RNS Number:2641E
Monterrico Metals PLC
21 September 2007
Monterrico Metals plc
("Monterrico" or the "Company")
AIM: MNA
21 September 2007
Interim Results for the period ended 30 June 2007
HIGHLIGHTS:
* Takeover Offer from Zijin Consortium for Monterrico at 350p per
share recommended by Board, February 2007
* Offer successfully concluded 27 April 2007; Zijin Consortium acquires 89.9%
shareholding but undertakes to sell down to 70% and maintain AIM-listing
* Detailed Feasibility Study (DFS) results for Rio Blanco announced in February
2007:
* Results confirm 25Mtpa open pit mining project is economically feasible
* Resources: 1.257Bt at 0.57% copper & 228 ppm molybdenum (JORC compliant)
* Proven & Probable Reserves: 498Mt at 0.63% copper & 216 ppm molybdenum
* Capital cost of Project is US$1.44 billion (inc. indirect costs &
contingencies)
* Economic indicators for first 5 years of operation:
Operating costs 41 c/lb copper (net of by-product credits)
Project payback period 4 years
Annual copper production 191,000 tonnes per year
Annual molybdenum production 2,180 tonnes per year
* New Monterrico Board appointed 1 June 2007
* Stability Agreements with Peru Government announced in August 2007,
recognizing Monterrico's investment in Peru and fixing tax and labour
conditions for 10 year term.
* Trust Funds for US$80 million (accumulated over the 20 year mine
life) proposed for the communities in area of influence of the Rio Blanco
mine; announced in August 2007
* First stage of proposed sell down by Zijin Consortium announced in September
2007. Consortium to sell 10% of Monterrico (2.63 million shares) to major
Korean smelter (LS-Nikko). Share price (370 pence per Share) is at a
premium to the prevailing share price and the Consortium's offer price.
Results
The focus of expenditure during the first half year of 2007 was on the social
programmes, the environmental and social impact assessment and the review of the
DFS for the Rio Blanco project. The Company did not generate any income from
operations except that from interest. The total loss during the period was
US$8,899,000 (US$3,964,000 to 30 June 2006) including US$5,930,000 of
non-recurring costs associated with the takeover by the Zijin Consortium.
Since the Consortium's acquisition of its majority shareholding, the Consortium
has made a number of loans to the Company to meet working capital requirements
and to provide initial finance for the community Trust Funds.
Cash reserves at the end of August amounted to $8,740,000.
Comment
Mr. Richard Ralph, Non-Executive Chairman, said "Following the acquisition by
the Chinese Zijin Consortium in April, Monterrico Metals is in experienced hands
and is committed to bringing Rio Blanco into production as soon as possible. The
new management has a clear view of the short term priorities - the key one being
to put relations with the local communities on a new footing of mutual
confidence in accordance with international best practice."
Enquiries:
Monterrico Metals plc Tel: + 44 20 7776 2900 Richard Ralph, Non-Executive Chairman
Susan Connolly, Investor Relations Manager
Ambrian Partners Tel: + 44 20 7776 6421 Tim Goodman
Parkgreen Communications Tel: + 44 20 7851 7480 Simon Robinson/ Beth Harris/Laura Llewelyn
STATEMENT BY THE NON-EXECUTIVE CHAIRMAN, MR RICHARD RALPH
I am very pleased to present this Interim Report.
The first six months of 2007 saw two very important developments for Monterrico.
The first was the announcement in February of the results of the Detailed
Feasibility Study (DFS) of the Rio Blanco Project, which had been completed on
target at the end of 2006. The completion of the DFS marks an important
milestone for the company as it converts what was merely an exploration property
just a few years ago into what is today a world class resource with a feasible
development plan.
The second was the successful acquisition of a majority shareholding in
Monterrico by the Chinese Xiamen Zijin Tongguan Investment Development Company
Ltd (the Zijin Consortium). This acquisition became effective on April 27, 2007,
with the Consortium acquiring 89.9% of Monterrico.
The new management took control with effect from 1 June 2007. This is,
therefore, Monterrico's first progress report since the change of management.
