Record gold production in the third quarter
Third quarter 2010
* Sales were 50,2 MSEK (28,1 MSEK)
* Result before depreciation was 13,0 MSEK (-23,1 MSEK)
* Net loss was -1,8 MSEK (-28,4 MSEK)
* Basic result per share was -0,02 (-0,38)
* Goldproduction was 7 198 ounces (3 104 ounces)
January - September 2010
* Sales were 147,8 MSEK (73,6 MSEK)
* Result before depreciation was 15,8 MSEK (-51,2 MSEK)
* Net loss was -19,6 MSEK (-66,4 MSEK)
* Basic result per share was -0,24 (-0,97)
* Gold production was 17 983 ounces (12 327 ounces)
Overview
Comments by CEO, Kjell Larsson
Production at the Pahtavaara mine during the third quarter reached 7,198 ounces
and was the highest production since the operations resumed in early 2009.
October has also started in a promising way and we feel that our efforts to
increase the stability of the production from the mine are now showing results.
In addition to continuing the work with further strengthening our cash flows and
increasing the production from the Pahtavaara mine we focus on completing the
feasibility study for the Fäboliden project and to investigate the conditions to
bring Fäboliden into production.
Highlights during the third quarter 2010
* Production at the Pahtavaara mine reached 7 198 ounces of gold during the
third quarter which is the highest quarterly production since Lappland
Goldminers restarted mining production 2009.
* On 5 July, 2010 Lappland Goldminers announced that Golder Associates has
concluded an updated resource estimate. The updated resource estimate shows
that the measured and indicated mineral resource at a cut-off grade of 0.4
grams of gold per tonne amounts to 57.8 million tonnes with 1.05 grams of
gold per tonne and 2.75 grams of silver per tonne. In addition there is an
inferred mineral resource of 32.4 million tonnes with 1.04 grams of gold per
tonne and with 3.37 grams of silver per tonne. The new estimate shows that
both tonnage and gold grades in the measured and indicated mineral resource
are lower than previously reported estimates from 2008, which were also done
at a cut-off grade of 0.4 grams of gold per tonne. See also page 4 of this
report.
The gold grades in the updated mineral resource estimate requires a need to
consider alternative selective open pit and underground mining methods and
the need to define a new production optimum. The feasibility study is
expected to be finalized in the second quarter of 2011 instead of the third
quarter 2010 which previously has been communicated.
Subsequent events
* On October 18 the company announced that Henrik Grind has been appointed
head of operations for Lappland Goldminers' Finnish gold mine Pahtavaara. He
will retain responsibility for Ersmarksberget. Henrik Grind has extensive
experience in running mining operations and his primary responsibilities
will be to further implement measures to ensure stability of production and
to run the operations in a cost efficient manner.
* On October 18 the company also reported that a comprehensive efficiency
program is implemented. The measures undertaken during the autumn are
expected to reduce costs on an annualized basis by at least 10 million SEK
of which half will affect the income statement already during fourth quarter
2010. The full effect of the efficiency program is expected by mid 2011. The
efficiency program includes measures such as staff reductions, redeployment
of the underground ramp at Pahtavaara and smaller consolidated offices at
the head office in Lycksele.
Production
Pahtavaara
Gold grades in the ore delivered to the mill (ROM) recovered during the third
quarter and were significantly higher than during the second quarter. The
improvement is a result of previous work and planning which made mining of
richer ore possible.
The performance of the mining and milling operations was satisfactory during the
quarter but to further stabilize the production, increase the efficiency and
lower the costs of the operations Lappland Goldminers has appointed Henrik Grind
as head of operations at Pahtavaara and decided to move the location of the ramp
to a better position underground. Henrik Grind has extensive experience in
mining and operational activities.
On September 16 a fire broke out in the mine when a container caught fire and as
a result heavy smoke developed. No staff injuries occurred and damages on
material were limited. The production in the mine could resume on September 18.
The temporary halt in mine production had very limited affect on gold production
as feed to the mill could be taken from inventory of ore kept at surface level
during the period mine production was halted.
