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LONDON, UNITED KINGDOM--(Marketwire - Feb.
16, 2010) -
AFRICAN COPPER PLC ("African Copper", "the Company" or "the Group") MANAGEMENT'S DISCUSSION AND ANALYSIS For the three and twelve month period ended 31 December 2009
African Copper plc (AIM:ACU), today
announces results for the three and twelve month period ended 31
December 2009.
Highlights
-- Mowana Mine recommenced operations in late August 2009 and is ramping up production to full capacity -- The Group has recorded sales revenue for the three months ended 31 December 2009, of GBP 2.63m from its first sale of copper concentrate -- Net loss for the three months ended 31 December 2009 of GBP 3.72 million (0.45p per ordinary share), compared with a net loss of GBP 56.9 million (39.05p per ordinary share) during the three months ended 31 December 2008 -- Restructuring of short-term financing to a four year secured credit facility of $31.1m with Zambia Copper Investments. -- Change in the Company accounting reference date from 31 December to 31 March with the next Audited Annual Financial Statements being for the 15 month period to 31 March 2010. -- Company is seeking joint venture opportunities for development of its Matsitama project -- Work underway to secure a mining license at Thakadu -- Recent recovery in copper prices, which have been at the forefront of a wider rally in the base metals sector.
Commenting on the results, Brad Kipp, Chief
Financial Officer of African Copper, said, "This has been an
important period for African Copper and I am delighted with the
progress we have made on all fronts in the fourth quarter after what
was a testing time for the mining sector. We have recommenced operation
at our flagship Mowana Mine and are making adjustments towards reaching
full commercial production levels. We are also working on a mining
license for Thakadu as well as seeking to unlock the potential of the
Matsitama project with the right partner.
"On the financial side, we have started to produce revenues and
our net loss has reduced substantially, a result of the reversal of
heavy impairment losses recognized on the Mowana Mine property in 2008.
This reversal reflects favourable changes in the underlying estimates
of expected future cash flows. With the return of favourable copper
prices, and a ramping up of production, we look forward to the next 12
months with genuine excitement".
Results for the three and twelve month period ended 31 December 2009
are summarized as follows and are more fully set-out in the attached
appendix
---------------------------------------------------------------------------- Three Months Twelve Months Ended Ended 31 December 31 December 2009 2008 2009 2008 GBP '000 GBP '000 GBP '000 GBP '000 ---------------------------------------------------------------------------- Sales revenue 2,630 - 2,630 - ---------------------------------------------------------------------------- Operating loss from mining operations (2,208) - (2,208) - Operating loss before impairment reversal/(charge) (3,430) 1,151 (4,848) (3,507) Impairment reversal/(charge) - (57,675) 29,638 (99,272) ---------------------------------------------------------------------------- Operating (loss)/profit (3,430) (56,524) 24,790 (102,779) ---------------------------------------------------------------------------- Net (loss)/profit for the period (3,724) (56,908) 23,148 (102,709) Basic (loss)/earnings per ordinary share (0.45)p (38.59)p 4.12p (70.31)p Diluted(loss)/earnings per ordinary share (0.45)p (38.59)p 4.12p (70.31)p
OVERVIEW
During the three months ended 31 December, 2009 and subsequently,
African Copper made several important advances that management believes
are important steps towards reaching full commercial production levels
at its Mowana Mine.
After recommencing production in August 2009, the plant at the Mowana
Mine produced 4,344 Mt of concentrate, at an average grade of 27.34%
copper for 1,192 Mt of copper contained in concentrate up to 31
December 2009. Since August 2009 to 31 December 2009, Mowana has
generated gross revenue of GBP 2.63 million and incurred cash operating
expenses of GBP 4.34 million.
The plant met its operating targets for copper recovery rate in November
2009. As announced on 21 January 2010, the recovery rate and plant
throughput fell back in December 2009 and January 2010, reflecting
various operational bottlenecks exacerbated by heavy rainfall. At the
date of this MD&A, the Company is addressing these bottlenecks and
is in the process of sourcing a mobile crushing unit and completing the
required permitting and design work to migrate from a dry to a wet
tailings system.
The Company also restructured its short term financing, replacing it
with longer term commitments. In January 2010, Zambia Copper
Investments (see "Liquidity" in this MD&A) received
shareholder approval to replace $32.4 million of bridge loan facilities
provided to the Company in May 2009 (the "ZCI Bridge Loans")
with a four year secured credit facility of $31.1 million.
Additionally, at the date of this MD&A, the Company is in advanced
negotiations with a finance provider to provide a working capital
credit facility.
The Company did not make any significant expenditure on its Matsitama
project during the three months, but is actively reviewing work done on
the project and considering its next steps. Work is also being
completed to secure a mining licence at Thakadu, 70km from the Mowana
Mine.
Overall, the Company recorded a net loss for the three months ended 31
December 2009 of GBP 3.72 million (0.45p per ordinary share), compared
with a net loss of GBP 56.9 million (39.05p per ordinary share) during
the three months ended 31 December 2008. The 2008 results were heavily
affected by impairment losses recognized on the Mowana Mine property,
plant and equipment, and the full-year 2009 results were affected in
turn by the partial reversal of those losses, reflecting favourable
changes in the underlying estimates of expected future cash flows.
The Company also announced several changes to its Board of Directors
and management during the quarter:
-- On 10 December 2009, the Company announced the resignation of Chris Fredericks as a director and Chief Executive Officer ("CEO") of African Copper with effect from 31 December 2009. The Board is working towards appointing a new CEO. In the meantime, Mr. Jordan Soko, a Non- Executive Director of the Company, assumed the CEO's executive duties and reports all operational matters to the Board. -- On 29 October 2009 the Company announced the appointment of Professor Stephen Simukanga as a new Independent Director to the Board of the Company. -- During the quarter the Company announced the appointment of a new general manager for the Mowana Mine. This appointment was subject to a probationary period of three months. The Company announced on 9 February 2010 that it had terminated this contract and was therefore not extending it. Accordingly, the Company is continuing the process of recruiting a new general manager for the Mowana Mine.
In addition, the Company announced that it
had appointed Canaccord Adams Limited as its sole Nominated Adviser and
Broker effective 29 October 2009.
TRENDS
Throughout the fourth quarter of 2008, and continuing into early 2009,
global financial and commodity markets were characterized by volatility
and falling copper prices. However by early August 2009 copper prices
had rebounded to their highest levels since October 2008 and copper has
been at the forefront of the rally in the base metals sector. Until the
world's economic outlook becomes clearer, mining companies will likely
experience fluctuations in energy and resource prices and currency
volatility.
MINERAL PROPERTIES
Mowana Mine
On 21 December 2009, the Company announced the most recent estimates of
proven and probable mineral reserves and additional inferred mineral
resources at the Mowana Mine. These estimates were prepared for ZCI by
Read, Swatman & Voigt (Pty) Ltd ("RSV") in connection
with the preparation of a circular to ordinary shareholders of ZCI
dated 17 December 2009, and appeared in a Competent Persons Report of
RSV dated October 2009 (the "CPR").
In preparing the CPR, RSV reviewed the Company's existing Mineral
Resource and Mineral Reserve models for the Mowana Mine, which were
calculated based on assumptions determined to be appropriate by African
Copper (including a 0.10% Cu cut-off grade), and which have previously
been disclosed by African Copper in its press release dated 26 November
2007. RSV applied its own set of assumptions (including a higher
cut-off grade of 0.25% Cu) and re-estimated certain values as follows:
SAMREC compliant Proven & Probable In-pit Mineral Reserves and
In-pit Inferred Mineral Resources at a 0.25% Cu cut-off as at 6 August
2009
Category Tonnage Copper Contained metal (Mt) (%) (Tonnes Cu) Proven Reserves 8.27 1.25% 103,381 Probable Reserves 3.15 1.61% 50,644 ------------------------------------------ Sub Total 11.42 1.35% 154,025 In-pit Inferred Resources 2.56 1.20% 30,720
The inferred material has been included at
the bottom of the Mowana Mineral Reserve statement because it is
incidental to the mine plan. Mineral resources that are not mineral
reserves do not have demonstrated economic viability.
The key drivers that will impact on the success of the Mowana Mine will
be:
-- achieving commercial production and recovery rates on a sustained basis; and -- attaining future profitable operations from the Mowana Mine
Key performance details of the Mowana plant
for the third and fourth quarter of 2009 are set out in the table
below:
---------------------------------------------------------------------- 4th Quarter 3rd Quarter 2009 2009 Total ---------------------------------------------------------------------- Ore processed (Metric tonnes ("MT")) 148,286 49,925 198,211 ---------------------------------------------------------------------- Cu grade (%) 1.25 1.45 1.30 ---------------------------------------------------------------------- Recovery Cu (%) 48.90 39.30 46.00 ---------------------------------------------------------------------- Concentrate produced (Mt) 3,203 1,141 4,344 ---------------------------------------------------------------------- Concentrate grade (%) 28.30 24.97 27.34 ---------------------------------------------------------------------- Copper produced in concentrate (Mt) 907 285 1,192 ---------------------------------------------------------------------- Concentrates sold (Mt) 4,535 - 4,535(i) ---------------------------------------------------------------------- Payable copper sold (Mt) 975 - 975 ---------------------------------------------------------------------- (i)Includes concentrate produced during plant trial runs.
On 21 January 2009, the Mowana Mine had
been placed on care and maintenance pending completion of financing.
Since recommencing operations in late August 2009, the plant has
produced 4,344 Mt of concentrate, at an average grade of 27.34% copper,
for 1,192 Mt of copper contained in concentrate.
Average direct feed ore was mined at a grade of 1.37%, in line with
expectations, while the flotation circuits have been performing well
when fed with a consistent supply of ore.
Copper recoveries rates increased in October and November, reaching
57.3% in November, in line with the Company's targeted recovery rate of
57%, before declining, together with ore processed, in December and
January. This was due to lower Secondary and Tertiary plant
availability caused by high crusher liner wear and heavy rain,
adversely affecting the consistency of the ore and hindering the flow
of material from stockpiles. The existing dry tailings facility
utilizes a horizontal belt filter to recover excess process water,
resulting in tailings that can be dry stacked; however, this filter has
been unable to consistently handle and produce dry tailings.