The Zijin Consortium and the benefits it brings
The Zijin Consortium consists of a partnership of three important Chinese
companies: 45% Zijin Mining Group Co Ltd; 35% Tongling Nonferrous Metals Group
Holdings Co Ltd; and 20% Xiamen Construction and Development Co Ltd. The
takeover by the Zijin Consortium brings enormous benefits to Monterrico, in the
form of technical expertise and financial strength, at a critical time when
Monterrico begins the exciting transition from an exploration company to a major
copper producer. As majority shareholder, the Consortium will provide Monterrico
with its expertise in large scale mine development and operation, a market for
the concentrate product, as well as the solid financial support needed for the
development of Rio Blanco and its associated infrastructure.
Maintenance of the AIM Listing
At the time of the Offer, the Consortium announced its intention to maintain
Monterrico's AIM-listing and to place down about 20% of the shares it acquired
to establish a free float of not less than 30%. The first stage of this
sell-down was reported on 4 September, when the Consortium announced that it had
entered into a conditional agreement to sell 2,630,606 shares, representing 10%
of Monterrico, to the Korean company, LS-Nikko Copper Inc. LS-Nikko Copper is
the second largest copper smelting company in the world. The shares are being
placed at a price of 370 pence per share, which is at a premium to both the
Zijin offer price and the prevailing share price. This transaction, which is
expected to be finalized on 21 September 2007, represents a demonstration of
confidence in both Monterrico and in the future development of Rio Blanco.
New Management
The first priority of the new management was the reconstruction of the Board and
management teams in both London and Peru. This has now been achieved. As one
of only two previous Directors to continue on the Board following the change of
ownership, I would like to thank the outgoing directors for the valuable
contribution they made to the growth of the Company since its foundation, and to
welcome the new Board, with members from Britain, China, Canada and Australia.
Under the leadership of myself as non-executive Chairman, and Mr Xiaodong Huang,
a highly experienced professional mining company executive, as CEO, the Company
has a strong and cohesive team combining the requisite mix of managerial,
mining, engineering, financial and community relations skills to take the Rio
Blanco project forward into the next stage. The three executive Directors of
Monterrico Metals plc are also executive Directors of our Peruvian subsidiary,
Minera Majaz SA, which is responsible for developing the Rio Blanco Project.
Overall, a firm grip is being taken of all aspects of the Company and the
Project with a view to establishing strong, state of the art, management and
financial control systems.
The new management is committed to bringing the Rio Blanco Project into
production as soon as possible. At the AGM in July, I announced that the
Company's next strategic priorities, which we have already embarked upon, are:
reviewing and optimising the DFS; rebuilding relations with the communities
living in the area of influence of the Rio Blanco Project; and completing the
Environmental (and Social) Impact Assessment with a view to being in a position
to submit it to the Peruvian Government as quickly as possible.
Rio Blanco Project - Detailed Feasibility Study (DFS)
The DFS was prepared for the Company by a team of independent mining consultancy
companies under the leadership of Hatch Associates. The DFS considers an open
pit operation treating 25 million tonnes of ore per annum over an initial 20
year mine life. The mine will be centred on Henry's Hill where resources of
1.257 billion tonnes at 0.57% copper and 228 ppm molybdenum have been confirmed
to JORC standards. The mine will use conventional flotation methods to produce
separate copper and molybdenum concentrates. According to the DFS, Rio Blanco
will produce about 191,000 tonnes of copper and 2,180 tonnes of molybdenum per
year on average during the first five years of operation. At this rate of copper
production, Rio Blanco would rank amongst the 20 largest copper mines in the
world today.
Due to its remote location, the Project will require significant infrastructure
development. To minimise the initial capital cost of the Project, the DFS
recommended trucking the concentrates from the mine to the port in the early
years; however, a study for a concentrate pipeline was also developed to full
feasibility as an option for the future.
Hatch has estimated the Capital Cost of the Project as US$1.44 billion total
cost (prepared to an accuracy of -5%/+15%, including indirect costs and
contingencies) and average operating costs for the first five years of operation
to be 41 c/lb copper (net of by-product credits).
The review of the DFS is being undertaken with a view to optimising project
design, while incorporating the most appropriate technology to ensure
environmental, social and operating efficiency.
Social and Political
Achieving community acceptance for the project is a top priority for the
Company. Through our Peruvian subsidiary, Minera Majaz SA, we are devoting
greatly increased effort and funding to achieve social acceptance by the
communities in the area of impact of the Project. We have an active social
programme which provides information on the project, assistance with various
community projects and a community development programme to promote sustainable
development of the region. As part of our programme the Company organises for
members of the community to visit other large modern mines in Peru to
demonstrate how they operate and reassure the community about the compatibility
of modern mining with agriculture.
