TIDMAMI
RNS Number : 0045T
African Minerals Ltd
30 September 2014
30 September 2014
African Minerals Limited
("African Minerals", "AML", or "the Company")
Financial Results for the Half Year ended 30 June 2014
African Minerals, the developer and operator of the Tonkolili
iron ore mine in Sierra Leone, today announces its financial
results for the six months ended 30 June 2014.
Operational Highlights H1 2014
-- Total production of 9.8Mt (H1 2013 : 6.2Mt) of Direct Shipping Ore ("DSO")
-- Total exports of 8.9Mt (H1 2013 : 5.5Mt) of DSO
-- Average freight rate of $23/t (H1 2013 : $18/t)
-- Average FOB received price of $49/t (dry) (H1 2013 : $77/t)
-- Average C1 cash costs of $39/t (H1 2013 : $43/t)
Financial Highlights H1 2014
-- EBITDA of $2.7m (H1 2013 : $100.0m)
-- Revenue of $399.2m (H1 2013 : $404.8m), operating loss $85.1m (H1 2013 : $18.3m)
-- Profit for the period $8.7m (H1 2013: loss $29.3m)
-- Group cash (at 30 June 2014) of $331.8m ($314.0m restricted)
-- Net debt (at 30 June 2014) of $458.8m ($473.3m at 31 December 2013)
Post Period
-- Establishment of de-sliming circuits, with the first
currently being commissioned, which will remove production of All
in 32 ("A32") and create all year round shippable products with
lower moisture content, significantly enhancing the operating
margin on DSO material
-- Commissioning of 1G plant completed, and ramp up currently
underway which will take production capability up to 25Mtpa
-- Friable hematite production expected to commence by end 2015,
ramping up to 11Mtpa of 63% Fe concentrate, displacing the same
amount of DSO
-- Concentrator will be based on the conversion of the existing
plant 1B which is expected to cost c$311m (+/-25%); Concentrate
product expected to have a significantly increased margin versus
the DSO that it replaces
-- Appointment of Alan Watling as CEO
-- Working capital and operational shortfalls funded from
Project (Hong Kong) funds, with $142m already released, and a
further $101m approved to be released in October
-- Management review of project economics concludes that the
project is expected to be cash flow positive, even in the current
depressed iron ore environment, by year end
-- The Company and Project continue to assess appropriate
options to address the medium and long term funding requirements
from a strong operational base
Production Guidance
-- Operations remain stable throughout Q3, despite wet season and Ebola outbreak
-- Q3 exports of 4.4Mt shipped with 25 vessels sailed, brings
year to date total to 13.3Mt (Q1 4.6Mt in 26 ships; Q2 4.3Mt in 25
ships)
-- Export guidance reiterated of 16-18Mtpa for full year 2014,
with C1 cash costs in the range $34-36/t
-- Provision of new export guidance for 2015: 21-23Mt for the
year, with C1 cash cost of under $30/t
-- Exit run rate for 2015 of 25Mtpa, with exit cash cost target of $25/t
Frank Timis, Executive Chairman, said:
We are pleased that the Tonkolili mine, plant, rail, port and
marine project continues to perform well and in line with guidance.
However, despite strong operating performance, the business has
been slow to react to the fast moving challenging circumstances in
the iron ore market. The financial gains of Q1 have been largely
depleted in Q2, with continuing operational level losses putting
significant strain on the balance sheet.
Traversing market and operational impacts will be a priority
during the months ahead. With our new 1G plant already in
production and de-sliming circuits now in the process of being
commissioned, we expect to reap the benefits shortly from higher
production rates, lower operating costs, and better revenue
capture.
We are also committed to executing the low capital cost friable
hematite strategy as soon as possible which will provide another
layer of strong operating margin, even above the base DSO
production.
The devastating Ebola Virus Disease outbreak, which thankfully
has not directly affected our people or our operations, remains a
grave concern which we are monitoring closely.
The return of Alan Watling as CEO is a breath of fresh air at a
pivotal juncture and his deep understanding of the current economic
and health situation and in particular the specific needs of the
Company gives myself and the Board great confidence. We are
focussed on driving our project quickly up to the 25Mtpa operating
level, targeting globally competitive cash costs of $25/t, and
ensuring that the project is profitable - even in its DSO stage and
at current five-year low iron ore prices.
We are absolutely focussed on ensuring the financial health and
strength of both the operating companies and African Minerals
Limited on a long term basis. We continue to evaluate all options
available and have engaged Standard Chartered Bank and Jefferies as
our advisers to help us with this process. This will inevitably
require the support of all of our stakeholders, including our debt
and convertible bond holders, who we acknowledge have provided
significant help in allowing us to develop the Company to its
current operating level. We will continue to update the market as
we progress our plans in this regard.
Contacts:
African Minerals Limited
+44 20 3435 7600
Mike Jones
Tavistock Communications
+44 20 7920 3150
Jos Simson / Nuala Gallagher/ Mike Bartlett
Jefferies
+44 20 7029 8000
Nick Adams / Alex Collins
About African Minerals
African Minerals operates the Tonkolili Iron Ore Project (the
"Project") in Sierra Leone, with a JORC compliant resource of 12.8
Bt. The multi-generational Project is being developed in a number
of staged expansions. In 2013, African Minerals completed sales of
12.1 Mt to its customers. The current year sales guidance is for
16-18 Mt of exports.
Phase II expansion will see exports increase to 25 Mtpa, and
will incorporate production of a high grade concentrate product.
Concentrate production is expected to begin by the end of 2015 and
will eventually displace current DSO production as concentrate
volumes increase and the DSO resource depletes over time.
The Company has also developed significant port and rail
infrastructure to support the operation of the Project, via its
subsidiary African Rail and Port Services (SL) Limited ("ARPS"), in
which the Government of Sierra Leone ("GoSL") has a 10% free
carried interest.
The Project companies are currently owned 75% by AML, and 25% by
Shandong Iron and Steel Group ("SISG"), except for ARPS, which is
currently owned 75% by AML and 25% by SISG, with the GoSL having
the right to a 10% free carried interest from AML.
www.african-minerals.com
Executive Chairman Comment
2012 was seen as the year of "delivery" for Tonkolili, with
capital construction completed and the ramp up to the initial
20Mtpa run rate started in earnest. 2013, by contrast, was seen as
the year to "de-risk" the Project, removing operational volatility
and stabilising our production and costs.
Our previously communicated plans for the growth of the Company
have, of course, been based on the growth of the Tonkolili Project
in three stages: To stabilise the operation at the 20Mtpa run rate,
with cash costs at $30/t; To expand our Direct Shipping Ore ("DSO")
production to 25Mtpa with costs reducing further, and; To begin to
move into the higher value friable hematite production phase of our
ore body, maintaining export levels and further improving margins,
while considering the appropriateness of further expansion.
The first part of that strategy was to end the current year at a
20Mtpa run rate of production, and to export 16-18Mt during the
year. H1 saw the project ship 8.90Mt of product in 51 Ocean Going
Vessels ("OGVs") - a monthly average of 1.48Mt and 8.5 OGVs per
month.
July saw us ship nine vessels, we shipped seven vessels in
August and that production level has been remarkably stable even
over the peak of the wet season, and in September we have again
shipped nine vessels, thereby maintaining our export run rate and
keeping production firmly on track within our guidance. In Q3 2014
we have shipped 4.4Mt, and our year to date exports are 13.3Mt.
The second part of the strategy is to continue to expand DSO
exports to 25Mtpa, while further driving costs down and improving
revenues. That part of the strategy is now well in hand, and will
be discussed further by our CEO in the statement below.
The third part of our strategy will see our margin continue to
expand as we enter into the friable hematite part of the ore body,
and start to produce a high value concentrate. The friable hematite
concentrate component of our production profile will also enable
the Company to consider exporting to exciting new markets in Japan,
Korea and Europe, which would carry additional freight benefits
too.
With full support from the Board, this three-part strategy will
see Tonkolili established over the medium and long term as a high
margin, low cost operation for decades to come, generating
significant cash flow in all foreseeable iron ore price
environments.
With a planned near term return to a cash flow positive
underlying operation - even in the current depressed iron ore
environment - the appropriate longer term funding requirements of
the Project and Company are now a key focus.
Absent a substantial increase in the iron ore price, it is
unlikely that the operating companies will be in a position to pay
dividends to the Company and Shandong during 2015. Accordingly, we
have commenced a review to secure additional cash resources and to
reduce expenditure throughout the Group. Furthermore, we continue
to evaluate opportunities regarding optimising our debt structure
throughout the Group which includes re-profiling and refinancing of
our current debt facilities at both Project and Company,
consideration of minority sale at the asset level, and by other
means, and in particular looking to address the level of interest
payments on our PXF facility and to our convertible bond holders
during 2015 and beyond. To that end, Standard Chartered Bank is
leading a debt refinancing mandate at the operating company level,
while Jefferies is leading a capital markets and restructuring
mandate at African Minerals level.
The health and safety of our people remains of utmost importance
to us all. I am pleased to report that the first half of the year
continued to show a decline in lost time injuries. We acknowledge
that they are still too high, and while we continue to improve
them, we are also pleased that our efforts toward long term
intervention in malaria prevention - still the biggest fatal
disease in Sierra Leone - continues to bear fruit.
Ebola has, most regrettably, become a watchword in West Africa
since the initial outbreak of the disease in Guinea, in February.
The severity of the situation has mobilised the world to action,
led by health institutions including the World Health Organisation,
Médecins Sans Frontières, the International Red Cross, Centre for
Disease Control and others. More recent interventions by the World
Bank and by various sovereign states including the USA, United
Kingdom and China also seek to bring the outbreak to a necessary
conclusion. The news that vaccines will soon be more widely
available brings comfort and hope, but precautions being put in
place throughout the region will no doubt remain in place for some
time to come. We pray for a swift resolution.
Throughout all of this, the Government of Sierra Leone has shown
strong support, both to its people and its industrial institutions.
We thank the Government and People of Sierra Leone for their
resilience and fortitude.
Our operations continue to benefit from the support of our
industrial partners, Shandong Iron and Steel Group and China
Railway Materials Commercial Corporation. These entities are
together responsible for purchasing 72% of our sales tonnage in H1
2014. Their support, and particularly that of Shandong, has allowed
us to weather the storms of this historically low iron ore price
environment.
We are resolutely focused on returning the project to
operational profitability, and with that as a strong foundation,
ensuring the balance sheet meets the needs of both the Project and
the Company more appropriately. That process is likely to take
several months, but I am delighted to welcome Alan Watling back to
African Minerals as our CEO to oversee these challenging but
exciting steps.
Chief Executive Officer comment
I am delighted to return to the Project and to the Company.
Tonkolili is an inherently high quality project, with the
ability to become one of the lowest cost iron ore operations in the
world. The exclusive use port and rail, minimal stripping ratio,
minimal processing and proximity to the coast are but a few among a
multitude of individual elements that any iron ore developer would
be pleased to have in their projects. Over and above that, we have
a deposit that will generate products of improving quality over
time, which is a clear benefit at a time of a declining iron ore
price.
The Project is performing well and in line with the best of our
previous expectations, but the environment around us has changed.
We need to react quickly to reduce costs, improve export volumes
and improve revenue capture so that we can get back onto a sound
financial footing as soon as possible.
The iron ore price has been weak through Q2 and Q3, which has
seen realised prices drop considerably. The benchmark TSI 62% index
has dropped from $135.38 per tonne at the start of the year, to a
current low of $79.25, and is continuing to set new five year lows.
The Platts 58% index, against which our product is priced, has
dropped from $115.25 to $63.25 over the same time period.
Historically the Platts 58% index has traded at around 88% of the
TSI 62% price, and despite widening at times to a discount of up to
25% against the 62% price, the current Platts price reflects a 20%
discount, and we expect the differential to tighten back to its
historic level.
With record levels of iron ore stockpiles at Chinese ports and
seasonally disappointing steel demand, I believe we must be
prepared for weakness for some time yet, although consensus for the
62% index remains around $100/t for 2015 and 2016, reflecting an
anticipated $20/t improvement in price in the medium term.
To mitigate the weakness of prices and expectation that this
will continue in the near term, the Group continues to focus on
cost saving initiatives, actively manage working capital, and
capturing more of the available revenue through enhanced product
management.
As a result of this decline of over $50/t in the benchmark price
since the start of the year, operational cash flow at the project
level has deteriorated significantly. It will come as no surprise
that since April the project has suffered net cash outflows.
The next few months are expected to deliver a substantial
improvement in both costs and revenues, as follows:-
-- revised contract terms with several key suppliers are currently being implemented;
-- continued focus on increasing export volumes which will dilute fixed costs per tonne;
-- ramp up of the new +9Mtpa 1G processing plant, allowing the
Project to de-commission three smaller, more costly plants;
-- establishment of de-sliming circuits to service our 1B, 1D
and, thereafter, 1G plants which will eradicate the All in 32
product and its associated discounts;
-- de-sliming circuits will also decrease moisture levels and
freight rates, increase the number of dry tonnes sold, and
significantly reduce our re-handling volumes currently associated
with stockpiling and drying activities;
-- increasing the number of vessels that the Project charters
itself and sells on a CFR basis, reducing equivalent freight rates
as compared to FOB pricing;
-- negotiating improved sales terms, specifically incorporating
a premium for our sought after low-silica product
We are confident that these strategies will be executed
successfully and allow the Tonkolili project to return to positive
cash flows from the end of the Year. However, in the interim we are
preparing for continuing operating losses.
In support of these plans, and in line with the commitments made
in August 2014, $142m has already been drawn down from the
Project's Hong Kong funds (which totalled $284m at the end of June
2014), and has been used primarily for working capital purposes.
The Board of the Project Companies has approved the draw down of a
further $101m in October for further essential payments, including
to fund the approved cost reduction initiatives, to finance working
capital and to cover operating losses and debt repayments until the
Project becomes cash flow positive. Shandong continues to be
incredibly supportive of the Project and absolutely focussed, as am
I, on ensuring the ongoing success of the Project.
I am very excited by the opportunities that we have to make an
immediate impact on further improving the Project's economics.
Building on the de-bottlenecking of the infrastructure that was
achieved in the first half, the establishment of the 1G process
facility will allow us to match production capability with export
capability of 25Mtpa. The executive and operating teams have
already enumerated significant cost savings, and we expect to be
able to reduce cash costs to our $25/t target when exports achieve
25Mtpa run rate, expected in H2 2015. With planned reductions
across our corporate costs, too, we expect our all-in cost to drop
to circa $33/t, an improvement of around $15/t over the current
situation.
The de-sliming plants will allow us to simplify our product mix
at the same time as reducing moisture thus simplifying our wet
season strategy. In 2015, with these systems fully operational
across all of our three process plants, the wet season strategy
should ensure our operating performance is no different to that of
the dry season. Lower moisture levels and the eradication of A32
and blend products should drive an improvement in our revenue
capture by up to $5/t in 2015. We also expect considerable benefit
from our negotiations with our customers to suspend discounts and
capture a low silica premium.
I am confident that with these measures in place, and a net
improvement in margin of in excess of $20/t, the Project will
comfortably operate with positive cash flow, even in the current
depressed iron ore environment - and that is before the
game-changing establishment of the concentrator phase of our
operations, which we expect to commence production by year end
2015. The establishment of the first friable hematite concentrator
will see 11Mtpa of DSO being replaced by the same tonnage of
premium +63% clean concentrate, attracting over $25/t (at current
prices) more revenue than the DSO that it replaces, with only
modest additional costs of around $10/t.
Our product remains in strong demand, largely by virtue of its
excellent blending characteristics as a result of its low silica
content. The original sales contracts put in place in 2010 did not
recognise this benefit and are instead somewhat discounted for high
alumina. During this year, Platts started to publish its assessment
of the value of various penalties and bonuses for various elements
in iron ore products, and we now believe that our DSO product
indeed justifies a premium.
The Board of the Project Companies has resolved that a revenue
enhancement strategy should be pursued, such that all future
shipments (after those for which ships are already confirmed)
should be sold at a fair market price. To that end, supported by
Shandong as the principal offtaker, we will be communicating with
our customers not only to temporarily defer the current price
influencing factors (including, but not limited to, discounts,
agency fees, marketing fees, freight subsidies, etc), but also to
require a premium for the low silica nature of our DSO product.
The Group continues to closely monitor the Ebola Virus Disease
outbreak and has taken several steps to mitigate the effect of the
disease within the workforce including movement restrictions,
enhanced hygiene and food controls, access control, temperature
monitoring, workforce and community education etc. as well as
active support for the various emergency and government
institutions. No cases have been suspected or confirmed at the
Group's sites, and the Group continues to operate normally across
the mine, plant, rail, port and marine operations.
One of the key concerns for our employees and contractors is
that exit routes for expatriates become compromised - as evidenced
by the withdrawal of all major international commercial airlines
with the noted exception of Air Brussels - and as a result we have
permanently chartered suitable aircraft to continue to manage
staff-rostering, irrespective of commercial airline schedules, with
utmost regard for safety.
I am confident that, with the continued support of all of our
stakeholders, the Project will return to profitability in the near
term, and that will create a firm foundation for an appropriate
holistic refinancing of both the Project and the Company. 2014
remains on track to show a circa 50% improvement in exports over
2013. 2015 should see significant further growth, and I expect that
we will be able to once more report a c30% improvement in exports
year-on-year as we end 2015.
