Chairman's Statement

I am disappointed to have to report that once again metal prices remained low during the year, especially in the case of zinc, and the company has continued to concentrate its efforts on conserving resources in anticipation of the long expected improvement in prices.

Parys Mountain

The company holds an important geological resource at Parys Mountain which has been identified and described in independent geological reports. This deposit is beyond and separate from the historic mine workings and contains a total of 6.5 million tonnes with a combined average grade for zinc, copper and lead of over 10%. There are also estimated to be 60,000 ounces of gold and 250 tonnes (8,000,000 ounces) of silver in this resource.

During the past year work commenced to dewater the higher levels of the historic mine workings at Parys Mountain. A Project Group including the Amlwch Industrial Heritage Trust, the company, Anglesey County Council, the Environment Agency and other interested parties had been set up to consider the condition of an underground concrete plug in an old drainage adit. This Group concluded that the old workings should be dewatered and the plug removed. The work, which has been undertaken by Anglesey County Council and funded by the Council and the Welsh Development Agency, is expected to significantly improve water quality to the south of the Mountain. Discharge of the water is now complete and the plug has been removed.

This dewatering will also provide access to hitherto inaccessible areas of the old underground mine and enable new studies to be conducted which could help towards a better geological understanding of the total Parys Mountain area. Whilst the old workings are separate from the polymetallic geological resource described above, they are adjacent and parallel to a significant unmined deposit, the Northern Copper Zone, which lies to the north of the old workings and which was extensively explored by major mining companies, including Noranda in the 1960s and 70s. At that time it was reported that the Northern Copper Zone contained 36,000,000 tonnes at an average grade of 0.66% copper. It apparently was not assayed for gold. When funding permits, the company plans to re-examine the potential of the Northern Copper Zone as well as the prospective area deeper than and to the west of the White Rock zone referred to in earlier reports and to carry out further drilling closer to its identified resources.

Financial results 

The loss for the year was £121,299 before an exceptional item compared with a loss of £106,078 for last year. As a result of continued low metal prices, combined this year with a deterioration in the foreign exchange rate, a further impairment provision (in accordance with FRS 11) of £2 million against the value of the Parys Mountain property has been provided this year (last year £2.2 million was provided). I would like to stress that this provision does not diminish the directors’ positive view of the long-term potential of the property.

In order to better structure the company’s activities and property holdings, and facilitate future development, all the mineral rights required for the operation of the Parys property have been transferred during the year from Anglesey Mining plc to Parys Mountain Mines (UK) Limited, a wholly owned subsidiary, together with the relevant accumulated expenditures and provisions.

 

Outlook - Zinc Prices

Sixty per cent of revenues in the early years of the Parys mine are projected to come from zinc. The average zinc price for 2002 was US$0.35 per pound which was well below the average zinc price during the 1990s of US$0.48 per pound. Low zinc prices reflect high inventories of zinc in LME warehouses, primarily as a result of export of metal production from China and new mine production, chiefly from Antamina in Peru and Century in Australia. However, metal inventories appear to have peaked and to be set for a decline due to concentrate shortfalls as a result of mine shut downs. Concentrate inventories were drawn down in 2002 and the shortfall of concentrates is expected to increase in 2003 and 2004 as mine production declines due to temporary and permanent mine closures whilst smelter capacity expands.

In the first half of 2003 the zinc price averaged US$0.35 per pound and is showing a upward improving trend in the range of US$0.36 to US$0.37 per pound. Forecasts are for a 3.9% growth in world zinc consumption in 2003 (International Lead Zinc Study Group, April 2003). These prices are still well below the base of the long term price and are not considered to be sustainable. The recent weakening of the US dollar in the first half of 2003 will lead to a rise in the cost base of most zinc producers, especially those in Australia, Ireland and Canada.

Given the need for higher zinc prices to finance development of known deposits, including Parys Mountain, and to make new exploration discoveries, mine zinc supply shortfalls will result in a large supply gap which is expected to develop by 2005. This in turn will lead to upward pressure on zinc prices which should be most beneficial to Parys Mountain.

 

John F. Kearney

Chairman

17 September 2003

Parys Mountain Project

 

Location

The Parys Mountain property is located in the northern part of the island of Anglesey in north Wales. The mineral property is about 3 kilometres in length and covers more than 2 square kilometres. The company holds the freehold, including the mineral rights, to about half of this area. The other half, formerly leased, is subject to negotiation of an agreement over lease payments. The company also has a mining lease from the Crown for gold and silver over a wider area.

