Final Results

Celtic Resources Holdings PLC 30 June 2004 30th June 2004 Celtic Resources Holdings Plc ("Celtic", "Celtic Resources", or "the Company") CELTIC ANNOUNCES PRE TAX PROFITS FOR 2003 OF US$14.4 MILLION, AN EXPANDED SHARE SWAP DEAL IN RUSSIA AND CONTINUED EXPANSION OF ITS PRODUCTION IN KAZAKHSTAN Financial Highlights • Pre tax profit for the year of US$14.4 million including US$11.7 million from the spin off of Eureka Mining Plc. • Like for like pre tax profit up from US$2.3 million to US$2.7 million. • Shareholders' funds increased from US$38.3 million to US$66.5 million. Russia • Expansion of the previously announced share swap deal increasing Celtic's ownership of Nezhdaninskoye gold mine to 100% also to include the transfer to Celtic of additional producing gold assets which will make IG Alrosa Celtic's largest shareholder and transform the Group. • Terms are agreed and due diligence and valuations have been prepared. • Deal completion expected soon. Kazakhstan •Suzdal sulphide project has commenced with 100,000 tonnes of ore stockpiled in advance of the September commissioning of the treatment plant. •Gold production in 2003 was in excess of 33,000 ounces. Eureka Mining Plc •The successful separation of the Kazakhstan exploration assets into Eureka Mining Plc in exchange for shares was completed in December 2003. The company's annual report and accounts has been distributed to shareholders today and will be available shortly on our Web site. For more information please contact: Kevin Foo / Kate Dexter Smith Leesa Peters / Laurence Read Celtic Resources Holdings Plc Conduit PR Tel: + 44 (0) 20 7593 0001 Tel: +44 (0) 781 215 9885 Investors@celticresources.com Tel: +44 (0)20 7936 9095 leesa@conduitpr.com Joe Nally / Nick Morgan Williams de Broe Tel: +44 (0) 20 7588 7511 www.celticresources.com CHAIRMAN'S STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 Dear Shareholders, I am very pleased to report an outstanding year of progress for the company and to use this opportunity to summarise major developments, review progress on our objectives and to outline future plans. Major Developments The major events of the period were: - Our third consecutive year of profitability, with record pre-tax and after tax profits of US$14.416 million and US$12.958 million respectively achieved, representing US$42 cents/share earnings. - Gold production of over 33,000 ounces from the Suzdal and Zherek mines in Kazakhstan. - Negotiations with IG Alrosa that, when concluded, will transform Celtic Resources into a major gold mining company. - The successful separation of our Kazakhstan base, special and precious metal exploration projects into Eureka Mining Plc, which listed on AIM after raising some US$13 million. - The payment of a dividend, as promised to Celtic Resources shareholders in 2001, equivalent to 11.9 pence per share, paid in Eureka Mining Plc shares. - Start of construction of the plant to treat sulphide ores at our Suzdal mine including raising of the necessary bank finance and completing the licensing of BIOX bacterial technology. - During 2003, some US$20 million of capital was raised from the issue of 7.6 million shares, including US$7.7 million from the exercise of warrants over 3 million shares. Review of Progress The key objective of the company was set two years ago: "To grow into a profitable, resource based company with an attractive portfolio of producing and developing mines and hydrocarbon properties in Russia and Central Asia" We believe that the company has now reached this target and we have set a new objective which is: "To be one of the largest gold miners in the FSU, with an annual gold production of over 500,000 ounces, from resources of over 30 million ounces of gold, with production costs in the lowest world quartile." The Profit & Loss account shows a pre-tax profit for the year of a little over US$14.4 million which includes US$11.7 million profit on the separation of the Kazakhstan exploration assets. This is our third consecutive pre-tax profit and after tax, our profit was US$13.0 million. Increased Ownership of Nezhdaninskoye and Acquisition of Additional Mines In the 2002 Annual report we announced that initial agreement had been reached with