Final Results

RNS Number : 2995H

Anglo Asian Mining PLC

26 May 2011

 



Anglo Asian Mining plc / Ticker: AAZ / Index: AIM / Sector: Mining

26 May 2011

Anglo Asian Mining plc ('Anglo Asian' or 'the Company')

Final Results

Anglo Asian Mining plc, the AIM listed gold producer in Azerbaijan, is pleased to announce its results for the year ended 31 December 2010. 

Overview

·    Profit before tax of US$19.8 million (2009: US$11.7 million loss) on revenue of US$72.0 million (2009: US$10.3 million)

·    Gross profit of US$31.4 million (2009: US$1.9 million)

·    Operating cash flow before movement in working capital of US$47.0 million (2009: US$2.7 million)

·    Gold production at Gedabek for year ended 31 December 2010 totalled 67,267 ounces - exceeded 60,000 ounce gold forecast

·    Produced gold at an average cash operating cost of U$358 per ounce including the Government of Azerbaijan's share

·    Company gold sales of 57,398 ounces completed at an average of US$1,241 per ounce

·    Strengthening of processing operations at Gedabek - 821,176 tonnes of dry ore transferred during 2010 onto the leach pad with an average gold content of 4.33 g/t

·    Copper and silver production from SART operations - 182.5 tonnes of copper and 1,460 kg of silver (46,940 ounces)

·    JORC Resource upgrade at Gedabek - 791,000 ounces of gold, 49,300 tonnes of copper and 7,597,000 ounces of silver for all categories

·    Post period end, Gedabek has continued to perform well with gold production for Q1 2011 totalling 14,028 ounces

·    Focused on developing 1,962 sq km gold/copper exploration portfolio with the aim of replicating success at Gedabek and developing additional mining operations

·    Notice of Discovery in 300 sq km Gosha Contract Area - further exploration planned with a view to confirming a small gold deposit with production potential

·    Interest-bearing loans and borrowings reduced from US$43.0 million at 31 December 2009 to US$30.6 million at 31 December 2010 - target to have repaid International Bank of Azerbaijan loans by Q4 2011/ Q1 2012

·    Net debt, being interest-bearing loans and borrowings less cash and cash equivalents, reduced from US$42.2 million at 31 Dec 2009 to US$25.5 million at 31 December 2010

Chairman's Statement

It gives me great pleasure to report on the progress your Company has made during 2010 as we gained momentum in terms of establishing Anglo Asian as a successful gold producer in Central Asia, boosting gold and copper production at our Gedabek mine in Azerbaijan ('Gedabek') and increasing profitability.  Additionally, we have implemented defined exploration and development programmes across our 1,962 sq km portfolio of prospective copper and gold assets in Azerbaijan to delineate and upgrade the Company's resource base, which currently stands at 791,000 ounces ('oz') of gold 49,300 tonnes of copper and 7,597,000 oz of silver for all categories.

For the year ended 31 December 2010 we exceeded our 60,000 oz gold production forecast at Gedabek, producing 67,267 oz with an average cash operating cost of US$358 per oz of gold including the Government of Azerbaijan's share and US$412 per oz of gold net of the Government of Azerbaijan's share.  This positions Gedabek as a low cost producer and in conjunction with gold sales of 57,398 oz completed at an average of US$1,241 per oz for the year, has seen us deliver a healthy profit before tax of US$19.8 million (2009: US$11.7 million loss) and operating cash flow before movement in working capital of US$47.0 million (2009: US$2.7 million) in the period.

In terms of 2010 copper production at Gedabek, our Sulphidisation, Acidification, Recycling, and Thickening ('SART') plant, which recovers copper in the form of a precipitated copper sulphide concentrate containing silver with commercial value, commenced production in February 2010 and was fully operational by September 2010.  Interestingly, application of this process commercially on such a scale has never previously been achieved and, and, although there were a few initial teething problems, we are pleased that the SART plant has performed in line with management expectations.  The total copper concentrate produced in 2010 contained 182.5 tonnes copper, 1,460 kg (46,940oz) of silver and 25.9 kg (833 oz) of gold.