The property is located 2 miles south of the town of Amlwch. The port of Holyhead is 18 miles to the west. Access to the property is excellent by road, rail and sea. All necessary services and resources including power, engineering, maintenance facilities and a skilled labour force are located nearby.

History

Parys Mountain has been the site of mining activity at various times since the Bronze age. During the 1780s Parys Mountain was believed to be the largest copper mine in the world. Open pit and underground mining were carried out over a strike length of more than 3 kilometres and to depths of about 200 metres, the deepest then achievable by known technologies. Almost all activities ceased by the beginning of the 20th century.

In the 1960s the search for a new mine at Parys Mountain commenced. Exploration in the 1960s and 1970s was focused on the extension of the old open pit workings and was directed towards copper. This exploration utilised a variety of geological, geophysical and geochemical methods together with approximately 285 diamond drill holes totalling about 60,000 metres of drilling. A resource of 36 million tonnes containing about 250,000 tonnes of copper metal (the Northern Copper zone) was identified at depth, however this is regarded as being too low a grade to mine economically unless combined with other deposits.

The modern phase of exploration of Parys Mountain began in the early 1980s when a new important polymetallic zinc, copper, lead, silver and gold area was identified about 1 kilometre west of and totally separate from the old workings. Between 1988 and 1990 a production shaft was sunk in this western area to a depth of 300 metres and 1,000 metres of lateral development were completed on the 280 metre level. Drilling and underground development work from 1988 to 1990 resulted in the identification of the Engine, White Rock and Chapel zones containing a resource of 6.5 million tonnes with a combined base metal (zinc, copper and lead) grade of 10.3%.

Approximately 2,000 tonnes of development ore were hoisted and successfully processed through a pilot plant constructed on the site for metallurgical testing; the concentrate production of about 200 tonnes was sold to the smelter at Avonmouth.

Feasibility study

In 1990 Kilborn Engineering completed an independent feasibility study of the project that confirmed the technical and economic viability of a 1,000 tonnes per day (300,000 tonnes per year) mining and milling operation producing zinc, copper, lead and gold concentrates. Kilborn estimated the capital cost of the mine at £22 million. This study was based on a mineable reserve of 1,963,000 tonnes at a grade of 6.43% zinc, 1.30% copper, 3.32% lead, 75 grams of silver and 0.51 grams of gold per tonne and a mine life of seven years. This mineable reserve is in the shaft development area, being only a portion of the identified geological resource of 6.5 million tonnes.

Detailed mine and plant designs were prepared and planning permission obtained. At the same time an environmental protection programme was devised also giving attention to historical and archaeological concerns. Declining metal prices and weakening stock markets in 1991 and 1992 resulted in development of the project being placed on hold. The property has been maintained on a care and maintenance basis since that time.

Reassessment

Geological studies carried out over the past few years have identified new areas, including a possible new zone, with significant exploration potential. An extensive geological reassessment of the property was conducted between 1995 and 2000; this has resulted in the development of new geological models which indicate that there is potential for the discovery of substantial additional mineral resources in largely unexplored areas to the north, west and east of the established resource. All this work has considerably improved the understanding of the stratigraphic and structural settings of various mineralised zones and significantly enhanced the potential for discovery of further mineralisation.

Old workings dewatered

During 2003 the upper levels of the historic mine workings at Parys Mountain were dewatered and an underground concrete plug removed to facilitate natural drainage of the old workings to the north of the mountain. This should reduce any flood risk and significantly improve water quality to the south. The dewatering will also provide access to hitherto inaccessible areas of the old underground mine and enable new studies to be conducted which could help towards a better geological understanding of the total Parys Mountain area.

Exploration potential

The potential for the discovery of additional mineral resources in previously largely untested areas of the Parys Mountain property is very significant.

The Engine zone, which is the principal host of the known reserves, has seen little exploration beyond the immediate area of the shaft. Further exploration of the Engine Zone is planned for the northern and north eastern parts of the property which have been largely unexplored to date and where widely scattered massive sulphide intersections demonstrate considerable exploration potential.

In a separate area a potential new zone of disseminated/semi-massive mineralisation has been identified at depth, down-dip from the White Rock Zone, along the western boundary of the volcanic complex, where the potential for continuation of mineralisation is considered excellent. The upper part of this possible new zone lies at a reasonable depth, within close proximity to the existing shaft and within reach of the present underground development.

The results of the geological reassessment and various studies carried out over recent years demonstrate clearly that the Parys Mountain property has strong similarities with other major volcanogenic massive sulphide (VMS) deposits elsewhere in the world and that the property has the potential for new discoveries which would make Parys Mountain comparable to other major volcanogenic hosted polymetallic deposits which are substantial sources of zinc, copper, lead, gold and silver.

