Interim Results

Celtic Resources Holdings PLC 08 September 2005 Celtic Resources Holdings Plc ("Celtic", "Celtic Resources", or "the Company") Interim Results for the six months ended 30 June 2005 Attached below is the statement and interim accounts being distributed to the shareholders and which will be available on our Web site shortly. For further information please contact: Kevin Foo / Kate Dexter Smith Leesa Peters / Laurence Read Celtic Resources Holdings Plc Conduit PR Tel: + 44 (0) 20 7921 8800 Tel: +44 (0) 781 215 9885 Investors@celticresources.com Tel: +44 (0)20 7936 9095 leesa@conduitpr.com www.celticresources.com Celtic Resources Holdings Plc The unaudited accounts for the half year to 30 June 2005 follow after this letter in which I will comment briefly on the figures and on developments in the period since my last letter to you which was included in the annual report and accounts released at the end of June. Group gold production in the first half of the year was 8,859 ounces compared to 8,475 ounces in the first half of 2004. Despite this modest increase in production and the higher gold price, we recorded an operating loss as compared with a small profit in the comparative period of 2004. The biggest single element in this deficit is the foreign exchange loss on the US dollar borrowings by a subsidiary in Kazakhstan. The funds were borrowed to finance the Suzdal Sulphide Project which has been a major undertaking of Celtic Resources since late 2003. Repayment of these borrowings will be from gold sales which are denominated in dollars and so the two are matched. As detailed in our Annual Report, commissioning of the Suzdal Sulphide Plant, incorporating BIOX(R) technology was completed in May of this year. Since then, build up of commercial operations to design capacity has been steady. Several design faults in plant air supply and flotation plant configuration were identified and are being corrected. Whilst these have required additional time and funds, the crushing, grinding and flotation plants are now operating at design capacity, as will the whole plant by the end of the year. The plant is designed for annual production in excess of 100,000 ounces of gold from 300,000 tonnes of ore at a budgeted cash cost of US$170 per ounce. Gold production from Suzdal in 2005 is now expected to be approximately 40,000 ounces. Suzdal has completed its transition from treating open pit oxide ores on a heap leach to a fully operational underground mine with a plant to treat a rich, but refractory gold ore. We are pleased to report that Ross Calnan, the newly appointed Executive Director for Operations in Kazakhstan, took up his post at the beginning of August this year. Individual figures in the Balance Sheet have been affected by including the South Verkhoyansk Mining Company (SVMC) in Russia as an associate as reported in the 31 December 2004 accounts rather than as a subsidiary. The effect of this treatment is to concentrate the investment as a financial asset rather than include its assets and liabilities in their separate captions in the accounts. Celtic Resources Holdings' shareholders funds rose from US$58.9m a year earlier to US$93.4m at the end of June 2005. The Directors have noted recent press articles concerning statements by Russian companies that they are interested in Yakutian gold assets and the inference that these assets include Nezhdaninskoye and Kyuchus. I emphasise that the company has not lost any focus on its main objective, which is to complete the deal with IG Alrosa and Barrick Gold Corporation announced in the Annual Report. This includes the acquisition of the 50 per cent. of the Nezhdaninskoye gold mine that we do not currently hold and to accelerate the development of this mine in partnership with our largest shareholder, Barrick Gold Corporation. When the deal has either been successfully concluded or another outcome has resulted, the Directors will immediately inform shareholders of any news. On matters of litigation, in Russia we are continuing the cases to protect our interests in Russia. In London, the evidentiary stage of the arbitration proceedings initiated by Arduina Holdings BV was completed in July and both parties are now preparing their written submissions to the Arbitrator. The ruling on this case is expected to be known by the end of the year. The Directors have