Post period end, Gedabek has continued to perform well with gold production for Q1 2011 totalling 14,028 oz, which is a 3% increase on production for the comparable quarter in 2010.  Copper and silver recovery from our SART operations has significantly improved, seeing us produce 104 tonnes of copper and 762 kg (24,499 oz) of silver in the quarter.  During 2010 a sales protocol was agreed with government partners for the sale of 400 wet tonnes of copper concentrate.  This sale will be substantially completed in May 2011 and will positively impact profits for the first half of the 2011 financial year.  As with the sales of gold bullion under the Production Sharing Agreement ('PSA'), 12.75% of revenue received from the copper concentrate goes directly to the account of the Government of Azerbaijan.  We are also currently in discussions with government partners regarding a further sales protocol for copper concentrate and look forward to updating the market on this development in due course.

Gedabek is an open pit, heap leach operation.  During 2010, the volume of dry ore being transferred onto the leach pad improved each quarter.  For the year ended 31 December 2010 we transferred 821,176 tonnes of dry ore with an average gold content of 4.33 g/t.

Improving Gedabek's processing capabilities remains a key focus for Anglo Asian as we seek to hit our full year production target of a minimum of 60,000 oz of gold and 525 tonnes of copper.  At present, the mine life stands at six years with target production in excess of 300,000 oz of gold, however we are confident that we can expand this and the resource through exploration over the whole 300 sq km Contract Area at Gedabek.  With this in mind, we implemented a defined strategy in 2010 to reassess the data employed in making the JORC compliant mineral resources statement provided by SRK consulting ('SRK') in 2006.  As a result in October 2010 we were delighted to announce a resource upgrade to 791,000 oz of gold, 49,300 tonnes of copper and 7,597,000 oz of silver at a cut-off grade of 0.3 g/t gold for all categories, which after taking account of ore already mined as of 7 June 2010, gave a total gold uplift across the Measured and Indicated resource categories of 31%.  

A further resource development programme, which aims to increase the confidence of the resource estimate and to increase the resource base, is now underway at the Gedabek Contract Area and includes a 17,500 metre drilling programme. We look forward to updating shareholders on developments and exploration results in due course.

Unlocking the intrinsic value of the rest of our portfolio in Azerbaijan is also high on our agenda.  Therefore in 2010 we commenced further exploration programmes at our two grassroots projects, Gosha and Ordubad, which are 300 sq km and 462 sq km respectively.  Post period end in February 2011 we submitted a Notice of Discovery at Gosha.  Further exploration is now planned with a view to confirming a small gold deposit with production potential.  At out Ordubad Contract Area, we have successfully extended the licence for a further year through to April 2012.

As shareholders will be aware, we have a strong relationship with the Government of Azerbaijan and we continue to be very grateful for its support.  In addition, we continue to work closely with the International Bank of Azerbaijan ('IBA'), which is majority owned by the Government of Azerbaijan and has supported us through our mine development stage with loan financing, which peaked at US$43.7 million in March 2010.  With our increasing profitability we are delighted to announce that during the period we have significantly reduced this amount to US$29.6 million at 31 December 2010 and subsequently to US$21.0 million as of 25 May 2011.  We are confident that by the end of 2011, with production revenues in line with management expectations, we will have paid off all, or nearly all, of our debt to the IBA. 

As highlighted in previous reports, Anglo Asian has a PSA in place with the Government of Azerbaijan based on the established Azeri oil industry.  Up until the time Anglo Asian has recovered all its carried forward, unrecovered costs, the Government of Azerbaijan effectively takes 12.75% of commercial products of each mine, with the Company taking 87.25%.  We expect to continue retaining 87.25% of the commercial products until at least the end of 2011

In 2010, Anglo Asian generated revenues of US$72.0 million (2009: US$10.3 million) as a result of gold and silver sales from the Gedabek mine. The revenues were generated from the sale of Anglo Asian's share of the production for the year which comprised 57,398 oz of gold and 35,922 oz of silver (2009: 9,656 oz of gold and 2,919 oz of silver) at an average price of US$1,241 and US$22 respectively (2009: US$1,057 and US$17).

The Group incurred mining cost of sales of US$40.6 million (2009: US$8.4 million) and therefore reported a gross profit of US$31.4 million for 2010 (2009: US$1.9 million).

The Group incurred administration expenses of US$5.1 million (2009: US$4.0 million) which, along with finance costs for the year of US$6.3 million, (2009: US$3.3 million) resulted in a profit before tax for the year of US$19.8 million (2009: a loss of US$11.7 million). The price of gold steadily increased throughout 2010 and in to 2011 and has been a key factor in the Company's financial performance.

