off grade of 1.2 grams of gold per
tonne
* Processing plant with an annual capacity of 1.5 million tonnes
To facilitate the assessment of the project, a financial evaluation has been
carried out based on three different gold prices, using an exchange rate of SEK
7.25 per USD and a discount rate of 8%. The peak funding requirement is
estimated at approximately SEK 1.3 billion, including a contingency for
investments of SEK 225 million. The gold recovery in the process plant for the
average grade material has been estimated at 86%.
The diagram below illustrates the sensitivity of the net present value (NPV) of
the project assuming the inferred resources are converted to measured and / or
indicated, at different gold price levels, before and after tax. The economic
evaluation shows that at a gold price of 1400 USD per ounce, the project has a
net present value of SEK 1.4 billion.
A gold price of USD 1,400/oz provides an NPV before tax of approximately SEK
1,400 million, while USD 1,250/oz provides an NPV of approximately SEK 800
million and USD 1,100/oz an NPV of just over SEK 200 million.
The provisional estimates of measured and indicated mineral resources, given the
above cut-off grades, for open pit mining amount to 6.7 million tonnes of ore
with an average grade of 1.44 grams of gold per tonne. Provisional estimates of
the corresponding resources for underground mining are approximately 15.2
million tonnes with an average grade of 1.84 grams of gold per tonne, of which
approximately 5,4 million tonnes consist of inferred resources. Further drilling
will be carried out with the aim of converting inferred mineral resource to
measured or indicated resources.
The view of the company is that external debt financing of Fäboliden, on
acceptable terms by the company, is today limited. Lenders would apply a gold
price which is significantly below current price in their evaluations. The
company has therefore decided to temporarily postpone the efforts to complete
the feasibility study. Additional work, after the report that was presented in
December 2010, has further convinced us that the project is sound from a
production and technical standpoint. The agreement with Golder supports a pause.
The company has already a mining concession for the deposit in Fäboliden and
environmental permits were obtained from the Environmental Court in autumn of
2008. In December 2010 The Mining Inspector decided to allocate the necessary
land for the project.
The reader is advised that this study contains an economic assessment about
ongoing studies that is preliminary in nature and includes inferred mineral
resources that are considered too speculative geologically to have the economic
considerations applied to them that would enable them to be categorised as
mineral reserves, and there is no certainty that the preliminary assessment will
ever be realised, in whole or in part.
Ersmarksberget
Within the Ersmarksberget mining concession, in the north eastern part of the
Gold Line, drilling campaigns have been conducted during 2010 to define an ore
reserve that allows the start of gold production from the mine. The estimations
have given an extension of the mineral resources in Ersmarksberget that provide
us with sufficient evidence to, along with some additional diamond drilling,
start the work with a feasibility study. Depending on the outcome of the study,
decisions can be taken to start the production in Ersmarksberget. The existing
mill is fully equipped and has, since the company took possession of it, been
maintained in expectance of future operation. It is an important component for a
profitable operation at the mine and increases the long term opportunity to find
and mine new mineralizations in the area. A future production in Ersmarksberget
will require investments in earth removal, underground ramp and some additional
investments in the mill.
During the year we have continuously worked on environmental improvements and
have among other things, invested in a doubled pumping capacity to meet this
year's spring runoff of surface water in Ersmarksberget. The company has
prepared and submitted rehabilitation plans to the Environmental Court while
keeping a good communication with the County Administration.
The mineral resource is estimated by Thomas Lindholm, GeoVista AB, independent
consultant and by SveMin and FinMin approved as qualified person, QP. The
estimation is carried out according to the rules of SveMin and FinMin which are
in compliance with the Canadian NI 43-101 reporting and disclosure.
Haveri
The sales process of Haveri was initiated in autumn 2010. The company is in
contact with several parties and the goal is to be in a position to decide on a
possible disposal during the spring of 2011.
Income statement
Sales decreased slightly during the fourth quarter 2010 compared to the fourth
quarter 2009, and reached SEK 44.3 million compared to SEK 47.8 million.
Compared to the third quarter of 2010 sales decreased by SEK 5.9 million. The
decrease is due to lower gold production due to temporary rock mechanical
problems at Pahtavaara. A total of 4,957 ounces of gold were delivered from
Pahtavaara during the quarter at an average price of 1,317 USD per ounce. During
the third quarter 2010 6,240 ounces of gold were delivered from Pahtavaara at an
average price of 1,106 USD per ounce.
The Pahtavaara operations contributed with a profit before depreciation of SEK
13.8 million during the quarter. The lower production during the fourth quarter
resulted in a higher unit cost of production which impacted the profit in
Pahtavaara compared to the third quarter 2010. Cash cost increased from 624 USD
per ounce during the third quarter 2010 to 933 USD per ounce.
Maintenance costs at Ersmarksberget of SEK 5.2 million, exploration costs of SEK
1.4 million and corporate costs of SEK 5.3 million reduced the quarterly profit
at Pahtavaara. The group recorded a profit before depreciation of SEK 4.2
million during the fourth quarter 2010, which can be compared to a loss of SEK
10.7 million for the fourth quarter 2009 and a profit of SEK 13.0 million for
the third quarter 2010.
