Group Operating & Financial Review

 

Consolidated statement of comprehensive Income

for year ended 31 December 2012

 

		2012	2011
	Note	US$000	US$000
Administrative expenses		(5,070)	(6,721)
Share of loss of associate		(765)	(7,803)
Operating loss	4	(5,835)	(14,524)
Interest income		154	173
Loss before tax		(5,681)	(14,351)
Taxation	5	(47)	(28)
Loss for the year		(5,728)	(14,379)
Foreign exchange translation - foreign operations		(36)	38
Share of other comprehensive income of associate - foreign exchange translation		6,250	(8,517)
Other comprehensive income		6,214	(8,479)
Total comprehensive income/(loss)		486	(22,858)
Loss per share (basic and diluted) (Cents)	12	(2.1)	(5.2)

 

The loss for the period is attributable to the equity holders of the parent company.

Consolidated statement of changes in equity

for year ended 31 December 2012

 

			Foreign
			currency
	Share	Retained	translation	Total
	capital	earnings	reserve	equity
	US$000	US$000	US$000	US$000
Balance at 1 January 2011	256,070	(15,422)	536	241,184
Consideration for share-based payments	8,923	-	-	8,923
Loss for the period	-	(14,379)	-	(14,379)
Other comprehensive income	-	-	(8,479)	(8,479)
Total comprehensive loss	-	(14,379)	(8,479)	(22,858)
Balance at 31 December 2011	264,993	(29,801)	(7,943)	227,249
Balance at 1 January 2012	264,993	(29,801)	(7,943)	227,249
Consideration for share-based payments	755	-	-	755
Share buy backs	(383)	-	-	(383)
Loss for the period	-	(5,728)	-	(5,728)
Other comprehensive income	-	-	6,214	6,214
Total comprehensive loss	-	(5,728)	6,214	486
Balance at 31 December 2012	265,365	(35,529)	(1,729)	228,107

 

Consolidated balance sheet

for year ended 31 December 2012

 

		2012	2011
	Note	US$000	US$000
Non-current assets
Property, plant and equipment	6a	80	13
Investment in associate	6b	189,009	182,977
		189,089	182,990
Current assets
Other receivables	7	282	104
Cash and cash equivalents	8	40,383	45,047
		40,665	45,151
Total Assets		229,754	228,141
Current liabilities
Trade and other payables	9	(1,647)	(892)
Net assets		228,107	227,249
Equity attributable to equity holders of the parent
Share capital	10	265,365	264,993
Retained earnings		(35,529)	(29,801)
Foreign currency translation reserve		(1,729)	(7,943)
Total equity		228,107	227,249

 

Consolidated cash flow statement

for year ended 31 December 2012

 

		2012	2011
	Note	US$000	US$000
Cash flows from operating activities
Total comprehensive loss for the period		486	(22,858)
Adjustments for:
Depreciation		23	3
Interest receivable		(154)	(173)
Taxation expense		47	28
Increase in other receivables		(178)	(24)
Increase/(Decrease) in trade and other payables		761	(65)
Net exchange loss		(1,673)	(274)
Share of loss of associate		(5,485)	16,320
Share-based payments		723	2,425
Tax paid		(27)	-
Net cash from operating activities		(5,477)	(4,618)
Cash flows from financing activities
Repurchase of own shares		(383)	-
Net cash from financing activities		(383)	-
Cash flows from investing activities
Interest received		154	173
Acquisition of property, plant and equipment		(90)	(16)
Investment in associate		(515)	-
Net cash from investing activities		(451)	157
Net (decrease)/increase in cash and cash equivalents		(6,311)	(4,461)
Cash and cash equivalents at beginning of period		45,047	49,318
Effect of exchange rate difference		1,647	190
Cash and cash equivalents at end of period	8	40,383	45,047

Notes to the financial statements

1 Business information and going concern basis of preparation

Background

Zanaga Iron Ore Company Limited (the "Company"), was incorporated on 19 November 2009 under the name of Jumelles Holdings Limited. The Company changed its name on 1 October 2010. The Company is incorporated in the British Virgin Islands ("BVI") and the address of its registered office is situated at Coastal Building, 2nd Floor, Wickham's Cay II, Road Town, Tortola, BVI. The Company's principal place of business as an investment holding vehicle is situated in Guernsey, Channel Islands.