As with any business, a strong, stable team can be directly linked to its success and we believe Anglo Asian is no different.  I am delighted with our Board and highly skilled management team, which are working well together and delivering solid results for the Company.  Our whole staff now consists of approximately 427 personnel, from mining engineers to geologists and project managers and notably during the year we appointed a new geological consultant. 

As ever, maintaining good health, safety, social and environmental standards is very important to us. We have now established a Health, Safety, Environment and Technology Committee ('HSET') at Board level, under the chairmanship of Professor John Monhemius, one of our Non-Executive Directors.  This committee has the responsibility to oversee all aspects of the HSET performance of the Company and to make recommendations to the Board.  Post period we also appointed an experienced Health, Safety and Environment manager as a full-time member of our corporate management team.

In regard to our social responsibilities, we are committed to assisting Gedabek's local community.  During 2010, we launched our second beekeeping project. The programme consisted of a ten week beekeeping course in Gedabek, the first in Azerbaijan, where 28 students graduated.  The Company provided short term loans to 20 graduates who bought 65 beehives to start their beekeeping business.  The Company's internet café was open to the public during the year and over 350 people visited the centre. The centre offers short computer courses to the public and 280 people attended the courses.  In addition, the Company undertook to construct a 2km road in the Arikhdam village, near Gedabek, and re-repaired a connecting bridge.

Looking ahead, we anticipate that gold and copper production from Gedabek will be steady and combined with a continued buoyant gold price should deliver increased revenues for the forthcoming year.  In addition, I believe the development of our extensive exploration portfolio to fulfil our mid to long-term strategy of building multiple gold mines will gain traction during the year and add further value for shareholders. 

Finally, I would like to thank the employees, my fellow Directors, advisors and shareholders for their continued support and I look forward to updating shareholders regularly on the progress of what is now a highly profitable, cash-generative, producing gold company.

Khosrow Zamani

Non-executive Chairman

25 May 2011

Chief Executive Review

Mining Operations

During the course of 2010, we were primarily focused on the efficiency of our flagship Gedabek mine, ensuring that gold production continued to increase quarter on quarter and that we realised our internal management target of 60,000 oz of gold for the first full year of production to 31 December 2010. 

As shareholders are aware, we began construction of the Gedabek open pit mine in 2008 and the mine poured its first gold and silver in May 2009.  As is often the case with the start-up of a new operation, we experienced a few technical problems, however we implemented a number of initiatives in July and August 2009 to rectify these problems, expand production and improve efficiencies, which ideally positioned us for gold production growth at the beginning of 2010.

As discussed in our Chairman's statement, gold production exceeded management's expectation for the period.  For the 12 months to 31 December 2010, Gedabek produced 67,267 oz of gold, of which 57,398 oz was sold and completed at an average of US$1,241 per oz for the year.  It should be noted that Anglo Asian is currently entitled to 87.25% of metal production.  Also, there will always be short-term timing differences between gold production for the account of Anglo Asian and sale of that production.

The following summary table of gold production and prices highlights the quarter-on-quarter gold production at Gedabek over 2010 and post-period. 

Table 1: Production and sales at Gedabek

Quarter ended	Gold Produced (including Govt. of Azerbaijan's share) (oz)	Sales of Gold (excluding Govt. Of Azerbaijan's share) (oz)	Weighted Average Gold Sale Price (US$)
31 March 2010	13,661	11,034	1,102
30 June 2010	14,836	13,326	1,197
30 September 2010	19,215	15,618	1,229
31 December 2010	19,555	17,420	1,371
Total for 2010	67,267	57,398	1,241
31 March 2011	14,028	11,269	1,385

Gedabek is a low-cost producer relative to its peers.  For the year to 31 December 2010 we produced gold at a cash cost of US$412 per oz, excluding the Government of Azerbaijan's share, and at a cash cost of US$358 per oz including the Government of Azerbaijan's share.

In terms of processing, Table 2 summarises levels of dry ore that have been transferred to the leach pad on a quarterly basis from 1 January 2010 to 31 December 2010 and post-period to 31 March 2011.  In order to improve economic recovery, blending of high and low grade ore has been carried out in a ratio that will increase tonnes whilst maintaining the grade quality.

