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Endomines AB (ENDO)

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Wednesday 22 February, 2012

Endomines AB

Summary of Endomines AB Q4 and Full-year 2011 r...

Summary of Endomines AB Q4 and Full-year 2011 report: 2011 sees successful transformation from Exploration Company to Mining Company

Q4/2011 Highlights

  • Revenues KSEK  35 637 (-) and Operating result  -13 939 (-12 474)
  • Profits after tax KSEK -17 830 (-12 092)
  • Earnings per share  SEK -0.22 (-0.16)
  • Gold production 183.7 kg (5 906 oz)
  • Feasibility study underway on future production expansion beyond 270,000 tonnes/annum
  • Acquisition of a refurbished second-hand mill as a first step towards a future increase of production
  • Exploration proceeded according to plan during the period, confirming the potential of the Karelian Gold Line
  • A significant intersection was obtained from the newly discovered Korvilansuo target yielding 3.07 g/t gold over a core section of 27.95 meters, including 4 m with 13.7 g/t  gold

Q1-Q4/2011 Highlights

  • Revenues KSEK  149 974 (-) and Operating result  -6 548 (-73 569)
  • Profits after tax KSEK -11 417 (-83 261)
  • Earnings per share  SEK -0.14 (-1.13)
  • Gold production 615,9 kg (19 801 oz) from February to end of December

Production guidance and outlook for 2012

  • Full-year production levels for 2012 are expected to be 800-900 kg (25 700-28 900 oz) of gold
  • Continued preparations with the aim of bringing the first satellite mines into test production in 2013

Subsequent events

  • First commercial deliveries of gravimetric concentrate were made in January
  • A new Sandvik cable bolting jumbo was delivered to the mine mid-January
  • An application for environmental permit renewal and production capacity increase to a maximum of 450 000 t/annum has been filed with the Eastern Finland Regional State Environmental Administrative Agency
  • Outotec Oyj has updated the Pampalo Gold Mine Mineral Resource and Ore Reserve Estimate according to the Australasian Code for Reporting of Mineral Resources and Ore Reserves (Joint Ore Reserve Committee - JORC-code)
  • Tekes - the Finnish Funding Agency for Technology and Innovation has approved the company's application to write-off loan capital amounting to SEK 9 million and all accrued interest. The amount will be accounted for in the Q1 2012 report

Key financial figures

Key figuresQ4Q4Full yearFull year
KSEK2 0112 0102 0112 010
Revenues35 637-149 974-
Operating cost-49 576-12 474-156 522-73 569
EBIT-13 939-12 474-6 548-73 569
Net finance cost-7 295-2 713-5 522-15 666
Profit before tax-21 234-15 187-12 070-89 235
Net result-17 830-12 092-11 417-83 261
Earnings per share, SEK-0,22-0,16-0,14-1,13
Investments-6 480-15 743-22 424-143 416
Cash flow before financing-6 392-28 384-10 127-177 724
Total cash flow-6 947679-19 195-71 849
Cash at end of period46 26165 733

Summary of events during the whole year 2011

Pampalo Gold Mine Production
Endomines started commercial production at the Pampalo Gold Mine at the end of January and delivered its first truckload of gold concentrate to the Boliden Harjavalta smelter on February 7, 2011. The construction of the mine and the processing plant was completed on schedule and in line with budget. The Pampalo Gold Mine inauguration and blessing ceremony was held in May 25th.

The infill diamond drilling campaign in the underground mine was completed in January. This campaign delineated the ore between levels 320 and 360 meters so that drifting for the next production panel could be started from the deeper level.

Due to the scarcity and rising cost levels of mining contractors, Endomines began to shift towards an owner-operator model of production. Accordingly, Endomines acquired a new Sandvik LH 514 underground loader, which was commissioned in mid-February. Ore hauling continued to be contracted out.

Endomines announced its intention to apply for listing on the main market of NASDAQ OMX Nordic Stockholm. Preparation for the shift progressed through the summer and autumn, and the application will be made after Endomines' first full-year results as a production company are finalized.  

In May, Endomines filed an amendment to its current Environmental Permit for Pampalo, increasing annual production to 270,000 tonnes of ore.  

The ramp-up phase of the Pampalo Gold Mine was completed as planned during H1/2011.

