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Message: High River Gold Reports 2008 Year-End Results
| April 29, 2009 | |||
| High River Gold Reports 2008 Year-End Results | |||
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TORONTO, ONTARIO--(Marketwire - April 29, 2009) - (All currency figures are in Canadian dollars unless otherwise noted) High River Gold Mines Ltd. ("High River" or the "Company") (TSX:HRG) today reported its financial results and operational highlights for the year ended December 31, 2008. The Consolidated Financial Statements and related Notes along with the Management's Discussion and Analysis have been filed with SEDAR (www.sedar.com) and can be viewed on the Company's website at www.hrg.ca. HIGHLIGHTS FOR 2008 Financial Results - Net loss for 2008 was $57.4 million, or $0.16 per share, compared to a net loss of $12.0 million, or $0.05 per share in 2007. Growth in revenue was more than offset by higher mining costs and non-cash expenses. - Cash flow from operations was $25.6 million, up from ($4.9) million last year. - Cash and cash equivalents declined to $19.1 million from $38.0 million last year. - Working capital declined to a deficit of ($42.1) million from $38.0 million last year. - Current and long term debt levels increased to $188.1 million from $175.3 million last year. - 2008 gold production and costs were as follows: ---------------------------------------------------------
Production (ozs) Production (ozs) Cash Operating Costs
(100%) (attributable) (US $/oz)
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Zun-Holba 69,551 59,076 649
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Irokinda 74,365 63,166 511
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Placer Operation 1,847 1,569 805
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Taparko-Bouroum 30,667 27,600 806
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Berezitovy 43,894(1) 43,455 734
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Total 220,324 194,866 588
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(1) includes 28,202 ounces produced prior to commercial production
- Zun-Holba and Irokinda Underground Gold Mines: -- Gold production (including placer operations) totalled 145,763 ounces (100%) at a cash operating cost of US $525 per ounce. - Taparko-Bouroum Open-pit Gold Mine: -- Gold production in 2008 totalled 30,667 ounces (100%) at a cash operating cost of US $806 per ounce. - Berezitovy Open-pit Gold Mine: -- Total gold production in 2008 was 43,894 ounces, which included 28,202 ounces produced before commercial production was declared on October 1, 2008. Cash operating costs, reflecting the post production period, were US $734 per gold ounce. - Bissa Gold Exploration Project: -- A significant amount of preliminary feasibility work was completed during the year, including an infill drilling and trenching programme, resource estimation, metallurgical sampling etc. - Prognoz Silver Project: -- A NI 43-101 resource estimate, released in June 2008, established Prognoz as one of the largest and highest grade undeveloped silver deposits in the world. Corporate - High River entered into an agreement to acquire the remaining 50% interest in the Prognoz Silver Project for 34.1 million common shares of the Company. After extending the closing of the transaction several times pending regulatory approval, on December 4, 2008 the Company announced the termination of the agreement to acquire the remaining 50% of the Prognoz Silver Project, due to the need for both parties to reassess the terms of the agreement in light of market conditions. - The Company entered into an agreement to issue up to 160 million shares at $1.79 per share through a non-brokered private placement for proceeds of up to $286.4 million, to the Alfa Group Consortium, one of Russia's largest privately-owned financial/industrial organizations. This strategic investment agreement was subsequently terminated due to market conditions. - Mike Kelly, P. Eng., joined the Company as Executive Vice-President and Chief Operating Officer, replacing Daniel Vanin who left the Company. Mike Kelly and Don Whalen, Executive Vice President, left the Company in December 2008. As well, in December 2008, Vladimir Baltsat, previously mine manager of Peter Hambro Mining's Pokrovsky mine in Russia, joined the Company as General Director of Buryatzoloto, replacing Valery Dmitriev who left the Company. - After announcing an agreement to spin out its 50% interest in the Prognoz Silver Project into a single-purpose publicly traded corporate entity, High River decided not to proceed with the spin-out after careful consideration of the views expressed by certain shareholders. - Six new directors (John Crow, Graham Farquharson, Murray Sinclair, Robert Buchan, Terrence Lyons, and Stephen Polakoff) joined the Company's board, replacing Michael Chieng, Laurence Curtis, David Davidson and Donald Whalen who resigned, and Vladimir Polevanov who did not stand for re-election. Subsequently, Graham