Notes to the financial statements

1 Business information and going concern basis of preparation

In common with many exploration and development companies in the mining sector, the Company raises funding in phases as its projects develop.

Following exercise of the Xstrata First Call Option, Xstrata is required to fund and implement the FS in accordance with the Xstrata Joint Venture Agreement. Xstrata has undertaken to use its reasonable endeavours to complete the FS at least three months prior to the expiration of the Zanaga Exploration Licences in August 2014 or any subsequent renewal, subject to there being no adverse change. The directors have a reasonable expectation that the Company has adequate financial resources to continue in operational existence for the foreseeable future. For these reasons, the financial statements of the Company have been prepared on a going concern basis.

In the event that a decision is taken to develop a mine at Zanaga (and assuming that Xstrata Projects has not exercised its call option to acquire the Company's interest in JumellesLimited) the Company will need to raise further funds.

 

2 Accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

 

3 Basis of preparation

The condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

In accordance with the AIM Rules for Companies, the condensed set of financial statements has been prepared in applying the accounting policies and presentation that were applied in the preparation of the Company's published consolidated financial statements for the year ended 31 December 2011. The comparative figures for the financial year ended 31 December 2011 are not the Company's statutory accounts for that financial year. The accounts have been reported on by the Company's auditors. The report of the auditors was (i) unqualified and (ii) did not include a reference to any matter to which the auditors drew attention by way of emphasis without qualifying their report.

 

4 Segmental reporting

The Company has one operating segment, being its investment in the Zanaga Project, held through Jumelles Limited. Financial information regarding this segment is provided in note 6.  

 

5  Taxation

The Company is exempt from most forms of taxation in the British Virgin Islands ("BVI"), provided the Company does not trade in the BVI and does not have any employees working in the BVI. All dividends, interest, rents, royalties and other expense amounts paid by the Company, and capital gains realised with respect to any shares, debt obligations or other securities of the Company, are exempt from taxation in the BVI.

The tax charge in the period relates to the Company's subsidiary Zanaga UK Services Limited.

 

	30 June 2012  Unaudited	30 June 2011 Unaudited	31 December 2011 Audited
	US$000	US$000	US$000
Recognised in other comprehensive income:
Current year	(20)	-	(28)
Reconciliation of effective tax rate
Loss before tax	(2,363)	(3,804)	(14,351)
Income tax using the BVI corporation tax rate of 0% (2011: 0%)	-	-	-
Effect of tax rate in foreign jurisdictions	(20)	-	(28)
	(20)	-	(28)

The effective tax rate for the Group is 0.9% (December 2011: 0.2%).

 

6 Investment in associate

 

	US$000
Balance at 1 January 2011	192,799
Additions	5,968
Share of comprehensive income	(2,996)
Balance at 30 June 2011	195,771
Additions	530
Share of comprehensive income	(13,324)
Balance at 31 December 2011	182,977
Additions	533
Share of comprehensive income	(5,058)
Balance at 30 June 2012	178,452

The investment represents a 100% holding in Jumelles for the entire share capital of 2,000,000 shares. The shares were acquired in exchange for shares in the Company and have been recorded at fair value of the interest acquired.

The additions to the investment during 2012 are due to the Group granting awards under the LTIP and other options to employees of Jumelles ($19k), and a US$0.5m additional investment funded jointly (50/50) with Xstrata for the survey of an additional land area. Though Jumelles acquired the non-exclusive prospecting licence for this area, it does not form part of the existing ZIOC Xstrata joint venture agreement.

From its acquisition and up to 11 February 2011, the investment in Jumelles did not represent an investment in a subsidiary due to the call option held by Xstrata described in Note 1 above which throughout that period gave Xstrata Projects potential voting rights which would have been sufficient for Xstrata Projects to control Jumelles. Following exercise of the Xstrata Call Option, the residual rights retained by the Group are sufficient in the view of the Directors to provide the Group with the power to participate significantly in the financial and operating decisions affecting Jumelles. As a consequence the Group's interest is accounted for as an associate using the equity method of accounting.   