A newly delivered cable-bolting rig was wrecked in a cave-in incident in July. There were no injuries to personnel. Endomines commissioned a new cable-bolting rig from Sandvik which was delivered on an accelerated time-table in early January 2012. During Q3-Q4/2011, ground support was provided by an outside contractor. A new drifting jumbo was delivered in November, continuing the company's shift to owner-operator model in the underground mine.

Environmental consulting company Linnunmaa Oy has conducted an Environmental Impact Assessment survey along the Karelian Gold Line since the summer. Linnunmaa Oy was also hired to conduct the Environmental Permit Renewal process for Pampalo which also includes production increase beyond the current 270,000 t/annum.

In December, Endomines acquired a second-hand refurbished mill which became available. This acquisition will ensure a future capacity expansion at the Pampalo Gold Mine to proceed quickly once such a decision is taken and the required permit process concluded. The delivery of a new mill would have taken 1.5- 2 years in the current market.

The year ended with the achievement of all-time production records with regards to both monthly head grade and mining tonnage in December. The good performance of the processing plant continued, with annualized capacity reaching a level above 260 000 tonnes/annum.

There were six Lost Time Injuries during the full-year 2011. Safety has been a key focus during 2011, with additional training and safety drills where appropriate. There were no Lost Time Injuries during the Q4 period, an improvement over preceding periods.

The number of personnel at the Pampalo Gold Mine at the end of the reporting period was 62 own, 31 contractor employees.

Exploration
A new exploration campaign was started in June in the vicinity of the Pampalo mining area and along the Karelian Gold Line ("KGL"), using diamond core drilling and airborne low-altitude VTEM geophysical surveys over the entire permit area. The aerial surveys discovered several new drilling targets.

The first diamond drilling results from the Hosko, Rämepuro and Korvilansuo areas were published on 19th of December 2011. The most significant intersection was obtained from the newly discovered Korvilansuo target (some 20 km south from Pampalo processing plant) and yielded 3.07 g/t gold over a core section of 27.95 meters, including 4 m with 13.7 g/t  gold (true width not determined, no top cut has been applied). The other significant find  from the drilling campaign is an 11.5 m core section with 2.7 g/t gold,  including 4.5 m with 8.2 g/t gold,  at Pampalo North West target (true width not determined, no top cut has been applied).

The diamond drilling at Rämepuro was conducted along strike and depth extensions to confirm the continuation of mineralized zones. The results have not yet been included in the Resource and Ore Reserve Estimate, but will be incorporated once all data has been gathered during the coming spring. Preparations are underway with a view to test-production from Rämepuro which is likely to be the first satellite to be developed.

Just over half of the sampled core sections have been analyzed so far, with remaining results still pending. The delay is due to the scarce availability of laboratory capacity in the face of the recent strong growth in the exploration and mining sector. Final results of the whole drilling campaign will be released once all assay results have been received.

Normal QA/QC (Quality Assurance/Quality Control) procedures have been followed for all the samples with standards, blanks and duplicates routinely submitted as part of the sampling program.  The quality of sample preparation, security, integrity and chemical assays was equal to, or exceeded, current industrial standards and the requirements of JORC-code.

The mining authorities granted 50 new claim reservations, totaling 36 069 ha, all located on the Karelian Gold Line. 86 new exploration licenses, totaling 6 977 ha, have been applied for to secure further exploration possibilities along the Karelian Gold Line. A 60 ha extension of the Pampalo mining concession area has been filed with a view to preparing the Pampalo NW deposit for production.

Industrial Minerals
Work progressed on the assessment of strategic alternatives for the industrial minerals assets.

Corporate and other
Gold price hedge
In December 2009, Endomines hedged 84,400 oz of its future gold deliveries up to and including the year 2015. The hedge price was 843 EUR per oz.  The period H1 2011 was unhedged.

Endomines applies Hedge Accounting, which means that value changes for a hedging instrument are matched against changes in value of the hedged position. Any changes in the market value of yet unexecuted deliveries are included under "Other Comprehensive Income" and therefore do not affect "Net Profits After Tax". An exception to this is when the hedge is not 100% effective. In this case, the ineffective part of the hedge is included under "Operating Costs".

Under Hedge Accounting, changes in value affecting a hedge instrument are only accounted for (or realized) in the income statement once the hedge instrument is sold or when it expires.

The market value of the hedge is driven by several factors such as the gold price in USD as well as changes in the EUR/USD exchange rates. A higher gold price leads to a weakening of the market value of the hedge derivatives.