As at 31 December 2010 the Company held 100% of the share capital of Jumelles Limited ("Jumelles") subject to the then Xstrata Call Option (as defined below).

On 14 March 2011 the Company incorporated and acquired the entire share capital of Zanaga UK Services Limited for US$2, a company registered in England and Wales which provides investor management and administration services.

In 2007, Jumelles became the special purpose holding company for the interests of its then ultimate 50/50 founding shareholders, Garbet Limited ("Garbet") and Guava Minerals Limited ("Guava"), in Mining Project Development Congo SAU ("MPD Congo") which, owns and operates 100% of the Zanaga Project (the "Project") in the Republic of Congo (subject to a minimum 10% free carried interest in MPD Congo in favour of the Government of the Republic of Congo).

In December 2009 Garbet and Guava contributed their then respective 50/50 joint shareholding in Jumelles to the Company.

Garbet is majority owned by Strata Limited ("Strata"), a private investment holding company based in Guernsey, which specialises in the investment and development of early stage natural resource projects in emerging markets, predominately Africa. Garbet owns approximately 41.49% of the share capital of the Company.

Guava is majority owned by African Resource Holdings Limited ("ARH"), a BVI company that specialises in the investment and development of early stage natural resource projects in emerging markets. Guava owns approximately 31.83% of the share capital of the Company.

The balance of shareholding in the Company is predominantly held by a number of reputable institutional investors in the mining sector.

Jumelles has three subsidiary companies, namely Jumelles M Limited, Jumelles Technical Services (UK) Limited and MPD Congo.

Xstrata Transaction

On 16 October 2009, Garbet and Guava and Jumelles entered into a transaction with Xstrata (Schweiz) AG (on 3 December 2009, Xstrata (Schweiz) AG was substituted by Xstrata Projects (pty) Limited ("Xstrata Projects")), comprising of two principal transaction agreements (together the "Xstrata Transaction"):

·       a call option deed which gave Xstrata Projects an option to subscribe for 50% plus 1 share of the fully diluted and outstanding shares of Jumelles ("Majority Stake") in return for providing funding towards ongoing exploration of the Zanaga exploration licence area and a pre-feasibility study (the "PFS") subject to a minimum amount of US$50 million (the "Xstrata Call Option"). Under the terms of the Xstrata Call Option, the consideration payable by Xstrata Projects for the option shares that would be issued by Jumelles Limited would comprise (i) a commitment to fund all costs to be incurred by Jumelles Limited in completing a feasibility study on the Project (the "FS") (provided such amount shall be greater than US$100 million) or to carry out such a feasibility study at its own cost and (ii) payment of an amount (up to a maximum of US$25 million) equal to the amount that Jumelles Limited owes to Garbet and Guava as loans which would be used to repay the latter; and

·       a joint venture agreement which regulates the respective rights of the Company, Jumelles and Xstrata Projects in relation to Jumelles following exercise of the Xstrata Call Option and gives Xstrata Projects the right to purchase the Company's remaining 50% minus 1 share interest in Jumelles("Minority Stake") following completion of the FS and deals with the terms on which Jumelles will be funded following completion of the FS (the "JVA").

During 2010, the PFS progressed and following completion of Phase I of that study Xstrata Projects countersigned a further funding letter confirming in writing its agreement (subject to the provisions of the Xstrata Call Option) to contribute further funding and confirming its approval of the phase II work programme, budget and funding amount (up to US$56.49 million) as set out in that letter.

On 11 February 2011 Xstrata Projects exercised the Xstrata Call Option. Having repaid the founding shareholder loans, the outstanding elements of the Call Option price consideration are the completion of the Feasibility Study and costs thereof.

Relationship between Jumelles and its shareholders

The Company, Jumelles and Xstrata Projects agreed to regulate their respective rights in relation to the Project following exercise of the Call Option under the terms of the JVA. Under the terms of the JVA, all significant decisions regarding the conduct of Jumelles' business (other than certain protective rights which require the agreement of shareholders holding at least 95% of the voting rights in Jumelles) are made by the Board of Directors.

Each shareholder holding 15% or more of the votes in Jumelles has the right to appoint a director to the Board of that company. At any Board meeting, each such director will have such number of votes as represents the appointing shareholder's voting rights in the general meetings of Jumelles.

