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Sierra Rutile Limited
31 March 2016
Sierra Rutile Limited
Audited financial results for the year ended 31 December
2015
London, UK, 31 March 2016: Sierra Rutile Limited ("Sierra
Rutile", the "Company", or the "Group") is pleased to announce its
results for the year ended 31 December 2015 and has today published
its audited preliminary results on the Group's website at
http://www.sierra-rutile.com/.
OPERATIONAL HIGHLIGHTS
-- Major production milestone achieved with 126,021 tonnes of rutile
- 10% increase from prior year
- Representing highest annual production since operations restarted
-- Gangama dry mine project on track
- Within budget and on-schedule expected for commissioning June 2016
- Provide further dry mining production capacity in 2016
FINANCIAL HIGHLIGHTS
$ million (unless otherwise stated) 2015 2014 % change
-------------------------------------- ------ ------ ---------
Revenue 105.8 117.8 (10%)
EBITDA(1) 16.1 14.8 9%
Loss before tax (9.4) (8.9) (6%)
Free Cash Flow(2) 17.3 6.7 158%
Production cash cost(3) ($/t) 614 643 5%
Net debt(4) 46.4 36.4 (27%)
-------------------------------------- ------ ------ ---------
-- Improved financing arrangements
- Standby Facility of $15 million
- Working Capital and Standby Facilities extended to May 2017
- Deferral of next repayment under Government loan to December 2016
STRATEGIC HIGHLIGHTS
-- Revised development programme
- Focus on capital disciplined investment
- Flexible dry mining units to match customer demand
-- Attractive growth projects with potential to produce over 200,000 tonnes by 2018
- 250tph bolt-on plant at Gangama being evaluated at capital cost of $12 million
- Similar bolt-on plant being evaluated for Lanti dry mine
- Sembehun pre-feasibility study completed
- further refinements being considered for added flexibility and reduced capital costs.
OUTLOOK
-- Current trading in line with expectations
- Rutile production in Q1 2016 expected to be seasonally lower at around 26,000 tonnes
- Approximately 11% ahead of Q1 2015 and 33% lower than Q4 2015
-- Market-led business model
- Production guidance between 120,000 and 135,000 tonnes
-- Benefits from anticipated commissioning of Gangama dry mine
- Production cash cost between $540/t and $590/t
(1) EBITDA is measured as earnings/(loss) before finance
income/costs, tax, depreciation, amortisation, share based
payments, impairment charges and provision for obsolete
inventory.
(2) Free Cash Flow is calculated as EBITDA less stay-in-business
capital expenditure, tax payments and working capital
movements.
(3) Production cash cost defined as the direct costs of
production divided by tonnes of rutile produced.
(4) Net debt is defined as gross borrowings less cash and cash
equivalents.
Commenting on 2015 performance, Sierra Rutile CEO, John Sisay
said: "We are delighted to have achieved our targets across the
business last year. Production was towards the upper end of
guidance, costs were rigorously managed and the business was cash
generative. These favourable conditions allowed us to invest in the
Gangama dry mining project which remains within budget and
on-schedule for commissioning in June 2016. The marketplace for the
mineral sands sector in general remains subdued, but the premium
value attributed to our products and the deep relationships which
have been developed with our customers over many years have
permitted us to maintain sales at broadly consistent prices.
Going into 2016 and beyond, our market-led business model will
allow us to align production to customer demand. The anticipated
completion of the first stage of expansion of the Gangama dry mine
in June, followed by the potential bolt-on expansions to Gangama
and the Lanti dry mine, give the Group the added flexibility to
respond to any increase in demand in a capital efficient and
flexible manner. We are confident that a broad based pick-up in
rutile prices is on the horizon and the business is well placed to
capitalize on any improvement. We remain focused on delivering upon
our plans to develop a business with industry leading shareholder
returns, with our robust balance sheet as the foundation."
For Further Information:
Sierra Rutile Limited
Matthew Hird
Chief Financial Officer +44 (0)20 7074 1800
Investec Bank
Nominated Adviser and Joint
Corporate Broker
Chris Sim/George Price/Jeremy
Ellis +44 (0)20 7597 4000
RBC Capital Markets
Joint Corporate Broker
Jonny Hardy +44 (0)20 7653 4000
Numis Securities Limited
Joint Corporate Broker
John Prior/James Black/Paul
Gillam +44 (0)20 7260 1000
Kreab
Marc Cohen/Christina Clark/Fiona
Cumberland +44 (0)20 7074 1800
About Sierra Rutile Limited
Sierra Rutile produces titanium feedstock industrial minerals
(primarily rutile, with some associated ilmenite), as well as
smaller quantities of zircon. Sierra Rutile's mines, located in the
south west of Sierra Leone, are based on one of the largest natural
rutile deposits in the world, with a JORC-Compliant Mineral
Resource for measured, indicated and inferred resources for the
Sierra Rutile mine of over 867 million tonnes (as at 30 September
2015).
Forward-Looking Information
This document may contain forward-looking statements. These
forward-looking statements are made as of the date of this document
and Sierra Rutile Limited (the "Company") does not intend, and does
not assume any obligation, to update these forward-looking
statements, whether as a result of new information, future events
or otherwise, except as required under applicable securities
legislation.
Forward-looking statements relate to future events or future
performance and reflect Company management's expectations or
beliefs regarding future events and future performance and include,
but are not limited to, statements with respect to the estimation
of mineral reserves and resources, the realization of mineral
reserve estimates, the timing and amount of estimated future
production, costs of production, capital expenditures, success of
mining operations, environmental risks, unanticipated reclamation
expenses, title disputes or claims and limitations on insurance
coverage. In certain cases, forward-looking statements can be
identified by the use of words such as "plans", "expects" or "does
not expect", "is expected", "budget", "scheduled", "estimates",
"forecasts", "intends", "anticipates" or "does not anticipate", or
"believes", or variations of such words and phrases or statements
that certain actions, events or results "may", "could", "would",
"might" or "will be taken", "occur" or "be achieved" or the
negative of these terms or comparable terminology. By their very
nature forward-looking statements involve known and unknown risks,
uncertainties, assumptions and other factors which may cause the
actual results, performance or achievements of the Company to be
materially different from any future results, performance or
achievements expressed or implied by the forward looking
statements. Such factors include, among others, risks related to
actual results of current exploration activities; changes in
project parameters as plans continue to be refined; future prices
of mineral resources; possible variations in ore reserves, grade or
recovery rates; accidents, labour disputes and other risks of the
mining industry; delays in obtaining governmental approvals or
financing or in the completion of development or construction
activities; as well as those factors detailed from time to time in
the Company's interim and annual reports. These risks,
uncertainties, assumptions and other factors could adversely affect
the outcome and financial effects of the plans and events described
herein.
Although the Company has attempted to identify important factors
that could cause actual actions, events or results to differ
materially from those described in forward-looking statements,
there may be other factors that cause actions, events or results
not to be as anticipated, estimated or intended. There can be no
assurance that forward-looking statements will prove to be
accurate, as actual results and future events could differ
materially from those anticipated in such statements. Accordingly,
readers should not place undue reliance on forward-looking
statements.
Annual General Meeting
The date and location for the AGM of the Group will be announced
shortly but it is expected to be held before the end of July 2016.
Proxy cards will be distributed to shareholders with the Notice of
the AGM.
Chairman's Statement
It is with great pleasure that I write my inaugural independent
Chairman's statement for Sierra Rutile. I have only been with the
Company for a short period of time, but I have already been
extremely impressed by what I have seen from an excellent
management team operating a world-class asset. Indeed, the reason I
was motivated to join Sierra Rutile was the rare opportunity to be
involved with furthering the development of such a quality asset,
with the goal of ensuring it achieves its latent potential. I am
very confident we as a team will be successful in this endeavour by
combining expertise, responsible governance, a world-class asset,
and excellent partner and local community relationships. I am
especially pleased by Sierra Rutile's continued commitment to good
corporate governance, exemplified by the decision to appoint an
independent Chairman.
(MORE TO FOLLOW) Dow Jones Newswires
March 31, 2016 02:00 ET (06:00 GMT)
I have joined Sierra Rutile at a time when the price of mineral
sands, consistent with almost all commodities, is going through a
period of cyclical weakness. Whilst rutile has outperformed many
other commodities, the market continues to remain challenging and
pricing disappointed during 2015, with a 3% fall on 2014, for an
average realized price of $775/t. That said, rutile and other
high-grade feedstocks were the bright spot for mineral sands due to
underlying robust demand and the positive impact of the more
buoyant titanium metal sector. We see this outperformance
continuing during 2016 as the destocking cycle draws to an end.
Sierra Rutile is better positioned than many companies to
withstand these lower commodity prices, since it is already a
low-cost producer. A strong focus on cost control meant that
production cash costs were lowered further during the year to
$614/t. This was particularly pleasing given that Sierra Rutile
does not benefit directly from the strong US dollar in the way many
of its peers do, and therefore the cost reductions were a direct
result of efficiency savings achieved by management. Sierra Rutile
will continue to focus on cost control and we expect to continue to
find ways to further optimize the operation and increase
efficiency, even prior to the introduction of Gangama dry mining,
which we anticipate will be our lowest cost production unit
yet.
Sierra Rutile also benefits from a strong balance sheet when
viewed in the context of its sector peers. This has allowed us to
continue operating and expanding our production base rather than
having to focus on the servicing of legacy debt positions. We aim
to enhance and extend our relationships with capital providers
across all spectrums to ensure we continue to enjoy a stable and
well-balanced financial platform.
Since joining, I have been impressed by the Company's long-term
growth plans in an ever-changing environment, and I endorse those
plans whole-heartedly. Management's long term strategic outlook,
and the systems and processes that have been put in place are
impressive. From market-led production to capital efficiency,
balance sheet differentiation and an innovative culture, Sierra
Rutile is unique in the sector. Sierra Rutile has added both an
experienced and capable Chief Operating Officer and Chief Financial
Officer during the past year, both of whom supplement an already
strong team. It is a team that has admirably delivered on the
promises it has made to both the Board of Directors and its
shareholders, and I have every confidence that they will continue
to do so in the future.
Sierra Rutile has entered into its 49th year of operations since
the mine started in 1967, and therefore 2017 is of particular note
since it will mark the Company's 50th year anniversary. I am
excited to be joining the Company at this time as we embark upon an
historical milestone. There are very few mining enterprises on the
African continent that have been in operation for such a long time,
and more importantly, likely to be in operation for decades to come
for the benefit of all stakeholders. We are very proud of our
position as a cornerstone of the Sierra Leonean economy, the
support we have amongst the people and our positive impact on the
local communities in which we operate.
In closing, I remain extremely positive on Sierra Rutile's
near-term outlook and long-term future. The Company has already
shown that it can operate effectively in this challenging
commodity-price environment, whilst continuing to grow and
progress. A strong, growth plan is in motion to further develop
this world-class asset, and we have in place the team that can
deliver. Sierra Rutile is not reliant on a recovery in commodity
prices to aid its success and in this regard is firmly in control
of its own destiny.
Robert Edwards
Non-Executive Chairman
Chief Executive's Statement
2015 was a year of opportunity and growth for Sierra Rutile.
Against a subdued market backdrop, Sierra Rutile's employees and
operations continued to prove their ability to increase production
and lower costs. 2015 also marked a year of significant investment
into the business. Gangama Dry Mine construction not only
commenced, but remains on schedule and on budget for anticipated
commissioning in the second quarter of 2016. These achievements
were all accomplished as Sierra Rutile and Sierra Leone emerged
with strong momentum from the Ebola outbreak, an exceptionally
challenging period for our Company, the surrounding communities and
country. As we enter 2016, Sierra Rutile emerges as a stronger,
more resilient company, well-positioned to unlock shareholder value
through lower-cost production, disciplined capital investment and a
focus on being a market-led business. All this would not have been
possible without the dedication and commitment of our employees and
the strength of our surrounding communities.
The health and safety of our employees and our neighbouring
communities continues to be Sierra Rutile's first priority. Over
the year, we continued with our stringent health monitoring and
support for health initiatives within our local communities and
Sierra Rutile did not record any Ebola cases in and around its
mining tenement. These activities were in addition to the numerous
on-going health, community and environmental programmes that Sierra
Rutile has worked tirelessly to grow, support and maintain. These
include community donations of over $750,000, construction of a
primary school, significant donations of equipment to local
research and education centres and Sierra Rutile's medical facility
treating over 1,700 people. On site, we continue to operate our
operations to the highest health and safety standards, and have
reduced our lost time injury frequency rate since 2014.