As from H2 2011, the revenues are adjusted by the hedged volume multiplied by the difference between the average market price for gold per quarter and the hedge price. The hedged sales volume in H2 was 9 000 oz.  Cost of the hedge in 2011 amounted to KSEK 31 346. Sales over this volume were at market price.

Total production in H2 2011 amounted to 11 761 oz. Since a total of 9000 oz were hedged, the remaining 2 761 oz was sold at market price. It should be noted that for the year 2011, the hedge covered only 2H, whilst for 2012, the hedge will apply to all four quarters by 4 500 oz per quarter or total 18 000 oz for the full-year.

Cash flow
At the end of the year, the cash balance amounted to MSEK 46.3 and total cash flow for the full-year 2011 amounted to MSEK -19.2. Investments were MSEK 22.4. Cash flow from operations amounted to MSEK 12.3.  This cash flow was lower than planned due to several factors: gold production was somewhat lower than budgeted and the head grade was also lower. The operating costs were higher due to the need for increased drifting in the underground mine, as well as due to general cost level increases during the course of the year.

CEO statement
I would like to highlight once again that that Endomines was successfully transformed from Exploration Company to Mining Company during 2011, a major milestone in our development.  The construction of the Pampalo Gold Mine and processing plant was completed entirely on schedule and in line with its budget. Commercial production started in February as planned. The ramp-up phase was completed during H1/2011, also according to schedule, and the mine and plant achieved full operational capacity of 230,000 tonnes/annum during Q3/2011. The mining and processing capacity were progressively increased to a level above 260 000 tonnes/annum before year-end. A successful start-up fully on schedule as well as on budget is unusual in this industry, and I am proud of the teams who have achieved this.

Nevertheless, we have faced some challenges during the year. The cave-in which occurred on July 28, incurred no significant changes to production as development was accelerated in other parts of the mine and we were able to use the ore stockpile as supplement where necessary. However, this acceleration of underground works combined with the need for increased ground support in certain areas of the underground mine have contributed to the higher than expected Cash Cost of 864 USD/produced payable oz.

Our head grade has also been slightly lower than our plans due to waste rock dilution. We have addressed this by increasing ground support as well as increasing plant throughput tonnage. During Q4/2011, we increased mining tonnage as well as underground drifting, using both outside contractors as well as our own drifting rig.

We have now received a brand new cable bolting rig to be used in the underground mine. The new rig will allow for flexible and efficient ground support work. With this and other improvements in the underground mine, we believe that during the coming year we can reduce waste rock dilution and improve the head grade.  This will have a positive effect on the economics as the lower grade ore in the mill feed can be replaced with higher grade ore.

The processing plant worked well and maintained high utilization rates from start-up and during the whole year.

After final adjustments to the gravimetric circuit, production started in November. First commercial deliveries were made in January. These gravimetric sales will, however, have a marginal impact on revenues given their relatively small volume compared to flotation concentrate.

Safety has been an important focus issue during the whole year.  Regular training and safety drills have contributed to the fact that there were no Lost Time Injuries during the Q4 period, which was an improvement over preceding periods.

I am glad to say that exploration has continued according to schedule during 2011 with an extensive exploration and drilling campaign starting last summer. Initial results have been promising and have confirmed the potential of the Karelian Gold Line. The intercept at Korvilansuo is significant and we shall be focusing further efforts there. We are still waiting for final assay results to come in as there have been significant delays in the mining laboratories due to the increased demand from the mining industry globally.

Outotec Oyj updated the Pampalo Gold Mine Mineral Resource and Ore Reserve Estimate as at December 31st. (see table on next page) Compared to the previous Pampalo resource and reserve estimate prepared in September 2010, the overall tonnage has decreased in line with the actual mine production carried out during 2010-2011. The inferred resources have also decreased as they have partially been converted to indicated resources and probable ore reserves by the infill drilling campaigns carried out during 2010-2011. The latest estimated ore reserve grade at Pampalo is lower than in the earlier estimate, as during 2011, waste rock dilution was higher than projected during the original project planning stage.

The company intends to increase its resource and reserve base during 2012 by continuing underground exploration drilling and extending the Pampalo decline to deeper levels. In addition, we continue to work on bringing the other Karelian Gold Line deposits on-stream in the future, starting in 2013.  Resource and reserves updates will be prepared and published in due course when all drilling information has been received and can be included in the estimate.