African Minerals Limited
Interim Results
6 Months to June 30 2014
REVIEW OF THE BUSINESS
Operations Update
Safety
Lost Time Injuries at the Tonkolili project continued to trend
down, with 10 in Q1 and seven in Q2, for a total of 17 lost time
injuries in the first half of 2014. Medical treatment injuries also
fell from 36 in Q1 to 29 in Q2 and the rolling All Injury Frequency
Rate fell from 1.45 injuries per 200,000 man hours as at the end of
2013, to 1.27 at the end of H1 2014.
The Group remains focussed on the reduction of malaria infection
rates. Malaria incidences continue to trend downwards; H1 2014
reported 292 incidences compared to 898 in H1 2013.
Production
H1 production continued the strong growth of the second half of
2013. DSO ore mined was 12.1Mt, 64% up from the same period last
year. Other material mined, including for the first time 0.5Mt of
waste, was 2.8Mt, up 122%. The earthmoving rate in H1 was 30Mtpa,
with a total of 15.0Mt moved in the half year, an activity level
73% higher than H1 2013.
12.5Mt of ore was processed in H1 2014 (H1 2013 : 7.0Mt),
creating 3.8Mt of lump (H1 2013: 1.7Mt), 3.5Mt of fines (H1 2013 :
2.3Mt), and 2.5Mt of A32 (H1 2013 : 2.3Mt) for a total of 9.8Mt (H1
2013 : 6.2Mt) to a total mass yield of 78% (H1 2013 : 87%). This
mass yield is expected to improve and remain over 80% with the
addition of the de-sliming circuits during Q3.
In H1 2014 a total of 9.5Mt of product was railed from the mine
to the port (H1 2013 : 5.4Mt) despite a number of planned closures
for maintenance and upgrading of the rail, including curve
straightening, bridge strengthening, and the creation of additional
lay-bys and loops.
The port loaded 9.1Mt of product onto the transhipping vessels
(H1 2013 : 5.5Mt) and onto 52 ocean going vessels ("OGVs"). Due to
timing of bills of lading, 8.9Mt in 51 OGVs have been recognised
for revenue in H1 2014.
Exports
Of the material exported during the period, 1.1Mt was lump,
1.8Mt was fines, and 6.0Mt (67%) was A32 and lump blend, which
carries an additional reprocessing charge for our customers. This
proportion was down slightly from 69% recorded in H1 2013. In June
2014 only one OGV was loaded with A32 or blend material,
representing just 12% of June's tonnage.
H1 2014 H1 2013 Var % / bps
MINING
Tonnes DSO Ore Mined Mt 12.1 7.4 64%
Tonnes Other Material
Mined Mt 2.8 1.2 122%
Grade DSO Ore Mined % 57.6 57.5 0.1
Total Mined Mt 15.0 8.7 73%
PROCESSING
Tonnes DSO Ore Treated Mt 12.5 7.0 78%
Grade DSO Ore Treated % 57.7 57.6 0.1
Total DSO Produced Mt 9.8 6.2 58%
End of Period Product Mt at
Stockpile mine 2.0 2.4 -19%
EXPORT
Total Exported (Wet) Mt 8.9 5.5 61%
Lump Mt 1.1 0.2
Fines Mt 1.8 1.6
A32 Mt 5.4 2.4
Blend Mt 0.6 1.4
Grade % 57.7 58.1 -0.4
Moisture % 10.3 11.0 -0.7
Total Exported (Dry) Mt 8.0 4.9 62%
Number of Vessels # 51 32 59%
End of Period Product Mt at
Stockpile port 0.6 0.0
CASH COST
C1 Cash Cost $/t 39 43 -8%
REVENUES
Gross Revenue (Platts
58) $/t 94 119 -21%
Freight Rate (wet) $/t 23 18 27%
Provisional FOB (dry) $/t 54 82 -34%
Achieved FOB (dry) $/t 49 77 -35%
BALANCE SHEET
Group Cash $m 332 502
Group Debt* $m 823 832
------------------------- ------- -------- -------- ------------
Group Net Cash / (Debt) $m (491) (330)
------------------------- ------- -------- -------- ------------
*Group debt reflects the nominal Group Debt. For full details
refer to Note 13 of the accounts.
Financial Update
Sales
Demand for our products, be it fines, lump, blend or A32,
remains strong. The low silica content of our ore makes it an
attractive and sought after blending component.
The key elements of pricing are the spot price (Platts 58%
IODEX), freight rate, standard (chemical and physical) product
discounts, reprocessing discount (for A32 and lump blend) and
investor discounts to our partner, SISG, and timing
adjustments.
-- Spot Price: Our product is priced with reference to the
Platts 58% IODEX index, which started January at a high of $115/t,
falling to a low of $69/t in June. The average spot price in H1 was
$94/t (H1 2013 : $119/t). Prices are quoted per dry tonne landed in
northern China.
-- Freight Rate: Shipping rates for our Cape Size OGVs ranged
between $29/t and $18/t, averaging $23/t for H1 (H1 2013 : $18/t).
Freight rates are quoted per wet metric tonne. The commencement of
shipping on a CFR basis has demonstrated more than a $1/t saving in
freight costs can be achieved going forward.
-- Standard product discounts: Standard discounts for grade,
deleterious elements (mainly aluminium) and other specifications
were approximately $9/t. The commissioning of de-sliming circuits
could provide a small benefit in product discounts.
-- Reprocessing discount: The lump blend and A32 products, which
made up 67% of all shipments in H1, carry an additional discount
over standard lump and fine products of up to $5/t, depending on
customer. De-sliming will mean that the mine will no longer produce
A32 following fitting of these circuits to the new 1G plant. Once
all current stockpiles have been wound down, this discount will no
longer be incurred.
-- Investor discount: During H1, the Project delivered 3.6Mt, or
40% of all tonnage exported, to SISG under their discounted offtake
agreement, with only 2.9Mt remaining to be delivered during H2.
With the FOB Sierra Leone Reference Price between $60/t - $80/t,
the SISG investor discount is 7.5%, and when it is between $80/t -
$100/t the discount is 10%. If the received price is below $60/t,
the discount is zero.
-- Timing adjustments: Like many other iron ore exporters, the
Tonkolili Project produces provisional invoices based on loading
date quotation period prices, and calculates final invoices based
on landing date quotation period prices. Management makes estimates
of the effect of changing spot prices between loading and landing,
but where these occur over the end of a quarter, they remain
estimates only, and are subject to later adjustment once final
invoices are received. In Q1, the effect of prior period
adjustments was approximately -$2/t, and in Q2 approximately -$7/t
due to the sharp decline in prices.
As a result of all of the above, the FOB received price in the
first half of the year was just $49/t (H1 2013 : $77/t). A royalty
of 3.2% of revenue was paid to the Government of Sierra Leone, as
per the fiscal terms of the Mining Lease, amounting to $11m, in
addition to payroll and other taxes.
Operating Costs
The Company reports its cash operating costs on the
internationally accepted C1 basis, being the cash cost of goods
sold. This measure excludes royalties, selling costs (including
demurrage) and corporate office costs, which are reported
separately.
The C1 cash cost for the half year was $39/t (H1 2013 : $43/t),
on a FOB basis. Cash costs have not yet stabilised and have varied
from $45/t to $34/t over the first 6 months, before inventory
movements.
Some of the budgeted interventions to bring cash costs down to
$30/t by year end have not yet been implemented, for example
buying-in currently contracted out services and procuring capital
equipment. These interventions would typically require capital to
have been spent to allow operating costs to be reduced, but the
current focus on working capital has meant that expenditure has so
far been deferred.
However, the commissioning of the 1G plant, idling of 1A, 1C and
1E plants, and the establishment of the de-sliming circuits, are
expected to have a major positive impact on cash costs, principally
in reducing re-handle volumes and increasing throughput to dilute
fixed costs.
We are confident that the project remains on track to achieve C1
cash costs of c$30/t at the sustainable 20Mpta production level
once all cost interventions have been fully implemented, prior to
continuing our ramp up to 25Mtpa.
All in cash cost for the first half of the year was $47/t (H1
2013 : $60/t), on a FOB basis. This decrease reflects lower
operating costs, sales commissions, general and administration
costs and sustaining capex spread over a higher rate of
exports.
Balance Sheet
The Total Debt of the Group (excluding shareholder's loan of
$56m on a nominal value basis due to SISG) was $766m (31 December
2013: $823m). The decrease was due to the repayment of $42m towards
the Pre-export finance facility and $15m repayments towards other
facilities. The Total Debt includes the following facilities:
-- Fully drawn $400m outstanding (31 December 2013: $400m) of
convertible bonds with a coupon rate of 8.5% and a redemption date
of 9 February 2017.
-- Cost over-run facility of $37.5m outstanding (31 December
2013: $37.5m) which was renegotiated with another lender in
February 2014. This facility was subsequently fully repaid in
August 2014.
-- Pre-export finance facility was $208m outstanding (31
December 2013: $250m) at an interest rate of LIBOR plus 5.5%. This
facility requires repayment of $10.4m per month from March 2014
with final maturity in February 2016. The Group is seeking to
replace this debt in order to more closely align the maturity
profile of the Project companies' debt with its revenue generation
profile, as further discussed in Note 2 to the unaudited interim
condensed financial statements.
-- Two equipment financing facilities in aggregate of $120m
outstanding (31 December 2013: $135m). The interest rates on the
facilities are LIBOR + 5.59% and LIBOR + 6.0% and their maturity
dates are in June 2017 and June 2018.
The cash position of the Group was $332m (31 December 2013:
$362m), and includes $284m (31 December 2013: $305m) restricted
cash for Phase II expansion and another $30m (31 December 2013:
Nil) held in escrow as collateral for the cost over-run
facility.
Project Update
1G
The construction and commissioning of the 1G process plant,
adding c9Mtpa of production capacity, is complete and ramp up is
currently underway. The 1G plant will initially be configured as a
dry screening plant, and will then be modified to wet screening to
produce standard lump and fines product, prior to conversion
incorporating de-sliming.
De-sliming
The Group has previously highlighted a number of technical
interventions that it had proposed regarding materials management,
particularly geared toward the wet season. The most significant of
those is the establishment of screening and de-sliming circuits.
These are being installed to further treat the sub-10mm fines
material which contains fine sticky clay and ultra-fines. The
de-sliming circuits will be fitted to our 1B and 1D processing
plants which are currently producing this fines product, and will
be retro-fitted to the new 1G process plant once it is fully
commissioned. Conversion of 1B, 1D and 1G is currently expected to
be completed by the end of Q1 2015.
The establishment of these screening and de-sliming circuits
will significantly enhance our wet season strategy, in that most if
not all of our product will now be able to be shipped year round.
The removal of fine sticky clay from our material and the
termination of production of A32 will also greatly improve our port
material handling capabilities.
De-sliming circuits will also decrease moisture levels and
freight rates, increase the number of dry tonnes sold, and
significantly reduce our re-handling volumes currently associated
with stockpiling and drying activities.
Friable Hematite Concentrate
As announced on 3 July 2014, we expect to commence production of
high value hematite concentrate at the end of 2015. The low capital
cost conversion of our 1B process plant and construction of
concentrator facilities is expected to cost $311m (+/- 25%) and
will produce 11Mtpa of 63% Fe concentrate, with a low moisture
level of under 9% and with low contaminants., with associated
significant positive impact.
The commencement of production of a high quality concentrate is
expected to improve our revenue per tonne by up to $25/t (at
current prices) thereby expanding our margin while maintaining our
+25Mtpa production profile. The replacement of over 45% of our
current DSO tonnage by this high grade high value concentrate
product, and the concurrent running of concentrate alongside DSO,
will allow us to defer further capital expenditure for additional
concentrators, which will now only be required to be in production
in or after 2020, allowing more of the Project's near-term cash
flow to be returned to the Project's shareholders.
The Project has now been provisionally approved by its board,
subject to tightened engineering design.
Guidance
With Q3 building firmly on the results of H1 2014, even during
the wet season, we remain confident of exporting between 16 and
18Mt during 2014, and reiterate guidance of cash costs for the year
in the range of $34 and $36 per tonne.
With the improvement of our infrastructure capacity already
achieved, the commissioning of 1G and de-sliming circuits, an
expanded production capability, and the various cost interventions
already described, and all-year-round shippable products, we expect
to achieve production during 2015 of 21-23Mt, with cash costs for
the full year under $30/t.
We expect to exit 2015 with a demonstrable 25Mtpa sustainable
export run rate, and cash costs around $25/t.
Corporate Update
Additional working capital at the project companies
As a result of the low received price ahead of our major margin
improvement programmes, which are expected to start to benefit our
balance sheet from the next quarter, the Group had an operational
loss before special items in H1 of $58m. This is exacerbated by the
amortising debt profile of our PXF facility and associated interest
costs.
As disclosed in our Q1 production report released on 21 May
2014, and the subsequent market update of 6 August, the Group has
continued to evaluate opportunities regarding an optimum debt
structure, including re-profiling of its current debt facilities
and other strategies including accessing the $284m restricted cash
held by the Project companies.
We are pleased to have reached an agreement with our partners,
Shandong, to allow access to the $284m of funds previously
earmarked for expansion capital purposes, for general working
capital purposes.
In line with the commitments made in August 2014, $82m was drawn
down from the Project's Hong Kong funds in August, and has been
used primarily for working capital purposes. The Board of the
Project Companies also approved the draw down of a further $161m in
September and October for further essential payments, including to
fund the approved cost reduction initiatives, to finance working
capital and to cover operating losses and debt repayments until the
Project becomes cash flow positive.
Most Favoured Treatment claim
The Project's corporate advisors have been consulted regarding
the value of restitution that is payable to Shandong (as offtake
customer) under the "most favoured treatment" clause, as a result
of a prepay contract entered into with another customer. The
advisors' view is that the fair settlement of this claim is de
minimus.
Tewoo Transaction
Tianjin Materials and Equipment Group Corporation ("Tewoo") and
African Minerals continue to advance their relationship, and
nothing has been discussed to the contrary of the terms outlined.
While both parties remain interested in pursuing a transaction, in
light of the currently depressed iron ore market and share price,
AML no longer believes it realistic to expect a near term
conclusion of any proposed transaction.
Renaissance Capital Litigation
Renaissance Capital had filed a claim against the Group for
financial adviser's fees amounting to approximately $133m plus
interest and costs in relation to historic fundraisings and
transactions. The case was heard by the Commercial Court in London
in March and April 2014. Judgement was issued on 27 June 2014, in
favour of the claimant on certain aspects of the claim, amounting
to $35m plus interest and costs. AML had strongly contested the
claim, and had provided $6m as a potential award in its audited
accounts for 2012. Post period end, the Company paid the amount of
$42m and has been granted leave to appeal. The appeal is expected
to be heard in H1 2015. The Board is confident that the appeal has
a good prospect of success.
Allegation against Directors
Allegations of fraud involving the Executive Chairman and Dermot
Coughlan were made earlier in the year. Following a detailed
investigation carried out by Good Governance Group, an external
agent acting on behalf of the independent directors, those
allegations were not upheld, and no evidence was found of any fraud
by either person. Although there was no proven event of fraud, it
did however highlight a lack of full disclosure by Dermot
Coughlan.
Resignation of Director
After serving as an independent director for over four years,
Dermot Coughlan resigned in July. The Company continues to actively
consider its Board structure in light of this recent change and its
future requirements.
FINANCIAL REVIEW
1. Basis of preparation
The unaudited interim condensed consolidated financial
statements of the Group have been prepared in accordance with
International Accounting Standard ('IAS') 34 Interim Financial
Reporting as adopted by the European Union for the six months ended
30 June 2014. The unaudited interim condensed consolidated
financial statements are not a complete set of financial statements
and should be read in conjunction with the Group's annual financial
statements for the year ended 31 December 2013. These unaudited
interim condensed consolidated financial statements are prepared in
accordance with the International Financial Reporting Standards
("IFRS") and interpretations issued by the International Financial
Reporting Interpretations Committee ("IFRIC"), as issued by the
International Accounting Standards Board ("IASB") and adopted by
the European Union ("EU"). The Group presents its unaudited interim
condensed financial statements in US dollars.