Full-year rutile production for 2015 came in at the upper range
of our production guidance, with 126,021 tonnes produced, which
would have increased to 127,571 tonnes if rutile in progress had
been fully processed at the year end. This excellent achievement
represented a 10% increase in rutile production from the prior year
and was the highest annual production since operations restarted.
Sierra Rutile also continued its relentless focus on improving unit
cost performance. Cost saving initiatives, leveraging the
challenging marketplace for suppliers to the mining sector and
lower fuel prices, all helped Sierra Rutile achieve a 5% reduction
in unit production cash cost, notwithstanding the declining grade
at the dredge which required additional ore volumes to be
processed.
Over the year, TiO(2) product sales remained robust. Sierra
Rutile continued to benefit from its long standing, multi-year
relationships with leading pigment producers globally. This strong
customer support in spite of challenging market conditions
continues to underscore the value customers attribute to Sierra
Rutile's premium quality rutile. We continue to focus on
collaborating with our key customers and building deeper commercial
relationships. In a market where our TiO(2) producer peers continue
to idle capacity and delay new projects, we have built further
confidence with our customers as we continue to make
counter-cyclical investments and strengthen our production
pipeline. Our multi-mine operation is able to flex production to
match customer demand.
Following some weakening in commodities markets in the later
part of the year, realised prices for the full year of 2015 were
achieved at just 3% below average realised prices for 2014. We
expect prices to remain at these levels in the first half of 2016
before a pick-up in the second half of the year. Compared to other
metals, stronger supply and demand fundamentals have allowed
natural rutile prices to remain relatively stable. In the
short-term, we expect pigment consumption, our key end-market, to
continue to grow modestly. In the medium-term, additional
applications of TiO(2) -feedstock in the titanium metal market have
the potential to provide meaningful support to pricing. On the
supply side, we expect supply constrains to become stronger as
TiO(2) producer peers continue to draw back on production capacity.
Sierra Rutile's flexible growth profile allows us to be
well-positioned to meet strengthening market conditions.
2015 was a robust year for Sierra Rutile financially. Despite
subdued marketing conditions, and lower year-over-year revenues,
Sierra Rutile was able to grow EBITDA by 9% over 2014, driven by a
reduction in costs. There was also a significant increase in Free
Cash Flow during 2015 which more than doubled compared to 2014.
This improvement points to our achievements in cost containment,
working capital management, and ability to convert earnings into
cash. It remains our focus to continue these initiatives into 2016
with a view to prioritising further cost savings and cash
generation.
I would like to credit the commitment and expertise of our
management and employees on commencing Gangama Dry Mine
construction this year. Gangama Dry Mine was one of the first major
investments in Sierra Leone following the Ebola crisis. I am
pleased to report that Gangama Dry Mine remains on schedule and on
budget for forecast first production in the second quarter of
2016.
Gangama Dry Mine in many ways underscores the strategic
direction of Sierra Rutile. The Gangama Dry Mine construction
decision was based on dry mining's capital efficiency, production
flexibility, and its ability to deliver high-quality, low-risk and
low cost-production. Our growth plans bridges these themes from the
project level to the Company level. We have set forth a plan that
prioritises disciplined, market-led production growth. By staging
our expansion projects into smaller, 250tph bolt-on units, Sierra
Rutile will maintain production flexibility to respond quickly to
market changes. All of our bolt-on units will use our practiced dry
mining methods at our existing resource base at the Gangama and
Lanti deposits, keeping with our promise to continue delivering
high-quality, low-risk and low-cost product.
(MORE TO FOLLOW) Dow Jones Newswires
March 31, 2016 02:00 ET (06:00 GMT)
I am also excited to announce the progress of the Sembehun Dry
Mine project. Sembehun Dry Mine will broaden our operation and
bring our dry mining expertise to the Sembehun group of deposits, a
large unexploited resource base. The project was brought to the
pre-feasibility level over the past year and is planned to bring
staged, long-term production to our development pipeline.
Chief Executive's Statement (continued)
As of today, demand for high-grade natural rutile from our
existing customer base continues to remain firm with over 90% of
targeted sales volumes already contracted for 2016. Sierra Rutile's
guidance for 2016 reiterates our commitment to high quality,
low-cost production. We expect to produce between 120,000 and
135,000 tonnes of rutile at a production cash cost of between
$540/t and $590/t. We will continue to focus on margin over volume
and remain disciplined in our approach.
I strongly believe Sierra Rutile's employees and operations
enter 2016 with strong momentum gained from the successes of 2015,
and we will continue to capitalise on our Company's strong
production base, pipeline for growth and strategic market
positioning.
John Bonoh Sisay
Chief Executive Officer and Executive Director
Operations review
Description of operations
Sierra Rutile's mines are located in the south west of Sierra
Leone near the Imperri Hills, 30km from the Atlantic Ocean, on low
lying coastal plains about 135km southeast of the capital,
Freetown. The Group holds mining leases over a land area of 560sq.
km in which nineteen separate rutile deposits have been
identified.
Mining is currently undertaken at three sources: Lanti dredge,
Lanti dry mine and Mogbwemo tailings. All the mines have their own
associated concentrator plants where the feed is passed over
progressive stages of spiral gravity separators which separate
heavy minerals from silica sand and clay tailings.
Lanti dredge mine
The Lanti dredge mine employs a 1,000 tph bucket ladder dredge
to mine the Lanti deposit, which in turn feeds a floating treatment
plant producing a heavy mineral concentrate ("HMC") for further
processing. Before mining begins, the area ahead of the dredge path
must be prepared by clearing the vegetation and removing topsoil.
The topsoil is either applied directly to an area then being
rehabilitated, or stockpiled for use in later rehabilitation.
Lanti dry mine
The Lanti dry mine utilises conventional open pit earth-moving
equipment to mine certain areas of the Lanti deposit that cannot be
mined using the dredge and all of the Gbeni deposit. The mining
fleet feeds a concentrator, located adjacent to the Lanti and Gbeni
deposit, which produces a heavy mineral concentrate for further
processing.
Mogbwemo tailings
The Group commenced the small-scale reprocessing of old tailings
from the previously mined Mogbwemo deposit in 2015. The
unconsolidated old tailings are mined and concentrated by a third
party contractor using small suction dredges that supply a heavy
mineral concentrate to the Group.
Mineral separation plant ("MSP")
All the Group's mining units feed one central mineral separation
plant, located at the Group's central operational hub. The mineral
separation plant separates the heavy mineral concentrate into
several distinct rutile products, an ilmenite by-product and
periodically a zircon concentrate and other mineral concentrates.
The Group completed an upgrade on the plant in 2015 with the
addition of new spirals to give both greater throughput and
flexibility in processing different types of tailings material.
Infrastructure
The Group's mines and processing operations are self-sufficient.
Power is generated on-site through a marine fuel oil ("MFO") power
plant which receives deliveries of fuel via barge or road. The
Group operates its own port, maintains local road infrastructure,
has its own health clinic and residential camps, and generally
provides and maintains its own infrastructure and ancillary
services.
Operations review (continued)
Review of performance
MINING 2015 2014
Ore mined (tonnes)
Dredge mine 4,887,230 5,034,835
Lanti dry mine 3,096,419 2,548,686
Total 7,983,649 7,583,521
Tailings treated (*) 1,301,319 284,527
Average grade (%)
Dredge mine 1.43 1.68
Lanti dry mine 1.88 1.70
Total weighted average 1.60 1.69
Tailings grade 7.1 10.1
PROCESSING
HMC produced (tonnes)
Dredge mine 155,146 173,865
Lanti dry mine 138,998 108,147
Tailings 230,085 61,760
Total 524,229 343,772
HMC fed to MSP (tonnes) 472,647 343,772
MSP recovery (%)** 79.6 83.5
Production (tonnes)
Rutile 126,021 114,163
Ilmenite 37,633 35,839
Zircon 1,389 2,670
Unit cash cost ($/t)
Production cash cost 614 643
All-in cash cost 720 608
* Tailings include the contract mining at the Mogbwemo deposit
and secondary reprocessing of over-sized material at the mineral
separation plant
** Part of the HMC produced was fed directly into the tails
retreatment plant, resulting in the difference between HMC produced
and HMC fed into the MSP for 2015
Mining
A total of 8.0Mt (2014: 7.6Mt) of ore with a weighted average
ore grade of 1.60% (2014: 1.69%) was mined across the mines as well
as 1.3Mt (2014: 0.3Mt) of tailings. The ore and tailings were
processed through the adjoining concentrators at each location
resulting in 524.2kt (2014: 344.1kt) of HMC being produced.
The Lanti dredge contributed 155.1kt of HMC (2014: 173.9kt).
This reduction was due to a slight decrease in ore mined, coupled
with declining grades as the deposit in the Lanti south area is
nearing depletion. A planned maintenance shutdown in the first
quarter of the year also contributed to reduced HMC production in
that period, although this maintenance resulted in improvements to
plant utilisation and availability during the rest of the year. A
further reduction in grade, partially offset by improved plant
utilisation, will result in reduced HMC being produced in 2016
versus 2015.
Ore mined at the Lanti dry mine increased by 21% in 2015,
resulting in a 29% increase in HMC produced. This significant
improvement was mainly as a result of the successful implementation
of an upgraded maintenance programme. This programme removed a
number of problematic equipment concerns and bottlenecks. The Lanti
dry mine also benefited from a transition to higher grade areas
towards the end of the year which supported the overall increase in
the HMC produced for 2015. The improvements in plant utilisation
which are expected in 2016 will be more than offset by a gradual
return to the long term grade of the deposit and is likely to
result in reduced HMC being produced in 2016 as compared to
2015.
Extraction of historic tailings by a third party contractor and
secondary processing of over-sized material contributed 230.1kt of
HMC. The extraction of historic tailings involves a number of small
suction dredges of different capacities. Ramp-up of mining of these
historic tailings continued throughout 2015 with the successful
addition of further production units. Production from historic
tailings is likely to reduce in 2016 due to an expected lower
recoverable rutile grade, despite the additional units that have
been commissioned in the second half of 2015.
Operations review (continued)
Processing
The mineral separation plant processed a total of 472.6kt (2014:
344.1kt) of HMC. Full year rutile production was 126,021 tonnes of
rutile and 37,633 tonnes of ilmenite, representing a 10% increase
and 5% increase on 2014, respectively. A minor dryer failure in the
mineral separation plant in December 2015 caused a temporary
processing interruption and resulted in 1,550 tonnes of rutile
being held partially processed at year end. The material will be
processed in the first half 2016 and will result in additional
finished product. Adjusting for this work in progress, full year
production would have been 127,571 tonnes of rutile.
Recoveries at the MSP were 79.6% compared to 83.5% in 2014. The
overall recovery was impacted by utilising a wet section of the
mineral separation plant, the tailings retreatment plant ("TRP"),
in order to process some tailings materials. The TRP is not planned
to be utilised to the same extent during 2016, as there is
currently sufficient capacity within the dry mill to achieve the
planned production requirements. An improvement in the overall
recovery in the plant is therefore expected in 2016.
Significant efforts were made in 2015 to raise recoveries and
further work is under way to improve recoveries in 2016. In
addition, product quality is of paramount importance to the Group
to ensure customer specifications are met to justify the premium
pricing of the Group's products. The Group has increased its focus
in this area by employing a Quality Assurance Manager to work
alongside its production and technical teams to drive improved
product quality.
Guidance for production in 2016
As noted above, lower grades are anticipated in 2016 for the
Lanti dredge and Lanti dry mine in line with the long term mine
plan, although these are expected to be offset by improved
operational performance following the implementation of a number of
debottlenecking initiatives during 2015. Furthermore, the Gangama
dry mine is expected to be commissioned towards the end of the
first half of 2016 resulting in an overall increase in the average
mined grade for 2016 and in production being weighted towards the
second half of 2016.
(MORE TO FOLLOW) Dow Jones Newswires
March 31, 2016 02:00 ET (06:00 GMT)
Overall, rutile production for 2016 is expected to be between
120,000 and 135,000 tonnes.