In order to increase the ore reserves and the mineral resources, at the
Pahtavaara mine, core drilling underground has been ongoing since April 2008.
During 2010 approximately 20,000 meters of underground drilling is planned,
which is similar to 2009. As the surroundings of the present mine are considered
unexplored by the company there may be significant undiscovered gold
mineralizations and systematic exploration around the immediate area of the mine
was therefore initiated in June 2009.
The shallow parts of the Länsi mineralization, located north-west of and
immediately adjacent to the existing mine, has been drilled and investigated
with 31 core drill holes and 13 reverse circulation holes (totally 4 700 meter).
Measured and indicated mineral resources, at a cut-off of 2.0 grams per ton, are
estimated to 60.0 thousand tonnes with 2.97 grams of gold per tonne, see table
below. The estimate is carried out by T. Lindholm (GeoVista AB) who is an
independent consultant and qualified person (QP), according to the Svemin, the
FinnMin and the JORC codes for reporting.
The Länsi mineral resource at cut-off of 2.0 grams per ton. For further
information see the news release dated 5 July, 2010.
Analyses are made by Labtium Oy that is accredited by FINAS (T025). The samples
are analysed with Fire Assay, Labtium code 705A and with Aqua Regia ICP, Labtium
code 511P.
As the mineralization is still open towards northwest and towards depth the
drilling program continues.
The surface drilling program includes about 6,000 meters and the major part will
be drilled at the Länsi mineralization. The drilling program is expected to be
finalized and analyzed by May 2011.
During the third quarter 2010 airborne geophysics (VTEM) were carried out which
cover the existing exploration licenses around the mine. The VTEM resulted in
that a number of geophysical anomalies were identified. To protect the most
interesting anomalies the company has applied for six new exploration licenses.
Drilling is currently ongoing to investigate the reasons for two of the
anomalies within the existing exploration licenses.
Fäboliden
Golder Associates, a renowned international consulting company, has finalised
their review of the mineral resource estimate which will, together with capital
investment and operating costs, form the basis of a new ore reserve calculation
which will be reported in the ongoing feasibility study.
The updated resource estimate shows that the measured and indicated mineral
resource at a cut-off grade of 0.4 grams of gold per tonne amounts to 57.8
million tonnes with 1.05 grams of gold per tonne and 2.75 grams of silver per
tonne. In addition there is an inferred mineral resource of 32.4 million tonnes
with 1.04 grams of gold per tonne and with 3.37 grams of silver per tonne. As
shown in the table below both tonnages and gold grades in the measured and
indicated mineral resource are lower than the previously reported estimates from
2008, which also used a cut-off of 0.4 grams per tonne.
Mineral resources in Fäboliden calculated with a cut-off of 0.4 grams of gold
per tonne.
Analysis are made by ALS Chemex with Fire Assay, ALS Chemex code AA-Au26 or AA-
Au15 and with Aqua Regia, ALS Chemex code ME-ICP41. Older holes are analysed by
SGS laboratory with Fire Assay, SGS code FA30 and FA50 and Agua Regia, SGS code
ICP70. The earliest drilled holes were analysed by Boliden Mineral
laboratory.The mineral resource estimate has been carried out by Mr. J. Alvarez,
Ms. A. Harrison and Ms. F. Jones (Golder Associates (UK) Ltd) and examined by
Dr. B. Shaw and Mr. A. Miller (Golder Associates Pty Ltd). Mr. J. Alvarez is a
Competent person (CP) in accordance with the JORC-code.
The updated mineral resource estimate also discloses the mineral resources at
different cut-off grades, see table below. An increased cut-off grade gives
lower measured and indicated tonnages but higher gold grades. The feasibility
study, which is presently conducted by Golder Associates, intends to find the
best possible mineral reserves, from a financial perspective, for future
production. The optimal financial outcome will be identified through evaluations
of alternative mineral resources with different cut-off grades and related costs
for production and investments. The work progresses according to plan and
Lappland Goldminers will release a status report during the fourth quarter this
year. The complete feasibility study is expected to be finalized in the second
quarter of 2011.