been advised that the claims against the Company have no merit. Our targets for the year are to complete negotiations with IG Alrosa, to increase gold production at Suzdal to an annual rate of over 100,000 ounces and to seek other gold mining opportunities in Russia and Kazakhstan. Peter Hannen Chairman Unaudited Consolidated Profit & Loss Statement For the half year ended 30 June 2005 Notes 2005 2004 $000 $000 Turnover 2,577 3,091 Cost of sales (1,905) (1,982) ------ ------ Gross Profit 672 1,109 Administrative expenses (1,646) (1,764) Realised foreign exchange (losses)/gains (1,948) 723 ------ ------ Operating (loss)/profit (2,922) 68 Loss on disposal of investments - (64) Interest payable (2) (194) Interest receivable 249 65 ------ ------ Loss on ordinary activities before taxation (2,675) (125) Taxation 2 132 (382) ------ ------ Loss on ordinary activities after taxation (2,543) (507) Minority interests 190 - ------ ------ Loss for the financial half year (2,353) (507) Dividend paid on equity - (7,626) ------ ------ Retained loss for the half year (2,353) (8,133) ------ ------ cents cents Group loss per share (in cents) 3 (5.69) (1.22) ====== ====== Unaudited Consolidated Statement of Total Recognised Gains and Losses Retained loss for the half year (2,353) (8,133) Foreign currency adjustments 871 (232) Settled into the Employee Benefit Trust - (11,584) ------ ------ Total recognised losses for the financial half year (1,482) (19,949) ------ ------ Reconciliation of Movements in Shareholders' Funds Total recognised losses for the financial half year (1,482) (19,949) Issue of ordinary share capital 59 12,325 ------ ------ (1,423) (7,624) Shareholders' funds at 1 January 94,831 66,549 ------ ------ Shareholders' funds at 30 June 93,408 58,925 ------ ------ Unaudited Consolidated Balance Sheet At 30 June 2005 Notes 2005 2004 $000 $000 Fixed assets Intangible assets 4 22,324 65,857 Tangible assets 37,614 18,678 Financial assets 5 50,650 7,507 ------- ------- 110,588 92,042 ------- ------- Current assets Stocks 7,859 7,186 Debtors 8,757 7,163 Cash at bank and in hand 8,820 4,928 ------- ------- 25,436 19,277 Creditors Amounts falling due within one year (13,154) (12,011) ------- ------- Net current assets 12,282 7,266 ------- ------- Creditors - amounts falling due after more than one year 6 (28,308) (36,803) Provision for liabilities and charges Deferred tax (871) (472) -------- -------- Net assets 93,691 62,033 ======== ======== Capital and reserves Called up share capital - equity 11,312 9,818 - non equity 3,184 3,184 Capital conversion reserve 61 61 Share premium account - equity 86,433 57,195 Profit and loss account - equity 5,925 4,873 Employee Benefit Trust Reserve - equity (13,507) (16,206) --------- --------- Shareholders' funds 93,408 58,925 Minority interests - equity 283 3,108 --------- --------- 93,691 62,033 ========= ======== Unaudited Consolidated Cash flow For the half year ended 30 June 2005 Notes 2005 2004 $000 $000 Cash flow from operating activities Operating (loss)/profit (2,922) 68 Depreciation 881 409 Stocks increase (788) (3,938) Debtors increase (2,808) (292) Creditors increase 1,313 226 Exchange movements 871 (232) Minority interest decrease - -------- -------- (3,453) (3,759) -------- -------- Returns on investments and debt service costs Interest received 249 65 Interest paid (2) (194) -------- -------- 247 (129) -------- -------- Tax paid (601) (308) -------- -------- Capital expenditure and financial investment Acquisition of intangible fixed assets (2,776) (10,607) Acquisition of tangible fixed assets (9,841) (7,231) Associated company (3,512) - -------- -------- (16,129) (17,838) -------- -------- Net Cash Flow before Financing (19,936) (22,034) -------- -------- Financing Issue of ordinary shares 59 1,391 Net (reduction)/increase in loans (1,797) 17,858 -------- ------- (1,738) 19,249 -------- ------- Decrease in cash (21,674) (2,785) -------- ------- Cash balance 1 January 30,494 7,713 -------- ------- Cash balance 30 June 8,820 4,928 -------- ------- Celtic Resources Holdings Plc Notes to the Unaudited Accounts at 30 June 2004 1. Basis of Preparation The consolidated accounts include the unaudited accounts of the company and each of its subsidiaries and have been prepared using accounting policies consistent with those adopted for the preparation of the annual audited Financial Statements. They are stated in thousands of US Dollars which is the reporting currency of the group. 