Third Quarter Update

RNS Number : 2511Y

Beowulf Mining PLC

28 November 2014

 



28 November 2014

Beowulf Mining Plc

("Beowulf" or the "Company")

Third Quarter Update

Beowulf (AIM: BEM; Aktietorget: BEO), the mineral exploration and development company focused on the Kallak iron ore project in northern Sweden and its Swedish exploration portfolio, announces its unaudited financial results for the nine months ended 30 September 2014 and provides a management update for the last three months.

Operational Highlights

·     The Company is in the process of identifying a strategic partner for Kallak, unlocking the potential of its wider exploration portfolio and looking beyond the Company for value creation opportunities in Fenno-Scandinavia.  

·     Exploitation Concession - The Company took the opportunity to make a further written submission to the Mining Inspectorate following the County Administrative Boards response. The Company made certain concessions and now awaits the Mining Inspectorate's decision on its application, which is expected in the coming weeks.

·     A resource update at Kallak North and a maiden resource at Kallak South is expected in the coming weeks.

·     The Company received the final three assays for infill drill holes, at Kallak North. The results are very positive with KAL 14008 including a section of 100 metres at 38% Fe.

Corporate Highlights

·     Loss before and after taxation of £2,102,000 (2013: £903,000) and basic loss per share of 0.72p (2013: 0.40p). The increase in the loss is due to losses on derivative financial assets (see Appendix 1). 

·     Approximately £599k in cash held at the period end.

·     £1.738m (gross) aggregate subscription and equity swaps transaction completed in August and September 2014.

·     Audit - BDO has been appointed as the Company's new auditor. BDO has extensive experience of working with AIM companies in the exploration sector.

·     The Company is in the process of developing a new website, which will better present and market the Company's assets and resources.

Board Changes

·     Kurt Budge and Bevan Metcalf joined the Board as Non-Executive Directors on 22 September 2014.

·     Appointment of Kurt Budge as CEO and Jan-Ola Larsson as COO on 24 October 2014.

·     The new Board and Executive team has been reduced in number to optimize the use of cash resources on projects and value creation.  The Board has voluntarily elected to take a third of their salary in equity rather than cash, aligning to shareholder interests. Fixed overheads have been reviewed and reduced wherever possible.

·     The CEO's salary is benchmarked to the lowest quartile for AIM companies of similar market capitalization and in the pre-revenue category.

Kurt Budge, Chief Executive Officer of Beowulf, commented:

"Since I joined the Company two months ago, I am delighted to report that significant changes have been made. These have led to the improvement of day-to-day operations; enhanced governance; a reassessment of the Company's flagship project and exploration portfolio; strategy development; and a refocussing of the Company's efforts on areas where it can create maximum value.

"Despite the challenges of iron ore markets, the Company is well positioned with Kallak, which is a high quality iron ore asset with upside potential sitting on the door step of European markets. We also have an attractive exploration portfolio which offers commodity diversification in copper, molybdenum and gold. There will be challenging times ahead but Beowulf is forming a capable leadership team with knowledge and experience of the development options available to move assets up the value curve and realize value for shareholders."

Strategy

The Board travelled to Sweden in mid-October to visit Kallak and meet with key stakeholders, including the Mining Inspectorate of Sweden, Jokkmokk Kommun, community representatives in Jokkmokk including the Sami and Forestry Organisation.  

The Board undertook a comprehensive review with its technical consultants of Kallak and the Company's exploration ground in the vicinity of Jokkmokk, including IOCG ("Iron Oxide Copper Gold") targets, as well as the wider portfolio including copper, molybdenum and gold prospects. 

The development of Kallak is at a point now where the Company is considering the introduction of a strategic partner and associated investment in the asset; a partner who understands the value of Kallak as a producing asset in approximately 5 years' time offering high quality products and security of supply, sitting on the doorstep of European markets. The Company is also renewing its efforts on the potential of its wider exploration portfolio, which offers commodity diversification at a time when iron ore producers are suffering low prices and investors are shying away from the commodity.   In addition, the new leadership team will be looking beyond the Company for value creation opportunities in Fenno-Scandinavia, whilst guarding our low sovereign risk profile and commodity mix.

Exploitation Concession 

Further to the County Administrative Board's response (RNS 2 Oct) to the Company's application to the Mining Inspectorate of Sweden for an Exploitation Concession for Kallak North, the Company took the opportunity to make a further written submission to the Mining Inspectorate. 

In that submission the Company stated that it will not be proposing transport routes that pass in a north/north-easterly direction through the Jelka-Rimakåbbå Natura 2000 area. This ensures that future transport routes will not lead to a significant impact on reindeer husbandry as feared by the County Administrative Board. 

Specifically to reindeer husbandry, the Company proposed precautionary and protective measures which resulted from analysis undertaken as part of its environmental impact assessment; these measures will be developed further in consultation with concerned Sami villages as part of the Company's application for an Environmental Permit. The Company also intends to establish a framework for compensatory measures, in the event of residual effects on reindeer husbandry and a framework for economic compensation in the event that, notwithstanding the protective measures, precautionary measures, and compensatory measures taken, there are residual consequences for neighbouring communities. 

