Interim Results

Vane Minerals PLC 12 September 2006 VANE Minerals Plc Interim Report - Six Months to 30th June 2006 Highlights • During the six months to 30th June 2006, VANE Minerals became cash flow positive as the production profile expanded at the Diablito silver/gold mine • Expansion of the uranium portfolio • Extension of Investigation Permits over 3,400 hectares were granted by the Paraguayan Government for further evaluation of gold / copper prospects in Paraguay • Cash balances of £0.703m at 30th June 2006, virtually unchanged from the 31st December 2005 position with all exploration expenses covered from income • EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) for the period was £69,000 Post Period End Highlights: • A surface drilling programme to further define and expand existing resources was completed at the Diablito mine in early July • Planning further exploration work on 25 promising US uranium prospects • Plans in place for the construction of the Company's own mill on site near to Diablito • Phase II drilling programme commenced in July at prospective Guadalcazar gold prospect in Mexico • Successful issue of £750,000 in Convertible Loan Notes attracting 8% coupon to fund the purchase of a Mill and Flotation plant at Diablito and to rapidly advance the uranium exploration programme Michael Spriggs, Chairman of VANE Minerals Plc, commented: 'VANE Minerals' exploration and development strategy remains firmly on course, underpinned by the expanding cash flow being generated from Diablito, and the successful issue of £750,000 of convertible loan notes. The focus remains the precious metal potential of our Mexican properties and our uranium projects in the western US, but the Group remains sufficiently flexible to be able to evaluate rapidly and efficiently new opportunities as they are identified. The continuing buoyancy of precious metals and other commodity markets underlines the Group's confidence for the future.' The full Chairman's Statement and the financial statements follow and can also be found at: www.vaneminerals.com. ENDS VANE Minerals Plc Ambrian Partners Limited Matthew Idiens Richard Brown +44 (0) 20 7667 6322 +44 (0) 20 7776 6417 Parkgreen Communications Daniel Stewart & Co Cathy Malins / Annabel Leather Dan Willmott +44 (0) 20 7493 3713 +44 (0)20 7776 6550 Chairman's Statement I am pleased to present this review of the Group's activities for the six months to 30th June 2006. In January, a further extension, for one year, of the agreement with Freeport-McMoRan Copper and Gold Company was negotiated. This gives VANE Minerals access to Freeport's global exploration database (excluding Indonesia), and continues to be one of the cornerstones of the Group exploration strategy. Nearly all of the Freeport files have now been examined and numerous potential prospects identified. In addition, the Group maintained its efforts to generate and investigate other projects identified in its key areas of operation during the first half of 2006. Exploration and development continued on gold prospects in Mexico, and on uranium properties in south-western USA. The regional exploration programme in Paraguay continues. Diablito Mine The successful development of the Diablito silver/gold mine in Nayarit, Mexico, continues to be the Group's main operating focus. An expanded production schedule is being established and, in the six month period to June, Diablito generated revenues totalling US$1.85m. Going forward, net income from the ore milled and concentrates sold from this operation is estimated to average between US$420,000 and US$525,000 per month. This is based on forecast production averaging 1,500-2,000 tonnes per month of ore at grades 700-900 g/T silver and 3-5 g/T gold. The 20-hole surface drilling programme completed in early July had two objectives. It was designed to define more precisely the continuity of ore between the widely spaced holes drilled in the initial evaluation of Diablito, and to explore extensions of the Diablito vein system down-dip as well as along strike. Meanwhile, production and development at Diablito continues via a series of ramps being driven in the gently dipping vein. VANE Minerals has established a small assay laboratory in the nearby town of Acaponeta. This has proven very beneficial and has resulted in considerable savings in the time and cost of ore analyses. The present production arrangements involve toll milling at the Cosala mill, located 350 km from the Diablito mine and sale of concentrates to an ore buyer in Torreon. Given the possibility of a mine life extension, the Group has examined other, more favourable potential treatment routes, including the feasibility of establishing its own mill at a local site. As a result, part of the additional funds raised (as referred to in the Highlights and detailed in the Notes to the Accounts) will be utilised for the purchase and construction of a mill and flotation plant close to the mine site. The initial target capacity of the plant will be 100tpd, with the mine production rate currently at 50tpd, this gives the board capacity to double production. Guadalcazar The initial geological appraisal of the Guadalcazar prospect in San Luis Potosi, Mexico, was supported with a 12-hole diamond drilling programme which indicated persistently anomalous gold values over a wide area. The Group was sufficiently encouraged by these results to schedule a further 