Alhambra Resources Ltd.
TSX VENTURE : ALH

Alhambra Resources Ltd.

May 03, 2010 14:43 ET

Alhambra Announces Year 2009 Financials and Operational Results

CALGARY, ALBERTA--(Marketwire - May 3, 2010) - Alhambra Resources Ltd. (TSX VENTURE:ALH) ("Alhambra" or the "Corporation") announces its financial and operating results for the year ended December 31, 2009. All amounts related to the financial results are expressed in United States dollars unless otherwise indicated.

YEAR 2009 HIGHLIGHTS

  • Alhambra re-acquired 100% of the shares and assets of Saga Creek Gold Company LLP ("Saga Creek") on September 15, 2009
  • An independent Preliminary Economic Assessment ("Scoping Study') was completed which, for the first time, placed a value on the National Instrument ("NI") 43-101 compliant resource estimate for the Uzboy Gold Deposit
  • The re-acquisition of Saga Creek resulted in the Corporation fair valuing its mineral assets at $84.5 million, its gold in work in progress at $14.0 million and recognizing a one-time gain of $68.9 million
  • Revenue from mining operations and gold sales from the date of re-acquiring the assets of Saga Creek amounted to $6.2 million based on the sale of 5,606 ounces ("ozs") of gold
  • The re-valuation of Saga Creek's assets resulted in a reported net income of $66.8 million ($0.87/basic share)
  • Funds flow utilized in operating activities was $0.4 million ($0.01/basic share)
  • Generated positive funds flow of $1.0 million ($0.01/basic share) from mining operations at Saga Creek
  • Due to the fair valuation of an estimated 30,901 ozs of gold in work in progress at an estimated fair value of $14.0 million at September 15, 2009, cash operating costs increased to $651.18 per ounce of gold sold
  • Capital expenditures amounted to $0.4 million

BACKGROUND

On September 15, 2009 the ownership of Alhambra's 100% owned operating subsidiary in Kazakhstan, Saga Creek Gold Company LLP ("Saga Creek") was officially re-registered back into the name of Alhambra as a result of the Supreme Court of the Republic of Kazakhstan's decision on August 12, 2009 to overturn the decisions of the lower courts of Kazakhstan which had invalidated the original agreement under which Alhambra had purchased Saga Creek. This decision effectively dismissed the plaintiff's claim that had originally been filed on September 26, 2008.

As a result of this re-registration, Alhambra re-acquired the ownership of Saga Creek for a consideration of $nil. Alhambra had taken a $30.6 million write down in the fourth quarter of 2008 based on decisions made by the lower courts of Kazakhstan that had determined that the purchase agreement by which Alhambra had acquired Saga Creek was invalid.

In recording the gain, Alhambra undertook a review of the net identifiable assets and liabilities at the date of re-registration and, where available, third party information (including the NI 43-101 compliant report entitled "Resource and Reserve Estimation Study on the Uzboy Gold Deposit, Akmola Oblast Kazakhstan" with an effective date of December 31, 2007 prepared by ACA Howe International Ltd. available on SEDAR at www.sedar.com, see News Release dated June 5, 2008) was utilized in determining these provisional fair values. In determining the fair value of Saga Creek's assets upon re-registration, the Corporation made assumptions about reserves, recovery rates, prices, operating, general and administration costs and capital costs and future income tax rates as well as made assumptions in determining the Corporation's weighted average cost of capital used to discount the annualized cash flows that were derived from the modeling work done. These values are management's best estimates based on current information and are preliminary in nature. The Corporation recognizes there may be changes once the calculations are finalized and that those changes could be material.

In the third quarter of 2009, the Corporation initially recorded an unaudited one-time provisional gain of $76.3 million ("M") ($1.00/basic share) related to the revaluation of those assets. With the auditing of year end 2009 financials, certain adjustments were made to the values initially calculated, in particular to future income taxes, resulting in a revised one-time provisional gain of $68.9 M ($0.90/basic share) (see Table 1).

TABLE 1 – Summary of Net Identifiable Assets and Liabilities of Saga Creek

  Fair values recognized on re-acquisition at September 15, 2009  
Cost of re-acquisition $  
Fair value of assets and liabilities:      
Cash   1,234,898  
Accounts receivable   1,400,111  
Deposits and prepaid expenses   391,956  
Supplies inventory   1,088,399  
Work in progress   14,000,000  
Mineral assets   84,505,496  
Fair value of assets re-acquired   102,620,860  
Accounts payable and accrued charges   (4,083,317 )
Asset retirement obligations   (165,618 )
Future income taxes   (29,505,575 )
Gain recognized on re-acquisition of former subsidiary $ 68,866,350  

UZBOY GOLD DEPOSIT PRELIMINARY ECONOMIC ASSESSMENT ("SCOPING STUDY")

A National Instrument ("NI") 43-101 compliant Preliminary Economic Assessment or Scoping Study (the "Study") was completed on the Uzboy gold deposit in December 2009. The Study results demonstrated that the Uzboy gold deposit generates positive Net Present Value ("NPV") at gold prices well below that of current gold prices and recommends completion of a pre-feasibility study on the Uzboy gold deposit.