Whilst the old workings now exposed by the drainage referred to above are separate from the Engine, White Rock and Chapel polymetallic zones, they are adjacent to the Northern Copper Zone which lies immediately to the north of the old workings. The Northern Copper Zone was extensively explored by major mining companies, including Noranda, in the 1960s and 1970s. At that time it was reported that the Northern Copper Zone contained a large resource of 36 million tonnes at an average grade of 0.66% copper, containing about 250,000 tonnes of copper metal.

The Northern Copper Zone was regarded at the time as being too low grade to mine economically, unless combined with other deposits, however the drill intersections apparently were never assayed for gold. Nevertheless the mineralisation at Parys Mountain is now known to usually contain gold although at a relatively low grade. The gold grade of the 6.5 million tonne polymetallic resource is estimated to be 0.32 grams per tonne, equivalent to 60,000 contained ounces of gold. If it can be demonstrated that the Northern Copper Zone contains even low grade gold it might have a meaningful impact on the potential of that deposit.

It is planned to re-examine the potential of the Northern Copper Zone as well as to undertake a major drilling programme to explore new exploration targets related to the Engine zones which have the potential to transform Parys Mountain into a very significant mineral deposit. Such a drilling programme would be one of the most comprehensive ever undertaken on the property. It would take at least one year to complete and is budgeted to cost about £500,000. However the programme cannot commence until appropriate financing is available.

Directors Report

The directors have pleasure in submitting their report and the audited accounts for the year ended 31 March 2003.

Principal activities and business review

The principal activity during the year was the maintenance and development of the Parys Mountain property. Operations at the Dolaucothi gold property in south Wales are suspended. Other mineral development opportunities continue to be evaluated.

The loss for the year before taxation was £2,121,299 (2002 - £2,306,078). The group has no revenues from the operation of its properties. The loss comprises interest and administrative expenses together with an impairment provision of £2,000,000 (2002 - £2,200,000) (see below) and evaluation costs not related to Parys Mountain which, in accordance with the group’s accounting policy, are charged to the profit and loss account. Included in the loss was £72,178 (2002 -£69,707) in respect of interest due. £51,260 (2002 - £38,822) was expended on corporate costs, administration expenses and the investigation and evaluation of exploration and development opportunities. This expenditure has risen in comparison with last year because of increased project evaluation activity.

The impairment provision of £2,000,000 (2002 - £2,200,000) arises following a review by the directors of the net value at which the accumulated development costs of Parys Mountain should be carried in the accounts. The provision was determined following calculations of discounted estimated future real cash flows on the basis of current estimates of proven and probable reserves and capital and operating costs, together with directors’ estimates of future metal prices and foreign currency exchange rates and in accordance with the provisions of FRS 11. Further details of the valuation of intangible assets are to be found in note 8.

During the year fixed assets of £2,000 (2002 - nil) were acquired, £61,422 (2002 - £73,687) was capitalised in respect of the development of the Parys Mountain property and £500 (2002 - £1,638) was capitalised in respect of the Dolaucothi property.

At a time when base metal prices remain low, the group has continued to restrict many activities in order to conserve its finances. Juno Limited, the company’s major shareholder has continued to provide funding for the company’s routine expenses under a working capital agreement.

During the year work commenced to dewater the higher levels of the historic mine workings at Parys Mountain. The work, which was undertaken by Anglesey County Council and funded by the Council and the Welsh Development Agency, is expected to significantly improve water quality to the south of the Mountain and to remove a flood risk to the north.

The group has no revenues and the directors are unable to recommend a dividend. Since the date of the accounts the activities of the group have continued in accordance with the directors' expectations. The directors remain attentive for opportunities to be involved in appropriate new mineral ventures.

Parys property

In order to better structure the company’s activities and property holdings and facilitate future development, it was decided that the Parys property should be held in a dedicated subsidiary company rather than by Anglesey Mining plc. To this end all the mineral rights required for the operation of the property in accordance with the Feasibility Study and the company’s subsequent plans, have been transferred to Parys Mountain Mines (UK) Limited during the year. The relevant accumulated expenditures and impairment provisions were also transferred. These transfers have no effect on the consolidated accounts of the group. It is expected that the freehold of the Parys property will also be transferred to a subsidiary company in due course.

Directors

The names of directors with biographical details are shown on the inside rear cover. There have been no changes in the year. In accordance with the articles of association, Howard Miller and David Lean retire by rotation and, being eligible, offer themselves for re-election.

