TIDMZIOC
RNS Number : 3161G
Zanaga Iron Ore Company Ltd
27 June 2012
28 June 2012
ZANAGA IRON ORE COMPANY LIMITED
('ZIOC', 'Zanaga', or the "Company" and together with its
subsidiary undertakings (the "Group"))
Audited Results for the Year to 31 December 2011
Zanaga (AIM:ZIOC) is pleased to announce its audited results for
the year ended 31 December 2011. An electronic version of the
Annual Report and Accounts for the year ended 31 December 2011 will
be available on the Company's website www.zanagairon.com today.
2011 highlights
-- February 2011 - Xstrata exercised its first call option and
now owns a 50% plus one share interest in the Zanaga Project
o The Zanaga Project is now managed by Xstrata
o Xstrata has agreed to fund the completion of a feasibility
study in accordance with international best practice standards and
Xstrata internal guidelines
o Xstrata must use its reasonable efforts to ensure that the
feasibility study is completed at least three months prior to
expiry of the Mining Titles
-- October 2011 - Value Engineering Exercise ("VEE") completed
o Results confirm the economic viability of the Zanaga
Project
o Post VEE the projected cost of the 45Mtpa railway option
remains in line with IPO estimates
o The slurry pipeline transportation option was revisited and an
alternative 30Mtpa pipeline option ("Pipeline Option") was
identified with potential to further enhance project economics
-- Pipeline Pre-Feasibility Study ("Pipeline PFS") in progress
to refine the Pipeline Option and its economics
o Pipeline PFS expected to conclude Q3 2012
-- Feasibility Study ("FS") and Environmental and Social Impact Assessment ("ESIA")
o Scope of FS to be determined on conclusion of Pipeline PFS
o FS and ESIA expected to conclude in Q1 2014
-- October 2011 - Mineral resource upgrade
o Iron ore mineral resource expansion to 4.3Bt at an average
grade of 33.0% Fe based on drilling completed to 26 August 2011
o Improvement in mineral resource classification - 62% of
mineral resource report in "Measured" and "Indicated" JORC
categories
-- Joint search initiated with Xstrata for a strategic partner for the Zanaga Project
-- Cash balance of US$45m as at 2011 year end
Clifford Elphick, Non-Executive Chairman of Zanaga Iron Ore
Company Limited, commented:
"It has been a promising year for Zanaga Iron Ore Company with
several key milestones successfully reached. Our core focus during
the period has been to create clear value for the Company and its
shareholders through a number of strategic initiatives, which have
worked to increase confidence in the resource and provide increased
visibility on the future viability of the Zanaga Project. I am
pleased with the progress that has been made towards achieving this
goal as the Zanaga Project becomes a significant, world-class iron
ore development project in Africa."
The Company will send to shareholders the Annual Report and
Accounts for the year ended 31 December 2011 ("2011 Annual Report
and Accounts"), together with the Notice of Annual General Meeting
("AGM") to be held at St Magnus House, 3 Lower Thames Street,
London EC3R 6HA, England, on 26 July 2012 at 9.30 a.m. BST, the
form of proxy, and form of instruction for holders of Depositary
Interests for use at the AGM. A copy of the Notice of Annual
General Meeting is set out at the end of the 2011 Annual Report and
Accounts and will be available on the Company's website
www.zanagairon.com today.
For further information please visit www.zanagairon.comor
contact:
Zanaga UK Services Limited
Corporate Development and Andrew Trahar Investor Relations
Manager +44 20 7399 1105
Liberum Capital Limited
Nominated Adviser, Financial Chris Bowman, Christopher Britton
Adviser and Joint Corporate Broker and Christopher Kololian
+44 20 3100 2000
Citigroup Global Markets Limited
Joint Corporate Broker Alex Carter
+44 20 7986 4000
Pelham Bell Pottinger
Financial PR Charles Vivian and James MacFarlane
+44 20 7861 3232
Chairman's Statement
It has been a promising year for Zanaga with several key
milestones successfully reached. Our core focus during the period
has been to create clear value for the Company and its shareholders
through a number of strategic initiatives, which have worked to
increase confidence in the resource and provide increased
visibility on the future viability of the Zanaga Project (the
"Project"). I am pleased with the progress that has been made
towards achieving this goal as the Zanaga Project becomes a
significant, world-class iron ore development project in
Africa.
The most notable achievement for ZIOC came in early 2011 when
Xstrata chose to exercise its first call option to acquire a 50%
plus one share interest in the Project (the "First Call Option").
The backing of a major mining company in the form of Xstrata
significantly de-risks the Project, crystallises our strategic
joint venture ("JV") with Xstrata and secures the future funding
requirements of the Project until the completion of the FS in
accordance with international best practice standards and Xstrata
internal guidelines.
After the exercise of the First Call Option in February 2011 the
VEE was undertaken as an initial phase to the FS. The VEE aimed to
review and refine options and opportunities that could positively
impact on the net present value ("NPV") of the Project, either
through added value or the reduction of risk.
The outcome of this review confirmed that both a pipeline and a
railway transportation solution are economically viable options for
the development of the Project. In addition, significant value
upside potential was identified in the pipeline transportation
option. This resulted in the undertaking of the detailed Pipeline
PFS to further refine this option and its costing. The outcomes of
the Pipeline PFS, expected to conclude Q3 2012, will assist in
determining the scope of the FS, including which transportation
option will be taken through to final FS.
With regard to the mineral resource at the Project, the project
team has successfully completed an extensive drilling programme on
the Project's orebody, delivering the resource upgrades during the
year. The scale and definition of the iron ore mineral resource has
now expanded to 4.3Bt at 33% Fe with more than 62% of the resource
in the "Measured" and "Indicated" Joint Ore Reserves Committee
("JORC") categories. This mineral resource has been defined from
drilling conducted over only 25 kilometres of the known
47-kilometre strike length of magnetic mineralisation, leaving
potential for future expansion of the resource size and potential
flexibility to increase estimated annual production levels.
Under the management of Xstrata, the Project continues to
advance as it moves towards the development and construction of a
world-class iron ore project capable of mining, processing,
transporting and exporting iron ore concentrate from the Republic
of Congo for supply into the global iron ore market. We remain
confident in the Project's ability to deliver further value as we
turn our focus towards the completion of the FS, expected in Q1
2014.
Iron ore market
Demand for iron ore in 2011, as a result of growing steel output
in China, saw record iron ore prices achieved during the year.
While iron ore prices softened towards the end of Q3 2011, these
regained somewhat towards the end of the year. China is a key
driver for iron ore prices accounting for two thirds of global
consumption, driven by its steel industry. Concerns over Chinese
growth have resulted in some weakness in prices during 2012,
however the anticipated growth in steel production in China and
globally is expected to support iron ore prices in the long term
and offset additional iron ore supply coming online. The World
Steel Association expects China's steel use to increase by 4.0% in
2012 and 4.0% again in 2013, with total global steel demand
expected to grow 3.6% and 4.5% in 2012 and 2013 respectively. As a
result, the Board expects iron ore prices to remain supported at
current levels in the short term and to respond favourably in 2013
to an expected supply deficit as global economies rebound. Rio
Tinto, one of the world's largest iron ore producers, has stated
that it expects Chinese steel production to increase to around 1Bt
per annum in 2020, supporting our continued expectations of strong
industrial demand in China and attractive ore prices in the long
term.
Strategic partnership with Xstrata
We are very pleased to have Xstrata, a global diversified mining
group with a stated strategy to enter the iron ore market, as
ZIOC's JV partner on the Project. Xstrata has been closely aligned
to the Project since October 2009 when it entered into the First
Call Option . Following the exercise of the First Call Option in
February 2011, the Project is now managed by Xstrata. As part of
the consideration for the majority stake Xstrata is obliged to fund
the costs of a FS in accordance with international best practice
and Xstrata's internal guidelines. Xstrata must use reasonable
efforts to deliver the FS no later than three months prior to the
expiration of the licences in May 2014 (assuming a second extension
of the Project exploration licences anticipated in Q3 2012) or any
subsequent renewal, subject to there being no material adverse
change. Under the Republic of Congo Mining Code, after its initial
three-year period, an exploration licence is permitted two
extensions of two years, each of which are renewable upon request.
The application for the second extension of the Zanaga exploration
licences was submitted in March 2012.
The exercise of the First Call Option by Xstrata triggered the
implementation of the Joint Venture Agreement ("JVA") between ZIOC
and Xstrata governing the working relationship between the two
companies. The JVA stipulates that within 90 days of completion of
the FS, Xstrata has the right to exercise a further call option
("Second Call Option") to acquire all (but not part) of ZIOC's
remaining 50% less one share minority stake in the joint venture
company, Jumelles Limited ("Jumelles") in consideration for an
agreed cash price, failing which a net present value based price
determined by an independent expert in accordance with the JVA's
agreed valuation terms of reference. The exercise of the Second
Call Option is not subject to shareholder approval.
A world-class opportunity
In addition to the joint venture with Xstrata, the combination
of a number of key strengths supports the Board's view that the
Project represents a significant opportunity.
The understanding of the Project's iron ore mineral resource has
been greatly advanced during 2011 as a result of a thorough
drilling and metallurgical test work programme. The large scale
resource that has been defined has the potential to sustain a large
scale production mine over the long term with the ability to supply
iron ore to the global market of a quality expected to be
comparable to Brazilian supply. With only 25 kilometres of the
known 47-kilometre strike length of magnetic mineralisation having
been drilled to date for the mineral resource, there remains
significant potential upside to expand production and enhance value
at the Project even beyond the extensive scale currently
planned.
It is of major significance that the outcome of the VEE
confirmed that in addition to the rail option, on which a PFS level
study has already been completed (the "Railway PFS"), there is a
viable opportunity to implement a slurry pipeline transportation
option at potentially reduced capital expenditure and lower
expected operating costs. In both the railway and pipeline cases
operating costs are expected to be one of the lowest in the world
while metallurgical test work indicates that the iron ore product
would be of a very high quality with a high iron content and very
low impurity levels.
The advances made on the Project during the year continue to
support the Board's view that ZIOC is positioned to benefit from
exposure to one of the most attractive iron ore projects
globally.