Table 2: Dry ore transferred to leach pad at Gedabek

Quarter ended	Dry ore transferred to the leach pad (tonnes)	Average grade (g/t)
31 March 2010	167,968	4.79
30 June 2010	189,000	3.80
30 September 2010	224,000	4.30
31 December 2010	240,208	4.32
Total for 2010	821,176	4.33
31 March 2011	208,000	3.32

Extreme winter weather conditions during the first quarter of 2011 at Gedabek have resulted in the leaching process, which extracts gold from the crushed ore, becoming sluggish.  This has affected gold production for Q1 2011 resulting in production of 14,028 oz, below that of Q4 2010.  However it represents a 3% increase on the comparable period for 2010, which saw gold production of 13,660 oz. The other significant factor in reduced production was that gold grade in Q1 2011 was 3.32 g/t compared to 4.79 g/t in the equivalent period in 2010.

Copper and silver production from our SART operations has performed well with the total copper concentrate produced from February 2010 to 31 December 2010 containing 183 tonnes of copper, 1,460kg (46,940 oz) of silver and 25.9 kg (833 oz) of gold.  The SART plant was fully operational in September 2010.  See Table 3 for SART copper, silver and gold production.

Table 3: SART - copper, silver and gold production (in the form of copper concentrate)

	Copper Concentrate Produced (Dry Tonnes)	Copper recovered (Tonnes)	Silver Produced (Kg)	Gold Produced (kg)
Four months to 30 June 2010	120	54	432	8.2
Quarter ended 30 Sept 2010	110	81	648	10.9
Quarter ended 31 Dec 2010	86	48	380	6.8
Total for year ended 31 Dec 2010	316	183	1,460	25.9
Quarter ended 31 Mar 2010	175	104	762	2.3

Copper and silver recovery from our SART operations improved during the first quarter of the current year seeing us produce copper concentrate that contained 104 tonnes of copper and 762 kg (24,499 oz) of silver.

The plant's designed capacity is calculated to produce 1,800 tonnes of copper concentrate per year with copper recoveries projected to be 50-70% and silver recoveries of 4,000 to 6,000 g/t.  Further optimisation work is planned to reach the designed capacity.

Maintaining high health, safety, social and environmental standards is very important to us at Anglo Asian.  We have approximately 427 personnel working for the Company including a local management team, Azeri mining and earthworks contractors and experienced operations personnel from surrounding countries, of which 367 are based at Gedabek, where there is a permanent mine camp for employees.  I am pleased to report that there have been no major or serious accidents during 2010 and to date in 2011.

Best environmental practice is also a top priority for the Company and accordingly Gedabek has been constructed to the highest environmental standards.  In terms of power and water, we use our own diesel-powered generators and water supply is readily available from nearby streams.

On the same theme, we were delighted to announce that in March 2010, the Company was awarded the following certificates: ISO 9001:2008 Quality Management System, ISO14001:2004 Environmental Management System and OHSAS 18001:2007 Occupational Health and Safety Management System.

Exploration

Exploration of our portfolio of gold and copper assets in Azerbaijan remains central to our growth strategy as we develop our future production profile to establish ourselves as a leading gold producer in Central Asia. 

Our portfolio, which spans 1,062 sq km, consists of the Gedabek Contract Area where we currently have gold/copper mining operations and the grassroots Gosha and Ordubad Contract Areas.  All three Contract Areas run across the Tethyan Tectonic Belt, one of the world's significant copper and gold bearing areas.  Additionally, we hope to develop the 900 sq km prospects in three additional Contract Areas located in the region in Azerbaijan occupied by Armenia when the political situation permits.

Gedabek

We have implemented a defined exploration strategy aimed at increasing Gedabek's resource, proving reserves and in turn extending Gedabek's life of mine which currently stands at six years with a target production in excess of 300,000 oz of gold.

Whilst developing the Gedabek mine in 2008 - 2009 we discovered the orebody had higher grades than originally forecast by SRK and reconnaissance work also indicated that there were extensions of the orebody beyond the predicted final pit boundaries.  Ore mined as of 31 March 2010 amounted to 468,000 tonnes at a grade of 4.18 g/t of gold.  Out of this amount, 212,000 tonnes with an average grade of 3.0 g/t of gold was not included in the original reserve estimations undertaken by SRK in 2006.  In order to help clarify the situation, we enlisted the help of SGS Mineral Services and a re-modelling and geometallurgical study was commissioned to create a more accurate ore body model of the Gedabek deposit.