It is the Company's view that having put in place systems to manage its future operations, and frameworks to address residual consequences, that mining and reindeer husbandry can coexist. 

The Company now awaits the Mining Inspectorate's decision on its application, which is expected in the coming weeks.

Resource Upgrade

Work is now advanced on upgrading the JORC resource at Kallak North and providing a maiden JORC resource for Kallak South. Work on this exercise was started in October by GeoVista AB, assisted in the geological interpretation by independent consultants from MICON International Co. Limited. Both of these consultants have worked on previous resource statements for Kallak North so have an excellent understanding of the deposit. The 2014 drill campaign at Kallak North focused on infill drilling so the Company is expecting an increase in the indicated category of the resource statement while the Kallak South resource is likely to be reported in the inferred category.

Assay Results

Assay results for Kallak from the 2014 drilling campaign (RNS 6 Oct) delivered the highest grade and longest intersections yet seen. The Company has also just received the final three assays for infill drill holes at Kallak North, the results of which are shown in Table 1 below and confirm grade and section widths.

	Table 1.	Kallak North. Final  Assay results of drillholes completed in 2014
DDH ID	East   TM	North TM	Azi	Dip	Tot length	Depth from	Depth to	Section length	Avg Fe %
drillhole no	Sweref	Sweref	deg	deg	metres	metres	metres	metres
KAL 14005	681325	7414179	90	50	250.5	5.0	82.69	77.69	32.1
						101.66	130.6	28.94	34,7
KAL 14006	681232	7414078	90	45	298.60	0.8	266.56	265.76	23.1
KAL 14008	681129	7413893	90	60	403.5	36.87	332.51	295.64	27.5
					includes	69.62	170.00	100.38	38.10

Enquiries:

Beowulf Mining Plc
Kurt Budge, Chief Executive Officer	Tel: [phone]
Cantor Fitzgerald Europe
Stewart Dickson / Julian Erleigh / Jeremy Stephenson	Tel: [phone]
Blytheweigh
Tim Blythe / Halimah Hussain	Tel: + 44 (0)20 7138 3204

Competent Person Review

Dr Jan Ola Larsson (Fil. Kand, PhD, DIC), has reviewed and approved the technical information contained within this announcement in his capacity as a qualified person, as required under the AIM rules. Dr Larsson is Chief Operating Officer of the Company and has over 40 years relevant experience within the natural resources sector.

Notes to Editors

All drill cores are scanned at the drill sites using a highly sensitive hand held magnetic susceptibility metre, with automatic average registrations taken over the separate core lengths, before being transported to the ALS laboratory in Piteå, Sweden, for geological logging and analytical preparation.

One half of the core is left in the core box and the other half is prepared for analysis and analysed with methods XRF21n and Fe-VOL05. The samples are 1 to 2.5 metres in length (along core) and every eighth sample is a Quality Assurance - Quality Control sample, either standard, duplicate or blank.

Beowulf has now established a core logging facility in Jokkmokk, with the objective to log cores immediately after drilling; this includes geological and geotechnical logging, magnetic susceptibility measurements, and sectioning for analyses.

Drilling conducted during 2014 has involved oriented drill core that has been logged at this facility to obtain a better and timelier understanding of the structural control in the Kallak North deposit.

Cautionary Statement

Statements and assumptions made in this document with respect to the Company's current plans, estimates, strategies and beliefs, and other statements that are not historical facts, are forward-looking statements about the future performance of Beowulf. Forward-looking statements include, but are not limited to, those using words such as "may", "might", "seeks", "expects", "anticipates", "estimates", "believes", "projects", "plans", strategy", "forecast" and similar expressions. These statements reflect management's expectations and assumptions in light of currently available information. They are subject to a number of risks and uncertainties, including, but not limited to, (i) changes in the economic, regulatory and political environments in the countries where Beowulf operates; (ii) changes relating to the geological information available in respect of the various projects undertaken; (iii) Beowulf's continued ability to secure enough financing to carry on its operations as a going concern; (iv) the success of its potential joint ventures and alliances, if any; (v) metal prices, particularly as regards iron ore. In the light of the many risks and uncertainties surrounding any mineral project at an early stage of its development, the actual results could differ materially from those presented and forecast in this document. Beowulf assumes no unconditional obligation to immediately update any such statements and/or forecasts.

