Half-yearly Report

Half-yearly Report

Mercator Gold Plc

MERCATOR GOLD PLC

(“Mercator Gold”, “Mercator” or the “Company”)

Interim Results (unaudited) for the Six Months to 31 December 2008

London: 6 April 2009

Profit and Loss Account
For the six months ended 31 December 2008
		6 months to		6 months to		12 months to
		31 December		31 December		30 June
		2008		2007		2008
		(unaudited)		(unaudited)		(audited)
		£		£		£
Revenue from continuing operations		-		-		-
Other income		13,879		19,809		22,504
Total revenue		13,879		19,809		22,504
Finance costs		184,200		45,504		220,224
Impairment of investment in and loans to subsidiary		2,205,882		-		30,044,000
Loss of associate company attributable to the company		332,195		-		45,860
Administration and other expenses		594,904		586,180		1,656,015
(Loss) before income tax expense		(3,303,302)		(611,875)		(31,943,595)
Tax Expense/(recovery)		-		-		(60,116)
(Loss) after income tax expense		(3,303,302)		(611,875)		(31,883,479)
Loss per share (pence)		(4.6)		(1.0)		(50.9)

Unaudited Balance Sheet
As at 31 December 2008
				6 months to		6 months to		12 months to
				31 December		31 December		30 June
				2008		2007		2008
				(unaudited)		(unaudited)		(audited)
		Note		£		£		£
Fixed assets
Investment in subsidiaries				3,919,620		34,589,537		3,201,760
Investment in associate				761,144		-		1,093,339
Other corporate investment				167,989		-		-
Property, plant and equipment				3,107		5,548		3,686
Total fixed assets				4,851,860		34,595,085		4,298,785
Current assets
Trade and other receivables				58,472		80,494		79,996
Cash and cash equivalents				175,468		314,836		24,902
Total current assets				233,940		395,330		104,898
Current Liabilities
Trade and other payables				269,746		321,740		339,074
Net current assets				(35,806)		73,590		(234,176)
Non-Current Liabilities
Financial liabilities				2,456,179		1,944,440		2,206,214
Net assets				2,359,873		32,724,235		1,858,395
Capital and reserves
Issued capital				7,267,491		6,249,991		6,267,491
Share premium account				29,942,233		27,094,733		27,182,233
Reserves				767,203		421,660		722,423
Retained losses				(35,617,054)		(1,042,149)		(32,313,752)
Total equity				2,359,873		32,724,235		1,858,395

Statement of changes in equity

		Issued capital £		Share PremiumPremium Account £		Accumulated losses £		Other reserves £		Total £
At 1 July 2007		6,224,491		26,963,483		(430,273)		-		32,757,701
Loss for the year						(31,883,479)				(31,883,479)
Total recognised income/expense for the year						(31,883,479)				(31,883,479)
Attributable share of changes in equity of associated companyof associated company								20,423		20,423
Cost of share-based payment in associate								476,620		476,620
Issue of convertible loan notes								225,380		225,380
Issue of shares		43,000		218,750						261,750
At 30 June 2008		6,267,491		27,182,233		(32,313,752)		722,423		1,858,395
		Issued capital £		Share Premium Account £		Accumulate losses £		Other reserves £		Total £
At 1 July 2008		6,267,491		27,182,233		(32,313,752)		722,423		1,858,395
Profit for the period						(3,303,302)				(3,303,302)
Total recognised income/expense for the period						(3,303,302)				(3,303,302)
Cost of share-based payment								25,729		25,729
Issue of convertible loan notes								19,051		19,051
Issue of shares		1,000,000		2,760,000						3,760,000
At 31 December 2008		7,267,491		29,942,233		(35,617,054)		767,203		2,359,873