CONSOLIDATED INCOME STATEMENT
2. Income statement
An abridged analysis of the consolidated income statement for
the six months ended 30 June 2014 is shown below:
Six months Six months
ended ended
30 June 30 June
$ million (unless otherwise stated) 2014 2013
----------- -----------
Revenue 399.2 404.8
Operating costs (excluding depreciation, amortisation
and special items) (396.5) (304.8)
----------- -----------
EBITDA 2.7 100.0
Depreciation and amortisation (60.9) (60.6)
----------- -----------
Operating (loss)/profit before special items (58.2) 39.4
Special items (26.9) (57.7)
----------- -----------
Operating loss (85.1) (18.3)
Imputed interest cost of deferred income (36.4) (34.1)
Gain on non-controlling interest put option 167.6 103.8
Impairment of available for sale investments - (39.6)
----------- -----------
Profit before finance items and taxation 46.1 11.8
Finance expenses (53.3) (36.3)
----------- -----------
Loss before taxation (7.2) (24.5)
Income tax credit/(charge) 15.9 (4.8)
----------- -----------
Profit/(loss) for the period 8.7 (29.3)
Non-controlling interest (0.2) 1.6
----------- -----------
Profit/(loss) for the period attributable to equity
holders of the Company 8.9 (30.9)
=========== ===========
Earnings/(loss) per share based on profit/(loss)
for the period - US cents
Basic profit/(loss) 2.70 (9.34)
=========== ===========
Loss per share based on Underlying Profit - US
cents
Basic loss (41.35) (12.25)
=========== ===========
3. Revenue
Revenue is determined using dry tonnage rates quoted by the
benchmark Platt's 58% Fe North China Price less freight costs,
customer discounts, deduction for chemical impurities and
processing charges. An analysis of how revenue is recognised in the
consolidated income statement is set out below:
Six months Six months
ended ended
30 June 30 June
2014 2013
$m $m
Gross revenue 709.1 581.7
Freight costs (205.6) (102.4)
SISG offtake discount (6.4) (23.5)
Other customer discounts (10.6) (8.3)
Chemical impurities and processing
charges (93.7) (66.2)
Net revenue 392.8 381.4
Release of deferred income -
SISG 6.4 23.5
Revenue recognised in the income
statement 399.2 404.8
=========== ===========
http://www.rns-pdf.londonstockexchange.com/rns/0045T_-2014-9-30.pdf
Revenue for the first half of 2014 was $399.2m, a reduction of
$5.6m compared to the first half of 2013 as the fall in the iron
ore price was partially offset by the increased volumes sold.
The average price used to determine revenue for the period was
$88.9 (six months ended 30 June 2013: $118.1) per tonne, which
compares to the average benchmark Platt's price of $93.9 (six
months ended 30 June 2013: $119.4).The difference reflects timing
differences as export sales are not evenly priced across the
period.
The Group exported 8.9m wet metric tonnes (equivalent to 8.0m
dry metric tonnes) on 51 Ocean Going Vessels ("OGV") in the first
half of 2014 compared to 5.5m wet metric tonnes (equivalent to 4.9m
dry metric tonnes) on 32 OGVs in the corresponding period of 2013,
an increase of export sales volumes of 61.8%.
Freight costs are quoted in wet metric tonnes and adjusted to a
freight price per dry metric tonne depending on the moisture level
of the product. There was an average freight cost for the period,
based on wet metric tonnes, of $23.1 (six months ended 30 June
2013: $18.5) per tonne.
The Group has delivered under various offtake contracts with
several customers during the period. There are fixed discounts that
vary according to each offtake contract, with the discount
depending on moisture content, product type and Platt's price at
the time of delivery. Similarly, there are discounts that vary
according to each offtake contract depending on the grade of iron
of the product shipped and contained deleterious elements. These
charges are higher in the first half of 2014 compared to 2013
because of the increased volumes sold in comparison to the prior
period.
Other customer discounts have increased in the first half of
2014 as there was an increased volume of iron ore invoiced to
customers with larger discounts as compared to the prior
period.
After these deductions, the realised price for sales (i.e. FOB
achieved price) was $49.3 (six months ended 30 June 2013: $77.5)
per dry metric tonne, $44.6 (six months ended 30 June2013: $41.9)
per tonne.
In March 2012, Shandong Iron and Steel Group ("SISG") invested
$1.5 billion in return for a 25% stake in the underlying assets of
the Tonkolili project and a discounted offtake agreement over the
life of the mine. As a result, SISG's future discounts on shipments
were recorded as deferred income (a liability) in the Group
accounts (see Note 14 to the unaudited interim condensed financial
statements). Therefore, in the case of sales to SISG, a portion of
the deferred income is released with a corresponding credit to
revenue to offset the discounts on the sales in the period. As a
consequence, the actual cash consideration derived from sales is
less than the recognised revenue in the consolidated income
statement.
Under the above offtake agreement, the discount to which SISG is
entitled is dependent on the price of iron ore, and below a certain
level, sales to SISG no longer attract a discount. Due to lower
iron ore prices in the first half of 2014, certain sales to SISG
did not attract a discount. As a result, the release of deferred
income is lower in the first half of 2014 than the deferred income
release in the comparative period.
4. EBITDA
Measuring earnings before interest, taxation, depreciation and
amortisation (EBITDA) gives an indication of the Group's ability to
generate cash from its underlying operations. This performance
measure removes non-cash items and those components which are
special items that do not impact the underlying trading performance
of the Group. During the six months ended 30 June 2014, the Group
recorded EBITDA of $2.7m compared to $100.0m for the six months
ended 30 June 2013.
Six months Six months
ended ended
30 June 30 June
2014 2013
$m $m
----------- -----------
Revenue 399.2 404.8
Operating cash costs (excluding depreciation,
amortisation and special items):
Cost of sales (343.7) (236.3)
Selling and distribution expenses (31.6) (39.9)
General and administrative expenses (21.2) (28.6)
----------- -----------
EBITDA 2.7 100.0
=========== ===========
Operating cash costs of $396.5m (six months to 30 June 2013:
$304.8m) includes cost of sales of $343.7m (six months to 30 June
2013: $236.3m), selling and distribution expenses of $31.6m (six
months to 30 June 2013: $39.9m), and general and administration
expenses of $21.2m (six months to 30 June 2013: $28.6m). Operating
cash costs exclude depreciation and amortisation of $60.9m (six
months to 30 June 2013: $60.6m).
Cost of sales
By type of operation, cost of sales are split between the mine
($180.0m), rail ($30.7m), port ($107.6m), central services
($25.4m), and depreciation ($59.1m). By type of expenditure, the
largest categories of cost relate to contractors ($184.9m),
consumables ($79.4m) and personnel costs ($44.2m).
Mine
Expenditure for the mine primarily relates to the costs of
mining, processing and rehandling material. Contractors costs
comprise the majority of the expenditure at the mine, mainly
relating to the mining contractor and the contractors which operate
the processing plants. Other costs include labour, fuel and
consumables.
Mining costs increased to $180.0m (six months ended 30 June
2013: $108.6m) primarily due to increased production volumes of
15.0mt compared to 8.7mt in the prior period. Part of the increase
in mining costs was also due to higher rehandling costs of $23.8m
reflecting increased drying of fines material to meet shipping
targets.
Rail
The costs at the rail mainly consist of maintenance costs for
the locomotives, wagons and track. Fuel for the locomotives is also
an expense, together with labour, although the rail operation is
less labour intensive than the mining operations.
Rail costs increased to $30.7m (six months ended 30 June 2013:
$25.5m) due to higher volumes railed (9.5mt in the six months ended
30 June 2014 compared to 5.4mt during the six months ended 30 June
2013).
Port
Expenditure for the port mainly relates to the cost of
contractors for the operation of the transhipment vessels and the
tugs. Other costs include labour and consumables.
Port costs increased to $107.6m (six months ended 30 June 2013:
$79.0m) due to the increase in tonnes shipped from 5.5mt to 8.9mt.
The increase in port costs also reflects the hire of an additional
transhipper and a tug to ensure export targets are met.
Central services
Central services includes functions which provide common
services across all parts of the business in Sierra Leone, for
example, IT, communications, community, sustainable development,
security and government affairs. Central services costs increased
to $25.4m (six months ended 30 June 2013: $23.2m) mainly due to
increased security costs to safeguard the sites in Sierra
Leone.
Selling and distribution expenses
Selling and distribution expenses include $11.3m (six months
ended 30 June 2013: $11.7m) of royalties paid to the Government of
Sierra Leone. These are calculated based on the terms of the mining
agreement at 3.0% of net revenues. There are also further payments
of 0.1% each to two environmental and development funds that
support projects in the surrounding areas to Pepel and
Tonkolili.
Selling and distribution expenses also includes $0.3m (six
months ended 30 June 2013: $3.8m) for demurrage costs, which are
shown net of port income derived from the provision of services to
the OGVs when they are at anchor outside Pepel. The decrease in
demurrage costs is driven by the reduced number of days on
demurrage as operations become more efficient, and an increase of
$2.7m in port income in the current period reflecting a higher
number of OGVs which were loaded in the period. Sales commissions
include commission payable to CRM of $19.5m (six months ended 30
June 2013: $19.5m), a shareholder, as part of its original
investment.
General and administrative expenses
General and administrative expenses (excluding depreciation and
amortisation) were $21.2m for the current period, compared to
$28.6m in the corresponding six months of 2013. In the second half
of 2013 a major cost reduction exercise was completed at the
corporate office resulting in lower personnel and travel costs in
the first half of 2014.
5. Cash costs
The Group measures "C1" production cash cost in order to monitor
and control its production costs on a per tonne basis. The "All-in"
cash costs indicate how well the Group has managed its end-to-end
operational costs on a per tonne basis.
"C1" production cash cost calculation is the cash cost of the
mine, rail and port operations divided by wet tonnes shipped and
excludes depreciation and amortisation. "All-in" cash cost
represent the cash costs of production (mining, rail and port),
selling, general and administration expenses and sustaining capital
expenditure, excluding depreciation and amortisation, divided by
wet tonnes shipped.
Both "C1" production cash cost and "All-in" cash cost per tonne
are highly geared towards export volumes given the majority of
costs within the business are fixed. During the first half of 2014,
the costs per tonne reduced due to higher volumes which diluted
fixed costs per unit.
"C1" production cash cost and "All-in" cash cost are calculated
as follows:
Six months Six months
ended ended
30 June 30 June
2014 2013
$m $m
----------- -----------
Cost of sales (402.8) (296.1)
Depreciation allocated to cost of sales 59.1 59.8
-----------
"C1" production cash cost (343.7) (236.3)
Selling costs (31.6) (39.9)
General and administrative expenses (excluding
depreciation and amortisation) (21.2) (28.6)
Sustaining capital expenditure (25.0) (29.8)
-----------
"All-in" cash costs (421.5) (334.6)
=========== ===========
Ore shipped (wet tonnes) 8,890,315 5,533,817
"C1" production cash cost per tonne (US$) 38.66 42.70
"All-in" cash costs per tonne (US$) 47.41 60.46
6. Operating loss
The operating loss of $85.1m (six months ended 30 June 2013:
$18.3m) includes operating costs of $396.5m (six months ended 30
June 2013: $304.8m), $60.9m (six months ended 30 June 2013: $60.6m)
of depreciation and amortisation, and special items of $26.9m (six
months ended 30 June 2013: $57.7m).
Special items
Special items are presented separately, due to their nature or
the expected infrequency of the events giving rise to them. The
breakdown of special items excluded from EBITDA is set out
below:
Six months Six months
ended ended
30 June 30 June
2014 2013
$m $m
----------- -----------
Penalties for SISG warranty breach 5.7 40.0
Transaction costs and other professional
fees 2.9 3.3
Project optimising costs 8.8 -
Onerous offtake contracts and contractor
claims 9.5 8.2
Impairment of property, plant and equipment - 6.2
Total special items 26.9 57.7
=========== ===========
Further detail on each of the special items is provided
below:
-- In 2013, the Group reached a commercial settlement of claims
with SISG for $40.0m which includes claims for not achieving the
minimum production rate of 12mtpa which was expected at the
beginning of 2013 and certain other warranty claims. In 2014, a
penalty of $5.7m was recognised in respect of these warranty
claims.
-- Transaction costs and other professional fees in the period
of $2.9m (six months to 30 June 2013: $3.3m) principally include
legal fees relating to defending the claim for financial adviser's
fees filed by a third party. The amount of $3.3m in 2013 includes
residual costs of the investment made by SISG in 2012.
-- Project optimising costs relate to debottlenecking certain
aspects of the rail and port operations to allow capacity to
increase to 25mt per annum.
-- During 2014, onerous offtake contracts and contractor claims
include compensation charges of $9.5m (six months to 30 June 2013:
$8.2m) for the Group's inability to fulfil sales volumes under
certain offtake contracts.
-- No impairment charge was recorded during the first half of
2014 compared to a $6.2m charge recorded during the six months
ended 30 June 2013.
7. Profit before finance items and taxation
Profit before finance items and taxation of $46.1m (six months
ended 30 June 2013: $11.8m) includes a fair value gain of $167.6m
(six months ended 30 June 2013: $103.8m) on the SISG put option
(see note 14 to the unaudited interim condensed financial
statements). This gain was partly offset by $36.4m (six months
ended 30 June 2013: $34.1m) of imputed interest cost on deferred
income. During the six months ended 30 June 2013 an impairment of
available for sale investments of $39.6m was recorded.
Further detail on each of these items is provided below:
-- The fair value gain of $167.6m (six months ended 30 June
2013: $103.8m) is calculated based on the fair value movement using
an enterprise value model of the quoted African Minerals Limited
share price. An option exists in the SISG agreement whereby SISG
can sell back its 25% interest in the project companies at fair
value in the unlikely event Frank Timis (Executive Chairman)
voluntarily chooses to resign from the Board. The put option
valuation utilises an African Minerals Limited share price of $1.80
(six months ended 30 June 2013: $3.57) and an estimated significant
influence component of $33.5m (six months ended 30 June 2013:
$54.8m).
-- The Group recognised an imputed interest cost of $36.4m (six
months ended 30 June 2013: $34.1m) in the current period, being the
charge associated with the unwinding of the deferred income arising
from the SISG discounted offtake agreement.
-- The market value of the Group's available for sale
investments has stabilised in the current period and as a result no
further charge was recorded during the six months ended 30 June
2014. In the six months ended 30 June 2013, the Group recognised an
impairment charge of $32.2m in Cape Lambert Resources Limited,
$7.3m in Obtala Resources Limited and $0.1m in Stellar Diamonds due
to a significant decrease in the market valuation of these
investments for a prolonged period.
8. Finance costs
Finance costs of $53.3m (six months ended 30 June 2013: $36.3m)
mainly comprise borrowing costs and financing fees. The borrowing
costs are the effective interest costs on the Group's borrowings,
namely $22.8m (six months ended 30 June 2013: $22.0m) arising on
the convertible bond, $11.0m (six months ended 30 June 2013: $3.5m)
on the pre-export finance facility with the balance split between
the cost overrun facility and the equipment financing facilities.
Financing fees include political risk insurance for facilities
secured on the Group's assets in Sierra Leone and other debt
raising related costs.
9. Taxation
Six months Six months
ended ended
30 June 30 June
2014 2013
$m $m
----------- -----------
Loss on ordinary activities before
tax (7.2) (24.5)
----------- -----------
Group's domestic tax rate is
as follows:
Profit/(loss) before tax multiplied by the
standard rate of UK
corporation tax 21.5% (30 June 2013: 23.5%) 1.5 5.8
Effects of:
Net income not taxable 36.0 24.4
Expenses not deductible for tax
purposes (1.8) (20.4)
Derecognition of previously recognised
deferred tax assets (0.4) (9.0)
Recognition of previously unrecognised temporary
differences - 0.1
Tax adjustments in respect of
prior years (16.6) 1.3
Losses not recognised (6.7) (6.7)
Effect of overseas tax rates 3.9 (0.3)
----------- -----------
Total taxation credit/(charge) 15.9 (4.8)
=========== ===========
During the six months ended 30 June 2014, a taxation credit of
$15.9m (six months ended 30 June 2013: $4.8m charge) was recognised
relating to the recognition of deferred tax assets on qualifying
expenditure and tax losses in Sierra Leone. In the effective tax
rate reconciliation set out above, the most significant movements
relate to:
-- Net income not taxable relates to the non-taxable gain
arising on the SISG interest put option;
-- Expenses not deductible for tax purposes is principally due
to share options and interest disallowances in the Project
Companies based in Sierra Leone;
-- Tax adjustments in respect of prior years of $16.6m (six
months ended 30 June 2013: $1.3m credit) includes $12.8m relating
to a change in brought forward tax losses on account of the revised
tax treatment of certain prior period non-recurring items and a
revised claim for capital allowances. For the six months ended 30
June 2013 tax adjustments in respect of prior years of $1.3m relate
to a change in the accounting treatment of deferred tax liabilities
previously held on consolidation.
-- Deferred tax losses not recognised relate to tax losses
incurred at head office level for which no deferred tax asset has
been recognised.
-- The $3.9m taxation credit due to the effect of overseas tax
rates (six months ended 30 June 2013: $0.3m charge) represents an
adjustment reflecting different taxation rates in Sierra Leone
compared to the UK effective rate of 21.5% (30 June 2013:
23.5%).
10. Profit/(loss) for the period
The Group's profit for the period was $8.7m compared to a loss
of $29.3m during the six months ended 30 June 2013. The profit for
the period was due to an operating loss of $85.1m, finance costs of
$53.3m, an imputed interest charge of $36.4m on the unwinding of
the deferred income, offset by a gain of $167.6m on the SISG put
option and a taxation credit of $15.9m.
11. Underlying Profits
The Group uses "Underlying Profits" as an alternative measure of
earnings. The Group believes that this provides a more consistent
measurement for comparing the underlying financial performance of
the Group's operations. Underlying Profits is the profit or loss
attributable to equity holders excluding special items and the
revaluation of the SISG put option, and their resultant tax
effect.