Investment Group Alrosa to bring our ownership of the Nezhdaninskoye gold mine in Russia to 100% by the issue of new shares to IG Alrosa. This would make IG Alrosa a significant shareholder in the company, holding approximately 23%. In November 2003, we also announced that this deal would be expanded to include the acquisition of additional gold assets, including some producing mines. This transaction will make IG Alrosa our largest shareholder and we believe will transform the company. Since this announcement, the company has been actively working with IG Alrosa to complete due diligence, technical assessments and independent valuations of these properties and to ensure that all necessary government approvals of the transaction will be received. I am very pleased to report that all valuations have been completed, all key commercial terms agreed and we expect to make an announcement regarding closing of the deal in the near future. Whilst the company cannot report details at this stage, it is appropriate to say that your board is very satisfied with the commercial terms and the outstanding quality of properties we shall be acquiring. The deal will consist entirely of a share swap, with no cash involved. Whilst negotiations have been underway, the operating teams from Celtic and IG Alrosa have worked together on detailed development plans and budgets for Nezhdnaninskoye and the other properties to be acquired, together with accessing and organizing future structural and personnel requirements. The Future Our plans for 2004-5 are to: •Complete agreements with IG Alrosa and gain shareholder approval to transform Celtic into a major FSU gold miner •Complete construction of the Suzdal sulphide plant and begin treating sulphide ores in Q4 2004 to raise gold production to more than 100,000 ounces per year •Increase production at Zherek to the full annual capacity of 50,000 ounces of gold •Bring Nezhdaninskoye into commercial production in 2004 •Finalise transfer of our oil and gas assets into a separate AIM listed company •Actively acquire additional gold projects in the FSU •To arrange optimal financing for the projects above The past two years have been exciting for me as Chairman of your Company, seeing it grow into a focussed FSU gold miner. The share price has begun to reflect the potential that I believe we have and the value we can create. None of this would have been possible without the hard work put in by our management and employees at the mines and in our offices. I take this opportunity to thank them for their contribution to our success and also to shareholders for their support of the Company in this period of growth. Peter Hannen Chairman 25 June 2004 Managing Director's Review of Operations Resources Inventory The group resources inventory as of June 2004 is as shown below in Table 1. On a 100% ownership basis, Celtic has over 17 million ounces of gold in the Russian B, C1 and C2 categories. These are equivalent to JORC Measured, Indicated and Inferred categories respectively. The Australian Joint Ore Reserve Committee (JORC) is the most commonly adopted Western standard for ore reserves definition. We have not included any estimates for Resources in the Russian "P" category but believe that there is further good potential at all properties. For instance, Nezhdaninskoye has over 12.5 million ounces of gold in the P1 or Prognostic category, which is classified as mineral potential. If the figures below are adjusted to reflect the current position of 50% ownership of Nezhdaninskoye and 75% of Zherek, we have a resource inventory of more than 9.5 million ounces of gold and 10 million ounces of gold equivalent. Table 1: Celtic Gold Inventory June 2004 (100% basis) ------------ --------- -------- ------- ------ ------ ------- ------- ------ ------- Russia Category Tonnes Gold Silver Gold Silver Gold Silver Au Eq (M) (g/t) (t) (M oz) (M oz) ------------ --------- -------- ----------- ----------- ----------- ------- ------- ------ ------- Nezhdaninskoye B+C1 45.70 4.80 29.4 220.80 1,347 7.10 43.30 7.72 ------------ --------- -------- ------- ------- ------ ------- ------- ------ ------- Nezhdaninskoye C2 48.97 5.25 12.5 257.20 600 8.27 19.40 8.55 ------------ --------- -------- ------- ------- ------- ------- ------- ------ ------- Total Nezhdaninskoye B+C1+C2 94.67 5.05 41.9 478.00 1,947 15.37 62.70 16.27 ------------ --------- -------- ------- ------- ------- ------- ------- ------ ------- Kazakhstan ------------ --------- -------- ------- ------- ------- ------- ------- ------ ------- Suzdal Oxide B,C1,C2 1.29 1.12 1.44 0.05 ------------ --------- -------- ------- ------- ------- ------- ------- ------ ------- Suzdal Sulphide C1+ C2 4.36 9.69 42.24 1.36 ------------ --------- -------- ------- ------- ------- ------- ------- ------ ------- Total Suzdal B+C1+C2 5.65 7.74 43.68 1.41 ------------ --------- -------- ------- ------- ------- ------- ------- ------ ------- Zherek Oxide C1+C2 2.19 2.38 5.21 0.17 ------------ --------- -------- ------- ------- ------- ------- ------- ------ ------- Zherek Sulphide C1+C2 2.75 5.50 15.13 0.49 ------------ --------- -------- ------- ------- ------- ------- ------- ------ ------- Total Zherek C1+C2 4.94 4.12 20.34 0.66 ------------ --------- -------- ------- ------- ------- ------- ------- ------ ------- Total Kazakhstan B+C1+C2 10.59 6.05 64.02 2.07 ------------ --------- -------- ------- ------- ------- ------- ------- ------ ------- Total Group 105.26 5.15 542.02 17.44 18.34 ------------ --------- -------- ------- ------- ------- ------- ------- ------ ------- Total Attributable 58.93 5.06 297.94 9.57 10.04 ------------ --------- -------- ------- ------- ------- ------- ------- ------ ------- Nezhdaninskoye Gold Mine, Yakutia, Russia Nezhdaninskoye is an underground gold mine with extensive underground workings, but only an intermittent production history. The B+C1+C2 resource totals more than 15 million ounces of gold contained in 95 million tonnes at an average grade of just over 5g/t gold. In 1997, Celtic acquired 50% of the operating company South Verkhoyansk Mining Company (SVMC). Following industrial scale processing financed by Celtic in 2002, the mine re-started test production again in late 2003 following an investment programme financed by IG Alrosa. The process plant will be expanded in 2004 to take plant capacity to 230,000 tpa. A further expansion in 2005 will take the mine to 550,000 tpa, making it capable of producing 140,000 oz per year of gold. Celtic is currently finalising a 2.5Mtpa pre-feasibility study which indicates an annual production rate of 450,000 ounces of gold for an estimated capital cost of US$120 million. Kazakhstan Gold Mines Our primary objective in Kazakhstan continues to be to increase gold production to an annual rate of more than 100,000 ounces by the end of this year. The development of the Suzdal sulphide project and the expansion of the Zherek gold mine will help us achieve this objective. We will also build our resource base by seeking attractive acquisitions. Suzdal Gold Mine Gold production from the oxide heap leach in 2003 was 21,820 ounces, which was on budget but, as anticipated, was lower than 2002 due to the diminishing grade of the oxide ores. Ore mined was 187,338 tonnes at 3.47g/t Au and ore agglomerated and stacked was 212,538 tonnes at 3.39g/t Au. Gold was produced at a total cash cost of US$182/oz and gold recovery was approximately 92%. Planned production from oxide ores in 2004 is 12,000 ounces and is expected to end in 2005, to be replaced by gold from the treatment of sulphide ores. The sulphide ores are classified as refractory and the primary process route chosen will consist of crushing, grinding, flotation and bacterial oxidation. Plant throughput is designed at 320,000 tonnes per year. Bacterial oxidation has been used successfully at several mines around the world to liberate gold from sulphide ores and our test work indicates that overall gold recoveries will be 80-85%. The plant commissioning is scheduled for October this year and the total capital budget now stands at US$25 million. Cash operating costs are expected to be of the order of US$180/ounce. The mining of sulphide ore has begun and some 100,000 tonnes have already been stockpiled. The plant has been constructed with almost exclusive use of local engineering, labour and construction materials and equipment. Celtic Resources Kazakhstan management have managed all aspects of the project. The Suzdal