7-hole drilling programme which was completed in late July and assay results are expected to be available in September 2006.. Minas Charay The geological evaluation of the Minas Charay gold-silver property in Sinaloa, Mexico, was completed during the period under review. The Group had optioned this property originally on the basis that it offered the potential for a large, low-grade, leachable gold target, and possibly a localised high- grade precious metal vein system. A 26-hole drilling programme carried out failed to confirm the large low-grade target and was only successful in delineating a narrow high-grade precious metal vein system. The Group determined that the economics of hauling this ore to a mill appeared marginal, whereas an on-site leaching ore could be profitable but would require considerable time and effort to obtain the necessary permits and to secure permission to use cyanide. As understanding of this deposit developed, it became apparent that Minas Charay is very different in character from Diablito. Accordingly, this project has been assigned lower priority with all financial obligations being terminated pending renegotiation with the local owner of the mineral rights to this property. The project has always been seen by the board as a replacement for the Diablito project should it have not been successful in providing the required cash flow. However, as Diablito has been such a success for VANE, the Board feels that the Mina Charay project's failings will not have a material effect on the company. Paraguay The Group successfully applied for extensions to January 2007 on the three Investigation Permits. Geochemical and rock sampling results obtained to date have provided ample grounds for warranting further work. The regional exploration programme is now mostly focused on an area centred about 10 to 14 kilometres south of the large agricultural town of Katuete. Geochemical analyses of the lateritic, in-place soils, combined with careful examination of panned concentrates of both soils and stream sediments, now indicate that some of the rolling hilly land around Itapo Creek is clearly anomalous in gold. The sampling grid is now being reduced to better define specific targets for near-future drilling. This regional exploration programme, backed by selective follow-up work, is proving an extremely effective and low cost method of rapidly covering large areas. Uranium Programme VANE Minerals' programme of uranium exploration was initiated on the basis of the renewed strength of the uranium market and growing predictions of long-term supply shortages. These observations are reflected in the continuing strength of uranium oxide price, which has risen to its present level of US$52/lb, levels not seen since the previous record price of $43.60/lb in the 1970s. VANE Minerals is now devoting considerable effort towards the exploration and development of its uranium properties in the Colorado Plateau Uranium District in south-western US, where the Group has identified and acquired a number of targets. The Group has now assembled sufficient data to warrant the definition of drill programmes on a number of properties. In the breccia pipe district of northern Arizona, 22 target areas have been acquired including a number of properties on which previous drilling has produced results that are encouraging to VANE Minerals. Breccia pipe deposits are typically compact deposits containing economic grades of around 1% uranium oxide (U3O8), each occurrence having the potential for between 1m and 6m lbs U3O8, (based on Historical data reported by Energy Fuels Nuclear Inc). Reconnaissance exploration has been completed and permits for drilling are being obtained. The Company continues to identify favourable pipe targets and anticipates acquisition of additional property. This campaign is supported by technical programmes utilising satellite imagery to define targets in areas not previously recognised as conducive to the existence of pipe structures, and developing suitable geochemical techniques to recognise mineralised breccia pipes. In November 2005, the Group acquired the North Wash uranium property in south-eastern Utah. Based on drill information obtained in the late 1970s by Cotter Corporation, this project contains an inferred geological resource (non-JORC) of 170,000 lbs of U3O8 and up to 750,000 lbs vanadium, the Board believes the project has considerable additional potential and drilling is planned on the project in Q1 2007, following the recent successful application for permits. VANE Minerals (US) has entered into an agreement with a private company, Happy Jack Minerals covering the Happy Jack Mine and surrounding claims located in San Juan County of south-eastern Utah in the Colorado Plateau Uranium District. Between 1949 and 1982, the Happy Jack Mine, previously operated by Atlas Minerals, produced 3.1 million lbs. U3O8 until along with most of the mines on the Colorado Plateau it ceased production as a result of low uranium prices. Based on historic drilling data, VANE (US) geologists have identified a resource (non-JORC) of approximately 155,000 lbs U3O8 in several pods, some of which are accessible via existing mine workings and could therefore be put into production with minimal development work. The property agreement carries a production royalty of 5% on minerals mined from within the original areas held by the owner, and a production