Measured and indicated mineral resources calculated with the cut-off of 0,40,
0,60, 0,80, 1,00, 1,20, 1,50, 1,60 och 1,80 och 2,00 grams of gold per tonne.
Ersmarksberget
During the fourth quarter of 2009, a drilling program was resumed to investigate
the previously identified Central and South One gold mineralization´s at depth.
Within the current mining concession, fourteen core drill holes were drilled
(3 400 meter). The analyses from eight holes aimed at Central and from two aimed
at South One, were finalized during the second quarter. The results indicated
that further drilling was required towards depth in the Central mineralization
to define a mineral resource. South One mineralization has been extended, as a
result of the drilled holes, and is still open to the south. For additional
detailed information of the drilling results see the news release dated 5 July,
2010.
The objective of the ongoing activities at Ersmarksberget is to define and
verify enough mineral reserves to allow for profitable mining. Preliminary
assessments, of the completed drilling program, give reason to consider further
drillings to ensure the gold grades and extension of the mineralizations.
Complete analysis and evaluations of the drilling results are ongoing and are
expected to be completed by the end of the fourth quarter 2010. If the outcome
of the drilling results is positive a decision regarding further drilling will
be taken and a mineral resource estimate will be finalized.
Outlook
Considering the high production during the third quarter and under the
assumption there are no disturbances of production, as occurred during the
second quarter 2010, the company believes the total gold production for 2010
will reach at least 22,500 ounces (700 kgs). During the second quarter 2010
production was negatively affected by high spring water a rock mechanical
problems.
Income Statement
Sales increased significantly during the third quarter 2010 compared to the
third quarter 2009 and reached SEK 50.2 million compared to SEK 28.1 million.
Compared to the second quarter 2010, sales increased by SEK 9.8 million. The
increase compared to the second quarter 2010 is due to higher gold production
and deliveries of gold from Pahtavaara. A total of 6,240 ounces of gold were
delivered from Pahtavaara during the quarter at an average price of 1,106 USD
per ounce. During the second quarter 2010 4,206 ounces of gold were delivered
from Pahtavaara at an average price of 1,265 USD per ounce. The lower realized
price in the third quarter compared to the second quarter is due to that more
middling and floatation concentrate were delivered, in the third quarter, in
relation to gravity concentrate. The payment terms for gravity concentrate are
more favorable than for middling and flotation concentrate.
The Pahtavaara operations contributed with a profit before depreciation of SEK
22.0 million during the quarter. The higher production during the third quarter
resulted in a lower unit cost of production which impacted the profit compared
to the second quarter 2010. Cash cost decreased from 981 USD per ounce to 624
USD per ounce. Maintenance costs at Ersmarksberget of SEK 4.0 million,
exploration costs of SEK 1.1 million and corporate costs of SEK 3.9 million
reduced the quarterly profit at Pahtavaara. The group recorded a profit before
depreciation of SEK 13.0 million during the third quarter 2010 which can be
compared to a loss of SEK 2.4 million for the second quarter 2010.
The maintanence costs at Ersmarksberget are due to the mill running on standby
mode to prevent it from dilapidation and treatment of excess water from the old
mining site.
Depreciation charges during the quarter of SEK 12.6 million are primarily due to
depreciation of capitalized ore development at Pahtavaara. Depreciation charges
are calculated using a unit of production method in relation to the remaining
ore reserves. Compared to the second quarter 2010, depreciation charges
increased by SEK 3.1 million as the proven and probable reserves are decreasing.
The high depreciation rate is expected to remain during the fourth quarter.
The net loss for the group during the third quarter was SEK 1.8 million compared
to a net loss of MSEK 28.4 million for the corresponding quarter 2009. The
improved earnings relate to improved production at Pahtavaara and the
corresponding increase in profitability.
Cash flow
The net change in cash position was negative by SEK 28,9 million during the
quarter. Cash flow from operations, before working capital changes, was positive
during the quarter and reached SEK 11.8 million which can be compared to
negative SEK 22,0 million for the third quarter 2009. The Pahtavaara operations
generated positive cash flow and contributed SEK 22.0 million during the
quarter, before working capital changes.