During the current period the Group recorded EBITDA of $2.7m,
and Underlying Profits of negative $137.3m. The difference between
the two is primarily due to $60.9m of depreciation and
amortisation, finance costs of $53.3m and an imputed interest cost
of $36.4m, offset by a tax credit of $15.9m.
The reconciliation from profit/(loss) attributable to equity
holders to Underlying Profits is as follows:
Six months Six months
ended ended
30 June 30 June 2013
2014
$m $m
----------- --------------
Profit/(loss) attributable to equity holders 8.9 (30.9)
Gain on non-controlling interest put option (167.6) (103.8)
Impairment of available for sale investments - 39.6
Special items 26.9 57.7
Tax effect from above items (5.5) (3.2)
Underlying Profits (137.3) (40.6)
=========== ==============
12. Earnings per share
Six months Six months
ended ended
30 June 30 June
2014 2013
$m $m
----------- -----------
Weighted average number of common shares in issue
(millions) 331.9 331.4
----------- -----------
Earnings/(loss) per share - US cents:
Based on profit/(loss) after taxation - basic 2.52 (9.34)
----------- -----------
Based on Underlying Profit - basic (41.35) (12.25)
----------- -----------
The only change to the weighted average number of shares in
issue relates to 424,584 share options which were allotted during
the period.
CONSOLIDATED BALANCE SHEET
13. Property, plant and equipment
Of the total capital expenditure of $48.4m incurred during the
six months ended 30 June 2014 (for the full year to 31 December
2013: $252.4m), $25.0m related to sustaining and optimising capital
expenditure (full year to 31 December 2013: $50.4m), $16.6m related
to expenditure on the friable hematite project (for the full year
to 31 December 2013: $50.6m) and $6.8m related to residual Phase I
expenditure (full year to 31 December 2013: $151.4m).
14. Capital employed
Capital employed (as defined by the Group) comprises equity
attributable to shareholders, non-current interest-bearing loans
and borrowings, the non-current element of deferred income relating
to the SISG discounted offtake agreement and the fair value of the
SISG put option. The deferred income and fair value of the SISG put
option have both been included within capital employed as they
originate from the $1.5 billion investment made by SISG in March
2012.
Capital employed decreased by $181.3m at 30 June 2014,
predominantly due to the repayment of the pre-export finance
facility of $41.7m and a reduction in the fair value of the SISG
put option by $167.6m. These decreases were partially offset by an
increase in other deferred income of $44.2m representing cash
received from a customer for future sales of iron ore and an
increase in SISG deferred income of $30.0m on account of the
imputed interest cost.
30 June 31 December
2014 2013
$m $m
-------- ------------
Total equity 987.8 981.4
Non-current interest-bearing loans and borrowings 500.0 571.9
Non-current deferred income 603.7 551.9
SISG put option 368.6 536.2
-------- ------------
Capital employed 2,460.1 2,641.4
======== ============
15. Net financial indebtedness
Net financial indebtedness (as defined by the Group) comprises
cash and cash equivalents and interest-bearing loans and
borrowings. A summary of the net debt position is shown below:
30 June 31 December
2014 2013
$m $m
-------- ------------
Cash and cash equivalents 331.8 362.4
Current interest-bearing loans and borrowings (290.6) (263.8)
Non-current interest-bearing loans and borrowings (500.0) (571.9)
Net financial indebtedness (458.8) (473.3)
======== ============
Cash and cash equivalents of the Group includes restricted funds
of $314.0 (31 December 2013: $304.6m), which includes $284.0 cash
received from the SISG transaction. This restriction is based on
the shareholders' agreement with SISG in which use of these funds
requires the joint approval of the Company and SISG. The intention
of both shareholders was that these funds would be allocated
towards the funding of the friable hematite project. The remaining
restricted cash includes cash collateral of $30.0m held as security
against the cost overrun facility ("COF"), which was used to repay
the COF in August 2014.
Interest bearing loans and borrowings include a convertible bond
with a nominal value of $400.0m at the Parent Company level. The
coupon rate is 8.5% and the redemption date is 9 February 2017.
Also at the Parent Company level there was the COF with a nominal
balance of $37.5m at 30 June 2014 (31 December 2013: $37.5m). This
facility was repaid in August 2014.
In April 2013, a $250.0m pre-export finance facility was entered
into by the project companies. This facility was fully drawn by
December 2013 and carries an interest rate of LIBOR plus 5.5%. This
facility requires repayment of $10.4m per month from March 2014
with final maturity in February 2016. Given current iron ore prices
and with export volumes still ramping up to the planned long-term
run-rate, the Group is seeking to replace this debt with
longer-term funding in order to more closely align the maturity
profile of the project companies' debt with their revenue
generation profile. Whilst the Directors are confident this
refinancing exercise will be successful, until it completes, the
Group faces a material uncertainty as regards its ability to
service its debt in the short term, as discussed in Note 2 to the
unaudited interim condensed financial statements. Note 2 also sets
out a number of other material uncertainties which could impact the
Group's ability to continue as a going concern for the foreseeable
future.
At the project company level there are two equipment financing
facilities whose nominal value in aggregate was $120.3m (31
December 2013: $135.2m). The interest rates on the facilities are
LIBOR + 5.59% and LIBOR + 6.0% and their maturity dates are in June
2017 and June 2018.
Included within net financial indebtedness is a shareholder loan
due from the project companies to SISG with a nominal value of
$56.3m (31 December 2013: $56.3m) which is due for repayment by 31
December 2014. There is also a shareholder loan due from the
project companies to the Parent Company of $62.6m (31 December
2013: $101.5m) which is eliminated on consolidation. The reduction
in this shareholder loan is mainly on account of sales made to the
Parent Company to fulfil a prepayment agreement of which $35.8m has
been delivered to 30 June 2014.
16. Non-controlling interest put option and deferred income
The non-controlling put option liability of $368.6m (31 December
2013: $536.2m) is an estimated amount measured at fair value that
would be payable to SISG, as detailed above, in the unlikely event
Frank Timis (Executive Chairman) chooses to resign voluntarily from
the Board. This put option is fair valued at each period end with
the resulting movement being recognised in the consolidated income
statement. The basis of the valuation is described in Note 14 to
the unaudited interim condensed financial statements.
The Group has two sources of deferred income aggregating to
$667.9m (31 December 2013: $593.7m). The first source of deferred
income of $603.7m (31 December 2013: $573.7m) represents the net
present value of the future discounts on iron ore shipments that
SISG will receive under its offtake agreement. The movement in the
period is due to the imputed interest cost of $36.4m (31 December
2013: $68.9m) partially offset by the release of $6.4m (31 December
2013: $32.5m) to revenue representing the discount received on iron
ore shipments delivered to SISG.
The second source of deferred income of $64.2m (31 December
2013: $20.0m) represents cash received from a customer for future
sales of iron ore. The increase during the current period reflects
an advance cash receipt of $80.0m partially offset by associated
iron ore sales of $35.8m.
17. Non-controlling equity interest
The non-controlling equity interest of $136.7m (31 December
2013: $136.9m) recognised in the consolidated balance sheet is the
10% holding that the Government of Sierra Leone owns in African
Railway and Port Services (SL) Limited (ARPS) and which is based on
the net assets of ARPS as at the balance sheet date.
CONSOLIDATED CASH FLOW STATEMENT
18. Summary of cash flow movement
A summary of cash flows is shown below:
Six months
ended
30 June
2014
$m
-----------
EBITDA 2.7
Release of deferred income (42.2)
Interest paid (30.3)
Share based payments 3.8
-----------
Net cash flows from operating activities
before capital expenditure and working
capital movements (66.0)
Sustaining capital expenditure (25.0)
Working capital movements 177.2
Free Cash Flow 86.2
Friable Hematite project capital expenditure (16.7)
Cost to complete Phase I capital expenditure (6.8)
Other movements (48.2)
Movement in net debt 14.5
===========
19. Free Cash Flow
Free Cash Flow is a measure of the cash generated by operating
activities. Capital expenditure relating to the completion of the
construction of the project and early design and evaluation work
for the Friable Hematite project has therefore been omitted from
Free Cash Flow.
The release of deferred income of $42.2m is a non-cash item
which has been credited to revenue and relates to the discounts
received by SISG ($6.4m) and sales made to another customer
($35.8m) which has prepaid for future sales of iron ore. Released
deferred income is included within revenue, but is excluded from
operating cash flows, as it is a non-cash item.
Interest paid during the period was $30.3m and relates to the
interest costs paid on the Group's debt facilities, of which the
most significant components were $17.0m of interest paid on the
convertible bond, $7.1m paid on the pre-export finance facility and
$4.1m on the equipment financing facilities.
Sustaining capital expenditure principally includes the ongoing
capital expenditure relating to increasing the capacity of the
tailings storage facility and construction of fuel storage and camp
facilities.
The working capital inflow of $177.2m is principally due to
$80.0m of cash received from a customer for future sales of iron
ore, a reduction in trade and other receivables of $50.0m largely
due to strong sales revenues in December 2013 for which cash
receipts were remitted in January 2014 and an increase in trade and
other payables by $39.5m reflecting active management of payments
to creditors in a period of low iron ore prices.
Other movements include the non-cash accounting charge for
borrowing costs and non-cash special items charged to the
consolidated income statement which are excluded from EBITDA.
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED 30 JUNE 2014
INDEPENDENT REVIEW REPORT TO AFRICAN MINERALS LIMITED
to the shareholders of African Minerals Limited
Introduction
We have been engaged by the Company to review the interim
condensed consolidated financial statements in the Interim Report
for the six months ended 30 June 2014 which comprises the Interim
Condensed Consolidated Income Statement, Interim Condensed
Consolidated Statement of Comprehensive Income, Interim Condensed
Consolidated Balance Sheet, Interim Condensed Consolidated
Statement of Cash Flows, Interim Condensed Consolidated Statement
of Changes in Equity and related notes 1 to 19. We have read the
other information contained in the Interim Report and considered
whether it contains any apparent misstatements or material
inconsistencies with the information in the interim condensed
consolidated financial statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The Interim Report is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the Interim Report in accordance with International
Accounting Standards 34, "Interim Financial Reporting," as adopted
by the European Union.
As disclosed in note 1, the annual financial statements of the
Group are prepared in accordance with IFRSs as adopted by the
European Union. The interim condensed consolidated financial
statements included in Interim Report have been prepared in
accordance with International Accounting Standards 34, "Interim
Financial Reporting, " as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the interim condensed consolidated financial statements in the
Interim Report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the interim condensed consolidated
financial statements in the Interim Report for the six months ended
30 June 2014 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union.
Emphasis of Matter
In forming our opinion on the interim condensed consolidated
financial statements, we have considered the adequacy of the
disclosures made in Note 2 to the interim condensed consolidated
financial statements concerning the Group's ability to continue as
a going concern. The conditions described in Note 2 indicate the
existence of material uncertainties which may cast significant
doubt about the Group's ability to continue as a going concern. The
material uncertainties include the Group's ability to refinance the
pre-export finance facility and raise additional funding; the
ability to obtain waivers for forecast covenant breaches on debt
facilities; continued low iron ore prices; the impact of the Ebola
outbreak; and AML parent company's ability to meet its financial
commitments. The interim condensed consolidated financial
statements do not include the adjustments that would result if the
Group was unable to continue as a going concern.
Ernst & Young LLP
London
29 September 2014
AFRICAN MINERALS LIMITED
INTERIM CONDENSED CONSOLIDATED INCOME STATEMENT
For the six months ended 30 June 2014
(Unaudited) (Unaudited) (Audited)
Six Months Ended 30 June 2014 Six Months Ended 30 June 2013 Year Ended 31 December 2013
Notes $m $m $m
----- ------------------------------ ------------------------------ ----------------------------
Revenue 4 399.2 404.8 869.1
Cost of sales 5 (402.8) (296.1) (656.4)
------------------------------ ------------------------------ ----------------------------
Gross (loss)/profit (3.6) 108.7 212.7
Selling and
distribution
expenses 6 (31.6) (39.9) (79.7)
General and
administrative
expenses 6 (23.0) (29.4) (50.4)
----------------------------
Operating
(loss)/profit
before special
items (58.2) 39.4 82.6
Special items 6 (26.9) (57.7) (152.1)
----------------------------
Operating loss (85.1) (18.3) (69.5)
Finance income - - 0.1
Finance costs 7 (53.3) (36.3) (85.9)
Imputed interest
cost of deferred
income 14 (36.4) (34.1) (68.9)
Gain on
non-controlling
interest put option 14 167.6 103.8 169.8
Impairment of
available for sale
investments - (39.6) (39.6)
------------------------------ ------------------------------ ----------------------------
77.9 (6.2) (24.5)
----------------------------
Loss before taxation
for the period (7.2) (24.5) (94.0)
Taxation 8 15.9 (4.8) 4.4
----------------------------
Profit/(loss) after
taxation for the
period 8.7 (29.3) (89.6)
------------------------------ ------------------------------ ----------------------------
Attributable to:
Equity holders of
the parent 8.9 (30.9) (90.7)
Non-controlling
interest (0.2) 1.6 1.1
------------------------------ ------------------------------ ----------------------------
8.7 (29.3) (89.6)
------------------------------ ------------------------------ ----------------------------
Earnings/(loss)
per share based
on profit/(loss)
for the period -
US cents
Basic
earnings/(loss) 9 2.70 (9.34) (27.37)
Diluted
earnings/(loss) 9 2.52 (9.34) (27.37)
Loss per share
based on
Underlying
Profit - US
cents
Basic and diluted
loss 9 (41.35) (12.25) (24.65)
AFRICAN MINERALS LIMITED
INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE
INCOME
For the six months ended 30 June 2014
(Unaudited) (Unaudited) (Audited)
Six Months Ended 30 June 2014 Six Months Ended 30 June 2013 Year Ended 31 December 2013
$m $m $m
------------------------------ ------------------------------ ----------------------------
Profit/(loss) after taxation
for the period 8.7 (29.3) (89.6)
Other
comprehensive
(expense)/income:
Items that will be
reclassified
subsequently to
profit and loss
Loss on available for sale
investments (4.0) (28.5) (24.6)
Reclassification of previous
loss on available for sale
investments - 39.6 39.6
Deferred taxation on temporary
differences (2.2) - 2.5
Other comprehensive
(expense)/income for the
period (6.2) 11.1 17.5
------------------------------ ------------------------------ ----------------------------
Total comprehensive
income/(expense) for the
period 2.5 (18.2) (72.1)
------------------------------ ------------------------------ ----------------------------
Income/(expense)
attributable to:
Equity holders of the parent 2.7 (19.8) (73.2)
Non-controlling interest (0.2) 1.6 1.1
------------------------------ ------------------------------ ----------------------------
2.5 (18.2) (72.1)
------------------------------ ------------------------------ ----------------------------
AFRICAN MINERALS LIMITED
INTERIM CONDENSED CONSOLIDATED BALANCE SHEET
At 30 June 2014
(Unaudited) (Unaudited) (Audited)
30 June 2014 30 June 2013 31 December 2013
Notes $m $m $m
----- ------------- ------------- -----------------
Assets
Non-current assets
Intangible assets 1.7 10.0 2.1
Property, plant and equipment 10 2,486.4 2,515.9 2,498.5
Available for sale investments 13.0 13.1 16.9
Inventories 32.2 30.0 32.0
Deferred tax assets 8 85.8 60.4 72.1
Deposits 3.0 - 3.0
-----------------
Total non-current assets 2,622.1 2,629.4 2,624.6
------------- ------------- -----------------
Current assets
Inventories 82.5 64.3 81.5
Trade and other receivables 116.2 136.1 166.2
Cash and cash equivalents 11 331.8 501.6 362.4
-----------------
Total current assets 530.5 702.0 610.1
------------- ------------- -----------------
Total assets 3,152.6 3,331.4 3,234.7
------------- ------------- -----------------
Equity and liabilities
Equity
Share capital 12 3.3 3.3 3.3
Share premium 12 903.5 903.1 903.2
Equity reserves 12 133.3 139.8 141.6
Fair value reserve 12 (0.2) (0.1) 3.8
Retained losses (188.8) (147.6) (207.4)
-----------------
Equity attributable to owners of the parent 851.1 898.5 844.5
Non-controlling interest 136.7 137.4 136.9
-----------------
Total equity 987.8 1,035.9 981.4
------------- ------------- -----------------
Non-current liabilities
Interest-bearing loans and borrowings 13 500.0 493.1 571.9
Deferred income 14 603.7 520.7 551.9
Provisions 15 38.0 33.1 36.5
-----------------
Total non-current liabilities 1,141.7 1,046.9 1,160.3
------------- ------------- -----------------
Current liabilities
Interest-bearing loans and borrowings 13 290.6 290.1 263.8
Trade and other payables 227.1 304.1 187.6
Deferred income 14 64.2 27.2 41.8
Non-controlling interest put option 14 368.6 602.2 536.2
Provisions 15 72.6 25.0 63.6
-----------------
Total current liabilities 1,023.1 1,248.6 1,093.0
------------- ------------- -----------------
Total liabilities 2,164.8 2,295.5 2,253.3
------------- ------------- -----------------
Total equity and liabilities 3,152.6 3,331.4 3,234.7
------------- ------------- -----------------
The financial statements were approved by the Board on 29
September 2014 and were signed on its behalf by:
Alan Watling Matthew Hird
Chief Executive Officer Chief Financial Officer
AFRICAN MINERALS LIMITED
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the six months ended 30 June 2014
(Unaudited) (Unaudited) (Audited)
Six Months Ended 30 June 2014 Six Months Ended 30 June 2013 Year Ended 31 December 2013
Notes $m $m $m
----- ------------------------------ ------------------------------ ----------------------------
Operating cash flow
before working capital
changes 17 (72.4) 27.0 93.4*
Increase in inventories (1.2) (10.2) (29.4)
Decrease/(increase) in
trade and other
receivables 50.0 (93.6) (135.4)
Increase/(decrease) in
provisions 8.9 (37.2)* 3.2
Increase in other
deferred income 80.0 - 20.0*
Increase/(decrease) in
trade and other
payables 39.5 (43.3) (148.4 )*
Net cash flow from
operating activities 104.8 (157.3) (196.6)
------------------------------ ------------------------------ ----------------------------
Cash flows from
investing activities
Interest received - - 0.1
Payments to acquire
property, plant and
equipment (48.5) (161.0)* (222.5 )*
Proceeds received from
pre-production sales
(commissioning
adjustment) - 50.8 52.2
Net cash outflow from
investing activities (48.5) (110.2) (170.2)
------------------------------ ------------------------------ ----------------------------
Cash flows from
financing activities
Proceeds of exercise of
options and warrants 0.1 0.6 0.7
Proceeds from borrowings - 217.4 266.1
Repayment of borrowings (56.7) (12.5) (69.9)
Interest paid and costs
of financing (30.3) (38.3)* (69.0)
------------------------------ ------------------------------ ----------------------------
Net cash flow from
financing activities (86.9) 167.2 127.9
------------------------------ ------------------------------ ----------------------------
Net (decrease)/increase
in cash and cash
equivalents (30.6) (100.3) (238.9)
Net foreign exchange
difference - - (0.6)
Cash and cash
equivalents at
beginning of period 362.4 601.9 601.9
----------------------------
Cash and cash
equivalents at end of
period 11 331.8 501.6 362.4
------------------------------ ------------------------------ ----------------------------
* Prior period numbers have been restated to reflect consistent
disclosure treatment with the current period.