As explained in Note 1, on 11 February 2011, Xstrata Projects exercised the Xstrata Call Option and from that date owns 50% plus one share of Jumelles and Jumelles is controlled at both a shareholder and director level by Xstrata Projects. However, as the shares issued on exercise of the option are not considered to vest until provision of the services relating to the PFS and the FS has been completed, the Group will continue to account for a 100% interest in Jumelles Limited until the FS has been completed. Only at that time will the Group account for a reduction in its interest in Jumelles.

The Group financial statements account for the Xstrata Projects transaction as an in-substance equity-settled share-based payment for the provision of services by Xstrata Projects to Jumelles in relation to the PFS and the FS. These services largely are provided through third party contractors and are measured at the cost of the services provided.

As at 30 June 2012, Jumelles Limited had aggregated assets of US$219.5m (June 2011: US$228.1m) and aggregated liabilities of US$48.0m (June 2011: US$16.0m). For the 6 months ended 30 June 2012, it incurred administrative expenses of US$21k (June 2011: US$3.1m) and incurred no taxation charge (June 2011: US$26k). A summarised consolidated balance sheet of Jumelles Limited for the 6 months ended 30 June 2012, including adjustments made for equity accounting, is included below:

	30 June 2012 Unaudited US$000	30 June 2011 Unaudited US$000	31 December 2011 Audited US$000
Non-current assets
Property, plant and equipment	15,089	15,095	12,704
Exploration and other evaluation assets	195,024	126,588	166,815
Intangible assets	146	-	145
	210,259	141,683	179,664
Current assets	9,235	86,434	20,732
Current liabilities	(47,982)	(15,998)	(37,461)
Net current assets/(liabilities)	(38,747)	70,436	(16,729)
Net assets	171,512	212,119	162,935
Share capital	9,580	9,031	9,561
Share option reserve	203,324	227,131	190,738
Capital Contribution	1,030	-	-
Translation reserve	(13,606)	(55)	(8,569)
Retained earnings	(28,816)	(23,988)	(28,795)
	171,512	212,119	162,935

 

 

7 Loss per share	30 June 2012 Unaudited	30 June 2011 Unaudited	31 December 2011 Audited
Loss (Basic and diluted)	(2,383)	(3,804)	(14,379)
Weighted average number of shares (thousands)
Basic and diluted
Issued shares at beginning of period	280,416	280,416	280,416
Effect of shares issued	-	-	-
Effect of share repurchase	-	-	-
Effect of own shares	(5,010)	(5,574)	(5,574)
Effect of share split	-	-	-
Weighted average number of shares at end of period - basic	275,406	274,842	274,842
Loss per share (cent)
Basic and diluted	(0.9)	(1.4)	(5.2)

 

8 Related parties

The following transactions occurred with related parties during the period:

 

		Transactions for the period				Closing balance
	30 June 2012 Unaudited	30 June 2011 Unaudited	31 December 2011 Audited		30 June 2012 Unaudited	30 June 2011 Unaudited	31 December 2011 Audited
	US$000	US$000	US$000		US$000	US$000	US$000
Intercompany payable Jumelles Limited	-	234	234		64	64	64
Intercompany payable Jumelles Technical Services UK Limited	-	27	(17)		21	11	21
Strata Capital UK LLP	170	57	52		175	-	5

 

In addition to the transactions above, the Company has also issued share options to Strata Capital UK LLP. In this regard see page 54, note 15 in the Company's 2011 Annual Report. A further award was granted in March 2012. These options have a weighted average price of £1.06 (US$1.40), a weighted average fair value of £0.37 (US$0.49) and a weighted average contractual life of 821 days.