Access to low cost energy
The PFS work to date indicates that the Project has the
potential to be one of the lowest cost producers of iron ore
globally. Of particular interest is the potential for low cost
energy resulting from the availability of large volumes of gas from
defined on-shore gas fields and producing off-shore oil platforms.
Following the suggestion from the Republic of Congo for oil
producers to halt the flaring of natural gas, established oil and
gas producer Eni S.p.A. constructed a 300MW power plant in
Pointe-Noire to harness the local natural gas reserves. The 300MW
plant has been commissioned and ZIOC understands that there are
phased 150MW expansion plans with the potential to increase
capacity up to a total capacity of 900MW at the same facility.
The Project team believes there is scope for the sustainable
supply of low cost power from Pointe-Noire to the Project's
operations.
Transport infrastructure
Pipeline/railway
The provision of infrastructure and logistics solutions is a key
challenge in the development of any large scale iron project. In
the course of 2011 the Project team and its consultants conducted
detailed technical studies to refine the optimal transportation
options, determining that both railway or pipeline transportation
are potentially economically viable infrastructure solutions for
the Project. Furthermore, the pipeline option has the potential to
enhance the Project's value by significantly reducing both capital
expenditure and operating costs. A Pipeline PFS was commenced in
November 2011 to further refine this option and its costing, which
will assist in determining which option to take through to final
FS.
Port site
Work to date continues on the Project's excellent targeted bulk
commodity port site located only 9 kilometres to the north of the
existing public port of Pointe-Noire, which also currently services
the local oil industry. A relatively short distance of
approximately 5 kilometres to 20-metre deep tidal water off-shore
and a natural channel offers the possibility, with minimal
dredging, of a 1.6 kilometre long loading trestle with no required
breakwater. Furthermore, the government has reserved a 700-hectare
area in the future expansion of the PAPN (Port Autonome de
Pointe-Noire) for the development of the port and mineral handling
infrastructures for the Project.
Strategic partner process
Xstrata and ZIOC are currently assessing the potential to bring
in a suitable strategic partner which could further enhance the
long-term value of the Project, including through off-take on
commercial terms, access to construction financing and construction
expertise. Accordingly Xstrata and ZIOC have embarked on a joint
process to identify a potential strategic partner to participate in
the development of this world-class project. Xstrata intends to
fully retain its interest in the Project. While there can be no
certainty that this process will result in any transaction being
completed ZIOC feels the process has already enhanced the Project's
global profile, particularly in Asia.
VEE
After the exercise of Xstrata's First Call Option in February
2011 a VEE was undertaken as an initial phase to the FS. A team of
internal and external experts was assembled to conduct the VEE with
an aim to review and refine options and opportunities that could
positively impact on the NPV of the Project, either through added
value or the reduction of risk.
As part of the VEE the pipeline option was revisited to
investigate several capex and opex optimisation possibilities as
well as the fit with changing global iron ore market dynamics. The
outcome of this review confirmed that both a railway and a pipeline
transport option are economically viable infrastructure solutions
for the development of the Project. In addition, the Pipeline
Option has the potential to enhance the Project's value by reducing
both capital expenditure and operating costs.
During the VEE phase, the project team continued its resource,
geotechnical and hydro-geological drilling, metallurgical test work
and all other associated port and mine site engineering and ESIA
feasibility study work programmes.
Pipeline PFS
Following the VEE results a Pipeline PFS was commenced in order
to refine the pipeline transportation option and its costing. The
results of the Pipeline PFS will assist in determining which option
to take through to final FS as well as the scope of such study.
The Pipeline PFS is a major piece of work conducted in
conjunction with a consortium of top-tier consultants based in
France and Australia. The consortium, named ACTE ("ACTE"),
comprises EGIS (France-based multi-national infrastructure
engineering company with extensive experience in the Republic of
Congo), Technip (France-based multi-national engineering and
construction company in the oil and gas, energy and mining
industries), and Amec-Minproc (Australia based large international
engineering company providing specialist iron ore processing and
pipeline design).
The Pipeline PFS,, expected to conclude in Q3 2012, will be a
major catalyst for the Project, significantly improving our
understanding of the project economics.
Corporate responsibility
From the outset of our work on the Project, our strategy has
been to engage and form partnerships with government and local
communities and, as such, the Project has engaged experts in the
fields of health, safety, community liaison and the environment to
ensure that the Project is developed in a responsible manner in
accordance with internationally accepted industry standards and
practice. This supports the shared objective of maximising the
Project's value, whilst also putting in place and adhering to
policies and systems that will ensure that local communities and
the Republic of Congo at large receive benefits from the ongoing
development of the Project.
Following the decision of Xstrata to exercise the First Call
Option , the Project's approach to corporate responsibility is
determined by Xstrata's Sustainable Development Framework. This
comprises four elements (Business Principles, Sustainable
Development Policy, Sustainable Development Standards and
Assurance). A full version of the Sustainable Development Framework
is available within the sustainability section of Xstrata's website
(www.xstrata.com).
An experienced Board
We have assembled a well-balanced Board with in-depth experience
in the financing, evaluation and development of mining projects and
the management of public companies. I am confident that the
extensive experience of the Board in these critical areas will
ensure ZIOC is able to actively monitor its investment in the
Project and to achieve our strategic objective - to maximise the
value of this investment.
I would like to thank the Board for their contribution and
guidance and our staff for their commitment and hard work over the
last year.
Strategy
Our objective remains to maximise the value of ZIOC's 50% less
one share minority stake in the Project pending the possible
exercise by Xstrata of the Second Call Option. Following Xstrata's
exercise of the First Call Option significant steps have been taken
towards de-risking the Project. Under the terms of Xstrata's
agreements with ZIOC, the Project is now managed by Xstrata and
Xstrata is obliged to fund the FS in accordance with international
best practice standards and Xstrata's internal guidelines.
It is important to note that following completion of the FS, if
Xstrata does not exercise the Second Call Option and construction
of the mine and related infrastructure commences, ZIOC will have a
number of future funding options in relation to the construction
phase, including: (i) dilution at NPV (as defined in the JVA)
during construction; or (ii) a right to fund ZIOC's pro rata equity
share of construction capital expenditure.
With a cash balance of US$45m as at 31 December 2011 ZIOC
believes it has adequate funds at its disposal to meet its working
capital requirements for the duration of the FS phase and does not
currently foresee any substantial further funding requirements
until completion of the FS.
Looking forward
The results of the Pipeline PFS, expected to conclude in Q3
2012, together with the results of the Railway PFS and the VEE,
will enable the final scope of the FS to be determined. In parallel
with the Pipeline PFS, the project team continues to advance FS
work streams. Xstrata must use its reasonable endeavours to ensure
that the FS is competed by no later than three months prior to the
expiration of the licences in May 2014 (assuming a second extension
of the Project exploration licences anticipated in Q3 2012) or any
subsequent renewal, subject to there being no material adverse
change. As a result of Xstrata's funding obligations in relation to
the Project, ZIOC does not currently foresee any substantial
near-term spending obligations until completion of the FS. The cost
of the ZIOC personnel, financial advisors and technical experts
engaged or appointed by ZIOC in relation to the Project are
currently our only budgeted expenditures for the Project during the
FS phase of work.
Our focus going forward continues to be the monitoring of the
Project's development. Key project milestones for 2012 are expected
to be the completion of the Pipeline PFS, determination of the
final scope of work for the FS, advancement of the Project's ESIA
work streams, and ongoing interaction with the Government of the
Republic of Congo on the Project's development and the terms of a
definitive Mining Convention (Convention d'Etablissement) securing
legal, commercial and regulatory aspects required for the Project's
development.
The Board believes that the investment case for the Project is
fully supported by strong industry fundamentals and continued
demand for iron ore; as well as the scale and high quality of the
Project, which continues to suggest value and world-class
potential. The Board expects that this will underpin the
substantial investment programme now being undertaken by Xstrata,
pursuant to its legal agreements with ZIOC, and that the next phase
in the development of the Project will continue to build
shareholder value for ZIOC.
In the near term, ZIOC looks forward to the finalisation of the
definitive results of the Pipeline PFS as we advance towards
determining the final scope of the FS and the eventual completion
of the FS process.
Clifford Elphick
Non-Executive Chairman
Business Review
The outcome of the VEE review confirmed that both a pipeline and
a railway transportation solution are economically viable options
for the development of the Project. In addition, significant value
upside potential was identified in the pipeline transportation
option.
VEE
Following the exercise of the First Call Option in February 2011
and its assumption of majority control of the Project, Xstrata and
ZIOC jointly announced the commencement of the VEE including a
scope and options review to take place during Q2 and Q3 2011 as an
initial phase to the FS work programme.
The VEE further built and expanded on the opportunities to
re-assess capex and opex options recognised as part of the PFS work
undertaken to Q1 2011 by Jumelles. A team of internal and external
experts was assembled to conduct the VEE with an aim to review and
refine options and opportunities that could positively impact on
the NPV of the Project, either through added value or the reduction
of risk.
The VEE commenced on 16 March 2011 with initial workshops
generating and prioritising specific ideas and opportunities for
the Project that have the potential to impact positively on NPV. A
selection of specific opportunities were outlined to be studied in
more detail over the following months, forming the basis of the
VEE.
During the VEE phase, the project team continued its resource,
geotechnical and hydro-geological drilling, metallurgical test work
and all other associated port and mine site engineering and ESIA
feasibility study work programmes as anticipated.
As part of the VEE, the pipeline transportation option was
revisited to investigate several capex and opex optimisation
possibilities as well as the fit with changing global iron ore
market dynamics. The outcome of this review confirmed two viable
transport options for the development of the Project:
1) Railway Option
The original railway option assumes that on average 118Mtpa of
ore will be treated through two processing plants to produce 30Mtpa
of magnetite concentrate and 15Mtpa of Hematite sinter feed which
will be transported to the port at Pointe-Noire via a 350-kilometre
railway and exported from a new port facility 9 kilometres north of
Pointe-Noire. Life of mine ("LOM") will be in the region of 30
years, although the resource base and its upside potential will
support either increased production or a longer LOM. The design,
development plan and costs for the railway option have not changed
materially since the admission of the shares of the Company to
trading on AIM on 18 November 2010 ("IPO").