The Study titled "Updated Scoping Study On The Oxide, Transitional, and Primary Resources at the Uzboy Gold Deposit, Akmola Oblast, Kazakhstan" dated December 10, 2009, was independently conducted and prepared by ACA Howe International Limited ("ACA Howe") and is based on the NI 43-101 compliant resource estimate established by ACA Howe in its Technical Report titled, "Resource and Reserve Estimation Study on the Uzboy Gold Deposit, Akmola Oblast, Kazakhstan for Alhambra Resources Ltd", dated June 2, 2008, having an effective date of December 31, 2007 (see news release dated December 14, 2009).

Highlights of the Scoping Study Include

  • A gold price of US$850 per ounce was used for all scenarios,
  • Open pit optimization was completed for 16 scenarios, with positive net present value ("NPV") being generated for all input and operating scenarios. Each scenario tested a range of resource, capital, cut-off grades and geotechnical inputs. A number of these scenarios included Inferred mineral resources and a 60 degree pit slope angle for mining the sulphide resources. All scenarios were positive, however, eight scenarios were excluded from the analysis as they were completed at a 0.0 grams per tonne ("g/t') gold cut-off grade,
  • The NPV for the remaining eight pit optimizations, based on a 0.4 g/t gold cut-off, discounted at 10%, ranged in value from US$90 M to US$203 M (see Table 2),
  • The most feasible pit design, optimized without engineering factors, Scenario 2.2.1, generated a 10% discounted NPV of US$130 M over a 6 year mine life, gold production of 636,000 ozs at an average gold grade of 1.50 g/t,
  • The engineered pit design, derived from an optimized pit shell, Scenario 1.2.1, generated a 10% discounted NPV of US$90 M over a 3-4 year mine life, optimized gold production of 431,000 ozs at an average gold grade of 1.75 g/t,
  • Scenario 2.2.2, which is based on an optimized pit without engineering factors, highlighting the potential at Uzboy, generated a 10% discounted NPV of US$203 M over an 8 year mine life, gold production of 914,000 ozs at an average gold grade of 1.50 g/t,
  • Significant quantities of primary resources (gold mineralization that has been classified as CIM compliant mineral resources) exist below the optimized designed pit shell. Only 50.4% of the established December 31, 2007 gold resources was included in the generation of the optimal pits,
  • A recommended future work program to advance the Study to pre-feasibility.

Mineral resources that are not mineral reserves do not have demonstrated economic viability

Summary – Pit Optimizations

Open pit optimization was completed for 16 scenarios, with positive NPV being generated for all input and operating scenarios. Each scenario tested a range of resource, capital and geotechnical inputs. A number of these scenarios included Inferred mineral resources (Scenarios 2.x.x) and a 60 degree pit slope angle (Scenarios x.x.2) in order to establish the potential for further improvements in NPV.

All scenarios were positive, however, eight scenarios were excluded from the analysis as they were completed at a 0.0 grams per tonne ("g/t') gold cut-off grade.

A summary of major parameters for the selected discounted optimal pits generated at a cut-off of 0.4 g/t gold, discounted at 10%, ranged in value from US$90 to US$203 M as summarized in TABLE 2.

TABLE 2 - Summary of Discounted Optimal Pits

Scenario Pit # Life of Project (years ) Total pit tonnage (M t ) Mineable tonnage (M t ) Gold Grade (g/t ) Recoverable Gold (000' oz ) Gold Produced (000' oz ) NPV (M$ )
1.1.1 33 5   62.9   9.1   1.79   525   410   90  
1.1.2 34 7   91.5   12.4   1.74   690   549   126  
1.2.1 35  3-4   71.0   9.8   1.75   550   431   90  
1.2.2 35 5   134.6   15.5   1.63   812   651   143  
2.1.1 34 9   105.2   16.5   1.50   800   625   113  
2.1.2 32 12-13   161.3   23.0   1.52   1,122   896   165  
2.2.1 32 6   109.8   16.9   1.50   813   636   130  
2.2.2 31 8   173.3   23.7   1.50   1,143   914   203  

Of the eight scenarios completed at the 0.4 g/t gold cut-off, Scenarios 1.2.1, 2.2.1 and 2.2.2 were chosen as being representative of the range of values of the discounted optimal pits.

