RNS Number:6669T
African Copper PLC
26 March 2007
26 March 2007
www.africancopper.com
AIM: ACU
BSE: African Copper
TSX: ACU
AFRICAN COPPER Plc
("African Copper" or the "Company")
Preliminary results for the year ended 31 December 2006
African Copper announces its preliminary results for the year ended 31 December
2006.
Highlights
Corporate
*Assembled our construction team in Botswana and commenced construction at
Dukwe in Q4.
*Raised a total of #52.9 million net of expenses from an equity issue of
75 million ordinary shares in Q2 of 2006 to finance the construction of
Dukwe.
Dukwe deposit
*The Company's goal is to develop the Dukwe deposit as its first mine in
the Matsitama Belt of Botswana. In order to achieve its stated goal, the
Company completed engineering studies for a combined open pit/underground
mine with a dedicated flotation concentrator. Late in Q4, the government of
Botswana gave final approval for the Dukwe Project by granting a 25-year
Mining Licence. The Company commenced construction in Q4 and signed an
engineering, procurement and construction management contract for Dukwe. The
initial development strategy shows an open pit operation being constructed
first, with the underground mine commencing production by the third year of
operations.
*Construction Activities - Construction activities commenced at Dukwe in
October 2006. Work to date has included the stripping and stockpiling of top
soil, the excavation and terracing of the mill and concentrator site,
completion of surface water control structures, the completion of a 10
kilometre all-weather access road linking the site to the paved
Francistown-Nata highway, completion of a 15 kilometre water pipeline
linking the well field to the project site and the commencement of
foundation excavations for the mill.
*Equipment Acquisition - The Company has purchased primary, secondary and
tertiary crushers that are currently undergoing refit in Johannesburg. An
order for the ball mill was placed in June 2006 with an expected 14 month
delivery and commissioning. By the end of the first quarter of fiscal 2007,
the Company expects to have firm orders for over 80% of equipment and steel.
The Company has accelerated the purchase of plant and equipment in an effort
to minimize any potential cost overruns.
*Mining Activities - The Company expects to execute a contract mining
agreement to allow for a fleet to mobilize in the second half of fiscal
2007. Upon the signing of this agreement, orders will be placed for mining
trucks, shovels and ancillary equipment. Delivery is expected within 6
months of placing orders, and the Company expects to commence mining and
stockpiling activities at Dukwe before the end of fiscal 2007.
*Dukwe Resources - A major resource definition drill programme was
completed in 2006 which led to the release of new resource estimates late in
2006 (see 4 December 2006 Technical Reports as filed on SEDAR at
www.sedar.com). Further drilling in Q4 of 2006 expanded the database
available for resource estimation, and the Company expects to issue a new
resource estimate in Q2 of 2007.
Matsitama Project
*During 2006, the Company installed an exploration camp in the Matsitama
Concession and increased the professional staff involved in exploration
activities. Compilation work continued throughout the year, and a number of
drill targets were selected for testing.
*Thakadu Project - A 10,000 metre drill program was completed over the
Thakadu and Makala deposits. The Company is awaiting final assays prior to
completing an initial resource estimate. The Company believes that
Thakadu-Makala deposits represents an advanced exploration project that
might develop into a mining project in its own right or, alternatively, as a
complementary project running either in parallel or in series with the
development of the Dukwe deposit.
*TITAN Survey - The Company completed an extensive distributed-array
time-domain induced polarization survey over 20 kilometres of strike extent
from Thakadu to the Mutsuku showing. A number of high-priority exploration
targets have been identified. This information will be used to drive
exploration efforts over the next three years.
*Nakalakwana Hill - The Company believes that the Nakalakwana Hill area
represents a potential large tonnage, low-grade copper-gold target. The
Company has initiated a 100 line-kilometre TITAN survey over the area and is
in the process of completing a 1,700 metre Phase 1 exploratory drilling
program. Results will be released when they become available.
The 2006 fiscal year represented a period intense study of the Dukwe Project
leading up to a production decision. With the commencement of construction
activities in Q4 of 2006, the Company anticipates that its 2007 fiscal year will
be a period of transition from explorer to producer for African Copper.
