EAST ASIA MINERALS CORPORATION : http://www.eaminerals.com/ : QwikReport
Message from the Chief Executive Officer
March 25, 2012
Message from the Chief Executive Officer
Dear Shareholder:
On October 2nd I assumed the position of Chief Executive Officer (CEO) of East Asia Minerals Corporation. As I made contact with our major shareholders I was confronted by a recurring theme: "What is new management going to do about the share price decline so far since early 2011".
In answer to that question, new management has made some difficult decisions over the last several months and as a result of my actions, I am now confident that we are leaner, better organized, clearly understand the difficult challenges ahead and have a clear and revised strategy to move this company forward.
As you all may recall East Asia Minerals was one of the biggest success stories on the TSX in 2009 and 2010, having one of the best share performances in the sector and ending 2010 at close to CDN$8.20. This dramatic increase in value was based primarily on some very positive drill results from the Company's Miwah gold discovery in Aceh Province, Indonesia. These drill results appeared to demonstrate that the Miwah project had the potential to be a world class gold deposit and the underlying value of the company increased with these positive projections. The Company then announced the results of a 43-101 report in mid 2011 with an inferred resource of 3.14 million ounces of gold; however that announcement was below market expectations. We see this 43-101 report as a progress report intended to provide us a technical context from the drilling done until that point. We also feel that this progress report provides us with the guidance on how to successfully explore this exciting new discovery to increase its size and value.
Shortly after our resource was announced the Indonesian central government imposed new forestry regulations throughout the country including Aceh province where the Miwah project is located. In response to these new regulations there was uncertainty as to what effect these new regulations had on the Company's access rights to continue. In response to the uncertainty the Company has now temporarily suspended its drilling program in those areas affected by the imposition of the forestry regulations, while we seek to obtain permission to continue operations within context of the new regulations of the Ministry of Forestry. We have been working with our local partner and local government to obtain all of the permits necessary to continue our activities at the Miwah project and we are confident that we will be able to achieve our goals in the very near future.
As the share price fell during 2011, and in many discussions with shareholders and potential investors, the following issues and questions emerged:
The ability of the Company to drill and expand the resource at Miwah, given the status of the new forestry regulations requiring permits from the Ministry of Forestry to cut trees in certain forestry zones prior to drilling.
The ability of the new management to move the Miwah project to feasibility and ultimately to production.
The Financial Stability of the Company and its corporate financial strategy.
The effect of the newly imposed Indonesia laws that appear to discriminate against foreign ownership of mining projects.
Allow me to address each point:
Forestry and other Permits and Future Drilling Programs. With input from our advisors in Indonesia and Canada we have determined that the best course of action is to be proactive in seeking the permits necessary for the Company to continue its exploration actives at the Miwah project. East Asia Minerals and its local partner require an extension of the exploration permit (IUP) at Miwah prior to November 2012 from the local government, which we fully expect to occur after the completion of the elections for Governor and local officials in early April. At the same time, East Asia Minerals and its local partner are working with the local government to request from the Ministry of Forestry a Borrow Use Permit needed to cut additional trees so that drilling can continue within the Forestry zone. Separately we are requesting that the local government obtain a reclassification of the forestry zone from "protected forest" to the classification of "production forest" which may be required depending on the scale and method selected to best mine at Miwah. Of the two forestry issues, the Borrow Use Permit should be easier to obtain, and would allow East Asia Minerals to continue a drilling program with the expectation of expanding and delineating the resource at Miwah, not only to test the extent of the mineralization at Miwah and the nearby mineralized zone, but also to prepare a future feasibility study. East Asia Minerals is being proactive to determine its options on reclassification in the event that open pit mining is the best option, however given the high grade nature of the core zones of the deposit, designing a shallow adit-accessed underground mine could potentially generate a better rate of return and result in a much smaller environmental footprint. East Asia Minerals is in a similar situation with all other exploration and mining companies in Indonesia with projects in areas where the Ministry of Forestry has jurisdiction. We have taken what actions are available and expect some positive results from these efforts in the near future.
Leadership. Given the high turnover and exploration focus of the previous management, it is clear that investors would question the ability of the team to take the flagship Miwah project forward, so a focus of the Board has been to build and improve the management team. Firstly with my experience, I was the Senior Vice President of Ivanhoe Mines for 16 years and was responsible for negotiating all of the acquisitions for Ivanhoe and being the country manager in numerous postings in Asia, including Indonesia during that period, and subsequently I have been providing legal assistance to East Asia Minerals for the last several years. I feel that I am well suited to lead the team, especially while the political and corporate development issues dominate our priorities.
Gaining the support of the Tocqueville Asset Management group, Eric Sprott and the Forbes & Manhattan group as well as our other Institutional investors has been instrumental in assisting my efforts to turning around East Asia Mineral's team and strategy. These Institutional investors have put a lot of their own money at risk in the Company, have already provided significant support determining strategy and the way forward with Miwah, especially with engineering and exploration. In order to rebuild our shareholder value and re-establish credibility in the market we need to establish that we have the capability to build a modern, world-class mining operation, not just drill holes. It does require more than just acquiring permits, as we need strong technical leadership and knowledge as well. We expect to announce additions to our senior staff shortly.
Financial Stability. Since October 2nd , we have achieved the goal of financial stability by taking the following actions:
Radically reducing our workforce in the offices in Indonesia, Vancouver and Mongolia.
Suspension of all drilling activities
Re-evaluation of priorities going forward to include possible sale of non-core assets.
As a result, we have been able we reduce our spending from $2,500,000 per month from last October to the current burn rate of less than $400,000 per month, and we closed on a Private Placement in December, 2011 with proceeds of $13million, providing the Company with almost $18 million in cash reserves at this time.
In addition to achieving financial stability, we are currently studying the possibility to take the next development step at the Company's Sangihe gold project, which would include the mining and processing of gold in the near term. Once we are in production we would bring the Company a positive cash flow from those operations in the very near future.
The effect of newly imposed regulations imposed on exploration and mining activities in Indonesia. Although we welcome the challenges in front of us in 2012, the Government of Indonesia has presented us with a new challenge when it adopted several new mining regulations during the last week of February 2012. These regulations have caused concern amongst investors of all companies conducting exploration and mining activities in Indonesia that the Government of Indonesia was discriminating against foreign ownership of such mining projects. These new regulations include Regulation #GS 24 which seeks to impose a divestiture requirement in the mining industry on companies with foreign investment to gradually "divest" up to 51% of their shareholding during production over a 10 year period to Indonesian participants including local and state government entities, however such divestiture will require the Indonesian participant to make payment for such shares. At present East Asia Minerals has a local partner holding 15% of the shares, and the Company may decide to increase strategic Indonesian participation in our Indonesia company and the projects before we are in production at any of the projects.
These new regulations affect major companies such as Freeport, Vale and Newmont, as well as junior exploration and mining, and recent reports state that all of these companies will continue to keep their investments in mining in Indonesia.
We are fully committed to completing a significant turn-around of the Company's position in Indonesia and expect that our efforts during 2012 will show significant positive results to the Company's assets and shareholder value.
Thank you for your continued support
Edward C. Rochette
CEO and Chairman of the Board of Directors