As a consequence, following exercise of the Xstrata Call Option (which completed on 11 February 2011), Xstrata Projects controls Jumelles at both a shareholder and director level and therefore controls what was the Company's sole mineral asset, the Project, and going forward the Company has a strategic partnership in respect of the Project with Glencore Xstrata.

Following exercise of the Xstrata Call Option, the principal business of the Company has comprised managing its 50% less one share interest in the Project and monitoring both the finalisation of the pre-feasibility study and the preparation of the feasibility study.

In addition, under the terms of the JVA, following exercise of the Xstrata Call Option, Xstrata Projects has the right to require all the other shareholders in the Company to sell their shares to Xstrata Projects, at an agreed cash price or price based on net present value, for a period of 90 days following completion of the FS. Therefore Xstrata Projects could elect to acquire 100% of the Project following completion of the FS. The JVA has provisions governing how any dispute as to the price to be paid would be resolved. The exercise of this right is not subject to the approval of the Company's shareholders.

Future funding requirements 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 Xstrata's exercise of its First Call Option, and implementation of the JVA, Glencore Xstrata is obliged to fund the costs of a FS in accordance with international best practice and its internal guidelines. Glencore Xstrata must use reasonable efforts to deliver the FS no later than three months prior to the expiration of the licences in August 2014, subject to there being no material adverse change. Under the Republic of Congo Mining code, after its initial three-year period, an exploration licence is permitted two extensions of two years, each of which are renewable upon request. The application for the second extension of the Zanaga exploration licences was submitted in March 2012 and the licence was duly renewed in August 2012. The cost of the Company's personnel and the technical experts appointed to monitor the Company's investment in the Project are the only significant expenditures currently envisaged during the period of the FS work programme and the Company has significant cash resources available. In the circumstances, 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 acquired the Company's interest in Jumelles), 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.

Basis of preparation

These financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted by the European Union ("Adopted IFRS"). Adopted IFRS comprises standards and interpretations approved by the International Accounting Standards Board ("IASB") and the International Financial Reporting Interpretations Committee ("IFRIC") as adopted by the European Union.

The financial statements consolidate those of the Company and its subsidiary Zanaga UK Services Limited (together, the "Group") and the Company's investment in an associate which is accounted for using the equity method.

New standards, amendments and interpretations

The following Standards and Interpretations were issued during the year, but were not effective at the balance sheet date:

·      Amendments to IAS 1 - Presentation of Items of Other Comprehensive Income

·      Amendments to IFRS 7 - Disclosures: Offsetting Financial Assets and Financial Liabilities

·      IFRS 10 - Consolidated Financial Statements

·      IFRS 11 - Joint Arrangements

·      IFRS 12 - Disclosure of Interests in Other Entities

·      IFRS 13 - Fair Value Measurement

·      IAS 19 - Employee Benefits

·      IAS 27 - Separate Financial Statements

·      IFRIC 20 - Stripping Costs in the Production Phase of a Surface Mine

·      Amendments to IAS 32 - Offsetting Financial Assets and Financial Liabilities

·      IFRS 9 - Financial Instruments

These standards have not been applied in preparing the financial statements for the year ended 31 December 2012.

It is not anticipated that the adoption of these standards will have any significant impact on the financial statements.

Measurement convention

These financial statements have been prepared on the historical cost basis of accounting.

The preparation of financial statements in conformity with Adopted IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.

Basis of consolidation

Subsidiaries

Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the financial statements from the date that control commences until the date that control ceases.

Associates

Investments in associates are recorded using the equity method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition changes in the Group's share of the net assets of the associate. The Group profit or loss and other comprehensive income includes the Group's share of the associate's profit or loss and other comprehensive income. The investment is considered for impairment annually.

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from the intra-group transactions, are eliminated in preparing the financial statements.

Foreign currency

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement.

Share-based payments

The Group makes equity-settled share-based payments to certain employees and similar persons as part of a long-term incentive plan ("LTIP"). The fair value of the equity-settled share-based payments is determined at the date of the grant and expensed, with a corresponding increase in equity, on a straight line basis over the vesting period, based on the Group estimate of the awards that will eventually vest, save for any changes resulting from any market-performance conditions.

Where awards are granted to employees of the Group's associate and similar persons, the equity-settled share-based payment is recognised by the Group as an increase in the cost of the investment with a corresponding increase in equity over the vesting period of the award. In equity accounting for the Group's share of its associate, the Group has accounted for the cost of equity settled share-based payments as if it were a subsidiary.