Exploration will continue throughout 2007 at our high priority targets.
Financial Results
The 2006 financial statements are the Company's first full year statements
reported under International Financial Reporting Standards ("IFRS"). This change
of standards has been undertaken in anticipation of the requirement for all
issuers listed on AIM to report under IFRS for years commencing on or after 1
January 2007. The loss for 2006 was #2,100,884 (compared with a loss of
#612,206, restated under IFRS for fiscal 2005). Included in the loss for fiscal
2006 was a foreign exchange loss of #2.1 million related primarily to foreign
currency translation losses on currency holdings of Canadian Dollars and Rand.
As Sterling has strengthened against the Rand and Botswana Pula during fiscal
2006, the funding situation of the Company has improved due to the fact that
future costs of developing the Dukwe Project are predominately Rand and Botswana
Pula based. Following the public offering in June 2006, the directors deemed it
appropriate to retain subscription funds in both Sterling and Canadian Dollars
as both currencies were viewed as likely to remain stable or to strengthen
compared to the South African Rand and Botswana Pula. As set out in Impact of
Exchange Rates under "Performance - Dukwe Project" in the Management Discussion
and Analysis for the year ended 31 December 2006, there has been no significant
change in the rates achieved in exchanging Canadian Dollars into Rand compared
to rates available in June 2006 but, as the Canadian Dollar weakened against
Sterling, this resulted in an exchange loss during 2006 as recorded in the
income statement. Please see the Management Discussion and Analysis for the year
ended 31 December 2006 available on the SEDAR website at www.sedar.com.
This document contains or refers to forward-looking information, including
statements regarding but are not limited to, statements concerning mineral
resource estimates, exploration and mine development plans, timing of the
development of the Company's projects in Botswana, exploration results, the
impact of exchange rates and other statements which are not historical facts.
When used in this document, the words such as "could," "plan," "estimate,"
"expect," "intend," "may," "potential," "should," and similar expressions are
forward-looking statements. Although the Company believes that its expectations
reflected in these forward-looking statements are reasonable, such statements
involve risks and uncertainties and no assurance can be given that actual
results will be consistent with these forward-looking statements. Important
factors that could cause actual results to differ from these forward-looking
statements include risks related to failure to convert estimated mineral
resources to reserves, the grade and recovery of ore which is mined varying from
estimates, future prices of copper, capital and operating costs varying
significantly from estimates, political risks arising from operating in Africa,
uncertainties relating to the availability and costs and availability of
financing needed in the future, changes in equity markets, inflation, changes in
exchange rates, fluctuations in commodity prices, delays in the development of
projects, conclusions of economic evaluations, changes in project parameters as
plans continue to be refined, uninsured risks and other risks involved in the
mineral exploration and development industry. Although the Company has attempted
to identify important factors that could cause actual actions, events or results
to differ materially from those described in forward-looking statements, there
may be other factors that cause actions, events or results not to be as
anticipated, estimated or intended. There can be no assurance that
forward-looking statements will prove to be accurate, as actual results and
future events could differ materially from those anticipated in such statements.
Accordingly, readers should not place undue reliance on forward-looking
statements. These forward-looking statements are made as of the date hereof and
the Company makes no responsibility to update them or to revise them to reflect
new events or circumstances, except as required by law.
- Ends -
Further information about our properties, to download a copy of our Annual
Report or any technical report or to access our Press Release Archive please
visit www.sedar.com or our website at www.africancopper.com or contact:
African Copper Plc Numis Securities Limited Parkgreen Communications
(NOMAD)
Brad Kipp/Joseph Hamilton John Harrison/James Black Clare Irvine/Justine Howarth
+44 (0) 20 7321 3721 +44 (0) 20 7260 1000 +44 (0) 20 7851 7480
CHAIRMAN'S STATEMENT
Dear Shareholder,
African Copper was extremely busy in fiscal 2006. The first quarter of fiscal
2006 saw the continuation of delineation drilling at the Dukwe Project, the
release of a preliminary resource estimate for the northern portions of the
deposit, completion of locked cycle flotation tests on the supergene and
sulphide ore, finalization of the flowsheet for the flotation concentrator and
the establishment of an exploration camp in Matsitama.