FOB operating cost for the 45Mtpa rail option as estimated by
the PFS work streams is US$25 per dry metric tonne including a
US$2/tonne contingency. In addition, approximately US$3/tonne of
potential savings were then identified by the VEE. This represents
a significant saving compared with the blended FOB operating cost
presented at IPO of US$27/tonne.
2) Pipeline Option
The Pipeline Option assumes that 30Mtpa of pellet feed will be
produced from an average 75Mtpa of combined hematite/magnetite ore.
Treatment of ore will be through a single integrated processing
plant. The pellet feed product will be transported via a slurry
pipeline to the port site to the north of Pointe-Noire. LOM will be
in excess of 30 years, although the resource base and its upside
potential will support either increased production or a longer
LOM.
The Pipeline Option has the potential to enhance the Project's
value by significantly reducing both capital expenditure and
operating costs.
FOB operating cost for the 30Mtpa slurry pipeline as estimated
by the VEE is US$21 per dry metric tonne including a US$5/tonne
contingency.
Pipeline PFS
Following the VEE results, a Pipeline PFS was commenced to
refine this option and its costing, which will assist in
determining which option to take through to final FS and the scope
of such study.
The Pipeline PFS is a major piece of work conducted in
conjunction with a consortium of top-tier consultants based in
France and Australia. The consortium, named ACTE, comprises EGIS
(France based multi-national infrastructure engineering company
with extensive experience in the Republic of Congo), Technip
(France based multi-national engineering and construction company
in the oil and gas, energy and mining industries), and Amec-Minproc
(Australia based large international engineering company providing
specialist iron ore processing and pipeline design).
Mineral resource and drilling programme
Mineral resource
The understanding of the Zanaga iron ore mineral resource has
been greatly advanced during 2011 following a thorough drilling and
metallurgical test work programme including the results of drilling
completed to 26 August 2011. The large scale resource that has been
defined has the potential to sustain a high production mine over
the long-term with the ability to supply iron ore to the global
market of a quality expected to be comparable to Brazilian supply.
With only 25 kilometres of the known 47-kilometre strike length of
magnetic mineralisation having been drilled to date, in calculating
the mineral resource there remains significant potential upside to
expand production and enhance value at the Project even beyond the
extensive scale currently planned.
The scale and definition of the iron ore mineral resource has
now expanded to 4.3Bt at 33% Fe with more than 62% of the resource
in the "Measured" and "Indicated" JORC categories. The ratio of
Measured, Indicated and Inferred Resources has improved to
3%:59%:38% respectively, representing a significant change from the
previous estimate announced on 5 April 2011 of 0%:43%:57%.
All drilling conducted remains over only 25 kilometres of the
known 47-kilometre strike length of magnetic mineralisation,
leaving potential for future expansion of the resource size and
potential flexibility to increase estimated annual production
levels.
Mineral resource statement
Tonnes Fe SiO2 Al2O3 P Mn LOI
Classification (Mt) (%) (%) (%) (%) (%) (%)
--------------- ------ ---- ---- ----- ----- ----- ---
Measured 149 38.7 39.1 2.4 0.047 0.093 1.2
Indicated 2,540 34.1 43.6 2.8 0.050 0.112 1.0
Inferred 1,650 31 46 4 0.05 0.12 2
--------------- ------ ---- ---- ----- ----- ----- ---
Total 4,339 33.0 44.3 3.3 0.049 0.114 1.3
--------------- ------ ---- ---- ----- ----- ----- ---
Source: Company announcement 26 October 2011
Reported at a 0% Fe cut-off grade within an optimised Whittle
shell representing a metal price of 130 USc/dmtu (dry metric tonne
unit).
Drilling programme
The updated JORC Mineral Resource is estimated on drilling
completed on the Project up until 26 August 2011 and includes an
additional 59,618 metres (88% increase) and 951 holes (45%
increase) to drilling carried out for the previous resource
statement announced on 5 April 2011. In addition, a total of 43,373
XRF analyses and 37,617 Niton analyses were used to model the
Mineral Resource, more than twice the amount used in the previous
Mineral Resource statement. Please see the table below for an
update on drilling completed.
An ambitious and extensive resource drilling programme was
conducted during 2011. ZIOC has been advised that an updated
mineral resource statement is expected in Q3 2012.
The 2011 drill programme comprised 48,292 metres of Reverse
Circulation ("RC") drilling and 46,822 metres of diamond drilling
("DD"). Three RC rigs were used from January to May 2011, reducing
to two RC rigs until December 2011; and four DD rigs were used for
the full year. In addition, hydrogeological drilling commenced in
November 2011 and carried through to April 2012.
The table below summaries the total drilling completed to date
on the Project.
Drilling completed Metres Holes
-------------------------------------------- ------- -----
At 30 Jun 2010 (IPO JORC resource of 3.3Bt) 42,706 468
-------------------------------------------- ------- -----
30 Jun 2010 to 24 Nov 2010
(April JORC resource of 4.0Bt) 24,660 190
-------------------------------------------- ------- -----
24 Nov 2010 to 26 August 2011
(October 2011 JORC resource of 4.3Bt) 59,618 293
-------------------------------------------- ------- -----
26 August 2011 to 29 February 2012
(Not yet included in JORC resource) 47,768 246
-------------------------------------------- ------- -----
Total to date 174,752 1,197
-------------------------------------------- ------- -----
Geology
At the end of the November 2010 Phase II resource cut-off date
the total number of samples assayed amounted to 21,045. In order to
obtain an initial Fe analysis on the samples and reduce freight and
turnaround time, a sample preparation laboratory and a Niton XRF
analyser machine were established and utilised on site at the
Project's exploration camp. Samples analysed using the Niton
analyser and results show a very good correlation with external
laboratory assays.
Using drill information combined with resistivity/magnetic data
as well as structural observations a detailed geological and
structural understanding of the deposit(s) continues to be
established and is being used as the basis for mine planning and
production forecasts.
FS forward work programme
The scope of the FS is to be determined by reference to the
Railway PFS and the work done since Xstrata acquired majority
control of Jumelles and the Project in February 2011. Such work
includes the VEE (including Scope and Options Review) and the
Pipeline PFS. The major components of the FS phase still to be
undertaken include:
-- engineering studies on, and costs of, the potential mine
site, process plant, transport corridor, port, power and related
infrastructure costs of the Project;
-- finalisation of the ESIA study, in accordance with
international standards and best practice;
-- detailed product market study; and
-- conclusion with the Government of the Republic of Congo of a Mining Convention (Convention d'Etablissement) to cover the appraisal and further development and exploitation phases of the Project.
Financial Review
Results from operations
The financial statements contain the results for the Group's
second full year of operations following its incorporation on 19
November 2009. The Group made a loss in the year of US$22.9m (2010:
loss US$13.2m). The loss for the year comprised:
2011 2010
$000 $000
------------------------------------------------------------------- -------- --------
General expenses (4,570) (2,755)
Net foreign exchange gain 274 (1,343)
Share-based payments (2,425) (964)
Share of loss of associate (7,803) (8,805)
Interest income 173 17
------------------------------------------------------------------- -------- --------
Loss before tax (14,351) (13,850)
Tax (28) -
Currency translation 38 -
Share of other comprehensive income of associate -foreign exchange (8,517) 621
------------------------------------------------------------------- -------- --------
Total comprehensive income (22,858) (13,229)
------------------------------------------------------------------- -------- --------
General expenses of US$4.6m (2010: US$2.7m) consists of US$2.3m
professional fees (2010: US$0.9m), US$0.5m Directors' fees (2010:
US$0.3m) and US$1.8m (2010: US$0.8m) of other general operating
expenses.
The foreign exchange gain of US$0.3m can be attributed to the
impact of the strengthening of the US Dollar against UK Sterling
during the year, mainly on the cash balances that arose following
the listing that are held in UK Sterling.
The share-based payment charge reflects the expense associated
with the grant of options to ZIOC's Directors under ZIOC's
long-term incentive plan ("LTIP") and to the expense associated
with the grant of share options to one of ZIOC's consultants.
Further details of the LTIP and options granted can be found in the
notes to the financial statements.
The share of loss of associate reflected above relates to ZIOC's
investment in Jumelles which generated a loss of US$1.3m in the
year to 31 December 2011 (2010: US$6.2m), together with a charge of
US$6.5m (2010: US$2.5m) made for equity accounting purposes for
share options provided to employees of Jumelles.
During the year Jumelles spent US$87.8m on exploration,
increasing its capitalised exploration assets to US$166.8m (2010:
US$79.0m).
Financial Position
ZIOC's Net Asset Value (NAV) of US$227.2m (2010: US$241.2m)
comprises of US$183.0m (2010: US$192.8m) investment in Jumelles,
US$45.0m (2010: US$49.3m) of cash balances and US$0.8m (2010:
US$0.9m) of net current liabilities.
2011 2010
$000 $000
------------------------------ ----- -----
Investment in associate 183.0 192.8
Cash 45.0 49.3
Other net current liabilities (0.8) (0.9)
------------------------------ ----- -----
Net assets 227.2 241.2
------------------------------ ----- -----
Cost of investment
The investment in associate relates to the value of the
investment in Jumelles which as at 31 December 2011 owned 100% of
the Project. The carrying value of this investment has decreased by
US$9.8m due to the US$16.3m loss made by Jumelles during the year
net of US$6.5m of additions. The additions relate to the
share-based payments made to the employees of Jumelles which have
augmented the value of the investment.
As at 31 December 2011, Jumelles had aggregated assets of
US$200.4m (2010: US$101.8m) and aggregated liabilities of US$37.5m
(2010: US$30.8m). Assets consisted of US$166.8m (2010: US$79.0m) of
capitalised exploration assets, US$12.7m (2010: US$13.6m) of other
fixed assets and US$0.1m (2010: US$nil) of intangible assets. A
total of US$87.8m (2010: US$56.1m) of exploration costs were
capitalised during the year. Cash balances totalled US$10.5m (2010:
US$5.0m).