Farquharson, Robert Buchan, Murray Sinclair, and Mark Rachovides resigned as directors. - A Special Committee of the Board of Directors was established to increase shareholder value through the evaluation of strategic alternatives for the Company. Financial advisors were retained by the Special Committee to assist in this matter. As a result of this evaluation of strategic alternatives, on November 20, 2008, High River announced a non-brokered private placement of 282 million shares at $0.20/share, for proceeds of $56 million, to an affiliate of Severstal Resources ("Severstal"). Four new directors (Roman Deniskin, Nikolay Zelenskiy, Evgeny Tulubensky and Oleg Pelevin) were appointed to the board of directors of the Company on behalf of Severstal Resources in place of resigning directors David Mosher and Valery Dmitriev. As well, David Mosher resigned as President and Chief Executive Officer and Nikolay Zelenskiy was appointed Chief Executive Officer. Post-transaction, Severstal Resources held approximately 53% of the outstanding shares of High River. - High River was deleted from the S&P/TSX Composite, Global Gold, Global Mining, and SmallCap Indices. - On October 31, 2008, High River reported that debt covenants with Royal Gold Inc. and Standard Bank Plc were in breach since October 1, 2008, and that the Company was experiencing liquidity problems. High River indicated that its ability to continue as a going concern remained dependent upon discussions and/or forbearance from its lenders, accommodations from trade creditors, establishing steady production at its two new mines and obtaining additional financings. On November 27, 2008, Standard Bank was granted a corporate guarantee from Severstal and the repayment date on its loans was extended into 2010, in return for providing a waiver for the covenants which had been breached. High River's Somita subsidiary, which operates the Taparko-Bouroum mine, continues to be in breach of loan covenants pursuant to the US$ 35 million loan agreement with Royal Gold and discussions are ongoing regarding a waiver of the covenant breaches. - On November 16, 2008, the Company announced that it would be late in filing its interim financial statements for the nine month period ended September 30, 2008 due to concerns raised by the board of directors regarding the reliability of financial information that High River had received from its 85% owned subsidiary, OJSC Buryatzoloto. Those concerns were subsequently addressed to the satisfaction of the board of directors. Events Subsequent to the Year-End - High River advised Somita trade creditors that it will slow down payments for accounts payable for a brief period in light of lower than expected cashflows from the group's operations, and that it planned to pay suppliers for current purchases of goods and services. High River continues to pursue discussions relating to additional debt and equity financing required to ensure that it is able to meet its financial obligations. - On March 17, 2009, High River announced the results of a NI 43-101 compliant gold reserve and resource estimate, as of December 31, 2007, on the Zun-Holba and Irokinda Gold mines. - On March 25, 2009 High River reported that the acquisition of the Chaya Nickel Deposit will not be completed. An initial payment of approximately US $4.15 million made in February 2008, which represents all acquisition costs incurred to-date, has been written off as at the 2008 year end. - On March 30, 2009, High River announced that Severstal and a Special Committee comprised of High River independent directors have been unable to agree on terms of any transaction whereby Severstal would acquire the remaining outstanding common shares of High River and/or provide debt or equity financing to High River. It was also announced that Terrence Lyons, Chairman of the Board of High River and a member of the Company's Special and Audit Committees, had tendered his resignation, effective March 31, 2009, due to the demands of his other business interests. - On April 8, 2009, High River announced the resignation of John W. Crow from the Company's board of directors, and the appointment of Alexey Khudyakov and Karl Glackmeyer to the board of directors. Alexey Khudyakov assumed the role of Chairman of the board of directors. - On April 20, 2009, High River announced that two loans, with a total amount outstanding of approximately US$ 27million, were assigned by Standard Bank Plc to Severstal, and continue to be in default. It was also announced that Steven Poad, CFO of High River, was appointed to the board of directors on an interim basis until the next annual meeting of shareholders of High River. DISCUSSION OF FINANCIAL RESULTS
Selected Financial Results
(in thousands of Canadian dollars
except per share amounts)
2008 2007
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Gold revenue $ 180,788 $ 115,641
Net loss 57,447 11,991
Net loss per share (basic) 0.16 0.05
Cashflow from operations 25,605 (4,853)
Weighted average number of shares
