Interim Results - Half Year to 30 June 2020

RNS Number : 8855Y

Strategic Minerals PLC

15 September 2020

 

Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

15 September 2020

Strategic Minerals plc

("Strategic Minerals", "SML", the "Group" or the "Company")

Interim Results - Profitable Half Year to 30 June 2020

Strategic Minerals plc (AIM: SML; USOTC: SMCDY),   a producing mineral company actively developing projects prospective for battery materials, is pleased to announce its unaudited interim results for the half year ended 30 June 2020 which reflect a profitable period for the Company.

Financial Highlights:

· Interim six-month pre-tax profit of US$261,000 (H1 2019: Loss of US$1,026,000) reflecting strong sales in the first half of the year at Cobre operations, reduced overheads and a reduction in impairment charges.

·     After tax profit for the interim six months to 30 June 2020 of US$77,000 (H1 2019: Loss of US$1,182,000).

· Strong underlying sales growth saw Gross Profit increase 18% on the same period last year despite the cessation of sales to CV Investments LLC ("CV Investments") and Covid-19. Excluding CV Investments income and US$47,000 Covid-19 related assistance received from the US government, Gross Profit increased 68% on the same period last year.

· Overhead expenses reduced 25% across all aspects of the Company's corporate operations compared to the same period last year.

· US$97,000 of Share based payment expense for the interim six-month period reflects the final charge relating to options which expired on 30 June 2020.

· In March 2020, the Managing Director, John Peters, purchased 3,464,286 shares on market at an average of 0.5348 pence per share taking his beneficial holding in the Company to 57,000,000 new ordinary shares of 0.1 pence each ("Ordinary Shares").

· The Company undertook an equity fundraising in June 2020 and issued 266,666,667 new Ordinary Shares at 0.45 pence per share, raising US$1,485,000 after costs.

· Repayment of principal and interest on loan (US$1,632,000) used to finance the acquisition of balance of Cornwall Resources Limited shares, holder of the Redmoor Tin and Tungsten project.

· Unrestricted cash and cash equivalents at 30 June 2020 were US$533,000 (31 Dec 2019: US $519,000). 

Corporate Highlights:

· Maintenance of uninterrupted operations at Cobre despite the impact of Covid-19.

· Access to the Cobre magnetite stockpile was rolled over for the 8th time.

· Naming of CV Investments as major client at Cobre.

· Completion of arbitration process confirming a US$21.9m claim against CV investments which has since had a receiver appointed by the US Securities Exchange Commission.

· Copper prices rebounding from a Covid-19 nadir of US$2-11 lb to close at US$2-74 lb at 30 June 2020. In early September 2020, copper prices have been trading at US$3-07 lb with upward pressure being forecasted.

Commenting, John Peters, Managing Director of Strategic Minerals, said:
 

"The first half of 2020 has been globally trying. However, through prudent management, the Company has been able to maintain and improve underlying operations and has raised funds, in a difficult environment, to complete payment for the acquisition of the balance of the Redmoor project.

"With the Program for Environment Protection and Rehabilitation ("PEPR") submitted for the Leigh Creek Copper Mine project and the Company's appointed advisor on the Redmoor project, NRG Capital, intending to complete an expressions of interest program in the December 2020 quarter, the Company considers the prospect for the market to, once again, value the Company's projects in line with the Board's view as highly likely.

"The second half of the year is expected to see continued demand at Cobre as well as expected  reductions in both US legal costs (over $100,000 in the first half of 2020) and the charge for share based payments which were reflecting the options which expired at 30 June 2020 ($97,000 in the first half of 2020).

"The Board looks forward to both the results from the expressions of interest program at Redmoor and seeing the long sought after second income stream commence from the Leigh Creek Copper Mine in 2021."

For further information, please contact:
Strategic Minerals plc		[phone]
John Peters
Managing Director
Website:	www.strategicminerals.net
Email:	[e-mail]
Follow Strategic Minerals on:
Vox Markets:	https://www.voxmarkets.co.uk/company/SML/
Twitter:	@SML_Minerals
LinkedIn:	https://www.linkedin.com/company/strategic-minerals-plc
SP Angel Corporate Finance LLP		[phone]
Nominated Adviser and Broker
Ewan Leggat
Charlie Bouverat

Notes to Editors

Strategic Minerals plc is an AIM-quoted, operating minerals company actively developing projects prospective for battery materials. It has an operation in the United States of America and Australia along with development projects in the UK and Australia. The Company is focused on utilising its operating cash flows, along with capital raisings, to develop high quality projects aimed at supplying the metals and minerals being sought in the burgeoning electric vehicle/battery market.

In September 2011, Strategic Minerals acquired the distribution rights to the Cobre magnetite tailings dam project in New Mexico, USA, a cash-generating asset, which it brought into production in 2012 and which continues to provide a revenue stream for the Company. This operating revenue stream is utilised to cover company overheads and invest in development projects orientated to supplying the burgeoning electric vehicle/battery market.