Cash flow
Cash balances decreased by US$4.3m since 31 December 2010, net
of interest income US$0.1m and foreign exchange gains of US$0.2m on
bank balances held in UK Sterling. Operating activities utilised
US$4.6m.
Fundraising activities
There were no fundraising activities during 2011 (2010: new
shares were issued for cash of US$49.5m).
Risk management
The Board considers risk assessment to be important in achieving
its strategic objectives. There is a process of evaluation of
performance targets through regular reviews by senior management to
forecasts. Project milestones and timelines are regularly
reviewed.
Risks and uncertainties
The principal risks facing ZIOC are set out below. A more
comprehensive summary of risks associated with ZIOC is set out in
Part V of ZIOC's AIM Admission Document of 18 November 2010. Risk
assessment and evaluation is an essential part of the Group's
planning and an important aspect of the Group's internal control
system.
The principal business of ZIOC currently comprises managing
ZIOC's interest in the Project, which is majority controlled by
Xstrata at both a shareholder and Director level, and monitoring
the development of the Project.
The successful development of the Project depends on adequate
infrastructure: a transportation system through which it can
deliver future iron ore product to a port for onward export by
sea.
Risks relating to the agreement with Xstrata
Xstrata has agreed to fund a full FS to be delivered to an
international best practice standard and in accordance with
Xstrata's internal guidelines at a cost of at least US$100m or,
subject to certain requirements, to complete the FS itself.
However, in the event that there is a material adverse change,
Xstrata's funding obligations under the JVA will be suspended until
the material adverse change has ceased.
When the FS is completed, Xstrata may exercise its right to make
an offer to ZIOC for all of the ordinary shares ZIOC holds in
Jumelles. The exercise of this right is not subject to shareholder
approval. If Xstrata exercises this right under the JVA, ZIOC will
no longer hold any ordinary shares in JVCo and will receive the
consideration proceeds from Xstrata for the ordinary shares in
JVCo. There is no guarantee that the consideration paid by Xstrata
will be in excess of the underlying value of ZIOC's ordinary
shares.
Risks relating to future funding
In the event that Xstrata does not exercise this right to
acquire ZIOC's interest in Jumelles and construction of the mine
and related infrastructure proceeds, then ZIOC will have a number
of future funding options including: (i) dilution at NPV (as
defined in the JVA) during construction; or (ii) a right to fund
ZIOC's pro rata equity share of construction capital expenditure.
Should it be required, the ZIOC may seek to raise the required
finance through any or a combination of debt, equity, the
introduction of a new strategic partner and/or an off take
agreement. However there is no certainty as to the Group's ability
to raise the required finance or the terms on which such finance
may be available. If ZIOC raises additional funds through further
issuances of securities, the holders of ordinary shares could
suffer significant dilution, and any new securities that ZIOC
issues could have rights, preferences and privileges superior to
those of the holders of the ordinary shares. Whilst ZIOC may choose
to be diluted at NPV during construction, ZIOC's interest in the
Project may be significantly diluted as a result.
Risks relating to the strategic partner search
Xstrata and ZIOC are currently exploring whether there is a
suitable strategic partner who can further enhance the long-term
value of the Project. Accordingly Xstrata and ZIOC have embarked on
a joint process, which is at an early stage, to identify a party to
become a strategic partner in the development of the Project and
there can be no certainty that this process will result in a
transaction being completed.
The change of control provisions contained in the JVA could act
as an impediment to a takeover of ZIOC as in such circumstances
Xstrata would have the right to acquire all of the shares which it
does not hold in Jumelles. Similarly, some of the rights in the JVA
such as the preferred right shall lapse if there is a change of
control in respect of ZIOC and this could also act as an impediment
to a takeover.
Given that Xstrata intends to fully retain its interest in the
Project, it is likely to have a significant influence on the terms
of the strategic partner process, including whether or not it
wishes to exercise any rights in relation to a change of control of
ZIOC and in agreeing any modifications to the terms of the JVA
required by the prospective strategic partner.
Exploration and mining risks
The business of exploration for, and identification of, iron ore
deposits is speculative and involves a high degree of risk. Future
results, including resource recoveries and work programme plans and
schedules, will be affected by changes in market conditions,
commodity price levels, political or regulatory developments,
timely completion of exploration programme commitments or projects,
the outcome of commercial negotiations and technical or operating
factors. Even if there are economically recoverable deposits,
delays in the construction and commissioning of mining projects or
other technical difficulties, including relating to infrastructure
and permitting may make the deposits difficult to exploit.
Transportation and other infrastructure
The successful development of the Project depends on adequate
infrastructure. The region in which the Project is located is
sparsely populated and difficult to access. Central to the Project
becoming a commercial mining operation is access to a
transportation system through which it can transport future iron
ore product to a port for onward export by sea. In order to achieve
this it will be necessary to build a port facility at Pointe-Noire
and build a rail network or a pipeline or other transportation for
which permits, authorisations and land rights will be required and
substantial finance will be required.
In relation to the proposed port and rail network or pipeline,
the necessary permits, authorisations or land access rights have
not yet been obtained. In relation to the proposed port facility,
the permitting and authorisation process is at an early stage.
Failure to complete the proposed rail network or pipeline and/or to
establish the port or to do so in an economically viable manner
could have a material adverse effect on the Project.
The availability of reliable and continuous delivery of
sufficient quantity of power to the Project at an affordable price
will also be a significant factor on the costs at which iron ore
may be produced and so may impact on the attractiveness and
viability of the Project.
Iron ore prices and undefined market and product
The principal business of the Project is the exploration for,
and the planned exploitation of, iron ore. The ability to raise
finance and the Project's future financial performance is largely
dependent on movements in the price of iron ore. A detailed market
study to identify the potential demand for product has not yet been
undertaken and there are no assurances that the demand for the
Project's product will be sufficient in quantity or in price to
ensure the economic viability of the project.
Host country related risks
The operations of the Project are located entirely in the
Republic of Congo. These operations will be exposed to various
levels of political, regulatory, economic, taxation, environmental
and other risks and uncertainties. As in many other countries,
these (varying) risks and uncertainties include, but are not
limited to: political, military or civil unrest; fluctuations in
global economic and market conditions impacting on the Congolese
economy; terrorism; hostage taking; extreme fluctuations in
currency exchange rates; high rates of inflation; labour unrest;
nationalisation; changes in taxation; illegal mining; restrictions
on foreign exchange and repatriation. In addition, the Republic of
Congo is an emerging market and, as a result, is generally subject
to greater risks than in the case of more developed markets.
Risks relating to the Project's exploration licences
Subject to fulfilment of all related obligations and
undertakings, the Project's exploration licences are renewable upon
request for a further term of two years but the granting of the
licences is outside of the Project's control and there can be no
guarantee that this will indeed happen. If renewed, there will be a
reduction of the surface area covered by the Project's exploration
licences of up to 50% and there can be no guarantee that the
Congolese Government will accept any proposal as to which land is
to be relinquished.
Free carried interest
The holder of an exploitation licence is required to incorporate
a Congolese company to be the operating entity and the Congolese
Government is entitled to a free carried interest in projects which
are at the production phase. This participation cannot be less than
10%. There is, therefore, a risk that the Government will seek to
obtain a higher participation in the Project.
Consolidated statement of comprehensive Income
for year ended 31 December 2011
2011 2010
Note $000 $000
-------------------------------------------------------------------------------- ---- -------- --------
Administrative expenses (6,721) (5,062)
Share of loss of associate (7,803) (8,805)
-------------------------------------------------------------------------------- ---- -------- --------
Operating loss 4 (14,524) (13,867)
Interest income 173 17
-------------------------------------------------------------------------------- ---- -------- --------
Loss before tax (14,351) (13,850)
Taxation 5 (28) -
-------------------------------------------------------------------------------- ---- -------- --------
Loss for the year (14,379) (13,850)
-------------------------------------------------------------------------------- ---- -------- --------
Foreign exchange translation - foreign operations 38 -
Share of other comprehensive income of associate - foreign exchange translation (8,517) 621
-------------------------------------------------------------------------------- ---- -------- --------
Other comprehensive income (8,479) 621
-------------------------------------------------------------------------------- ---- -------- --------
Total comprehensive loss (22,858) (13,229)
-------------------------------------------------------------------------------- ---- -------- --------
Loss per share (basic and diluted) (Cents) 12 (5.2) (5.4)
The loss for the period is attributable to the equity holders of
the parent company.