Stay-in business capital expenditure
Sustaining capital expenditure totaled $4.6 million in 2015,
which was $0.7 million higher than 2014. A number of projects were
implemented to improve the efficiency of the operations. These
projects included the improvement work at the mineral separation
plant to increase recoveries, which should result in a higher
recovery rate at the plant in 2016.
Other capital expenditure included the overhaul of one generator
at the power plant for security of power supply. The dredge also
benefited from planned maintenance in the first quarter of the year
targeting critical areas of the bucket band, the scrubbers and
pedestals, which resulted in improved availability and throughput
for the remainder of the year.
Projects
The Group continues to prioritise organic growth, with a focus
on low risk, capital efficient dry mining projects with quick
execution times. The ability to operate multiple low-capital dry
mining projects across its resource base will provide the Group
with added operational flexibility as it transitions to adopting a
market-led business model. As demonstrated by the Lanti dry mine,
the Group is able to commission additional dry mining units for a
limited capital cost, and has the ability to quickly scale-up
production to respond to market demand.
The two key expansionary projects which are being developed are
the Gangama dry mine and Sembehun dry mine.
Gangama dry mine
Construction of the Gangama dry mine commenced in April 2015
with first production expected towards the end of the first half of
2016, adding approximately 45kt per annum of rutile production. A
number of significant project milestones at the Gangama dry mine
were achieved by the year end, including completion of concentrator
plant fabrication and terrace bulk earthworks. In addition, project
procurement remains on schedule, and civil construction is
progressing well, with steel erecting also commencing by the year
end.
The approved capital cost of the project is $44 million and to
date, the project remains on budget with $24 million having been
spent on the project by the year end. The project is funded 40% by
the Senior Loan facility and 60% by internally generated cash. As
at 31 December 2015, a total of $9.2 million had been drawn from
the Senior Loan facility to fund the project.
The next stage in the development of the Gangama dry mine is the
completion of a technical and economic study to confirm the
viability of a bolt-on expansion to the existing plant, thereby
taking total capacity to 750tph. A similar bolt-on plant is being
evaluated for Lanti dry mine.
Operations review (continued)
Projects (continued)
Sembehun dry mine
The Group continues to progress the Sembehun dry mine project,
with the completion of a pre-feasibility study which reconfirmed
the validity of Sembehun as a dry mining project. Sembehun
represents the next step change in production for the Group after
the Gangama dry mine, contributing up to 74kt of rutile per annum
over a mine life of 19 years. The pre-feasibility study considered
the construction of a single 1000tph static plant, as well as two
separate 500tph static plants.
The next stage in the development of the Sembehun project is the
completion of a feasibility study which is expected to further
optimise the Sembehun dry mine.
Mineral resources estimate
The Group's mining concession is one of the largest natural
rutile deposits known in the world. In September 2015, the Group
obtained an upgraded JORC-compliant mineral resource for the
deposit, which estimated that the total measured, indicated and
inferred resources were over 866Mt with a grade of 0.9% rutile,
0.2% ilmenite, and 0.08% zircon, containing 8,163kt of rutile,
1,118kt of ilmenite, and 355kt of zircon.
Drilling and sampling work continued in 2015 in the Gbeni,
Gangama and Mogbwemo areas for grade control purposes. Further
development drilling, aimed at improving geological confidence and
improved understanding of the nature and type of mineralisation,
was undertaken in the Kamatipa deposit within Sembehun where a
total of 2,352 meters were drilled. This drilling was primarily
within the areas to be mined from 2019 to increase the knowledge
and confidence in the reserves in this part of the deposit.
These mineral resources are reported in accordance with the JORC
Code 2012 and the Competent Person has verified all geoscientific
assumptions. The reported mineral resource by definition has
reasonable prospects for extraction and will be converted to an ore
reserve by the application of appropriate mining, economic and
other factors.
September 2015:
Tonnes Grade (%) Contained Tonnes (kt)
--------------------------- ----------------------------
Category Millions Rutile Ilmenite Zircon Rutile Ilmenite Zircon
Measured 64.8 1.00 0.23 0.07 646.9 95.5 46.6
Indicated 668.1 0.92 0.24 0.08 6,166.2 1,022.3 290.2
Total 732.9 0.93 0.24 0.08 6,813.1 1,117.8 336.8
----------- --------- ------- --------- ------- -------- --------- -------
Inferred 134.0 1.01 0.02 0.07 1,349.5 0.6 17.8
--------- ------- --------- ------- -------- --------- -------
Total 866.9 0.94 0.20 0.08 8,162.6 1,118.4 354.6
--------- ------- --------- ------- -------- --------- -------
Mineral resources are reported in accordance with the JORC Code
2012.
The measured rutile resource decreased by 19.7kt with the
depletion of tailings during 2015. The indicated rutile resource
decreased by 211.2kt due to mining depletion and amending the
reported cut-off grade from 0.0% to 0.25% rutile to account for
increased dry-mining activities. The inferred resources decreased
slightly due to the cut-off change referred to previously.
September 2014:
Tonnes Grade (%) Contained Tonnes (kt)
--------------------------- ----------------------------
Category Millions Rutile Ilmenite Zircon Rutile Ilmenite Zircon
Measured 65.6 1.02 0.23 0.08 666.6 95.5 54.5
Indicated 692.3 0.92 0.15 0.05 6,377.4 667.3 326.9
Total 757.9 0.93 0.15 0.05 7,044.0 762.8 381.4
----------- --------- ------- --------- ------- -------- --------- -------
Inferred 137.7 0.98 0.02 0.06 1,353.3 0.6 18.5
--------- ------- --------- ------- -------- --------- -------
Total 895.6 0.94 0.13 0.05 8,397.3 763.4 399.9
--------- ------- --------- ------- -------- --------- -------
Mineral Resources are reported in accordance with the JORC Code
2012.
Operations review (continued)
Agriculture businesses
In June 2015, the Group entered into an agreement with Carmanor
Limited ("Carmanor"), an emerging-market focused agricultural
company, whereby Carmanor will partner with Sierra Rutile to grow
its agriculture subsidiary, African Lion Agriculture ("ALA").
Carmanor will fully-fund the expansion of Sierra Rutile's existing
palm oil, rubber and cacao plantations to a scale of over 2,500
hectares as well as construct and operate an oil palm mini-mill.
Upon successful development of this business plan, within a
pre-defined timeline, Carmanor will earn an interest of 75% of
ALA.
Upon entering into this agreement with Carmanor, the Group's
interest in ALA was reduced to 49%. Carmanor met the objectives for
2015 as set out in the business plan, including planting out over
900 hectares of oil palm, installing a 0.35tph mill and refilling
the nursery for planting a further 1,000 hectares in 2016, and as a
consequence, the Group's interest was reduced to 65% with effect
from 1 March 2016.
The Group retained 100% ownership of its pineapples plantation.
The nearby third party cannery operation ran into financial
difficulties during the year, and as a result, the Group lost the
major off-taker for its pineapples. The Group is considering
options to partner with interested third parties with experience in
the pineapple business to develop the Group's pineapple plantation.
In light of the available options and likelihood of future returns
for the Group, the investment in the pineapples plantation has been
fully impaired at the year end.
Finance review
Basis of preparation
The Group's financial information has been prepared in
accordance with International Financial Reporting Standards
("IFRS") as adopted by the European Union. The Group's significant
accounting policies, significant accounting judgements and critical
accounting estimates are disclosed in the notes to these financial
statements. The Group did not make any material changes to its
accounting policies in the year ended 31 December 2015. The Group
presents its financial statements in US dollars.
Income statement
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An abridged analysis of the income statement for the year ended
31 December is shown below.
2015 2014
$'000 $'000
Revenue 105,760 117,759
Operating costs (excluding depreciation, impairment
charges and provision for obsolete inventory) (89,721) (103,295)
Other income 64 327
--------- ---------
EBITDA 16,103 14,791
Depreciation and amortisation (20,860) (21,144)
Share of results of joint venture (141) -
Provision for obsolete inventory (4,200) -
Share based payments (765) (777)
--------- ---------
Operating loss before impairment charges (9,863) (7,130)
Impairment charges (415) (473)
--------- ---------
Loss before finance items and taxation (10,278) (7,603)
Net finance income/(costs) 825 (1,260)
--------- ---------
Loss before taxation (9,453) (8,863)
Income tax expense (3,746) (603)
--------- ---------
Loss for the year (13,199) (9,466)
--------- ---------
Loss per share (US cents per share)
Basic and diluted (2.5) (1.8)
Revenue
The Group's revenues from the sales of rutile, ilmenite, zircon
and tailings were $105.8 million in 2015, 10% lower than the $117.8
million reported in 2014. The principal reasons for the decrease in
revenues between the years were lower sales volumes of rutile and
marginally lower prices.
The majority of the Group's sales related to rutile, split
between sales of Standard Grade Rutile ("SGR") and Industrial Grade
Rutile ("IGR"). Total sales volume of rutile for 2015 was 117,654
tonnes, which compares to the total sales volume of rutile in 2014
of 129,602 tonnes. Sales volumes were lower in 2015 reflecting the
Group's transition to a market-led business model whereby the Group
focuses on maximising the profitability of sales.
The average realised price for rutile on an ex-Sierra Leone
basis (i.e. Free Along Side or "FAS") was $775/t, a 3.0% reduction
compared to 2014. This marginal reduction was driven by lower
prices in the second half of the year due to a tightening of market
conditions as pigment manufacturers continued to destock.
Revenue in the income statement is stated including the freight
costs for those sales conducted on a 'Cost, Insurance and Freight'
("CIF") basis, mostly relating to sales of IGR, with some sales of
by-products. CIF costs of these sales amounted to $2.6 million
versus $4.0 million in 2014.
Ilmenite revenues were 23% down on 2014. Volumes remained flat
as compared to 2014, with the decrease all related to a 23% lower
realised price compared to 2014. The lower realised sales price
reflects the surplus in supply of even Sierra Rutile's high quality
chloride ilmenite.
Zircon rich concentrate contributed $0.8 million to total
revenue in 2015, as compared to $0.5 million in 2014. Revenue of
this product is largely impacted by the availability of this
concentrate during the production process.
The Group also sold tailings, generating revenues of $6.1
million, compared to revenues of $3.0 million in 2014. Tailings
revenues were driven by higher sales volumes as well as a higher
price per tonne due to upgrading of the tailings in the second half
of the year.
Finance review (continued)
EBITDA
This measures earnings before finance income/costs, taxation,
depreciation, amortisation and share based payments ("EBITDA") and
provides an indication of the Group's ability to generate cash from
its underlying operations. This performance measure also removes
provisions for obsolete inventory and impairment charges that do
not impact the underlying trading performance of the Group. The
Group recorded EBITDA of $16.1 million in 2015, compared to $14.8
million in the prior year.
2015 2014
$'000 $'000
Revenue 105,760 117,759
Other income 64 327
Operating costs (excluding depreciation,
impairment charges and provision for
obsolete inventory)
Production costs 72,278 87,650
Freight costs 2,552 3,966
Selling costs 5,598 1,817
General and administrative costs (excluding
share based payments) 9,293 9,862
EBITDA 16,103 14,791
Production costs
Production costs include income of $5.1 million (2014: charge of
$14.2 million) relating to the inventory adjustment for finished
goods, and production cash costs of $77.3 million (2014: $73.5
million).
Production cash costs primarily relate to the costs of mining,
secondary processing, and support and infrastructure services
located at the mine site. Support and infrastructure services
include functions such as technical, engineering, port operations,
security, insurance, camp management, community affairs and
finance. Major categories of expenditure within production costs
include labour, fuel, consumables and payments to external
contractors. Overall, production cash costs increased by $3.8
million due to the mining of higher ore volumes and the cost of
contract mining the historic tailings, both planned initiatives to
offset the declining grade at the dredge.
Key elements include:
-- Mining costs - these costs relate to the cost of mining the
ore, subsequent processing at the adjoining concentrator plants and
the costs of transporting HMC to the mineral separation plant.
Mining costs increased to $39.5 million (2014: $34.5 million)
mainly due to higher costs incurred by the Lanti dry mine relating
to the mining of increased ore volumes and longer haulage distances
between mining operations and the concentrator. These factors led
to increases in fuel and consumable costs. In addition, $8.7
million was payable to the third party contractor who commenced the
mining of the historic Mogbwemo tailings. The contract mining costs
are based on tonnes of HMC produced with upward and downward
adjustments for quality.