In April 2010 initial results were received for Phase 1 of the Realistic Mineral Resources Model (a non JORC-compliant report) which indicated significant increases in the overall quantities of gold, silver and copper from the original 2006 SRK resource estimate of 702,000 oz of gold, 37,500 tonnes of copper and 6,100,000 oz of silver. 

On 7 June 2010, further structural geological information including topographic surveys and geological mapping and data became available and were included to calculate a JORC compliant resource report at Gedabek.  In October 2010 we were delighted to announce a resource upgrade of 791,000 oz of gold, 49,300 tonnes of copper and 7,597,000 oz of silver at cut-off grade of 0.3 g/t gold for all categories, which, after taking account of ore already mined as of 7 June 2010, which was excluded from the resource report, gave a total gold uplift across the Measured and Indicated resource categories of 31.2%.

Phase 2 of the resource development programme is now underway with a further 6,000m diamond drilling programme completed at Gedabek within the boundaries of the existing pit, which aims to increase the confidence of the revised JORC compliant resource and will add valuable close spaced information for mine planning purposes.  Results for the 6,000 metres of diamond drilling are due imminently and we will update the market accordingly on this development.

A further 17,500m of drilling is now underway concentrating on underground exploration, areas within close proximity to the mine, such as the Choplan discovery, and the Maarif target area, as well as other targets within the Gedabek Contract Area.   The work programme has been divided as follows:

·        7,500m to be drilled in an area that borders the existing mine and will concentrate on an area underground at a depth of 200 to 350 metres; 

·        3,000m of drilling at Cholpan, a highly prospective area in close proximity to the existing mine; and

·        7,000m of drilling at Maarif and other areas in the Gedabek Contract Area - in 2009 3,000m of drilling was undertaken at Maarif which yielded encouraging results.

Gosha

The 300 sq km Gosha Contract Area is situated 50 km north-west of Gedabek and contains three prospects: Gosha, Itkirlan and Munduglu.   After active exploration in 2010, which included 3,000 metres of drilling and 300 metres of adit and sampling work, we were pleased to announce in February 2011 that we had submitted a Notice of Discovery for Gosha.  Following the issue of the Notice of Discovery, the Company has six months to submit a Development and Production Programme to the Government of Azerbaijan. 

Gosha has more than 6 km of exploration adits from the Soviet era and our 2010 work programme highlighted that one of its mineralisation zones, which was designated during Soviet times as 'Zone 13', has the potential to become a small narrow vein gold mining operation.  In addition to this zone, there are several other vein type mineralisation zones.

We are now planning to extend the adits at Gosha and implement a 1,500m underground diamond drilling programme to further explore the economic potential of this discovery.  Ultimately, we aim to define new resources at Gosha and replicate our success at Gedabek with the development of an underground mining operation.

Ordubad

The 462 sq km Ordubad Contract Area in the Nakhchivan region contains numerous targets including Shakardara, Piyazbashi, Misdag, Agyurt, Shalala, Daste Bashi and Diakchay, which are all located within a 5km radius.

A preliminary remote sensing study of the Ordubad Contract Area was conducted in 2010 as well as adit cleaning and re-sampling of adits in two regions, Piyazbashi and Agyurt.  Trenching and sampling was also undertaken in the Daste Bashi region.  The Company believes that the Piyazbashi, Agyurt and Daste Bashi prospects warrant further exploration. The Company recently announced that the licence has been extended for another year through to April 2012.

Outlook

Looking ahead, we anticipate gold and copper production from Gedabek to continue to perform solidly, resulting in strong revenue generation when combined with a strong gold price, which will enable us to rapidly pay off our loans.  Indeed, we are on target to hit our goal of being a debt-free, profitable gold producer by 2012 with a portfolio of highly prospective advanced projects that could also be developed into new revenue streams.  I therefore believe that we are in a strong position to generate value for shareholders during the coming year and look forward to updating shareholders regularly on our progress.

Reza Vaziri

President and Chief Executive

25 May 2011

Financial Review

Introduction

I am pleased to report that in 2010 Anglo Asian generated revenues of US$72,012,543 (2009:US$10,256,851) as a result of gold and silver sales from the Gedabek mine.

The revenues were generated from the sale of Anglo Asian's share of the production for the year which comprised 57,398 oz of gold and 35,922 oz of silver (2009: 9,656 oz of gold and 2,919 oz of silver) at an average price of US$1,241 and US$22 respectively (2009: US$1,057 and US$17).