Mine management has moved quickly to address these two bottlenecks that
are currently preventing the mine from ramping up towards full plant
capacity. The Company has designed a solution involving the rental of
mobile crushing units, which is a quick and cost effective way to
temporarily bypass the Secondary and Tertiary crushing plant while work
is carried out to incorporate an improved feed arrangement for these
crushers. Given the order fulfillment timelines for available mobile
crushing units, the delivery and installation of the full required
mobile crushing capacity may take until the end of 31 March 2010. This
capacity will be increasingly available however during March 2010 while
at the same time the existing Secondary and Tertiary crusher will be
operated to maintain maximum production as much as possible.
Based on the bottlenecks the Company has experienced in achieving
design capacity for its dry tailings facility, it has decided to seek
approval from the Government of Botswana to migrate to a more
conventional wet tailings system, within which tailings containing
significantly more process water are discharged continuously into a tailings
pond basin. The Company is amending the Environmental Management Plan
("EMP") to accommodate this proposed change, and design work
on the new tailings facility is being undertaken by Scott Wilson RPA
Mining Group with a view to starting construction as soon as the
amendments to the EMP have been approved by the Botswana authorities
which is expected during the second quarter of this calendar year.
During the EMP approval period, the directors of the Company anticipate
that the production ramp up will be unaffected by the tailings issue,
as wet tailings will be deposited into a temporary tailings pond basin
within the envisaged new tailings footprint.
During the quarter, the Company held successful discussions with its
off-take partner MRI Ag thereby improving certain terms included in its
comprehensive 5-year off-take agreement, including payment for copper
concentrate on an ex-mine gate basis and reduced penalties on lower
grade concentrates.
Thakadu Project
Work is being completed to secure a mining licence at Thakadu to access
the higher grade Thakadu mineral resources as a low-cost mining
opportunity. The outcrop exposure at Thakadu and the possible initial
box cut design lends itself to a small scale operation with low
pre-strip mining requirements, limited overheads and the full support
of the Mowana Mine infrastructure and management. The possible
significant silver credit associated with Thakadu could also be
factored into the costs associated with transporting the run of mine
ore to the Mowana Plant which is 70 km away. The Company is working on
an Environmental Impact Study ("EIA") and Archaeological
Impact Assessment ("AIA") which are required to achieve a
mining licence for Thakadu. The Company had previously planned to
achieve the necessary permitting and apply for a mining licence during
the first quarter of calendar 2010 but based on the current status this
expectation has been changed to the second quarter of calendar 2010.
On 21 December 2009, the Company announced the most recent estimates of
proven and probable mineral reserves and additional inferred mineral
resources at the Thakadu Project. In preparing these estimates, which
appeared in the RSV CPR, RSV reviewed the Company's existing Mineral
Resource models for the Thakadu Project, which were calculated based on
assumptions determined to be appropriate by African Copper (including a
0.25% Cu cut-off grade utilizing ordinary kriging), and which had
previously been disclosed by the Company in its press release dated 25
July 2007.
In converting the Resources to Probable Mineral Reserves, RSV applied
its own set of assumptions (including a higher cut-off grade of 0.5%
Cu), to evaluate an economic pit-shell based on African Copper's
existing proposed pit design.
SAMREC compliant Proven & Probable In-pit Mineral Reserves, and
In-pit Inferred Mineral Resources at a 0.5% Cu cut-off(1) as at 06
August 2009
Category Tonnage Copper Contained Metal (Mt) (%) (Tonnes Cu) Proven Reserves Nil Nil Nil Probable Reserves 2.77 2.15 59,477 ----------------------------------------------- Sub Total 2.77 2.15 59,477 In-pit Inferred Resources Nil Nil Nil
(1) The cut-off grade was determined by RSV
based on a forward copper price curve as supplied by African Copper
($2.25/lb in 2009-2010 and $2.00/lb in 2011-2020), operating costs,
metallurgical recoveries, prevailing Botswana tax rates, average
smelter charges and transport costs to the ports of Durban/Richards
Bay.
Mowana Mine - mining development and infrastructure and mine plant and
equipment
As a result of being placed on care and maintenance in January 2009,
expenditures on Mowana infrastructure and mine plant and equipment were
reduced to a minimum. During this period the Company restructured
certain aspects of its operations, terminating various employees and
incurring related legal and professional expenses. At the same time,
Messina negotiated final debt settlement agreements with its large
trade creditors including its mining contractor and EPCM contractors.
Overall, expenditure related to property, plant and equipment were
therefore reduced to GBP 1.3 million during the 12 months ended 31
December 2009 compared to GBP 56.9 million in the previous year.
Expenditures were also offset by capitalized depreciation of GBP
493,909 and a foreign exchange gain of GBP 586,669 during the 12 month
period ended 31 December 2009. The foreign exchange gain was the result
of translating to Sterling the accumulated mining development,
infrastructure and mine plant and equipment balances that are
denominated in Pula in the Botswana subsidiary accounts.
As at 30 June 2009, the Directors undertook a review of mining assets
in light of certain indicators that the impairment loss recognized in
2008 had decreased, including the significant impact on the Company of
the ZCI Financing Package described below under "Liquidity and
Capital Resources".
Following this review, including making estimates of the value in use
of the Mowana Mine, the Directors concluded that a portion of the GBP
92.4 million impairment loss recognized in 2008 on that Mowana Mine no
longer existed and that a partial impairment reversal of GBP 29.6 million
was appropriate. No impairment reversal was made in respect of any of
the other cash generating units. No additional indicators have been
identified at 31 December 2009 that would require re-estimating the
recoverable amount of any assets at that date.
Matsitama Project
In line with market conditions and management's need to aggressively
reduce overheads until working capital finance was secured, exploration
activity was curtailed at the Matsitama Project during the fourth
quarter of fiscal 2008. Since completing the ZCI Financing Package, the
first priority has been commencing operations at the Mowana mine as
soon as practical. The Company and ZCI are currently reviewing the
Matsitama tenement areas and work completed to date, with the objective
of establishing internal programmes or seeking joint venture finance
opportunities to expand the geological knowledge related to the
Matsitama properties and to pursue the development of mineralization,
if discovered, that is economically significant.
Under mineral legislation in Botswana, a prospecting licence may be
renewed for subsequent periods; however, upon renewal, the area covered
by the licence must be reduced in size to not more than half the area
at the end of its prior period of the licence. In February 2009 the
Group applied to the Geological Survey of Botswana to renew Matsitama
exploration licences 014/2004, 015/2004, 016/2004, 017/2004 which were
due to expire on 30 June 2009. As part of this application the Group
designated a reduction of 43% of the total area of these exploration
licences, retaining the exploration ground deemed by management to be
the most promising (or already hosting known mineralization ) based on
exploration work completed in and prior to 2008. On 15 July 2009 the
Geological Survey of Botswana renewed the Matsitama exploration
licences for a period of two years.
Matsitama Project - deferred exploration expenditures
The Company spent GBP 12,645 (2008: GBP 903,146) during the three
months ended 31 December 2009 and GBP 108,732 (2008:GBP 1.64 million)
during the 12 months ended 31 December 2009 primarily on administrative
expenses activities in the Matsitama prospecting licence area.
OVERALL FINANCIAL PERFORMANCE
Three months ended Twelve months ended 31 December 31 December GBP GBP 2009 2008 2009 2008 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Sales revenue 2,630,777 - 2,630,777 - Operating Costs (4,342,337) - (4,342,337) - excluding amortization Amortization of mining (496,383) - (496,383) - properties and equipment ---------------------------------------------------------------------------- Operating loss from mining operations (2,207,943) - (2,207,943) - G&A, consultants, (507,682) (698,822) (2,317,167) (2,100,321) salaries and benefits Insurance (321,540) (8,264) (343,590) (33,477) Directors fees (24,108) (11,650) (102,232) (57,100) Investor relations and public company admin (20,324) (33,547) (153,875) (230,465) Travel, accommodation (54,417) (36,645) (149,416) (204,570) Professional fees (73,486) (172,689) (945,056) (550,650) Share based compensation (100) 1,117 (20,244) (60,307) Deferred bond raising fees 3,662 - (270,505) - Depreciation (101,684) - (101,684) - Foreign exchange (gain)/loss (122,264) 223,981 1,763,574 (612,066) Hedging loss - 1,892,278 - 346,670 Impairment of property, plant and equipment - (50,840,949) - (92,438,345) Impairment of deferred exploration - (6,834,451) - (6,834,451) Reversal of Impairment of property, plant and equipment - - 29,638,461 - ---------------------------------------------------------------------------- Operating (loss)/profit (3,429,886) (56,519,641) 24,790,323 (102,775,082) Investment income 3,561 59,300 19,758 1,359,176 Interest expense (298,238) (446,999) (1,661,671) (1,293,078) ---------------------------------------------------------------------------- Net (loss)/profit (3,724,563) (56,907,340) 23,148,410 (102,708,984) ----------------------------------------------------------------------------
Three months ended 31 December 2009
The Company recorded a net loss for the three months ended 31 December
2009 of GBP 3.72 million (0.45p per ordinary share), compared with a
net loss of GBP 56.9 million (39.05p per ordinary share) during the
three months ended 31 December 2008. As evidenced in the table above,
the increased loss for the prior three month period compared to the
loss for the three months ended 31 December 2009 was primarily related
to the GBP 57.67 million impairment provision that was recognized
during the three months ended 31 December 2008 to the Mowana Mine
property, plant and equipment.
Operating loss from mining operations:
During the quarter the Mowana Mine moved from the development stage to
production, recording sales revenue for the three months ended 31
December, 2009 of GBP 2.63 million (2008: Nil amount). These sales, as
announced on 21 January 2010, reflected the various operational
bottlenecks described above, exacerbated by heavy rainfall, and a
consequently lower volume of ore processed through the plant than
anticipated. At the same time, because of the demands of responding to
these challenges, production- related costs were consequently
increased. The Company does not believe that the operating results for
this initial quarter of production are at all indicative of those it
will achieve over time, after implementing the solutions currently in
progress. With the commencement of production, the Company also
commenced amortizing the Mowana Mine's property, plant and equipment
during the quarter.
Bank interest receivable:
Bank interest receivable for three months ended 31 December 2009
decreased to GBP 3,561 from GBP 59,300 for the same period in 2008.
This decrease is primarily the result of lower interest rates earned
during the current year's quarter in order to ensure the liquidity and
cash availability of the Company's funds. In addition, average cash
balances and interest rates during the current quarter were lower.