FINANCIAL HIGHLIGHTS

The financial results for 2009 are for the period from the date of re-acquisition of Saga Creek on September 15, 2009 to December 31, 2009 while the financial results for 2008 are for the period from January 1, 2008 to December 26, 2008, being the effective date the ownership of the Kazakhstan Subsidiaries was lost. As a result, the financial results recorded for 2009 are not necessarily comparative to the financial results for 2008.

(in US$ except per share amounts) Three Months ended December 31   Year ended December 31  
  2009   2008   2009 2008  
Gross revenue $ 5,034,064   $ 4,772,685   $ 6,160,094 $ 14,852,032  
Net income/loss   (8,202,362 )   (31,687,984 )   66,752,153   (33,674,123 )
  Per share (basic)   (0.10 )   (0.41 )   0.87   (0.44 )
  Per share (diluted)   (0.10 )   (0.41 )   0.81   (0.44 )
Weighted average shares outstanding   81,074,421     75,774,147     76,688,989   75,701,163  
Shares outstanding at end of period   81,074,421     75,774,147     81,074,421   75,774,147  

For the year ended December 31, 2009, the net income for the Corporation was $66,752,153 ($0.87/basic share and $0.81/diluted share) compared to a net loss in 2008 of $33,674,123 ($0.44/basic and diluted share). Funds flow used in operating activities was $401,877 ($0.01/share) for the year 2009 compared to positive funds flow from operating activities of $601,441 ($0.01/share) for the year 2008. Mining operations at Saga Creek contributed positive funds flow of $1.0 million for the period September 15, 2009 to December 31, 2009.

GOLD SALES

During the period September 15, 2009 to year end 2009, the Corporation recognized $6.2 million in revenue from the sale of 5,606 ozs of gold at an average price of $1,098.84/oz. This compares to $14.9 million in revenue from 17,464 ozs of gold sold in 2008 at an average price of $850.44/oz.

OPERATING EXPENSES

Operating expenses consist of all costs associated with the production of gold, (including direct costs incurred in the mining, leaching and resin stripping processes ("process operating costs")), transportation and refining of the cathodic sediment and royalties paid to the government of Kazakhstan. All process operating costs are charged to work in progress and are expensed on the basis of the quantity of gold sold as a percentage of total recoverable gold mined.

Operating costs for the period from September 15 to December 31, 2009 totaled $3,650,538 (2008 year - $9,799,464) or $651.18/oz (2008 year - $561.12/oz) of gold sold.

The increase in per unit operating costs was primarily the result of the $14,000,000 estimated fair value assigned to the work in progress at September 15, 2009 which equates to $453.06/oz of gold in work in progress initially acquired as part of the re-acquisition. The remainder of the amount is the cost related to processing further this work in progress to gold that is ready for sale. The 2008 figures reported were based on actual production costs. 

OPERATING HIGHLIGHTS

During the period September 15, 2009 to year end 2009, the Corporation stacked a total of 303,383 tonnes of ore at an average grade of 0.91 grams per tonne ("g/t") of gold onto the pad. The estimated recoverable gold mined totalled 5,799 ozs. The estimated recoverable gold classified as work in progress was 31,094 ozs as of December 31, 2009. In addition, the Corporation mined 854,781 tonnes of waste during this same period.

CAPITAL PROGRAM

In 2009, Alhambra spent $0.4 million in capital expenditures on Saga Creek's mining projects. With the re-acquisition of Saga Creek on September, management concentrated its efforts on re-assessing Saga Creek and its operations and as a result no material capital expenditures were incurred.

FOURTH QUARTER 2009 RESULTS

During the fourth quarter of 2009 Alhambra realized $5,034,064 from the sale of 4,501 ozs of gold at average price of $1,118.43/oz. In the fourth quarter of 2008, sales revenue totaled $4,772,685 from the sale of 6,100 ozs of gold at an average price of $782.41/oz. The average grade of ore mined during the fourth quarter of 2009 was estimated to be 0.93 g/t as compared to an estimated 1.30 g/t in the fourth quarter of 2008.

The introduction of the new 5% mineral extraction tax resulted in an expense for the fourth quarter of 2009 totaling $283,934. As the tax became effective January 1, 2009 there was no comparable expense in the fourth quarter of 2008.