 

Board of Directors                         

Clifford Thomas Elphick

Non-Executive Chairman

51 years

Clifford Elphick is the founder and CEO of Gem Diamonds Limited, a diamond mining company listed on the Main Market of the London Stock Exchange. Mr Elphick joined Anglo American Corporation in 1986 and was seconded to E Oppenheimer & Son as Harry Oppenheimer's personal assistant in 1988. In 1990 he was appointed managing director of E Oppenheimer & Son, a position he held until his departure from the company in December 2004. During that time, Mr Elphick was also a director of Central Holdings, Anglo American and DB Investments. Following the buy-out of De Beers in 2000, Mr Elphick served on the De Beers executive committee until 2004. Mr. Elphick formed Gem Diamonds Limited in July 2005.

Colin John Harris

Non-Executive Director

65 years

Colin Harris has been working as an exploration geologist for over 40 years and has a wealth of experience in the generation, exploration and evaluation of projects covering a variety of commodities and deposit styles in over 25 countries mainly in Africa and Europe. He has worked for major international mining companies including Anglo American, Cominco and more recently Rio Tinto. During his 18 years at Rio Tinto Mr Harris managed multi-million dollar programmes which in the past 15 years included the evaluation of iron ore deposits in Greenland, Scandinavia, Mali, Mauritania, Algeria, Morocco, Liberia, Senegal and Sierra Leone and more importantly between 1998 and 2008 heading up the team evaluating the world-class Simandou iron ore project in the Republic of Guinea. Mr Harris resigned from Rio Tinto in 2008 and joined the Zanaga team later in the year as Project Director. Mr Harris stepped down as Project Director of the Project after Xstrata exercised its First Call Option. Mr Harris is also a non-executive director of AIM listed Ncondezi Coal Company Limited and AIM and Oslo AXESS listed London Mining plc.

Clinton James Dines

Non-Executive Director

54 years

Clinton Dines has been involved in business in China since 1980, including senior positions with the Jardine Matheson Group, Santa Fe Transport Group and Asia Securities Venture Capital. In 1988 he joined BHP as their senior executive in China and, following the merger of BHP and Billiton in 2001, he became president, BHP Billiton China, a position from which he retired in 2009. Mr Dines is currently a non-executive director of Kazakhmys plc, which is listed on the Main Market of the London Stock Exchange.

Michael John Haworth

Non-Executive Director

46 years

Michael Haworth is a director of Strata Limited, Garbet Limited and is the managing partner of Strata Capital UK LLP. Mr Haworth has 12 years' investment banking experience, predominantly in emerging markets and natural resources. Prior to establishing Strata Limited in 2006, Mr Haworth was a Managing Director at J.P. Morgan and Head of Mining and Metals Corporate Finance in London. During his 10 years at J.P. Morgan, Mr Haworth held a number of other positions, including head of M&A for Central Eastern Europe, Middle East and Africa and, before that, head of M&A in South Africa. Mr Haworth is also Non-Executive Chairman of AIM listed Ncondezi Coal Company Limited.

Dave John Elzas

Non-Executive Director

46 years

Dave Elzas has over 15 years' experience in international investment banking. Between 1994 and 2000, Mr Elzas served as a senior executive and subsequently managing director of the Beny Steinmetz Group. Mr Elzas is currently the senior partner and CEO of the Geneva Management Group, an international wealth management and financial services company. Mr Elzas has been a non-executive director of Gem Diamonds Limited since October 2005.

 

Advisors

Nominated Advisor and Joint Corporate Broker
Liberum Capital Limited
Ropemaker Place, Level 12
25 Ropemaker Street
London EC2Y 9LY

Joint Corporate Broker
Citigroup Global Markets Limited
Citigroup Centre
33 Canada Square, Canary Wharf
London E14 5LB

 

Auditors and Reporting Accountants

KPMG Audit Plc
15 Canada Square
London E14 5GL

Legal
Berwin Leighton Paisner LLP
Adelaide House
London Bridge
London EC4R 9HA

Registrars
Computershare Investor Services (BVI) Limited
Woodbourne Hall
PO Box 3162
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Tortola
British Virgin Islands

Financial PR
Pelham Bell Pottinger
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Holborn Gate
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United Kingdom