Directors’ interests in material contracts

Juno Limited (“Juno”) which is registered in Bermuda is the ultimate parent company. The company has a controlling shareholder agreement with Juno dated September 1996 and a consolidated working capital agreement with Juno of 12 June 2002. Apart from working capital advances and related interest charges there were no transactions between the group and Juno or its group during the year. An independent committee reviews and approves all transactions and potential transactions with Juno. Danesh Varma is a director and, through his family interests, a significant shareholder of Juno. John Kearney is a director and shareholder of Minco plc, in which Juno holds an interest of approximately 17%.

There are no other contracts of significance in which any director has or had during the year a material interest.

Directors’ shareholdings

The interests at 31 March 2003 of the directors and their families in the share capital of the company, all of which are beneficial, are set out below. The holdings are expressed as a percentage of 116,241,384 (2002 – 116,241,384) ordinary shares, this being the number of ordinary shares in issue at 8 September 2003.                

                                                      At 31 March 2003                                            At 31 March 2002

Director	Number of options	Number of ordinary shares	% of issued ordinary shares	Number of options	Number of ordinary shares	% of issued ordinary shares
John Kearney	1,960,000	-	1.7	1,960,000	-	1.7
Ian Cuthbertson	500,000	602,300	1.0	600,000	500,000	1.0
David Lean	300,000	-	0.3	-	-	-
Howard Miller	300,000	-	0.3	-	-	-
Danesh Varma	300,000	-	0.3	300,000	-	0.3

Directors’ responsibilities for the financial statements

The directors are required by company law to prepare accounts for each financial year that give a true and fair view of the state of affairs of the company and the group as at the end of the financial year and of the profit or loss for that period.

The directors confirm that suitable accounting policies have been used and applied consistently, and that reasonable and prudent judgements and estimates have been made in the preparation of these accounts. The directors also confirm that applicable accounting standards have been followed and that the financial statements have been prepared on the going concern basis.

The directors have responsibility for ensuring that the group keeps proper accounting records which disclose with reasonable accuracy the financial position of the group and which enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for the systems of internal financial controls and for safeguarding the assets of the company and the group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Further definition of the distinction of responsibilities between directors and auditors is to be found in the auditors’ report.

Substantial shareholders

At 8 September 2003 the following shareholders had advised the company of an interest in the issued ordinary share capital of the company.

Name	Number of shares	Percentage of share capital
Juno Limited	57,924,248	49.8
Golden Prospect plc	4,000,000	3.4

The company is aware of a holding of 8,750,000 shares (7.5%) in the name of FGL Asset Management Limited, a Hong Kong based nominee account, which is said to be held on behalf of clients none of whom have a beneficial interest in more than 3% of the issued ordinary share capital of the company. So far as the company is aware there are no other interests of more than 3% in the ordinary share capital of the company.

Authority to allot shares

In the light of the company’s limited financial resources and the requirement to raise further funds, the directors wish to have a larger than usual number of shares available for issue. Although the directors would usually wish to allot any new share capital on a pre-emptive basis, they believe that it is appropriate to have a larger amount available for issue at their discretion without pre-emption than is usually the case for other listed companies. Accordingly a resolution will be put to the AGM to renew the directors' authority to allot equity securities for cash without pre-emption. In the case of allotments other than for rights or other pre-emptive issues, it is proposed that such authority will be for up to £290,000 or 29,000,000 ordinary shares which is equivalent to 25% of the issued ordinary share capital at 8 September 2003. Whilst such authority is significantly in excess of the 5% of existing issued ordinary share capital which is normal for listed companies, it will provide additional flexibility which the directors believe is in the best interests of the company in its present circumstances.

Market value of land

In August 1997 the freehold of the western part of Parys Mountain was purchased by the company. Obtaining a meaningful value for this land is difficult, especially given its historical use and that the company’s pre-existing interest in the mineral rights would also have to be taken into account. The land is carried in the accounts at its cost to the company of £120,000. In the opinion of the directors, the market value of this land is unlikely to be significantly less than this figure.

Going concern basis

As in previous years the directors have given careful consideration to the appropriateness of the going concern concept in the preparation of the financial statements. The validity of the going concern concept is dependent on finance being available for the continuing working capital requirements of the group and finance for the development of the Parys Mountain property eventually becoming available. The directors believe, based on ongoing support from the major shareholder in respect of continuing working capital requirements, that, whilst there is uncertainty as to whether the conditions above will be met, the going concern basis is appropriate for these financial statements.