Operating costs for the fourth quarter of 2009 were $3,232,489 or $718.17/oz compared to $3,413,846 or $559.65/oz for the fourth quarter of 2008. The increased per unit operating costs are a result of the $14,000,000 estimated fair value assigned to the work in progress at September 15, 2009 which equates to $453.06/oz of gold in work in progress at that date. The 2008 per unit amount is based on the actual cost of producing gold.

Alhambra recorded a net loss for the fourth quarter of 2009 of $8,202,362 or $0.10 per share basic and diluted principally because of a $7,474,233 adjustment to the gain on the re-acquisition originally recorded at September 15, 2009. The adjustment was principally the result of an increase in the future income tax rates offset by an increase in the fair value of certain assets acquired as part of the re-acquisition, principally work in progress. This compares to a net loss for the fourth quarter of 2008 of $31,687,984 or $0.41 per common share, basic and diluted. Included in the 2008 fourth quarter loss was $30,965,442 related to the write-off of investment in Saga Creek. Before the adjustment to the gain in 2009 and the write off in 2008, the net loss for the fourth quarter of 2009 was $728,129 as compared to a fourth quarter 2008 reported loss of $722,542.

Mining operations continued to show positive earnings, which totaled $113,476 for the fourth quarter of 2009 prior to the downward adjustment to the gain. This compares to a fourth quarter loss in 2008 of $119,850. In the fourth quarter of 2009, Alhambra recorded a loss from corporate activities of $841,605 as compared to $602,692 recorded for the fourth quarter of 2008.

AUDITED FINANCIAL STATEMENTS AND MANAGEMENT DISCUSSION AND ANALYSIS ("MD&A")

The Corporation's 2009 audited financial statements and MD&A are available on the Corporation's website, can be obtained on application from the Corporation and are available under the Corporation's profile on SEDAR at www.sedar.com.

ABOUT ALHAMBRA

Alhambra is a Canadian based international exploration and gold production corporation celebrating its eighth year of operations in the Republic of Kazakhstan. Alhambra holds exploration and exploitation rights to a 2.7 million acre (11,000 km2), 100% owned, license called the Uzboy Project, located in the prolific Charsk Gold Belt which hosts numerous world-class gold deposits. Over 100 mineral targets, including 5 advanced exploration plays are contained within the Uzboy Project.

Alhambra common shares trade in Canada on The TSX Venture Exchange under the symbol ALH, in the United States on the Over-The-Counter Market under the symbol AHBRF and in Germany on the Frankfurt Open Market under the symbol A4Y. The Corporation's website can be accessed at www.alhambraresources.com.

Elmer B. Stewart, MSc. P. Geol., a technical consultant, is the Corporation's nominated Qualified Person. Mr. Stewart has reviewed the technical information contained in this news release.

Forward-Looking Statements

Certain statements contained in this news release constitute "forward-looking statements" as such term is used in applicable Canadian and US securities laws. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management. In particular, statements that Alhambra will sell the recoverable gold classified as work in progress in the next few years, availability of capital to fund ongoing projects and other factors and events described in this news release should be viewed as forward-looking statements to the extent that they involve estimates thereof. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as "expects" or "does not expect", "is expected", "anticipates" or "does not anticipate", "plans, "estimates" or "intends", or stating that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved) are not statements of historical fact and should be viewed as "forward-looking statements". Such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Corporation to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks and other factors include, among others, costs and timing of exploration and production development, availability of capital to fund exploration and production development; political, social and other risks inherent in carrying on business in a foreign jurisdiction, the effects of a recessionary economy and such other business risks as discussed herein and other publicly filed disclosure documents. Although the Corporation has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could vary or differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements contained in this news release.

Forward looking statements are made based on management's beliefs, estimates and opinions on the date the statements are made and the Corporation undertakes no obligation to update forward-looking statements and if these beliefs, estimates and opinions or other circumstances should change, except as required by applicable law.

This news release contains forward-looking statements based on assumptions, uncertainties and management's best estimates of future events. When used herein, words such as "intended" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on assumptions by and information available to the Corporation. Investors are cautioned that such forward-looking statements involve risks and uncertainties. Actual results may differ materially from those currently anticipated. The forward-looking statements contained herein are expressly qualified by this cautionary statement.

Neither the TSX Venture Exchange Inc. nor its Regulation Services Provider (as that term is defined in the Policies of the TSX Venture Exchange Inc.) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • Alhambra Resources Ltd.
    Ihor P. Wasylkiw
    Chief Information Officer
    +1 (403) 508-4953
    or
    Alhambra Resources Ltd.
    Donald D. McKechnie
    Chief Financial Officer
    +1 (403) 228-2855