General and administration, consultants, salaries and benefits:
During three months ended 31 December 2009, the Company incurred a
total of GBP 507,682 (2008: GBP 698,822) in salaries, general and
administrative expenses. During the current quarter the Botswana
G&A decreased significantly due to restructuring of costs that was
completed earlier in 2009. These savings were somewhat offset by
iCapital Limited ("iCapital") fees of GBP 70K for the
provision of technical and operational support and GBP 225K in
"change of control" (see section entitled "Liquidity and
Capital Resources" in this MD&A) payments required under the
CEO and Chief Financial Officer ("CFO") employment contracts.
Travel, accommodation:
Travel and accommodation costs increased to GBP 54,417 during the three
months ended 31 December 2009 compared with GBP 36,645 for the same period
in 2008. Additional travel costs were incurred as part of the re-start
of operations in Botswana including the cost of transporting certain
consultants and iCapital metallurgical and financial expertise.
Professional fees:
Professional fees decreased to GBP 73,486 during the three months ended
31 December 2009 compared to GBP 172,689 for the same period in 2008.
The equivalent period in 2008 included year-end audit costs (not
incurred in 2009 due to the change in the Company's year-end) and
additional legal fees relating to financing initiatives that took place
in 2008, including work on the Extraordinary General meeting held on 7
January 2009. In addition, the current 2009 quarter included executive
search fees for the hiring of certain new members of the Botswana
management team.
Share-based compensation:
Share based compensation expenses of GBP 100 (2008: GBP 1,117) are
non-cash expenses and reflect the derived value of stock options vested
during the period. During the fourth quarter of 2009 no options were
granted (2008: nil). The grant date fair value of stock options is
amortized to the Income Statement over the period in which the options
vest.
Interest Expense:
The GBP 298,238 interest expense for the three months ended 31 December
2009 relates to the interest on the ZCI Bridge Loans. During the 2008
comparative quarter the interest expense of GBP 446,999 related to the
Pula 150.0 million (GBP 11.85 million) bond (the "Botswana
Bond") that was placed on 4 April 2008 with local Botswana institutions.
On 15 May 2009, Natasa Mining Limited ("Natasa") acquired the
Botswana Bond and subsequently demanded immediate repayment of the
entire principal amount on the basis of alleged defaults under the
terms of the Botswana Bond. On 3 June 2009, the Company settled in full
all the claims of Natasa against its subsidiaries Messina and Matsitama
(including the repayment of the Botswana Bond).
Foreign exchange:
The foreign exchange loss of GBP 122,264 recorded for the three months
ended 31 December 2009 was primarily related to the revaluation of the
US$ denominated loans (ZCI) on the Pula denominated financial
statements of Messina.
Twelve Months Ended 31 December 2009
The Company recorded a net gain for the 12 months ended 31 December
2009 of GBP 23.15 million (4.12p per ordinary share), compared with a
net loss of GBP 102.71 million (70.47p per ordinary share) during the
12 months ended 31 December 2008. As evidenced in the table above, the
gain for the current 12 month period, compared to the loss for the 12
months ended 31 December 2008, reflects a GBP 29.6 million partial
reversal in 2009 of a GBP 99.27 million impairment provision recognized
in the 12 months ended 31 December 2008.
Operating loss from mining operations:
During the 12 months ended 31 December 2009, the Company had sales
revenue of GBP 2.63million (2008: Nil amount) and operating costs of
GBP 4.34 million (2008: Nil amount). This was lower than expected,
reflecting the various operational bottlenecks described above,
exacerbated by heavy rainfall, and a consequently lower volume of ore
processed through the plant than anticipated. At the same time, because
of the demands of responding to these challenges, production-related
costs were higher than expected. The Company does not believe that the
operating results for this period of production are at all indicative
of those it will achieve over time, after implementing the solutions
currently in progress. With the commencement of production, the Company
also commenced amortizing the Mowana Mine's property, plant and
equipment during the fourth quarter.
Bank interest receivable:
Bank interest receivable for 12 months ended 31 December 2009 decreased
to GBP 19,758 from GBP 1,359,176 for the same period in 2008. The lower
bank interest receivable related to lower average cash balances and
interest rates throughout the current period compared to the previous
year.
General and administration, consultants, salaries and benefits:
During the 12 months ended 31 December 2009, the Company incurred a
total of GBP 2.32 million (2008: GBP 2.10 million) in salaries, general
and administrative expenses. Costs for 2009 reflected savings realized
and certain termination costs incurred during the restructuring that
was completed while the Mowana Mine was on a care and maintenance
basis. Savings from the restructuring were somewhat offset by iCapital
fees of GBP 179K for the provision of technical and operational support
and GBP 225K in "change of control" (see section entitled
"Liquidity and Capital Resources" in this MD&A) payments
required under the CEO and CFO employment contracts.
Directors' Fees:
During the 12 months ended 31 December 2009, the Company incurred a
total of GBP 102,232 (2008: GBP 57,100) in director fees. The
Directors' fees of GBP 102,232 include an amount of GBP 32,233 payable
to UK HM Revenue and Customs ("HMRC") in respect of a UK Pay
As You Earn ("PAYE") audit. An additional amount of GBP 4,383
interest payable to HMRC on late payment is accounted for in the interest
expense. The increase also reflects changes to directors and an
increase in director's fees on 30 November 2009.
Investor relations and public company administration:
Investor relations and public company administration costs decreased to
GBP 153,875 compared with GBP 230,465 for the same period in 2008.
During 2009, investor relations costs were significantly reduced in an
effort to save funds while the Company was reorganizing. These savings
were offset by the costs of holding two Extra-Ordinary General Meetings
in January 2009 and May 2009.
Travel, accommodation:
Travel and accommodation costs decreased to GBP 149,416 during the
twelve months ended 31 December 2009 compared with GBP 204,570 for the
same period in 2008. Due to a lack of working capital during the first
half of 2009 all discretionary travel costs were suspended in an effort
to save funds. These savings were somewhat offset in the third and
fourth quarter of 2009 when increased travel took place as part of the
recommencement of operations at the Mowana Mine.
Professional fees:
Professional fees increased to GBP 945,056 during the twelve months
ended 31 December 2009 compared to GBP 550,650 for the same period in
2008. The increase is due to legal and related professional fees in
respect of the Natasa financing initiative, the Natasa debt
acquisitions and completing the ZCI Financing Package and other
attempted financing initiatives considered during the first half of
2009.
Share-based compensation:
Share based compensation expenses of GBP 20,244 (2008: GBP 60,307) are
non-cash expenses and reflect the derived value of stock options vested
during the period. During the twelve months ended 31 December 2009 no
options were granted (2008: nil). The grant date fair value of stock
options is amortized to the Income Statement over the period in which
the options vest.
Interest Expense and Deferred Bond Raising Fees:
Interest expense increased to GBP 1,661,671 during the twelve months
ended 31 December 2009 compared to GBP 1,293,078 for the same period in
2008.
The GBP 1,661,671 interest expense for the twelve months ended 31
December 2009 relates to interest charges on the Botswana Bond until it
was settled in June of 2009 and interest charges on the ZCI Bridge
Loan. During 2008 interest expense of GBP 1,293,078 related to the
Botswana Bond.
Foreign exchange:
During twelve months ended 31 December 2009, the Company recorded a
foreign exchange gain of GBP 1,763,574 compared to a loss of GBP
612,066 in the comparative period in 2008, primarily related to the
revaluation of the US$ denominated loans on Messina's Pula-denominated
financial statements.
SUMMARY OF QUARTERLY RESULTS
The following table sets out selected financial data on the Company for
the most recently completed eight quarters, which data has been
prepared in accordance with applicable IFRS:
---------------------------------------------------------------------------- Net Loss/(Income) ---------------------------------------------------------------------------- Three Months Ended Net Revenues Total Loss/(gain) Diluted per share loss/(gain) per share (GBP) (GBP) (GBP) (GBP) ---------------------------------------------------------------------------- 31 December 2009 2,630,777 3,724,563(1) 0.47p 0.47p ---------------------------------------------------------------------------- 30 September 2009 - 815,578 0.10p 0.10p ---------------------------------------------------------------------------- 30 June 2009 - (28,893,095) (9.75)p (9.75)p ---------------------------------------------------------------------------- 31 March 2009 - 1,202,011 0.82p 0.82p ---------------------------------------------------------------------------- 31 December 2008 - 56,907,340 39.05p 39.05p ---------------------------------------------------------------------------- 30 September 2008 - 43,154,703 29.69p 29.69p ---------------------------------------------------------------------------- 30 June 2008 - 1,591,286(2) 1.10p 1.10p ---------------------------------------------------------------------------- 31 March 2008 - 1,055,656 0.74p 0.74p ---------------------------------------------------------------------------- 31 December 2007 - 146,811 0.11p 0.11p ---------------------------------------------------------------------------- Quarterly results have fluctuated due primarily to impairment charges and reversals and to foreign exchange movements. (1) Please review the discussion under the heading "Overall Financial Performance for the three months ended 31 December 2009" in this MD&A for an explanation of the financial results, and exchange gains/losses and related period-to-period changes for the three months ended 31 December 2009. (2) A principal component of the net loss of GBP 1.6 million during the second quarter of 2008 related to a GBP 814,340 hedging loss incurred on copper put contracts. Put contracts which are deemed to be not effective hedges, are measured at fair value, with the movement in fair value being recognized in the consolidated income statement.
LIQUIDITY AND CAPITAL RESOURCES
At 31 December 2009, the Company had cash and cash equivalents of GBP
1.1 million (31 December 2008 - GBP 1.76 million) and a working capital
deficit of GBP 23.86 million compared to a working capital deficit of
GBP 23.29 million at 31 December 2008. Included in the working capital
deficit are GBP 24.27 million of bridge loans advanced by ZCI described
below. In January 2010 these were refinanced by the Convertible Loan
Facility which has a term of four years.
ZCI Financing Package
On 9 May 2009 the Company announced it had entered into agreements
pursuant to which ZCI agreed to provide the Company and its
stakeholders with a comprehensive financing package which was
subsequently amended by further agreements with effective dates of 12
May 2009, 18 May 2009, 21 May 2009 and 19 June 2009 (the "ZCI
Financing Package"):
The ZCI Financing Package comprised:
-- a US$7 million Initial Bridge Loan facility, made available to
Messina on 13 May 2009;
-- a US$25.4 million Second Bridge Loan facility, made available to
Messina on 18 May 2009;
-- a US$9.9 million Share Subscription, completed on 22 May 2009; and
-- a US$31.1 million four-year Convertible Loan Facility, signed on 18
June 2009.
Following the Share Subscription, ZCI had an interest in 82.16% of the
Company's issued ordinary share capital, constituting a "change of
control".