In January 2016, the portfolio was expanded with the acquisition of shares in Central Australian Rare Earths Pty Ltd, which holds tenements in Western Australia prospective for cobalt, nickel sulphides and rare earth elements. The Company has since acquired all shares in Central Australian Rare Earths Pty Ltd ("CARE"). In September 2018, the Company entered contracts for the sale of certain CARE tenements identified as gold targets.

In May 2016, the Company entered into an agreement with New Age Exploration Limited and, in February 2017, acquired 50% of the Redmoor Tin-Tungsten project in Cornwall, UK. The bulk of the funds from the Company's investment were utilised to complete a drilling programme that year. The drilling programme resulted in a significant upgrade of the resource. This was followed in 2018 with a 12-hole 2018 drilling programme which has now been completed and the resource update that resulted was announced in February 2019. In March 2019, the Company entered into arrangements to acquire the balance of the Redmoor Tin-Tungsten project in Cornwall. This was completed on 24 July 2019.

In March 2018, the Company completed the acquisition of the Leigh Creek Copper Mine situated in the copper rich belt of South Australia and brought the project into limited production in April 2019, with full production expected in 2021.

 

Chairman's Statement

I am pleased with the Company's achievements, in what has been a particularly challenging period for the Company and the world.

Financial results

The Company continued its underlying profitable performance in the first half of 2020, when many businesses were forced to shut down operations which is a credit to both our local management and the Management team as a whole. The combination of difficulties, associated with our dealings with CV Investments at Cobre and the general impact on development processes associated with the impact of the Convid-19 virus has slowed our progress on projects, as well as access to capital to undertake this forward movement. However, the Company forsees improved financial performance once full scale production commences at the Leigh Creek Copper Mine ("Leigh Creek") expected in 2021, subject to the Company receiving financing to restart operations at Leigh Creek.

Despite the high level of principal and interest repayments made on the Redmoor acquisition in the six months to 30 June 2020, unrestricted cash on hand at 30 June 2020 was US$533,000.

Corporate overheads of US$902,000 were down significantly on the same period last year (H1 2019: US$1,211,000) and the Board keeps a close watch on these expenditures.

Strategic Focus

The continued organic growth in sales at the Cobre operations provides comfort in relation to coverage of operating costs and allowed the Company to continue its strategic investment focus on investments in metals (such as Nickel, Copper and Tin/Tungsten) and advanced materials (such as Cobalt, Rare Earths, Lithium and Graphite) which it expects are likely to see significant price improvements over the next three to five years driven by battery/electronic vehicle demand.  

On the back of this strategy, the Company continues to invest in development programmes, particularly those associated with the Leigh Creek Copper Mine (copper) and Redmoor (tin/tungsten/copper focused).

Cobre Operations

During 2020, the management at our Cobre operations adapted excellently to the challenges associated with the disruption to world markets arising from the Covid-19 virus. As an essential service, they were allowed to continue trading and arrangements were modified which ensured a contactless service protecting both our clients and our personnel.

The first half of the year also saw the Company's arbitration claim on CV Investments settled in its favour. However, whether the Company will receive any funds from this claim will be dependent on the outcome of the receivership of CV Investments.

Leigh Creek Copper Mine

The significant work conducted at Leigh Creek throughout 2019, which resulted in a draft PEPR being submitted and a feasibility study being completed, has moved the project along to the point where it currently awaits the final sign off of the formal PEPR and financing to commence operations. The strong performance of the copper price in recent times has improved the project's forecasted profitability and the Board feels confident that 2021 will see full scale production re-commence at Leigh Creek.

Redmoor Tin-Tungsten Project

2020 has seen the final payment for the acquisition of the balance of Redmoor. With the project fully in the Company's control and with the overhang associated with repayment removed, the Company has appointed an external consultant, NRG Capital, to assist in progressing the Redmoor project.

It is expected that an expressions of interest program to identify future joint venture partners for the project will be concluded by the end of the year and that the significant work undertaken to date in identifying the size and potential of the Redmoor resource will be recognised and rewarded.

CARE

As a result of the inability to locate an economically feasible deposit on existing tenements, the exploration assets were fully written off in the 2019 financial year and the Company has begun winding up the subsidiary.

Issue of Capital

During the half year, the Company issued a total of 266,666,667 new Ordinary Shares at 0.45 pence per share which raised US$1,485,000 after costs.

Safety

The Company continues to maintain a high level of safety performance with SML and its subsidiaries having no reportable environmental or personnel incidents recorded in the period.