In August 2007, we announced a proposal to the two communities (Yanta and
Segunda y Cajas) who live within the area of influence of the proposed mine, to
establish two US$40 million private funds to be used for community projects of
their choice. Monterrico will provide the seed capital to establish the funds;
later contributions would be financed from profits from the Rio Blanco mine.
This is a voluntary initiative by the Company and is in addition to the share of
revenues that these communities will receive from taxes and royalties once the
mine comes into production.
I am pleased to report that the Company and the Project continue to enjoy strong
support from the Peruvian Government at national and regional level. In the
twelve months since his election in 2006, President Garcia has proved himself a
strong supporter of mining, and of the Rio Blanco Project, which he recognises
as important for the greater prosperity for the country. Evidence for this
Government support was demonstrated recently when anti-mining NGO's from outside
the region, instigated a symbolic "popular consultation" amongst three
communities in the vicinity of the mine project on 16 September. The Peruvian
Government described this exercise as illegal and unrepresentative of wider
views within the region, said that the negative results would not be binding,
and called for dialogue and conciliation - something to which the Company is
strongly committed.
This support was also demonstrated in August when the Peruvian Government signed
Stability Agreements with Monterrico's two subsidiary companies in Peru. These
agreements provide formal registration of the Company's investment in Peru. They
guarantee that the tax and labour conditions will remain unchanged for 10 years;
free transferability of foreign currency; non-discrimination regarding exchange
rates and free trade of mineral products.
Copper Market
The London Metal Exchange copper price (3 month) started the year at US$6,300
per tonne, having fallen from the record highs of US$8,800 per tonne, seen in
May 2006. The downward trend continued into 2007 as fund liquidation and profit
taking saw the price reach a 10 month low of US$5,250 per tonne in early
February. This coincided with stocks in LME warehouses increasing from 192,500
tonnes in January to a high of 215,000 tonnes. However strong consumer demand,
combined with producer supply disruptions, caused the stocks to be drawn down to
112,600 tonnes by the end of June. The copper price reacted accordingly and
closed the period at US$7,578 per tonne.
Since the end of June concerns over sub-prime debt has caused uncertainty in the
markets generally and copper has not escaped unaffected, reaching a low of
US$6,730 per tonne in mid August, before recovering to US$7,780 per tonne
currently.
The copper price during the period, and also for the foreseeable future, is
dominated by the impact of the developing economies of China, India, Russia and
Brazil. These economies are at a stage in their development when metal usage is
at its highest and despite attempts to control growth in China, metal
consumption is predicted to remain strong.
The current copper price will encourage new projects, which in time will help to
redress the supply demand balance and even cause periods of surpluses. However,
after the extended period of low metal prices until 2003/4 (with prices falling
in real terms) it is widely thought that we are now witnessing a period of
revaluation, and that the copper price has moved out of its 25 year range and
has established new, higher price parameters for the metal.
Financials
The US dollar has been adopted as the Company's presentation currency for these
interim results and accordingly the financial results for prior periods have
been restated into that currency.
The focus of expenditure during the first half year of 2007 was on the social
programmes, the environmental and social impact assessment and the review of the
DFS for the Rio Blanco Project. The Company did not generate any income from
operations except that from interest. The operating loss during the period was
US$8,998,000 (US$4,289,000 to 30 June 2006) including US$5,930,000 of
non-recurring costs associated with the takeover by the Zijin Consortium and
mainly paid to Monterrico's financial and legal advisors. Net interest earned
amounted to US$179,000 (30 June 2006: US$325,000). The total loss for the
period was US$8,899,000 (30 June 2006: US$3,964,000).
Since the Consortium's acquisition of its majority shareholding, the Company has
entered into three loan agreements with the Zijin Consortium. These loans
comprise: #2,000,000, (announced 1May, 2007) US$8,000,000 (announced on 3 July
2007) and US$6,000,000 (announced on 23 August 2007). The first two were to meet
working capital requirements. The third was to provide initial capital to
finance the two Trust Funds which the Company proposed for the benefit of
communities in the area of influence of the Rio Blanco Project; this loan has
yet to be drawn down.