sulphide project should ensure production of over 100,000 oz per year of gold from that mine for at least 12 years. The results of a small but significant drilling campaign in late 2003 are very important. A three hole campaign on the south east of ore body 3 intersected high grades and thicknesses, including: Table 2: Drilling Results of Ore Body 3 Thickness Depth Av. grade (m) (m) (g/t Au) 12.6 117.3 23.5 4.9 143.5 31.1 9.0 129.6 39.4 4.1 144.0 17.0 4.7 170.2 11.9 These intersections will be followed up with more drilling in 2005 with a view to adding significantly to the Suzdal resources inventory. The historical performance of Suzdal since start up in 1999 is shown below and the outstanding contribution that this mine has made to the group is clear. The capital cost of building the Suzdal mine was about US$4million. Celtic acquired its 100% ownership for approximately US$5 million and has received most of the mines revenue since 2000. The future production anticipated from the sulphides project is further evidence of our contention that opportunities abound in the FSU mining sector. Table 3: Suzdal production figures for years 1999 - 2004 Forecast Cumulative ------------- ------- ------ ------ ------ ------- ------- -------- 1999 2000 2001 2002 2003 2004 1999-2004 ------------- ------ ------ ------ ------ ------ ------- -------- Mining ------------- ------ ------ ------ ------ ------ ------- -------- Ore (tonnes) 102,000 124,000 248,000 233,000 187,000 214,000 1,108,000 ------------- ------ ------ ------ ------ ------ ------- -------- Ore (grade) 4.4 6.0 6.2 5.7 3.5 9.2 ------------- ------ ------ ------ ------ ------ ------- -------- ------------- ------ ------ ------ ------ ------ ------- -------- Stacking on heap ------------- ------ ------ ------ ------ ------ ------- -------- Ore (tonnes) 28,000 169,000 307,000 355,000 213,000 101,000 1,173,000 ------------- ------ ------ ------ ------ ------ ------- -------- Ore (grade) 7.11 6.14 5.46 4.22 3.39 2.84 ------------- ------ ------ ------ ------ ------ ------- -------- ------------- ------ ------ ------ ------ ------ ------- -------- Sulphide Plant ------------- ------ ------ ------ ------ ------ ------- -------- Ore (tonnes) 158,300 ------------- ------ ------ ------ ------ ------ ------- -------- Ore (grade) 10.8 ------------- ------ ------ ------ ------ ------ ------- -------- ------------- ------ ------ ------ ------ ------ ------- -------- Gold production ------------- ------ ------ ------ ------ ------ ------- -------- Gold produced (kg) 39 754 1,317 1,147 658 1,370 5,285 ------------- ------ ------ ------ ------ ------ ------- -------- Gold produced (ounces) 1,267 24,244 42,341 36,875 21,167 44,039 169,933 ------------- ------ ------ ------ ------ ------ ------- -------- ------------- ------ ------ ------ ------ ------ ------- -------- Gold sales ------------- ------ ------ ------ ------ ------ ------- -------- Gold sold (kg) 32 739 1,290 1,156 678 1,370 5,266 ------------- ------ ------ ------ ------ ------ ------- -------- Gold sold (ounces) 1,039 23,765 41,486 37,180 21,820 44,039 169,322 ------------- ------ ------ ------ ------ ------ ------- -------- ------------- ------ ------ ------ ------ ------ ------- -------- ------------- ------ ------ ------ ------ ------ ------- -------- Total Cash Cost ------------- ------ ------ ------ ------ ------ ------- -------- US$/oz sold 225 155 163 182 182 177 ------------- ------ ------ ------ ------ ------ ------- -------- Zherek Gold Mine We have a 75% interest in the Zherek mine which contains C1 and C2 resources of 2.2 million tonnes of oxide ores averaging 2.38g/t Au and sulphide ores estimated at 2.8 million tonnes at 5.5g/t Au, containing some 660,000 ounces of gold. Like Suzdal, this mine has good potential in deeper sulphides. Gold production from the open-pit/heap leach operation on oxide ores in 2003 was 11,270 ounces, which was below budget due to lower than expected ore grades being delivered to the heap and longer leaching times than indicated in field tests. Ore mined was 293,411 tonnes at 2.0g/t Au and ore agglomerated and stacked was 352,891 tonnes at 1.9 g/t Au. Gold production was about 60% of plan for 2003 and as a result total costs were a disappointing