Operating Profit for Goldplat plc, Chairman’s Statement in full with Interim Results

Goldplat plc LON:GDP the AIM listed gold producer, with international gold recovery operations located in South Africa and Ghana and a gold mine in Kenya, announced this morning its interim results for the six months ended 31 December 2017.

Overview

• The Group reports an operating profit for the six-month period of £1,578,000 (six months ended 31 December 2016: £1,009,000).  Goldplat Recovery (Pty) Ltd (‘GPL’) performed exceptionally well, Kilimapesa Gold (‘KPG’) showed major improvements (despite production stoppages during the election period) and reduced substantial historical losses to near break-even, whilst Gold Recovery Ghana (‘GRG’), which performed exceptionally well during the six months ended 31 December 2016, reported lower profits in-line with forecast, not having the benefit during this period of the large clean-up performed for a major producer during 2016.
  
• Exchange rate fluctuations, especially on intercompany loans and receivables, resulted in unrealised foreign exchange losses impacting on profit before tax, reported at £832,000 for the period under review (six months ended 31 December 2016: profit of £1,354,000).  
  
• GPL and KPG increased production of gold and gold equivalents for the period, whilst GRG reported lower ounces produced during the period under review, in-line with forecast, not having the windfall of the clean-up during the 31 December 2016 period.
  
• The production of gold and gold equivalents for the six months’ period under review of 20,246 ounces (six months ended 31 December 2016: 21,317 ounces) compares favourably with the year forecast.
  
• The Group has maintained a healthy cash reserve of £918,000 (31 December 2016: £835,000) notwithstanding the repayment of interest bearing borrowings of £505,000 and GPL investing £800,000 in precious metals raw materials stockpiles.
• Capital expenditure of £1,009,000 for the period was primarily spent on the expansion of operations at GRG by way of the installation of an elution plant, with capital expenditure in South Africa and Kenya substantially completed for the foreseeable future.
  
• The elution plant in Ghana is in the commissioning stage and commercial production is imminent. 
  
• GPL and Rand Refinery have reached full and final settlement in the dispute between the two companies, paving the way for the revival of the long relationship with Rand Refinery which we trust will continue for the benefit of both parties.

Chairman’s Statement

I am delighted to report that Goldplat continues to deliver into its stated strategic objectives at its various operating subsidiaries. Our portfolio of core assets consists of two gold recovery operations in South Africa and Ghana, which recover gold from by-products of the mining process providing mines with an environmentally friendly and cost-efficient way of removing waste material, and the Kilimapesa Gold Mine in Kenya.  Having built a strong gold production profile, our focus is now to greatly increase output and profitability, leveraging our established African operations to support clients globally.

Key issues and initiatives during the period under review have been the resolution of the dispute between GPL and Rand Refinery; securing of feed material at GPL for the carbon-in-leach (‘CIL’) circuits; the installation of an elution plant at GRG; completion of Plant 2 construction, commissioning and achievement of sustainable production and profitability at KPG; and continued focus on sourcing of material from new locations, including the broader African continent and South America.

Revenues of £18,270,000 for the period represent a 27% increase on last year (6 months ended 31 December 2016: £14,415,000), in line with increased gold production and sales for the period. In line with this, I am pleased to report that operating profit increased by 56% to £1,578,000 (6 months ended 31 December 2015: profit of £1,009,000). Profit before tax of £832,000 for the six months ended 31 December 2017 decreased 39% (6 months ended 31 December 2016: profit of £1,354,000) having been negatively impacted upon by exchange rate fluctuations and consequent finance costs.

The net finance expense from continued operations of £746,000 includes a £438,000 unrealised foreign exchange loss on inter-company loans and receivables as well as £68,000 interest paid on the Scipion loan and £143,000 paid on pre-financing of receivables. Trade receivables include a provision for bad debt of £481,000 relating to the Rand Refinery dispute, of which £149,000 was accounted for in the previous years.

Cash and cash equivalents at the end of the period stood at £918,000 (compared to £835,000 at the end of December 2016 and £2,650,000 at end of FY 2017). The decrease from year-end FY 2017 can be primarily attributed to the acquisition, for cash, of a strategic stockpile of material for GRG as well as the ongoing repayment of the Scipion Loan (£505,000 during the period).