During the period the Company has written off exploration costs of US$493,000,
following its decision not to proceed with its option to purchase a 90% interest
in the Monarc Gold property from Back Arc Minerals, via a farm-in arrangement.
At the end of the period, total capitalised expenditure costs, amounted to
US$40,537,000 (30 June 2006: US$27,240,000).
Cash reserves at the end of August amounted to $8,740,000.
Conclusions
The Company has benefited considerably from the acquisition of a majority
shareholding by the Zijin Consortium. The Consortium has brought strong new
leadership and management, greatly increased technical and financial backing,
and a firm commitment to working with the communities to achieve social
acceptance for the development of Rio Blanco. Taken together, these form a firm
foundation for taking forward what is generally recognised to be one of the most
important copper/molybdenum projects in the world.
We will continue to keep our shareholders and the market informed of
developments as we go forward. Meanwhile, I should like to thank all our
stakeholders for their continued loyalty and support.
Richard Ralph
Chairman
Non-executive Director
INDEPENDENT REVIEW REPORT TO MONTERRICO METALS PLC
For the six months ended 30 June 2007
Introduction
We have been instructed by the company to review the financial information for
the six months ended 30 June 2007 which comprises the condensed income
statement, the condensed balance sheet, the condensed statement of changes in
shareholders equity, the condensed statement of cash flows and the related notes
1 to 6. We have read the other information contained in the interim report
which comprises only the Chairman's statement and considered whether it contains
any apparent misstatements or material inconsistencies with the financial
information. Our responsibilities do not extend to any other information.
This report is made solely to the company in accordance with guidance contained
in APB Bulletin 1999/4 "Review of Interim Financial Information". Our review
work has been undertaken so that we might state to the company those matters we
are required to state to them in a review report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company for our review work, for this report, or for
the conclusion we have formed.
Directors' Responsibilities
The Interim Report Including the financial information contained therein is the
responsibility of, and has been approved by, the directors. They are
responsible for preparing the interim report and ensuring that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.
Review Work Performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
"Review of Interim Financial Information" issued by the Auditing Practices Board
for use in the United Kingdom. A review consists principally of making
enquiries of management and applying analytical procedures to the financial
information and underlying financial data and, based thereon, assessing whether
the accounting policies and presentation have been consistently applied unless
otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with
International Standards of Auditing (UK & Ireland) and therefore provides a
lower level of assurance than an audit. Accordingly, we do not express an audit
opinion on the financial information.
Review Conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2007.
GRANT THORNTON UK LLP
CHARTERED ACCOUNTANTS
London
21 September 2007
CONDENSED INCOME STATEMENT
For the six months ended 30 June 2007 Note 6 mths to 6 mths to Year to
30/06/07 30/06/06 31/12/06
US$000 US$000 US$000
(unaudited) (unaudited) (unaudited)
Administrative expenses (2,611) (2,714) (4,154)
Non recurring administrative expenses 2 (5,930) - -
Other operating income/(expense) 36 (1,575) 201
Exploration costs written off (493) - -
Operating loss (8,998) (4,289) (3,953)
Finance income 179 325 845
Finance expense (80) - (1,160)
Loss from continuing operations before tax (8,899) (3,964) (4,268)
Taxation - - -
Loss for the period (8,899) (3,964) (4,268)
Basic and diluted loss per ordinary share (US 3 (33.8) (16.1) (16.8)
cents)
CONDENSED BALANCE SHEET
For the six months ended 30 June 2007 Note 6 mths to 6 mths to Year to
30/06/07 30/06/06 31/12/06
US$000 US$000 US$000
(unaudited) (unaudited) (unaudited)
Assets
Property, plant and equipment 267 291 297
Intangible assets - deferred exploration 40,537 27,240 35,176
costs
Total non-current assets =SUM(ABOVE) 27,531 35,473
40,804
Other receivables and prepayments 3,713 2,602 3,497
Cash and cash equivalents 2,402 21,974 12,576