The Group incurred mining cost of sales of US$40,639,430 (2009: US$8,403,928) and therefore reported a gross profit of US$31,373,113 for 2010 (2009: US$1,852,923).

During the year there was no impairment charge (2009: US$5,773,180).

The Group incurred administration expenses of US$5,126,926 (2009: US$4,027,521) which, along with finance costs for the year of US$6,314,522 (2009: US$3,262,986), resulted in a profit before tax for the year of US$19,798,377 (2009: a loss of US$11,723,910).  The finance costs for the year comprised interest on the credit facilities and loans net of capitalised interest, interest on letters of credit and accretion expenses on the rehabilitation provision.

During the early part of 2010, the Group continued to draw on its facilities with IBA, which peaked at US$43.7 million in March 2010.  Since, then the Group has repaid its outstanding loans to IBA, which have an all inclusive interest rate of 15% per annum, as far as cash flows have allowed.  There is no penalty for early repayment of these loans.  Loans outstanding with IBA at 31 December 2010 amounted to US$29.6 million.  Since the end of the year, the Group has repaid a further US$8.6 million of IBA loans, leaving a balance of US$21.0 million at 25 May 2011.

The table below shows the schedule of repayments for the IBA loan.

	2011	2012	2013	Total
	US$	US$	US$	US$
Repayment schedule for IBA  loans	9,630,007	18,176,000	1,821,000	29,627,007

On 20 December 2010, Anglo Asian has rescheduled the repayment of its outstanding US$998,663 loan provided by the Company's CEO Reza Vaziri on 7 August 2009.  This will allow Anglo Asian to repay loans with a higher interest rate as a priority during a period of strong operational performance for the Company.  As announced on 12 April 2010, it was agreed that repayment of the loan would be made in one installment on 30 November 2010.  Under the new rescheduled payment plan, the loan will be rolled over on a month by month basis with a 30 day notice period.  The loan carries an all inclusive annual interest rate of 8% per annum. In addition, the Group repaid its advance of US$158,634 from Reza Vaziri.

During 2010, the Group repaid outstanding loans from Pasha Bank and Bank Standard JSC so that the remaining unpaid balance of loans from both banks was US$nil (2009: US$450,000 and US$410,529 respectively).

Remaining debt at 31 December 2010 stands at US$30,625,670 (2009: US$42,983,336) comprising US$29,627,007 due to IBA and US$998,663 due to Reza Vaziri.  

The Group held cash balances at 31 December 2010 of US$5,110,851 (2009: US$809,548) and inventories at cost of US$16,354,968 (2009: US$10,276,024).

Net assets of the Group were US$58,018,453 (2009: US$42,579,635).

During the year exploration and evaluation expenditure of US$3,449,470 (2009: US$1,685,142) was incurred and capitalised during the year.

The Group did not pay any corporation tax during the year as it utilised its brought forward tax losses to set off against taxable profit made in 2010.  At 31 December 2010, R.V. Investment Group Services LLC, the Group entity party to the PSA, carried forward cumulative tax losses of US$13,394,919 (2009: US$36,998,945).  The Group expects that, given current gold prices and a production forecast for 2011 of a minimum of 60,000 oz of gold, these tax losses will be fully utilised during 2011 and that the Company will start to pay corporation tax of 32% in 2011.  The Company has booked a deferred tax liability of US$4,560,934 (2009: US$nil).

PSA

Under the terms of the PSA in place with the Government of Azerbaijan, the Company and the Government of Azerbaijan share commercial products of each mine. Until the time Anglo Asian has recovered all its carried forward, unrecovered costs, the Government of Azerbaijan effectively takes 12.75% of commercial products of each mine, with the Company taking 87.25% (being 75% for capital and operating costs plus 49% of remaining 25% balance).  The Company expects that it will not have recovered all its costs by the end of 2011 and that the ratio of sharing commercial products for Gedabek mine of 87.25% to Anglo Asian and 12.75% to the Government of Azerbaijan will continue throughout the year.

Once all prior year costs are recovered, the Company can continue with cost recovery of up to 75% of the value of commercial products, before the remaining product revenues are shared between the Company and the Government of Azerbaijan in a 49% to 51% ratio.  The Company can recover the following costs:

·    all direct operating expenses of Gedabek mine;

·    all exploration expenses incurred on the Gedabek Contract Area;

·    all capital expenditure incurred on the Gedabek mine;

·    an allocation of corporate overheads - currently, overheads are apportioned to Gedabek according to the ratio of direct capital and operating expenditure at Gedabek Contract Area compared with direct capital and operational expenditure at Gosha and Ordubad Contract Areas; and

·    an imputed interest rate of USD LIBOR + 4% per annum on any unrecovered costs.