The second quarter of fiscal 2006 saw the completion of a #52.9 million net of
expenses equity fund raising, the commencement of exploration activities at the
Thakadu and Makala licence areas and the continued recruitment of senior
engineers and geologists.
The third quarter of fiscal 2006 was the most important of the year. During the
quarter, delineation drilling at the Dukwe Project was completed and results
from the twin hole drilling of the near-surface oxide and supergene
mineralization of the deposit indicated that at least some of the historic
drilling likely underestimated the grade of the near surface mineralization. At
about the same time, preliminary metallurgical tests on the oxide material were
sufficiently encouraging that the oxide resource was considered as potential
mill feed. With these two new developments in hand the possibility of an
open-pit was re-examined. The flow sheet for the mill was finalized and a final
capital cost and operating cost estimate was made for the processing plant. Late
in the third quarter of fiscal 2006, the board formally approved the
commencement of construction activities subject to receiving the necessary
permissions from the Government of Botswana. In late September 2006, the
Government granted a waiver that allowed the Company to commence certain
preparatory surface earthworks prior to obtaining final permits and a Mining
Licence. Work commenced almost immediately with the stripping of topsoil,
erection of a construction camp and laying of the water pipeline and overhead
power line from the well fields.
During the fourth quarter of fiscal 2006, the Company released a comprehensive
independent mineral resource estimate for the Dukwe Project completed by two
globally recognized independent consultants. The use of two consultants
utilizing different methodologies added confidence in allowing the Company to
finalize the resource base available to support an extended mine life at Dukwe.
In the middle of the fourth quarter of 2006, the Company received approval of
the Environmental Impact Assessment, the Environmental Management Plan,
conditional Archaeological discharges and Water Abstraction permits. A 25-year
Mining Licence was awarded by the Government of Botswana in late December 2006.
Also in December, EPCM contracts were awarded and orders began to be placed for
long-lead time items.
The first quarter of 2007 saw the finalization of orders for about 80% of the
equipment required for the processing plant. Site activities accelerated with
the completion of a pipeline to the borefield for process water, the completion
of the access road, the completion of the plant site terrace and the excavation
and pouring of the ball mill footings. Pre-stripping of the open pit area
commenced with the stockpiling of topsoil. Mining activities are expected to
increase over the remainder of this year with a target for initial production
during the first quarter of fiscal 2008.
Planned management changes occurred in early January 2007. It was with great
pleasure that the Board welcomed Mr. Chris Fredericks, our new COO, into the
African Copper team. Joe Hamilton moved to the CEO position and Dave Jones was
appointed Deputy Chairman. The Board would like to thank Dave for his tireless
work throughout 2004, 2005 and 2006. As one of the founding shareholders of
African Copper his contributions cannot be overlooked or over-emphasized.
While the Board's goal is to develop the Dukwe Project as its first mine, it is
also excited about the prospects within the Matsitama and Thakadu and Makala
exploration licenses. A 10,000 metre diamond drill programme was completed at
Thakadu and Makala during fiscal 2006. Initial results are encouraging, but
final assays have been delayed in favour of processing samples from in-fill
drilling at Dukwe. The Company expects to be in a position to complete a
resource estimate for the Thakadu and Makala areas in the second quarter of
fiscal 2007.
There can be little doubt that fiscal 2006 was an extremely important year for
African Copper as it continues to grow towards production. As a shareholder, you
can be assured that the Board will encourage management to achieve ever greater
goals, will require the Company to develop projects in a sensible and
environmentally sustainable manner, and will ensure the engagement of
communities and stakeholders at all stages. As custodians of the business, your
Board will continue to place significant emphasis on corporate governance and
transparency throughout the group.
On behalf of the Board, I would like to thank the shareholders and employees of
African Copper for their support and loyalty over the past three years. I would
also like to thank my fellow Directors for their active participation and
contributions to the Company in its formative stages as it makes the transition
from exploration to mining company. I expect that fiscal 2007 and 2008 will be
exciting years for the Company, and for our shareholders.