-- Secondary processing costs - this expenditure relates to the
costs incurred by the mineral separation plant to produce the final
product. These costs increased to $13.8 million (2014: $12.1
million) due to the higher volumes of HMC processed. The mineral
separation plant treated 472,647 tonnes of HMC in 2015, a 37%
increase compared to 2014. In addition, the use of the Tailings
Retreatment Plant ("TRP") to process some heavy tailings material
meant more costs were incurred in this part of the mineral
separation plant.
-- Support costs - these costs include expenditure on functions
that support the core mining and processing activities. These costs
have decreased by 10% from 2014 due to savings on fuel costs and
robust cost control across the business.
Selling costs
Selling costs are mainly comprised of royalties paid to the
Government based on the terms of the mining agreement. Royalties
incurred were $4.1 million (2014: $0.5 million). Until December
2014, royalties were charged at 0.5% of revenues. The royalty rate
increased to 4.0% in January 2015 due to the expiry of the Rutile
Amendment Act after ten years which reduced tax rates during this
period. Other costs included in selling costs are port authority
and maritime authority charges, charged at 0.1% of export revenues,
as well as freight and storage costs for IGR material which is sold
to customers from a warehouse in Amsterdam.
General and administrative costs (excluding share based
payments)
General and administrative costs include the costs of running
the Freetown office as well as costs incurred for corporate
activities, mainly relating to the Group's listing and board
related expenditure. These costs have reduced to $9.3 million
(2014: $9.9 million), a 6% decrease as a number of cost savings
initiatives bear fruit, including a reduction in the use of
consultants and a decrease in agricultural expenses following the
sale of part of the agricultural business.
Finance review (continued)
Cash cost performance
Cost control continued to be a key focus for 2015 as the Group
continues to target producing in the lowest quartile on the global
cost curve. In a challenging marketplace for suppliers to the
mining sector, the Group took advantage of improved pricing and
payment terms for goods and services. Lower fuel prices and the
devaluation of certain non-US dollar currencies in which goods and
services are priced also had a beneficial impact. In addition, with
the majority of costs being fixed in nature, higher production
volumes also lowered unit costs.
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As noted in the Operations Review, mined grades at the dredge
were moderately lower in 2015 versus 2014, an effect which was
mitigated by contract mining of historical tailings and mining of
increased volumes for the Lanti dry mine, both factors which
resulted in upward pressure on unit costs compared to 2014.
In addition, a number of planned maintenance activities were
completed in 2015, and the increased costs of certain supplies and
services as a result of the impact of Ebola on supply chains also
led to upward pressure on maintenance costs.
Taking the above factors into account, overall production cash
costs were $77.3 million as compared to $73.5 million in 2014. With
the higher production volumes in 2015 versus 2014, the unit
production cash cost reduced to $614/t in 2015 compared to $643/t
in 2014, representing a 5% decrease.
Stay-in-business capital expenditure was consistent with 2014
given the continuing tight market conditions. There was also a
reduction in general and administrative expenses in 2015 versus
2014 due to tight control over central and corporate costs.
Mitigating these factors, there was upward pressure in selling
costs, driven by an increase in royalty rates from 0.5% in 2014 to
4.0% in 2015 as the Group reverted to the fiscal provisions of the
Sierra Rutile Agreement (Ratification) Act 2002 after a ten year
reprieve during which lower tax rates were applicable for the
Group.
Despite the increase in costs above being partially offset by a
18% improvement in by-product revenues to $12.0 million, the 9%
decline in sales volumes resulted in the all-in cash cost on a per
tonne basis increasing to $720/t from $608/t.
The unit cash costs across the current and prior years is as
follows:
2015 2014
$'000 $'000
Production cash costs 77,336 73,462
Selling cash costs 5,598 1,817
General and administrative cash costs (excluding
share based payments) 9,293 9,862
Sustaining capital expenditure 4,580 3,900
All-in cash cost 96,807 89,041
By-product revenues 12,043 10,217
All-in cash cost net of by-product revenue 84,764 78,824
Rutile produced (tonnes) 126,021 114,163
Rutile sold (tonnes) 117,654 129,602
Unit cash cost ($/t)
Production cash cost 614 643
All-in cash cost 720 608
With implementation of further cost saving initiatives,
production cash cost is expected to be between $540/t and
$590/t.
Operating loss before impairment charges
The operating loss for 2015 was $9.9 million, compared to $7.1
million in 2014. As well as the reported EBITDA for the year,
operating loss also includes a depreciation charge of $20.9
million, versus $21.1 million in 2014. Operating loss also includes
a $4.2 million provision against slow moving and obsolete items of
consumables inventory.
Finance review (continued)
Impairment charges
Impairment charges are presented separately, due to their nature
or the expected infrequency of the events giving rise to them. The
breakdown of impairment charges excluded from EBITDA is set out
below:
2015 2014
$'000 $'000
Impairment of pineapple business 415 -
Impairment of property, plant and equipment - 473
Total impairment charges 415 473
Further detail on each of the impairment charge is provided
below:
Impairment of pineapple business
The third party cannery operation to which most of the Group's
pineapple produce was sold ran into financial difficulties during
the year, and as a result, the Group lost the major off-taker for
its pineapples. The Group is considering options to partner with
interested third parties with experience in the pineapple business
to develop the Group's pineapple plantation. In light of the
available options and likelihood of future returns for the Group,
its investment in the pineapples plantation amounting to $0.4
million has been fully impaired at the year end.
Impairment of property, plant and equipment
During 2014, two damaged barges worth $0.5 million were written
off from property, plant and equipment as it was decided that they
could no longer be used in the business.
Net finance income/(costs)
Net finance income/(costs) include finance costs incurred on
borrowings, net foreign exchange gains/losses, interest on the
employee benefits obligation, costs of derivative financial
instruments as well as the unwinding of the discount on
provisions.
Net finance income/(costs) was an income of $0.8 million in 2015
as compared to a cost of $1.3 million in 2014. The turnaround was
principally due to currency movements, namely the devaluation of
the Euro against the US Dollar and the resulting beneficial impact
on the Euro-denominated loan from the Government, and the exchange
gains on the Leone when converting US dollar cash balances.
Interest charges on the loan due to the Government and on the
Working Capital Facility amounted to $1.7 million (2014: $2.1
million) and $1.1 million (2014: $0.7 million), respectively.
Financing fees include arrangement fees, political risk
insurance for the debt facilities secured on the Group's assets in
Sierra Leone and other debt raising related costs. These amounted
to $0.5 million (2014: $1.3 million).
Interest charges and other finance costs relating to the Senior
Loan Facility which has been arranged for the construction of the
Gangama dry mine project amounted to $2.1 million (2014: $nil ).
These costs were capitalised to the cost of the project in
accordance with IAS 23 "Borrowing Costs".
Taxation
The taxation of the Group's operations in Sierra Leone are
aligned to the Sierra Rutile Agreement (Ratification) Act 2002,
under which tax is charged at an amount not less than 3.5% of
turnover and not more than the standard Sierra Leone corporate
income tax rate (up to a maximum rate of 37.5%) on taxable profits.
The standard corporate income tax rate in Sierra Leone enacted at
the balance sheet date is 30%.
The breakdown of the taxes is set out below:
2015 2014
$'000 $'000
Income tax expense
Current tax - UK tax at 20.0% (2014:
21.5%) 45 14
Minimum turnover tax - Sierra Leone
at 3.5% (2014: 0.5%) 3,701 589
Total income tax expense 3,746 603
Unrecognised tax losses
At the beginning of the year, the Group had unused tax losses of
$397.7 million available for offset against future profits. Due to
accelerated capital allowances on investments made by the Group,
tax losses increased to $401.1 million. No deferred tax asset has
been recognised for these losses as there is insufficient certainty
on the existence of taxable profits against which tax losses can be
utilised given the Group's planned capital expenditure programme
which should result in further accelerated capital allowances being
generated.
Finance review (continued)
Loss for the year
The loss for the year attributable to shareholders amounted to
$13.2 million, compared to $9.5 in the prior year. The loss for the
year was due to an operating loss of $10.3 million, after taking
into account impairment charges of $0.4 million related to the
write off of the Group's pineapple business, provision for obsolete
inventory of $4.2 million and tax charges of $3.7 million offset by
net finance income of $0.8 million.
Basic and diluted earnings per share
2015 2014
Loss attributable to owners of the parent
($'000) (13,199) (9,466)
Weighted average number of ordinary shares
in issue for basic and diluted earnings
per share 522,231,508 519,154,626
Basic and diluted loss per share (US
cents per share) (2.5) (1.8)
Basic and diluted earnings per share was a loss of 2.5 US cents
per share, compared to a loss of 1.8 US cents per share in the
prior year principally arising from the increased loss realised
during the year. In addition, there was an increase in the weighted
average number of shares in issue compared to 2014 due to share
issuances in the prior year arising from the exercise of share
options.
Cash flows
A summary of cash flows is shown below:
2015 2014
$'000 $'000
EBITDA (excluding impairment items) 16,103 14,791
Working capital movements:
(Increase)/decrease in inventories (8,728) 11,240
Decrease/(increase) in trade and other
receivables 11,141 (15,260)
Increase in trade and other payables 3,929 1,346
Increase /(decrease) in provisions 420 (899)
Income taxes paid 9 (978) (601)
Net cash flows from operating activities before
capital expenditure 21,887 10,617
Stay-in-business capital expenditure (4,580) (3,900)
Free Cash Flow 17,307 6,717
Expansionary and other capital expenditure 19 (26,058) (12,800)
Interest paid (2,795) (2,000)
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Other movements 19 (1,005) (3,171)
Cash flow movement in net debt (12,551) (11,254)
Working capital
The working capital movements resulted in a $6.7 million inflow
in 2015 (2014: outflow of $3.6 million). The principal movements
are explained below:
-- Inventory: rutile finished goods increased by 6,640 tonnes or
the equivalent of $5.1 million due to the timing of sales whereby
production volumes were higher than sales volumes during the year.
This increase is expected to reverse in 2016 when sales volumes are
expected to rise. Consumables increased by $3.6 million, before
provisions against slow moving and obsolete items, due to a planned
initiative to increase the level of critical spares to support
increased production volumes.
-- Trade and other receivables: decreased by $11.1 million due
to the timing of cash receipts and lower sales volumes. Improved
days sales outstanding with certain customers have resulted in the
accelerated receipt of cash remittances during the year.
-- Trade and other payables: increased by $3.9 million during
the year, primarily driven by an improvement in payment terms with
key suppliers in light of the challenging marketplace for suppliers
to the mining sector
-- Provisions: payments against provisions amounted to $0.4
million, representing primarily payments made towards the Group's
retirement benefit scheme.
Finance review (continued)
Income taxes paid
Income tax payments of $1.0 million were higher than the $0.6
million paid in 2014. As noted above, with effect from January
2015, the taxation of the Group's operations in Sierra Leone are
subject to the Sierra Rutile Agreement (Ratification) Act 2002,
under which tax is charged at an amount not less than 3.5% (2014:
0.5%) of turnover and not more than the standard Sierra Leone
corporate income tax rate. Payments on accounts are made to the
Government on a quarterly basis, with a true-up in May of the
following year.
The Group is also subject to UK tax on its subsidiaries
registered there at a rate of 20.0% of taxable profits.
Capital expenditure
Stay-in-business capital expenditure totaled $4.6 million in
2015, which was $0.7 million higher than the prior year.
A number of projects were implemented to improve the efficiency
of the operations. These projects included the improvement work at
the mineral separation plant to raise recoveries. Other capital
expenditure included the overhaul of one generator at the power
plant for security of power supply. The dredge also benefited from
planned maintenance in the first quarter of the year.
Free Cash Flow
Free Cash Flow is a measure of the cash generated by operating
activities before investment in expansionary projects. This KPI is
a useful measure of the success in converting underlying earnings
to cash.
Free Cash Flow in 2015 was an inflow of $17.3 million which
compared to an inflow of $6.7 million in the prior period. EBITDA
increased from the prior year, but the main contributor to the
improvement in Free Cash Flow was active management over working
capital, resulting in a $10.6 million improvement in Free Cash
Flow.
Expansionary and other capital expenditure
Expansionary capital expenditure totaled $26.1 million in 2015,
which was $13.3 million higher than the prior year. The most
significant area of expenditure related to the Gangama dry mine
project of $22.2 million, excluding capitalised interest and other
finance costs.