Consolidated statement of changes in equity
for year ended 31 December 2011
Foreign
currency
Share Retained translation Total
capital earnings reserve equity
$000 $000 $000 $000
----------------------------------------------------------- ------- -------- ----------- --------
Balance at 1 January 2010 207,967 (1,572) (85) 206,310
Issue of shares - listing 44,114 - - 44,114
Consideration for share-based payments - share issue costs 481 - - 481
Consideration for share-based payments - other services 3,508 - - 3,508
Loss for the period - (13,850) - (13,850)
Other comprehensive income - - 621 621
----------------------------------------------------------- ------- -------- ----------- --------
Total comprehensive loss - (13,850) 621 (13,229)
----------------------------------------------------------- ------- -------- ----------- --------
Balance at 31 December 2010 256,070 (15,422) 536 241,184
----------------------------------------------------------- ------- -------- ----------- --------
Balance at 1 January 2011 256,070 (15,422) 536 241,184
Consideration for share-based payments - other services 8,923 - - 8,923
Loss for the period - (14,379) - (14,379)
Other comprehensive income - - (8,479) (8,479)
----------------------------------------------------------- ------- -------- ----------- --------
Total comprehensive loss - (14,379) (8,479) (22,858)
----------------------------------------------------------- ------- -------- ----------- --------
Balance at 31 December 2011 264,993 (29,801) (7,943) 227,249
----------------------------------------------------------- ------- -------- ----------- --------
Consolidated balance sheet
for year ended 31 December 2011
2011 2010
Note $000 $000
---------------------------------------------------- ---- -------- --------
Non-current assets
Property, plant and equipment 6a 13 -
Investment in associate 6b 182,977 192,799
---------------------------------------------------- ---- -------- --------
182,990 192,799
---------------------------------------------------- ---- -------- --------
Current assets
Other receivables 7 104 80
Cash and cash equivalents 8 45,047 49,318
---------------------------------------------------- ---- -------- --------
45,151 49,398
---------------------------------------------------- ---- -------- --------
Total Assets 228,141 242,197
---------------------------------------------------- ---- -------- --------
Current liabilities
Trade and other payables 9 (892) (1,013)
---------------------------------------------------- ---- -------- --------
Net assets 227,249 241,184
---------------------------------------------------- ---- -------- --------
Equity attributable to equity holders of the parent
Share capital 10 264,993 256,070
Retained earnings (29,801) (15,422)
Foreign currency translation reserve (7,943) 536
---------------------------------------------------- ---- -------- --------
Total equity 227,249 241,184
---------------------------------------------------- ---- -------- --------
Consolidated cash flow statement
for year ended 31 December 2011
2011 2010
Note $000 $000
----------------------------------------------------- ---- -------- --------
Cash flows from operating activities
Total comprehensive loss for the period (22,858) (13,229)
Adjustments for:
Depreciation 3 -
Interest received (173) (17)
Taxation expense 28 -
Increase in other receivables (24) (69)
(Decrease)/Increase in trade and other payables (65) 532
Net exchange loss (274) 1,343
Share of loss of associate 16,320 8,184
Share-based payments 2,425 964
----------------------------------------------------- ---- -------- --------
Net cash from operating activities (4,618) (2,292)
----------------------------------------------------- ---- -------- --------
Cash flows from investing activities
Proceeds from the issue of share capital - 49,507
Share issue costs - (4,912)
----------------------------------------------------- ---- -------- --------
Net cash from financing activities - 44,595
----------------------------------------------------- ---- -------- --------
Cash flows from investing activities
Interest received 173 17
Acquisition of property, plant and equipment (16) -
----------------------------------------------------- ---- -------- --------
Net cash from investing activities 157 17
----------------------------------------------------- ---- -------- --------
Net (decrease)/increase in cash and cash equivalents (4,461) 42,320
Cash and cash equivalents at beginning of period 49,318 8,106
Effect of exchange rate difference 190 (1,108)
----------------------------------------------------- ---- -------- --------
Cash and cash equivalents at end of period 8 45,047 49,318
----------------------------------------------------- ---- -------- --------
Notes to the financial statements
1 Business information and going concern basis of
preparation
Background
Zanaga Iron Ore Company Limited (the "Company"), was
incorporated on 19 November 2009 under the name of Jumelles
Holdings Limited. The Company changed its name on 1 October 2010.
The Company is incorporated in the British Virgin Islands ("BVI")
and the address of its registered office, is situated at Coastal
Building, 2nd Floor, Wickham's Cay II, Road Town, Tortola, BVI. The
Company's principal place of business as an investment holding
vehicle is situated in Guernsey, Channel Islands.
As at 31 December 2010 the Company held 100% of the share
capital of Jumelles Limited ("Jumelles") subject to the Xstrata
Call Option (as defined below).
On 14 March 2011 the Company incorporated and acquired the
entire share capital of Zanaga UK Services Limited for US$2, a
company registered in England and Wales which provides investor
management and administration services.
In 2007, Jumelles became the special purpose holding company for
the interests of its then ultimate 50/50 founding shareholders,
Garbet Limited ("Garbet") and Guava Minerals Limited ("Guava"), in
Mining Project Development Congo SAU ("MPD Congo") which, owns and
operates 100% of the Zanaga Project (the "Project") in the Republic
of Congo (subject to a minimum 10% free carried interest in MPD
Congo in favour of the Government of the Republic of Congo).
In December 2009 Garbet and Guava contributed their then
respective 50/50 joint shareholding in Jumelles to the Company.
Garbet is majority owned by Strata Limited ("Strata"), a private
investment holding company based in Guernsey, which specialises in
the investment and development of early stage natural resource
projects in emerging markets, predominately Africa. Garbet owns
approximately 41.25% of the share capital of the Company.
Guava is majority owned by African Resource Holdings Limited
("ARH"), a BVI company that specialises in the investment and
development of early stage natural resource projects in emerging
markets. Guava owns approximately 31.64% of the share capital of
the Company.
The balance of shareholding in the Company is predominantly held
by a number of reputable institutional investors in the mining
sector.
Jumelles has three subsidiary companies, namely Jumelles M
Limited, Jumelles Technical Services (UK) Limited and MPD
Congo.
Xstrata Transaction
On 16 October 2009, Garbet and Guava and Jumelles entered into a
transaction with Xstrata (Schweiz) AG (on 3 December 2009, Xstrata
(Schweiz) AG was substituted by Xstrata Projects (pty) Limited
("Xstrata Projects")), comprising of two principal transaction
agreements (together the "Xstrata Transaction"):
-- a call option deed which gave Xstrata Projects an option to
subscribe for 50% plus 1 share of the fully diluted and outstanding
shares of Jumelles ("Majority Stake") in return for providing
funding towards ongoing exploration of the Zanaga exploration
licence area and a pre-feasibility study (the "PFS") subject to a
minimum amount of US$50 million (the "Xstrata Call Option"). Under
the terms of the Xstrata Call Option, the consideration payable by
Xstrata Projects for the option shares that would be issued by
Jumelles Limited would comprise (i) a commitment to fund all costs
to be incurred by Jumelles Limited in completing a feasibility
study on the Project (the "FS") (provided such amount shall be
greater than US$100 million) or to carry out such a feasibility
study at its own cost and (ii) payment of an amount (up to a
maximum of US$25 million) equal to the amount that Jumelles Limited
owes to Garbet and Guava as loans which would be used to repay the
latter; and
-- a joint venture agreement which regulates the respective
rights of the Company, Jumelles and Xstrata Projects in relation to
Jumelles following exercise of the Xstrata Call Option and gives
Xstrata Projects the right to purchase the Company's remaining 50%
minus 1 share interest in Jumelles("Minority Stake") following
completion of the FS and deals with the terms on which Jumelles
will be funded following completion of the FS (the "JVA").
During 2010, the PFS progressed and following completion of
Phase I of that study Xstrata Projects countersigned a further
funding letter confirming in writing its agreement (subject to the
provisions of the Xstrata Call Option) to contribute further
funding and confirming its approval of the phase II work programme,
budget and funding amount (up to US$56.49 million) as set out in
that letter.
On 11 February 2011 Xstrata Projects exercised the Xstrata Call
Option and the exercise paid (the "Call Option Price") is the sum
of:
-- the aggregate costs of completing the FS, provided that such
amount is greater than US$100,000,000 (excluding the call option
premium); plus
-- sums to repay all outstanding founding shareholder loans then amounting to US$21,277,334
The Call Option Price must not exceed an amount that would
result in it being a Class 2 Transaction for Xstrata Projects.
Relationship between Jumelles and its shareholders after
exercise of the Xstrata Call Option
The Company, Jumelles and Xstrata Projects agreed to regulate
their respective rights in relation to the Project following
exercise of the Call Option under the terms of the JVA. Under the
terms of the JVA, all significant decisions regarding the conduct
of Jumelles' business (other than certain protective rights which
require the agreement of shareholders holding at least 95% of the
voting rights in Jumelles) are made by the Board of Directors.
Each shareholder holding 15% or more of the votes in Jumelles
has the right to appoint a director to the Board of that company.
At any Board meeting, each such director will have such number of
votes as represents the appointing shareholder's voting rights in
the general meetings of Jumelles.
As a consequence, following exercise of the Xstrata Call Option
(which completed on 11 February 2011), Xstrata Projects controls
Jumelles at both a shareholder and director level and therefore
controls what was the Company's sole mineral asset, the Project,
and going forward the Company has a strategic partnership in
respect of the Project with Xstrata.
Following exercise of the Xstrata Call Option, the principal
business of the Company has comprised managing its 50% less one
share interest in the Project and monitoring both the finalisation
of the pre-feasibility study and the preparation of the feasibility
study.
In addition, under the terms of the JVA, following exercise of
the Xstrata Call Option, Xstrata Projects has the right to require
all the other shareholders in the Company to sell their shares to
Xstrata Projects, at an agreed cash price or price based on net
present value, for a period of 90 days following completion of the
FS. Therefore Xstrata Projects could elect to acquire 100% of the
Project following completion of the FS. The JVA has provisions
governing how any dispute as to the price to be paid would be
resolved. The exercise of this right is not subject to the approval
of the Company's shareholders.
Future funding requirements and going concern basis of
preparation
In common with many exploration and development companies in the
mining sector, the Company raises funding in phases as its projects
develop.
Following exercise of the Xstrata Call Option, and
implementation of the joint venture agreement, Xstrata Projects is
obliged to fund the costs of a FS in accordance with international
best practice and Xstrata Projects' internal guidelines. Xstrata
Projects must use reasonable efforts to deliver the FS no later
than three months prior to the expiration of the licences in May
2014 (assuming a second extension of the Project exploration
licences anticipated in Q3 2012) or any subsequent renewal, subject
to there being no material adverse change. Under the Republic of
Congo Mining Code, after its initial three-year period, an
exploration licence is permitted two extensions of two years, each
of which are renewable upon request. The application for the second
extension of the Zanaga exploration licences was submitted in March
2012. The cost of the Company's personnel and the technical experts
appointed to monitor the Company's investment in the Project are
the only significant expenditures currently envisaged during the
period of the FS work programme and the Company has significant
cash resources available. In the circumstances, the Directors have
a reasonable expectation that the Company has adequate financial
resources to continue in operational existence for the foreseeable
future. For these reasons, the financial statements of the Company
have been prepared on a going concern basis.
In the event that a decision is taken to develop a mine at
Zanaga (and assuming that Xstrata Projects has not acquired the
Company's interest in Jumelles), the Company will need to raise
further funds.
2 Accounting policies
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied to all the periods presented, unless
otherwise stated.
Basis of preparation
These financial statements have been prepared in accordance with
the International Financial Reporting Standards as adopted by the
European Union ("Adopted IFRS"). Adopted IFRS comprises standards
and interpretations approved by the International Accounting
Standards Board ("IASB") and the International Financial Reporting
Interpretations Committee ("IFRIC") as adopted by the European
Union.
