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ANGUS & ROSS PLC

PRELIMINARY RESULTS

Highlights

•    Bankable Feasibility Study completed

•    Mining licence granted for Black Angel 

•    Geological studies received showing further potential for new deposits

•    Loss for the year £4,259,213 

•    Post year end equity raising of £3.5 million gross

•    Cash at bank £2,233,363 at year end

•    Further construction delayed until project financing finalised

Chairman's statement

INTRODUCTION

Despite very difficult market conditions, Angus & Ross ('A&R') is making steady progress towards the 
re-opening of the famous Black Angel zinc/lead mine in west Greenland. This progress is much slower 
than originally hoped largely due to the delays in securing project finance. Recently it was decided to 
delay further construction until next year. This decision recognised that the field season in Greenland, 
when construction is practical and safe, is now limited. However, in view of the low current prices of zinc 
and lead, the deferment of production should not impact the long term value of the project.

FINANCIAL RESULTS

The loss for the year amounted to £4,259,213 (2007: £4,365,404); cash at bank at the year end amounted 
to £2,233,363 (2007: £3,957,526).

OVERVIEW

In July 2007, we concluded the arrangement of a line of credit of up to $30 million from Cyrus Capital Partners LP and, in May 2008, we were granted a mining licence to re-open the Black Angel mine in Greenland. These positive events have coincided with a decline in the zinc price from $3,500 tonne to the current $1,615, one of the severest 
credit crunches of the last 30 years and operating costs rising due mainly to a doubling of oil prices. In July last year, the Company drew down the first tranche of $12.5 million; many of the conditions required to enable us to draw down the second tranche have been fulfilled but further work is required to comply with the remainder. Negotiations are continuing to source the balance of the capex finance (about $30 million) to enable production to start. 

During the year, the reserves at the Glacier Zone were increased following a successful drilling programme so that the total JORC standard resource base is now over 4.4 million tonnes. A Bankable Feasibility Study was received in February covering Phase 1 of the Black Angel project, namely the extraction of 707,000 tonnes of high grade material from the mine itself. Further review of the Study by management and technical staff of the Company concluded that 1.3 million tonnes could be extracted in Phase 1 of the project.

Recently, and with the critical support of its major shareholder RAB Capital, the Company completed a small equity raising of £3.5 million. 

GRADE 

The Black Angel project has one of the highest grade and highest quality ores available in the world today. Much of the ore that Black Angel Mining A/S is planning to extract in the early years is graded at over 20% zinc and lead combined. This figure compares with the world average of all zinc production of 7%.

ZINC PRICE RECOVERY

Most market analysts are predicting a 'second wave' of high prices from around 2010/2011 - at a time which, all being well, could coincide with the first year of full scale production at the Black Angel mine. The A&R team is working on proposals to reduce its operating cost base so that it can still achieve target profitability, albeit with lower market prices for zinc and lead.

EXPLORATION AND THE DEEP ICE ZONE

The management team has been concentrating on the re-opening of the Black Angel mine, and, in consequence, no exploration drilling is being undertaken this year. Access to the mine via the cable car is an important first step in conducting exploration in the mine itself. In particular, one of the enticing opportunities the Company will then have is to inspect the Deep Ice Zone, which is at the far end of the mine behind a concrete barrier. This was installed by Cominco, the original operators of the mine, to control water outflow after they had started to extract high grade ore from this zone. About 750 metres away, offsetting the mined zone and outside the mine, several exploration holes were drilled through the ice and came across substantial mineralisation. One of these intersected 6.9 metres of mineralisation with grades of over 33% of combined zinc and lead. The hope is that this mineralisation can be proved to be extensive as exploration in that area was not definitive. 

After the granting of the mining licence our landholdings at Black Angel consist of 52 sq km of the mining licence and 207 sq km of exploration licences. As mentioned earlier a significant discovery was made in 2006 near the mine at the Glacier Zone where an outcrop has developed into a minimum of 1.7 million tonnes of average combined zinc and lead grade of 9.4%. This discovery remains open at depth. 

During the year, Irish zinc specialist consultants Aurum were asked to review some of the exploration data 
in the Black Angel area and in summary said, 'The area is challenging but has immense potential for the discovery of new resources due to the widespread occurrence of high grade mineralisation and a new structural understanding of the area.'

OTHER ASSETS:

MOTZFELDT

It should be remembered that A&R, through its subsidiary Greenland Resources Ltd, also has important exploration interests at Motzfeldt in the south west of Greenland. This is an area which according to the Mining Journal (November 2007 edition, Special Tantalum Supplement) has the world's fourth largest tantalum and niobium deposit. The deposit also contains some low grade uranium. When A&R completed a scoping study in 2003/4, no credits were included for either the niobium or the uranium. However, with niobium prices increasing from about $6/lb to around $18/lb and the current ban on uranium exploration being re-considered by the Government of Greenland, there is reason to believe the Motzfeldt project 
could be attractive to another specialised mining or exploration company.