Interest paid
Interest paid during the year was $2.8 million versus $2.0
million in 2014. The increase is due to interest paid on the Senior
Loan Facility, first drawn in April 2015, which is being used to
fund 40% of capital expenditure on the Gangama dry mining
project.
Interest and other finance costs paid comprises $1.5 million
(2014: $0.8 million) in respect of the Working Capital Facility and
$1.3 million (2014: $nil) in relation to the Senior Loan Facility.
As noted above, interest payable on the Senior Loan Facility has
been capitalised to the cost of the Gangama dry mine project in
accordance with IAS 23 "Borrowing costs".
In January 2015 the Group obtained an eighteen month deferral on
payment of interest and principal on the loan payable to the
Government. Interest costs of $1.7 million accrued during 2015 have
been capitalised to the principal value of the loan.
Balance sheet
The Group's capital employed position at 31 December 2015 is
shown below:
2015 2014
$'000 $'000
Total equity 175,560 188,041
Borrowings 51,455 43,000
Capital employed 227,015 231,041
Summary of movements
The capital employed (as defined by the Group) comprises equity
attributable to shareholders and interest-bearing loans and
borrowings. Capital employed decreased by $4.0 million,
predominantly due to the retained loss for the year of $13.2
million offset by $9.2 million drawn down under the Senior Loan
Facility to fund the Gangama dry mine project.
Property, plant and equipment
Capital expenditure incurred on property, plant and equipment
increased compared to the prior year as the Group commenced
construction of the Gangama dry mine project in April 2015. As at
31 December 2015, the Group had incurred $24.0 million on this
project.
The Group also completed an upgrade of the mineral separation
plant which should see improvements in the recovery rate at the
plant. As a result, assets under construction to the value of $26.9
million were transferred to the relevant categories of property,
plant and equipment, and depreciation commenced.
Finance review (continued)
Rehabilitation and decommissioning provisions
During mining operations, land is disturbed as tailings, ponds
and borrow pits are created. The Group has an obligation under the
applicable legislation and its mining concession to rehabilitate
these areas.
The costs of reclamation and rehabilitation are assessed on a
regular basis and estimated costs are provided over the life of the
mine. Previously, no provision was made for the decommissioning of
the Group's fixed assets as it was believed that the community
would occupy the Group's facilities upon closure. Whilst this
assessment remains valid, upon receipt of professional advice, a
decommissioning provision of $0.7 million has been recognised at
the year end to reflect the dismantling costs of certain plant and
equipment, including environmental remediation work to ensure their
safe use by the community.
The total rehabilitation and decommissioning provision at the
year-end was $3.0 million, an increase of $0.8 million compared to
the prior year. The year end provision comprises $2.3 million for
ongoing rehabilitation work and $0.7 million for decommissioning at
closure.
Net debt
Net debt comprises cash and cash equivalents and
interest-bearing loans and borrowings. A summary of the net debt
position is shown below:
2015 2014
$'000 $'000
Cash and cash equivalents 5,017 6,564
Short term borrowings (30,249) (20,046)
Long term borrowings (21,206) (22,954)
Net debt (46,438) (36,436)
The Group had cash and cash equivalents of $5.0 million (2014:
$6.6 million) at the year end. Gross borrowings increased to $51.5
million as a result of the $9.2 million drawdown under the Senior
Loan Facility to fund the Gangama dry mine project.
Details of the Group's borrowings by each facility is summarised
below:
Government Loan
In December 2014, the Group obtained a temporary deferral, with
final approval being granted in January 2015, for an eighteen month
deferral of repayments of principal and payment of interest in
respect of the loan payable to the Government. During the deferral
period, interest continues to accrue and is capitalised into the
principal loan balance. On 18 March 2016, a further six month
deferral was agreed with the Government such that the next
repayment due under this loan commences in December 2016.
The balance outstanding as at 31 December 2015 was $22.1 million
(2014: $22.9 million). No principal or interest payments were made
in 2015. Movements between the years reflect capitalised interest
and devaluation of the Euro against the US dollar as the loan is
denominated in Euros. The loan carries a fixed interest rate of
8.0%.
$20 million Working Capital Facility ("WCF")
The WCF was originally arranged in August 2013 to provide
working capital for the business. The loan carries an interest rate
of LIBOR plus 5.0% and was due to expire in August 2016. On 15
March 2016, an extension to May 2017 was successfully negotiated.
As at 31 December 2015 and 2014, this loan was drawn down in full.
The loan is secured against the assets of the Group.
$30 million Senior Loan Facility ("SLF")
Following approval of the construction of the Gangama dry mine
project, the Group entered into the SLF in April 2015. Use of the
loan is restricted to the Gangama dry mine project, with 40% of the
project being funded by the SLF and the remaining 60% being funded
by internally generated cash flows. Repayment of the loan commences
in November 2016 with amortisation thereafter being over four
years. The loan carries an interest rate of LIBOR plus 5.25% and is
secured against the assets of the Group. As at 31 December 2015,
$9.2 million had been drawn down under the SLF.
$15 million Standby Facility ("Standby Facility")
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The Group secured a Standby Facility of up to $15 million which
is cash collateralised by its majority shareholder, Pala
Investments. Until 15 March 2016, the Standby Facility could only
be utilised to fund the Gangama dry mine project to the extent
internally generated funds were not sufficient to fund the 60% of
the project which is not funded by the SLF, but after this date,
the facility could be utilised for general corporate purposes. This
facility is available until May 2017, carries an interest rate of
LIBOR plus 2%, and has no associated arrangement or commitment
fees. This facility was undrawn as at 31 December 2015.
Finance review (continued)
Financial outlook
Production cash costs are projected to decrease in 2016 as
further cost savings initiatives are implemented. The Group is
encouraged by the growing demand for titanium pigment and metal,
and believe that this should result in a repositioning of the
rutile price and growth in operating margins in the near
future.
By moving to a market-led business model and with improved
profit margins, Free Cash Flow should improve, thereby allowing
further investment in the Group's growth projects. These
investments will only proceed if they are value accretive. In
addition, the Group is evaluating all options in reviewing its
capital structure in order to improve access to liquidity and
facilitate returns to shareholders.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with International
Financial Reporting Standards (IFRSs) as adopted by the European
Union (EU), including AIM Rules for the Companies.
In preparing these financial statements, International
Accounting Standard 'IAS 1' Presentation of Financial Statements
requires that Directors:
-- select suitable accounting policies and apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group will continue
in business.
The Directors are responsible for:
-- keeping adequate accounting records that are sufficient to
show and explain the Group's transactions and disclose with
reasonable accuracy at any time the financial position of the
Group;
-- safeguarding the assets of the Group;
-- such internal control as they determine necessary to enable
the preparation of the financial statements that are free from
material misstatement, whether due to fraud or error; and
-- taking reasonable steps for the prevention and detection of fraud and other irregularities.
Responsibility statement
The Directors confirm that to the best of their knowledge:
-- the financial statements, prepared in accordance with IFRSs
as adopted by the EU, give a true and fair view of the assets,
liabilities, financial position, and profit or loss of the Group
and the undertakings included in the consolidation taken as a
whole; and
-- the operations and finance review, which are incorporated
into the Directors' Report, includes a fair review of the
development and performance of the business and the position of the
Group and the undertakings included in the consolidation taken as a
whole, together with a description of the principal risks and
uncertainties that it faces.
By order of the Board
John Bonoh Sisay Stephen Gill
30 March 2016 30 March 2016
Condensed Consolidated Income Statement
Year ended 31 December 2015
Year ended Year ended
31 December 31 December
2015 2014
Note $'000 $'000
Revenue 3 105,760 117,759
---------------------------------------------- ---- -------------- -------------
Cost of sales:
Production and freight expenses (95,690) (112,760)
Provision for obsolete inventory (4,200) -
---------------------------------------------- ---- -------------- -------------
(99,890) (112,760)
Gross profit 5,870 4,999
Selling and distribution expenses (5,598) (1,817)
General and administrative expenses (10,058) (10,639)
Other income 64 327
Share of results of joint venture (141) -
Operating loss before impairment charges (9,863) (7,130)
Impairment charges (415) (473)
Operating loss (10,278) (7,603)
Finance income 5 5,033 3,242
Finance costs 5 (4,208) (4,502)
Loss before taxation (9,453) (8,863)
Income tax expense 6 (3,746) (603)
Loss for the year (13,199) (9,466)
Statement of Condensed Consolidated Comprehensive Loss
Year ended 31 December 2015
Loss for the year (13,199) (9,466)
(Items will not be subsequently reclassified
to the income statement)
Actuarial loss on retirement benefit
scheme (47) (482)
Total comprehensive loss for the year (13,246) (9,948)
Loss per share (US cents per share)
* basic and diluted 7(2.5) (1.8)
Condensed Consolidated Balance Sheet
31 December 2015
31 December 31 December
2015 2014
ASSETS Note $'000 $'000
Non-current assets
Intangible assets 11,494 11,624
Property, plant and equipment 171,825 159,276
Investment in joint venture 5,130 -
Biological assets - 4,927
188,449 175,827
Current assets
Biological assets - 184
Inventories 54,437 49,909
Trade and other receivables 8,003 19,914
Current tax assets 6 - 228
Cash and cash equivalents 8 5,017 6,564
67,457 76,799
Total assets 255,906 252,626
LIABILITIES
Current liabilities
Trade and other payables (20,361) (16,432)
Current tax liabilities 6 (2,546) (6)
Short-term borrowings 9 (30,249) (20,046)
Provisions for liabilities
and charges (303) (288)
(53,459) (36,772)
Non-current liabilities
Medium and long-term borrowings 9 (21,206) (22,954)
Retirement benefit obligations (2,945) (2,931)
Provisions for liabilities
and charges (2,736) (1,928)
(26,887) (27,813)
Total liabilities (80,346) (64,585)
Net assets 175,560 188,041
EQUITY AND LIABILITIES
Share capital 10 275,102 275,102
Share capital option reserve 2,379 2,637
Retained loss (101,921) (89,698)
Total equity attributable
to equity holders of the parent 175,560 188,041
Condensed Consolidated Statement of
Cash Flows
Year ended 31 December 2015
Year ended Year ended
31 December 31 December
2015 2014
Note $'000 $'000
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Operating cash flow before working capital
changes 11 16,103 14,746
(Increase)/decrease in inventories (8,728) 11,240
Decrease/(increase) in trade and other
receivables 11,141 (15,260)
Increase in trade and other payables 3,929 1,346
Increase /(decrease) in provisions 420 (899)
Net cash inflow from operating activities
before interest and taxes paid 22,865 11,173
Interest paid (2,795) (2,000)
Income taxes paid (978) (601)
Net cash inflow from operating activities 19,092 8,572
Investing activities
Purchase of property, plant and equipment (30,638) (16,754)
Purchase of biological assets (380) (2,911)
Purchase of intangible assets (43) (161)
Net cash used in investing activities (31,061) (19,826)
Financing activities
Net proceeds from borrowings 9,194 20,000
Repayment of borrowings - (24,939)
Charges under derivative financial instruments (583) -
Net cash from/(used in) financing activities 8,611 (4,939)
Net decrease in cash and cash equivalents (3,358) (16,193)
Cash and cash equivalents at beginning
of the year 6,564 22,628
Net decrease in cash and cash equivalents (3,358) (16,193)
Effect of foreign exchange rate change 1,811 129
Cash and cash equivalents at end of
the year 8 5,017 6,564
Condensed Consolidated
Statement of Changes
in Equity
Year ended 31 December
2015
Share option Retained Total
Share capital reserve loss equity
$'000 $'000 $'000 $'000
Balance at 1 January
2014 275,102 6,439 (84,329) 197,212
Total comprehensive loss
for the year - - (9,948) (9,948)
Exercise of share options - (3,842) 3,842 -
Forfeiture of share options - (737) 737 -
Recognition of share-based
payments - 777 - 777
Balance at 31 December
2014 275,102 2,637 (89,698) 188,041
Total comprehensive loss
for the year - - (13,246) (13,246)
Forfeiture of share options - (1,023) 1,023 -
Recognition of share-based
payments - 765 - 765
Balance at 31 December
2015 275,102 2,379 (101,921) 175,560
Notes to the condensed consolidated financial statements
Year ended 31 December 2015
1. General information
Sierra Rutile Limited (the "Company") is a public limited
company listed on the Alternative Investment Market ("AIM") of the
London Stock Exchange. The Company is incorporated and domiciled in
the British Virgin Islands. The address of its registered office is
at P.O. Box 4301, Trinity Chambers, Road Town, Tortola, British
Virgin Islands. The Group comprises Sierra Rutile Limited (the
"Company"), and its consolidated subsidiaries.