Creditor payment policy

The group conducts its business on the normal trade credit terms of each of its suppliers and tries to ensure that suppliers are paid in accordance with those terms. The group’s average creditor payment period at 31 March 2003 was 70 days (2002 - 42 days).

Charitable and political contributions

The group made no contributions during the year (2002 - nil).

Employment

The group is an equal opportunity employer in all respects.

Auditors

Deloitte & Touche have indicated their willingness to continue in office and a resolution to re-appoint them and to authorise the directors to fix their remuneration will be proposed at the annual general meeting.

 

By order of the board

Ian Cuthbertson

Company Secretary    

17 September 2003

Report to Shareholders on Directors Remuneration

 

Unaudited information:

Remuneration Committee and Policy

The remuneration committee is comprised of Howard Miller (chairman) and Danesh Varma. No remuneration consultants were employed during the year.

The board’s aim, implemented by the committee, with regard to executive and non-executive directors’ remuneration is to provide a package which will attract, retain and motivate directors of the calibre required and be consistent with the group’s limited ability to pay directors in cash. Consequently share options form a major part of the executive directors’ remuneration and all of the non-executive directors’ remuneration.

Terms and conditions of service

There are no directors’ service contracts and, except in the case of Ian Cuthbertson, no arrangements in force whereby the group is under an obligation to pay fees, salaries, pensions or any other remuneration to any of the directors.

All directors and employees are eligible to receive options. In determining the amount of options to be granted to each individual, the directors take into account the need for and value of his services, the amount of time he spends on the business of the group and any other remuneration receivable by him from the group.

In respect of those share options marked with an asterisk in the table overleaf, there are performance criteria to be met, namely that the company’s share price performance over the period from grant to exercise must exceed that of the companies in the top quartile of the FTSE 100 index. This index was selected as being an easily available benchmark of general corporate performance. There are no performance criteria to be met in respect of other share options, since these were awarded at a time when performance conditions were not generally applied to share options. Each grant of an option was made at a cost to the participant of £1.

Total shareholder return graph

This graph shows the total shareholder return over a five year period for the company and for the FTSE Allshare Mining index, being the most appropriate comparative available for the company covering the past five years. 

Audited information:

Directors’ emoluments

The total directors’ remuneration amounted to £25,721 (2002 - £16,505) comprising salary £24,666 (2002 - £15,575), benefits £125 (2002 - nil) and pension contributions £930 (2002 - £930).

                                                                             2003                                                                            2002

Name	Salary and fees £	Benefits  £	Pension £	Total £	Salary and fees £	Benefits £	Pension £	Total £
Executive
John Kearney	-	-	-		-	-	-
Ian Cuthbertson	24,666	125	930	25,721	15,575	-	930	16,505
Non-executive
Howard Miller	-	-	-		-	-	-
David Lean	-	-	-		-	-	-
Danesh Varma	-	-	-		-	-	-
Totals	24,666	125	930	25,721	15.575	-	930	16,505

Pension contributions are to a money purchase pension scheme. Benefits are in respect of the provision of a van.

Directors' share options

Details of each share option held (all of them beneficial) by all those who were directors at the beginning of the year are set out below. There have been no options exercised during the year. All options are over ordinary shares of 1 pence each.

Name	Options at 1 April 2002	Lapsed in year	Granted in year	Options at 31 March 2003	Exercise price	Date from which exercisable	Expiry date
John Kearney*	1,960,000			1,960,000	5p	23 Oct 96	22 Oct 03
Ian Cuthbertson	400,000	400,000		-	5p	30 Nov 95	30 Nov 02
Ian Cuthbertson	200,000			200,000	5p	23 Oct 96	22 Oct 06
Ian Cuthbertson*	-		300,000	300,000	2p	3 May 05	2 May 12
Howard Miller*	-		300,000	300,000	2p	3 May 02	2 May 09
David Lean*	-		300,000	300,000	2p	3 May 02	2 May 09
Danesh Varma*	300,000			300,000	5p	23 Oct 96	22 Oct 03

*Performance condition applies.

Certain of these options expire on 22 October 2003. The board intends to replace these options upon their expiry and to grant further options on a specific and individual basis, the company’s former share option schemes now having expired.

The market price of the ordinary shares at 31 March 2003 was 1.88 pence, the high for the year to 31 March 2003 was 2.00 pence and the low for the year was 0.5 pence. The mid-market price at 8 September 2003 was 2.38 pence.

 

By order of the board

Ian Cuthbertson

Company Secretary

17 September 2003