In January 2010 the Initial Bridge Loan and the Second Bridge Loan were
refinanced out of the proceeds of the Share Subscription and the
Convertible Loan Facility.
The Convertible Loan Facility has been guaranteed by African Copper and
all other African Copper group companies and is secured over Messina's
assets including a share pledge over the shares of Messina.
ZCI Debt Acquisitions
ZCI entered into binding debt assignment agreements with Moolman Mining
Botswana (Pty) Limited ("Moolman"), Senet CC
("Senet") and RSV (collectively the "Large
Creditors") pursuant to which the Large Creditors assigned their
respective debts owed by Messina to ZCI at a price equal to 50 per cent
of the face value of the Messina debts which totalled US$10.72 million.
As a consequence of the ZCI Financing Package, and the ZCI Debt
Acquisitions, the Group is indebted to ZCI at 31 December 2009 in an
aggregate amount of US$39.86 million.
Liquidity
As a result of the two bottlenecks that prevented the Mowana mine from
ramping up towards full plant capacity, the Company utilized more
working capital than had been previously expected and additional
working capital and capital equipment financing requirements were
identified.
In anticipation of these working capital needs, the Company's
subsidiary Messina is in advanced negotiations with a finance provider
to provide a working capital credit facility (the "Working Capital
Facility").
Management also intends to complete the addition of a Dense Media
Separation plant to the processing plant and further evaluate
developing the underground portion of the mine at Mowana. Further
project finance will be required to complete these initiatives. The
Directors expect that additional capital equipment and other project
funding may be provided in the future by financial institutions in
Botswana and/or the UK or by ZCI. Terms of any further funding by ZCI
will be subject to separate commercial negotiations between the Company
and ZCI if such funds are necessary and become known. Additional
financing may not be available when needed or if available, the terms
of such financing might not be favourable to the Company and might
involve further dilution to existing shareholders.
CONTRACTUAL OBLIGATIONS
At 31 December 2009, the Group's contractual obligations aggregated GBP
3.16 million:
---------------------------------------------------------------------------- Contractual Obligations Total 2010 2011 2012 2013 and thereafter GBP '000 GBP '000 GBP '000 GBP '000 GBP '000 ---------------------------------------------------------------------------- Goods, services and equipment(a) 2,174 2,104 70 - - Exploration licences(b) 722 93 629 - - Mining licence 6 1 1 4 - Lease agreements(c) 259 189 60 10 - ---------------------------------------------------------------------------- 3,161 2,387 760 14 - ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (a) The Company and its subsidiaries have a number of agreements with arms-length third parties who provide a wide range of goods and services and equipment. (b) Under the terms of the Company's exploration licences Matsitama is obliged to incur certain minimum expenditures. (c) The Company has entered into agreements for lease premises for various periods until 5 November 2010.
At 31 December 2009, outstanding share
options represented a total of 2,935,000 ordinary shares issuable for
maximum aggregate proceeds of GBP 2,268,100 if and when exercised.
OFF-BALANCE SHEET ARRANGEMENTS
The Company has not entered into any off-balance sheet transactions.
TRANSACTIONS WITH RELATED PARTIES
The Company was charged GBP 76,141(2008 - Nil) for the three months
ended 31 December 2009 and GBP 209,054(2008 - Nil) for the twelve
months ended 31 December 2009 by iCapital for the provision of technical
and operational support to the Company. J. Soko, a director of the
Company, is a principal of iCapital.
This related party transaction was in the normal course of operations
and was measured at the exchange amount.
As a consequence of the debts arising from the ZCI Financing Package
and the ZCI Debt Acquisitions, the Group is indebted to ZCI at 31
December 2009 in an aggregate amount of approximately US$39.86 million.
See Note 10 and 15 of the Financial Statements.
RISKS
The Company's operations are subject to numerous significant risks.
To date it has little operating history and a history of losses and
there can be no assurance it will ever be profitable. Its activities
are focused primarily on the Mowana Mine. Any adverse changes or
developments affecting this project would have a material and adverse
effect on the Company's business, financial condition, working capital
and results of operations. Neither the development of the Mowana Mine
into a commercial operation and its economic viability, nor the success
of other current nor future exploration activities can be assured.
Copper price volatility and currency fluctuations may also affect the
Company's production, profitability, cash flow and financial position.
The capital, operating cost estimates and mining and processing plans
anticipated for the Mowana Mine, including the key assumptions used by
the Company in calculating the partial reversal at 30 June 2009 of the
impairment charge recognized in 2008, are estimates only and may not reflect
the actual capital, operating costs and mine and processing incurred by
the Company.
Foreign investments and operations are subject to numerous risks
associated with operating in foreign jurisdictions, and government
regulations may have an adverse effect on the Company.
The Company's ability to meet its obligations and continue as a going
concern is dependent on its ability to finalize the Working Capital
Facility and subsequently generate positive cashflow from operations at
the Mowana Mine. If the Working Capital Facility is not completed, the
Directors expect, in the absence of alternative sources of funds, that
additional funding would be available from ZCI. Terms of any further
funding by ZCI will be subject to separate commercial negotiations between
the Company and ZCI if such funding from ZCI is necessary.
The Group is dependent on the continuing support of ZCI not to call for
the repayment of amounts owed to it. If ZCI calls for repayment, the
Group would, in the absence of alternative sources of funds, have
insufficient funds to repay the loans and would thereby be unable to
avoid formal insolvency proceedings.
More information on these and other risks is set out in detail in the
Annual Information Form filed on SEDAR for the year ended December 31,
2008.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
During the period beginning on 1 January 2009 and ending on 31 December
2009 there were no changes in the Company's internal controls over
financial reporting that materially affected, or are reasonably likely
to materially affect, the Company's internal controls over financial
reporting and decisions regarding required disclosure.
DISCLOSURE OF OUTSTANDING SHARE DATA
The following details the share capital structure as of the date of
this MD&A.
---------------------------------------------------------------------------- Expiry date Exercise Number Number price ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Ordinary common shares- Opening Balance 1 January 2009 146,858,957 Shares issued on 28 April 2009 43 Shares issued on 22 May 2009 676,570,500 823,429,500 Share purchase options 12 November 2014 GBP 0.76 375,000 12 November 2015 GBP 0.76 60,000 1 August 2016 GBP 0.775 1,750,000 29 December 2016 GBP 0.775 750,000 2,935,000 ------------ ------------
NOTES TO THE RESULTS
1. FORWARD-LOOKING INFORMATION
This MD&A contains "forward-looking information".
Forward-looking information includes, but is not limited to, statements
concerning mineral resource and reserve estimates, the steps required
and the related timing to reach full production levels at its Mowana
Mine, the additional amount of working capital and capital equipment
financing required, the positive outcome of negotiations to secure the
Working Capital Facility, the Company's expectation that ZCI will not
require immediate repayment of the amounts owed to it including amounts
owed to the Large Creditors, the Company's expectations that additional
funding will be available from ZCI, the Company's overall strategy, the
Company's plans with respect to obtaining mining licences for Thakadu,
including with respect to the anticipated timing thereof, the Company's
plans with respect to the exploration of the Matsitama Project, the
estimated total discounted amount of cash flows required to settle the
Company's asset retirement obligations, the Company's expectation of
market volatility, the Company's critical accounting estimates,
including the partial reversal of the impairment charge recognized in
2008, the Company's estimated amounts used to determine that a partial
reversal of the impairment charge at 30 June 2009 recognized in 2008 is
appropriate, the Company's strategy with respect to the use of
financial instruments and derivative positions, estimated working
capital costs, and other statements which are not historical facts.
In certain cases, forward-looking information can be identified by the
use of words such as "plans", "expects" or
"does not expect", "is expected",
"budget", "scheduled", "estimates",
"forecasts", "intends", "anticipates" or
"does not anticipate", or "believes", or variations
of such words and phrases or state that certain actions, events or
results "may", "could", "would",
"should", "might" or "will be taken",
"occur" or "be achieved" and include the negative
variation of such phrases.
With respect to forward-looking information contained in this MD&A,
the Company has made assumptions regarding, among other things, the
Working Capital Facility providing the necessary working capital, any
further financing required for additional working capital and/or
project finance being provided by ZCI or other financial institutions,
the implementation of the mobile crushing units and wet tailings
facility to address bottlenecks thereby enabling the Mowana Mine to
reach full production levels, the key drivers required for the success
at the Mowana Mine, the net present value calculations underlying the
Company's determination at 30 June 2009 that a partial reversal of the
impairment charge recognized in 2008 is appropriate, the recovery of
mineral properties, estimated useful lives of capital assets, stock
appreciation and financial instruments valuation, the Company's ability
to access additional capital equipment and other project funding
(including additional debt from ZCI) to meet possible future funding
requirements for working capital and/or project finance for the DMS or
underground development, the regulatory framework in Botswana with
respect to, among other things, permits, licenses, authorizations,
royalties, taxes and environmental matters, and the Company's ability
to obtain and retain qualified staff and equipment in a timely and
cost-efficient manner to meet the Company's demand.
Although the Company believes that its expectations reflected in
forward-looking information are reasonable, such forward-looking
information involves known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements
of the Company or the Company's projects in Botswana, or any of them,
to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking information.
Such factors include, the Company not being able to repay any interest
or principal payments when due under the ZCI Financing Package, the ZCI
Financing Package and the contemplated Working Capital Facility being
insufficient to meet the Company's necessary working capital
requirements, ZCI not providing any further financing required for
additional working capital and/or project finance on terms acceptable
to the Company or at all or the Company being unable to obtain any such
financing from alternative investors and/or lenders, the mobile
crushing units being a quick and cost effective way to temporarily
bypass the Secondary and Tertiary crushing plant to improve production
efficiency, the timing of the EMP approval for a wet tailings facility,
that production ramp up will be unaffected by the migration from dry
tailings to wet tailings, any further delays in the ramp-up to
commercial production or, any further material reductions in tonnages,
grades and/or recovery rates and overruns in operating costs are
experienced, ZCI requiring immediate repayment of the amounts owed to
it on account of the Large Creditors, adverse changes in any of the key
assumptions of the Company regarding the net present value calculations
underlying the Company's determination that a partial reversal at 30
June 2009 of the impairment charge recognized in 2008 is appropriate,
risks related to failure to convert estimated mineral resources to
reserves, conclusions of economic evaluations, changes in project
parameters as plans continue to be refined, the possibility that actual
circumstances will differ from the estimates and assumptions used in
the current mining plan for the Mowana Mine, future prices of copper,
unexpected increases in capital or operating costs, possible variations
in mineral resources, grade or recovery rates, failure of equipment or
processes to operate as anticipated, accidents, labour disputes and
other risks of the mining industry, delays in obtaining governmental
consents, permits, licences and registrations, political risks arising
from operating in Africa, changes to regulations affecting the Company,
changes in the debt and equity markets, inflation, changes in exchange
rates, fluctuations in commodity prices and uninsured risks, as well as
those factors discussed under "Risks" in this MD&A.