The first half of the year has proven challenging and I would like to take this opportunity to thank my fellow Directors, our management and staff in New Mexico, South Australia and Cornwall, along with our advisers, for their support and hard work on our behalf during the period. Additionally, I would like to thank our clients, contractors, suppliers and partners for their continued backing. I look forward to further progressing our key strategic goals in 2020 and pushing onto a brighter 2021.

Alan Broome AM

Non-Executive Chairman

14 September 2020

 

STRATEGIC MINERALS PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE PERIOD ENDED 30 JUNE 2020

	6 months to	6 months to	Year to
	30 June	30 June	31 December
	2020	2019	2019
	(Unaudited)	(Unaudited)	(Audited)
	$'000	$'000	$'000
Continuing operations
Revenue	1,645	1,020	2,488
Other revenue	47	375	900
Cost of sales	(314)	(229)	(511)
	_________	_________	_________
Gross profit	1,378	1,166	2,877
Overhead expenses	(902)	(1,211)	(2,266)
Depreciation	(6)	(19)	(17)
Share based payment	(149)	(163)	(275)
Profit on financial assets held at fair value through profit or loss	-	1	13
Impairment charge	(17)	(760)	(1,122)
Foreign exchange gain/(loss)	(43)	(2)	35
	_________	_________	_________
Profit/ (loss) from operations	261	(988)	(755)
Finance expense	-	-	(52)
Share of net losses of associates and joint ventures	-	(38)	(38)
	_________	_________	_________
Profit/ (loss) before taxation	261	(1,026)	(845)
Income tax (expense)/credit	(184)	(156)	(385)
	_________	_________	_________
Profit/ (loss for the period)	77	(1,182)	(1,230)
	_________	_________	_________
Profit/ (loss) for the period attributable to:
Owners of the parent	77	(1,182)	(1,230)
	_________	_________	_________
Other comprehensive income
Exchange gains/(losses) arising on translation of foreign operations	(359)	(62)	227
	_________	_________	_________
Total comprehensive (loss)/ Income	(282)	(1,244)	(1,003)
	_________	_________	_________
Total comprehensive (loss)/income attributable to:
Owners of the parent	(282)	(1,244)	(1,003)
	_________	_________	_________
Profit/ (loss) per share attributable to the ordinary equity holders of the parent:	$	$	$
Continuing activities - Basic	0.000052	(0.000850)	(0.000858)
-- Diluted	0.000049	(0.000850)	(0.000858)

 

STRATEGIC MINERALS PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2020

	30 June	30 June	31 December
	2020	2019	2019
	(Unaudited)	(Unaudited)	(Audited)
	$'000	$'000	$'000
Assets
Non-current assets
Intangible Asset	549	562	560
Deferred Exploration and evaluation costs	4,390	342	4,567
Other Receivables	137	140	140
Property, plant and equipment	6,877	7,026	6,898
Investments in joint ventures- equity accounted	-	2,264	-
	_________	_________	_________
	11,953	10,334	12,165
	_________	_________	_________
Current assets
Inventories	6	7	3
Financial Assets held at fair value through profit and loss	-	21	-
Trade and other receivables	477	1,302	948
Cash and cash equivalents	533	319	519
Prepayments	16	119	132
	_________	_________	_________
	1,032	1,768	1,602
	_________	_________	_________
Total Assets	12,985	12,102	13,767
	_________	_________	_________
Equity and liabilities
Share capital	2,551	2,202	2,203
Share premium reserve	48,552	48,454	47,415
Share options reserve	692	431	543
Merger reserve	21,300	20,240	21,300
Foreign exchange reserve	(1,026)	(956)	(667)
Other reserves	(23,023)	(23,023)	(23,023)
Accumulated loss	(37,723)	(37,752)	(37,800)
	_________	_________	_________
Total Equity	11,323	9,596	9,971
	_________	_________	_________
Liabilities
Non-Current Liabilities
Provision for Mining Royalties	424	435	433
Environmental Liability	387	361	395
	_________	_________	_________
	811	796	828
Current liabilities
Income Tax Payable	492	156	406
Trade and other payables	359	1,029	451
Loans and other borrowings	-	-	2,111
Deferred revenue	-	525	-
	_________	_________	_________
	851	1,710	2,968
	_________	_________	_________
Total Liabilities	1,662	2,506	3,796
	_________	_________	_________
Total Equity and Liabilities	12,985	12,102	13,767
	_________	_________	_________

 