Total capital expenditures during the quarter were SEK 15.2 million of which
Pahtavaara accounted for SEK 13.0 million and costs associated with the
feasibility study at Fäboliden were SEK 0.5 million. Capital expenditures at
Pahtavaara are primarily related to ore development when the operations are
moving into new areas within the existing mine.
A somewhat higher inventory at Pahtavaara and lower accounts payable contributed
to negative working capital changes. The net change of working capital was
negative SEK 16,4 million.
During the third quarter the company repaid financial debt of SEK 8,9million.
Financial position
In order to enable a future expansion strategy for Fäboliden, Ersmarksberget and
Pahtavaara the company focuses intensely on improved cash flows with the
objective to strengthen the financial position. An efficiency program is ongoing
and includes a review of mining costs, staff reductions and reduced capital
expenditures. A sales process of the Haveri deposit was initiated during the
third quarter. However, further financing may be necessary to complete the
expansion strategy. As of 30 September, 2010, cash and bank balances were SEK
36,2 million and undrawn overdraft facilities approximately SEK 10.0 million.
Parent company
Sales, which are mainly internal, were SEK 0.3 million during the third quarter
2010. The operating costs are mainly group overhead costs for geology,
administration and group management and were SEK 5.4 million during the third
quarter 2010. Financial costs of SEK 8.3 million during the third quarter relate
mainly to external interest costs and exchange differences on intra-group loans.
Segmented Financial Information
(Excluding financial intercompany transactions)
Unit costs and realized gold prices.
July - Sept, 2010
January - Sept, 2010
The Gold Price
Other information
Major customers
The sales of the group presently come from the Pahtavaara mine. Pahtavaara
produces three types of gold concentrate: gravity concentrate, middling
concentrate and flotation concentrate. Currently, all concentrate is shipped to
three major customers in Europe and Asia.
Risks and uncertainties
A number of risk factors can have a negative impact on the operations of the
group and the parent company. External and internal factors can influence the
financial position and the growth of Lappland Goldminers. Factors, among others,
which can influence the company are the price of gold, currency risks, estimates
of mineral reserves and mineral resources, interest risks, liquidity- and
financing risks, electricity- and energy prices, key staff and employees,
permits, environmental factors and political risks. For further information
regarding risks and uncertainties see page 23 of the 2009 Annual Report of
Lappland Goldminers.
Environment
The operations of the company require, in many cases, permissions from
authorities. See page 23 of the 2009 Annual report of Lappland Goldminers for
further information regarding environmental impact.
Employees
The company and subsidiaries have 82 employees (2009 - 62) as of September
30, 2010. The company expects to have approximately 75 employees by year-end
2010. In addition to this, the Company engages consultants and contractors for
various projects on a continuing basis. Altogether the company and subsidiaries
engage the equivalent of 130 (2009 - 100) full time employees.
Reporting dates
Interim report January-December 2010 February 17, 2011
Annual Report
The Annual Report is found on the Company's web site with possibility for
downloading and printing.
Accounting principles
This report has been prepared in compliance with IAS 34 - Interim Financial
Reporting and according to Swedish "Årsredovisningslagen". The company applies
IFRS 3r and IAS 27r but concludes they have no material impact on the financial
statements. The same accounting principles have been applied as in the last
issued Annual Report. For detailed information regarding accounting principles,
see the Annual Report 2009.
Lycksele, 28 October, 2010
Kjell Larsson
Chief Executive Officer
The interim report for the period January - September 2010 has not been reviewed
by the company's auditors.
Conference call
The company plans to hold a conference call in connection with the interim
report on 28 October, 2010 at 14:00 CET. The telephone number is available on
the web sitewww.lapplandgoldminers.se.
For further information please contact:
Kjell Larsson, CEO Tel: 0950-275 06, 070-385 03 57 E-
mail:kjell.larsson@lgold.se
Anders Haker, CFO, Tel: 0708-108559, E-mail:anders.haker@lgold.se
The full press release including tables and chart can be downloaded from the
following link.
[HUG#1456312]
Lappland Goldminers AB (publ): Interim report January - September 2010
| Source: Lappland Goldminers AB
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