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 information, 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
information will prove to be accurate, as actual results and future
events could differ materially from those anticipated in such
information. Accordingly, readers should not place undue reliance on
forward-looking information. The forward-looking information contained
herein, unless stated otherwise, is made as of the date of this
MD&A and the Company makes no responsibility to update them or to
revise them to reflect new events or circumstances, except as required
by law.
The mineral resource and mineral reserve figures referred to in this
MD&A are estimates and no assurances can be given that the
indicated levels of minerals will be produced. Such estimates are
expressions of judgment based on knowledge, mining experience, analysis
of drilling results and industry practices. Valid estimates made at a
given time may significantly change when new information becomes
available. While the Company believes that the resource and reserve
estimates referred to in this MD&A are well established, by their
nature resource and reserve estimates are imprecise and depend, to a
certain extent, upon statistical inferences which may ultimately prove
unreliable. If such estimates are inaccurate or are reduced in the
future, this could have a material adverse impact on the Company. Due
to the uncertainty that may be attached to inferred mineral resources,
it cannot be assumed that all or any part of an inferred mineral
resource will be upgraded to an indicated or measured mineral resource
as a result of continued exploration.
Additional information about the risks and uncertainties of the
Company's business is provided in its disclosure materials, including
its Annual Information Form, available under the Company's profile on
SEDAR at www.sedar.com.
2. DESCRIPTION OF BUSINESS
African Copper is a base metals company, incorporated in England and
Wales, with mining and exploration interests in Botswana. Its ordinary
shares are listed on the AIM market of the London Stock Exchange
("AIM") under the symbol "ACU" and on the Botswana
Stock Exchange ("BSE") under the symbol "African
Copper". On 20 May 2009, as a condition of the closing of funding
by ZCI, the Company announced it had voluntarily delisted its shares
from the Toronto Stock Exchange ("TSX"). It has also changed
its year end to 31 March from 31 December to align with ZCI and to
streamline its accounting processes.
The Mowana Mine, owned by the Company's subsidiary Messina Copper
Botswana (Pty) Limited ("Messina") is located close to
Botswana's second largest city, Francistown, in the north-eastern part
of the country. Mowana and all current estimated mineral resources and
reserves are part of the Dukwe Project, comprising;
(1) exploration licence PL 33/2005, with an area of 139.6 km2, and
(within that exploration licence) mining licence 2006/53L, with an area
of 32.7 km2 and valid until the end of 2031
(2) exploration licence 180/2008, covering an area of 114.4 km2 to the
north of PL 33/2005. The Dukwe Project also encompasses north and south
extensions of mineralization lying outside the Mowana Mine licence
area.
The Company's subsidiary Matsitama Minerals Pty Limited
("Matsitama") holds the Matsitama Project, consisting of five
prospecting licences contiguous with the Mowana Mine deposit. All the
licences are valid and contain prospective areas of mineralization.
Additional information relating to the Company can be found on the
Company's website or under its profile on SEDAR at www.sedar.com.
With corporate offices in the UK, African Copper has offices in
Johannesburg and Francistown and a workforce at the Mowana Mine of more
than 480 employees and contract workers.
For further information please visit www.africancopper.com.
APPENDIX
AFRICAN COPPER PLC
UNAUDITED CONSOLIDATED FINANCIAL INFORMATION
Three and Twelve Months ended 31 December 2009
Expressed in Pounds Sterling
The accompanying Financial Information for the three and twelve months
ended 31 December 2009 have not been audited nor reviewed by the
Company's Auditors and has an effective date of 15 February 2010.
See Note 1 - Nature of operations and going concern
African Copper Plc
Statement of Comprehensive Income
---------------------------------------------------------------------------- Three Months Twelve Months Ended Ended 31 December 31 December 2009 2008 2009 2008 GBP '000 GBP '000 GBP '000 GBP '000 ---------------------------------------------------------------------------- Continuing operations Sales Revenue 2,630 - 2,630 - ---------------------------------------------------------------------------- Operating costs excluding amortization (4,342) - (4,342) - Amortization of mining properties and equipment (496) - (496) - ---------------------------------------------------------------------------- Operating loss from mining operations (2,208) - (2,208) - Foreign exchange (loss)/gain (122) 224 1,764 (612) Administrative expenses (998) (965) (4,282) (3,181) Share based payment - - (20) (61) Depreciation (102) - (102) - Loss on derivative financial instruments - 1,892 - 347 Impairment of property, plant and equipment - (50,841) - (92,438) Impairment of deferred exploration - (6,834) - (6,834) Reversal of impairment - - 29,638 - ---------------------------------------------------------------------------- Operating (loss)/profit (3,430) (56,524) 24,790 (102,779) Investment income 4 59 20 1,359 Other income - 4 - 4 Finance costs (298) (447) (1,662) (1,293) ---------------------------------------------------------------------------- (Loss)/profit before tax (3,724) (56,908) 23,148 (102,709) Income tax expense - - - - ---------------------------------------------------------------------------- (Loss)/profit for the period from continuing operations attributable to equity shareholders (3,724) (56,908) 23,148 (102,709) Other comprehensive income: Exchange differences on translating foreign operations 47 10,404 (501) 7,842 Net gain on cash flow hedge - 3,130 - 2,569 Net gain on cash flow hedge removed from equity and reported in the income statement - (2,624) - (1,757) ---------------------------------------------------------------------------- Other comprehensive (loss)/income for the period, net of tax 47 10,911 (501) 8,654 ---------------------------------------------------------------------------- Total comprehensive (loss)/income for the period attributable to equity shareholders (3,677) (45,996) 22,647 (94,055) ---------------------------------------------------------------------------- Basic (loss)/earnings per ordinary share (0.45)p (38.59)p 4.12p (70.31)p Diluted(loss)/earnings per ordinary share (0.45)p (38.59)p 4.12p (70.31)p African Copper Plc Balance Sheets ---------------------------------------------------------------------------- As At 31 December 31 December 2009 2008 (unaudited) (audited) Note GBP '000 GBP '000 ---------------------------------------------------------------------------- ASSETS Property, plant and equipment 3 42,596 12,628 Deferred exploration costs 4 112 - Other financial assets 5 202 197 ---------------------------------------------------------------------------- Total non-current assets 42,910 12,825 ---------------------------------------------------------------------------- Inventories 6 895 795 Other receivables and prepayments 1,157 1,186 Cash and cash equivalents 7 1,097 1,763 ---------------------------------------------------------------------------- Total current assets 3,149 3,744 ---------------------------------------------------------------------------- Total assets 46,059 16,569 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- EQUITY Issued share capital 8 8,234 1,469 Share premium 81,973 81,973 Acquisition reserve 4,485 4,485 Foreign currency translation reserve 6,134 6,635 Hedging reserve - - Accumulated losses (84,277) (107,453) ---------------------------------------------------------------------------- Total equity 16,549 (12,891) ---------------------------------------------------------------------------- LIABILITIES Asset retirement obligation 12 2,502 2,426 ---------------------------------------------------------------------------- Total non-current liabilities 2,502 2,426 ---------------------------------------------------------------------------- Trade and other payables 2,743 13,551 Due to Zambia Copper Investments 10 24,265 - Limited Interest bearing borrowings 11 - 13,483 ---------------------------------------------------------------------------- Total current liabilities 27,008 27,034 ---------------------------------------------------------------------------- Total equity and liabilities 46,059 16,569 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
The accompanying notes are an integral part
of these consolidated financial statements.
African Copper Plc Consolidated statement of changes in equity ---------------------------------------------------------------------------- Foreign Currency Acqui- Trans- Accumu- Share Share sition lation Hedging lated Total Capital Premium Reserve Reserve Reserve Loss Equity GBP '000 GBP '000 GBP '000 GBP '000 GBP '000 GBP '000 GBP '000 ---------------------------------------------------------------------------- Balance at 1 January 2008 1,396 76,947 4,485 (1,207) (812) (4,843) 75,966 Foreign exchange adjustments - - - 7,842 - - 7,842 Net loss on cash flow hedge - - - - 2,569 - 2,569 Net loss on cashflow hedge removed from equity and reported in the income statement - - - - (1,757) - (1,757) ---------------------------------------------------------------------------- Total recognised income and expense recognized directly in equity - - - 7,842 812 - 8,654 Loss for the period - - - - - (102,709) (102,709) ---------------------------------------------------------------------------- Total recognised income and expense for the period - - - 7,842 812 (102,709) (94,055) New share capital subscribed 73 5,026 - - - - 5,099 Credit arising on share options - - - - - 99 99 ---------------------------------------------------------------------------- Balance at 31 December 2008 1,469 81,973 4,485 6,635 - (107,453) (12,891) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Foreign exchange adjustments - - - (501) - - (501) ---------------------------------------------------------------------------- Total recognized income and expense recognised directly in equity - - - (501) - - (501) Profit for the period - - - - - 23,148 23,148 ---------------------------------------------------------------------------- Total recognised income and - - - (501) - 23,148 22,647 expense for the period New share capital subscribed 6,765 - - - - - 6,765 Credit arising on share options - - - - - 28 28 ---------------------------------------------------------------------------- Balance at 31 December 2009 8,234 81,973 4,485 6,134 - (84,277) 16,549 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
African Copper Plc
Consolidated Cash Flow Statement
---------------------------------------------------------------------------- Three Months Twelve Months Ended Ended 31 December 31 December 2009 2008 2009 2008 GBP '000 GBP '000 GBP '000 GBP '000 ---------------------------------------------------------------------------- Cash flows from operating activities ---------------------------------------------------------------------------- Operating loss from continuing operations (3,430) (56,524) 24,790 (102,779) Decrease/(increase) in receivables (611) (206) 24 716 Decrease/(increase) in inventories 1,464 589 (100) (795) (Decrease)/increase in payables (341) (60) (4,270) (92) Share based payment expense - - 20 60 Impairment of property, plant and equipment - 50,841 - 92,438 Impairment of deferred exploration - 6,834 - 6,834 Hedging gain - (1,892) - (347) Foreign exchange loss/profit 122 (224) (1,764) 612 Depreciation and amortization 598 - 598 - Reversal of impairment - - (29,638) - ---------------------------------------------------------------------------- Cash used in operating activities (2,198) (642) (10,340) (3,353) Interest received 4 59 20 1,359 Other income - 4 - 4 Finance costs (298) (447) (1,662) (1,293) ---------------------------------------------------------------------------- Net cash (outflow)/inflow from operating activities (2,492) (1,026) (11,982) (3,283) ---------------------------------------------------------------------------- Cash flows from investing activities Payments to acquire property, plant and equipment 59 (8,752) (1,345) (39,810) Payments of deferred exploration expenditures 6 (1,073) (111) (2,512) Sale/Purchase of cash flow hedging instruments - 3,000 - 3,000 Receipts/(payments) to other financial assets - (26) - 3,970 ---------------------------------------------------------------------------- Net cash outflow from investing activities 65 (6,851) (1,456) (35,352) ---------------------------------------------------------------------------- Cash flows from financing activities Issue of equity share capital, net of issue costs - - 6,765 5,099 Payment/proceeds from interest bearing - 1,727 (13,483) 13,483 Proceeds from Zambia Copper Investments Limited - - 17,726 - ---------------------------------------------------------------------------- Net cash inflow from financing activities - 1,727 11,008 18,582 ---------------------------------------------------------------------------- Net decrease in cash and cash equivalents (2,427) (6,149) (2,430) (20,053) Cash and cash equivalents at beginning of the period 3,646 7,688 1,763 22,428 Exchange (loss)/profit (122) 224 1,764 (612) ---------------------------------------------------------------------------- Cash and cash equivalents at end of the period 1,097 1,763 1,097 1,763 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
1. Nature of operations and going concern
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
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 Mowana Mine and holds permits in
exploration properties at the Matsitama Project. The Mowana Mine is
located in the northeastern portion of Botswana and the Matsitama
Project is contiguous to the southern boundary of the Mowana Mine.