The maintenance costs at Ersmarksberget are due to the mill running on standby
mode to prevent it from dilapidation and treatment of excess water from the old
mining site.
Depreciation charges during the quarter of SEK 24.3 million are primarily due to
two main components. SEK 15.7 million is due to depreciation of capitalized ore
development at Pahtavaara. Depreciation charges are calculated using a unit of
production method in relation to the remaining ore reserves. Compared to the
third quarter 2010, depreciation charges increased by SEK 3.1 million. SEK 8.4
million is due to the write-down of the concentrate inventory at Ersmarksberget.
The net loss for the group during the fourth quarter was SEK 24.5 million
compared to a net loss of MSEK 21.5 million for the corresponding quarter 2009.
The lower profit is mainly due to disruptions in production at Pahtavaara and
the depreciation of concentrate inventory at Ersmarksberget.
Cash flow
The net change in cash position was negative by SEK 25.7 million during the
quarter. Cash flow from operations, before working capital changes, was negative
during the quarter and reached SEK -1.0 million which can be compared to SEK
-7.7 million for the fourth quarter 2009. The Pahtavaara operations generated
positive cash flow and contributed SEK 13.8 million during the quarter, before
working capital changes. Working capital increased by SEK 2,8 million during the
quarter.
The capital expenditures during the quarter were SEK 19.2 million of which
Pahtavaara accounted for SEK 11.9 million and costs associated with the
feasibility study at Fäboliden were SEK 7.0 million. Capital expenditures at
Pahtavaara primarily related to the ore development when the operations are
moving into new areas within the existing mine.
During the fourth quarter the company repaid financial debt of SEK 2.7 million.
Financial position
Cash and bank balances of December 31, 2010 were SEK 10.5 million and undrawn
overdraft facilities approximately SEK 5.8 million. To continue the company's
expansion strategy different financing solutions are being evaluated.
Parent company
Sales, which are mainly internal, were SEK 0.5 million during the fourth quarter
2010. The operating costs are mainly group overhead costs for geology,
administration and group management and were SEK 7.2 million during the fourth
quarter 2010. Financial costs of SEK 6.8 million during the fourth quarter
relate mainly to external interest costs and exchange differences on intra-group
loans.
Segmented Financial Information
(Excluding financial intercompany transactions)
Unit costs and realized gold prices.
The Gold Price
Other information
Major customers
The sales of the group presently come from the Pahtavaara mine. Pahtavaara
produces three types of gold concentrate: gravity concentrate, middling
concentrate and flotation concentrate. Currently, all concentrate is shipped to
a limited number of customers in Europe and Asia.
Risks and uncertainties
A number of risk factors can have a negative impact on the operations of the
group and the parent company. External and internal factors can influence the
financial position and the growth of Lappland Goldminers. Factors, among others,
which can influence the company are the price of gold, currency risks, estimates
of mineral reserves and mineral resources, interest risks, liquidity- and
financing risks, electricity- and energy prices, key staff and employees,
permits, environmental factors and political risks. For further information
regarding risks and uncertainties see page 23 of the 2009 Annual Report of
Lappland Goldminers.
Environment
The operations of the company require, in many cases, permissions from
authorities. See page 23 of the 2009 Annual report of Lappland Goldminers for
further information regarding environmental impact.
Employees
The company and subsidiaries have 77 employees (2009 - 62) as of December
31, 2010. In addition to this, the Company engages consultants and contractors
for various projects on a continuing basis. Altogether the company and
subsidiaries engage the equivalent of 128 (2009 - 109) full time employees.
Reporting dates
Interim report January-March 2011 May 6, 2011
Interim report January-June 2011 July 28, 2011
Interim report January-September 2011 October 27, 2011
Annual General Meeting
Lappland Goldminers' annual meeting is planned for May 18, 2011 in Stockholm. An
information meeting, following the AGM, is planned for May 19, 2011 in Lycksele.
Dividends
The Board of Lappland Goldminers intends to propose to the annual meeting that
no dividends will be paid for 2010.
Annual Report
The Annual Report is found on the Company's web site with possibility for
downloading and printing.
Accounting principles
This report has been prepared in compliance with IAS 34 - Interim Financial
Reporting and according to Swedish "Årsredovisningslagen". The company applies
IFRS 3r and IAS 27r but concludes they have no material impact on the financial
statements. The same accounting principles have been applied as in the last
issued Annual Report. For detailed information regarding accounting principles,
see the Annual Report 2009.
Lycksele February 17, 2011
Kjell Larsson
Chief Executive Officer
The interim report for the period January - December 2010 has not been reviewed
by the company's auditors.
Conference call
The company plans to hold a conference call in connection with the interim
report on February 17, 2011 at 14:00 CET.The telephone number is available on
the web sitewww.lapplandgoldminers.se.
For further information please contact:
Kjell Larsson, CEO Tel: 0950-275 06, 070-385 03 57 E-mail:kjell.larsson@lgold.se
Anders Haker, CFO, Tel: 0708-108559, E-mail:anders.haker@lgold.se
The full press release including tables and chart can be downloaded from the
following link:
[HUG#1489914]
Lappland Goldminers AB (publ): Interim report January - December 2010
| Source: Lappland Goldminers AB
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