AFRICAN MINERALS LIMITED
INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
For the six months ended 30 June 2014
Attributable to equity holders of the parent
-------------------------------------------------------------
Share Non-
Share premium Equity Fair value Retained controlling
capital account reserves reserves losses Total interest Total
$m $m $m $m $m $m $m $m
-------- -------- --------- ---------- -------- ----- ------------ -------
As at 1 January
2013 3.3 902.4 137.9 (11.2) (116.7) 915.7 135.8 1,051.5
(Loss)/profit for
the year - - - - (90.7) (90.7) 1.1 (89.6)
Loss on available
for sale
investments - - - (24.6) - (24.6) - (24.6)
Reclassification
of previous loss
on available for
sale investments - - - 39.6 - 39.6 - 39.6
Deferred taxation
on temporary
differences - - 2.5 - - 2.5 - 2.5
Total
comprehensive
income/(expense) - - 2.5 15.0 (90.7) (73.2) 1.1 (72.1)
Allotments during
the year - 0.7 - - - 0.7 - 0.7
Remeasurement of
warrants - - 2.1 - - 2.1 - 2.1
Share-based
payments - - (0.8) - - (0.8) - (0.8)
Reserves transfer
- warrants - 0.1 (0.1) - - - - -
As at 31 December
2013 (Audited) 3.3 903.2 141.6 3.8 (207.4) 844.5 136.9 981.4
Profit for the
period - - - - 8.9 8.9 (0.2) 8.7
Loss on available
for sale
investments - - - (4.0) - (4.0) - (4.0)
Deferred taxation
on temporary
differences - - (2.2) - - (2.2) - (2.2)
-------- -------- --------- ---------- -------- ----- ------------ -------
Total
comprehensive
(expense)/income - - (2.2) (4.0) 8.9 2.7 (0.2) 2.5
Allotments during
the period - 0.1 - - - 0.1 - 0.1
Share-based
payments - - 3.8 - - 3.8 - 3.8
Reserves transfer
- options - 0.2 (9.9) - 9.7 - - -
-------- -------- --------- ---------- -------- ----- ------------ -------
As at 30 June
2014 (Unaudited) 3.3 903.5 133.3 (0.2) (188.8) 851.1 136.7 987.8
-------- -------- --------- ---------- -------- ----- ------------ -------
As at 1 January
2013 3.3 902.4 137.9 (11.2) (116.7) 915.7 135.8 1,051.5
(Loss)/profit for
the period - - - - (30.9) (30.9) 1.6 (29.3)
Loss on available
for sale
investments - - - (28.5) - (28.5) - (28.5)
Reclassification
of previous loss
on available for
sale investments - - - 39.6 - 39.6 - 39.6
Total
comprehensive
income/(expense) - - - 11.1 (30.9) (19.8) 1.6 (18.2)
Allotments during
the period - 0.6 - - - 0.6 - 0.6
Share-based
payments - - 2.0 - - 2.0 - 2.0
Reserves transfer
- warrants - 0.1 (0.1) - - - - -
As at 30 June
2013 (Unaudited) 3.3 903.1 139.8 (0.1) (147.6) 898.5 137.4 1,035.9
-------- -------- --------- ---------- -------- ----- ------------ -------
1. BASIS OF PREPARATION
Basis of preparation
The unaudited interim condensed consolidated financial
statements of the Group have been prepared in accordance with
International Accounting Standard ('IAS') 34 Interim Financial
Reporting as adopted by the European Union for the six months ended
30 June 2014. The unaudited condensed consolidated financial
statements are not a complete set of financial statements and
should be read in conjunction with the Group's annual financial
statements for the year ended 31 December 2013. These annual
financial statements are prepared in accordance with the
International Financial Reporting Standards ("IFRS") and
interpretations issued by the International Financial Reporting
Interpretations Committee ("IFRIC"), as issued by the International
Accounting Standards Board ("IASB") and adopted by the European
Union ("EU").
The unaudited interim condensed consolidated financial
statements for the six months ended 30 June 2014 do not constitute
statutory accounts and have been drawn up using accounting policies
and presentation consistent with those applied in the audited
accounts for the year ended 31 December 2013. In order to apply
consistent disclosure treatment with the current period's
disclosures, certain prior period items have been restated within
the interim condensed consolidated statement of cash flows. The
auditor's report for the year ended 31 December 2013 was
unqualified.
New and amended standards and interpretations
The accounting policies adopted are consistent with those of the
previous financial year. The following new and amended IFRS and
Interpretations have the following effective dates and related
impacts on the Group:
Impact on the
Effective Group
--------- -------------
IFRS 1 January Immaterial
10 Consolidated Financial Statements 2014 impact
IFRS 1 January
11 Joint Arrangements 2014 No impact
IFRS Disclosure of Involvement With Other 1 January Immaterial
12 Entities 2014 impact
Investments in Associates and Joint 1 January
IAS 28 Ventures - Amendment 2014 No impact
Recoverable amounts disclosure for 1 January Immaterial
IAS 36 non-financial assets 2014 impact
IFRIC 1 January Immaterial
21 Levies 2014 impact
The Group has not early adopted any other standard,
interpretation or amendment that has been issued but is not yet
effective.
Going concern
The Directors have prepared these unaudited interim condensed
consolidated financial statements on the assumption that the Group
is able to continue as a going concern (please refer to Note 2 for
further details).
Accounting convention
The unaudited interim condensed consolidated financial
statements have been prepared on a historical cost basis, except
for certain financial instruments that have been measured at fair
value. The unaudited interim condensed consolidated financial
statements are presented in US dollars and all values are rounded
to the nearest millions except when otherwise indicated.
Non-GAAP performance indicators
The Group discloses certain non-GAAP financial performance
indicators, including EBITDA and Underlying Profits, and those are
reconciled to comparable IFRS financial measures. These non-GAAP
performance indicators are used to assess the performance of the
Group, and are used for management reporting only. They are not a
substitute for the IFRS measures and should be considered alongside
those measures.
Significant accounting judgements, estimates and assumptions
The preparation of the Group's unaudited interim condensed
consolidated financial statements requires the Directors to make
judgements, estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent
liabilities at the date of the unaudited interim condensed
consolidated financial statements, and the reported amounts of
revenues and expenses during the reporting period. Those accounting
judgements, estimates and assumptions for the unaudited interim
condensed consolidated financial statements are consistent with
those disclosed in the Group's consolidated financial statements
for the year ended 31 December 2013.
Segment reporting
The Group is managed as a single operating segment which
developed a mine and related infrastructure achieving commercial
production from the beginning of January 2013. In accordance with
IFRS 8 Operating Segments, the Group presents its results as a
single segment.
The Group does not have any significant non-current assets that
are located in the country of domicile of the Company. The majority
of the non-current assets are located in Sierra Leone.
2. GOING CONCERN
The Group has prepared a cash flow and financial forecast based
on best estimates of key variables including volumes, iron ore
prices, operating costs, capital expenditure and ongoing legal
cases (as discussed in Note 16) through to December 2015 that
supports the conclusion of the Directors that there is sufficient
funding available to meet the Group's anticipated cash flow
requirements to this date. However, there are a number of matters
which could impact the Group's ability to continue as a going
concern:
-- The Group put in place a $250.0m pre-export financing
facility in April 2013 and as at 30 June 2014 it was fully drawn.
The pre-export finance facility requires repayments of $10.4m per
month from March 2014 for 24 months and repayments have been made
in full to date. As this repayment schedule is not aligned with the
long term cash flows of the project there is a risk that the Group
will not be able to sustain these monthly repayments throughout the
forecast period. In addition to refinancing the pre-export finance
facility, the Group also needs to raise further funding to provide
sufficient working capital for ongoing operations and liquidity for
capital expansion and development of the friable hematite ore body.
In the financial results for the year ended 31 December 2013, the
Group disclosed this matter as a material uncertainty.
-- The Group's debt facility arrangements require compliance
with certain financial ratios. The financial covenant tests for all
facilities in the period, up to and including 30 June 2014, have
been passed. However, based on the forecast, the Group will not
comply with all of these ratios in the forecast period.
-- The Group is exposed to volatile iron ore prices. Iron ore
prices occasionally dip significantly, as they have done at the
present time. Historically though, such dips have only lasted for a
few months at a time. However, the current low prices have now
remained below $80 per tonne since 19 May 2014 thereby negatively
impacting the Group's cash flows.
-- As a result of the recent Ebola outbreak in West Africa, the
Government of Sierra Leone has declared a State of Public Emergency
and certain international airlines have suspended services to the
region. Further escalation of this outbreak could negatively impact
the Group's ability to operate the mine and associated
facilities.
-- During August 2014, AML and SISG agreed to make available
$284m of cash held at the project level, previously earmarked for
Phase II expansion, for working capital purposes. It was also
agreed that the Project Companies should be financially and
operationally separate from the activities of AML. In light of this
financial separation, there is uncertainty over the sources of
funding to meet AML's future financial commitments.
Having considered the above matters the Directors have concluded
that a series of negative events associated with any one or
combination of these issues may have a negative impact on the
viability of the Group. The Directors have therefore concluded that
these matters constitute material uncertainties that may cast
significant doubt over the Group's ability to continue as a going
concern.
Nevertheless, after making appropriate enquiries and considering
these material uncertainties, the Directors believe that the Group
will continue to operate as a going concern for the foreseeable
future for the following reasons:
-- The Directors have a detailed plan to refinance the
pre-export finance facility with longer-term funding from bank
financing and/or the debt capital markets, and for both options,
advisers have been appointed. In respect of bank financing,
technical consultants have been engaged by the mandated lead
arranger and are in the process of reviewing the five year
operating plan, and prospective lenders have already been
approached to gauge their appetite to a long term loan which
refinances the pre-export finance facility, provides sufficient
working capital in the near term and puts in place sufficient
liquidity to allow an expansion in capacity to 25mt per annum and
development of the friable hematite ore body. Extensive preparation
has also been completed for any potential debt capital issuance,
including completion of due diligence and related
documentation.
-- The Group has successfully negotiated waiver of covenants in
the past, including for the forthcoming September 2014 test date,
and is confident that this will be achievable in the future.
-- Historical experience and the most recent analyst forecasts
indicate that iron ore prices will recover from their current low
levels. The directors of the Project Companies have also approved a
financial recovery plan that includes an increase in export
volumes, a reduction in the cost base and a revenue enhancement
strategy, with a view to making the Project Companies cash flow
positive on a sustainable basis by the end of 2014 in the current
depressed iron ore price environment. In addition, the proposed
refinancing of the pre-export financing facility above will provide
additional working capital to address the short term impact of low
iron ore prices.
-- The Government of Sierra Leone and the international
community are taking actions to control the spread of Ebola.
Furthermore, controls have been introduced at the sites of the
Group and contingency plans have been put in place so that the
employees and contractors of the Group are protected from the
spread of Ebola. Despite all of these measures, there remains a
residual risk that a spread of Ebola will impact the Group's
ability to operate the project.
-- As a result of approval from SISG and AML to release the
funds restricted for Phase II expansion, and other options to
manage working capital, including implementation of the financial
recovery plan, the Project Companies should have sufficient cash to
meet near term commitments including the provision of additional
working capital, funding of cost reduction initiatives and
financing operating losses and debt repayments. To date, $142.0m
has been released, and a further $101.0m has been agreed to be
released in October 2014, leaving $41.0m remaining in the
restricted bank account.
-- The Directors are reviewing the optimum capital structure for
AML, with a view to putting in place a funding plan for AML
separate from the funding needs of the Project Companies. The plan
will involve raising shorter term funding to meet AML's commitments
in the near term and in addition, the Company is working with its
advisors on other sources of funding for the medium to long
term.
Accordingly, these financial statements do not include any
adjustments to the carrying amount or classification of assets and
liabilities that would result if the Group were unable to continue
as a going concern.
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, "C1" production cash costs, "All-in"
cash costs, Underlying Profits and net financial indebtedness.
(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 tax, finance,
depreciation, impairment, amortisation and special items.
(Unaudited) (Unaudited) (Audited)
Six Months Ended 30 June 2014 Six Months Ended 30 June 2013 Year Ended 31 December 2013
$m $m $m
----------------------------
Loss before
non-operating
items and
taxation (85.1) (18.3) (69.5)
Depreciation 60.5 60.2 119.6
Amortisation 0.4 0.4 0.7
Special items 26.9 57.7 152.1
------------------------------ ------------------------------ ----------------------------
EBITDA 2.7 100.0 202.9
------------------------------ ------------------------------ ----------------------------
(b) Underlying Profits
"Underlying Profits" is an alternative earnings measure, which
the Directors believe provides a more consistent measurement for
comparing the underlying financial performance of the Group's
operations. Underlying Profits is the profit/(loss) for the period
excluding special items, revaluation of the SISG put option and
their resultant tax and non-controlling interest effect.
(Unaudited) (Unaudited) (Audited)
Six Months Ended 30 June 2014 Six Months Ended 30 June 2013 Year Ended 31 December 2013
$m $m $m
----------------------------
Profit/(loss)
attributable to
equity holders of
the parent 8.9 (30.9) (90.7)
Gain on
non-controlling
interest put option (167.6) (103.8) (169.8)
Impairment of
available for sale
investments - 39.6 39.6
Special items 26.9 57.7 152.1
Non-controlling
interest of special
items - - (1.1)
Tax effect from
above items (5.5) (3.2) (11.8)
Underlying Profits
attributable to
equity holders of
the parent (137.3) (40.6) (81.7)
------------------------------ ------------------------------ ----------------------------
3. NON-GAAP PERFORMANCE INDICATORS (continued)
(c) "C1" production cash cost and "All-in" cash costs
"C1" production cash cost represents the cash costs of the
mining, railway and port operations divided by wet tonnes shipped
and excludes depreciation and amortisation.
"All-in" cash cost represent the cash costs of production
(mining, railway and port) selling, general and administration
expenses and sustaining and optimising capital expenditure divided
by wet tonnes shipped.
(Unaudited) (Unaudited) (Audited)
Six Months Ended 30 June 2014 Six Months Ended 30 June 2013 Year Ended 31 December 2013
$m $m $m
----------------------------
Cost of sales (402.8) (296.1) (656.4)
Add: Depreciation
within cost of
sales 59.1 59.8 116.9
----------------------------
"C1" production
cash cost (343.7) (236.3) (539.5)
Selling costs (31.6) (39.9) (79.7)
General and
administrative
expenses (23.0) (29.4) (50.4)
Add: Depreciation
within general and
administrative
expenses 1.4 0.4 2.7
Add: Amortisation
of intangible
assets within
general and
administrative
expenses 0.4 0.4 0.7
Sustaining capital
expenditure (25.0) (29.8) (50.4)
------------------------------ ------------------------------ ----------------------------
"All-in" cash costs (421.5) (334.6) (716.6)
------------------------------ ------------------------------ ----------------------------
Ore shipped (wet
tonnes) 8,890,315 5,533,817 12,128,348
"C1" production
cash cost per
tonne (US$) 38.66 42.70 44.48
"All-in" cash costs
per tonne (US$) 47.41 60.46 59.08
(d) Net financial indebtedness
Net financial indebtedness as defined by the Group comprises
cash and cash equivalents and loans and borrowings.