The Group has only one business segment, namely copper exploration,
development and mining in Botswana. This is considered to be the
primary reporting segment of the Group.
Going Concern
The financial statements have been prepared on the going concern basis,
which contemplates the realization of assets and settlement of
liabilities in the normal course of business.
On 31 January 2010 the Company and Zambia Copper Investments
("ZCI") completed the refinancing of the US$32.4 million
bridge loan facilities that ZCI provided to the Company in May 2009
with a four year secured credit facility (the "Facility")
(See Note 10 - Due to ZCI). The Facility places African Copper's
borrowings from ZCI on a more permanent footing and comprises a
convertible Tranche A of US$8,379,100 with a coupon of 12 per cent. per
annum and Tranche B that is not convertible of US$22,750,000 with a
coupon of 14 per cent. per annum.
The Group's ability to continue as a going concern is dependent upon
its ability to generate positive cashflows from operations at the
Mowana Mine. The Mowana Mine recommenced operations in August 2009 but
has yet to reach full commercial production rates or produce positive
cashflow primarily due to the issues identified in the Management
Discussion and Analysis for the three and twelve months ended 31
December 2009 which has delayed the ramping up of production to full
plant capacity.
As a result, the Company utilized more working capital than had been
previously expected, and additional working capital and capital
equipment financing requirements have been identified.
In anticipation of these working capital needs, the Company's
subsidiary Messina Copper (Botswana) (Proprietary) Limited
("Messina") is in advanced negotiations with a finance
provider to provide a working capital credit facility (the
"Working Capital Facility"). The Working Capital Facility is
currently being finalized. The Directors therefore consider it
appropriate to prepare these financial statements on the going concern
basis.
Management also intends to complete the addition of a Dense Media
Separation plant to the processing plant and further evaluate
developing the underground portion of the mine at Mowana. Further
project finance will be required to complete these initiatives. The
Directors expect that additional capital equipment and other project
funding may be provided in the future by financial institutions in
Botswana and/or the UK or by ZCI. Terms of any further funding by ZCI
will be subject to separate commercial negotiations between the Company
and ZCI if such funds are necessary and become known. Additional
financing may not be available when needed or if available, the terms
of such financing might not be favourable to the Company and might
involve further dilution to existing shareholders. In the event that
the Company is unable to secure the further finance required, the
Company may not be able to fully develop the projects as contemplated
and their carrying values 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 15 February 2010.
2. Basis of Preparation
General Information
The financial information contained in this Interim Report does not
constitute statutory accounts as defined in section 435 of the
Companies Act 2006. No statutory accounts for the period have been
delivered to the Registrar of Companies. The financial information
contained in this Interim Report has not been audited by the auditors.
The statutory accounts for the year ended 31 December 2008 have been
audited and have been filed with the Registrar of Companies. The
auditors' report on these accounts was unqualified and did not contain
a statement under section 498(2) or 498(3) of the Companies Act 2006.
The Group's interim financial information for the period has been
prepared in accordance with accounting policies consistent with those
adopted in the financial statements for the year ended 31 December
2008, and has been drawn up in accordance with International Accounting
Standard 34, "Interim Financial Reporting".
In the opinion of management, the accompanying interim financial
information includes all adjustments considered necessary for fair and
consistent presentation of financial statements. These interim
consolidated financial statements should be read in conjunction with
the Company's audited consolidated financial statements and notes for
the year ended 31 December 2008.
3. Property, Plant and Equipment
---------------------------------------------------------------------------- Group Mine Development Mine Plant and and Other Infrastructure Equipment Assets Total GBP '000 GBP '000 GBP '000 GBP '000 ---------------------------------------------------------------------------- Cost ---- Balance at 1 January 2008 45,485 382 2,665 48,532 Additions 51,620 - 1,688 53,308 Exchange adjustments 3,737 34 163 3,934 ---------------------------------------------------------------------------- Balance at 31 December 2008 100,842 416 4,516 105,774 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Balance at 1 January 2009 100,842 416 4,516 105,774 Additions 661 - 88 749 Exchange adjustments 557 - 23 580 ---------------------------------------------------------------------------- Balance at 31 December 2009 102,060 416 4,627 107,103 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Depreciation and impairment losses ---------------------------------- Balance at 1 January 2008 - - (284) (284) Depreciation charge for the year (56) - (346) (402) Impairment of property, plant and equipment (88,660) (365) (3,413) (92,438) Exchange adjustments - - (22) (22) ---------------------------------------------------------------------------- Balance at 31 December 2008 (88,716) (365) (4,065) (93,146) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Balance 1 January 2009 (88,716) (365) (4,065) (93,146) Amortization and depreciation charge for the period (632) - (376) (1,008) Exchange adjustments 9 - - 9 Reversal of Impairment 29,638 - - 29,638 ---------------------------------------------------------------------------- Balance at 31 December 2009 (59,701) (365) (4,441) (64,507) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Carry amounts ------------- Balance at 1 January 2008 45,485 382 2,381 48,248 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Balance at 31 December 2008 12,126 51 451 12,628 ---------------------------------------------------------------------------- Balance at 31 December 2009 42,359 51 186 42,596 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Impairment Review
As detailed in the accounting policies in the financial statements for
the year ended 31 December 2008 the Directors are required to undertake
a review for impairment at least annually and in particular where
events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable. In such situation the assets carrying
value is written down to its estimated recoverable amount (being the
higher of the fair value less cost to sell and value in use). However,
should indications dictate that a previously recognized impairment loss
no longer exist or has decreased then the Directors should estimate the
recoverable amount and determine whether an impairment reversal is
appropriate.
At 30 September 2008 and at 31 December 2008 the Directors undertook a
review of mining assets in light of the then current economic events
and associated declines in metal prices and the Group's working capital
deficit and its need to raise at least $US15 million in financing. As a
result during the three months ended 30 September 2008, a write down of
GBP 41.60 million was recorded and a further GBP 50.84 million write
down was recorded during the three months ended 31 December 2008 for a
total of GBP 92.44 million.
At 30 June 2009 the Directors undertook a further review of mining
assets in light of certain indicators that the previously recognized
impairment loss had decreased including the significant impact of the
Company completing the ZCI Financing Package. In performing their
review the Directors considered each of the Group's exploration and
development assets on a project-by-project basis. Three general cash
generating units were considered for the purpose of this assessment.
These are:
-- The Mowana mine itself including pre-operating cost, exploration expenditures on establishing the current resource base, buildings and plant and machinery associated with the mining operations. Includes resources processed from the Thakadu deposit. -- Exploration expenditures on areas within the Mowana environs but which have not yet been exploited and do not form part of the current declared resources. -- Exploration expenditures on the Matsitama tenements.
Following this review and making estimates
of the value in use of the Mowana mine and taking into account the
failure of the transaction with Natasa Mining Limited (the "Natasa
Transaction") and the finalization of the ZCI Financing Package,
the Directors concluded that a portion of the recognized impairment
loss recognized in 2008 on the Mowana mine unit no longer exists and
that a partial impairment reversal was appropriate at 30 June 2009.
No impairment reversal was made in respect of any of the other cash
generating units.
In deriving the estimate for the value in use in respect for the Mowana
mine the Directors' calculated a Net Present Value of the projected
cash flow to be derived from the Mowana mine based on the adopted five
(5) year mining plan.
The Net Present Value calculation used the following key assumptions:
Commencement of operations: August 2009 Copper price: Years 1 to 4 US $ 2.25 Year 5 US $ 2.00 Exchange rate: Pula to US$ 6.93 (Exchange rate at 30 June 2009) Discount factor: 14% Production period: 5 years Combined ore production from Mowana and Thakadu deposits: 5 year ore mined 8.4 million tonnes @ 1.5% Cu 5 year ore milled 5.1 million tonnes @ 2.23% Cu(i) (i) Milled tonnage reflects the impact of the proportion of the Mowana feed which will be treated via the application of Dense Media Separation techniques.
It is estimated that the effect of adverse
changes in key assumptions would result in the following decreases in
the estimated value in use:
Decrease in copper price by 12.5% GBP 15.3 million Increase in all OPEX and CAPEX estimates by 10% GBP 9.2 million Appreciation of Pula:US$ exchange rate by 10% to Pula 6.24=US$1 GBP 9.5 million Increase in discount rate by 2% GBP 2.0 million
As required by IAS 36 no benefit has been
recognized for any additional value that could be generated from the
assets through improving the performance of the assets through
additional cash outflows, from the development of underground workings
or from production beyond the five year mine plan.
The Directors have not carried out a further impairment review at 31
December 2009 but will undertake a further review as at 31 March 2010.