	Unaudited cash flow statement
	For the six months ended 31 December 2008
					6 months to		6 months to		12 months to
					31 December		31 December		30 June
					2008		2007		2008
					(unaudited)		(unaudited)		(audited)
					£		£		£
	Unaudited Cash used in operations
	For the six months ended 31 December 2008
			Note
	Loss for the period before tax				(3,303,302)		(611,875)		(31,943,595)
	Adjustments:
	Impairment of investment in and loans to subsidiary				2,205,882		-		30,044,000
	Depreciation of plant and equipment				122		2,283		4,145
	Loss on disposal of fixed assets				457		1,285		-
	Loss of associated company for the period				332,195		-		45,860
	Interest income				(13,879)		(19,809)		(22,504)
	Issue costs amortised – convertible loan notes				29,992		-		29,992
	Interest cost imputed on unwinding loan				39,024		-		35,502
	Share based payments of associate				25,730		-		476,620
	Corporation tax				-		-		60,116
	Decrease / (increase) in accounts receivable				21,524		17,924		18,423
	Increase / (decrease) in accounts payable				(69,327)		151,686		169,021
	Interest paid				115,379		45,454		154,730
	Net cash (outflow) from operating activities				(616,203)		(413,051)		(927,690)
	Cash flow from investing activities
	Loans issued				(2,450,980)		(3,030,586)		(3,030,586)
	Loans repaid				-		-		225,000
	Investment in subsidiary				(472,762)		-		-
	Investment in associate				(167,989)		-		-
	Proceeds from sale of equipment				-		-		1,285
	Interest received				13,879		19,809		22,504
	Net cash (inflow)/outflow from investing activities				(3,077,852)		(3,010,778)		(2,781,797)
	Financing activities
	Proceeds from borrowings				200,000		2,366,100		2,366,100
	Proceeds from issue of ordinary share capital				3,760,000		156,750		261,750
	Interest paid on convertible loan notes				(115,379)		(45,454)		(154,730)
	Net cash inflow from financing activities				3,844,621		2,477,396		2,473,120
	Net increase/(decrease) in cash and cash equivalents				150,566		(946,433)		(1,236,367)
	Cash and cash equivalents at beginning of period				24,902		1,261,269		1,261,269
	Cash and cash equivalents at end of period				175,468		314,836		24,902

Notes:
1		No dividend is proposed in respect of the period
2		The results for the period are derived from continuing activities.
3		The calculations of loss per share have been based on the retained loss after taxation for the period and on a weighted average of 71,035,567 ordinary shares in issue during the period.
4		The unaudited results have been prepared on a going concern basis and on the basis of the accounting policies adopted in the audited accounts for the year ended 30 June 2008.
5		Creditors falling due after more than one year
				31 December		31 December		30 June
				2008		2007		2008
		Convertible unsecured loan stock:		£		£		£
		Redemption value at 31 December 2006		2,765,000		2,565,000		2,565,000
		Un-amortised issue costs and equity reserve		119,989		179,954		149,962
		On 17 October 2007, the Company issued three year convertible loan notes carrying a coupon rate of 8.5% interest, payable quarterly in cash or, at the holder’s option, by the issue of shares at £0.95 each in the first two years and at £1.20 in the third year. The holder could elect to receive the redemption payment in cash or shares at similar rates as above. Any notes remaining on the third anniversary of their issue will be repaid in cash, plus accrued interest. On 17 July 2008 the company issued three year convertible loan notes carrying a coupon rate of 8.5%, payable quarterly in cash or, at the holder’s option, by the issue of shares at £0.95 each. Any notes remaining on the third anniversary will be repaid in cash. The allocation of redemption face value between liability and equity components has been accounted for in accordance with Financial Reporting Standard FRS 25.
6		The interim report is unaudited and does not constitute Statutory Accounts as defined in section 240 of the Companies Act 1985. A copy of the Company’s 2008 Statutory Accounts has been filed with the Registrar of Companies. The auditors’ opinion on those Statutory Accounts was qualified and the reasons for qualification remain valid in these accounts.
7		The Interim Report for the six months to 31 December 2008 was approved by the Directors on 6 April 2009.

1 BASIS OF PREPARATION OF INTERIM REPORT

Reverse acquisition accounting and IFRS

The Interim financial report has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRS) except that an initial decision at the interim stage in 2008 to adopt reverse acquisition accounting has been reversed.

The information for the period ended 31 December 2008 is not audited and does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The interim accounts for the six month period to 31 December 2007 were also unaudited.

The information for the year ended 30 June 2008 is taken from the statutory accounts for the year then ended.

2 ACCOUNTING POLICIES

Basis of Accounting

The interim financial report has been prepared using accounting policies consistent with International Financial Reporting Standards (IFRS) with the exception that the accounts of its subsidiaries have not been consolidated, as explained below.

Basis of consolidation

The adoption of reverse acquisition in our interim accounts to 31 December 2007 has been reversed This year that adoption has been reversed and this is consistent with the recently issued annual statements for the year ended 30 June 2008.