The Group's principal activity is exploring, producing and
marketing natural rutile and related by-products from its assets in
Sierra Leone.
2. Significant accounting policies
The principal accounting policies adopted in the preparation of
these financial statements are set out below. These policies have
been consistently applied to all the years presented, unless
otherwise stated.
2.1 Basis of preparation
(i) Non statutory accounts
The financial information for the year ended 31 December 2015
does not constitute statutory accounts. Statutory accounts for the
year ended 31 December 2014 have been approved and distributed and
those for 2015 will be delivered ahead of the Company's Annual
General Meeting convened for July 2016. The auditors have reported
on these accounts; their reports were unqualified and did not
include a reference to any matters to which the auditors drew
attention by way of emphasis of matter.
Whilst the preliminary announcement (the Condensed financial
statements) has been prepared in accordance with International
Financial Reporting Standards (IFRS) as adopted for use by the
European Union, and with the requirements of the United Kingdom
Listing Authority (UKLA) Listing Rules, these Condensed financial
statements do not contain sufficient information to comply with
IFRS. The Group will publish full financial statements that comply
with IFRS in April 2016
(ii) Basis of accounting
The consolidated financial statements have been prepared on a
historical cost basis, except for derivative financial instruments
which have been measured at fair value. Historical cost is
generally based on the fair value of the consideration given in
exchange for the assets.
The consolidated financial statements are presented in US
dollars ($) and all financial information has been rounded to the
nearest thousand dollars ($'000) except where otherwise
indicated.
(iii) Going concern
The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are set out in the Finance Review
on pages 12 and 19. At 31 December 2015, the Group had cash and
cash equivalents of $5.0 million and total borrowings of $51.5
million. Details on the Group's borrowings are set out in note 9 to
the financial statements.
The Group has prepared a cash flow forecast based on its best
estimate of the key variables including sales volumes, prices,
operating costs and capital expenditure through to June 2017 that
shows that the Group will be able to operate within the level of
its current facilities and comply with its financial covenants for
the foreseeable future.
The Directors acknowledge that the Group faces ongoing risks,
the most significant of which is exposure to rutile prices. The
Group has already contracted the majority of its sales volumes in
2016, mostly with agreed pricing, and in respect of the
uncontracted sales the most recent equity analyst forecasts
indicates a steady increase in rutile prices over the coming year
that would allow the Group to continue to meet its funding
obligations during the forecast period. If there was a fall in
prices below the levels forecast for the going concern period, the
Directors believe that they have a number of options available to
them, such as deferring capital expenditure, actively managing
working capital, and accessing the Standby Facility which is
available for general corporate purposes, which would allow the
Group to meet its cash flow requirements through this period. In
addition the Group is also evaluating a number of options to
strengthen its capital structure, improve access to liquidity and
enhance returns to shareholders.
Accordingly, the Board continues to adopt the going concern
basis in preparing the financial statements.
Notes to the condensed consolidated financial statements
Year ended 31 December 2015
2. Significant accounting policies (continued)
2.1 Basis of preparation (continued)
(iv) Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Company and all its subsidiaries. Subsidiaries
are fully consolidated from the date of acquisition, being the date
on which the Group obtains control, and continue to be consolidated
until the date when such control ceases. Control exists when the
Group has the power, directly or indirectly, to govern the
financial and operating policies of an enterprise so as to obtain
benefits from its activities. Control is presumed to exist where
the Company owns more than one half of the voting rights, and also
when the Company:
- has the power over the entity;
- is exposed, or has rights, to variable return from its involvement with the entity; and
- has the ability to use its power to affect its returns.
The financial statements of the subsidiaries are prepared for
the same reporting period as the Parent Company, using consistent
accounting policies. Subsidiaries are fully consolidated from the
date on which control is transferred to the Company. They are
de-consolidated from the date that control ceases.
All intra-group balances, transactions, unrealised gains and
losses resulting from intra-group transactions and dividends are
eliminated on consolidation.
2.2 Critical accounting judgement and key sources of estimation uncertainty
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In the course of preparing these financial statements, the
Directors make necessary judgements, estimates and assumptions
about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. Judgements are based on the
Directors' 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. Estimates
and associated assumptions are based on historical experience and
other factors that are considered to be relevant. Actual results
may differ from these estimates. The estimates and underlying
assumptions applied are reviewed on an ongoing basis. Revisions to
accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in
the period of the revision and future periods, if the revision
affects both current and future periods.
2.2.1 Critical accounting judgements
The following are the critical judgements, apart from those
involving estimations (which are dealt with separately below),
which the Directors believe are likely to have the most significant
effect on the amounts recognised in the consolidated financial
statements.
(i) Impairment review of goodwill
The Group tests annually, in accordance with IAS 36 "Impairment
of Assets", whether goodwill has suffered any impairment, in
accordance with the accounting policy.
Directors necessarily apply their judgement in estimating the
probability, timing and value of underlying cash flows and in
selecting appropriate discount rates and useful economic lives to
be applied within the valuation calculation. These assessments
require the use of estimates and assumptions such as long-term
commodity prices (considering current and historical prices, with
reference to analyst forecasts and related factors), discount
rates, operating costs, future capital requirements, closure and
rehabilitation costs, exploration potential, reserves and operating
performance (which includes production and sales volumes). These
estimates are subject to risk and uncertainty. Therefore, there is
a possibility that changes in circumstances will impact these
projections, which impact the recoverable amount of goodwill.
Notes to the condensed consolidated financial statements
Year ended 31 December 2015
2. Significant accounting policies (continued)
2.2 Critical accounting judgement and key sources of estimation uncertainty (continued)
2.2.1 Critical accounting judgements (continued)
(ii) Impairment review of tangible assets and investments in joint venture
The Directors review the carrying value of the Group's assets to
determine whether there are any indicators of impairment such that
the carrying values of the assets may not be recoverable. The
assessment of whether an indicator of impairment has arisen
requires considerable judgement, taking account of future
operational and financial plans, commodity prices, sales demand and
the competitive environment. Where such indicators exist, the
carrying value of the assets of a cash generating unit is compared
with the recoverable amount of those assets, that is, the higher of
net realisable value and value in use, which is determined on the
basis of discounted future cash flows.
As noted above, in arriving at a valuation calculation, the
Directors also apply their judgement in estimating the probability,
timing and value of underlying cash flows and in selecting
appropriate discount rates and useful economic lives.
(iii) Recognition of deferred income tax assets
Judgement is required in determining whether deferred income tax
assets are recognised on the balance sheet. Deferred income tax
assets, including those arising from unutilised tax losses, require
the Directors to assess the likelihood that the Group will generate
sufficient taxable earnings in future periods, in order to utilise
recognised deferred income tax assets. Assumptions about the
generation of future taxable profits depend on the Directors'
estimates of future cash flows. These estimates of future taxable
income are based on forecast cash flows from operations (which are
impacted by production and sales volumes, commodity prices,
reserves, operating costs, closure and rehabilitation costs,
capital expenditure, dividends and other capital management
transactions) and judgement about the application of existing tax
laws. To the extent that the future cash flows and taxable income
differ significantly from estimates, the Directors judgement
regarding the position adopted at the reporting date relating to
the recognition of deferred tax asset could be impacted. In
addition, future changes in tax laws in the jurisdictions in which
the Group operates could limit the ability of the Group to obtain
tax deductions in future periods.
(iv) Accounting for investment in a joint arrangement
The Group has a joint arrangement which is structured through a
separate legal entity in which the Group held a 49% investment at
the reporting date. This structure and the terms of the contractual
arrangement indicate that the Group has rights to the net assets of
the arrangement.
Judgement is required to determine when the Group has joint
control, which requires an assessment of the relevant activities
and when the decisions in relation to those activities require
unanimous consent. The Group has determined that the relevant
activities for its joint arrangements relate to the operating and
capital decisions of the arrangement, such as: the approval the
capital expenditure programme for each year, and appointing,
remunerating and terminating the key management personnel of, or
service providers to, the joint arrangement. The considerations
made in determining joint control are similar to those necessary to
determine control over subsidiaries. After undertaking this
assessment, there was nothing to suggest that the Group had rights
to the assets and obligations for the liabilities. The final
conclusion was that the arrangement was a joint venture and that
its results are consolidated in the Group using the equity
accounting method.
2.2.2 Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources
of estimation uncertainty at the reporting date, that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are described below. The Group based its assumptions and estimates
on parameters available when the financial statements were
prepared. Existing circumstances and assumptions about future
developments, however, may change due to market changes or
circumstances arising beyond the control of the Group. Such changes
are reflected in the assumptions when they occur.
Notes to the condensed consolidated financial statements
Year ended 31 December 2015
2. Significant accounting policies (continued)
2.2 Critical accounting judgement and key sources of estimation uncertainty (continued)
2.2.2 Key sources of estimation uncertainty (continued)
(i) Determination of ore resources and useful lives of property, plant and equipment
Ore resource estimates relate to the amount of rutile and
ilmenite ore that can be economically extracted from the Group's
mine. In order to estimate resources, assumptions are required
about a range of geological, technical and economic factors,
including quantities, grades, production techniques, recovery
rates, production costs, transport costs, market demand, commodity
prices and exchange rates.
The Group estimates its ore resources based on information
compiled by competent persons as defined in accordance with the
Australasian Code for Reporting of Exploration Results, Mineral
Resources and Ore Reserves of December 2012 (the JORC code).
In assessing the life of the mine for accounting purposes,
resource estimates are only taken into account where there is a
high degree of confidence of economic extraction. Since the
economic assumptions used to estimate resources change from period
to period, and as additional geological data is generated during
the course of operations, estimates of resources may change from
period to period.
Changes in reported resources may affect the Group's financial
results and financial position in a number of ways, including the
following:
-- asset carrying values may be affected due to changes in estimated future cash flows;
-- depreciation, depletion and amortisation charged in the
income statement may change where such charges are determined by
the unit of production basis, or where the useful economic lives of
assets change; and
-- closure and restoration provisions may change where changes
in estimated reserves affect expectations about the timing or cost
of these activities.
There are numerous uncertainties inherent in estimating ore
resources, and assumptions that are valid at the time of estimation
may change significantly when new information becomes available.
Changes in the forecast prices of commodities, exchange rates,
production costs or recovery rates may change the economic status
of resources and may, ultimately, result in resources being
revised.
Plant and equipment are depreciated over their useful lives
taking into account residual values, where appropriate. The actual
lives of the assets and residual values are assessed annually and
may vary depending on a number of factors. In reassessing asset
lives, factors such as technological innovation, product life
cycles and maintenance programmes are taken into account. Residual
value assessments consider issues such as future market conditions,
the remaining life of the asset and projected disposal values.
Consideration is also given to the extent of current profits and
losses on the disposal of similar assets.
(ii) Restoration and rehabilitation provision
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Costs for restoration of site damage and rehabilitation are
estimated using the work of external consultants as well as
internal experts. Significant estimates and assumptions are made in
determining the provision for mine rehabilitation as there are
numerous factors that will affect the ultimate amount payable over
the life of the mine. Costs of reclamation and rehabilitation are
assessed on a regular basis and estimated costs are provided over
the life of the mine. The estimates include costs of labour,
materials, and equipment required to rehabilitate disturbed
areas.
Rehabilitation and restoration costs are provided at the present
value of the expenditures expected to settle the obligation, using
estimated cash flows based on current prices over the assumed life
of the mine. The provision at the reporting date represents the
Directors' best estimate of the present value of the future
rehabilitation costs required.
Notes to the condensed consolidated financial statements
Year ended 31 December 2015
2. Significant accounting policies (continued)
2.2 Critical accounting judgement and key sources of estimation uncertainty (continued)
2.2.2 Key sources of estimation uncertainty (continued)
(iii) Mine closure provision
The mine closure provision represents the Directors' best
estimate of the Group's liability for close-down, dismantling and
restoration of the mining and processing sites, but excluding
reclamation of areas disturbed by mining activities, which is
covered under the mine rehabilitation provision. The costs are
estimated on the basis of a formal closure plan involving the use
of external consultants. Significant estimates and assumptions are
made in determining the provision for mine closure as there are
numerous factors that will affect the ultimate amount payable over
the life of the mine. The estimates include costs of labour,
materials, equipment required to dismantle the equipment and
subsequent environmental monitoring.