The financial statements consolidate those of the Company and
its subsidiary Zanaga UK Services Limited (together, the "Group")
and the Company's investment in an associate which is accounted for
using the equity method.
New standards, amendments and interpretations
The following Standards and Interpretations were issued during
the year, but were not effective at the balance sheet date:
-- IAS 1 (Amended) - Presentation of items of Other Comprehensive Income
-- IFRS 10 - Consolidated Financial Statements
-- IFRS 12 - Disclosure of Interests in Other Entities
-- IFRS 13 - Fair Value Measurement
These standards have not been applied in preparing the financial
statements for the year ended 31 December 2011.
It is not anticipated that the adoption of these standards will
have any significant impact on the financial statements.
Measurement convention
These financial statements have been prepared on the historical
cost basis of accounting.
The preparation of financial statements in conformity with
Adopted IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise judgement in the
process of applying the Group's accounting policies. The areas
involving a higher degree of judgement or complexity, or areas
where assumptions and estimates are significant to the financial
statements are disclosed in Note 3.
Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the Group. The financial
statements of subsidiaries are included in the financial statements
from the date that control commences until the date that control
ceases.
Associates
Investments in associates are recorded using the equity method
of accounting whereby the investment is initially recognised at
cost and adjusted thereafter for the post-acquisition changes in
the Group's share of the net assets of the associate. The Group
profit or loss and other comprehensive income includes the Group's
share of the associate's profit or loss and other comprehensive
income. The investment is considered for impairment annually.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income
and expenses arising from the intra-group transactions, are
eliminated in preparing the financial statements.
Foreign currency
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
balance sheet date are retranslated to the functional currency at
the foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in the income
statement.
Share-based payments
The Group makes equity-settled share-based payments to certain
employees and similar persons as part of a long-term incentive plan
("LTIP"). The fair value of the equity-settled share-based payments
is determined at the date of the grant and expensed, with a
corresponding increase in equity, on a straight line basis over the
vesting period, based on the Group estimate of the awards that will
eventually vest, save for any changes resulting from any
market-performance conditions.
Where awards are granted to employees of the Group's associate
and similar persons, the equity-settled share-based payment is
recognised by the Group as an increase in the cost of the
investment with a corresponding increase in equity over the vesting
period of the award. In equity accounting for the Group's share of
its associate, the Group has accounted for the cost of equity
settled share-based payments as if it were a subsidiary.
The shares to be issued under the LTIP are acquired by an
Employee Benefit Trust which has to date subscribed for the shares
at zero value. These shares are held by the Employee Benefit Trust
until the vesting conditions have been met. Information on the
share awards are provided in Note 11 to these financial
statements.
Share-based payments to non-employees
Where the Group received goods or services from a third party in
exchange for its own equity instruments and the amount of equity
instruments is fixed, the equity instruments and related goods or
services are measured at the fair value of the goods or services
received and are recognised as the goods are obtained or the
services rendered. Equity instruments issued under such
arrangements for the receipt of services are only considered to be
vested once provision of services is complete.
Non-derivative financial instruments
Non-derivative financial instruments in the balance sheet
comprise other receivables, cash and cash equivalents, and trade
and other payables.
Other receivables
Other receivables are recognised initially at fair value.
Subsequent to initial recognition they are measured at amortised
cost using the effective interest method, less any impairment
losses.
Trade and other payables
Trade and other payables are recognised initially at fair value.
Subsequent to initial recognition they are measured at amortised
cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits.
Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of ordinary shares are
recognised as a deduction from equity.
Ordinary shares issued to the Employee Benefit Trust under the
LTIP or to non-employees for services provided to the Company, are
included within Share Capital.
When share capital recognised as equity is repurchased, the
amount of consideration paid, including directly attributable
costs, is recognised as a change in equity. Repurchased shares are
classified as treasury shares and presented as a deduction from
total equity.
Impairment
The carrying amounts of the Group's assets are reviewed at each
balance sheet date to determine whether there is any indication of
impairment; a financial asset is considered to be impaired if
objective evidence indicates that one or more events have had a
negative effect on the estimated future cash flows of that asset.
If any such indication exists, the asset's recoverable amount is
estimated.
An impairment loss is recognised whenever the carrying amount of
an asset or its cash-generating unit exceeds its recoverable
amount. Impairment losses are recognised in the income
statement.
Calculation of recoverable amount
The recoverable amount of the Group's investments and
receivables carried at amortised cost is calculated as the present
value of estimated future cash flows, discounted at the original
effective interest rate (i.e., the effective interest rate computed
at initial recognition of these financial assets). Receivables with
a short duration are not discounted.
The recoverable amount of other assets is the greater of their
fair values less costs to sell and value in use. In assessing value
in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks
specific to the asset.
Reversals of impairment
An impairment loss in respect of a receivable carried at
amortised cost is reversed if the subsequent increase in
recoverable amount can be related objectively to an event occurring
after the impairment loss was recognised.
In respect of other assets, an impairment loss is reversed when
there is an indication that the impairment loss may no longer exist
and there has been a change in the estimates used to determine the
recoverable amount.
An impairment loss is reversed only to the extent that the
asset's carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortisation, if
no impairment loss had been recognised.
Expenses
Financing income and expenses
Interest income and interest payable is recognised in profit or
loss as it accrues, using the effective interest method.
Taxation
Tax on the profit or loss for the year comprises current and
deferred tax. Tax is recognised in the income statement except to
the extent that it relates to items recognised directly in equity,
in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantively enacted at
the balance sheet date, and any adjustment to tax payable in
respect of previous years.
Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following
temporary differences are not provided for: the initial recognition
of goodwill: the initial recognition of assets or liabilities that
affect neither accounting nor taxable profit other than in a
business combination, and differences relating to investments in
subsidiaries to the extent that they will probably not reverse in
the foreseeable future. The amount of deferred tax provided is
based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates enacted
or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the temporary difference can be utilised.
Segmental Reporting
The Group has one operating segment, being its investment in the
Project, held through Jumelles Limited. Financial information
regarding this segment is provided in Note 6.
Subsequent events
Post year-end events that provide additional information about
the Group's position at the balance sheet date (adjusting events)
are reflected in the financial statements. Post year-end events
that are not adjusting events are disclosed in the notes to
financial statements when material.
3 Critical accounting estimates, assumptions and judgements
The Group makes estimates and assumption concerning the future
that are continually evaluated and are based on historical
experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
The resulting accounting estimates will, by definition, seldom
equal the related actual results. The estimates and assumptions
that have a significant risk of causing a material adjustment to
the carrying amount of assets and liabilities within the next
financial year are discussed below.
Impairment of investment in associate
The value of the Group's investment in Jumelles depends very
largely on the value of Jumelles' interest in the Project. Jumelles
assesses at least annually whether or not its exploration projects
may be impaired. This assessment can involve significant judgement
as to the likelihood that a project will continue to show
sufficient commercial promise to warrant the continuation of
exploration and evaluation activities.
Accounting for the Company's interest in Jumelles Limited
Significant judgement has been applied in arriving at the
accounting treatment of the Group's interest in Jumelles. Though
the exercise of the Xstrata Call Option on 11 February 2011 gave
Xstrata Projects a shareholding of 50% plus one share, and then
effective director level control of Jumelles, those shares are not
considered to vest until provision of the services relating to the
PFS and FS has been completed. Accordingly, the Group will continue
to account for a 100% interest in Jumelles until the FS has been
completed. Further details may be found under 'Investment in
associate' Note 6b.
4 Note to the comprehensive income statement
Operating loss before tax is stated after charging:
2011 2010
$000 $000
----------------------------------- ----- -----
Share-based payments (see Note 11) 2,425 964
Net foreign exchange (gain)/loss (274) 1,343
Directors' fees 514 309
Auditor's remuneration 93 39
Depreciation 3 -
----------------------------------- ----- -----
Other than the Company Directors, the Group directly employed
three staff in 2011 (2010: Nil). The Directors received US$514,000
remuneration for their services as Directors of the Group (2010:
US$309,000). The amounts paid as Directors' fees are shown in the
Directors' Remuneration Report on page 34. The Directors' interests
in the share capital of the Group are shown in the Directors'
Remuneration Report on page 34.
5 Taxation
The Group is exempt from most forms of taxation in the BVI,
provided the Group does not trade in the BVI and does not have any
employees working in the BVI. All dividends, interest, rents,
royalties and other expense amounts paid by the Company, and
capital gains are realised with respect to any shares, debt
obligations or other securities of the Company, are exempt from
taxation in the BVI.
The tax charge in the period relates to the Company's
subsidiary, Zanaga UK Services Limited.
2011 2010
$000 $000
--------------------------------------------------------------- -------- --------
Recognised in other comprehensive income:
Current year (28) -
Reconciliation of effective tax rate
Loss before tax (14,351) (13,850)
Income tax using the BVI corporation tax rate of 0% (2010: 0%) - -
Effect of tax rate in foreign jurisdictions (28) -
--------------------------------------------------------------- -------- --------
(28) -
--------------------------------------------------------------- -------- --------
The effective tax rate for the Group is 0.2% (2010: nil%).
6a Property, Plant and Equipment
Fixtures
and fittings
$000
------------------------------ ------------
Cost
Balance at 1 January 2011 -
Additions 16
------------------------------ ------------
Balance at 31 December 2011 16
------------------------------ ------------
Depreciation
Balance at 1 January 2011 -
Charge for period 3
------------------------------ ------------
Balance at 31st December 2011 3
------------------------------ ------------
Net book value
Balance at 31 December 2011 13
------------------------------ ------------
Balance at 31st December 2010 -
------------------------------ ------------
There are no assets held under finance leases or hire purchase
contracts.