royalty of 2.5% on minerals mined from the additional areas subsequently claimed. A review of previous drilling results has revealed nine additional exploration targets at Happy Jack, on which previous drilling intersected ore-grade mineralisation that was never fully delineated by additional drilling or sampling.. Negotiations continue to acquire additional attractive uranium properties in southern Utah. The Group recognises that the successful development of these uranium prospects will depend on securing appropriate milling contracts for the treatment of mined ore. Negotiations are therefore already in progress with the mills serving these former producing areas which are currently in the process of being returned to active status. Outlook In the six months to 30th June 2006 VANE Minerals reported a net loss of £0.345m, from revenue of £1.005m. At the end of the period, the Group's cash resources stood at £0.703m. Our exploration spend is currently running at approximately £91,000 per month, and we expect this rate to continue in the current half year. VANE Minerals' exploration strategy remains firmly on course, underpinned by the expanding cash flow being generated from Diablito, and the successful issue of £750,000 of convertible loan notes (detailed in the Notes to the Accounts). The focus of this programme remains the precious metal potential of our properties in Mexico and our uranium projects in the western US, and in both areas we are fortunate to have excellent field teams on the ground. At the same time, the Group remains sufficiently flexible to be able rapidly and efficiently to evaluate new opportunities as they are identified. The continuing buoyancy of precious metals and other commodity markets underlines this confidence. We remain a well-funded exploration and development company, and we anticipate further vigorous activity in the current half. Michael Spriggs Chairman 11th September 2005 Clark Arnold, Ph.D Geology, who is Director of Geology for VANE Minerals and Kristopher K. Hefton, Chief Operating Officer VANE Minerals (US) LLC, BSc Geology, who each meet the criteria of a qualified person under the AIM rule guidance for mining, oil and gas companies, has reviewed and approved the technical information contained within this statement. VANE Minerals Plc Interim Results for the Six Months to 30 June 2006 Consolidated Profit and Loss Account £'000's Notes Unaudited Re-stated Re-stated Unaudited Audited 6 months ended 6 months ended 12 months ended 30-Jun-06 30-Jun-05 31-Dec-05 Turnover 1,005 - 286 Cost of Sales (837) - (392) Gross Profit /(Loss) 168 - (106) Administrative Expenses (522) (346) (962) Operating Loss 2 (354) (346) (1,068) Interest receivable and similar 9 80 83 income Interest payable and similar - (1) - charges Loss on ordinary activities before (345) (267) (985) taxation Taxation - - 115 Loss on ordinary activities after (345) (267) (870) taxation Loss per share Basic and Diluted 3 (0.24) (0.18p) (0.60) Statement of Total Recognised Gains and Losses £'000's Notes Unaudited Re-stated Re-stated Unaudited Audited 6 months ended 6 months ended 12 months ended 30-Jun-06 30-Jun-05 31-Dec-05 Loss for the Financial Period (345) (267) (870) Currency translation differences on (229) 114 188 foreign subsidiaries Total recognised gains and losses (574) (153) (682) relating to the period Prior Year Adjustment (95) Total Recognised gains and losses (669) since last annual report VANE Minerals Plc Interim Results for the Six Months to 30 June 2006 Consolidated Balance Sheet £'000's Unaudited Re-stated Re-stated Unaudited Audited 6 months ended 6 months ended 12 months ended 30-Jun-06 30-Jun-05 31-Dec-05 Fixed Assets Intangible fixed assets 7,990 12,036 7,991 Tangible fixed assets 3,773 - 4,171 11,763 12,036 12,162 Current Assets Stocks 175 - 123 Debtors 296 308 413 Cash at bank 703 1,532 732 1,174 1,840 1,268 Creditors: amounts falling due within (212) (100) (157) 1 year Net Current Assets 962 1,740 1,111 Total assets less current liabilities 12,725 13,776 13,273 Capital and Reserves Called up share capital 14,614 14,614 14,614 Share option reserve 121 69 95 Profit and Loss Account (2,010) (907) (1,436) Equity Shareholders' funds 12,725 13,776 13,273 VANE Minerals Plc Interim Results for the Six Months to 30 June 2006 Consolidated Cash Flow Statement £'000's Notes Unaudited Re-stated Re-stated Unaudited Audited 6 months ended 6 months ended 12 months ended 30-Jun-06 30-Jun-05 31-Dec-05 Net cash inflow / (outflow) from 5 215 (472) (1,054) operating activities Returns on investment and servicing of finance Interest received 9 80 83 Interest or similar charges - (1) - paid Net cash flow from returns on 9 79 83 investment and servicing of finance Capital expenditure and financial investment Capital expenditure on (208) (533) (815) intangible Fixed Assets Capital expenditure on tangible (24) - (14) Fixed Assets Net cash flow from capital (232) (533) (829) expenditure and financial investment Management of Liquid Resources Cash withdrawn from deposit - 896 1,734 Net cashflow from management of - 896 1,734 liquid resources Decrease in cash for the period (8) (30) (66) Reconciliation of net cash flow to movement in net funds Increase / (Decrease) in cash (8) (30) (66) in period Management of Liquid Resources - (896) (1,734) Change in net funds resulting (8) (926) (1,800) from cash flow Translation Difference (21) 114 188 Movement in net funds in