Closure costs are provided at the present value of the
expenditures expected to settle the obligation, using estimated
cash flows based on current prices over the assumed life of the
mine. The provision at the reporting date represents the Directors'
best estimate of the present value of the future closure costs
required.
(iv) Consumables inventory provision
Consumables items form a substantial part of the overall
inventory balance in the Group's financial statements. These are
tools and spares used throughout the Group's operations. During the
year a detailed review of slow or non-moving consumables was
undertaken, with the assistance of external reviewers as well as
internal experienced employees to identify such items and provide
against them.
This exercise resulted in an additional provision being
recognised for slow moving or obsolete consumable items which the
Directors no longer believe are likely to be used in the normal
course of business. Such an exercise involved the use of estimates,
including future usage of consumables, technological innovation,
product life cycles and long-term mine plans.
Notes to the condensed consolidated financial statements
Year ended 31 December 2015
3. Segment information
IFRS 8 requires operating segments to be identified on the basis
of internal reports about components of the Group that are
regularly reviewed by the Chief Operating Decision Maker of the
Group to allocate resources to the segments to assess their
performance.
The strategy of the Group is to produce, refine and sell natural
rutile. Information reported to the Board is on an integrated
basis, which is how decisions over resource allocation are made.
The Group itself has only one primary mining product being rutile,
with ilmenite, zircon and other concentrates being considered
by-products of the integrated rutile production process.
As such, the Group considers there to be one segment being the
production, refining and sale of rutile.
Segment revenue
Revenue represents the invoiced amount in respect of sales of
rutile, ilmenite and zircon and other concentrates sold during the
period including freight costs for those sales conducted on a Cost,
Insurance and Freight' ("CIF") basis. By separately analysing
freight costs for those sales conducted on a CIF basis, revenue by
product in the table below is therefore stated on an equivalent
'Free Along-Side' ("FAS") basis.
Revenue consists of the following:
Restated
Year ended Year ended
31 December 31 December
2015 2014
$'000 $'000
Rutile 91,165 103,576
Ilmenite 5,236 6,781
Zircon and other concentrates 6,807 3,436
Freight costs 2,552 3,966
105,760 117,759
Geographical information
Segment revenue is derived from sales to external customers
domiciled in various geographical regions. Details of segment
revenue by location of customers are as follows:
Year ended Year ended
31 December 31 December
2015 2014
$'000 $'000
Middle East/Asia 20,238 38,013
Europe 50,502 57,299
North and South America 31,811 17,386
Africa 657 1,095
Freight costs 2,552 3,966
105,760 117,759
No customers are currently located in Sierra Leone.
For the year ended 31 December 2015 revenues of $32.7 million,
$29.0 million and $15.3 million were generated from three customers
(2014: Revenues of $41.7 million, $32.9 million and $26.4 million
were derived from three customers) all of whom accounted for more
than 10% of the Group's total annual sales.
Segment assets
All of the Group's assets are in Sierra Leone except certain
inventory balances valued at $3.7 million (31 December 2014: $4.0
million) held in a warehouse in Europe.
All the Group's assets belong to one segment, that being the
production, refining and sale of rutile.
Seasonality information
Whilst certain of the activities at the Group's operations are
subject to the effects of seasonality, the effect on the results of
the Group are minimal.
Notes to the condensed consolidated financial statements
Year ended 31 December 2015
4. Non-gaap performance indicators
The Directors monitor the financial performance and financial
position of the Group based on a number of key performance
indicators including EBITDA, production cash cost, All-in cash cost
and net debt.
(a) EBITDA
The Group presents EBITDA because it believes that EBITDA is a
useful measure of the profitability of the Group and is a proxy for
cash earnings from current trading performance. The Group
calculates EBITDA as earnings/(loss) before finance income/costs,
tax, depreciation, amortisation, share based payments, impairment
charges and provision for obsolete inventory.
Year ended Year ended
31 December 31 December
2015 2014
$'000 $'000
Operating loss (10,278) (7,603)
Depreciation and amortisation 20,860 21,144
Share of results of joint venture 141 -
Share-based payments 765 777
Impairment charges 415 473
Provisions for obsolete inventory 4,200 -
EBITDA 16,103 14,791
(b) Production cash cost and all-in cash cost
Production cash cost is defined as the direct costs of
production divided by tonnes of rutile produced. The direct costs
of production include mining, processing, support and
infrastructure services at the mine site which are utilised in
order to produce finished rutile in readiness for shipment to the
customer.
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All-in cash cost is defined as operating costs (direct
production, selling, general and administrative costs),
stay-in-business capital expenditure less by-product revenue
divided by tonnes of rutile sold.
Year ended Year ended
31 December 31 December
2015 2014
$'000 $'000
Cost of sales (99,890) (112,760)
Add: Depreciation and amortisation 20,860 21,144
Add: Provision for obsolete inventory 4,200 -
Add: Freight costs 2,552 3,966
(Deduct)/add: Change in value of finished
goods inventory (5,058) 14,188
Production cash costs (77,336) (73,462)
Selling and distribution expenses (5,598) (1,817)
General and administrative expenses (10,058) (10,639)
Sustaining capital expenditure (4,580) (3,900)
Deduct: Share-based payments 765 777
Deduct: By-product revenue 12,043 10,217
All-in cash costs (84,764) (78,824)
Rutile produced (tonnes) - unaudited 126,021 114,163
Rutile sold (tonnes) - unaudited 117,654 129,602
Unit cash cost ($/tonne)
Production cash cost - unaudited 614 643
All-in cash cost - unaudited 720 608
Notes to the condensed consolidated financial statements
Year ended 31 December 2015
4. Non-gaap performance indicators (continued)
(c) Net debt
Net debt as defined by the Group is calculated as total
borrowings less cash and cash equivalents.
Year ended Year ended
31 December 31 December
2015 2014
$'000 $'000
Cash and cash equivalents 5,017 6,564
Current borrowings (30,249) (20,046)
Non-current borrowings (21,206) (22,954)
Net debt (46,438) (36,436)
Notes to the condensed consolidated financial statements
Year ended 31 December 2015
5. Finance income and finance costs
Year ended Year ended
31 December 31 December
2015 2014
(a) Finance income $'000 $'000
Net foreign exchange transaction
gains 5,033 3,242
5,033 3,242
Exchange gains primarily arise on the revaluation of the Euro
denominated loan payable to the Government of Sierra Leone (refer
to note 9), the cash balances held in local currency and upon
revaluation of other foreign currency denominated balances.
(b) Finance costs
Year ended Year ended
31 December 31 December
2015 2014
$'000 $'000
Interest expense:
Government of Sierra Leone loan 1,700 2,107
Working Capital Facility 1,053 726
Senior Loan Facility 534 -
Total interest expense 3,287 2,833
Less: Interest expense capitalised (534) -
Interest expense charged to the income
statement 2,753 2,833
Charges under derivative financial
instruments 583 -
Financing costs 2,057 1,336
Less: Financing costs capitalised (1,558) -
Unwinding of discount on provision 49 43
Interest expense on retirement benefits 324 290
Finance costs charged to the income
statement 4,208 4,502
In 2015, the Group accessed the Senior Loan Facility (see note
9) for the first time to assist in funding the construction of the
Gangama dry mine project. Consequently, the $2.1 million (2014:
$nil) of borrowing and finance costs arising have been capitalised
to the cost of the Gangama Dry Mine project.
Financing costs include arrangement fees, political risk
insurance for facilities secured on the Group's assets in Sierra
Leone, legal fees incurred in relation to finance raising
activities and bank charges.
Notes to the condensed consolidated financial statements
Year ended 31 December 2015
6. Income taxes
The taxation of the Group's operations in Sierra Leone reverted
back to the provisions of the Sierra Rutile Agreement
(Ratification) Act 2002, ("Sierra Rutile Act") as at 1 January
2015, under which tax is charged at an amount not less than 3.5% of
turnover and not more than the standard Sierra Leone corporate
income tax rate (up to a maximum rate of 37.5%) on taxable profits.
Prior to this date, the business was subject to a minimum tax
charged at 0.5% of turnover.
The standard corporate income tax rate in Sierra Leone enacted
at the balance sheet date was 30%.
Year ended Year ended
31 December 31 December
2015 2014
$'000 $'000
(a) Income tax expense
Current tax - UK tax at 20.0% (2014:
21.5%) 45 14
Deferred tax (part c of this note) - -
Minimum turnover tax - Sierra Leone 3,701 589
Income tax expense 3,746 603
A reconciliation between tax expense and the Group's loss before
tax for the years ended 31 December 2015 and 31 December 2014 is as
follows:
Year ended Year ended
31 December 31 December
2015 2014
$'000 $'000
Loss before tax (9,453) (8,863)
Tax at Sierra Leone corporate income tax rate applicable
to the Group - 0%(1) - -
Minimum turnover tax 3.5% (2014: 0.5%) 3,701 589
UK Corporation tax at 20.0% (2014: 21.5%) 45 14
Income tax expense 3,746 603
(1) Although in 2015, Sierra Leone operations are, prima facie,
subject to Sierra Leone corporate tax at 30%, a rate of 0% has
been applied due to the loss-making position of those operations
and the consequent application of the minimum turnover tax.
(b) Current tax (assets)/ liabilities
Year ended Year ended
31 December 31 December
2015 2014
$'000 $'000
At 1 January (222) (241)
UK corporation tax liability reclassification - 17
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Charged to the income statement 3,746 603
Paid during the year (978) (601)
At 31 December 2,546 (222)
Notes to the condensed consolidated financial statements
Year ended 31 December 2015
6. Income taxes (continued)
(b) Current tax (assets)/ liabilities (continued)
2015 2014
$'000 $'000
Current tax liability/(asset) -
Sierra Leone 2,501 (228)
Current tax liability - UK 45 6
2,546 (222)
(c) Deferred income tax
The following are the major deferred tax assets and liabilities
recognised by the Group and movements thereon during the current
and prior reporting period.
Property,
plant and Tax losses
equipment Total
$'000 $'000 $'000
At 1 January 2014 (14,021) 14,021 -
(Charged)/credited to the income statement (2,244) 2,244 -
----------- ------------- --------
At 1 January 2015 (16,265) 16,265 -
(Charged)/credited to the income statement (2,709) 2,709 -
----------- ------------- --------
At 31 December 2015 (18,974) 18,974 -
=========== ============= ========
On the basis that there is a legally enforceable right in Sierra
Leone to offset an entity's current tax assets and liabilities and
that the deferred tax assets and liabilities relate to income taxes
levied by the same tax authority on the same entity, the deferred
tax assets and liabilities are offset as follows:
2015 2014
$'000 $'000
Deferred tax assets 18,974 16,265
Deferred tax liabilities (18,974) (16,265)
- -
Unrecognised tax losses
Where the realisation of deferred tax assets is dependent on
future profits, losses carried forward are recognised only to the
extent that business forecasts predict that such profits will be
available.
At the end of the reporting period, the Group had unused tax
losses of $464.3 million (2014: $451.9 million) available for
offset against future profits, of which $63.2 million (2014: $54.2
million) were recognised as a deferred tax asset. No deferred tax
asset has been recognised in respect of the remaining available
losses of $401.1 million (2014: $397.7 million). These losses have
no expiry date. In addition the Group has other deductible
temporary differences of $3.2 million for which no deferred tax
asset has been recognised.
Due to the Group's retained loss position, there are no
temporary differences associated with investments in the Group's
subsidiaries.
(d) Future changes in corporation tax rate
i) UK
On 18 November 2015, reductions to the rate of corporation tax
were enacted into UK law from the current 20% to 19% from 1 April
2017 and to 18% from 1 April 2020.
ii) Sierra Leone
The rate of minimum turnover tax increased from 0.5% to 3.5%
from 1 January 2015 in line with the Sierra Rutile Act, and is not
expected to increase any further. The 30% standard corporation tax
applicable to the Group is not expected to change next year.