(Unaudited) (Unaudited) (Audited)
30 June 2014 30 June 2013 31 December 2013
$m $m $m
-----------------
Cash and cash equivalents 331.8 501.6 362.4
Current loans and borrowings (290.6) (290.1) (263.8)
Non-current loans and borrowings (500.0) (493.1) (571.9)
------------- ------------- -----------------
Net financial indebtedness (458.8) (281.6) (473.3)
------------- ------------- -----------------
4. REVENUE
(Unaudited) (Unaudited) (Audited)
Six Months Ended 30 June 2014 Six Months Ended 30 June 2013 Year Ended 31 December 2013
Revenue by product: $m $m $m
----------------------------
All in 32 253.2 198.4 225.0
Fines 90.8 126.4 252.9
Lump blend 55.2 80.0 391.2
------------------------------ ------------------------------ ----------------------------
Total revenue 399.2 404.8 869.1
------------------------------ ------------------------------ ----------------------------
All export sales of iron ore in 2014 were delivered to China
(six months to 30 June 2013 and year to 31 December 2013: All to
China).
4. REVENUE (continued)
Revenue by customer:
During the period, sales were made to the following customers as
revenue from export sales of iron ore:
(Unaudited) (Unaudited) (Audited)
Six Months Ended 30 June 2014 Six Months Ended 30 June 2013 Year Ended 31 December 2013
$m $m $m
----------------------------
Shandong Iron
and Steel Group 189.7 220.0 460.6
China Railway
Materials
Commercial
Corporation 95.8 107.5 248.8
Other customers 113.7 77.3 159.7
------------------------------ ------------------------------ ----------------------------
Total revenue 399.2 404.8 869.1
------------------------------ ------------------------------ ----------------------------
Other customers include sales of 869,107 wet tonnes with a value
of $35.8m in the six months to 30 June 2014 delivered under prepay
contracts (six months to 30 June 2013 and year to 31 December 2013:
nil). The Group has entered into two prepay contracts, details of
which can be found in Note 14.
5. COST OF SALES
(Unaudited) (Unaudited) (Audited)
Six Months Ended 30 June 2014 Six Months Ended 30 June 2013 Year Ended 31 December 2013
$m $m $m
----------------------------
Contractors 184.9 125.5 297.8
Consumables 79.4 51.2 118.0
Depreciation of
mine, railway and
port assets 59.1 59.8 116.9
Personnel costs 44.2 46.5 82.5
Travel and
entertainment 4.3 5.5 10.3
Freight costs 4.4 3.5 9.6
Maintenance and
repairs 2.5 3.5 6.3
IT and
communications 3.1 2.3 6.0
Consultants 5.0 1.6 4.8
Changes in
inventories 9.3 (7.4) (7.7)
Other 6.6 4.1 11.9
------------------------------ ------------------------------ ----------------------------
Total cost of sales 402.8 296.1 656.4
------------------------------ ------------------------------ ----------------------------
(Unaudited) (Unaudited) (Audited)
Six Months Ended 30 June 2014 Six Months Ended 30 June 2013 Year Ended 31 December 2013
Cost of sales by function: $m $m $m
----------------------------
Mine 180.0 108.6 275.3
Rail 30.7 25.5 55.3
Port 107.6 79.0 162.0
Central services 25.4 23.2 46.9
------------------------------ ------------------------------ ----------------------------
343.7 236.3 539.5
Depreciation of mine, railway
and port assets 59.1 59.8 116.9
----------------------------
Total cost of sales 402.8 296.1 656.4
------------------------------ ------------------------------ ----------------------------
6. NET OPERATING EXPENSES
(Unaudited) (Unaudited) (Audited)
Six Months Ended 30 June 2014 Six Months Ended 30 June 2013 Year Ended 31 December 2013
$m $m $m
----------------------------
Selling and
distribution
expenses
Sales commissions 20.0 24.4 44.5
Government
royalties 11.3 11.7 24.9
Demurrage 0.3 3.8 10.3
----------------------------
Total selling and
distribution
expenses 31.6 39.9 79.7
------------------------------ ------------------------------ ----------------------------
Demurrage is shown net of income from the port of $5.1m during the period (six months to 30
June 2013: $2.4m; year to 31 December 2013: $6.8m).
General and
administrative
expenses
Personnel costs 11.8 16.6 25.9
Travel 2.7 4.7 6.2
Share based
payments expense 3.8 2.0 (0.8)
Office costs 1.7 1.3 3.1
Insurance 0.5 2.6 4.7
Depreciation of
property, plant
and equipment 1.4 0.4 2.7
Amortisation of
intangible assets 0.4 0.4 0.7
Other operating
charges 0.7 1.4 7.9
----------------------------
Total general and
administrative
expenses 23.0 29.4 50.4
------------------------------ ------------------------------ ----------------------------
Special
items(1)
Penalties for SISG
warranty breach 5.7 40.0 46.3
Transaction costs
and other
professional fees 2.9 3.3 9.0
Project optimising
costs 8.8 - -
Onerous offtake
contracts and
contractor claims 9.5 8.2 19.7
Impairment of
property, plant
and equipment - 6.2 25.1
Impairment of
exploration
expenditure - - 7.6
Adviser's fees
claim - - 37.0
Provision for
doubtful debts - - 7.4
Total special items 26.9 57.7 152.1
------------------------------ ------------------------------ ----------------------------
(1) Special items are significant items of income and expense,
presented separately, due to their non-recurring nature or the
expected infrequency of the events giving rise to them.
Penalties for SISG warranty breach
The purchase and sale agreements with SISG guarantee that the
Group's Tonkolili operation would reach a production rate of 12mtpa
by the start of 2013. This production rate was not achieved until 1
May 2013 for which SISG claimed compensation. The agreements also
contain warranties by the Group about the business and finances of
the project Companies as at the closing of the transaction, and
certain breaches have been identified and claimed by SISG.
The Group has reached a commercial settlement of these claims
with SISG, which is in full and final settlement of all production
guarantees, and all warranty claims except those relating to
environment and tax which have a longer limitation period. In 2014,
a penalty expense of $5.7m was recognised in respect of these
warranty breaches (six months to 30 June 2013: $40.0m; year to 31
December 2013: $46.3m).
Transaction costs and other professional fees
Transaction costs and other professional fees in the period of
$2.9m (six months to 30 June 2013: $3.3m; year to 31 December 2013:
$9.0) principally include legal fees relating to defending the
claim for financial adviser's fees filed by a third party. The
amount of $3.3m in 2013 includes residual costs of the investment
made by SISG in March 2012.
6. NET OPERATING EXPENSES (continued)
Project optimising costs
Project optimising costs relate to debottlenecking certain
aspects of the rail and port operations to allow capacity to
increase to 25mt per annum.
Onerous offtake contracts and contractor claims
There was an additional expense of $9.5m for onerous offtake
contracts recognised in the six months to 30 June 2014 (six months
to 30 June 2013: $8.2m; year to 31 December 2013: $19.7m). The
amounts include compensation charges for an inability to fulfil
several offtake contracts in 2014 and 2015.
Adviser's fees claim
In 2013, an expense of $37.0m was recognised relating to a claim
for financial adviser's fees relating to fund raisings and
transactions in prior years (refer to Note 16 for further details).
This expense is net of an existing provision of $6.2m relating to
this claim which was recognised in 2012.
7. FINANCE COSTS
(Unaudited) (Unaudited) (Audited)
Six Months Ended 30 June 2014 Six Months Ended 30 June 2013 Year Ended 31 December 2013
$m $m $m
----------------------------
Borrowing costs 41.9 35.4 75.4
Financing fees 9.8 0.9 11.2
Unwinding of
discount on
restoration and
decommissioning
provision (Note 15) 1.6 - 1.6
Gain on related
party discounted
interest rate (Note
13) - - (4.4)
Warrants costs (Note
12) - - 2.1
Total finance costs 53.3 36.3 85.9
------------------------------ ------------------------------ ----------------------------
Borrowing costs relate to the effective interest rate incurred
on facilities referred to in Note 13.
Financing fees include 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.
8. TAXATION
Analysis of credit for the period:
(Unaudited) (Unaudited) (Audited)
Six Months Ended 30 June 2014 Six Months Ended 30 June 2013 Year Ended 31 December 2013
$m $m $m
------------------------------ ------------------------------ ----------------------------
Deferred tax
Current period 32.5 (6.1) 1.2
Tax adjustments in
respect of prior
periods (16.6) 1.3 3.2
Deferred tax
credit/(charge) 15.9 (4.8) 4.4
------------------------------ ------------------------------ ----------------------------
The effective corporate income tax for the year is lower than
the statutory rate of corporation tax in the UK of 21.5% (30 June
2013: 23.5%; 31 December 2013: 23.3%).
A reconciliation between the tax credit reflected in the
consolidated income statement and the expected tax credit based on
the statutory rate of corporation tax for the period is shown
below:
8. TAXATION (continued)
(Unaudited) (Unaudited) (Audited)
Six Months Ended 30 June 2014 Six Months Ended 30 June 2013 Year Ended 31 December 2013
$m $m $m
------------------------------ ------------------------------ ----------------------------
Loss on ordinary
activities before tax (7.2) (24.5) (94.0)
------------------------------ ------------------------------ ----------------------------
Group's domestic
tax rate is as
follows:
Loss before tax
multiplied by the
standard rate of UK
corporation tax 21.5%
(six months to
30 June 2013 23.5%;
year to 31 December
2013: 23.3%) 1.5 5.8 21.9
Effects of:
Net income not taxable 36.0 - 39.5
Expenses not
deductible for tax
purposes (1.8) 4.0 (34.4)
Derecognition of
previously recognised
deferred tax assets (0.4) (9.0) (9.0)
Recognition of
previously
unrecognised
temporary differences - 0.1 0.6
Tax adjustments in
respect of prior
periods (16.6) 1.3 3.2
Losses not recognised (6.7) (6.7) (16.4)
Effect of overseas tax
rates 3.9 (0.3) (1.0)
------------------------------ ------------------------------ ----------------------------
Total taxation credit 15.9 (4.8) 4.4
------------------------------ ------------------------------ ----------------------------
Deferred income tax asset
Based on the Group's iron ore production in the six months to 30
June 2014 and forecast performance, the Directors have increased
confidence of its ability to generate taxable profits against which
brought forward tax losses may be utilised.
The movement in deferred tax assets and liabilities during the
period, without taking into consideration the offsetting of
balances within the same tax jurisdiction, is as follows:
Property
Tax plant and
losses Other temporary differences equipment Total
Deferred income tax assets $m $m $m $m
------- --------------------------- ---------- -----
At 1 January 2013 395.3 6.3 0.2 401.8
Credited/(charged) to consolidated income statement 108.0 (4.7) (0.2) 103.1
Credited to other comprehensive income - 2.5 - 2.5
As at 31 December 2013 503.3 4.1 - 507.4
Credited to consolidated income statement 64.3 0.3 - 64.6
Charged to other comprehensive income - (2.2) - (2.2)
As at 30 June 2014 567.6 2.2 - 569.8
------- --------------------------- ---------- -----
At 1 January 2013 395.3 6.3 0.2 401.8
Credited/(charged) to consolidated income statement 60.3 (5.9) (0.2) 54.2
As at 30 June 2013 455.6 0.4 - 456.0
------- --------------------------- ---------- -----
8. TAXATION (continued)
Property
plant and
equipment
Deferred income tax liabilities $m
----------
At 1 January 2013 336.6
Charged to consolidated income statement 98.7
As at 31 December 2013 435.3
Charged to consolidated income statement 48.7
As at 30 June 2014 484.0
----------
At 1 January 2013 336.6
Charged to consolidated income statement 59.0
As at 30 June 2013 395.6
----------
Net deferred tax asset
At 1 January 2013 65.2
Tax credit recognised in consolidated income statement 4.4
Tax credit recognised in other comprehensive income 2.5
As at 31 December 2013 72.1
Tax credit recognised in consolidated income statement 15.9
Tax charge recognised in other comprehensive income (2.2)
As at 30 June 2014 85.8
----
At 1 January 2013 65.2
Tax charge recognised in consolidated income statement (4.8)
As at 30 June 2013 60.4
----
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. The Group has unrecognised deferred tax assets of
approximately $45.9m (31 December 2013: $39.8m) in respect of tax
losses that are available indefinitely for offset against future
taxable profits. Furthermore, the Group has unrecognised deferred
tax assets of nil (31 December 2013: $0.1m) on future deductions
available in relation to employee share schemes, $0.8m (31 December
2013: $0.6m) in relation to capital allowances in excess of
depreciation and $0.6m (31 December 2013: $0.7m) in relation to
unrealised capital losses on investments held.
Change in corporation tax rate
United Kingdom
Provisions to reduce the rate of corporation tax to 21% with
effect from 1 April 2014 and to 20% with effect from 1 April 2015
were substantively enacted on 2 July 2013 under the Provisional
Collection of Taxes Act 1968. Deferred tax balances have therefore
been provided for at the 20% rate.
Sierra Leone
The rate of corporation tax is 25% as provided for in the
Group's Mining Lease Agreement and has not changed in the
period.
9. EARNINGS/(LOSS) PER SHARE
(a) Basic and diluted earnings/(loss) per share based on profit
for the period
(Unaudited) (Unaudited) (Audited)
Six Months Ended 30 June 2014 Six Months Ended 30 June 2013 Year Ended 31 December 2013
$m $m $m
------------------------------ ------------------------------ ----------------------------
Profit/(loss) for
the period
attributable to
owners of the
parent 8.9 (30.9) (90.7)
------------------------------ ------------------------------ ----------------------------
Basic earnings per share is calculated by dividing the
profit/(loss) attributable to owners of the parent by the weighted
average number of ordinary shares in issue during the period.
Shares Shares Shares
----------- ----------- -----------
Weighted average number of common shares in issue 331,903,535 331,412,112 331,402,576
----------- ----------- -----------
Basic earnings/(loss) per share - US cents 2.70 (9.34) (16.19)
----------- ----------- -----------
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares outstanding to assume
conversion of all dilutive potential ordinary shares. For share
options, a calculation is performed to determine the number of
shares that could have been acquired at fair value (determined as
the average annual market share price of the Company's shares)
based on the monetary value of the subscription rights attached to
outstanding share options. The number of shares calculated as above
is compared with the number of shares that would have been issued
assuming the exercise of the share options.
Where there is a basic loss per share, the dilution effect is
ignored.
Shares Shares Shares
----------- ----------- -----------
Weighted average number of common shares in issue 331,903,535 331,412,112 331,402,576
Adjustment for share options and warrants 23,290,237 - -
----------- ----------- -----------
355,293,772 331,412,112 331,402,576
-----------
Diluted earnings/(loss) per share - US cents 2.52 (9.34) (27.37)
(b) Basic and diluted earnings per share based on Underlying
Profits
Basic earnings/(loss) per share based on Underlying Profits is
calculated by dividing Underlying Profits by the weighted average
number of ordinary shares in issue during the period.
(Unaudited) (Audited)
(Unaudited) Six Months Year
Six Months Ended Ended Ended
30 June 2014 30 June 2013 31 December 2013
$m $m $m
----------------- ------------- -----------------
Underlying Profits (Note 3) (137.3 (40.6 (81.7
----------------- ------------- -----------------
Shares Shares Shares
----------------- ------------- -----------------
Weighted average number of common shares in issue 331,903,535 331,412,112 331,402,576
----------------- ------------- -----------------
Basic and diluted loss per share - US cents (41.35 (12.25 (24.65
Where there is a basic loss per share, the dilution effect is
ignored.
10. PROPERTY, PLANT AND EQUIPMENT
During the six months ended 30 June 2014, the Group acquired
property, plant & equipment and assets under construction with
a cost of $48.4m (six months to 30 June 2013: $191.5m; year to 31
December 2013: $252.4m). Of these acquisitions, $25.0m related to
sustaining and optimising capital expenditure (six months to 30
June 2013: $29.8m; year to 31 December 2013: $50.4m), $16.6m
related to the friable hematite project expenditure (Phase 2) (six
months to 30 June 2013: $25.4m; year to 31 December 2013: $50.6m)
and $6.8m related to residual Phase 1 expenditure (six months to 30
June 2013: $130.1m; year to 31 December 2013: $151.4m).
The total depreciation on property, plant & equipment for
the six months to 30 June 2014 was $60.5m (six months to 30 June
2013: $60.2m; year to 31 December 2013: $119.6m). There was a $6.2m
impairment recognised at 30 June 2013 in relation to certain
infrastructure at the project sites (six months to 30 June 2014:
nil; year to 31 December 2013: $25.1m).
The Group did not transfer any assets under construction to
property, plant & equipment during the six months to 30 June
2014. During the six months to 30 June 2013, $2,516.8m was
transferred from assets under construction to property, plant &
equipment. Most of this balance was transferred at the beginning of
January 2013 as the Group commenced production as at 1 January 2013
and depreciation commenced thereafter. As at 30 June 2014 assets
under construction of $115.7m (30 June 2013: $30.1m; 31 December
2013: $84.2m) predominantly related to capitalised expenditure on
the friable hematite project.