Going Concern

The Directors have prepared the consolidated financial statements on a going concern basis after reviewing the Group's cash position for the period ending 30 June 2012 and satisfying themselves that the Group will have sufficient funds on hand to realise its assets and meet its obligations as and when they fall due. 

Depreciation

As described in note 3 of the annual report, the accumulated mine development costs within producing mines are depreciated on a unit-of-production basis over the economically recoverable reserves of the mine concerned, except in the case of assets whose useful life is shorter than the life of the mine, in which case the straight line method is applied.  The unit of account for run of mines ('ROM') costs and for post-ROM costs are recoverable ounces of gold. An amount of 323,000 ounces of recoverable gold has been used to determine depreciation on accumulated mine development costs.  It is expected that as a result of the drilling and other exploration work that has been carried out at Gedabek in 2010, and the further work that is planned to be carried out in 2011, the Group will revise its estimate of recoverable gold before the end of 2011, which will have a corresponding impact on the depreciation charges going forward.

Commodity price risk

The Group's revenues are exposed to fluctuations in the price of gold, silver and copper.  Anglo Asian currently does not hold any financial instruments to hedge the commodity price risk on its expected future production; however, the Board will review this exposure and the requirement for hedging activities on an ongoing basis.

Foreign currency risk

The Group reports in US Dollars and a large proportion of its business is conducted in US Dollars.  It also conducts business in Australian Dollars, Azerbaijan Manats and UK Sterling.  The Group does not currently hedge its exposure to other currencies although it will review this periodically if the volume of non US Dollar transactions increases significantly.

Liquidity/interest rate risk

The Group has not used any interest rate swaps or other instruments to manage its interest rate profile during 2010 but will review this requirement on a periodic basis. Interest rates on current loans are fixed and there is no floating rate debt.

Board approval is required for all new borrowing facilities.  At the year end the Group's only interest rate exposure was on cash held in the bank.  During the year it had entered into short-term deposits which included overnight, weekly and monthly up to 12 months, however it held no short-term deposits as at the year end.

Market risk

Exposure to interest rate fluctuations is minimal as the Group currently has no floating rate debt.  Interest rates on UK Sterling and US Dollar deposits have been at historic lows during the current year.  The levels of deposits held by the Group have also been low therefore any impact of changing rates is minimal.  The Group is exposed to fluctuations in commodity prices now that production has commenced.

Operational risk

There is exposure to levels of production as a result of unforeseen operational problems or machinery malfunction and therefore operating costs for commercial production may remain subject to variation from those forecast by the Directors.  The Group will monitor progress on delays and costs on a regular basis.

Andrew Herbert

Chief Financial Officer

25 May 2011

Consolidated income statement

For the year ended 31 December 2010

		Year	Year
		ended	ended
		31 December	31 December
		2010	2009
		US$	US$
Revenue		72,012,543	10,256,851
Cost of sales		(40,639,430)	(8,403,928)
Gross profit		(31,373,113)	1,852,923
Other income		719,446	-
Administrative expenses		(5,126,926)	(4,027,521)
Write down of capitalised intangible assets		-	(5,773,180)
Other operating expense		(852,734)	(513,954)
Operating profit/(loss)		26,112,899	(8,461,732)
Finance income		-	808
Finance costs		(6,314,522)	(3,262,986)
Profit/(loss) before tax		19,798,377	(11,723,910)
Income tax expense		(4,560,934)	-
Profit/(loss) for the period attributable to the equity holders of the parent		15,237,443	(11,723,910)
Earning/(loss) per share for the period attributable to the equity holders of the parent
Basic earnings/(loss) per share (cent per share)		13.88	(11.28)
Diluted earnings/(loss) per share (cents per share)		13.37	(11.28)

Consolidated statement of comprehensive income

For the year ended 31 December 2010

	Year	Year
	Ended	ended
	31 December	31 December
	2010	2009
	US$	US$
Profit/(loss) for the year	15,237,443	(11,723,910)
Other comprehensive income	-	-
Total comprehensive income/(loss) for the year	15,237,443	(11,723,910)
Attributable to the equity holders of the parent	15,237,443	(11,723,910)