With regard to group production and sales, overall gold and gold equivalent production for the six-month period ended 31 December 2017 was 20,246 ounces (compared to 21,317 ounces produced in the period ended 31 December 2016 and 42,857 ounces produced in FY 2017). Total gold and gold equivalent sold and transferred for the period was 21,783 ounces (compared to 16,653 ounces in the period ended 31 December 2016 and 40,285 ounces in FY 2017). The difference between the gold and gold equivalent produced and the total gold and gold equivalent sold and transferred during the six months ended 31 December 2017 is primarily a result of the roughly 1,000 ounces of gold produced at GRG during FY 2017 being sold early in the period to 31 December 2017. The following table summarises gold production, transfers and sales for the period per operation:

Goldplat Recovery (Pty) Ltd (‘GPL’), South Africa

Key initiatives for the period at GPL:

• Sourcing of sufficient quantity of the right quality material, and specifically securing material for the carbon in leach (‘CIL’) circuits
• Resolution of the Rand Refinery dispute
• Progressing plans for the processing of the stock dam and selection of a site for subsequent final tailings deposition

Production of 13,968 ounces of gold and gold equivalents for the six-month period ended 31 December 2017 was up when compared to the 12,539 ounces of gold and gold equivalents for the six months ended December 2016.

During the period, terms of a settlement of the dispute between GPL and Rand Refinery were agreed and a Memorandum of Understanding (‘MOU’) was signed by the two parties early in January 2018 (see announcement of 12 January 2018). The MOU contained terms agreed to for inclusion in a Settlement Agreement, including agreement on an undisclosed amount to be paid by Rand Refinery to GPL in full and final settlement of the dispute. The Settlement agreement was also signed by the two parties on 22 February 2018 (see announcement of 22 February 2018). The finalisation of this represents a significant achievement, freeing up valuable management time to focus on the core operations of our business.

A large stockpile of raw material was purchased during the period to secure production through the CIL circuits. Metallurgical test work to optimise recoveries from this stockpile is ongoing. The gold content of our current raw material at the end of the period is estimated to exceed 1,000 kg (in excess of 32,000 oz) of gold for the first time since 2013, highlighting the focus and energy the sourcing team has put into finding the right materials for the operation.

Progress in securing the West 3 Pit for final tailings deposition (which will allow re-processing of the stock dam to begin) has been slow during the period with the Department of Mineral Resources and the current owners of the pit working on legal requirements for reclassification of the status of the pit. Whilst this process is outside of GPL’s control, Goldplat continues to engage with both parties. GPL is also investigating alternative options for final tailings deposition. During the latter part of the period, GPL started the refurbishment and configuration of its flotation circuit to allow the pilot plant test work programme for the Tailings Storage Facility material to commence – first results are expected in Q3 FY 2018.

Gold Recovery Ghana (‘GRG’), Ghana

Key initiatives during the period at GRG:

• Installation and commissioning of the new elution plant and ancillary infrastructure
• Tailings retreatment project in conjunction with the government
• Continued diversification of sourcing material from outside of Ghana

Production for the six months to 31 December 2017 was 3,597 ounces of gold and gold equivalents (compared to a total of 7,588 ounces produced for the six months to 31 December 2016 and 10,031 ounces produced during FY 2017). The reduction in production is largely a result of a large-one off contract last year greatly increasing production for the comparative period.  Furthermore, despite the apparent decrease, production is in line with the year plan and the nature of the material being processed means that profitability is higher and financial results for GRG are therefore expected to remain in line with budget.

Whilst production targets for the year remain on track, our strategic focus continues to be on sourcing sufficient by-product material and increasing capacity if required to enable the increase in output to roughly 20,000 ounces of gold within 2-3 years.  Commissioning of the elution plant began during the period as planned and is ongoing. Final completion of the ancillary infrastructure is expected by the end of February 2018 with the first gold pour and official opening of the plant planned for March 2018.

Good progress has been made during the period with sourcing of material from outside Ghana, including shipments from West Africa and elsewhere in Africa as well as South America. Regular and sustainable shipments are now being received from three different South American producers.

During the period the previously acquired second-hand Fluidised Bed Incinerator arrived in Tema.  The unit is intended mainly for the treatment of lower grade materials being sourced from South America, and once installed is designed to increase incinerator throughput by circa 33%.

Alongside our efforts to increase market reach, we have also identified an opportunity to maximise the environmental value of our recovery services and are currently in talks with the Government of Ghana regarding a potential project to clean-up artisanal tailings in-country.  In support of this, a pilot plant was delivered to Ghana during the period to test and reprocess artisanal material. The Government has subsequently decided to delay the project pending formalisation of a coordinated programme of the artisanal tailings clean-up and the simultaneous rehabilitation of land in the test area. A steering committee has been set up to manage these efforts and a GRG Board member is a member of this committee.  We look forward to continuing to work with the Government to finalise plans for this potential work partnership.