Notes to the condensed consolidated financial statements
Year ended 31 December 2015
7. Basic and diluted loss per share
(a) Basic loss per share
Year ended Year ended
31 December 31 December
2015 2014
Loss attributable to owners of the parent
($'000) (13,199) (9,466)
Weighted average number of ordinary shares
in issue for basic and diluted earnings
per share 522,231,508 519,154,626
Basic loss per share (US cents per share) (2.5) (1.8)
Basic loss per share is calculated by dividing the loss
attributable to owners of the Company by the weighted average
number of ordinary shares in issue during the year.
(b) Diluted loss per share
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares in issue on the
assumption of conversion of all potentially dilutive ordinary
shares. Potential ordinary shares shall be treated as dilutive only
when their conversion to ordinary shares would decrease earnings
per share or increase loss per share.
The outstanding share options at 31 December 2015 and 2014
represent anti-dilutive potential ordinary shares, therefore basic
and diluted earnings per share are the same for the current and
prior year.
8. Cash and cash equivalents
2015 2014
$'000 $'000
Restricted cash 29 5,367
Unrestricted cash 4,988 1,197
Cash and cash equivalents 5,017 6,564
If the Working Capital Facility is drawn down, any future cash
receipts from sales are restricted until either they cover the
balance drawn down or the subsequent rollover date, whereupon the
restricted cash balance becomes unrestricted provided no default
exists. The restriction may be waived in the event the Group
requests for its major shareholder, Pala Minerals Limited, to place
cash collateral with the lender, and provided Pala Minerals Limited
consents to such a request, restricted funds may be released to the
value of the cash collateral. Financing fees of 1% are payable to
Pala Minerals Limited on any cash balances collateralised.
The restricted cash balances shown above were released at the
January rollover date of the loan in each respective year.
Notes to the condensed consolidated financial statements
Year ended 31 December 2015
9. Borrowings
Inception Maturity Interest 2015 2014
date rate
date $'000 $'000
Secured:
Working Capital Facility August 2014 May 2017 5.00% 20,024 20,046
December
Senior Loan Facility 2013 April 2020 5.25% 9,256 -
29,280 20,046
Unsecured:
December
Government Loan August 2004 2018 8.0% 22,175 22,954
22,175 22,954
------- -------
Total borrowings 51,455 43,000
------- -------
Analysed as:
Current 30,249 20,046
Non-current 21,206 22,954
51,455 43,000
(a) $20 million Working Capital Facility ("WCF") - secured
The WCF was originally arranged in August 2013 with a one year
tenor to provide additional working capital. The facility was
renewed for a further two years in July 2014. On 15 March 2016, the
maturity date of the facility was extended from August 2016 to May
2017.
The principal terms of the facility are as follows:
-- An interest rate of LIBOR + 5.00% (prior to 22 July 2014, LIBOR + 4.00%).
-- Interest is payable based on the interest period selected, usually monthly.
-- The facility has a number of covenants linked to it.
If the Working Capital Facility is drawn down, any future cash
receipts from sales are restricted until either they cover the
balance drawn down or the subsequent rollover date, whereupon the
restricted cash balance becomes unrestricted provided no default
exists. The restriction may be waived in the event the Group
requests for its major shareholder, Pala Minerals Limited, to place
cash collateral with the lender, and provided Pala Minerals Limited
consents to such a request, restricted funds may be released to the
value of the cash collateral.
The mechanics of the facility allow the principal to be fully
repaid and drawn down on a rolling basis and hence this facility is
presented as current. As at 31 December 2015 and 2014, this loan
was drawn down in full. The loan is secured against the assets of
the Group.
Borrowing costs of $1.1 million have been expensed and paid
during the year ended 31 December 2015.
Notes to the condensed consolidated financial statements
Year ended 31 December 2015
9. Borrowings (continued)
(b) $30 million Senior Loan Facility ("SLF") - secured
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Following the approval of the construction of the Gangama dry
mine project in April 2015, the Group closed the SLF in April 2015.
Use of the loan is restricted to the Gangama dry mine project, with
40% of the project being funded by the SLF and the remaining 60%
being funded by internally generated cash flows.
The principal terms of the facility are as follows:
-- An interest rate of LIBOR + 5.25%.
-- Interest is payable based on the interest period selected, usually quarterly.
-- Repayment of the loan commences in November 2016 with
amortisation thereafter being over four years
-- The facility has a number of covenants linked to it.
The SLF was drawn by $9.2 million as at 31 December 2015 (2014:
undrawn). The loan is secured against the assets of the Group.
Borrowing costs of $2.1 million have been capitalised to the
capital cost of the Gangama dry mine project, and interest and
commitment fees of $0.4 million has been paid during the year.
(c) Government Loan ("GoSL Loan") - unsecured
The loan was advanced by the Government of Sierra Leone in
August 2004 with funds provided by the European Union. The loan is
denominated in Euros. The principal terms of the facility were as
follows:
-- A fixed annual interest rate of 8%
-- Interest and principal payable semi-annually until maturity
In December 2014, the Group obtained approval for an eighteen
month deferral of repayments of principal and interest payments in
respect of this loan. Repayments were scheduled to resume from June
2016. During the deferral period, interest continues to accrue and
is capitalised into the principal loan balance.
On 18 March 2016, a further six month deferral of repayments of
principal and interest payments in respect of this loan was
agreed.
The balance outstanding as at 31 December 2015 was $22.2 million
(2014: $23.0 million). No principal or interest payments were made
in 2015 (2014: principal repayment of $4.9 million). Movements
between the years reflect interest charged of $1.7 million (2014:
$0.9 million) and devaluation of the Euro against the US dollar of
$2.5 million (2014: $3.0 million).
There are no covenants attached to the loan and the Group does
not have any undertaking, nor is it contractually bound to create,
any lien on or with respect to any of its rights or revenues.
(d) $15 million Standby Facility ("Standby Facility") - unsecured
The Group secured a Standby Facility of up to $15 million in
September 2015 which was put in place to cover the 60% contribution
to the Gangama dry mine project from internally generated cash
flows in the event of a shortfall.
The principal terms of the facility are as follows:
-- An interest rate of LIBOR + 2.0%.
-- Interest is payable based on the interest period selected.
-- This facility is available until December 2016 and has no
associated arrangement, commitment fees or any covenants linked to
it.
The mechanics of the facility is that for each draw down applied
for, the Group's majority shareholder, Pala Minerals Limited will
deposit the same amount with the lender as cash collateral.
This facility was undrawn as at 31 December 2015.
On 15 March 2016 the maturity date of the Standby Facility was
extended to May 2017, and the use of the Standby Facility was also
widened to cover general corporate purposes.
Notes to the condensed consolidated financial statements
Year ended 31 December 2015
10. Share capital
2015 2014
2015 Number 2014 Number
of shares $'000 of shares $'000
Issued and fully paid
At 1 January 522,231,508 275,102 514,900,417 275,102
Allotment during the year - - 7,331,091 -
522,231,508 275,102 522,231,508 275,102
The total authorised number of ordinary shares is unlimited with
no par value. All issued shares are fully paid and are admitted on
the Alternative Investment Market ("AIM") of the London Stock
Exchange.
No share options were exercised during the year. In 2014, a
total of 19,144,583 share options held by management and Directors
were exercised with a net 7,331,091 shares actually being issued
for nil consideration.
11. Operating cash flow before working capital changes
Year ended Year ended
31 December 31 December
2015 2014
$'000 $'000
Loss before taxation (9,453) (8,863)
Adjustments for:
Depreciation on property, plant and
equipment 20,687 20,966
Amortisation of intangible assets 173 178
Share of results of joint venture 141 -
Finance costs 4,208 4,502
Finance income (5,033) (3,242)
Share-based payments 765 777
Profit on disposal of property, plant
and equipment - (45)
Impairment of property, plant and equipment - 473
Impairment of pineapple business 415 -
Inventory write off 4,200 -
Operating cash flow before working capital
changes 16,103 14,746
Notes to the condensed consolidated financial statements
Year ended 31 December 2015
12. Movement in net debt
At 1 January At 31 December
2015 Cash flow Other movements 2015
$'000 $'000 $'000 $'000
Cash and cash equivalents 6,564 (3,357) 1,810 5,017
Borrowings (43,000) (9,194) 739 (51,455)
Net debt (36,436) (12,551) 2,549 (46,438)
At 1 January At 31 December
2014 Cash flow Other movements 2014
$'000 $'000 $'000 $'000
Cash and cash equivalents 22,628 (16,193) 129 6,564
Borrowings (49,104) 4,939 1,165 (43,000)
Net debt (26,476) (11,254) (1,036) (36,436)
Other movements comprise net foreign exchange movements and
other non-cash reconciling items. For the year ended 31 December
2015, the $0.7 million other movement on borrowings consists of
$2.5 million of foreign exchange differences on the GoSL Loan
offset by $1.7 million of interest capitalised on the loan. For the
year ended 31 December 2014, the $1.2 million other movement on
borrowings consists of $3.0 million of foreign exchange differences
on the GoSL Loan offset by $0.9 million of interest capitalised on
the loan and $0.9 million of capitalised fees on the Working
Capital Facility.
13. Related party transactions and balances
Amounts
receivable/
Purchases/
project
(payable) fees/interest
$'000 $'000
(a) 2015
Shareholder:
Interest paid on cash collateral to Pala Minerals
Limited (1) - (2)
Expense reimbursement (2) (146) (172)
Joint venture:
Transactions and receivables from joint venture
(3) 79 79
Director:
Enterprise in which Mr Kamara is also a director
- Cemmats Group (4) (18) (643)
(b) 2014
Shareholder:
Expense reimbursement (2) (12) (29)
Director:
Enterprise in which Mr Kamara is also a director
- Cemmats Group (4) - (289)
Advances to a director (5) 8 -
Notes to the condensed consolidated financial statements
Year ended 31 December 2015
13. Related party transactions and balances (continued)
(1) Amounts paid to Pala Minerals Limited, the Group's major
shareholder, relates to the payment of a 1% financing fee when cash
is collateralised in order to allow access to restricted funds
under the terms of the Working Capital Facility (refer to note
9).
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(2) In the ordinary course of business, certain individuals
employed by Pala Investments Limited, the Company's majority
shareholder, provide management services to the Group. Whilst no
fees are payable for these management services, disbursements are
incurred, mainly relating to travel, and the fees disclosed above
relate to such disbursements.
(3) The Group provided services worth $0.1 million to the joint
venture during the year related mainly to camp accommodation and
fuel and this amount is included in other receivables at the year
end.
(4) Mr. Kamara is a Director of the Group. Mr. Kamara is also a
non-executive director of Cemmats Group, a Sierra Leonean company
which has a number of contracts with Sierra Rutile to supply mining
services and equipment. All transactions have been undertaken on an
arm's length transaction.
(5) Included in trade and other receivables is an amount owed to
the Company by one of the directors. The advance was made to Mr.
Kamara to cover medical and travel expenses. This amount does not
carry interest and was fully settled in January 2015.
14. Ultimate controlling party
As at 31 December 2015, the Group's immediate parent undertaking
was Pala Minerals Limited, a company incorporated in the British
Virgin Islands and a subsidiary of Pala Investments Limited. The
ultimate controlling party of the Group is VFI Holdings AG, which
is controlled by Mr Vladimir Iorich. VFI Holdings AG is
incorporated is Switzerland, and does not produce Group
accounts.
15. Events after the reporting period
Extension to Working Capital Facility
On 15 March 2016, the maturity date of the Working Capital
Facility was extended from August 2016 to May 2017 and continues to
carry an interest rate of LIBOR plus 5%. An arrangement fee of 1%
of the facility amount is payable for this extension.
Standby Facility
On 15 March 2016, the maturity date of the Standby Facility was
extended from December 2016 to May 2017. In addition the use of the
Standby Facility was widened to cover general corporate purposes.
Previously, the Standby Facility could only be drawn against to
cover the 60% contribution to the Gangama dry mine project from
internally generated cash flows in the event of a shortfall. The
interest rate continues at LIBOR plus 2%. No arrangement or
commitment fees are payable for these amendments.
Government Loan
On 18 March 2016, a further six month deferral of repayments of
principal and interest payments was agreed.
Investment in joint venture
Carmanor met its objectives for 2015 as set out in the business
plan, and as a consequence, the Group's interest in the agriculture
joint venture was reduced to 35% with effect from 1 March 2016.
Under the terms of the shareholder agreement, the Group retains
joint control of the joint venture, so its interest continues to be
equity accounted.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR BRGDXSUXBGLG
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