This results from the fact that our principal operating subsidiary in Australia, Mercator Gold Australia Pty Ltd., has been put into Administration. Obtaining financial information from this company has proved impossible and the Directors do not consider the application of reverse acquisition accounting principles to be appropriate in these circumstances.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and VAT.

Impairment of tangible and intangible assets excluding goodwill

At each balance sheet date, the Company reviews the carrying amounts of its intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Company estimates that recoverable amount of the cash-generated unit to which the asset belongs. An intangible asset with indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair values less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimate of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generated unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a re-valued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised by the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a re-valued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Trade receivables

Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.

Cash and Cash Equivalents

“Cash and cash equivalents” includes cash on hand, deposits held at call with financial institutions, other short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Payables

Trade and other payables represent liabilities for goods and services provided to the Company prior to the year end and which are unpaid. These amounts are unsecured and have 30-60 day payment terms.

Employee Benefits

Wages and Salaries, Annual Leave and Sick Leave

Liabilities for wages and salaries, including non-monetary benefits are reported at cost or fair value as appropriate to the reward earned. Liabilities for non-accumulating sick leave are recognised when leave is taken and measured at the actual rates paid or payable. Liabilities for wages and salaries are included as part of other Payables and liabilities for annual leave are included as part of Employee Benefit Provisions.

Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

The fair value of the liability portion of a convertible bond is determined using a market interest rate for an equivalent non-convertible bond. This amount is recorded as a liability on an amortised cost basis until extinguished on conversion or maturity of the bonds. The remainder of the proceeds is allocated to the conversion option. This is recognised and included in shareholders’ equity, net of income tax effects.

Contributed Equity

Ordinary shares are classified as equity.

Costs directly attributable to the issue of new shares or options are shown as a deduction from the equity proceeds, net of any income tax benefit. Costs directly attributable to the issue of new shares or options associated with the acquisition of a business are included as part of the purchase consideration.

Goods and Services and Value Added Tax

Revenues, expenses and assets are recognised net of VAT except where VAT incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the VAT is recognised as part of the cost of acquisition of the asset or as part of the expense item.

Receivables and payables are stated with the amount of VAT included. The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the balance sheet.

Cash flows are included in the cash flow statement on a gross basis and the VAT component of cash flows arising from investing and financing activities, which is recoverable from, or payable to, the taxation authority are classified as operating cash flows.

Commitments and contingencies are disclosed net of the amount of VAT recoverable from, or payable to, the taxation authority.

Share Based Payments

The Company provides benefits to employees (including directors) of the Company in the form of share-based payment transactions, whereby employees render services in exchange for shares or options over shares ('equity-settled transactions').

The fair value of options is recognised as an expense with a corresponding increase in equity (share option reserve). The fair value is measured at grant date and recognised over the period during which the holder becomes unconditionally entitled to the options. Fair value is determined using a Black-Scholes option pricing model. The cumulative expense recognised between grant date and vesting date is adjusted to reflect the directors’ best estimate of the number of options that will ultimately vest because of internal conditions of the options, such as the employees having to remain with the company until vesting date.

Where the terms of options are modified, the expense continues to be recognised from grant date to vesting date as if the terms had never been changed. In addition, at the date of the modification, a further expense is recognised for any increase in fair value of the transaction as a result of the change.

Where options are cancelled, they are treated as if vesting occurred on cancellation and any unrecognised expenses are taken immediately to the income statement. However, if new options are substituted for the cancelled options and designated as a replacement on grant date, the combined impact of the cancellation and replacement options are treated as if they were a modification.

3 PROFIT PER SHARE

The calculation is based on the profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares:

		6 Months to 31 December 2008		6 Months to 31 December 2007		12 Months to 30 June 2008
Profit /(Loss) for the period		¤(3,303,302)		¤(611,875)		¤(31,837,619)
Weighted average number of shares diluted and undiluted		71,035,567		62,258,365		62,517,432
Loss per share		4.7p		1.0p		50.9p

For further information please contact:

Mercator Gold plc
Patrick Harford, Managing Director			Tel: [phone]
Email: [e-mail]
Website: www.mercatorgold.com
Bankside Consultants Ltd			Tel: [phone]
Simon Rothschild
Oliver Winters

AIM: MCR