Beowulf Third Quarter Update

RNS Number : 2364U

Beowulf Mining PLC

28 November 2013

 



29 November 2013

Beowulf Mining Plc

("Beowulf" or the "Company")

Third Quarter Update

Beowulf (AIM: BEM; Aktietorget: BEO), the mineral exploration company focused on developing the group's Kallak North and Kallak South iron ore deposits in northern Sweden, announces an unaudited operational and financial update for the nine months ended 30 September 2013.

Highlights:

Operational:

·     Approximately 400 tonnes of mineralised material from the test mining fieldwork, completed on a defined area of Kallak North in August 2013, has now been transported to The Geological Survey of Finland's (GTK) facility for analysis. Initial report currently expected to be received at the end of March 2014.  

·     Limited progress on Kallak drilling programmes due to a combination of certain criminal damage by protesters necessitating rig repairs and unfavourable ground conditions.

o  Approximately a further 110m of drilling completed on Kallak South prior to the scheduled expiry of the pre-existing work plan at the end of October 2013. New work plan recently notified and disseminated covering the period to 31 December 2015. Drilling to recommence as soon as a valid work plan is secured. The next set of assay results for Kallak South is still anticipated to be received this quarter. 

o  Initial phase of Kallak North drill campaign completed in August 2013 comprising 1,546m over 9 holes. Second phase of drilling expected to commence before the year's end on more amenable winter frozen ground conditions with preparatory work currently underway. Existing work plan valid until 31 October 2015.

·     Decision in respect of the exploitation concession application for the Kallak North deposit remains pending. County Administrative Board of Norrbotten's ("CAB") response to the Swedish Mining Inspectorate expected to be published shortly. Subject to the Swedish Mining Inspectorate's assessment of CAB's response and any resultant requirements, decision currently anticipated to be received by early 2014.

Corporate:

·     Nil revenue (2012: Nil), loss before and after taxation of £903,000 (2012: £674,000) and basic loss per share of 0.40p (2012: 0.32p).

·     Approximately £2.43m in cash held at the period end.

·     £4.125m (gross) aggregate subscription and equity swaps transaction completed in August 2013.

Enquiries:

Beowulf Mining Plc
Clive Sinclair-Poulton, Chairman	Tel: [phone]
Strand Hanson Limited
Matthew Chandler / Rory Murphy	Tel: [phone]
Cantor Fitzgerald Europe
Stewart Dickson / Julian Erleigh / Jeremy Stephenson	Tel: [phone]
Blythe Weigh Communications
Tim Blythe / Halimah Hussain / Eleanor Parry	Tel: + 44 (0)20 7138 3204
or visit http://www.beowulfmining.net

Executive Chairman's Statement

Beowulf currently has five exploration projects in northern Sweden primarily prospecting for iron, copper and gold. Reflecting our on-going exploration activities and corporate costs, the unaudited consolidated results for the nine month period ended 30 September 2013 show nil revenue (2012: nil), a loss before and after taxation of £903,000 (2012: £674,000) and basic loss per share of 0.40p (2012: 0.32p).

During the reporting period, the group has continued to focus its activities on its flagship Kallak iron ore project held via its wholly owned Swedish operating subsidiary, Jokkmokk Iron Mines AB ("JIMAB"). The Kallak project currently comprises eight exploration permits covering a total area of approximately 174.64km² with two principal iron ore deposits identified to date, namely Kallak North and Kallak South. Kallak North, with an independent JORC Code compliant resource estimate of 144.1 million tones, already exhibits potential for a commercially viable future mining operation, however still requires further definition, whilst significant work also needs to be performed at the earlier stage Kallak South deposit to assess and confirm its potential.

Reliable logistics are essential for any successful mining operation. In this regard, we are fortunate that Sweden has an excellent transport network with the Swedish government committed to investing a significant sum in upgrading the well established freight railway line. JIMAB has recently updated its analysis of potential transport options and has continued to progress its discussions with Traffikverket, the Swedish Transport Administration, being the government agency responsible for long-term transport infrastructure planning, as well as the ports of Luleå and Narvik.