the (29) (812) (1,612) period Opening net funds 732 2,344 2,344 Closing net funds 703 1,532 732 VANE Minerals Plc Interim Results for the Six Months to 30 June 2006 Notes to the Accounts 1. The financial information contained in this interim report does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. Subject to the FRS20 adjustment described below the figures relating to the year ended 31 December 2005 have been extracted from the audited accounts which have been filed with the Registrar of Companies and received an unqualified audit report which did not contain a statement under section 237(2) or (3) Companies Act 1985. The consolidated financial statements incorporate those of VANE Minerals Plc and its subsidiary undertakings for the period. The current and the comparative half year to June are Unaudited and have been prepared using accounting policies and practices consistent with those adopted in the accounts for the year ended 31 December 2005, with the exception of the application of FRS 20 (see below), and are also consistent with those which will be adopted in the 2006 Annual Report and Accounts. FRS 20 The adoption of FRS 20 - Share Based Payments requires a prior period adjustment to be made. This has created a share option reserve at 31 December 2005 of £95,100 and reduced the retained profits by £95,100; of this amount, £57,411 is attributable to the year ended 31 December 2005 and £31,277 to the six month period ended 30 June 2006. The figures for the year ended 31 December 2005 reflect a re-categorisation of £155,000 of costs from administrative expenses to cost of sales as these expenses are more appropriately shown there. The interim accounts were approved by the Directors on 11 September 2006. 2. The Group's operating loss is derived from its continuing operations where the principal activity is the evaluation, acquisition and development of mineral exploration targets, principally gold, copper, uranium and silver targets abroad, from its base in the United Kingdom. 3. The calculation of the basic and diluted loss per ordinary share is based on the loss after taxation of £345,000 (30 June 2005: £267,000, 31 December 2005: £870,000) and on the weighted average number of ordinary shares in issue during the period of 146,143,823 (30 June 2005: 146,143,823, 31 December 2005: 146,143,823). 4. Reconciliation of Movement in Equity Shareholders' Funds £'000's Unaudited Re-stated Re-stated Unaudited Audited 6 months ended 6 months ended 12 months ended 30-Jun-06 30-Jun-05 31-Dec-05 Loss for Period (345) (267) (870) Effect of currency exchange movements (229) 114 188 Share option charge 26 31 57 Net decrease in shareholders' funds (548) (122) (625) Opening Shareholders' Funds 13,273 13,898 13,898 Closing Shareholders' Funds 12,725 13,776 13,273 5. Reconciliation of operating loss to operating cash flow £'000's Unaudited Re-stated Re-stated Unaudited Audited 6 months ended 6 months ended 12 months ended 30-Jun-06 30-Jun-05 31-Dec-05 Operating loss (354) (346) (1,068) Decrease / (Increase) in debtors 117 (192) (182) Increase in creditors 55 35 90 Increase in stock (52) - (123) Depreciation 423 - 155 Share option charge 26 31 57 Impairment of intangible fixed asset - - 17 Operating cash flow 215 (472) (1,054) 6. Segmentation Information £'000's Turnover Loss Before Tax Unaudited Re-stated Re-stated Unaudited Re-stated Re-stated Unaudited Audited Unaudited Audited 6 months 6 months 12 months ended 6 months ended 6 months ended 12 months ended ended ended 31-Dec-05 30-Jun-06 30-Jun-05 31-Dec-05 30-Jun-06 30-Jun-05 UK - - - (265) (236) (529) US - - - (234) (235) (546) Mexico 1,005 - 286 154 204 90 Total 1,005 - 286 (345) (267) (985) 7. Convertible Loan On 31 August 2006 the company entered into a convertible loan agreement for £750,000 with City Natural Resources High Yield Trust Plc and Geiger Counter Ltd, who have loaned £450,000 and £300,000 respectively. The funds raised will be used to accelerate the exploration and development programme for the Group's portfolio of uranium properties in Northern Arizona and South-eastern Utah, and to finance the construction of a mill at the Group's producing Diablito gold-silver mine, in Nayarit State, Mexico. The principal terms of the loan note are: • The loan note is unsecured and has a maturity date of 30 August 2010 • The note attracts interest at 8% per annum, paid quarterly • The loan note is convertible at the option of the holder at any time prior to the maturity date at a price of £0.12 per share, a premium of 33% to the present share price of 9p • After the initial 24-month period, if the 20-day average closing price of the Company's shares at any time attains £0.18 or more, the Company may call the convertible loan note for conversion at the conversion price • The number of ordinary 10p shares to be issued upon conversion of the note are subject to proportional adjustment to reflect stock dividends, share splits, reverse share splits and other anti-dilutive events • Upon a change of control involving the acquisition of voting control or direction over 50% or more of the ordinary shares of the Company, City Natural Resource High Yield Trust Plc / Geiger Counter Ltd has the right to require the Company to repurchase their loan note, in whole or in part, at a price equal to 101% of the principal amount, plus accrued and unpaid interest thereon. 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