Roy Corrans
Chairman
23 March 2007
African Copper Plc
Consolidated income statement
Year ended 31 December
2006 2005
#'000 #'000
Administrative expenses (1,581) (1,121)
Exchange loss (2,103) (4)
------------------------ ---------- -----------
Operating loss (3,684) (1,125)
Finance income
Bank interest receivable 1,646 530
------------------------ ---------- -----------
Loss before tax (2,038) (595)
Tax (62) (17)
------------------------ ---------- -----------
Loss after tax (2,100) (612)
------------------------ ---------- -----------
Basic and diluted loss per ordinary share 2.20p 1.19p
------------------------ ---------- -----------
The comparative information has been restated in accordance with IFRS as set out
in Note 4.
African Copper Plc
Balance Sheets
As at 31 December
2006 2005
#'000 #'000
ASSETS
Property, plant and equipment 13,964 120
Deferred exploration costs 2,007 7,159
Long term receivables - -
Investments in subsidiaries - -
--------------------------- ----------- ----------
Total non-current assets 15,971 7,279
--------------------------- ----------- ----------
Other receivables and prepayments 648 227
Cash and cash equivalents 53,254 10,676
--------------------------- ----------- ----------
Total current assets 53,902 10,903
--------------------------- ----------- ----------
--------------------------- ----------- ----------
Total assets 69,873 18,182
--------------------------- ----------- ----------
EQUITY
Issued share capital 1,305 520
Share premium 69,844 16,158
Merger reserve - -
Acquisition reserve 4,485 4,485
Foreign currency translation reserve (1,979) (315)
Retained losses (5,687) (4,579)
--------------------------- ----------- ----------
Total equity 67,968 16,269
--------------------------- ----------- ----------
LIABILITIES
Trade and other payables 1,905 1,913
--------------------------- ----------- ----------
Total current liabilities 1,905 1,913
--------------------------- ----------- ----------
--------------------------- ----------- ----------
Total equity and liabilities 69,873 18,182
--------------------------- ----------- ----------
African Copper Plc
Consolidated statement of changes in shareholders' equity
Share Share Acquisition Foreign Retained Total
Capital Premium Reserve Currency Loss Equity
Translation
Reserve
#'000 #'000 #'000 #'000 #'000 #'000
Balance at 1
January 2005 500 15,157 4,485 - (4,475) 15,667
Foreign exchange
adjustments - - - (315) - (315)
Loss for the year - - - - (612) (612)
--------------------------------------------------------------------------------
Total recognised
loss for the year - - - (315) (612) (927)
New share capital
subscribed 20 1,001 - - - 1,021
Credit arising on
share options - - - - 508 508
--------------------------------------------------------------------------------
Balance at 31
December 2005 520 16,158 4,485 (315) (4,579) 16,269
--------------------------------------------------------------------------------
Foreign exchange
adjustments - - - (1,664) - (1,664)
Loss for the year - - - - (2,100) (2,100)
--------------------------------------------------------------------------------
Total recognised
loss for the year - - - (1,664) (2,100) (3,764)
New share capital
subscribed 785 58,702 - - - 59,487
Share issue costs - (5,016) - - - (5,016)
Credit arising on
share options - - - - 992 992
--------------------------------------------------------------------------------
Balance at 31
December 2006 1,305 69,844 4,485 (1,979) (5,687) 67,968
--------------------------------------------------------------------------------
The comparative information has been restated in accordance with IFRS, as set
out in Note 4.