Certain property, plant and equipment is pledged as security
over the equipment financing facilities. Refer to Note 13.
11. CASH AND CASH EQUIVALENTS
(Unaudited) (Unaudited) (Audited)
Six Months Ended 30 June 2014 Six Months Ended 30 June 2013 Year Ended 31 December 2013
$m $m $m
------------------------------ ------------------------------ ----------------------------
Restricted cash 314.0 460.9 304.6
Cash at bank
and in hand 17.8 40.7 57.8
----------------------------
Total 331.8 501.6 362.4
------------------------------ ------------------------------ ----------------------------
Restricted cash includes $284.0m (30 June 2013: $460.9m; 31
December 2013: $304.6m) received from the Shandong Iron and Steel
Group ('SISG') transaction, which is allocated towards the funding
of the friable hematite project (Phase 2). This restriction is
based on the shareholders' agreement with SISG, which requires the
approval of the Company and SISG for the drawdown of funds.
Restricted cash also includes $30.0m held in escrow as cash
collateral for repayment of the cost overrun facility. Refer to
Note 13.
12. SHARE CAPITAL AND RESERVES
(a) SHARE CAPITAL
(Unaudited) (Unaudited) (Audited)
Six Months Ended 30 June 2014 Six Months Ended 30 June 2013 Year Ended 31 December 2013
Number of Number of Number of
shares $m shares $m shares $m
---------------------- ------ ---------------------- ------ ---------------------- ------
Authorised
Common shares of
US$0.01 each 500,000,000 5.0 500,000,000 5.0 500,000,000 5.0
---------------------- ------ ---------------------- ------ ---------------------- ------
Preference shares of
US$0.001 each 100,000,000 0.1 100,000,000 0.1 100,000,000 0.1
---------------------- ------ ---------------------- ------ ---------------------- ------
Issued and fully paid
- common shares of US$
0.01 each
As at 1 January 331,492,530 3.3 331,225,862 3.3 331,225,862 3.3
Allotments during the
period 424,584 - 225,000 - 266,668 -
---------------------- ------ ---------------------- ------ ---------------------- ------
As at 30 June/31
December 331,917,114 3.3 331,450,862 3.3 331,492,530 3.3
---------------------- ------ ---------------------- ------ ---------------------- ------
Preference shares are authorised but not issued.
12. SHARE CAPITAL AND RESERVES (continued)
(b) SHARE PREMIUM
$m
-----
At 1 January 2013 902.4
Share allotments during the year 0.7
Reserves transfer - warrants 0.1
-----
As at 31 December 2013 903.2
Share allotments during the period 0.1
Reserves transfer - options exercised 0.2
-----
As at 30 June 2014 903.5
-----
At 1 January 2013 902.4
Share allotments during the period 0.6
Reserves transfer - warrants 0.1
-----
As at 30 June 2013 903.1
-----
Common share allotments during the period were as follows:
Share options
108,334 (six months to 30 June 2013: nil; year to 31 December
2013: 41,668) new common shares were issued for consideration of
$0.1m (six months to 30 June 2013: nil; year to 31 December 2013:
$0.1m) on the exercise of share options.
Warrants
No new common shares were issued in the six months to 30 June
2014 on the exercise of share warrants. In the six months to 30
June 2013, 225,000 new common shares were issued on the exercise of
share warrants for a consideration of $0.6m (year to 31 December
2013: $0.6m).
Share scheme
316,250 new common shares were issued during the period on the
achievement of corporate objectives under the Employee Share Scheme
(year to 31 December 2013: nil).
Total allotments
424,584 (six months to 30 June 2013: 225,000; year to 31
December 2013: 266,668) shares were issued for consideration of
$0.1m (six months to 30 June 2013: $0.6m; year to 31 December 2013:
$0.7m).
12. SHARE CAPITAL AND RESERVES (continued)
(c) EQUITY RESERVES
The balance held in equity reserves relates to the equity
component of the convertible bond, share based payments, options
and warrants.
$m
-----
As at 1 January 2013 137.9
Remeasurement of warrants 2.1
Share-based payments (0.8)
Reserves transfer - warrants (0.1)
Deferred taxation on temporary differences 2.5
-----
As at 31 December 2013 141.6
Share-based payments 3.8
Reserves transfer - options lapsed (9.7)
Reserves transfer - options exercised (0.2)
Deferred taxation on temporary differences (2.2)
-----
As at 30 June 2014 133.3
-----
As at 1 January 2013 137.9
Share-based payments 2.0
Reserves transfer - warrants (0.1)
-----
As at 30 June 2013 139.8
-----
(d) FAIR VALUE RESERVES
Balances held in fair value reserves relate to fair value
movements in the period on available for sale investments.
$m
-----
As at 1 January 2013 (11.2)
Loss on available for sale investments (24.6)
Reclassification of the previous loss on the available for sale investments 39.6
-----
As at 31 December 2013 3.8
Loss on available for sale investments (4.0)
-----
As at 30 June 2014 (0.2)
-----
As at 1 January 2013 (11.2)
Loss on available for sale investments (28.5)
Reclassification of the previous loss on the available for sale investments 39.6
-----
30 June 2013 (0.1)
-----
13. LOANS AND BORROWINGS
Unsecured Secured
-------------------------- --------------------------------------------------------------------
Convertible SISG Cost overrun Pre-export Equipment Equipment Other asset Total
bond shareholder facility facility financing financing financing
loan facility - 1 facility - 2
$m $m $m $m $m $m $m $m
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------
Carrying
values of
loans and
borrowings
At 1 January
2013 358.7 - 79.4 - 85.7 57.0 0.4 581.2
Conversion
of payable
to loan - 56.3 - - - - - 56.3
Drawn down - - - 250.0 - 16.1 - 266.1
Capital
repayment - - (42.5) - (17.1) (10.2) (0.1) (69.9)
Interest
accrued at
the
effective
rate 44.8 1.3 8.5 10.2 5.5 5.1 - 75.4
Interest and
transaction
fees paid (34.0) - (7.8) (17.6) (4.9) (4.7) - (69.0)
Gain on
related
party
discounted
interest
rate - (4.4) - - - - - (4.4)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------
At 31
December
2013 369.5 53.2 37.6 242.6 69.2 63.3 0.3 835.7
Capital
repayment - - - (41.7) (11.1) (3.8) (0.1) (56.7)
Interest
accrued at
the
effective
interest
rate 22.8 2.1 2.1 11.0 2.3 1.6 - 41.9
Interest and
transaction
fees paid (17.0) - (2.1) (7.1) (2.0) (2.1) - (30.3)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------
At 30 June
2014 375.3 55.3 37.6 204.8 58.4 59.0 0.2 790.6
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------
At 1 January
2013 358.7 - 79.4 - 85.7 57.0 0.4 581.2
Drawn down - - - 201.3 - 16.1 - 217.4
Capital
repayment - - (5.0) - (7.4) - (0.1) (12.5)
Interest
accrued at
the
effective
rate 22.0 - 4.3 3.5 3.0 2.6 - 35.4
Interest and
transaction
fees paid (17.0) - (5.1) (11.2) (2.6) (2.4) - (38.3)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------
At 30 June
2013 363.7 - 73.6 193.6 78.7 73.3 0.3 783.2
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------
At 30 June
2014
Current 32.0 55.3 37.6 128.5 23.4 13.7 0.1 290.6
Non-current 343.3 - - 76.3 35.0 45.3 0.1 500.0
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------
At 31
December
2013
Current 32.0 53.2 37.6 101.5 24.2 15.1 0.2 263.8
Non-current 337.5 - - 141.1 45.0 48.2 0.1 571.9
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------
At 30 June
2013
Current 32.0 - 73.6 32.4 78.7 73.3 0.1 290.1
Non-current 331.7 - - 161.2 -- - 0.2 493.1
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------
Nominal
value of
loans and
borrowings
At 1 January
2013 400.0 - 80.0 - 87.6 58.8 0.4 626.8
Conversion
of payable
to loan - 56.3 - - - - - 56.3
Drawn down - - - 250.0 - 16.1 - 266.1
Capital
repayment - - (42.5) - (17.1) (10.2) (0.1) (69.9)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------
At 31
December
2013 400.0 56.3 37.5 250.0 70.5 64.7 0.3 879.3
Capital
repayment - - - (41.7) (11.1) (3.8) (0.1) (56.7)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------
At 30 June
2014 400.0 56.3 37.5 208.3 59.4 60.9 0.2 822.6
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------
At 1 January
2013 400.0 - 80.0 - 87.6 58.8 0.4 626.8
Drawn down - - - 201.3 - 16.1 - 217.4
Capital
repayment - - (5.0) - (7.4) - (0.1) (12.5)
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------
At 30 June
2013 400.0 - 75.0 201.3 80.2 74.9 0.3 831.7
------------ ------------ ------------ ------------ ------------ ------------ ------------ ------
All borrowings are denominated in US$.
13. LOANS AND BORROWINGS (continued)
Convertible bond
The Company issued $350.0m of convertible bonds in 2012,
subsequently upsized to $400.0m with China Railway Materials
Commercial Corporation subscribing a further $50.0m.
The principal terms of the bond are as follows:
-- 5 year term (inception 10 February 2012 and maturity 9 February 2017),
-- A coupon rate of 8.5% including the equity component and
issue fees. The effective interest rate is 12.62%,
-- Coupon payable semi-annually in arrears,
-- Convertible into fully paid ordinary shares of the Company,
-- Conversion price is $10.98.
The Group has the option to call the bonds at 110% after 24
February 2015 with a minimum of 45 days notice and maximum of 60
days notice. In addition, the Group has the right to redeem the
bonds if at any time the aggregate principal amount of the bonds
outstanding is equal to or less than 15% of the aggregate principal
amount of the bonds initially issued.
The bonds will be redeemed at par at maturity on 9 February
2017, unless converted or previously redeemed.
The fair value of the equity component was recorded as $52.9m at
settlement on 9 February 2012. Transaction fees of $10.6m were
recorded against the bond liability at the transaction date.
Pre-export finance facility
On 5 April 2013 a $250.0m pre-export finance facility was
entered into by Tonkolili Iron Ore (SL) Limited and African Railway
and Port Services (SL) Limited, the principal operating companies
within the Group. As at 30 June 2014, the facility was fully
drawn.
Transaction fees of $8.7m were incurred against the loan on
inception.
The principal terms of the facility are as follows:
-- An interest rate of LIBOR + 5.5%, with an effective interest rate being 8.35%,
-- Interest is payable monthly on the last day of the month,
-- Equal monthly repayments commencing on 31 March 2014 until the date of maturity,
-- The inception date was 5 April 2013 and maturity on 5 April 2016.
The Group has granted security over the cash flows from a third
party sales contract.
Equipment finance facility - 1
A facility of $92.5m to fund the purchase of equipment was
signed in September 2011 by African Railway and Port Services (SL)
Limited, and was subsequently increased to $96.5m in March
2012.
The principal terms of the facility are as follows:
-- An interest rate of LIBOR + 5.59%, with an effective interest rate being 7.23%,
-- Interest is payable quarterly on last day of the quarter,
-- Repayments are payable quarterly until the date of maturity,
-- The inception date was 29 September 2011 and maturity on 30 June 2017.
The Group has granted security over certain items of property,
plant and equipment financed by this facility.
13. LOANS AND BORROWINGS (continued)
Equipment finance facility - 2
A facility of $92.0m to fund the purchase of equipment was
signed in November 2012 by Tonkolili Iron Ore (SL) Limited and
African Railway and Port Services (SL) Limited.
The principal terms of the facility are as follows:
-- An interest rate of LIBOR + 6.0%, with an effective interest rate being 7.33%,
-- Interest is payable quarterly on last day of the quarter,
-- Repayments are payable quarterly until the date of maturity,
The inception date was 23 November 2012 and maturity on 30 June
2018.
The Group has granted security over certain items of property,
plant and equipment financed by this facility.
SISG shareholder loan
On 9 September 2013 the Group entered into an agreement to
borrow $56.3m from SISG in the form of a shareholder loan. The loan
was entered into with Tonkolili Iron Ore (SL) Limited.
The principal terms of the facility are as follows:
-- An interest rate of 1.0% in 2013, which increased to 2.0%
throughout 2014, with an effective interest rate being 8.35%,
-- Interest is payable at the final maturity date,
-- Repayment of the principal is due at the final maturity date.
In 2013 a gain of $4.4m was recorded on inception of the loan
due to a substantially lower rate of interest compared to a similar
facility in the market.
Cost overrun facility
This facility was arranged by African Minerals Finance Limited
to cover additional expenses arising from the construction phase of
the Tonkolili iron ore project. The facility was fully drawn in
2011, and was subsequently restructured with amended terms on 5
April 2013. The repayment date was extended beyond April 2013, at
which time the margin would increase incrementally to a cap of
11.0% if not repaid by December 2013.
This facility was refinanced with another financial institution
in February 2014 and was subsequently repaid in August 2014.
The principal updated terms of the refinanced facility are as
follows:
-- An interest rate LIBOR + a margin ranging from 8.0% to 9.0%,
with an effective interest rate of 13.92%,
-- Interest is payable on last day of the month,
-- The nominal balance of $37.5m is repayable in full on maturity.
Cash collateral of $10.0m was provided on inception of this
refinanced facility in February 2014, with incremental installments
of cash collateral of $10.0m, $5.0m, $5.0m, $5.0m, and $2.5m to be
pledged in March, April, May, June and July 2014, respectively.
Warrant costs of $2.1m in 2013 relate to a modification of the
exercise price during the year for warrants issued in 2012 relating
to this facility.
The Group has granted security over the Company's equity shares
in the Group's intermediate holding companies, as well as assets
held in the head office subsidiaries.
13. LOANS AND BORROWINGS (continued)
Other asset financing
Other asset financing relates to borrowings for fixtures and
fittings in the London office.
The Group has granted security over certain items of property,
plant and equipment financed by this facility.
14. NON-CONTROLLING INTEREST PUT OPTION AND DEFERRED INCOME
SISG non-controlling
Deferred income - SISG Deferred income - other interest Total
$m $m $m $m
---------------------- ----------------------- ------------------------ -------
As at 1 January 2013 537.3 - 706.0 1,243.3
Unwinding of time value
of money 68.9 - - 68.9
Release of deferred
income (32.5) - - (32.5)
Other deferred income - 20.0 - 20.0
Gain on revaluation of
put option - - (169.8) (169.8)
---------------------- ----------------------- ------------------------ -------
As at 31 December 2013 573.7 20.0 536.2 1,129.9
Unwinding of time value
of money 36.4 - - 36.4
Release of SISG deferred
income (6.4) - - (6.4)
Other deferred income - 80.0 - 80.0
Release of other deferred
income - (35.8) - (35.8)
Gain on revaluation of
put option - - (167.6) (167.6)
---------------------- ----------------------- ------------------------ -------
As at 30 June 2014 603.7 64.2 368.6 1,036.5
---------------------- ----------------------- ------------------------ -------
As at 1 January 2013 537.3 - 706.0 1,243.3
Unwinding of time value
of money 34.1 - - 34.1
Release of deferred
income (23.5) - - (23.5)
Gain on revaluation of
put option - - (103.8) (103.8)
---------------------- ----------------------- ------------------------ -------
As at 30 June 2013 547.9 - 602.2 1,150.1
---------------------- ----------------------- ------------------------ -------
Comprising:
Non-current 30 June 2014 603.7 - - 603.7
Current 30 June 2014 - 64.2 368.6 432.8
---------------------- ----------------------- ------------------------ -------
603.7 64.2 368.6 1,036.5
---------------------- ----------------------- ------------------------ -------
Non-current 31 December
2013 551.9 - - 551.9
Current 31 December 2013 21.8 20.0 536.2 578.0
---------------------- ----------------------- ------------------------ -------
573.7 20.0 536.2 1,129.9
---------------------- ----------------------- ------------------------ -------
Non-current 30 June 2013 520.7 - - 520.7
Current 30 June 2013 27.2 - 602.2 629.4
---------------------- ----------------------- ------------------------ -------
547.9 - 602.2 1,150.1
---------------------- ----------------------- ------------------------ -------
Deferred income - SISG
On 30 March 2012, SISG completed a $1.5bn acquisition of a 25%
shareholding in the mine, rail and port, and power subsidiaries
comprising the Tonkolili iron ore project, for a cash consideration
of $1.5bn. The proceeds of $1.5bn were allocated to deferred income
of $505.6m and the non-controlling interest put option of $994.4m
based on the fair values as determined as at 30 March 2012. The key
assumptions in fair valuing the deferred income and the
non-controlling interest put option are described below.
14. NON-CONTROLLING INTEREST PUT OPTION AND DEFERRED
INCOME(continued)
A discounted offtake agreement was signed in 2012 for the
purchase of iron ore with discounts ranging from 0% to 15%,
depending on the benchmark FOB iron ore price, specifically:
volumes of 4.8 Mtpa of Phase I production, increasing to 10 Mtpa
following completion of Phase II. Subsequently, in December 2013,
the Group entered into a revised offtake agreement with SISG, which
increased the contracted iron ore to be purchased from 4.8 Mtpa to
6.5 Mtpa, up to a project capacity of 25 Mtpa; to 7 Mtpa when
project capacity is at 25 Mtpa; and 7 Mtpa plus 3/10 of the
capacity in excess of 25 Mtpa, up to a maximum of 10 Mtpa at a
capacity of 35Mtpa or more. The updated offtake agreement has an
effective date of 1 January 2014, with the same discount range as
the previous agreement.