The shares to be issued under the LTIP are acquired by an Employee Benefit Trust which has to date subscribed for the shares at zero value. These shares are held by the Employee Benefit Trust until the vesting conditions have been met. Information on the share awards are provided in Note 11 to these financial statements.

Share-based payments to non-employees

Where the Group received goods or services from a third party in exchange for its own equity instruments and the amount of equity instruments is fixed, the equity instruments and related goods or services are measured at the fair value of the goods or services received and are recognised as the goods are obtained or the services rendered. Equity instruments issued under such arrangements for the receipt of services are only considered to be vested once provision of services is complete. Such awards are structured as standard share options.

Non-derivative financial instruments

Non-derivative financial instruments in the balance sheet comprise other receivables, cash and cash equivalents, and trade and other payables.

Other receivables

Other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses.

Trade and other payables

Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits.

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity.

Ordinary shares issued to the Employee Benefit Trust under the LTIP or to non-employees for services provided to the Company, are included within Share Capital.

When share capital recognised as equity is repurchased, the amount of consideration paid, including directly attributable costs, is recognised as a change in equity. Repurchased shares are cancelled.

Impairment

The carrying amounts of the Group's assets are reviewed at each balance sheet date to determine whether there is any indication of impairment; a financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. If any such indication exists, the asset's recoverable amount is estimated.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement.

Calculation of recoverable amount

The recoverable amount of the Group's investments and receivables carried at amortised cost is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (i.e. the effective interest rate computed at initial recognition of these financial assets). Receivables with a short duration are not discounted.

The recoverable amount of other assets is the greater of their fair values less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Reversals of impairment

An impairment loss in respect of a receivable carried at amortised cost is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised.

In respect of other assets, an impairment loss is reversed when there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount.

An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Expenses

Financing income and expenses

Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method.

Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised.

Segmental Reporting

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

Subsequent events

Post year-end events that provide additional information about the Group's position at the balance sheet date (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in the notes to financial statements when material.

3 Critical accounting estimates, assumptions and judgements

The Group makes estimates and assumption concerning the future that are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below.

Impairment of investment in associate

The value of the Group's investment in Jumelles depends very largely on the value of Jumelles' interest in the Project. Jumelles assesses at least annually whether or not its exploration projects may be impaired. This assessment can involve significant judgement as to the likelihood that a project will continue to show sufficient commercial promise to warrant the continuation of exploration and evaluation activities. The Board took particular account of the Glencore Xstrata merger and share price decline, and despite those factors, determined that there was still no indication of impairment.

Accounting for the Company's interest in Jumelles Limited

Significant judgement has been applied in arriving at the accounting treatment of the Group's interest in Jumelles. Though the exercise of the Xstrata Call Option on 11 February 2011 gave Xstrata Projects a shareholding of 50% plus one share, and then effective director level control of Jumelles, those shares are not considered to vest until provision of the services relating to the PFS and FS has been completed. Accordingly, the Group will continue to account for a 100% interest in Jumelles until the FS has been completed. Further details may be found under 'Investment in associate' Note 6b.

Upon completion of the FS the Company will account for a reduction in its interest in Jumelles to 50% less one share.

4 Note to the comprehensive income statement

Operating loss before tax is stated after charging/(crediting):

 

	2012	2011
	US$000	US$000
Share-based payments (see Note 11)	723	2,425
Net foreign exchange gain	(1,673)	(274)
Directors' fees	509	514
Auditor's remuneration	108	93
Depreciation	23	3

Other than the Company Directors, the Group directly employed five staff in 2012 (2011: 3). The Directors received US$509,000 remuneration for their services as Directors of the Group (2011: US$514,000). The amounts paid as Directors' fees are shown in the Directors' Remuneration Report on pages 28 to 29 of the annual report. The Directors' interests in the share capital of the Group are shown in the Directors' Remuneration Report on page 29 of the annual report.

5 Taxation

The Group is exempt from most forms of taxation in the BVI, provided the Group 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 are 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.

 

	2012	2011
	US$000	US$000
Recognised in other comprehensive income:
Current year	(47)	(28)
Reconciliation of effective tax rate
Loss before tax	(5,681)	(14,351)
Income tax using the BVI corporation tax rate of 0% (2011: 0%)	-	-
Effect of tax rate in foreign jurisdictions	(47)	(28)
	(47)	(28)

The effective tax rate for the Group is 0.8% (2011: 0.2%).