Total current assets =SUM(ABOVE) 24,576 16,073
=SUM(ABOVE)
6,115
Total assets 46,919 52,107 51,546
Equity
Issued share capital 4,546 4,546 4,546
Share premium 50,178 50,178 50,178
Share option reserve 1,413 752 1,092
Foreign currency translation reserve 3,328 3,009 2,494
Retained losses (17,226) (8,023) (8,327)
Total equity 4 =SUM(ABOVE) 50,462 49,983
=SUM(ABOVE)
42,239
Liabilities
Trade and other payables 633 1,645 1,563
Loans 4,047 - -
Total current liabilities =SUM(ABOVE) 1,645 1,563
4,680
Total equity and liabilities 46,919 52,107 51,546
CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
For the six months ended 30 June 2007
Foreign
Share currency
Share Share option translation Retained Total
capital premium reserve reserve loss equity
US$000 US$000 US$000 US$000 US$000 US$000
Balance at 1 January 2006 (unaudited) 3,861 32,998 350 - (4,059) 33,150
Foreign currency translation differences - - - 3,009 - 3,009
Net income recognised directly in equity - - - 3,009 - 3,009
Loss for the period - - - - (3,964) (3,964)
Total recognised loss for the period - - - 3,009 (3,964) (955)
Issue of share capital 685 17,792 - - - 18,477
Transaction costs on issue of shares - (612) - - - (612)
Credit arising on share options - - 402 - - 402
Balance at 30 June 2006 (unaudited) 4,546 50,178 752 3,009 (8,023) 50,462
Foreign currency translation differences - - - (515) - (515)
Net income recognised directly in equity - - - (515) - (515)
Loss for the period - - - - (304) (304)
Total recognised loss for the period - - - (515) (304) (819)
Credit arising on share options - - 340 - - 340
Balance at 31 December 2006 (unaudited) 4,546 50,178 1,092 2,494 (8,327) 49,983
Balance at 1 January 2007 (unaudited) 4,546 50,178 1,092 2,494 (8,327) 49,983
Foreign currency translation differences - - - 834 - 834
Net income recognised directly in equity - - - 834 - 834
Loss for the period - - - - (8,899) (8,899)
Total recognised loss for the period - - - 834 (8,899) (8,065)
Credit arising on share options - - 321 - - 321
Balance at 30 June 2007 (unaudited) 4,546 50,178 1,413 3,328 (17,226) 42,239
CONDENSED STATEMENT OF CASH FLOWS
For the six months ended 30 June 2007
Note 6 mths to 6 mths to Year to
30/06/07 30/06/06 31/12/06
US$000 US$000 US$000
(unaudited) (unaudited) (unaudited)
Cash flows from operating activities
Loss after Tax (8,899) (3,964) (4,268)
Depreciation 45 33 64
Share based payment expense 5 321 402 742
Increase in other receivables and prepayments (131) (7) (702)
Increase in trade and other payables 968 619 469
Intangible assets written off 493 - -
Cash used in operations (7,203) (2,917) (3,695)
Interest received 179 325 845
Net cash outflow from operating activities (7,024) (2,592) (2,850)
Cash flows from investing activities
Acquisition of property, plant and equipment (12) (88) (129)
Acquisition of intangible assets (5,702) (4,970) (12,026)
Net cash outflow from investing activities (5,714) (5,058) (12,155)
=SUM
(ABOVE)
Cash flows from financing activities
Proceeds from the issue of ordinary share capital - 18,477 18,477
Payment of issue costs - (612) (612)
Proceeds from issue of loan 4,012 - -
Net cash inflow from financing activities 4,012 17,865 17,865
Net (decrease) / increase in cash and cash equivalents (8,726) 10,215 2,860
Cash and cash equivalents at beginning of period 12,576 9,650 9,650
Exchange differences (1,448) 2,109 66
Cash and cash equivalents at end of period 2,402 21,974 12,576
NOTES TO THE CONDENSED INTERIM FINANCIAL INFORMATION
For the six months ended 30 June 2007
1. Basis of preparation of interim financial information
The condensed interim financial information of Monterrico Metals is presented in
US Dollars and has been prepared on the historical cost basis.
Prior to 2007, the Group prepared its audited financial statements and
un-audited interim financial information under UK Generally Accepted Accounting
principles (UK GAAP). From 1 January 2007, the Group is required to prepare
annual consolidated financial statements in accordance with International
Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and
implemented in the UK. As the 2007 annual financial statements will include
comparatives for 2006, the Group's date of transition to IFRS is 1 January 2006
with the 2006 comparatives restated to IFRS. Thus this condensed interim
financial information for the period ended 30 June 2007 has been prepared by
applying the recognition and measurement provisions of IFRS and the accounting
policies to be adopted for the annual accounts. These policies are summarised
in note 6 below.