A review would entail revision of a number of assumptions and a review
of the mine model in light of initial production activity. As such, the
Directors do not believe a further impairment review at 31 December
2009 would generate a more reliable valuation than that shown as at 30
June 2009.
4. Deferred exploration costs
---------------------------------------------------------------------------- Group GBP '000 ---------------------------------------------------------------------------- Cost ---------------------------------------------------------------------------- Balance at 1 January 2008 4,322 Additions 2,137 Exchange adjustments 375 Impairment of deferred exploration (6,834) ---------------------------------------------------------------------------- Balance 31 December 2008 Nil Additions 112 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Balance 31 December 2009 112 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 5. Other Financial Assets ---------------------------------------------------------------------------- 31 December 31 December 2009 2008 Group GBP '000 GBP '000 ---------------------------------------------------------------------------- Bank guarantee 202 197 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
The bank guarantee relates to a payment
guarantee to Botswana Power Corporation in respect of the Mowana Mine.
6. Inventories ---------------------------------------------------------------------------- 31 December 31 December 2009 2008 GBP '000 GBP '000 ---------------------------------------------------------------------------- Stockpile inventories 519 59 Consumables 376 736 ---------------------------------------------------------------------------- Total Inventories 895 795 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 7. Cash and cash equivalents ---------------------------------------------------------------------------- 31 December 31 December 2009 2008 GBP '000 GBP '000 ---------------------------------------------------------------------------- Cash at bank 1,097 - Short-term bank deposits - 1,763 ---------------------------------------------------------------------------- Cash and cash equivalents in the statement of cashflows 1,097 1,763 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 8. Share Capital ---------------------------------------------------------------------------- No. of shares GBP '000 ---------------------------------------------------------------------------- Authorised: Ordinary shares of 1p each 495,000,000 4,950 Redeemable preference shares of GBP 1 each 50,000 50 ---------------------------------------------------------------------------- At 31 December 2008 5,000 Ordinary shares authorized at Extraordinary General Meeting 1,000,000,000 10,000 ---------------------------------------------------------------------------- At 30 September 2009 1,495,050,000 15,000 Issued: Balance at 1 January 2007 130,507,185 1,305 Ordinary shares issued on private placement 8,367,772 84 Ordinary shares issued on exercise of options 700,000 7 ---------------------------------------------------------------------------- Balance at 31 December 2007 139,574,957 1,396 Ordinary shares issued on private placement 7,284,000 73 ---------------------------------------------------------------------------- Balance at 31 December 2008 146,858,957 1,469 Ordinary shares issued on 28 April 2009 43 - Ordinary shares issued on 22 May 2009 676,570,500 6,765 ---------------------------------------------------------------------------- Balance at 31 December 2009 823,429,500 8,234 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Shares issued
On 8 February 2008, a total of 7,284,000 ordinary shares were issued at
a price of GBP 0.70 per ordinary share, raising total net proceeds of
GBP 5,098,800. This private placement was completed as part of the
finalization of a comprehensive off-take agreement for the Mowana Mine
concentrates.
On 28 April 2009 43 new ordinary shares of 1p were issued by the
Company in connection with the Company's consolidation of share capital
announced on 9 April 2009 as part of the proposed Natasa Transaction.
The Natasa Transaction necessitated a reorganisation of the Company's
share capital resulting in a consolidation of the Company's existing
ordinary shares. One new Ordinary Share of 10p was proposed to be
created for every 100 existing ordinary shares. At the Extra-Ordinary
General Meeting held on 7 May 2009 the requisite level of shareholder
approval for the Natasa Transaction was not received so accordingly the
Natasa Transaction did not proceed to completion.
As part of the ZCI Financing Package completed on 22 May 2009, a total
of 676,570,500 ordinary shares were issued at a price of GBP 0.01 per
ordinary share, raising total net proceeds of GBP 6,765,705.
Acquisition reserve
The acquisition reserve comprises the difference between the issued
equity of Mortbury Limited at the date of the reverse acquisition of
the Company by Mortbury Limited and the par value of shares issued by
the Company in the share exchange, together with the fair value of
equity issued to repurchase the Mortbury preference shares in issue. As
such, the acquisition reserve is a component of the issued equity of
the Group.
Foreign currency translation reserve
The translation reserve comprises all foreign exchange differences
arising from the translation of the financial statements of the Botswana
foreign subsidiaries that have a different functional currency from the
presentation currency. Exchange differences arising are classified as
equity and transferred to the Group's translation reserve. Such
translation differences are recognised in the income statement in the
period in which the operation is disposed of.
Dividends
The directors do not recommend the payment of a dividend.
9. Share based payments
African Copper has established a share option scheme with the purpose
of motivating and retaining qualified management and to ensure common
goals for management and the shareholders. Under the African Copper
share plan each option gives the right to purchase one African Copper
ordinary share. For options granted the vesting period is generally up
to three years. If the options remain unexercised after a period of 10
years from the date of grant, the options expire. Furthermore, options
are forfeited if the employee leaves the Company. In 2004 options were
granted at 35p and 76p, in 2005 all options were granted at 76p and in
2006 and 2007 all options were granted at 77.5p. No options were
granted in 2008 or for the twelve months ending 31 December 2009.
Movements in the number of share options outstanding and their related
weighted average exercise prices are as follows:
---------------------------------------------------------------------------- 31 December 31 December 2009 2008 Weighted Weighted average average exercise price exercise price in GBP per in GBP per share Options share Options ---------------------------------------------------------------------------- At 1 January 75p 11,215,000 76p 11,415,000 Granted - - - Forfeited - (8,280,000) 77.5p (200,000) Exercised - - - - ---------------------------------------------------------------------------- At 31 December 77p 2,935,000 77p 11,215,000 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Exercisable at the end of the 77p 2,935,000 77p 10,598,331 period
The total expense in respect of share based
payments for the period was GBP 26,827 (2008:GBP 98,862) of which GBP
20,244 (2008:GBP 60,307) was recorded as an expense in the income
statement and GBP 6,583 (2008: GBP 38,555) was capitalised as part of
deferred exploration costs.
Share options outstanding at the end of the period have the following
expiry date and exercise prices:
---------------------------------------------------------------------------- Exercise price Expiry date in GBP per share Shares 31 December 31 December 2009 2008 ---------------------------------------------------------------------------- 2014 76p 375,000 1,175,000 2015 76p 60,000 1,830,000 2016 77.5p 2,500,000 8,210,000 ---------------------------------------------------------------------------- 77.3p 2,935,000 11,215,000 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- 10. Due to ZCI ---------------------------------------------------------------------------- 31 December 31 December 2009 2008 GBP '000 GBP '000 ---------------------------------------------------------------------------- Due to ZCI 24,265 - ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
On 9 May 2009 the Company announced it had
entered into agreements pursuant to which ZCI agreed to provide the
Company a financing package which was subsequently amended by further
agreements with effective dates of 12 May 2009, 18 May 2009, 21 May
2009 and 19 June 2009.
The ZCI Financing Package comprises:
Initial Bridge Loans:
- a secured bridge loan facility (the "Initial Bridge Loan")
of US$7 million. The Initial Bridge Loan was made available to Messina
on 13 May 2009.
- a second secured US$25.4 million bridge loan facility (the
"Second Bridge Loan"). The Second Bridge Loan was made
available to Messina on 18 May 2009;
Share Subscription:
- a share subscription for gross proceeds to the Company of
approximately US$9.9 million (the "Share Subscription"). The
Share Subscription was completed on 22 May 2009 and the New Ordinary
Shares were admitted to AIM. Following the Share Subscription, the
Company had 823,429,500 ordinary shares in issue and ZCI had an
interest in 82.16 per cent. of the issued ordinary share capital of the
Company;
Term Loan which Refinances the Bridge Loans:
- a four year secured part convertible credit facility (the
"Convertible Loan Facility") of US$31,129,100 comprising a
convertible Tranche A of US$8,379,100 with a coupon of 12 per cent. per
annum and Tranche B that is not convertible of US$22,750,000 with a
coupon of 14 per cent. per annum. The Convertible Loan Facility was
signed on 18 June 2009. Tranche A of the Convertible Loan Facility is
convertible into ordinary shares of African Copper at a conversion
price of 1p per share. The maximum aggregate number of new ordinary
shares which may be issued pursuant to the conversion rights attaching
to Tranche A is 556,307,263 new ordinary shares (subject to usual
adjustments), which would, were Tranche A to be converted in full,
increase ZCI's interest in the enlarged issued share capital of the
Company from 82.16 per cent. to 89.36 per cent.
The advance of funds under the Convertible Loan Facility was subject to
the satisfaction of certain conditions precedent including that ZCI's
shareholders having approved the Convertible Loan Facility and security
over Messina's assets, including the Mowana Mine, becoming effective.
The Initial Bridge Loan and the Second Bridge Loan will be refinanced
out of the proceeds of the Share Subscription and the Convertible Loan
Facility. The Convertible Loan Facility contains typical covenants,
warranties and events of default for an agreement of this nature. The
Convertible Loan Facility is guaranteed by African Copper and all other
African Copper group companies and is secured over Messina's assets
including a share pledge over the shares of Messina.
On 31 January 2010 the Company and ZCI completed the conditions
precedent under the Convertible Loan Facility resulting in the Initial
Bridge Loan and Second Bridge Loan being refinanced by the Convertible
Loan Facility.
ZCI Debt Acquisitions
On 11 May 2009, the Company and ZCI entered into a binding debt
assignment agreement with Moolman Mining Botswana (Pty) Limited
("Moolman") pursuant to which Moolman assigned its 60 million
Pula plus VAT (approximately US$8 million at an exchange rate of
US$1/7.5 Pula) outstanding debt of Messina (the "Moolman
Debt") to ZCI at a price equal to 50 per cent. of the face value
of the Moolman Debt plus the full amount of invoiced VAT. The amount of
the VAT will be refunded by the Company to ZCI upon recovery by the
Company.
On 12 May 2009, the Company's engineering procurement contractor Senet
CC ("Senet") entered into an agreement with ZCI, pursuant to
which Senet assigned its ZAR 17,002,545 (approximately US$2 million at
an exchange rate of US$1/ZAR8.44) outstanding debt of Messina (the
"Senet Debt") to ZCI at a price equal to 50 per cent. of the
face value of the Senet Debt.