BRAZIL

All of the Brazilian interests are held by a private, 62% owned, subsidiary called St Andrews Mining Ltd ('SAM'). This company has a portfolio of largely gold exploration interests and hence requires capital, which has been difficult to find in current market conditions. Fortunately outside investors have kept SAM on a care and maintenance basis whilst all options are considered.

AUSTRALIA

A&R own 28% of Queensland Gold and Minerals Ltd, which is quoted on the Australian Stock Exchange. This company owns a portfolio of mainly Queensland located exploration properties and, rather like SAM, needs capital to continue exploring. Local management is attempting to arrange new finance, which is likely to result in dilution of A&R's percentage ownership. Again, this historic holding is no longer a core asset of A&R and will be sold in due course.

CHANGES OF DIRECTORS, MANAGEMENT AND PROFESSIONAL ADVISERS

Towards the end of 2007 your Board instituted several changes in personnel and advisers in preparation 
for the changes that are inevitable and necessary when an exploration company takes on the challenge 
of putting a mine into production.

In particular, the Company welcomed Mr Nicholas Hall onto the Board to relieve me, as Chairman, of my role as Chief Executive Officer. Mr Hall trained as an accountant before working in the mining industry with Rand London Ltd in South Africa, Geevor in the UK and PBS Coals Inc. in the USA. 

Another important appointment was that of Mr Tim Daffern as Director of Mining and Exploration. Mr Daffern is a Chartered Mining Engineer and, for the last four years, had worked as Technical Director with Wardell Armstrong International Ltd, who carried out the work on the Bankable Feasibility Study for the Black Angel mine.

We were also pleased to welcome Mr Chris Innis as a Non-executive Director. Mr Innis was formerly a corporate financier with Hambros Bank, an owner of the Mining Journal and a Director of AIM Resources. His experience is particularly relevant to A&R as the Company works through this period of change.

On behalf of the Company, I would also like to express my grateful thanks to Mr Richard Burt and Mr Malcolm Swallow, both of whom retired as Non-executive Directors on 1 February 2008. The contribution they both made was invaluable.

In November 2007 the Company also appointed Fox-Davies Capital as brokers while retaining the services of Landsbanki Securities as nominated adviser.

THE FUTURE

We are now a company with a mining licence to re-open an historically rich zinc mine in a politically stable area of the world. Currently the share price reflects neither the mine's profit potential nor the exploration potential of the area. I expect this to be remedied, at least in part, when full project financing is confirmed.

In conclusion, I would like to thank all the Board, the management and staff who have, together, coped with significant changes in the Company and its organisation.

I appreciate it has also been a disappointing year for shareholders but despite the uncertainties in financial markets, we are confident that the Black Angel mine, with its high grade ore and its potential to host other rich deposits, will prove to be an attractive investment. 

Robin Andrews

Chairman

29 August 2008

Extract from Directors' report

Risks and Uncertainties 

The Company is subject to a number of risk factors due to the fundamental nature of the mining business in which it is engaged, not least adverse movements in commodity prices, which are impossible to forecast. A&R seeks to counter this risk as far as possible by selecting exploration areas on the basis of their recognised geological potential to host high grade deposits. At the same time, the area of under-explored Proterozoic terrain on which the Company focuses in Greenland, benefits from one particular advantage, namely, very low political risk.

Controls and Procedures 

Management is responsible for establishing and maintaining a system of controls and procedures over the public disclosure of financial and non-financial information regarding the Company. Management is also responsible for the design and maintenance of effective internal control over financial reporting to provide reasonable assurance regarding the integrity and reliability of the Company's financial information and the preparation of its financial statements in accordance with IFRS principles. Management maintains appropriate information systems, procedures and controls to ensure integrity of the financial statements and maintains appropriate information systems, procedures and controls to ensure that information used internally and disclosed externally is complete and reliable. 

The Company's management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within A&R have been detected. 

However, management is committed to continuously mitigating any risks and systematically improving operating controls where and when possible in a cost-effective manner. 

Industry 

The Company is engaged in the exploration of mineral properties, an inherently risky business. Most exploration projects do not result in the discovery of commercially mineable ore deposits. The geological focus of the Company is on areas in which the geological setting is well understood by management and the technological tools it employs are regularly updated to better focus exploration efforts. 

Reserve and resource estimates

The estimation of mineral resources and reserves is a subjective process and the accuracy of any such estimates is a function of the quality of available data, and of engineering and geological interpretation and judgement. Assurances cannot be given that the volume and grade of reserves recovered and rates of production achieved will be at the level anticipated. 