6b Investment in associate
$000
----------------------------------------------- --------
Balance at 1 January 2010 198,439
----------------------------------------------- --------
Additions 2,544
Share of post-acquisition comprehensive income (8,184)
----------------------------------------------- --------
Balance at 31 December 2010 192,799
----------------------------------------------- --------
Balance at 1 January 2011 192,799
Additions 6,498
Share of post-acquisition comprehensive income (16,320)
----------------------------------------------- --------
Balance at 31 December 2011 182,977
----------------------------------------------- --------
The investment represents a 100% holding in Jumelles for the
entire share capital of 2,000,000 shares. The shares were acquired
in exchange for shares in the Company and have been recorded at
fair value of the interest acquired.
The additions to the investment during 2010 and 2011 are due to
the Group granting awards under the LTIP to employees of Jumelles
(as set out in Note 11).
Since its acquisition and up to 11 February 2011, the investment
in Jumelles did not represent an investment in a subsidiary due to
the call option held by Xstrata described in Note 1 above which
throughout that period gave Xstrata Projects potential voting
rights which would have been sufficient for Xstrata Projects to
control Jumelles. Following exercise of the Xstrata Call Option ,
the residual rights retained by the Group are sufficient in the
view of the Directors to provide the Group with the power to
participate significantly in the financial and operating decisions
affecting Jumelles. As a consequence the Group's interest is
accounted for as an associate using the equity method of
accounting.
As explained in Note 1, on 11 February 2011, Xstrata Projects
exercised the Xstrata Call Option and from that date owns 50% plus
one share of Jumelles and Jumelles is controlled at both a
shareholder and director level by Xstrata Projects. However, as the
shares issued on exercise of the option are not considered to vest
until provision of the services relating to the PFS and the FS has
been completed, the Group will continue to account for a 100%
interest in Jumelles Limited until the FS has been completed. Only
at that time will the Group account for a reduction in its interest
in Jumelles.
The Group financial statements account for the Xstrata Projects
transaction as an in-substance equity-settled share-based payment
for the provision of services by Xstrata Projects to Jumelles in
relation to the PFS and the FS. These services largely are provided
through third party contractors and are measured at the cost of the
services provided.
As at 31 December 2011, Jumelles had aggregated assets of
US$200,396,000 (2010: US$101,783,000) and aggregated liabilities of
US$37,461,000 (2010: US$30,846,000). For the year ended 31 December
2011 Jumelles incurred net administrative expenses of US$1,305,000
(2010: US$5,992,000) and incurred a tax charge of US$Nil (2010:
US$269,000). A summarised consolidated balance sheet of Jumelles
Limited for the year ended 31 December 2011, including adjustments
made for equity accounting, is included below:
2011 2010
$000 $000
---------------------------------------- -------- --------
Non-current Assets
Property, plant and equipment 12,704 13,623
Exploration and other evaluation assets 166,815 78,954
Intangible Assets 145 -
---------------------------------------- -------- --------
179,664 92,577
Current Assets 20,732 9,206
Current Liabilities (37,461) (30,846)
Net current liabilities (16,729) (21,640)
---------------------------------------- -------- --------
Net assets 162,935 70,937
---------------------------------------- -------- --------
Share Capital 9,561 3,063
Share option reserve 190,738 88,918
Translation reserve (8,569) (52)
Retained earnings (28,795) (20,992)
---------------------------------------- -------- --------
162,935 70,937
---------------------------------------- -------- --------
7 Other receivables
2011 2010
$000 $000
------------ ---- ----
Prepayments 104 80
------------ ---- ----
8 Cash
2011 2010
$000 $000
-------------------------- ------ ------
Cash and cash equivalents 45,047 49,318
-------------------------- ------ ------
9 Trade and other payables
2011 2010
$000 $000
---------------------------------------------- ---- -----
Accounts payable 780 677
Amounts payable to the Jumelles Limited group 85 336
UK Corporation Tax 27 -
---------------------------------------------- ---- -----
892 1,013
---------------------------------------------- ---- -----
Amounts payable to the Jumelles Limited group comprise of
US$64,000 payable to Jumelles (2010: US$298,000) and US$21,000
payable to Jumelles Technical Services (UK) Limited
(2010:US$38,000). No amounts payable are due in more than 12 months
(2010: US$nil).
10 Share capital
Ordinary
In thousands of shares shares
--------------------------------------------------- --------
On issue at 1 January 2010 - fully paid 101,974
--------------------------------------------------- --------
Sub-division of shares 152,960
New shares issued pursuant to placing 19,908
Shares issued to the Employee Trust under the LTIP 5,574
--------------------------------------------------- --------
On issue at 31 December 2010 - fully paid 280,416
--------------------------------------------------- --------
On issue at 31 December 2011 - fully paid 280,416
--------------------------------------------------- --------
The Company is able to issue an unlimited number of no par value
shares. The holders of ordinary shares are entitled to receive
dividends as declared from time to time and are entitled to one
vote per share at meetings of the Company. No dividends have been
paid or declared in the current year (2010: US$nil).
Share capital changes in 2010
On 15 November 2010, pursuant to a written resolution of the
Directors dated the same day, each ordinary share of the Company
was divided into 2.5 ordinary shares creating 152,960,527 new
shares.
The Company was admitted to trading on AIM on 18 November 2010
at which point the total number of shares in issue was
254,934,212.
On Admission to AIM the Company issued 19,907,629 new ordinary
shares at 156 pence each. These shares were issued for cash of
US$49,507,000 and are disclosed net of issue costs of
US$5,393,000.
Under a deed of warrant dated 17 November 2010 the Company
granted to Liberum Capital Limited, the Company's Nominated Advisor
and Joint Corporate Broker, conditional on admission a warrant to
subscribe for, at the placing price of GBP1.56, new ordinary shares
equal in value to 5% of the aggregate number of new shares issued
on admission (998,382 shares), exercisable within 12 months of
Admission which was not exercised and subsequently lapsed on 18
November 2011. US$481,000 of the issue costs on Admission to AIM
relate to the fair value of services received under this deed of
warrant.
A total of 5,574,135 ordinary shares were issued for nil
consideration to a discretionary trust established for the benefit
of current and former employees and officeholders of the Company
and the Jumelles group in connection with the Company's LTIP.
Further details of this scheme can be found in Note 11.
Share capital changes in 2011
There have been no share capital changes in 2011.
11 Share-based payments
Employees
As stated under Note 2 above the Group has implemented a LTIP in
order to recruit and retain key officers and employees of the Group
and the Group's associate. For all key management personnel, the
LTIP is structured as a split interest scheme. On the date of the
award, the employee and the Employee Trust enter into an agreement
to acquire shares as joint owners with the employee's proportion of
ownership of each share being 0.001% of the total value up to a
given hurdle and 99.999% of the total value above the hurdle. The
hurdle is determined on advice of the Remuneration Committee. The
employee will pay the market value for his joint ownership of the
shares. If the vesting conditions are not met, the employee
forfeit's joint ownership of the shares. If the award meets the
vesting conditions, the employee has the right to exercise the
option and become the sole owner of the shares. The Group has also
granted a number of awards of share options to middle management.
Under these awards the Trust grants the employee the right to
acquire shares if certain vesting conditions are achieved. The
employee is not required to pay an exercise price for these
shares.
A number of separate awards were made on 18 November 2010.
Different awards were made subject to several different vesting
conditions.
Award 1
These awards vest on the later of the following:
-- The exercise or non-exercise by Xstrata Projects or expiry or
termination of the Xstrata Call Option to acquire its Majority
Stake in Jumelles; or
-- The completion of the PFS to the satisfaction of the Board.
There are specific provisions that apply to the awards in
respect of takeover and corporate transaction provisions and
provisions relating to cessation of employment or ceasing to
provide services.
During the year, the Remuneration Committee modified the terms
of Award 1. The condition relating to completion of the PFS was
amended so that the vesting criteria be the publication of the
results of the VEE.
Award 2
These awards vest as follows:
-- In respect of 1/3 of the shares subject to the awards, immediately on Admission;
-- In respect of 1/3 of the shares subject to the awards, on the
expiry of one year following Admission;
-- In respect of 1/3 of the shares subject to the awards, the
expiry of two years following Admission.
There are specific provisions that apply to the awards in
respect of takeover and corporate transaction provisions and
provisions relating to cessation of employment or ceasing to
provide services.
Award 3
These awards vest on the expiry of the following periods:
-- In respect of 1/2 of the shares subject to the awards, the
expiry of one year following Admission;
-- In respect of 1/2 of the shares subject to the awards, the
expiry of two years following Admission.
The application of the vesting criteria in the three awards
above is subject to the discretion of the Board of Directors who
can also vary the criteria if they see fit. There are specific
provisions that apply to the early vesting of awards in the event
of takeover and corporate transaction provisions and provisions
relating to cessation of employment or ceasing to provide
employment.
The following information is relevant to the awards made during
2010:
Award 1 Award 2 Award 3 Total
------------------------- ----------------------- ----------------------- -------------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Price Exercise Price Exercise Price Exercise Price
(GBP) Number (GBP) Number (GBP) Number (GBP) Number
-------------- -------------- --------- -------------- ------- -------------- ------- -------------- ---------
At 1 January
2010 N/A Nil N/A Nil N/A Nil N/A Nil
Granted GBP0.02 4,260,235 GBP0.02 995,382 GBP1.58 199,076 GBP0.08 5,454,693
Forfeited N/A Nil N/A Nil N/A Nil N/A Nil
Exercised N/A Nil N/A Nil N/A Nil N/A Nil
Lapsed N/A Nil N/A Nil N/A Nil N/A Nil
-------------- -------------- --------- -------------- ------- -------------- ------- -------------- ---------
At 31 December
2010 GBP0.02 4,260,235 GBP0.02 995,382 GBP1.58 199,076 GBP0.08 5,454,693
(US$0.03) (US$0.04) (US$2.45) (US$0.12)
-------------- -------------- --------- -------------- ------- -------------- ------- -------------- ---------
At 1 January
2011 GBP0.02 4,260,235 GBP0.02 995,382 GBP1.58 199,076 GBP0.08 5,454,693
(US$0.03) (US$0.04) (US$2.45) (US$0.12)
Granted N/A Nil N/A Nil N/A Nil N/A Nil
Forfeited N/A Nil N/A Nil N/A Nil N/A Nil
Exercised N/A Nil N/A Nil N/A Nil N/A Nil
Lapsed N/A Nil N/A Nil N/A Nil N/A Nil
-------------- -------------- --------- -------------- ------- -------------- ------- -------------- ---------
At 31 December
2011 GBP0.02 4,260,235 GBP0.02 995,382 GBP1.58 199,076 GBP0.08 5,454,693
(US$0.03) (US$0.04) (US$2.45) (US$0.12)
----------------------------- --------- -------------- ------- -------------- ------- -------------- ---------
Award 1 Award 2 Award 3 Total
------------------- ----------- ----------- -------------------
GBP0.00-GBP0.02 GBP0.02 GBP1.58 GBP0.00 - GBP1.58
Range of exercise prices (GBP
and US$*) (US$0.00-US$0.03) (US$0.04) (US$2.45) (US$0.00-US$2.45)
Weighted average share price
at date of exercise (GBP) N/A N/A N/A N/A
Total share awards vested (No.) 4,260,235 663,588 199,076 5,122,899
Weighted average fair value
of share awards granted in
the period (GBP and US$*) Nil Nil Nil Nil
Weighted average remaining
contractual life (days) Nil 323 days 323 days Nil
-------------------------------- ------------------- ----------- ----------- -------------------
* Sterling amounts have been converted into US Dollars at the grant date exchange rate of US$1.547:GBP1.