6a Property, Plant and Equipment

 

	Leasehold property	Fixtures	Total
	improvements	and fittings
	US$000	US$000	US$000
Cost
Balance at 1 January 2012	-	16	16
Additions	65	25	90
Balance at 31 December 2012	65	41	106
Depreciation
Balance at 1 January 2012	-	3	3
Charge for period	12	11	23
Balance at 31 December 2012	12	14	26
Net book value
Balance at 31 December 2012	53	27	80
Balance at 31 December 2011	-	13	13

Leasehold property improvements relate to 1 Albermarle Street, London. Property improvement costs are being amortised over five years to December 2016.

There are no assets held under finance leases or hire purchase contracts.

6b Investment in associate

 

	US$000
Balance at 1 January 2011	192,799
Additions	6,498
Share of post-acquisition comprehensive income	(16,320)
Balance at 31 December 2011	182,977
Balance at 1 January 2012	182,977
Additions	547
Share of post-acquisition comprehensive income	5,485
Balance at 31 December 2012	189,009

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 the year are due to US$515,000 of additional investment (2011: US$nil), funded jointly (50/50) with Xstrata, for the survey of an additional land area, and US$32,000 (2011: US$6,498,000) for the completion of LTIP awards made to employees of Jumelles. Though Jumelles acquired the non-exclusive prospecting licence for the additional land area, it does not form part of the existing ZIOC Glencore Xstrata joint venture agreement.

Since 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 the provision of the services relating to 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 31 December 2012, Jumelles had aggregated assets of US$266,467,000 (2011: US$200,396,000) and aggregated liabilities of US$8,915,000 (2011: US$37,461,000). For the year ended 31 December 2012 Jumelles incurred a loss before tax of US$733,000 (2011: US$1,305,000) which included costs of US$948,000 on the survey of the additional land area (2011: US$Nil) and income of US$393,000 from Xstrata Project Services (2011: US$Nil). There was no tax charge for 2012 (2011: US$Nil). Currency translation of the underlying Congolese asset generated a translation gain of US$6,250,000 (2011: Loss US$8,517,000). A summarised consolidated balance sheet of Jumelles Limited for the year ended 31 December 2012, including adjustments made for equity accounting, is included below:

 

	2012	2011
	US$000	US$000
Non-current Assets:
Property, plant and equipment	10,405	12,704
Exploration and other evaluation assets	241,498	166,815
Related party receivable from Xstrata Project Services	8,531	-
Intangible assets	45	145
Total non-current assets	260,479	179,664
Current Assets	5,988	20,732
Current Liabilities	(8,915)	(37,461)
Net current liabilities	(2,927)	(16,729)
Net assets	257,552	162,935
Share capital	9,593	9,561
Share option reserve	278,808	190,738
Capital contribution	1,030	-
Translation reserve	(2,319)	(8,569)
Retained earnings	(29,560)	(28,795)
	257,552	162,935

7 Other receivables

 

	2012	2011
	US$000	US$000
Prepayments	282	104

8 Cash

 

	2012	2011
	US$000	US$000
Cash and cash equivalents	40,383	45,047

9 Trade and other payables

 

	2012	2011
	US$000	US$000
Accounts payable	1,522	780
Amounts payable to the Jumelles group	78	85
UK Corporation Tax	47	27
	1,647	892

The net amount payable to the Jumelles group comprises US$25,000 payable to Jumelles Limited (2011: US$64,000) and US$53,000 payable to Jumelles Technical Services (UK) Limited (2011: US$21,000). No amounts payable are due in more than 12 months (2011: US$nil).

10 Share capital

 

In thousands of shares	Ordinary Shares	Ordinary Shares
	2012	2011
On issue at 1 January - fully paid	280,416	280,416
Shares repurchased and cancelled	(639)	-
On issue at 31 December - fully paid	279,777	280,416

The Company is able to issue an unlimited number of no par value shares. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. No dividends have been paid or declared in the current year (2011: US$nil).

Share capital changes in 2012

There were no new shares issued in 2012.

A share buy-back programme was initiated in October 2012 and at 31 December 2012 a total of 639,000 shares had been repurchased and cancelled. A further 1,000,000 shares were repurchased and cancelled in January 2013.