African Copper Plc
Consolidated cash flow statement
Year ended 31 December
2006 2005
#'000 #'000
Cash flows from operating activities
Administration expenses (1,581) (1,121)
Tax (62) (17)
------------------------------ ------------ ----------
Operating loss from continuing operations (1,643) (1,138)
Decrease in receivables (421) (68)
Decrease/(increase) in payables (5) 67
Share based payment expense 562 120
Tax 62 17
------------------------------ ------------ ----------
Cash used in operating activities (1,445) (1,002)
Interest received 1,646 530
------------------------------ ------------ ----------
Net cash inflow/(outflow) from operating
activities 201 (472)
------------------------------ ------------ ----------
Cash flows from investing activities
Payments to acquire property, plant and (3,805) (92)
equipment
Payments of deferred exploration expenditures (6,186) (3,187)
------------------------------ ------------ ----------
Net cash outflow from investing activities (9,991) (3,279)
------------------------------ ------------ ----------
Cash flows from financing activities
Issue of equity share capital 52,948 -
Issue of equity upon exercise of warrants 1,378 1,021
Issue of equity upon exercise of options 145 -
------------------------------ ------------ ----------
Net cash inflow from financing activities 54,471 1,021
------------------------------ ------------ ----------
Net increase/(decrease) in cash and cash
equivalents 44,681 (2,730)
Cash and cash equivalents at beginning of the 10,676 13,410
year
Exchange loss (2,103) (4)
------------------------------ ------------ ----------
Cash and cash equivalents at end of the year 53,254 10,676
------------------------------ ------------ ----------
The comparative information has been restated in accordance with IFRS, as set
out in Note 4.
1. Nature of operations, going concern and adequacy of project finance
African Copper Plc ("African Copper" or the "Company") is a public limited
company incorporated and domiciled in England and is listed on the AIM market of
the London Stock Exchange, the Toronto Stock Exchange and the Botswana Stock
Exchange. African Copper is a holding company of a mineral exploration and
development group of companies (the "Group"). The Group is involved in the
exploration and development of copper deposits in Botswana and is currently
developing its first copper mine at the Dukwe Project and is conducting an
exploration programme at the Matsitama Project. The Dukwe Project is located in
the north-eastern portion of Botswana and the Matsitama Project is contiguous to
the southern boundary of the Dukwe Project.
On 30 March 2006 a report prepared by A.C.A. Howe International Limited entitled
"Technical Report on the Dukwe Copper Project and Matsitama Prospecting Licences
Botswana Africa" (the "Technical Report") was released (a copy of which is
available at www.africancopper.com or SEDAR at www.sedar.com). The Technical
Report reviewed work completed to date and provided recommendations to advance
the Company's two Botswana projects. On 5 June 2006 the Company received
shareholder approval at an Extraordinary General Meeting for the completion of a
public offering to raise #52.9 million, net of expenses, through the issue of
34,375,000 ordinary shares at 77.5p per share and 40,625,000 ordinary shares at
Can$1.60. The Board plans to use the funds raised to develop a mine at the Dukwe
Project and further the exploration of the Matsitama Project. The strategy
contemplates cashflow generated from the proposed mining operations at the Dukwe
deposit to continue funding the further exploration and development of the
Matsitama Belt. The Company believes that it has sufficient financial resources
to develop Dukwe and adequate working capital for the foreseeable future being a
period of not less than twelve months from the date of signing these financial
statements. The Directors therefore consider it appropriate to prepare these
financial statements on a going concern basis.
In the event of project cost overruns or delays, the Company believes it has
adequate flexibility to manage expenditures and to obtain project debt or
further equity to complete the development of Dukwe. However, there can be no
certainty in this regard and if the Company is unable to secure the further
finance required, the Company may not be able to fully develop these projects
and their carrying values and the investment of the parent company may become
impaired.
The address of African Copper's registered office is 100 Pall Mall, St James's
London SW1Y 5HP. These consolidated financial statements have been approved for
issue by the Board of Directors on 23 March 2007.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below.
a) Statement of Compliance
The consolidated financial statements of African Copper have been prepared in
accordance with International Financial Reporting Standards ("IFRS") and its
interpretations adopted by the International Accounting Standards Board
("IASB"), which are the same as those adopted by the European Union and with the
parts of the Companies Act 1985 applicable to companies reporting under IFRS.
The accounting policies set out below have been applied consistently to all
periods presented in these consolidated financial statements and in preparing an
opening balance sheet at 1 January 2005 for the purposes of the transition to
IFRS.