We continue to foresee Europe as being our main market where the Kallak project's proximity to the major smelters will afford the group a commercial advantage versus global producers in countries such as Brazil and Canada. For example, it typically takes approximately 10 days to transport ore from Narvik to Rotterdam, representing just under a third of the time it would take to transport ore from Canada.

A major milestone on Kallak's path towards potential production was the completion in August 2013 of the fieldwork for our test mining sampling programme on a defined area of the Kallak North deposit with approximately 400 tonnes of mineralised material being transported 750 kilometres to The Geological Survey of Finland's ("GTK") (http://en.gtk.fi) facility in Finland in October and early November, for analysis. GTK's Mineral Processing laboratory provides a wide range of ore beneficiation research services for the mining industry and GTK is an acknowledged expert in the testing and analysis services required.

A key component to establishing the potential commercial value of a mineral deposit is the compilation of chemical and geological information regarding metal grades (e.g. iron content) and mineralogical composition (e.g. proportion of magnetite and hematite) of the mineralised material, as well as information on market demand and pricing for potential end products and all of the costs involved in producing and transporting the end products to the customer. Initial tests at a small (bench) scale, based on drill cores, provide useful indications, however more detailed phases of assessment such as pre-feasibility and detailed feasibility studies, requires test work on a larger scale.

Bench scale test work is typically performed on kilo sized batches, whereas pilot scale test work is conducted on a multi tonne scale. Robust test mining and sampling programmes, such as that conducted recently on Kallak North, should provide a reliable representation of the mineral deposit. Pilot scale test work also utilises equipment of a more proximate size to the full scale equipment intended to be used in future mining operations and optimal flow sheets are ascertained for continuous operations over several shifts, thereby more accurately simulating the potential full scale performance. In order to achieve the best result, the pilot facility needs to be operated and supervised by skilled personnel and GTK is one of the few installations globally, to offer services of the required high standard.

Accordingly, as a result of GTK's work, JIMAB will be able to more accurately gauge the grade and potential recovery of the final product, its costs of production and the estimated capital expenditure required to bring a potential mine at Kallak North into production. It will also aid the design of the mine and its associated facilities. In addition, JIMAB will have batches of concentrate and tailings that can be shared with potential future customers and partners as well as being used for the requisite ongoing environmental studies.

It comprises a further step in moving the project from theory into practice. GTK's pilot scale work is split into two phases, commencing with metallurgical studies at the end of November 2013 and finishing with a separate grinding study at a later date to be agreed in due course. An initial report is currently expected to be received by JIMAB at the end of March 2014.

Whilstthe test mining fieldwork was successfully completed ahead of schedule,the process was regrettably marred by the actions of certain activists and objectors. The Company recognises the right of citizens to protest legitimately but there can be no excuses for breaking the law and incidents of criminal damage to certain vehicles and equipment and harassment of our contractors, as reported previously, merely serves to cloud the issues at hand. JIMAB strived throughout to discuss itsplans with the local community and was therefore disappointed when its attempts at constructive dialogue were rejected. Since completion of the test mining fieldwork, the protestors appear to have dispersed from the vicinity of the Kallak project site and JIMAB has recently met with the appropriate Sami representatives and participated in public information meetings in Jokkmokk to discuss its development plans. We remain firm believers in a process of consensus and reasoned debate and reject conflict and aggression of any form.