outstanding (basic) 354,923,765 261,676,314
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The increase in net loss ($45 million) reflects higher revenues ($64 million), as discussed above, more than offset by: (a) higher mining costs ($58 million) due largely to mine start-up problems, a stronger rouble, and higher wage, materials, and energy costs; (b) higher amortization and depletion ($10 million) related to higher production levels and a full year of commercial production at Taparko-Bouroum; (c) higher administrative costs ($9 million) largely related to corporate restructuring; and (d) an increase in other expenses ($20 million) related to higher unrealized foreign exchange losses, a write-down on the carrying value of the Chaya nickel deposit, and losses on the sale of investments. Cashflow from operations increased from last year due to changes in non-cash working capital. Working capital declined to a deficit of ($42.1) million from $38.0 million last year, largely due to an increase in current liabilities related to a reclassification to current of the Royal Gold Inc. US $35 million loan and the Standard Bank US $27 million loans which were in breach of covenants. OVERVIEW OF OPERATIONS Underground Mines Zun-Holba Mine (Buryatia, Russia) In 2008, Zun-Holba produced (100%) 69,551 ounces of gold, virtually unchanged from last year's level. Increases in tonnes milled and recovery were offset by a decline in head grade to 8.3 g/t from 8.9 g/t last year. Cash operating costs increased to US $649 per ounce from US $422 per ounce in 2007. The increase in cost per ounce was due largely to deeper underground workings, higher input costs, a stronger rouble, and lower grade ore. Irokinda Mine (Buryatia, Russia) Production levels (100%) at Irokinda, declined marginally during 2008 to 74,365 ounces from 75,224 ounces of gold, largely due to a decline in head grade to 8.3 g/t from 9.0 g/t last year, as mill throughput and recoveries were both up. In 2008, cash operating costs increased to US $511 per ounce compared to US $367 per ounce in 2007. The increase in cost per ounce was mainly due to the reasons cited for the Zun-Holba mine. New Open Pit Mines Taparko-Bouroum Mine (Burkina Faso) Lower than expected production and higher than expected cash costs resulted from numerous mill shutdowns throughout the year due to excessive mill drive-train vibrations. Average mill utilization during 2008 was approximately 42%. Solutions proposed by various consultants were implemented during the year with varying degrees of success. The last change implemented during the year, the gearbox replacement in November, resulted in smooth running of the drive-train for over 4 weeks, until vibrations, albeit at lower levels, returned. Analysis completed by operating personnel and an on-site consultant resulted in remedial actions undertaken during a 10 day mill shutdown in mid January 2009. Work consisted of minor adjustments to the bull gear positioning and a re-installation of the electric motor. The mill was re-started on January 21, 2009, and vibrations were significantly down in all components except the pinion/bull gear interface where they remained above acceptable levels. In February 2009, a slight re-grinding of the pinion/bull gear meshing surfaces with an abrasive compound during continued operation improved gear meshing, but vibrations re-occurred. Therefore, a two week shutdown took place in mid-March to correct the problem. Remedial action included the installation of new ball mill liners and an adjustment to a pinion bearing. High River believes that the original design capacity of 1,000,000 tonnes per year is not attainable, and that the mill throughput rate going forward is likely limited to 800,000 tonnes per year, or approximately 100 tonnes per hour assuming 92% mill availability. Berezitovy Mine (Amur Oblast, Russia) After the achievement of commercial production on October 1, 2008, Berezitovy mill throughput regularly exceeded 85% of the design capacity with satisfactory recoveries. Later in the year, throughput and recoveries at the mill suffered due to several problems. Mining in the pit encompassing the old underground workings resulted in fragments of the old timbers entering the process plant. Also the mill had been producing too coarse a grind, which had also adversely affected recoveries. Remedial action was taken to correct these problems. To prevent timber fragments from entering the mill process, an additional screen was installed, whereas timber fragments already in the process circuit were removed. The coarse grind problem was partially corrected with the installation of new liners in the ball mill. As well, the disc filter plant continues to perform poorly, despite the new filter cloth, and a permanent solution needs to be implemented. On January 28, 2009, an unplanned one week shutdown of the ball mill occurred to correct damage to the clutch disks. Advanced Exploration Projects Bissa Gold Project A preliminary feasibility study was