Finally, looking at future growth plans, most of the material from the previous tailings storage facility on site has now been removed and the area has been levelled. This has freed up significant land for expansion and has also reduced potential environmental liabilities significantly. Before any future construction on this area is embarked upon, ground preparation work will need to completed.

Kilimapesa Gold (‘KPG’), Kenya

Key initiatives during the period at KPG:

• Production from the Kilimapesa Hill Mine of sufficient quality and quantity to keep Plant 2 operating at capacity and profitably
• Mitigation of exposure to diesel and difficulties experienced in diesel supply

Production of 2,681 ounces of gold and gold equivalents for the six-month period ended 31 December 2017 was up when compared to the 1,190 ounces for the six months ended December 2015 and 3,408 ounces for FY 2017.  The increase in production is a result of the successful build-up of production at Plant 2 as well as increased ore mined in the Kilimapesa underground mine. Despite the production increases, KPG had a slightly disappointing second quarter, mainly due to lost production as a result of disruption to diesel supplies (resulting from election-related political unrest) as well as problems relating to the importing of critical parts for the primary crusher. The crusher issue has subsequently been resolved.

A second diesel generator was installed at the new Plant 2, to provide additional power for the mill to increase the overall production throughput.  Increased diesel storage capacity has been installed, an additional diesel supplier with more reliable delivery routes has been engaged, and steps are being put in place to begin the process of installing grid power to Plant 2 that will reduce the overall power generation cost significantly.

Furthermore, during the period permission was granted to export gravity concentrates quarterly (previously only authorised to export once per year), which should improve cashflow. A refurbished drier is being shipped from GPL to KPG to enable beneficiation of concentrates to be completed efficiently on-site without the need to export to South Africa.

National elections caused modest production disruptions during the period (with employees having to take time off to vote) and the ongoing protests and unrest associated with the elections continue to cause disruptions to diesel supply.

All agreements with land owners and the local community have been successfully renegotiated. In anticipation of the eventual closure of Plant 1, site preparation has begun for new accommodation closer to the mine and Plant 2.

A local Kenyan national has been appointed as plant manager at Plant 2, replacing the South African expatriate who has completed his time at KPG.  In addition, local nationals have been employed in the administrative function, again to replace the previous South African expatriate.

KPG remains on track to achieve planned production of 5,800 oz of gold in FY 2018, despite the poor production in the second quarter.

Anumso Gold Project (‘Anumso’)

In September 2016 Goldplat executed an earn-in option agreement with Ashanti Gold Corp. (‘Ashanti’), a TSX-Venture Exchange listed company, which gives Ashanti the option for a US$3 million earn-in to the Anumso Gold Project.  On 16 January 2018 it was agreed to extend the Vesting Date of the Initial Option period by six months to 31 October 2018 (refer to announcement of the Modification of the option terms made on 16 January 2018 and the announcement of the Anumso Gold Project Earn-in Option Agreement made on 15 September 2016).

Whilst the Vesting Date has been extended, Ashanti continues to make good progress in advancing the project.  During the period Ashanti announced metallurgical test work results, which demonstrated encouraging recoveries. The soil sampling on the project continues and extensive trenching is planned to begin in February 2018.

Post-Period End

Significant progress can be reported subsequent to 31 December 2017:

• The Settlement agreement between GPL and Rand Refinery was entered into on 22 February 2018.
• Mr Cyril Ramaphosa was elected as President of the Republic of South Africa following the resignation of Mr Jacob Zuma. This is seen as very positive for the country and President Ramaphosa has already agreed with the Chamber of Mines to postpone a High Court application to review the Mining Charter.
• Good progress continues regarding sourcing of material for GRG with a delayed shipment of by-product material on-route to GRG from an existing East African client and a very successful trip to Peru in February 2018 likely to yield a number of new clients.
• In Kenya the re-elected president has embarked upon a cabinet re-shuffle, including the appointment of a new Cabinet Secretary for the Ministry of Mining and Petroleum.

Outlook

Profits from operating activities continue to improve and to produce the cashflows to enable us to invest in positioning Goldplat’s businesses for the future.  We continue to place great emphasis on improving longer term visibility for our gold recovery operations by stockpiling materials for future processing and expanding our sources for such materials.  The initiatives in South America and across the wider African gold-producing areas to source such materials are encouraging.  We continue to deliver on our plans to develop operations at Kilimapesa to deliver meaningful profitability and whilst we might continue encounter issues beyond our control, the outlook is positive.

Matthew Robinson
Chairman
26 February 2018