A detailed explanation of how the transition to IFRS has affected the reported
financial position, financial performance and cash flows of the Group are
provided in Note 22.
As permitted by section 230 of the Companies Act 1985, the income statement of
the Company has not been presented in these financial statements.
b) Basis of preparation
The consolidated financial statements of African Copper are presented in Pounds
Sterling and have been prepared on the historical cost basis.
Prior to 2006, the Group prepared its audited financial statements and unaudited
interim financial statements under UK Generally Accepted Accounting Practice
("UK GAAP") principles. From 1 January 2006, the Group has elected to prepare
annual consolidated financial statements in accordance with IFRS. As the 2006
annual financial statements include comparatives for 2005, the Group's date of
transition to IFRS was 1 January 2005 and the 2005 comparatives are restated
according to IFRS.
c) Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ('the functional currency'). The consolidated financial
statements are presented in Pounds Sterling, which is the Group's presentation
currency and the functional currency of the Company.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transactions. Foreign exchange
gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognized in the income statement.
(iii) Group companies
The results and financial position of all the group entities (none of which has
the currency of a hyperinflationary economy) that have a functional currency
different from the presentation currency are translated into the presentation
currency as follows:
* assets and liabilities for each balance sheet presented are translated
at the closing rate at the date of that balance sheet;
* income and expenses for each income statement are translated at
average exchange rates (unless this average is not a reasonable approximation of
the cumulative effect of the rates prevailing on the transaction dates, in which
case income and expenses are translated at the dates of the transactions); and
* all resulting exchange differences are recognized as a separate
component of equity.
On consolidation, exchange differences arising from the translation of the net
investment in foreign operations are taken to shareholders' equity. When a
foreign operation is sold, exchange differences that were recorded in equity are
recognized in the income statement as part of the gain or loss on sale.
d) Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated amortisation
and less any accumulated impairment losses. Pre-production expenditure relating
to testing and commissioning is capitalised to property, plant and equipment.
The recognition of costs in the carrying amount of an asset ceases when the item
is in the location and condition necessary to operate as intended by management.
Any net income earned while the item is not yet capable of operating as intended
reduces the capitalised amount. Interest on borrowings, specifically to finance
the establishment of mining assets, is capitalised during the construction
phase.
Subsequent costs are included in the asset's carrying amount only when it is
probable that future economic benefits associated with the item will flow to the
group and the cost of the item can be reliably measured. All other repairs and
maintenance are charged to the income statement during the financial period in
which they are incurred.
Amortization methods and amortization rates are applied consistently within each
asset class except where significant individual assets have been identified
which have different amortisation patterns. Residual values are reviewed at
least annually. Amortisation is not adjusted retrospectively for changes in the
residual amount. Gains and losses on disposals are determined by comparing
proceeds with carrying amount and are included in the income statement.
Other assets consist of vehicles, information technology equipment and furniture
and equipment.
Mining development and infrastructure
Individual mining assets are amortised using the units-of-production method
based on the respective estimated economically recoverable metal during the life
of mine plan.
Mining plant and equipment
Individual mining plant and equipment assets are depreciated using the straight
line method over the useful life of the asset once the assets are available for
use.
Other Assets
These assets are depreciated using the straight line method over the useful life
of the asset as follows:
- Vehicles 4 years
- Information technology 3 years
- Furniture & equipment 5 years
e) Deferred exploration and evaluation
All costs incurred prior to obtaining the legal right to undertake exploration
and evaluation activities on a project are written-off as incurred.
Exploration and evaluation costs arising following the acquisition of an
exploration licence are capitalised on project-by-project basis, pending
determination of the technical feasibility and commercial viability of the
project. Costs incurred include appropriate technical and administrative
overheads. Deferred exploration costs are carried at historical cost less any
impairment losses recognised.
Upon demonstration of the technical and commercial feasibility of a project, any
past deferred exploration and evaluation costs related to that project will be
reclassified as Mine Development and Infrastructure.
Capitalised deferred exploration expenditures are reviewed for impairment losses
(see accounting policy note below) at each balance sheet date. In the case of
undeveloped properties, there may be only inferred resources to form a basis for
the impairment review. The review is based on a status report regarding the
Group's intentions for development of the undeveloped property.