initiated in 2008 to evaluate the economic viability of a mining and processing facility based on the current Bissa resource area. A significant amount of work related to this study was completed during the year. An infill drilling and trenching programme, to define and upgrade existing resources, completed 33 diamond drill holes (5,256 metres), 176 reverse circulation holes (14,715 metres), and 45 trenches (5,009 metres). This infill drilling occurred along three kilometres immediately adjacent and along strike to the southwest of the Bissa Resource Area which hosts the current resource. Other work conducted for the preliminary feasibility study included three dimensional modeling, resource estimation, geotechnical mapping, metallurgical sampling (10 samples totalling approximately 2,000 kg), heap leach testwork, topographical surveying, and environmental baseline work. In addition to activity related to the preliminary feasibility study at Bissa, exploration work occurred on other areas within the Bissa Group Permits and on other exploration concessions in Burkina Faso. On the Bissa Group Permits, a combination of rotary air blast, reverse circulation, and diamond drilling was used to advance drill targets such as Guibare, Wemstenga, and Lessa. On other exploration concessions in Burkina Faso, work was done to advance targets and to identify new targets through reconnaissance level work. Reverse circulation and air core drilling occurred on Sakou, 20 kilometres northwest of Bissa, and diamond drilling occurred at Labola, 425 kilometres southwest of Bissa, while rock sampling at Zibtenga and Tyegana, both approximately 75 kilometres southeast of Bissa, identified new drill targets. Prognoz Silver Project In June 2008, High River announced the results of a NI 43-101 compliant resource estimate on the Prognoz Silver Project: -----------------------------------------------------------
Indicated Resources
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Tonnage (t) Silver grade (g/t) Contained Silver (oz)
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4,490,000 704 102 million
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Inferred Resources
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Tonnage (t) Silver grade (g/t) Contained Silver (oz)
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4,870,000 659 103 million
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During 2008, Buryatzoloto drilled 117 diamond drill holes totalling 15,762 metres on Prognoz. Approximately one-third of those holes were in-fill holes designed to confirm historical Russian drill hole data and to define/expand resources on the Glavnoye, Boloto and Yuzhnaya veins. The balance consisted mainly of step-out and reconnaissance holes which tested extensions of known mineralization and un-drilled veins. As well, 20 hydrogeological and engineering holes were completed for future mine development requirements. About High River High River is a gold company with interests in producing mines and advanced exploration projects in Burkina Faso and Russia. FORWARD LOOKING INFORMATION This release and subsequent oral statements made by and on behalf of the Company may contain forward-looking statements. Wherever possible, words such as "intends", "expects", "scheduled", "estimates", "anticipates", "believes", and similar expressions or statements that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved, have been used to identify these forward-looking statements. Although the forward-looking statements contained in this release reflect management's current beliefs based upon information currently available to management and based upon what management believes to be reasonable assumptions, High River cannot be certain that actual results will be consistent with these forward-looking statements. A number of factors could cause events and achievements to differ materially from the results expressed or implied in the forward-looking statements. These factors should be considered carefully and prospective investors should not place undue reliance on the forward-looking statements. Forward-looking statements necessarily involve significant known and unknown risks, assumptions and uncertainties that may cause High River's actual results, event, prospects and opportunities to differ materially from those expressed or implied by such forward-looking statements. Although High River has attempted to identify important risks and factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors and risks that cause actions, events or results not to be anticipated, estimated or intended. There can be no assurance that the forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, prospective investors should not place undue reliance on forward-looking statements. Any forward-looking statements are made as of the date of this release, and High River assumes no obligation to update or revise them to reflect new events or circumstances, unless otherwise required by law. High River Gold Mines Ltd.