Metal prices 

The price of metals is affected by numerous factors totally beyond the control of the Company, including the exchange rate of the US dollar relative to other major currencies, demand, political and economic conditions and production levels. In addition, the price of metals has been volatile over short periods of time due to speculative activities. 

Cash flows and additional funding requirements 

A&R currently has no revenues from operations. If the Company's exploration programmes are successful, the Company will be required to fund on-going exploration and development costs. Substantial additional capital is required to put a property into commercial production. The sources of funds currently available to the Company for its exploration and development stage projects are either: the sale of equity capital, loan notes or the offering of an interest in its projects to another party. 

The Company has a loan of $12.5m from Cyrus Capital Partners LP, which is repayable on or before 10 July 2010. If the Company defaults on the loan agreement or is unable to satisfy Cyrus of its ability to meet the repayment terms, the loan could become repayable on demand.

A&R does not presently have sufficient financial resources to undertake its currently planned exploration and development programmes and, although it has been successful in the past in obtaining financing, there is no assurance that it will be able to obtain adequate financing in the future or that such financing will be on terms advantageous to the Company. 

Exchange rate fluctuations 

Fluctuations in currency exchange rates can significantly impact cash flows. The US dollar exchange rate in particular has varied substantially over time, while the Company has historically raised all of its equity financing in UK currency. Some of the Company's exploration expenses, meanwhile, are denominated in other currencies, such as the Danish Kroner. Fluctuations in exchange rates may give rise to foreign currency exposure, either favourable or unfavourable, which may impact on financial results. A&R does not engage in currency hedging to offset the risk of exchange rate fluctuation. 

Environmental 

A&R's exploration and development activities are subject to extensive laws and regulations governing environmental protection. The Company is also subject to various reclamation-related requirements. Although the Company closely follows, and believes it is operating in compliance with, all applicable environmental regulations, there can be no assurance that all future requirements will be achievable on reasonable terms. Failure to comply may result in enforcement actions causing operations to cease or be curtailed and may include corrective measures requiring significant capital expenditures. 

Laws and regulations 

A&R's exploration activities are subject to local laws and regulations governing prospecting, development, production, exports, taxes, labour standards, occupational health and safety, mine safety and other matters. Such laws and regulations are subject to change and can become more stringent, and compliance can therefore become more costly. The Company applies the expertise of its management, its advisors, its employees and contractors to ensure compliance with current laws. 

Title to mineral properties 

While the Company has undertaken all the customary due diligence in the verification of title to its mineral properties, this should not be construed as a guarantee of title. The properties may be subject to prior unregistered agreements or transfers and title may be affected by undetected defects. 

Competition 

There is constant competition from other mineral exploration companies, with operations similar to those of the Company. Many of the mining companies with which the Company competes have operations and financial resources substantially greater than those of A&R. 

Dependence on management 

A&R strongly depends on the business and technical expertise of its small management team and there is little possibility that this dependence will decrease in the near term. A&R has no key-man insurance. 

 

 

			2008		2007
			£	£
NON‑CURRENT ASSETS
Property, plant and equipment			5,333,830	51,988
Investments accounted for using the equity method			353,718	544,757
			5,687,548	596,745
CURRENT ASSETS
Inventories			126,017	—
Trade and other receivables			199,088	395,921
Cash and cash equivalents			2,233,363	3,957,526
			2,558,468	4,353,447
CURRENT LIABILITIES
Trade and other payables			(1,024,149)	(468,431)
			(1,024,149)	(468,431)
NET CURRENT ASSETS			1,534,319	3,885,016
TOTAL ASSETS LESS CURRENT LIABILITIES			7,221,867	4,481,761
NON‑CURRENT LIABILITIES
Other payables			(356,430)	(87,077)
Non‑current borrowings			(5,670,176)	—
Non‑current provisions			(250,000)	—
			(6,276,606)	(87,077)
NET ASSETS			945,261	4,394,684
EQUITY
Share capital			1,413,772	1,387,772
Share premium			12,473,896	11,990,417
Translation reserve			(113,564)	47,625
Retained earnings			(12,828,843)	(9,031,130)
EQUITY ATTRIBUTABLE TO EQUITY HOLDERS
OF THE pARENT cOMPANY			945,261	4,394,684
Minority interests			—	—
TOTAL EQUITY			945,261	4,394,684

 

 

 

 

		2008				2007
			Weighted				Weighted
			average	Per			average	Per
		Losses	number of	share	Losses		number of	share
		£	shares	p	£		shares	p
Basic loss per share		(4,169,654)	140,449,532	(2.97)	(4,161,801)		131,895,511	(3.16)
Fully diluted loss per share		(4,169,654)	145,914,752	(2.86)	(4,161,801)		136,873,776	(3.04)

ENDFR EADPPALXPEFE