An exercise to assess the full impact that the change to IFRS has had on the
Group's reported equity, reported losses and accounting policies, has been
completed. In preparing its opening IFRS balance sheet, the Group has adjusted
amounts reported previously in financial statements prepared in accordance with
its previous basis of accounting (UK GAAP).
The Group has elected to apply the following exemptions from full retrospective
application.
(a) Business combinations: The Group has chosen not to restate business
combinations prior to 1 January 2006 in accordance with IFRS 3.
(b) Fair value or revaluation as deemed cost: The Group has chosen not to
restate items of property, plant and equipment to fair value at the
transition date.
(c) Cumulative translation differences: The Group has elected to set the
previously accumulated translation difference to zero at the date of
transition.
(d) Share-based payments: The Group has elected to apply IFRS 2 only to those
options that were granted after 7 November 2002 but that had not vested by
1 January 2006.
It should be noted that:
1. The adoption of IFRS does not result in any material changes to the Group's
accounting policies.
2. The adoption of IAS 21, "The effects of changes in foreign exchange rates",
has resulted in cumulative translation differences arising since 1 January
2006 to be classified as a separate reserve within equity. This change in
presentation does not effect the total equity of the Group at each balance
sheet date.
3. There are no adjustments to the income statement as a consequence of the
first time adoption of IFRSs.
4. There are no other material differences between the cash flow statement
presented under IFRSs and the cash flow statement presented under UK GAAP,
other than to reclassify certain cash movements between categories of cash
flows.
In preparing this condensed interim financial information, the directors have
decided to adopt US dollars as the Group's presentation currency, being the
currency which the directors believe that investors prefer to review the results
of the Group, and accordingly have retranslated the financial results for prior
periods into that currency.
The financial information for the twelve months ended 31 December 2006 has been
derived from the Group's audited financial statements for the period as filed
with the Registrar of Companies and adjusted for the transition to IFRS. It does
not constitute the financial statements for that period. The auditor's report on
the statutory financial statements for the year ended 31 December 2006 was
unqualified and did not contain any statement under Section 237(2) or (3) of the
Companies Act 1985.
2. Non recurring administrative expenses
Non recurring administrative expenses are mainly one off legal & advisory costs
incurred in respect of the successful takeover by the Zijin Consortium in 2007.
3. Loss per share
The calculation of total loss per ordinary share on total operations is based on
losses of US$8,899,000 (twelve months to 31 December 2006: US$4,268,000 and six
months to 30 June 2006: US$3,964,000) and the weighted average number of
ordinary shares outstanding of 26,306,068 (at 31 December 2006: 25,445,625 and
30 June 2006: 24,570,920). There is no difference between the diluted loss per
share and the loss per share presented.
At 30 June 2007 there were 345,000 (31 December 2006: 2,450,000 and 30 June
2006: 2,470,000) share options in issue which have a potentially dilutive effect
on the basic earnings per share in the future.
4. Capital and reserves
Shares issued
No shares were issued in the six months to 30 June 2007.
Share options and warrants
On the 25 April 2007 the Company cancelled 1,937,550 share options that were in
the money as a result of the successful offer made for the Company by Xiamen
Zijin Tongguan Investment Development Co., Ltd (Zijin Consortium). The
difference between the offer price and the exercise price was paid to the
holders of the cancelled share options.
The Company did not issue any share options in the six months to 30 June 2007.
Foreign currency translation reserves
The translation reserve comprises all foreign exchange differences arising from
the translation of the financial statements of foreign operations that do not
have a US Dollar functional currency. Exchange differences arising are
classified as equity and transferred to the Group's translation reserve. Such
translation differences are recognised in the income statement in the period in
which the operation is disposed of.
Other reserves
The share option reserve includes an expense based on the fair value of share
options issued since 7 November 2002 that had not vested as at 1 January 2006.
Dividends
The directors do not recommend the payment of a dividend.
5. Share based payments
The Group issues share based payments to certain individuals, which are measured
at fair value at date of grant. The fair value determined at the grant date is
expensed on a straight line basis over the vesting period, based on the Group's
estimate of shares that will eventually vest.
The Group recognised a total expense of US$321,000 relating to equity settled
share option scheme transactions in the period ended 30 June 2007 (30 June 2006
US$402,000).
6. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of consolidation
(i) Subsidiaries
The condensed interim financial information incorporates the financial
statements of the Company and entities controlled by the Company (its
subsidiaries) made up to each reporting period end. Control is recognised where
the Company has the power to govern the financial and operating policies of an
investee entity so as to obtain benefits from its activities.
(ii) Transactions eliminated on consolidation
Intra-group transactions, balances and unrealised gains on transactions between
Group companies are eliminated. Unrealised losses are eliminated in the same way
as unrealised gains, but only to the extent that there is no evidence of
impairment.
b) Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ('the functional currency'). The condensed interim financial
information is presented in US dollars, which is the Group's presentation
currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency of the
entity using the exchange rates prevailing at the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at year-end exchange rates of monetary
assets and liabilities denominated in foreign currencies are recognised in the
income statement.
(iii) Group companies
The results and financial position of all the Group entities (none of which has
the currency of a hyperinflationary economy) that have a functional currency
different from the presentation currency are translated into the presentation
currency as follows:
* assets and liabilities for each balance sheet presented are translated
at the closing rate at the date of that balance sheet;
* income and expenses for each income statement are translated at
average exchange rates (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which case income and expenses are translated at the
dates of the transactions); and
* all resulting exchange differences are recognised as a separate component
of equity.
On consolidation, exchange differences arising from the translation of the net
investment in foreign operations are taken to shareholders' equity. When a
foreign operation is sold, cumulative exchange differences that were previously
recorded in equity are recognised in the income statement as part of the gain or
loss on sale. In accordance with the transitional provisions of IFRS 1, the
cumulative foreign currency gain or loss has been deemed to be zero as at the
date of transition, being 1 January 2006.
c) Property, plant and equipment
All items of property, plant and equipment are stated at historical cost less
depreciation. Historical cost includes expenditure that is directly attributable
to the acquisition of the items. Subsequent costs are included in the asset's
carrying amount or recognised as a separate asset, as appropriate, only when it
is probable that future economic benefits associated with the item will flow to
the Group and the cost of the item can be measured reliably. All other costs are
recognised in the income statement during the financial period in which they are
incurred.
Depreciation is charged to the income statement on a straight-line basis over
the estimated useful lives of each item, as follows:
Office equipment, fixtures and fittings 3 years
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date. Gains and losses on disposals are
determined by comparing proceeds with carrying amount and are included in the
income statement.
d) Deferred exploration and evaluation costs
All costs incurred prior to obtaining the legal right to undertake exploration
and evaluation activities on a project are written-off as incurred.
Exploration and evaluation costs arising following the acquisition of an
exploration licence are capitalised on project-by-project basis, pending
determination of the technical feasibility and commercial viability of the
project. Costs incurred include technical expenses and allocated administrative
overheads. Deferred exploration costs are carried at historical cost less any
impairment losses recognised.
If an exploration project is successful and it is brought into production, the
related expenditures are depleted on a unit of production basis, or until the
properties are sold, allowed to lapse, abandoned or determined not to be
economically viable, at which time they are charged to the income statement.
Capitalised deferred exploration expenditures are reviewed for impairment losses
(see accounting policy note g below) at each balance sheet date. In the case of
undeveloped properties, there may be only inferred resources to form a basis for
the impairment review. The review is based on a status report regarding results
of exploration or evaluation work to date and the Group's intentions for
development of the related property.
e) Other receivables and prepayments
Provision against trade receivables is made when there is objective evidence
that the Group will not be able to collect all amounts due to it in accordance
with the original terms of those receivables. The amount of the write-down is
determined as the difference between the asset's carrying amount and the present
value of estimated future cash flows.
f) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together
with other short-term, highly liquid investments that are readily convertible
into known amounts of cash and which are subject to an insignificant risk of
changes in value.
g) Impairment
Whenever events or changes in circumstance indicate that the carrying amount of
an asset may not be recoverable an asset is reviewed for impairment. An asset's
carrying value is written down to its estimated recoverable amount (being the
higher of the fair value less costs to sell and value in use) if that is less
than the asset's carrying amount.