CONSOLIDATED BALANCE SHEETS
(Expressed in thousands of Canadian dollars)
As at December 31, 2008 2007
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Assets
Current Assets
Cash and cash equivalents $ 19,123 $ 51,491
Restricted cash - 69
Accounts receivable 14,546 25,339
Inventory 79,369 48,777
Other assets 11,401 4,318
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124,439 129,994
Investments 22,724 38,131
Property, plant and equipment 432,089 202,780
Exploration properties and deferred exploration 170,522 115,643
Development properties - 177,417
Other assets 3,335 2,090
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Total Assets $ 753,109 $ 666,055
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Liabilities
Current Liabilities
Accounts payable $ 29,842 $ 24,186
Loans and interest payable 136,699 67,793
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166,541 91,979
Loans and interest payable 51,446 107,470
Reclamation 10,078 7,866
Non-hedge derivatives 13,651 9,867
Future income taxes 15,884 13,062
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257,600 230,244
Non-controlling interest 18,467 17,830
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Total Liabilities 276,067 248,074
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Shareholders' Equity
Share capital 543,244 453,225
Warrants 16,627 19,951
Contributed surplus 12,876 11,192
Debenture conversion option 538 538
Deficit (112,037) (57,494)
Accumulated other comprehensive income (loss) 15,794 (9,431)
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Total Shareholders' Equity 477,042 417,981
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Total Liabilities and Shareholders' Equity $ 753,109 $ 666,055
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High River Gold Mines Ltd.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in thousands of Canadian dollars except per share figures)
For the years ended December 31, 2008 2007
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Revenue
Gold $ 180,788 $ 115,641
Silver 383 1,596
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181,171 117,237
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Expenses
Mining costs 125,099 75,908
Mine administrative costs 9,704 5,939
Mine amortization and depletion 27,908 17,486
Asset retirement obligation accretion 655 363
Standby costs 8,707 -
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172,073 99,696
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Income before the undernoted 9,098 17,541
Administrative costs (17,057) (8,394)
Amortization (603) (691)
Exploration expense (10,012) (6,636)
Financing costs and investment income, net (14,428) (13,470)
Other income/(expense) (14,384) 5,916
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Loss before tax and non-controlling interest (47,386) (5,734)
Income tax expense (9,424) (4,767)
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Loss before non-controlling interest (56,810) (10,501)
Non-controlling interest in earnings of subsidiary (637) (1,490)
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Net loss for the year $ (57,447) $ (11,991)
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Net loss per share - basic and diluted $ (0.16) $ (0.05)
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High River Gold Mines Ltd.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in thousands of Canadian dollars)
For the years ended December 31, 2008 2007
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Operating Activities
Net loss for the year $ (57,447) $ (11,991)
Non-cash items:
Non-controlling interest in earnings of subsidiary 637 1,490
Change in inventory 3,315 -
Amortization and depletion expense 28,511 18,396
Asset retirement obligation accretion 655 363
Financial instrument accretion expense (210) 940
Fair value adjustments to financial instruments 4,697 6,200
Stock-based compensation expense 1,825 2,325
Writedown of carrying values 5,450 814
Loss on disposal of assets 181 449
Loss on sale of investments 7,733 -
Future income taxes 3,633 (1,027)
Unrealized foreign exchange gain (3,904) (3,505)
Other (3,136) 190
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Subtotal (8,060) 14,644
Change in non-cash working capital 33,665 (19,497)
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Net cash provided (used) by operating activities 25,605 (4,853)
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Investing Activities
Property, plant and equipment (25,233) (15,370)
Proceeds on disposal 7 4
Exploration properties and deferred exploration (32,134) (20,607)
Development properties (28,352) (91,689)
Purchase of investments (10,802) (9,726)
Proceeds from sale of investments 2,715 -
Allocation of restricted cash 72 -
Increase in other long-term assets (204) (69)
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Net cash used by investing activities (93,931) ( 137,457)
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Financing Activities
Loans received 46,409 72,590
Loans repaid (98,666) (38,584)
Dividends paid by subsidiary to
non-controlling interest - (1)
Common shares issued 86,491 124,592
Warrants issued - 921
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Net cash provided by financing activities 34,234 159,518
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1,724 (1,333)
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(32,368) 15,875
Cash and cash equivalents - Beginning of year 51,491 35,616
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Cash and cash equivalents - End of year $ 19,123 $ 51,491
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