The amount recognised at the balance sheet date represents the
present value of the iron ore offtake discount that SISG will
receive under the agreement. The discount rate used in the
valuation is 12.5%, based on the Group's estimated cost of capital.
Volume and iron ore prices are based on the Directors' best
estimate. This amount is released to the consolidated income
statement as SISG takes delivery of its offtake volumes and revenue
is recognised by the Group.
In the period $6.4m of deferred income has been recognised in
revenue (six months to 30 June 2014: $23.5m; year to 31 December
2013: $32.5m). $36.4m (six months to 30 June 2013: $34.1m; year to
31 December 2013: $68.9m) has been treated as an interest expense
being the unwinding of the discount of the deferred income. The
interest expense reflects the passage of time recognised as a
borrowing cost at the Group's estimated cost of capital (12.5%).
The net of these two variables comprises the movement on deferred
income of $30.0m (six months to 30 June 2013: $10.6m; year to 31
December 2013: $36.4m).
The current portion of nil (30 June 2013: $27.2m; 31 December
2013: $21.8m) relating to this offtake agreement reflects the
Group's best estimate of the discount attributable to the benchmark
FOB iron ore price and deliveries to SISG in the year to 30 June
2015 of 6.5mt.
Deferred income - Other
Other deferred income relates to two prepay agreements which the
Company has entered into with a third party customer. The first was
entered into on 23 December 2013 and the Company received $100.0m
($20.0m in December 2013 and $80.0m in the six months to 30 June
2014) under this arrangement. The second was entered into on 27
June 2014, with $50.0m being received by the Company in July 2014.
As described in Note 4, the Group delivered 0.9mt with a sales
value of $35.8m during the six months to 30 June 2014 under the
first prepay agreement. No such sales were recorded in 2013.
A further 1,750,000 wet tonnes is scheduled to be delivered
during the the six months to 31 December 2014 under these prepay
agreements with the remainder to be delivered in the first half of
2015.
Non-controlling interest put option
A put option exists in the agreement whereby SISG can sell back
their 25% interest in the Project Companies (as mentioned above) at
fair value, in the unlikely event that Frank Timis (Executive
Chairman) resigns voluntarily from the Board.
The liability recognised is the Directors' best estimate of the
amount of the fair value that would be payable to SISG in the
unlikely event Frank Timis leaves the Group and SISG exercises its
option to sell back its interest.
The put option was valued at inception and is revalued at each
reporting period to fair value using an enterprise value model. The
fair value calculation has key assumptions that include the
utilisation of the quoted African Minerals Limited share price in
estimating the market capitalisation of the mine, rail and port and
power subsidiaries and an estimated significant influence premium
component to reflect SISG's 25% shareholding in the mine, rail and
port, and power subsidiaries. As at 30 June 2014, the put option
valuation utilises an African Minerals Limited share price of $1.80
(30 June 2013: $3.57; 31 December 2013: $3.15) and an estimated
significant influence component of $33.5m (30 June 2013: $54.8m; 31
December 2013: $48.8m).
The put option was valued at 30 June 2014 at $368.6m (30 June
2013: $602.2m; 31 December 2013: $536.2m). The fair value gain on
the put option for the six months to 30 June 2014 is $167.6m and
has been recognised through the consolidated income statement (six
months to 30 June 2013: $103.8m gain; year to 31 December 2013:
$169.8m gain).
15. PROVISIONS
Restoration and
decommissioning SISG warranty Other
provision provisions provisions Total
$m $m $m $m
-------------------- ------------- ----------- ----------
As at 1 January 2013 - 51.1 12.7 63.8
Arising during the year 31.5 - 54.3 85.8
Unwinding of discount on provision 1.6 - - 1.6
Settlement - (51.1) - (51.1)
-------------------- ------------- ----------- ----------
As at 31 December 2013 33.1 - 67.0 100.1
Arising during the period - - 9.5 9.5
Unwinding of discount on provision 1.6 - - 1.6
Settlement - - (0.6) (0.6)
-------------------- ------------- ----------- ----------
As at 30 June 2014 34.7 - 75.9 110.6
-------------------- ------------- ----------- ----------
As at 1 January 2013 - 51.1 12.7 63.8
Arising during the period 31.5 - 13.9 45.4
Settlement - (51.1) - (51.1)
-------------------- ------------- ----------- ----------
As at 30 June 2013 31.5 - 26.6 58.1
-------------------- ------------- ----------- ----------
Comprising:
Non-current 30 June 2014 34.7 - 3.3 38.0
Current 30 June 2014 - - 72.6 72.6
-------------------- ------------- ----------- ----------
34.7 - 75.9 110.6
-------------------- ------------- ----------- ----------
Non-current 31 December 2013 33.1 - 3.4 36.5
Current 31 December 2013 - - 63.6 63.6
-------------------- ------------- ----------- ----------
33.1 - 67.0 100.1
-------------------- ------------- ----------- ----------
Non-current 30 June 2013 31.5 - 1.6 33.1
Current 30 June 2013 - - 25.0 25.0
-------------------- ------------- ----------- ----------
31.5 - 26.6 58.1
-------------------- ------------- ----------- ----------
Restoration and decommissioning provision
During 2013, the Group recognised a mine restoration and
decommissioning provision. The provision represents the discounted
value of the estimated costs to decommission and reclaim the mine
site at the date of depletion of the deposit. Provision
calculations assume a discount rate of 10% and inflation of 6%. The
liability becomes payable at the end of the useful life of the
mine, being the renewal term of the mining lease. Uncertainties in
estimating these costs include decommissioning and reclamation
alternatives.
SISG warranty provisions
In 2013, the SISG warranty provisions that were provided for in
2012 were settled.
Other provisions
Other provisions as at 30 June 2014 include $5.0m (30 June 2013:
$18.7m; 31 December 2013: $5.6m) for contractor claims, $3.4m (30
June 2013: $1.7m; 31 December 2013: $3.4m) for Sierra Leone end of
service benefit provision and $24.3m for onerous sales contracts
(30 June 2013: nil; 31 December 2013: $14.8m). There was also
$43.2m provided as at 30 June 2014 for legal disputes (30 June
2013: $6.2m; 31 December 2013: $43.2m).
Legal disputes and contractor claims are in respect of
litigation and claims against the Group typically arising from
contractual interpretation disputes. Provisions for legal disputes
and contractor claims are based on valuations from expert legal
advice.
15. PROVISIONS (continued)
The provision for onerous offtake contracts include compensation
charges for an inability to fulfil several offtake sales contracts.
The provision is determined by calculating non-fulfilment of sales
contracts.
The end of service benefit provision relates to employees based
in Sierra Leone who have been employed for longer than 5 years. The
principal assumptions for the calculation include future salary
increment, discount rate and the average time of service for these
employees.
16. COMMITMENTS AND CONTINGENCIES
Contingent liabilities
Financial adviser's fees
A third party filed a claim against the Group for financial
adviser's fees amounting to approximately $133.0m plus interest and
costs in relation to fund raisings and transactions in prior years.
The case was heard by the Commercial Division of the High Court in
March 2014 who issued judgement in June 2014 in favour of the
claimant on certain aspects of the claim, for which a provision was
recognised as at 31 December 2013 and continues to be so as at 30
June 2014, including fees and estimated expenses. The Group was
granted leave to appeal. The Directors' view (based on legal
advice) is that there are reasonable prospects of success on
appeal. In light of the recognition criteria of IFRS, the Group
recognised a liability for the current judgement, including
interest and estimated legal costs of the other party, but no
potential benefit of success relating to any appeal has been
recognised.
There is a risk that the claimant may appeal on some parts of
the claim which were not found in their favour. The maximum
exposure of this risk is $63.0m plus interest and costs. The
claimant was refused leave to appeal but have requested this from
the Court of Appeal. If granted, the Directors believe there are
good prospects of successfully defending such an appeal as
supported by legal advice and initial judgement. There is,
therefore, a risk that further losses may accrue to the Group in
excess of the provision recognised of $43.2m as at 30 June
2014.
By 31 July 2014, $41.6m of the liability had been paid to the
third party following the judgement issued by the High Court. The
balance of the liability recognised as at 30 June 2014 of $1.6m is
an estimate of the residual legal fees due to the claimant.
MFT Claim by SISG
As disclosed in note 14, the Company entered into certain
pre-pay sales contracts with a third party. SISG has alerted the
Company to claims that it has against the Project Companies in
respect of application of the "Most Favoured Treatment" (MFT)
pricing treatment in the iron ore off-take agreements which it
entered into in 2013. The Directors have taken external legal and
financial advice which indicates that the most likely outcome of
this claim would not be material. No provision has therefore been
recognised as at 30 June 2014 relating to this claim as the
Directors do not believe that a material outflow of funds is likely
to arise in the future as a result of this claim. However, as with
any legal case there is a possibility any final settlement reached
with SISG may exceed the Directors' current expectations.
Other
The Group has conducted its operations in the ordinary course of
business in accordance with its understanding of applicable tax
legislation in the countries where the Group has operations.
Sierra Leone tax legislation and custom regulations continue to
evolve. Legislation and regulations are not always clearly written
and are subject to varying interpretations and inconsistent
enforcement by the tax authorities and other Governmental bodies.
Instances of inconsistent interpretations are not unusual. The
uncertainty of application of UK and Sierra Leone transfer pricing
legislation and the continued evolution of Sierra Leone's tax laws,
including those affecting cross-border transactions, create a risk
of additional tax payments having to be made by the Group, which
could have a material effect on the Group's financial position and
performance.
Capital commitments
At 30 June 2014, the Group had commitments of $35.2m (30 June
2013: $29.0m; 31 December 2013: $42.5m) including $13.2m (30 June
2013: $23.2m; 31 December 2013: $9.3m) relating to port and rail
infrastructure and $22.0m (30 June 2013: $5.8m; 31 December 2013:
$33.2m) in relation to the mine.
17. OPERATING CASHFLOW BEFORE WORKING CAPITAL CHANGES
(Unaudited) (Unaudited) (Audited)
Six Months Ended 30 June 2014 Six Months Ended 30 June 2013 Year Ended 31 December 2013
$m $m $m
------------------------------ ------------------------------ ----------------------------
Loss before
taxation from
operations (7.2) (24.5) (94.0)
Adjustments
to
add/(deduct)
non-cash
items:
Finance costs 43.5 36.3 74.8*
Depreciation of
property, plant
& equipment 60.5 60.2 119.6
Amortisation of
intangible
assets 0.4 0.4 0.7
Share based
payments 3.8 2.0 (0.8)
Imputed cost of
deferred income 36.4 34.1 68.9
Release of SISG
deferred income (6.4) (23.5) (32.5)
Release of other
deferred income (35.8) - -
Fair value gain
on financial
instruments (167.6) (103.8) (169.8)
Impairment of
property, plant
and equipment - 6.2 25.1
Impairment of
available for
sale investments - 39.6 39.6
Penalties for
SISG warranty
breach - - 46.3
Finance income - - (0.1)
Impairment of
exploration
expenditure - - 7.6
Provision for
doubtful debts - - 7.4
Unrealised
foreign exchange
loss - - 0.6
Total adjustments
to add/(deduct)
non-cash items (65.2) 51.5 187.4
----------------------------
Operating cash
flow before
working capital
changes (72.4) 27.0 93.4
------------------------------ ------------------------------ ----------------------------
* Prior period numbers have been restated classified to reflect
consistent disclosure treatment with the current period.
18. RELATED PARTY TRANSACTIONS
Non-
Revenue/ Purchases/ Commissions/ controlling
interest
cost Accounts interest warranty Accounts Deferred put
recharge receivable expense breach costs payable income option Borrowings
$m $m $m $m $m $m $m $m
----------------- ----------------- ------------------ ------------ --------------- -------- ----------- ----------
Shareholders:
China Railway Materials Commercial Corporation
Six months
to 30 June
2014 95.8 20.3 3.4 19.5 3.1 - - 50.0
Year to 31
December
2013 248.8 24.8 49.5 39.0 3.1 - - 50.0
Six months
to 30 June
2013 107.5 3.2 16.3 19.5 13.2 - - 50.0
Shandong Iron
and Steel
Group
Six months
to 30 June
2014 189.7 42.6 2.1 5.7 5.7 603.7 368.6 55.3
Year to 31
December
2013 460.6 84.9 1.3 46.3 0.3 573.7 536.2 53.2
Six months
to 30 June
2013 220.0 64.1 - 40.0 50.0 547.9 602.2 -
Companies in which Directors hold
an interest:
African Petroleum Corporation
Limited
Six months
to 30 June
2014 0.2 0.2 0.7 - 0.4 - - -
Year to 31
December
2013 0.2 0.2 0.8 - 0.5 - - -
Six months
to 30 June
2013 - - 0.2 - - - - -
International
Petroleum
Limited
Six months
to 30 June
2014 - - - - - - - -
Year to 31
December
2013 0.3 - - - - - - -
Six months
to 30 June
2013 0.1 0.6 - - - - - -
Pan African
Minerals
Limited
Six months
to 30 June
2014 0.1 1.4 1.5 - - - - -
Year to 31
December
2013 1.2 1.4 2.2 - - - - -
Six months
to 30 June
2013 0.8 3.0 - - - - - -
Dundee
Resources
Limited
Six months
to 30 June
2014 - - 1.8 - 1.8 - - 30.0
Year to 31
December
2013 - - 3.8 - 1.9 - - 30.0
Six months
to 30 June
2013 - - 1.8 - 5.2 - - 30.0
Others:
Global Iron
Ore
Corporation
Six months
to 30 June
2014 - - - - - - - -
Year to 31
December
2013 - - 1.1 - 23.6 - - -
Six months
to 30 June
2013 - 0.5 - - 30.0 - - -
Shareholders
China Railway Materials Commercial Corporation is a shareholder
in the Company. Transactions relate to iron ore sales and materials
purchased for railways for $0.3m (six months to 30 June 2013:
$13.2m; year to 31 December 2013: $43.1m). Transactions also
include an annual marketing commission of $39.0m, and interest
accrued on the borrowings related to the subscription of
convertible bonds (see Note 13) for $3.1m (six months to 30 June
2013: $3.1m; year to 31 December 2013: $6.4m).
Following its $1.5bn cash acquisition of a 25% shareholding in
the mine, rail and port, and power subsidiaries comprising the
Tonkolili iron ore project, Shandong Iron and Steel Group became a
related party in 2012. Transactions relate to the sale of iron ore
through offtake contracts, warranty breach costs (see Note 6),
interest accrued on the SISG shareholder loan (see Note 13),
deferred income on the offtake agreement and the non-controlling
interest put option (see Note 14).
Companies in which Directors hold an interest
African Petroleum Corporation Limited is a company of which
Frank Timis is a Director and has an ownership interest of 39.07%.
Transactions relate to provision of jet services by African
Petroleum Corporation Limited to the Company and recharges by the
Company to African Petroleum for shared London office rental and
related expenses.
International Petroleum Limited is a company of which Frank
Timis is a Director and in which he has an ownership interest of
37.75%. Up until 31 December 2013, transactions related to
recharges by the Company to International Petroleum Limited for
shared London office rental and related expenses. At 31 December
2013, the balance due from International Petroleum Limited of $0.8m
was impaired.
18. RELATED PARTY TRANSACTIONS (continued)
Pan African Minerals Limited is a company of which Frank Timis
is a majority shareholder. Transactions relate to recharges by the
Company to Pan African Minerals Limited for the provision of
certain AML staff on Pan African Minerals Limited projects, and
vice versa, and for shared office rental and related expenses.
Dundee Resources Limited is a wholly owned subsidiary of Dundee
Corporation, of which Murray John is a Named Executive Officer.
Borrowings relate to the subscription of convertible bonds.
Purchases and accounts payable include interest payable accrued on
the borrowings related to the subscription of convertible bonds
(see Note 13).
Others
Global Iron Ore Corporation is a company in which Dermot
Coughlan's son held a senior management position. Dermot Coughlan
was a Director of the Company until 16 July 2014. Interest accrued
in 2013 related to the interest recognised on the payment of agency
commission fees from 2012.
All the above transactions have been approved by the Board and
have been carried out on an arm's length basis.
19. SUBSEQUENT EVENTS
1) In August 2014, the Group repaid the cost overrun facility of
$37.5m in its entirety.
2) In July 2014, $50.0m was received from a third party customer
in relation to a prepay agreement entered into on 27 June 2014.
3) In August 2014, the Group announced that an agreement had
been reached between the Company and SISG for the release of
$284.0m of restricted cash relating to the SISG investment
earmarked for the Friable Hematite project (Phase 2) for working
capital purposes. To date, $142.0m has been released and a further
$101.0m has been agreed to be released in October 2014.
4) Also in August 2014, the Group announced the notification by
SISG of further claims against the Group's Project Companies, under
the "Most Favoured Treatment" pricing treatment in SISG's offtake
agreements (see Note 16).
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR LMMMTMBBJBRI
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