On 21 May 2009, ZCI completed a compromise agreement with Read Swatman
& Voigt (Pty) Limited ("RSV") pursuant to which RSV was
paid in cash 50 per cent of monies of the total of ZAR 4,537,525 owed
directly to RSV and 100 per cent of the total ZAR 1,509,374 owed to RSV
sub contractors, being payment of a total of ZAR 3,777,836
(approximately US$448,141.87 at an exchange rate of US$1/ZAR8.43) in
full and final settlement of debts due from the Company and its
subsidiaries. Pursuant to the compromise agreement the full amount of
the RSV Debt, ZAR 6,046,899 (approximately US$717,307 at an exchange
rate of US$1/ZAR8.43) (the "RSV Debt") was assigned to ZCI.
Each of the Moolman Debt, the Senet Debt and the RSV Debt are currently
due and payable. ZCI and African Copper have agreed that the Company
will cause the full amounts of the Senet Debt and RSV Debt to be repaid
to ZCI in the short term and that the Moolman Debt will be repaid to
ZCI as and when sufficient levels of working capital are available to
the Company.
As a consequence of the Initial Bridge and Second Bridge Loan and the
ZCI Debt Acquisitions, the Group is indebted to ZCI at 31 December 2009
in an aggregate amount of approximately US$39.86 million.
11. Interest bearing borrowings
---------------------------------------------------------------------------- 31 December 31 December 2009 2008 GBP '000 GBP '000 ---------------------------------------------------------------------------- Unsecured 14% fixed rate Pula bond - 13,483 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
On 4 April 2008 Messina, the Company's
wholly-owned subsidiary, completed the private placement of GBP 13.6
million (Botswana Pula 150 million) of fixed rate unsecured notes (the
"Botswana Bond"). The notes were priced at 14.0 percent
annual interest with a maturity of 7 years. On 2 April 2009 Messina did
not pay the required interest payment due on the Botswana Bond which
was an event of default under the Botswana Bond.
On 15 May 2009 the Company announced that Natasa Mining Limited
("Natasa") had acquired the Botswana Bond and that Natasa had
lodged a petition with the High Court of Botswana to seek an order for
the provisional liquidation of Messina. As part of the ZCI Financing
Package (See Note 10 - Due to ZCI) the Second Bridge Loan was made
available to the Group with the primary portion of this amount made
available for the purpose of repaying in full the Botswana Bond owing
to Natasa. At 3 June 2009 the Botswana Bond owing to Natasa was paid in
full.
12. Asset retirement obligations
The Company estimates the total discounted amount of cash flows
required to settle its asset retirement obligations at 31 December 2009
is GBP 2,502,350(2008 - GBP 2,426,399). Although the ultimate amount to
be incurred is uncertain, the independent Environmental Impact
Statement, completed on the Mowana Mine by Water Surveys Botswana (Pty)
Limited in September 2006, using an assumption that mining continues to
2023, estimated the undiscounted cost to rehabilitate the Mowana Mine
site of 24.3 million Botswana Pula.
Under the terms of the Mining Licence, by the end of the first
financial year in which copper is produced and sold, the Company must
establish a trust fund to provide for rehabilitation of the Mowana Mine
site once the mine closes. The Company will annually make contributions
to this fund over the life of the mine so that these capital
contributions together with the investment income earned will cover the
anticipated costs. At the end of each financial year the Company will
reassess the estimated remaining life of mine as well as the cost to
rehabilitate the mine site and adjust its annual contributions
accordingly.
13. Commitments
At 31 December 2009, commitments total to GBP 3.16 million:
---------------------------------------------------------------------------- Contractual Obligations Total 2010 2011 2012 2013 and thereafter GBP '000 GBP '000 GBP '000 GBP '000 GBP '000 ---------------------------------------------------------------------------- Goods, services and equipment(a) 2,174 2,104 70 - - Exploration licences(b) 722 93 629 - - Mining licence 6 1 1 4 - Lease agreements(c) 259 189 60 10 - ---------------------------------------------------------------------------- 3,161 2,387 760 14 - ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (a) The Company and its subsidiaries have a number of agreements with arms-length third parties who provide a wide range of goods and services and equipment. (b) Under the terms of the Company's prospecting licences Matsitama is obliged to incur certain minimum expenditures. (c) The Company has entered into agreements for lease premises for various periods until 5 November 2010.
14. Related party transactions
The following amounts were paid to companies in which directors of the
Group have an interest and were incurred in the normal course of
operations and are recorded at their exchange amount;
---------------------------------------------------------------------------- Twelve months ended Balance Outstanding as at 31 31 31 31 Dec. Dec. Dec. Dec 2009 2008 2009 2008 GBP '000 GBP '000 GBP '000 GBP '000 ---------------------------------------------------------------------------- Due to ZCI (see Note 10 and 15) 24,265 - 24,265 - Amount paid to ZCI being interest on loan for the period May to December 2009 1,109 - - - Amount paid to iCapital Limited for the provision of technical and operational support to the Company. J. Soko, a director of the Company, is a principal of iCapital Limited. 209 - (4) - ---------------------------------------------------------------------------- 25,583 - 24,261 - ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
15. Ultimate Controlling Party
The directors regard ZCI, a company registered in Bermuda, as the
Company's immediate parent undertaking.
The Company's ultimate controlling party is The Copperbelt Development
Foundation.
16. Financial instruments
The Group's principal financial liabilities comprise trade payables,
purchase contracts and accrued expenses. The Group has various
financial assets such as cash and cash equivalents and interest
receivables, which arise directly from its operations. In addition, the
Company's financial assets include amounts due from subsidiaries.
From time-to-time the Group may use derivative transactions by
purchasing copper put contracts to manage fluctuations in copper prices
in the Group's underlying business operations. The use of derivatives
is based on established practices and parameters which are subject to
the oversight of the Board of Directors.
All of the Group's and Company's financial liabilities are measured at
amortised cost and all of the Group's and Company's financial assets
are classified as loans and receivables.
The board of directors determines, as required, the degree to which it
is appropriate to use financial instruments, commodity contracts or
other hedging contracts or techniques to mitigate risks. The main risks
for which such instruments may be appropriate are market risk including
interest rate risk, foreign exchange risk and commodity price risk and
liquidity risk each of which is discussed below.
The Group and Company's activities are exposed to a variety of
financial risks, which include interest rate risk, foreign exchange
risk, commodity price risk and liquidity risk.
(a) Market Risk
(i)Interest rate risk
Interest rate risk is the risk that the value of a financial instrument
or cashflows associated with the instrument will fluctuate due to
changes in market interest rates. Interest rate risk arises from
interest bearing financial assets and liabilities that the Group uses.
Interest bearing assets comprise cash and cash equivalents which are
considered to be short-term liquid assets. Interest bearing borrowings
comprise bridge loans payable to ZCI under the ZCI Financing Package
and variable rate vehicle lease obligations. Variable lease obligations
are not considered material.
As at 31 December 2009, with other variables unchanged, a plus or minus
1% change in interest rates, on investments and borrowings whose
interest rates are not fixed, would affect the loss for the three month
period by plus or minus GBP 36,544.
(ii) Foreign exchange risk
Foreign currency risk refers to the risk that the value of a financial
commitment or recognised asset or liability will fluctuate due to
changes in foreign currency rates. The Group is exposed to foreign
currency risk as a result of financial assets, future transactions,
foreign borrowings, and investments in foreign companies denominated in
Botswana Pula.
The Group has not used forward exchange contracts to manage the risk
relating to financial assets, future transactions or foreign borrowings.
Fluctuations in financial assets, future transactions or foreign
borrowings are recognised directly in profit or loss. During 2007 and
2008 the Group purchased South African Rand from time to time to match
known future South African Rand transactions relating to the
development and construction of the Mowana Mine.
As a result of the Group's main assets and subsidiaries being held in
Botswana and having a functional currency different than the
presentation currency, the Group's balance sheet can be affected
significantly by movements in the Pound Sterling to the Botswana Pula.
During 2007, 2008 and 2009 the Group did not hedge its exposure of
foreign investments held in foreign currencies. There is no significant
impact on profit or loss from foreign currency movements associated
with these Botswana subsidiary assets and liabilities as the effective
portion of foreign currency gains or losses arising are recorded
through the translation reserve.
Foreign currency risk sensitivity analysis: ---------------------------------------------------------------------------- Profit/Loss Equity 31 31 31 31 December December December December 2009 2008 2009 2008 GBP '000 GBP '000 GBP '000 GBP '000 ---------------------------------------------------------------------------- If there was a 10% weakening of Pula against Sterling with all other variables held constant - increase/(decrease) - - 1,351 (7,474) If there was a 10% strengthening of Pula against Sterling with all other variables held constant - increase/(decrease) - - (1,651) 9,134 If there was a 10% weakening of Rand against Sterling with all other variables held constant - increase/(decrease) (31) 179 (31) 179 If there was a 10% strengthening of Rand against Sterling with all other variables held constant - increase/(decrease) 38 (219) 38 (219)
Commodity
price risk
Commodity price risk is the risk that the Group's future earnings will
be adversely impacted by changes in the market prices of commodities.
The Group is exposed to commodity price risk as its future revenues
will be derived based on a contract with a physical off-take partner at
prices that will be determined by reference to market prices of copper
at the delivery date.
From time to time the Group may manage its exposure to commodity price
risk by entering into put contracts or metal forward sales contracts
with the goal of preserving its future revenue streams.
(b) Credit risk
The Group is exposed to credit risk on its cash and cash equivalents
and other receivables which also represent the maximum exposure to
credit risk The Group only deposits surplus cash with well-established
financial institutions of high quality credit standing.
(c) Liquidity Risk
As at 31 December, 2009 the Company had GBP 1.1 million in cash and
cash equivalents, GBP 1.16 million in other receivables and prepayments
and GBP 24.3 million due to ZCI.
Prudent liquidity risk management implies maintaining sufficient cash
and cash equivalents and the availability of committed credit
facilities. The Group manages liquidity risk by monitoring forecast and
actual cash flows and matching maturity profiles of financial assets
and liabilities.
Fair value of financial instruments
The fair value of the Group's and the Company's financial instruments
reflect the carrying amounts shown in the balance sheet.
17. Subsequent Events
On 31 January 2010 the Company and ZCI completed the refinancing of the
US$32.4 million bridge loan facilities that ZCI provided to the Company
in May 2009 with the Facility (See Note 10 - Due to ZCI). The Facility
places African Copper's borrowings from ZCI on a more permanent footing
and comprises a convertible Tranche A of US$8,379,100 with a coupon of
12 per cent. per annum and Tranche B that is not convertible of
US$22,750,000 with a coupon of 14 per cent. per annum.
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