11 Share-based payments

Employees

As stated under Note 2 above the Group has implemented a LTIP in order to recruit and retain key officers and employees of the Group and the Group's associate. For all key management personnel, the LTIP is structured as a split interest scheme. On the date of the award, the employee and the Employee Trust enter into an agreement to acquire shares as joint owners with the employee's proportion of ownership of each share being 0.001% of the total value up to a given hurdle and 99.999% of the total value above the hurdle. The hurdle is determined on advice of the Remuneration Committee. The employee will pay the market value for his joint ownership of the shares. If the vesting conditions are not met, the employee forfeits joint ownership of the shares. If the award meets the vesting conditions, the employee has the right to exercise the option and become the sole owner of the shares. The Group has also granted a number of awards of share options to middle management. Under these awards the Trust grants the employee the right to acquire shares if certain vesting conditions are achieved. The employee is not required to pay an exercise price for these shares.

Three sets of separate awards were made on 18 November 2010, each having several different vesting conditions. These vesting conditions have now been satisfied and, as a result, all of these awards have fully vested.

A fourth set of awards was made in the current year on 2 March 2012, subject to the vesting conditions under Award 4 below.

There are specific provisions that apply to all awards in respect of takeover and corporate transaction provisions and provisions relating to cessation of employment or ceasing to provide services.

 

Award 1 (fully vested)

These awards vested on the publication of the results of the VEE, which was achieved in October 2011.

Award 2 (fully vested)

These awards fully vested in 2012 on the expiry of two years following Admission.

Award 3 (fully vested)

These awards fully vested in 2012 on the expiry of two years following Admission.

Award 4

Structured as standard share options, these awards vest on completion of the Bankable Feasibility Study being the completion of a detailed report showing the economic feasibility of the Mining Licences to the satisfaction of the Board prior to 31 May 2014.

The application of the vesting criteria is subject to the discretion of the board of directors.

It is currently expected that the awards will vest in full.

	Award 1 (2010)		Award 2 (2010)		Award 3 (2010)		Award 4 (2012)		Total
	Weighted		Weighted		Weighted		Weighted		Weighted
	Average		Average		Average		Average		Average
	Exercise Price		Exercise Price		Exercise Price		Exercise Price		Exercise Price
	(£)	Number	(£)	Number	(£)	Number	(£)	Number	(£)	Number
At 1 January 2011	£0.02	4,260,235	£0.02	995,382	£1.58	199,076	N/A	Nil	£0.08	5,454,693
At 31 December 2011 *	£0.02	4,260,235	£0.02	995,382	£1.58	199,076	N/A	Nil	£0.08	5,454,693
	(US$0.03)		(US$0.04)		(US$2.45)				(US$0.12)
At 1 January 2012 *	£0.02	4,260,235	£0.02	995,382	£1.58	199,076	N/A	Nil	£0.08	5,454,693
	(US$0.03)		(US$0.04)		(US$2.45)		N/A		(US$0.12)
Granted	N/A	Nil	N/A	Nil	N/A	Nil	£1.02	800,000	£1.02	800,000
Forfeited	N/A	Nil	N/A	Nil	N/A	Nil	N/A	Nil	N/A	Nil
Exercised	0.01	(856,031)	N/A	Nil	N/A	Nil	N/A	Nil	0.01	(856,031)
Lapsed	N/A	Nil	N/A	Nil	N/A	Nil	N/A	Nil	N/A	Nil
At 31 December 2012 *	£0.02	3,404,204	£0.02	995,382	£1.58	199,076	£1.02	800,000	£0.23	5,398,662
	(US$0.03)		(US$0.04)		(US$2.45)		(US$1.64)		(US$0.36)

 

	Award 1 (2010)	Award 2 (2010)	Award 3 (2010)	Award 4 (2012)	Total
Range of exercise prices *	£0.00-£0.02 (US$0.00-US$0.03)	£0.02 (US$0.04)	£1.58 (US$2.45)	£1.015 (US$1.61)	£0.00 - £1.58 (US$0.00-US$2.45)
Weighted average fair value of share awards granted in the period *	N/A	N/A	N/A	£0.39 ($0.61)	£0.39 ($0.61)
Weighted average share price at date of exercise (£)	£0.98	N/A	N/A	N/A	£0.98
Total share awards vested	3,404,204	995,382	199,076	Nil	4,598,662
Weighted average remaining contractual life (Days)	Nil	Nil	Nil	516	516
Expiry date	16 Nov 2020 **	16 Nov 2020	16 Nov 2020	2 Mar 2017	N/A

*          Sterling amounts have been converted into US Dollars at the grant dates exchange rates of: Awards 1,2,3 US$1.547:£1.00 and Award 4 US$ 1.5835:£1.00.