About Us

The Kallak North iron ore deposit is located about 40km west of the Jokkmokk municipality centre in the Norrbotten County in Northern Sweden. Local infrastructure is excellent with all-weather gravel roads passing through the project area and all parts easily reached by well used forestry tracks. A major hydroelectric power station with associated electric power- lines is located only a few kilometres to the south east. The nearest railway (the 'Inland Railway Line') passes approximately 40km to the east. This railway line is connected at Gällivare with the 'Ore Railway Line', which is used by LKAB for delivery of their iron ore material to the Atlantic harbour at Narvik (Norway) or to the Botnian Sea harbour at Luleå (Sweden). An independent JORC Code compliant resource estimate has been completed by GeoVista AB for the Kallak North deposit comprising 88.8Mt of Indicated Resources grading at 27.7% iron (Fe) and 55.3Mt of Inferred Resources grading at 28.2% Fe. In 2010 Beowulf acquired the Parkijaure licences which are just south of Kallak North and are now referred to as Kallak South. Drilling was undertaken at Kallak South in 2013 and 2014. One new licence was granted in 2014 (Ågåsjiegge nr²) bringing the total "Kallak" project area to approximately 243km². The Ballek Joint Venture project comprises four exploration permits over a total area of 109.9km², located in the Norrbotten region of Northern Sweden. In September 2008 Beowulf reported a maiden Inferred Resource estimate, under the JORC Code compliant resource estimate, for the Lulepotten copper-gold deposit on the project. The estimate for the Lulepotten deposit outlined a total Inferred Resource of 5.4Mt, grading 0.8% Cu and 0.3g/t Au. Other attractive portfolio assets include the Nautijaure licence with potential for IOCG, Grundträsk gold project and the Munka licence area, which covers approximately 800 hectares and hosts Sweden's largest, drill confirmed deposit of molybdenum.

APPENDIX 1 - FINANCIAL RESULTS Q3

UNAUDITED CONSOLIDATED INCOME STATEMENT

FOR THE NINE MONTHS ENDED 30 SEPTEMBER 2014

	Unaudited 9 months ended 30 Sept 2014 £000's		Unaudited 9 months ended 30 Sept 2013 £000's
Continuing operations
Revenue	-		-
Administrative expenses	(835)			(746)
Operating loss	(835)		(746)
Finance costs	(10)		-
Fair value loss on derivative  financial assets (see note)	(1,263)		(194)
Finance income	6		34
Loss before and after taxation	(2,102)		(903)
Loss attributable to:
Owners of the parent	(2,102)		(903)
	(2,102)		(903)
Loss per share:
- Basic	(0.72p)		(0.40p)
- Diluted	(0.71p)		(0.39p)

UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 SEPTEMBER 2014

	Unaudited As at 30 Sept 2014 £000's		Unaudited As at 30 Sept 2013 £000's
ASSETS
Non-current assets
Intangible assets	6,133		4,805
Property, plant and equipment	48		2
Investments	28		18
Derivative financial assets (see note)	381		1,337
Loans and other financial instruments	-		135
Financial fixed assets	107		119
	6,697		6,416
Current assets
Trade and other receivables	539		258
Derivative financial assets (see note)	553		1,520
Cash and cash equivalents	599		2,430
	1,691		4,208
TOTAL ASSETS	8,388		10,624
EQUITY
Shareholders' equity
Called up share capital	3,453		2,828
Share premium account	15,014		14,092
Revaluation reserve	(97)		(107)
Capital contribution reserve	47		47
Share scheme reserve	68		68
Translation reserve	(687)		23
Retained earnings	(10,013)		(6,627)
TOTAL EQUITY	7,785		10,323
LIABILITIES
Current liabilities
Trade and other payables	603		301
TOTAL LIABILITIES	603		301
TOTAL EQUITY AND LIABILITIES	8,388		10,624

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 a further 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. 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 2014 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 31 December 2013			(8,896,690)		(445,362)
Loss on revaluation of derivative financial asset At 31 December 213					(1,109,028)
Value of derivative financial asset at 31 December 2013	5.8750p		39,103,310		1,645,610
Consideration received in period			(10,000,000)		(298,608)
Loss on revaluation of derivative financial asset recognised in period					(988,032)
Value of derivative financial asset at 30 September 2014	2.9000p		29,103,310		358,970

The settlements scheduled for June 2014 under the equity swap agreements have not been completed, and the company and Lanstead Capital L.P. have mutually agreed to defer all further settlements until the completion of a new 12 month equity swap agreement as follows:

In August 2014, as part of a two stage subscription to raise, in aggregate, £1.738m (before expenses) from certain new shareholders, the Company issued 17,924,000 new ordinary shares of 1p each in the capital of the Company ("Ordinary Shares") at a price of 3p per share to Lanstead Capital L.P. ("Lanstead") with a notional value of £537,720. 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 4p 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 12 month period. All 17,924,000 Ordinary Shares were allotted with full rights on the date of the transaction.

In September 2014, following the receipt of shareholders' approval at a duly convened general meeting, the Company issued a further 15,409,333 new Ordinary Shares at a price of 3p per share to Lanstead with a notional value of £462,280. The Company simultaneously entered into an equity swap price mechanism with Lanstead on the same basis and with the same Reference Price as that outlined above. All 15,409,333 shares were allotted with full rights on the date of the transaction.

Accordingly, pursuant to the above arrangements, of the aggregate subscription proceeds of £1m received from Lanstead, £850,000 (85 per cent.) was invested by the Company in the equity swap agreements with the remaining £150,000 (15 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. 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 4,500,000 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 2014 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)	4.0000p		25,000,000		850,000
Consideration received to 30 September 2014			-		-
Loss on revaluation of derivative financial asset					(275,000)
Value of derivative financial asset at 30 September 2014	2.9000p		25,000,000		575,000

 

END

 

 

QRTPGGBUGUPCPUM