The aforementioned criminal damage and harassment by certain protestors unfortunately necessitated the removal of the rigs and associated equipment on Kallak South and Kallak North for repairs and to defuse the situation on site which, when coupled with unfavourable ground conditions, has resulted in limited progress being achieved since the end of August on our two Kallak drilling programmes.  Approximately a further 110m of drilling was achieved on Kallak South prior to the scheduled expiry of the pre-existing work plan at the end of October. A new work plan was notified and disseminated to the Mining Inspectorate and the relevant land owners and users earlier this month. The new plan for up to a total of 18,000m of drilling covers the period to 31 December 2015 and contains similar proposed conditions to the previous plan. JIMAB intends to recommence drilling on Kallak South as soon as a valid work plan is secured. The next set of assay results are still anticipated to be received this quarter.

The initial phase of drilling on Kallak North completed in August comprised a total of 1,546m over 9 holes. Now that more amenable winter frozen ground conditions have returned, the second phase of drilling is expected to commence before the year's end with initial road ploughing, packing of snow and preparatory work currently underway. The existing work plan for up to a total of 11,000m of drilling is valid until 31 October 2015 with similar conditions to the recently expired Kallak South plan. Accordingly, between 1 November and 30 April the local Sami community is entitled to request the temporary suspension of works for up to a period of eight weeks.

In July and August 2013, the Company raised, via a two stage subscription, an aggregate amount of £4.125m (before expenses) at a price of 6.25p per share and simultaneously entered into certain equity swap agreements with the principal subscriber, Lanstead Capital L.P.Such monies will enable the groupto accelerate its drill programmes at Kallak, to drill at Ballek and fund the ongoing test mining and other metallurgical studies.

Preparations remain on track to enable our joint venture subsidiary company, Wayland Copper Limited ("Wayland Copper"), to commence drilling on the Ballek project before the year end. The intended 3,000m drill programme is to be conducted with a single additional contracted rig on defined targets at both the Ballek nr2 and nr3 permit areas. The existing work plan remains valid until 30 April 2014 and Wayland Copper has recently met with the relevant local Sami representatives to coordinate its plans with their reindeer herding activitiesand minimise any potential disruption. There is no eight week suspension entitlement for the local Sami community in the existing Ballek work plan.

A decision in respect of JIMAB's comprehensive application for an exploitation concession for the Kallak North deposit,submitted in late April 2013, remains pending. As part of the process for assessing the potential grant of an exploitation concession, the Swedish Mining Inspectorate is required to consult with the County Administrative Board of Norrbotten ("CAB")before making its formal decision on the application. We currently anticipate that CAB's response to the Swedish Mining Inspectorate will be published shortly. Accordingly, subject to the Swedish Mining Inspectorate's assessment of CAB's submission and any resultant requirements, we continue to hope to receive a decision in response to JIMAB's application by early 2014. 

Market prices for iron ore remain encouragingly robust as key global economies continue to recover and gather momentum. Sentiment in Europe and the USA generally appears to be recovering, with the USA in particular demonstrating a positive upward trend as evidenced by its recent survey results for its Purchasing Managers' Index ("PMI") for November 2013 registering an eight-month high. In addition, China is also currently beating consensus expectations with respect to its demand for iron, as it continues to direct its attention to sizeable infrastructure projects. 

The group continues to maintain a strongcombination of quality assets in Sweden, primarily focused on iron and copper,that we believe are well situated in relation to demonstrablemarkets. Furthermore, we are well funded to progress and develop such assets and will continue to endeavour to do so as quickly as practicable.

None of this would be achievable without the continued and valued support of our employees,  advisers, consultants, contractors and shareholders.

Suchsupport is much appreciated and motivates us in pursuit of our plans to move closer towards futureproduction. 