Impairment reviews for deferred exploration and evaluation costs are carried out
on a project by project basis, with each project representing a potential single
cash generating unit. An impairment review is undertaken when indicators of
impairment arise but typically when one of the following circumstances apply:
(i) unexpected geological occurrences that render the resource uneconomic;
(ii) title to the asset is compromised;
(iii) variations in metal prices that render the project uneconomic;
(iv) variations in the currency of operation; and
(v) the Group determines that it no longer wishes to continue to evaluate or
develop the property.
h) Share-based payments
Certain Group employees and consultants are rewarded with share based
instruments.
All share-based payment arrangements granted after 7 November 2002 are
recognised in the financial statements. IFRS 2 has been applied to grants
before 7 November 2002 only where the Group has disclosed publicly the fair
value of those equity instruments, determined as at the grant date in accordance
with IFRS 2.
All goods and services received in exchange for the grant of any share-based
payment are measured at their fair values. Where employees are rewarded using
share-based payments, the fair values of employees' services are determined
indirectly by reference to the fair value of the instrument granted to the
employee. This fair value is appraised at the grant date and excludes the impact
of non-market vesting conditions (for example, profitability and sales growth
targets).
All equity-settled share-based payments are ultimately recognised as an expense
in the income statement with a corresponding credit to "other reserve".
If vesting periods or other non-market vesting conditions apply, the expense is
allocated over the vesting period, based on the best available estimate of the
number of share options expected to vest. Estimates are subsequently revised
if there is any indication that the number of share options expected to vest
differs from previous estimates. Any cumulative adjustment prior to vesting is
recognised in the current period. No adjustment is made to any expense
recognised in prior periods if share options ultimately exercised are different
to that estimated on vesting.
Upon exercise of share options the proceeds received net of attributable
transaction costs are credited to share capital, and where appropriate share
premium.
i) Provisions
Provisions are recognised when, the Group has a legal or constructive obligation
as a result of past events, it is more likely than not that an outflow of the
resources will be required to settle the obligation and the amount can be
reliably estimated.
When a liability is initially recorded, a corresponding increase to the carrying
amount of the related asset is recorded. On an annual basis, the fair value of
the future liability for an asset retirement obligation is recognised in the
period in which it is incurred with an offsetting amount being recognised as an
increase in the carrying amount of the corresponding asset. This asset is
amortised over the estimated life of the mine while the corresponding liability
accretes to its future value by the end of the mine's life. Ongoing expenditures
related to the protection of the environment are charged to earnings in the
period they are incurred.
j) Trade, other payables and accruals
Financial liabilities are obligations to pay cash or other financial assets and
are recognised when the Group becomes a party to the contractual provisions of
the instrument. Financial liabilities categorised as at fair value through
profit or loss are recorded initially at fair value, all transaction costs are
recognised immediately in the income statement. All other financial liabilities
are recorded initially at fair value, net of direct issue costs.
k) Income tax
Deferred income taxes are calculated using the liability method on temporary
differences. Deferred tax is generally provided on the difference between the
carrying amounts of assets and liabilities and their tax bases. However,
deferred tax is not provided on the initial recognition of goodwill, nor on the
initial recognition of an asset or liability unless the related transaction is a
business combination or affects tax or accounting profit. Deferred tax on
temporary differences associated with shares in subsidiaries and joint ventures
is not provided if reversal of these temporary differences can be controlled by
the Group and it is probable that reversal will not occur in the foreseeable
future.
In addition, tax losses available to be carried forward as well as other income
tax credits to the Group are assessed for recognition as deferred tax assets.
Deferred tax liabilities are provided in full, with no discounting. Deferred
tax assets are recognised to the extent that it is probable that the underlying
deductible temporary differences will be able to be offset against future
taxable income. Current and deferred tax assets and liabilities are calculated
at tax rates that are expected to apply to their respective period of
realisation, provided they are enacted or substantively enacted at the balance
sheet date.
l) Investment in subsidiaries
Investments in subsidiaries are recognised at cost less any provision for
impairment.
m) Revenue
i) Interest income
Interest is recognised using the effective interest method which calculates the
amortised cost of a financial asset and allocates the interest income over the
relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash receipts through the expected life of the financial asset
to the net carrying amount of the financial asset.
n) Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. Many of the amounts included
in the financial statements involve the use of judgement and/or estimation.
These judgements and estimates are based on managements' best knowledge of the
relevant facts and circumstances, having regard to prior experience, but actual
results may differ from the amounts included in the financial statements.
ENDS
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR OKDKDDBKDBCB
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