US$370/oz. The head grade in 2003 was about 60% of the forecast because of an extended low grade zone, but this ore has now been mined and planned head grades of 2.7g/t Au are being achieved. We believe that Zherek will meet its planned 2004 production of approximately 20,000 ounces of gold. The historical performance of Zherek is shown below and the 75% interest in this mine was secured by assuming loan commitments of about US$4million. Table 4: Zherek production figures for years 2003 - 2004 Forecast Cumulative ------------- ------- -------- -------- 2003 2004 ------------- -------- -------- -------- Mining ------------- -------- -------- -------- Ore (tonnes) 293,411 300,000 593,411 ------------- -------- -------- -------- Ore (grade) 2.0 2.5 ------------- -------- -------- -------- ------------- -------- -------- -------- Stacking on heap ------------- -------- -------- -------- Ore (tonnes) 352,891 360,000 712,891 ------------- -------- -------- -------- Ore (grade) 1.91 2.50 ------------- -------- -------- -------- ------------- -------- -------- -------- Gold production ------------- -------- -------- -------- Gold produced (kg) 351 607 958 ------------- -------- -------- -------- Gold produced (ounces) 11,270 19,526 30,796 ------------- -------- -------- -------- ------------- -------- -------- -------- Gold sales ------------- -------- -------- -------- Gold sold (kg) 351 607 958 ------------- -------- -------- -------- Gold sold (ounces) 11,270 19,526 30,796 ------------- -------- -------- -------- ------------- -------- -------- -------- Total Cash Cost ------------- -------- -------- -------- US$/oz sold 370 288 318 ------------- -------- -------- -------- Eureka Mining Plc In December 2003, Celtic Resources successfully spun off its Kazakhstan base metal and other exploration assets into Eureka Mining Plc. These assets included the Shorskoye molybdenum project, the Central Kazakhstan gold and base metal projects and the Kentau exploration properties. We spun off these assets because Celtic Resources was poised to become a significant gold producer and we wished to focus on gold production and acquisitions exclusively. An independent assessment of these properties valued the Celtic Resources assets at approximately US$15million and after Eureka had achieved its AIM listing and fundraising of US$13million, Celtic's holding was approximately 44%. The company then distributed about half of these shares to our shareholders as a special dividend and now holds just less than 22% of Eureka. The company is very pleased with the activities and enthusiasm of the Eureka team. Drilling of the Shorskoye deposit and gold-copper targets in the Cental Kazakhstan area are well advanced. We intend to retain our shareholding and a close working relationship with this company. Oil and Gas Plans We intend to follow the Eureka model, with our oil and gas assets and place them in a separate AIM company that will raise funds and maintain its own management. A number of possibilities have been examined and we are now at an advanced stage in negotiations which, if successful, will allow us to arrange the separation. The new company will operate in Russia and Kazakhstan, which are particularly fertile areas for small to medium sized production projects. If appropriate, shares which Celtic receives may be distributed to Celtic shareholders as a special dividend. I should also like to thank all employees for their outstanding effort this year and to promise shareholders that 2004 will see continued improvements and some exciting developments. Kevin Foo, Managing Director, June 25 2004 CELTIC RESOURCES HOLDINGS PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2003 2003 2002 $000 $000 Turnover 12,105 9,272 Cost of sales (6,787) (4,105) -------- -------- Gross profit 5,318 5,167 Administrative expenses (2,323) (3,200) -------- -------- Operating profit 2,995 1,967 Share of associated company's profit before tax - 349 Profit on disposal of subsidiaries 11,659 - Loan interest payable (348) (52) Interest receivable 110 60 -------- -------- PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 14,416 2,324 Taxation (1,458) (1,434) -------- -------- PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 12,958 