It is currently expected that awards will vest in full.
The following information is relevant in the determination of
the fair value of options granted:
Award 1 Award 2 Award 3 Total
----------------- ----------------- ----------------- -----------------
Option pricing
model used Black-Scholes Black-Scholes Black-Scholes Black-Scholes
GBP1.56 GBP1.56 GBP1.56 GBP1.56
Weighted average
share price at
date of grant
(GBP and US$*) (US$2.43) (US$2.43) (US$2.43) (US$2.43)
Weighted average
contractual life
(days) 264 days 365 days 548 days 293 days
Expected volatility
(%) 50% 50% for less than 50% for less than 50% for less than
1 year expected 1 year expected 1 year expected
life, life, life,
55% for more than 55% for more than 55% for more than
1 year expected 1 year expected 1 year expected
life life life
Dividend growth
rate (%) Zero Zero Zero Zero
Risk-free interest
rate (%) 0.51% for 0.69% for 0.69% for 0.51% for
6 month expected 12 month expected 12 month expected 6 month expected
life life life life
0.69% for 1.12% for 1.12% for 0.69% for
12 month expected 24 month expected 24 month expected 12 month expected
life life life life
1.55 for 1.12% for
36 month expected 24 month expected
life life
1.55 for
36 month expected
life
------------------- ----------------- ----------------- ----------------- -----------------
* Sterling amounts have been converted into US Dollars at the
year end closing exchange rate of US$1.547: GBP1.
The volatility assumption is measured by reference to the
historic volatility of comparable companies based on the expected
life of the option.
Non-employees
The Company has also granted an award of share options in
respect of consultancy services provided by Strata Capital UK LLP
on 17 November 2010. The options have a weighted average price of
GBP1.56 (US$2.41), a weighted average fair value of GBP0.39
(US$0.62) and a weighted average contractual life of 502 days. The
awards have the same terms as the Award 3 issued under the LTIP and
have therefore been fair valued using the same model and valuation
assumptions.
The total equity-settled share-based payment expense recognised
as an operating expense during the year was US$2,425,000 (2010:
US$964,000), of which US$2,268,000 (2010: US$941,000) related to
the Directors and US$157,000 (2010: US$23,000) related to
consultancy services provided by Strata Capital UK LLP. Further
details of share-based payments awarded to Directors of the Group
can be found in the Remuneration Report on page 34.
The total charge during the year for equity-settled share-based
payments awarded to employees of companies in which the Group has a
significant interest totals US$6,498,000 (2010: US$2,544,000) and
has been added to the cost of investment in those companies
12 Loss per share
2011 2010
--------------------------------------------------------- -------- --------
Loss (Basic and diluted) (US$,000) (14,379) (13,850)
Weighted average number of shares (thousands)
Basic
Issued shares at beginning of period 280,416 101,974
Effect of shares issued - 33,788
Effect of share repurchase - -
Effect of own shares (5,574) (657)
Effect of share split - 122,229
--------------------------------------------------------- -------- --------
Weighted average number of shares at 31 December - basic 274,842 257,334
--------------------------------------------------------- -------- --------
Loss per share (Cents)
Basic and diluted 5.2 5.4
--------------------------------------------------------- -------- --------
There are potential ordinary shares outstanding, refer to Note
10 and 11 for details of these potential ordinary shares.
13 Financial instruments
Fair values of financial instruments
Other receivables
The fair value of other receivables is estimated as the present
value of future cash flows, discounted at the market rate of
interest at the balance sheet date if the effect is material. The
fair values approximate book values.
Trade and other payables
The fair value of trade and other payables is estimated as the
present value of future cash flows, discounted at the market rate
of interest at the balance sheet date if the effect is material.
The fair values approximate book values.
Cash and cash equivalents
The fair value of cash and cash equivalents is estimated as its
carrying amount where the cash is repayable on demand. Where it is
not repayable on demand then the fair value is estimated at the
present value of future cash flows, discounted at the market rate
of interest at the balance sheet date.
Financial Risk Management
The Group's activities expose it to a variety of financial
risks: credit risk, liquidity risk and market risk (comprising
currency risk and interest rate risk). The Group seeks to minimise
potential adverse effects of these risks on the Group's financial
performance. The Board has overall responsibility for managing the
risks and the framework for monitoring and coordinating these
risks. The Group's financial risk management policies are set out
below:
(a) Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations, and arises principally from the Group
receivables related parties. The Group has a credit policy in place
and exposure to credit risk is monitored on an ongoing basis. At 31
December, the financial assets exposed to credit risk were as
follows:
2011 2010
$000 $000
Cash and cash equivalents 45,047 49,318
-------------------------- ------ ------
(b) Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its obligations as they fall due. The Group evaluates and
follows continuously the amount of liquid funds needed for business
operations, in order to secure the funding needed for business
activities and loan repayments. The availability and flexibility of
the financing is needed to assure the Group's financial position.
The Group funding requirements are detailed in Note 1.
Details of the maturity of financial liabilities are provided in
Note 9.
(c) Market risk
(i) Foreign currency risk
The foreign currency denominated financial assets and
liabilities are not hedged, thus the changes in fair value are
charged or credited to profit and loss.
As at 31 December 2011 the foreign currency denominated assets
include cash balances held in sterling of US$38,746,000 (2010:
US$42,861,000), other receivables denominated in sterling of
US$102,000 (2010: US$77,000), and accounts payable of US$768,000
(2010: US$599,000) denominated in sterling.
The following significant exchange rates applied during the
year:
Reporting date Reporting date
Average rate spot rate Average rate spot rate
2011 2011 2010 2010
------------------- ------------ -------------- ------------ --------------
Against US Dollars US$ US$ US$ US$
Pounds Sterling 1.604 1.554 1.546 1.547
------------------- ------------ -------------- ------------ --------------
Sensitivity analysis
A 10% weakening of the following currencies against the US
Dollar at 31 December would have increased (decreased) equity and
profit or loss by the amounts shown below. This calculation assumes
that the change occurred at the balance sheet date and had been
applied to risk exposures existing at that date.
This analysis assumes that all other variables, in particular
other exchange rates and interest rates, remain constant.
Equity Profit or loss Equity Profit or loss
2011 2011 2010 2010
$000 $000 $000 $000
---------------- ------- -------------- ------- --------------
Pounds sterling (3,814) (3,814) (4,346) (4,346)
---------------- ------- -------------- ------- --------------
A 10% strengthening of the above currencies against the US
Dollar at 31 December would have had the equal but opposite effect
on the above currencies to the amounts shown above, on the basis
that all other variables remain constant.
Capital management
The Board's policy is to maintain a strong capital base so as to
maintain investor and market confidence. Capital consists of share
capital and retained earnings.
The Directors do not intend to declare or pay a dividend in the
foreseeable future but, subject to the availability of sufficient
distributable profits, intend to commence the payment of dividends
when it becomes commercially prudent to do so.
The Company has a LTIP which is administered by the Remuneration
Committee. The LTIP is discretionary and the Remuneration Committee
will decide whether to make share awards under the LTIP at any
time. The Group Employee Benefit Trust buys the shares in the
Company to be issued under the LTIP.
14 Commitments
The Group had no capital commitments or off-balance sheet
arrangements at 31 December 2011 (31 December 2010: nil).
15 Related parties
The Group's relationships with Jumelles and Xstrata are
described in Note 1 above.
The following transactions occurred with related parties during
the period:
Transactions for the period Closing balance
----------------------------- -----------------
2011 2010 2011 2010
$000 $000 $000 $000
------------------------------------------------------------ -------------- ------------- -------- -------
Intercompany payable Jumelles Limited 234 298 64 298
Intercompany payable Jumelles Technical Services UK Limited (17) 38 21 38
Strata Capital UK LLP 52 57 5 57
------------------------------------------------------------ -------------- ------------- -------- -------
In addition to the transactions above, the Group has also issued
share options to Strata Capital UK LLP. Details of these options
can be found in Note 11.
Transactions with key management personnel
2011 2010
$000 $000
--------------------- ----- -----
Share-based payments 2,268 964
Directors' fees * 514 309
--------------------- ----- -----
Total 2,782 1,273
--------------------- ----- -----
* Colin Harris held office as a Director at Jumelles Technical
Services Limited (a subsidiary within the Jumelles Group) and
managed the Project until February 2011 and, during 2011, received
GBP194,000 (US$311,000) in respect of those roles and the cessation
thereof.
Harris GeoConsult Ltd, a company in which Colin Harris has a
controlling interest, was paid a total of GBP131,000 (US$205,000)
for consultancy services provided by Colin Harris during 2011.
Strata Capital UK LLP, a limited liability partnership in which
Michael Haworth has a significant interest, was paid a total of
GBP104,000 (US$162,000) for consultancy services provided by
Michael Haworth during 2011.
The Directors' have no material interest in any contract of
significance subsisting during the financial year, to which the
Group is a party.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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