Consolidated balance sheet

As at 31 December 2010

		As at	As at
		31 December	31 December
		2010	2009
		US$	US$
Non-current assets
Intangible assets		34,469,441	38,745,095
Property, plant and equipment		43,290,670	48,298,659
Non-current prepayments		284,461	79,200
		78,044,572	87,122,954
Current assets
Trade receivables and other assets		4,322,094	3,836,685
Inventories		16,354,968	10,276,024
Cash and cash equivalents		5,110,851	809,548
		25,787,913	14,922,257
Total assets		103,832,485	102,045,211
Current liabilities
Trade and other payables		(9,263,458)	(14,951,262)
Interest-bearing loans and borrowings		(10,641,996)	(19,097,540)
		(19,905,454)	(34,048,802)
Net current assets/liabilities		5,882,459	(19,126,545)
Non-current liabilities
Provision for rehabilitation		(1,363,970)	(1,530,978)
Interest-bearing loans and borrowings		(19,983,674)	(23,885,796)
Deferred tax liability		(4,560,934)	-
		(25,908,578)	(25,416,774)
Total liabilities		(45,814,032)	(59,465,576)
Net assets		58,018,453	42,579,635
Equity
Share capital		1,957,424	1,934,363
Share premium account		32,101,124	31,939,385
Share-based payment reserve		638,377	621,802
Merger reserve		46,206,390	46,206,390
Accumulated loss		(22,884,862)	(38,122,305)
Total equity		58,018,453	42,579,635

Consolidated cash flow statement

For the year ended 31 December 2010

		Year	Year
		ended	ended
		31 December	31 December
		2010	2009
		US$	US$
Net cash provided by/(used in) operating activities		34,367,253	(5,631,752)
Investing activities
Expenditure on property, plant and equipment and mine development		(8,471,353)	(15,733,989)
Investment in exploration and evaluation assets (including other intangible assets)		(3,477,014)	(1,402,839)
Interest received		-	808
Net cash used in investing activities		(11,948,367)	(17,136,020)
Financing activities
Shares issued in lieu of cash and for share options exercised		184,800	1,111,220
Proceeds from borrowings		3,099,100	26,898,983
Repayments of borrowings		(15,477,371)	-
Interest paid		(5,924,112)	(5,171,605)
Net cash used in)/ provided by financing activities		(18,117,583)	22,838,598
Net increase in cash and cash equivalents		4,301,303	70,826
Cash and cash equivalents at beginning of year		809,548	738,722
Cash and cash equivalents at end of year		5,110,851	809,548

Consolidated statement of changes in equity

For the year ended 31 December 2010

			Share-based
	Share	Share	payment	Merger	Accumulated	Total
	capital	premium	reserve	reserve	loss	Equity
	US$	US$	US$	US$	US$	US$
At 1 January 2009	1,851,516	30,911,013	569,729	46,206,390	(26,398,395)	53,140,253
Loss for the year	-	-	-	-	(11,723,910)	(11,723,910)
Total comprehensive income	-	-	-	-	(11,723,910)	(11,723,910)
Shares issued	82,847	1,028,372	-	-	-	1,111,219
Share-based payment charge for period	-	-	52,073	-	-	52,073
At 31 December 2009	1,934,363	31,939,385	621,802	46,206,390	(38,122,305)	42,579,635
Profit for the year	-	-	-	-	15,237,443	15,237,443
Total comprehensive income	-	-	-	-	15,237,443	15,237,443
Shares issued	23,061	161,739	-	-	-	184,800
Share-based payment charge for period	-	-	16,575	-	-	16,575
At 31 December 2010	1,957,424	32,101,124	638,377	46,206,390	(22,884,862)	58,018,453

**ENDS**

For further information please visit www.aamining.com or contact:

Reza Vaziri	Anglo Asian Mining plc	Tel: [phone]
Andrew Herbert	Anglo Asian Mining plc	Tel: [phone]
John Harrison	Numis Securities Limited, as Nominated Adviser	Tel: [phone]
James Black	Numis Securities Limited, as Corporate Broker	Tel: [phone]
Felicity Edwards	St Brides Media & Finance Ltd	Tel: [phone]
Hugo de Salis	St Brides Media & Finance Ltd	Tel: [phone]

 

END

 

 

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