Pampalo Gold Mine Key production indicators[1]:

Q1/2011Q2/2011Q3/2011Q4/2011Q1-Q4 2011
Tonnes mined25 38244 05049 44157 872176 745
Tonnes processed35 79753 16956 91564 666210 547
Head grade (Au g/t)3.53.13,63,33.4
Hourly utilization63.490.586.793,385,3
Recovery (%)83.887.088.186.287,0
Gold produced (kg)105.4144.7182.1183.7615,9
Gold produced (oz)3 3904 6515 8555 90619 801
LTIFR (12 month rolling)3950423535
Cash Cost USD/oz1 136919675918864

[1] Production figures are final and based on the assay exchange procedure between Boliden Harjavalta Oy and Endomines Oy, Pampalo Gold Mine.

Pampalo Gold Mine Mineral Resource and Ore Reserve Estimate
Outotec Oyj has updated the Pampalo Gold Mine Mineral Resource and Ore Reserve Estimate according to the Australasian Code for Reporting of Mineral Resources and Ore Reserves (Joint Ore Reserve Committee - JORC-code) , which is the internationally accepted Australasian code for reporting ore reserves and mineral resources. This update represents the mine production situation as at 31st December 2011, as follows:

Reserve Class, cut-off 2 g/tTonnageAu g/tAu kg
Proven662 0003,42 244
Probable426 0002,71 143
Total Ore Reserve1 088 0003,13 386
Additional Inferred Mineral Resource, cut-off 1 g/t130 0003,5

The complete report will be published on the company web-page. The Mineral Resource and Ore Reserve Estimate is only for the Pampalo Gold Mine, Other Karelian Gold Line deposit resource and reserves updates will be prepared and published in due course as these deposits progress towards production and as their respective exploration results are available.

Calendar 2012

  • Annual report (in Swedish) will be available on the Company's website from 5 April, 2012
  • Annual General Meeting will be held on 26 April 2012
  • Interim reports will be published on:
    • Q1 -2012 23 May 2012
    • Q2 -2012 14 Aug 2012
    • Q3 - 2012 12 Nov 2012

A full interim report (in Swedish) is available on the Company's website.

For further information, please contact:
Markus Ekberg, CEO of Endomines AB
tel. +358 40 706 48 50
Or visit the Company's website at www.endomines.com

About Endomines AB

Endomines AB is a Nordic mining and exploration company with its first operating gold mine in production since February 2011. The Pampalo Gold Mine is targeting an annual production of 800 - 900 kg of gold as from 2012. The mine is located in Eastern Finland, on the Karelian Gold Line, a 40 km long gold critical belt, where Endomines controls all currently known gold deposits.

The company has several other gold and industrial mineral properties at various stages of development. All Endomines' mineral assets are located in Finland, which is politically stable, has a highly developed infrastructure and is ranked as one of the most favorable jurisdictions for the mining industry.

Endomines aims to increase shareholder value by developing its strong portfolio of assets, as well as exploring new deposits on the Karelian Gold Line and in Finnish Lapland. The company will also consider new opportunities and acquisitions for further growth.

The company's business practices and mining operations are based on sustainable principles and on minimizing the impact on the environment.

Endomines applies SveMin's & FinnMin's respective rules for reporting (public mining & exploration companies). It has also chosen to report mineral resources and ore reserves according to the JORC-code, which is the internationally accepted Australasian code for reporting ore reserves and mineral resources.

Endomines applies International Financial Reporting Standards (IFRS) as approved by the European Union.

Endomines AB shares are quoted on the First North Premier segment in Stockholm under ticker ENDO.ST. Erik Penser Bankaktiebolag acts as Certified Adviser and Liquidity Provider.

Read more about Endomines on www.endomines.com
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This news release may contain forward-looking statements, which address future events and conditions, which are subject to various risks and uncertainties. The Company's actual results, programs and financial position could differ materially from those anticipated in such forward-looking statements as a result of numerous factors, some of which may be beyond the Company's control. These factors include: the availability of funds; the timing and content of work programs; results of exploration activities and development of mineral properties, the interpretation of drilling results and other geological data, the uncertainties of resource and reserve estimations, receipt and security of mineral property titles; project cost overruns or unanticipated costs and expenses, fluctuations in metal prices; currency fluctuations; and general market and industry conditions.

Forward-looking statements are based on the expectations and opinions of the Company's management on the date the statements are made. The assumptions used in the preparation of such statements, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements.




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Source: Endomines AB via Thomson Reuters ONE

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