**         Excepting one leaver with 676,859 share options expiring 10 October 2013.

 

The following information is relevant in the determination of the fair value of options granted during 2010 and 2012 which has applied option valuation principles during the year under the above equity-settled schemes:

 

	Award 1 (2010)	Award 2 (2010)	Award 3 (2010)	Award 4 (2012)
Option pricing model used	Black-Scholes	Black-Scholes	Black-Scholes	Black-Scholes
Weighted average share price at date of grant	£1.56  (US$2.41)	£1.56 (US$2.41)	£1.56 (US$2.41)	£1.03 (US$1.64)
Weighted average expected option life	0.7 years	1.0 years	1.5 years	4.0 years
Expected volatility (%)	50%	50% for less than	50% for less than	47%
		1 year expected life,	1 year expected life,
		55% for more than	55% for more than
		1 year expected life	1 year expected life
Dividend growth rate (%)	Zero	Zero	Zero	Zero
Risk-free interest rate (%)	0.51% for	0.69% for	0.69% for	0.708%
	6 month expected life	12 month expected life	12 month expected life
	0.69% for	1.12% for	1.12% for
	12 month expected life	24 month expected life	24 month expected life

*               Sterling amounts have been converted into US Dollars at the grant dates exchange rates of: Awards 1,2,3 US$1.547:£1.00 and Award 4 US$ 1.5835:£1.00.

The volatility assumption is measured by reference to the historic volatility of comparable companies based on the expected life of the option.

Non-employees

The Company has also granted awards of share options in respect of consultancy services provided by Strata Capital UK LLP:

Share option award grant date	Weighted average share price at date of grant *	Weighted average fair value of share awards *	Weighted average expected life of option	Expiry date	Other LTIP terms, valuation model and assumptions applicable
17 November 2010	£1.56 (US$2.54)	£0.39 (US$0.63)	1.4 years	16 Nov 2020	Award 3 above
2 March 2012	£1.03 (US$1.64)	£0.37 (US$0.58)	4.0 years	1 Mar 2017	Award 4 above

*          Sterling amounts have been converted into US Dollars at the grant dates exchange rates of: Awards 1,2,3 US$1.547:£1.00 and Award 4 US$ 1.5835:£1.00.

 

The total equity-settled share-based payment expense recognised as an operating expense during the year was US$723,000 (2011: US$2,425,000), of which US$345,000 (2011: US$2,268,000) related to the Directors, US$182,000 related to employees of the group (2011: US$nil), and US$196,000 (2011: US$157,000) related to consultancy services provided by Strata Capital UK LLP. Further details of share-based payments awarded to Directors of the Group can be found in the Remuneration Report on page 29 of the annual report.

The total charge during the year for equity-settled share-based payments awarded to employees of companies in which the Group has a significant interest totals US$32,000 (2011: US$6,498,000) and has been added to the cost of investment in those companies.

12 Loss per share

 

	2012	2011
Loss (Basic and diluted) (US$,000)	(5,728)	(14,379)
Weighted average number of shares (thousands)
Basic
Issued shares at beginning of period	280,416	280,416
Effect of shares issued	-	-
Effect of share repurchase and cancellation	(87)	-
Effect of own shares	(4,988)	(5,574)
Effect of share split	-	-
Weighted average number of shares at 31 December - basic	275,341	274,842
Loss per share (Cents)
Basic and diluted	2.1	5.2

There are potential ordinary shares outstanding, refer to Note 10 and 11 for details of these potential ordinary shares.

13 Financial instruments

Fair values of financial instruments

Other receivables

The fair value of other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date if the effect is material. The fair values approximate book values.

Trade and other payables

The fair value of trade and other payables is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date if the effect is material. The fair values approximate book values.

Cash and cash equivalents

The fair value of cash and cash equivalents is estimated as its carrying amount where the cash is repayable on demand. Where it is not repayable on demand then the fair value is estimated at the present value of future cash flows, discounted at the market rate of interest at the balance sheet date.