The recoverability of deferred exploration and evaluation costs is dependent
upon the discovery of economically recoverable ore reserves, the ability of the
Group to obtain the necessary financing to complete the development of the
reserves and future profitable production or proceeds from the disposal thereof.
f) Impairment
Whenever events or changes in circumstance indicate that the carrying amount of
an asset may not be recoverable an asset is reviewed for impairment. An asset's
carrying value is written down to its estimated recoverable amount (being the
higher of the fair value less costs to sell and value in use) if that is less
than the asset's carrying amount.
Impairment reviews for deferred exploration and evaluation costs are carried out
on a project by project basis, with each project representing a potential single
cash generating unit. An impairment review is undertaken when indicators of
impairment arise but typically when one of the following circumstances applies:
(i) unexpected geological occurrences that render the resource uneconomic;
(ii) title to the asset is compromised;
(iii) variations in metal prices that render the project uneconomic; and
(iv) variations in the currency of operation.
g) Share based payment
Certain Group employees and consultants are rewarded with share based
instruments. These are stated at fair value at the date of grant and either
expensed to the income statement or capitalized to deferred exploration costs,
based on the activity of the employee or consultant, over the vesting period of
the instrument.
Fair value is estimated using the Black-Scholes valuation model. The estimated
life of the instrument used in the model is adjusted for management's best
estimate of the effects of non-transferability, exercise restrictions and
behavioural considerations.
The proceeds received net of any directly attributable transaction costs are
credited to share capital (nominal value) and share premium when the options are
exercised.
h) Asset retirement obligations
Mine closure and site restoration costs are comprised of asset retirement
obligations, employee severance and ongoing expenditures related to the
protection of the environment. The fair value of a liability for an asset
retirement obligation is recognized when it is incurred.
Also, when a liability is initially recorded, a corresponding increase to the
carrying amount of the related asset is recorded. On an annual basis, the fair
value of the future liability for an asset retirement obligation is recognized
in the period in which it is incurred with an offsetting amount being recognized
as an increase in the carrying amount of the corresponding asset. This asset is
amortized over the estimated life of the mine while the corresponding liability
accretes to its future value by the end of the mine's life. Mine closure costs
for employee severance are accrued as earned using a pre-determined formula
based upon the employees' number of years of employment service with the mine.
Ongoing expenditures related to the protection of the environment are charged to
earnings in the period they are incurred.
3. Basic and diluted loss per share
The calculation of basic loss per ordinary share on the net basis is based on
the loss of ordinary activities after taxation of #2,100,884 (2005: #612,206)
and on 95,516,505 (2005: 51,500,444) ordinary shares being the weighted average
number of ordinary shares in issue and ranking for dividend during the year. No
diluted loss per share is presented as the effect of the exercise of share
options would be to decrease the loss per share.
4. Transition to IFRS
Introduction
The Group has adopted IFRS with effect from 1 January 2006. The directors have
elected a transition date of 1 January 2005 as this is the start date for which
the Group has presented full comparative information under IFRS in the 2006
Annual Report and Accounts.
Basis of transition to IFRS
The accounting policies as set out in note 2 have been applied in preparing the
restatement of the financial statements for the year ended 31 December 2005 and
in the preparation of the opening IFRS balance sheet at 1 January 2005 (the
Group's date of transition).
In preparing its opening IFRS balance sheet, the Group has adjusted amounts
reported previously in financial statements prepared in accordance with its
previous basis of accounting (UK GAAP). An explanation of how the transition
from UK GAAP to IFRS has affected the Group's financial position, financial
performance and cash flows is set out in the following tables and the notes that
accompany the tables.
Effects of adopting IFRS on the Group's accounting policies
The following reconciliations provide a quantification of the more significant
effects of the transition to IFRS.