UNAUDITED CONSOLIDATED INCOME STATEMENT

FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2013

	Unaudited 9 months ended 30 Sept 2013 £000's		Unaudited 9 months ended 30 Sept 2012 £000's
Continuing operations
Revenue	-		-
Administrative expenses	(743)			(726)
Operating loss	(743)		(726)
Finance costs	-		-
Fair value loss on derivative  financial assets (see note)	(194)		-
Finance income	34		52
	(903)		(674)
Loss before and after taxation	(903)		(674)
Loss attributable to:
Owners of the parent	(903)		(674)
	(903)		(674)
Loss per share:
- Basic	(0.40p)		(0.32p)
- Diluted	(0.39p)		(0.31p)

UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 SEPTEMBER 2013

	Unaudited As at 30 Sept 2013 £000's		Unaudited As at 30 Sept 2012 £000's
ASSETS
Non-current assets
Intangible assets	4,805		3,279
Property, plant and equipment	2		1
Investments	18		109
Derivative financial assets (see note)	1,337		-
Loans and other financial instruments	135		270
Financial fixed assets	119		60
	6,416		3,719
Current assets
Trade and other receivables	258		262
Derivative financial assets (see note)	1,520		-
Cash and cash equivalents	2,430		4,237
	4,208		4,499
TOTAL ASSETS	10,624		8,218
EQUITY
Shareholders' equity
Called up share capital	2,828		2,104
Share premium account	14,092		10,859
Revaluation reserve	(107)		(16)
Capital contribution reserve	47		47
Share scheme reserve	68		68
Translation reserve	23		(13)
Retained earnings	(6,627)		(5,103)
Total equity	10,323		7,946
LIABILITIES
Current liabilities
Trade and other payables	301		272
Total liabilities	301		272
TOTAL EQUITY AND LIABILITIES	10,624		8,218

Note:

Derivative financial asset

In July 2013, as part of a two stage subscription to raise, in aggregate, £4.125m (before expenses) from certain new shareholders, the Company issued 28,694,000 new ordinary shares of 1p each in the capital of the Company ("Ordinary Shares") at a price of 6.25p per share to Lanstead Capital L.P. ("Lanstead") with a notional value of £1,793,375. The Company simultaneously entered into an equity swap price mechanism with Lanstead for a notional 75 per cent. of these shares with a notional reference price of 8.3333p per share (the "Reference Price"). Lanstead have essentially hedged the consideration they pay for the Ordinary Shares subscribed in the Company against the performance of the Company's share price over the subsequent 24 month period. All 28,694,000 Ordinary Shares were allotted with full rights on the date of the transaction.

In August 2013, following the receipt of shareholders' approval at a duly convened general meeting, the Company issued a further 35,306,000 new Ordinary Shares at a price of 6.25p per share to Lanstead with a notional value of £2,206,625. The Company entered into another equity swap price mechanism on the same basis and with the same Reference Price as that outlined above. All 35,306,000 shares were allotted with full rights on the date of the transaction.

Accordingly, pursuant to the above arrangements, of the aggregate subscription proceeds of £4m received from Lanstead, £3.2m (80 per cent.) was invested by the Company in the equity swap agreements with the remaining £0.8m (20 per cent.) available for general working capital purposes.

To the extent that the Company's share price is greater or lower than the Reference Price at each swap settlement, the Company will receive greater or lower consideration calculated on a pro-rata basis i.e. share price / Reference Price multiplied by the monthly transfer amount. The valuation for each settlement is determined to be the volume weighted average share price for the preceding 5 trading days up to the relevant settlement date.

As the amount of the effective consideration receivable by the Company from Lanstead under the swap agreements will vary subject to the movement in the Company's share price and will be settled in the future, the receivable is treated for accounting purposes as a derivative financial asset and has been designated at fair value through profit or loss.

The Company also issued, in aggregate, a further 6,400,000 Ordinary Shares to Lanstead as a value payment in connection with the equity swap agreements.

The fair value of the derivative financial assets as at 30 September 2013 has been determined by reference to the Company's then prevailing share price and has been estimated as follows:

	Share price		Notional Number of shares outstanding		Fair value £
Value recognised on inception (notional)	8.3333p		48,000,000		3,200,000
Consideration received to 30 September 2013			(2,896,690)		(149,627)
Loss on revaluation of derivative financial asset					(193,827)
Value of derivative financial asset at 30 September 2013	8.0000p		45,103,310		2,856,546

** Ends **

 

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