2. Taxation The tax charge for the half year is higher than standard UK Corporation Tax on group profits because the profit earned by the subsidiary in Kazakhstan is taxed in that country with no deduction available for costs incurred in managing the Group's world wide activities. 3. (Loss)/profit per share The calculation is based on the loss attributable to ordinary shareholders of $2,353,000 (2004 loss - $507,000) and the weighted average number of ordinary shares of 41,388,340 - (2004 - 36,125,781) in issue in the half year. The fully diluted loss per share is not shown as the calculation is antidilutive for both this and the comparative period. 4. Intangible assets The Group's activities include prospecting for and production of gold and other minerals in Russia and Kazakhstan and are therefore subject to a number of significant potential risks including: - price fluctuations - uncertainties over development and operational costs - operational and environmental risks - political and legal risks, including arrangements with the governments for licences, profit sharing and taxation - funding developments. The value of these assets is dependent on the development of mineral reserves, which is affected by these and other risks. 5. Financial assets 30 June 30 June 2005 2004 $000 $000 Associated company - Shares at cost 6,661 Share of post acquisition losses (3,488) Translation adjustment (2,710) Loans and development expenditure 38,764 39,227 - Listed investments, at cost 11,423 7,507 50,650 7,507 Market value of listed investments 15,381 7,432 Associated company The group has a 50% shareholding in The South Verkhoyansk Mining Company Limited (SVMC), a company registered and developing a gold mine in the Republic of Sakha in Russia. Certain parties in Russia claim that they own 60% of the holding and their claims are being vigorously disputed and are currently the subject of litigation. Your Board is also concurrently seeking an amicable settlement of the litigation on terms recognising Celtic's title to the shares. Included in loans and other development expenditure is $11.9 million of loans which Arduina Holdings BV claims to have acquired under an agreement which the company maintains is null and void and of no legal effect (note 7). The value of this investment depends on the development of mineral deposits. The company has granted Barrick Gold Corporation (Barrick) an irrevocable option over 50% of its shareholding in SVMC in the event that Celtic obtains 100% for a maximum consideration of $195 million payable in installments. The option extends for 6 months from the day on which Celtic and its affiliates own 100% of the issued share capital of SVMC, with a final exercise date of 31 December 2006. Following exercise of the option Celtic and Barrick each have a right of first refusal over the other's shareholding in SVMC. 6. Creditors due in more than one year 30 June 30 June 2005 2004 $000 $000 Bank loans 24,324 16,825 Loan from Investment Group Alrosa - 18,057 Historical costs reimbursable to the Republic of Kazakhstan 3,984 1,921 28,308 36,803 The loan from Investment Group Alrosa is not included in the consolidated accounts at 30 June 2005 because it is an obligation of SVMC which is now treated as an associated company not a consolidated subsidiary. 7. Contingent liabilities The company is respondent in arbitration proceedings brought by Arduina Holdings BV (Arduina) in the London Court of International Arbitration. Arduina is claiming compensation for alleged misrepresentations and a lost opportunity to acquire shares in Celtic. The claims arise from an unsuccessful association between the parties in November 2002 pursuant to which Arduina failed to satisfy any conditions precedent for the acquisition and transfer to Celtic within one year of the 50% of SVMC which Celtic did not own. Arduina alleges that Celtic failed to perform its obligations to encourage the transfer. Celtic vigorously deny the allegations contending that, because the conditions precedent were not satisfied, all agreements between the parties are null and void and of no legal effect. This information is provided by RNS The company news service from the London Stock Exchange

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