Financial Risk Management

The Group's activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (comprising currency risk and interest rate risk). The Group seeks to minimise potential adverse effects of these risks on the Group's financial performance. The Board has overall responsibility for managing the risks and the framework for monitoring and coordinating these risks. The Group's financial risk management policies are set out below:

(a) Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group receivables related parties. The Group has a credit policy in place and exposure to credit risk is monitored on an ongoing basis. At 31 December, the financial assets exposed to credit risk were as follows:

 

	2012	2011
	US$000	US$000
Cash and cash equivalents	40,383	45,047

(b) Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its obligations as they fall due. The Group evaluates and follows continuously the amount of liquid funds needed for business operations, in order to secure the funding needed for business activities and loan repayments. The availability and flexibility of the financing is needed to assure the Group's financial position. The Group funding requirements are detailed in Note 1.

Details of the maturity of financial liabilities are provided in Note 9.

(c) Market risk

(i) Foreign currency risk

The foreign currency denominated financial assets and liabilities are not hedged, thus the changes in fair value are charged or credited to profit and loss.

As at 31 December 2012 the foreign currency denominated assets include cash balances held in sterling of US$34,671,000 (2011: US$38,746,000), other receivables denominated in sterling of US$282,000 (2011: US$102,000), and payables of US$585,000 (2011: US$768,000) denominated in sterling.

The following significant exchange rates applied during the year:

 

		Reporting date		Reporting date
	Average rate	spot rate	Average rate	spot rate
	2012	2012	2011	2011
Against US Dollars	US$	US$	US$	US$
Pounds Sterling	1.5852	1.6255	1.604	1.554

Sensitivity analysis

A 10% weakening of the following currencies against the US Dollar at 31 December 2012 would have increased (decreased) equity and profit or loss by the amounts shown below. This calculation assumes that the change occurred at the balance sheet date and had been applied to risk exposures existing at that date.

This analysis assumes that all other variables, in particular other exchange rates and interest rates, remain constant.

 

	Equity	Profit or loss	Equity	Profit or loss
	2012	2012	2011	2011
	US$000	US$000	US$000	US$000
Pounds sterling	(3,437)	(3,437)	(3,814)	(3,814)

A 10% strengthening of the above currencies against the US Dollar at 31 December would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

Capital management

The Board's policy is to maintain a strong capital base so as to maintain investor and market confidence. Capital consists of share capital and retained earnings.

The Directors do not intend to declare or pay a dividend in the foreseeable future but, subject to the availability of sufficient distributable profits, intend to commence the payment of dividends when it becomes commercially prudent to do so.

The Company has a LTIP which is administered by the Remuneration Committee. The LTIP is discretionary and the Remuneration Committee will decide whether to make share awards under the LTIP at any time. Either the Group Employee Benefit Trust buys the shares in the Company to be issued under the LTIP or, share options awards are made direct to individuals as appropriate.

14 Commitments

The Group had no capital commitments or off-balance sheet arrangements at 31 December 2012 (31 December 2011: nil).

15 Related parties

The Group's relationships with Jumelles and Glencore Xstrata are described in Note 1 above.

The following transactions occurred with related parties during the period:

 

	Transactions for the period		Closing balance
	2012	2011	2012	2011
	US$000	US$000	US$000	US$000
Intercompany payable Jumelles Limited	(39)	234	25	64
Intercompany payable Jumelles Technical Services UK Limited	32	(17)	53	21
Harris GeoConsult Ltd	308	131	48	-
Strata Capital UK LLP	780	52	5	5
Funding to Jumelles Limited	515	-	515	-

In addition to the transactions above, the Group has also issued share options to Strata Capital UK LLP. Details of these options can be found in Note 11.

Transactions with key management personnel

 

	2012	2011
	US$000	US$000
Share-based payments	345	2,268
Directors' fees *	509	514
Total	854	2,782

*               Harris GeoConsult Ltd, a company in which Colin Harris has a controlling interest, was paid a total of £193,000 (US$308,000) for consultancy services provided by Colin Harris during 2012 (2011: £131,000 US$205,000).

Strata Capital UK LLP, a limited liability partnership in which Michael Haworth has a significant interest, was paid a total of £311,000 (US$497,000) for consultancy services provided by Michael Haworth during 2012 (2011: £104,000 US$162,000).

The Directors have no material interest in any contract of significance subsisting during the financial year, to which the Group is a party.