890 Retained loss brought forward (9,372) (10,262) -------- -------- RETAINED PROFIT/(LOSS) CARRIED FORWARD 3,586 (9,372) ======== ======== All income and expenditure arises from continuing operations Cents Cents Profit/(loss) per share 5 41.86 4.26 Fully diluted profit/(loss) per share 5 38.69 4.13 CELTIC RESOURCES HOLDINGS PLC CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2003 2003 2002 $000 $000 FIXED ASSETS Intangible assets 55,387 41,119 Tangible assets 11,719 5,508 Financial assets 7,830 2 ------- -------- 74,936 46,629 ------- -------- CURRENT ASSETS Stock 3,248 1,901 Financial assets 8,017 - Debtors 6,871 4,250 Cash at bank and in hand 7,713 2,433 ------- -------- 25,849 8,584 Creditors: (amounts falling due within one year) (10,479) (10,911) ------- -------- Net current assets/(liabilities) 15,370 (2,327) Creditors: (amounts due after more than one year) (20,251) (2,148) Provision for liabilities and charges (398) - ------- -------- Net Assets 69,657 42,154 ======= ======== Financed by: CAPITAL AND RESERVES Called up share capital - equity 9,249 6,716 - non equity 3,184 3,184 Capital conversion reserve 61 61 Share premium - equity 55,982 38,234 Profit and loss account - equity 2,696 (9,891) Employee Benefit Trust Reserve- equity (4,623) - ------- -------- Shareholders' funds 66,549 38,304 Minority interest - equity 3,108 3,850 ------- -------- 69,657 42,154 ======= ======== CELTIC RESOURCES HOLDINGS PLC CONSOLIDATED CASHFLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 Notes 2003 2002 $000 $000 NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES (a) (7,347) 4,222 -------- ------- RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received 110 60 Interest paid (1,120) (1,197) -------- ------- NET CASH (OUTFLOW) FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (1,010) (1,137) -------- ------- TAXATION PAID (1,060) (1,434) -------- ------- CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Payments to acquire intangible fixed assets (17,723) (14,858) Proceeds on disposal of tangible assets 71 160 Payments to acquire tangible fixed assets (6,952) (2,181) Purchase of subsidiary undertakings (274) (2,208) Proceeds of sale of subsidiary undertakings 300 - -------- ------- NET CASH OUTFLOW FROM CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (24,578) (19,087) -------- ------- NET CASH OUTFLOW BEFORE FINANCING (33,995) (17,436) -------- ------- FINANCING Issue of ordinary share capital 20,782 22,999 Costs associated with shares issued during the year (501) (2,059) -------- ------- 20,281 20,940 Loan received 18,996 - Loans repaid - (2,208) -------- ------- NET CASH INFLOW FROM FINANCING 39,277 18,732 -------- ------- INCREASE IN CASH (c) 5,282 1,296 ======== ======= CELTIC RESOURCES HOLDINGS PLC NOTES TO CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2003 (a) Reconciliation of operating profit to net cash (outflow)/ 2003 2002 inflow from operating activities $000 $000 Operating profit 2,995 2,351 Depreciation and fixed asset write down 1,447 1,775 (Increase)/decrease in stocks (1,347) 480 (Increase) in debtors (2,742) (887) (Decrease)/increase in creditors (1,964) 580 Settled on Employee Benefit Trust (4,623) - Exchange movements (1,113) (77) -------- -------- (7,347) 4,222 ======== ======== (b) Analysis of net funds At Disposals Cash At 2003 2002 flow $000 $000 $000 $000 Cash in hand and at bank 2,443 (12) 5,282 7,713 ------- -------- -------- ------- Loans falling due within one - - (913) (913) year Loans falling due in more than one - - (18,083) (18,083) year ------- -------- -------- ------- - - (18,996) (18,996) ------- -------- -------- ------- 2,443 (12) (13,714) (11,283) ======= ======== ======== ======= (c) Reconciliation of net cash flow to movement in net 2003 2002 funds $000 $000 Increase in cash in the period 5,282 1,296 Cash (inflow)/outflow from (increase)/decrease in (18,996) 2,208 debt Cash (outflow)/inflow on (sale)/acquisition of (12) 194 subsidiary Net funds at start of year 2,443 (1,265) ------- ------- Net funds at end of year (11,283) 2,433 ======= ======= This information is provided by RNS The company news service from the London Stock Exchange ND FR EAXKNAFDLEFE

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