Reconciliation of equity 1 January 2005
UK GAAP Mortbury Mortbury Share based IFRS
Transaction Preference payments
Shares
Note (a) Note (b) Note (c)
#000s #000s #000s #000s #000s
Goodwill 8,684 (5,440) (3,244) - -
------------------ -------- --------- ---------- -------- --------
EQUITY
Merger reserve 8,606 (5,661) (2,945) - -
Acquisition
reserve 1,540 2,945 - 4,485
Share based
payment reserve 740 (312) - (428) -
Retained losses (652) (1,007) (3,244) 428 (4,475)
------------------ -------- --------- ---------- -------- --------
Reconciliation of equity 1 January 2006
UK GAAP Mortbury Mortbury Share based IFRS
Transaction Preference payments
shares
Note (a) Note (b) Note (c)
#000s #000s #000s #000s #000s
Goodwill 8,684 (5,440) (3,244) - -
------------------ -------- -------- -------- -------- ---------
EQUITY
Merger reserve 8,606 (5,661) (2,945) - -
Acquisition
reserves - 1,540 2,945 - 4,485
Foreign exchange
translation
reserve (315) - - - (315)
Retained losses (16) (1,319) (3,244) - (4,579)
------------------ -------- -------- -------- -------- ---------
Reconciliations between IFRS and UK GAAP
(a) Mortbury Transaction
Under UK GAAP, the Mortbury acquisition that occurred in 2004 was accounted for
as an acquisition of Mortbury by African Copper. This share exchange resulted in
the former shareholders of Mortbury owning a majority of African Copper. Under
UK GAAP the transaction was not considered a reverse take-over and was accounted
for as an acquisition of Mortbury by African Copper with #5.4 million recorded
as goodwill.
Under IFRS, the exchange of shares of African Copper for the shares of Mortbury
is considered a reverse-takeover transaction. Given that African Copper was not
an operating business prior to the share exchange, and did not yet generate a
return for its investors, it was not considered a business under IFRS for the
purpose of applying business combination accounting under IFRS 3. As such the
reverse take-over acquisition is accounted for as an acquisition of the net
assets of African Copper by Mortbury with no goodwill being recorded on the
transaction. The effect at 1 January 2005 and 1 January 2006, is to eliminate
the goodwill (#5.4 million) and merger reserves (#5.7 million) recorded under UK
GAAP. The reverse take-over transaction was recorded at the book value of the
net assets of African Copper acquired, being $1. The excess of the amount of
issued equity in Mortbury over the nominal value of shares issued by African
Copper was #1,540,000 and this was recorded as an acquisition reserve. As
Mortbury is considered to be the continuing entity, an adjustment of #1,319,000
was made to retained losses representing the losses accumulated by Mortbury
prior to the transaction.
(b) Re-purchase Mortbury Preference Share
As a result of the accounting treatment given the Mortbury share exchange, as
described previously in (a) Mortbury Transaction, the subsequent purchase of the
Mortbury Class C Preference Shares was also treated as a capital transaction for
IFRS purposes. Accordingly, the excess of the fair value of the consideration
given for the Preference Share over its book value was reflected as a premium on
re-purchase of the shares, charged separately to the retained loss account.
The effect at 1 January 2005 and 1 January 2006, was to eliminate the goodwill
recognized under UK GAAP of #3.2 million by recording the transaction against
retained losses and to record the #2.9 million premium on re-purchase against
the acquisition reserve.
(c) Share based payments
Under UK GAAP, the Group and the Company recorded the credit to equity arising
on share based payments as a separate reserve. On moving to IFRS, it has been
determined that this reserve may be eliminated against retained losses.
Explanation of material adjustments on the income statement
There were no adjustments to the income statement arising from the adoption of
IFRS by the Group
Explanation of material adjustments on the cashflow statement
Interest received has been reclassified under net cash from investing activities
where, under UK GAAP, it formed part of the return on investments and servicing
of finance.
The movement in liquid resources, which comprise the cash equivalents of the
Group, was classified as a cash flow under UK GAAP. Under IFRS, liquid resources
have been reclassified as cash equivalents and movements are a component of the
increase or decrease in cash and cash equivalents in the year.
There are no other material differences between the cash flow statement
presented under IFRS and the cashflow statement presented under UK GAAP.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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