STRATEGIC MINERALS PLC

CONSOLIDATED STATEMENT OF CASH FLOW

FOR THE PERIOD ENDED 30 JUNE 2020

	6 months to	6 months to	Year to
	30 June	30 June	31 December
	2020	2019	2019
	(Unaudited)	(Unaudited)	(Audited)
	$'000	$'000	$'000
Cash flows from operating activities
Profit/ (loss) after tax	77	(1,182)	(1,230)
Adjustments for:
Depreciation of property, plant and equipment	6	19	17
Loss on financial assets held at fair value through profit and loss	-	(1)	(13)
Impairment of deferred exploration and expenditure	17	760	1,122
Share of net loss / (profit) losses from associates	-	38	38
Finance expense	-	-	52
(Increase) / decrease in inventory	(3)	(3)	1
(Increase) / decrease in trade and other receivables	(256)	(50)	(119)
(Increase) / decrease in prepayments	18	(87)	(33)
Increase / (decrease) in trade and other payables	(92)	251	438
Increase /(decrease) in deferred revenue	-	(375)	(900)
(Decrease)/ Increase in income tax payable	184	156	339
Share based payment expense	149	163	275
	_________	_________	_________
Net cash flows from operating activities	100	(311)	(13)
	_________	_________	_________
Investing activities
Increase in PPE Development Asset	(96)	(1,212)	(2,293)
Sale of tenements	80	-	-
Receipt of research and development incentive	595	-	515
Increase in deferred exploration and evaluation	(96)	(91)	(316)
Acquisition of PPE	-	(57)	(265)
Acquisition of exploration and evaluation intangible asset	-	-	(205)
Investment in joint arrangements	-	(40)	(33)
Sale of financial assets held at fair value through profit or loss	-	-	33
	_________	_________	_________
Net cash used in investing activities	483	(1,400)	(2,564)
	_________	_________	_________
Financing activities
Net proceeds from issue of equity share capital	1,485	91	1,059
Proceeds from borrowings	68	-	400
Finance expenses paid	(96)	-	-
Repayment of borrowings	(2,026)	-	(206)
	_________	_________	_________
Net cash from financing activities	(569)	91	1,253
	_________	_________	_________
Net increase / (decrease) in cash and cash equivalents	14	(1,620)	(1,324)
Cash and cash equivalents at beginning of period	519	1,840	1,840
Release of restricted cash	-	100	-
Exchange gains / (losses) on cash and cash equivalents	-	(1)	3
	_________	_________	_________
Cash and cash equivalents at end of period	533	319	519
	_________	_________	_________

 

STRATEGIC MINERALS PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED 30 JUNE 2020

	Share capital	Share premium reserve	Merger reserve	Share options reserve	Initial Restructure reserve	Foreign exchange reserve	Retained earnings	Total Equity
	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000
	________	________	________	________	________	________	________	________
Balance at 1 January 2019 - audited	2,095	46,213	21,232	330	(23,023)	(894)	(36,632)	9,321
	________	________	________	________	________	________	________	________
Gain/(Loss) for the period	-	-	-	-	-	-	(1,230)	(1,230)
Foreign exchange translation	-	-	-	-	-	227	-	227
	________	________	________	________	________	________	________	________
Total comprehensive income for the year	-	-	-	-	-	227	(1,230)	(1,003)
Shares issued in the year	108	1,273	68	-	-	-	-	1,449
Expenses of share issue		(71)	-	-	-	-	-	(71)
Transfer	-	-	-	(62)	-	-	62	-
Share based payments	-	-	-	275	-	-	-	275
	________	________	________	________	________	________	________	________
Balance at 31 December 2019- audited	2,203	47,415	21,300	543	(23,023)	(667)	(37,800)	9,971
	________	________	________	________	________	________	________	________
Profit for the period	-	-	-	-	-	-	77	77
Foreign exchange translation	-	-	-	-	-	(359)	-	(359)
	________	________	________	________	________	________	________	________
Total comprehensive income for the half year	-	-	-	-	-	(359)	77	(282)
Shares issued in the year	348	1,217	-	-	-	-	-	1,565
Expenses of share issue	-	(80)	-	-	-	-	-	(80)
Share based payments	-	-	-	149	-	-	-	149
	________	________	________	________	________	________	________	________
Balance at 30 June 2020 - Unaudited	2,551	48,552	21,300	692	(23,023)	(1,026)	(37,723)	11,323
	________	________	________	________	________	________	________	________

All comprehensive income is attributable to the owners of the parent.

The accompanying accounting policies and notes form an integral part of these financial statements

 

STRATEGIC MINERALS PLC

NOTES FORMING PART OF THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2020

1.  General information

Strategic Minerals Plc ("the Company") is a public company incorporated in England and Wales.  The consolidated interim financial statements of the Company for the six months ended 30 June 2020 comprise the Company and its subsidiaries (together referred to as the "Group").

2.  Accounting policies

Basis of preparation

These consolidated financial statements have been prepared using policies based on International Financial Reporting Standards (IFRS and IFRIC interpretations) issued by the International Accounting Standards Board ("IASB") as adopted for use in the EU. IAS 34 is not required to be adopted by the Company and has not been applied in the preparation of this interim information. The consolidated financial statements do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2019 Annual Report. The financial information for the half years ended 30 June 2020 and 30 June 2019 does not constitute statutory accounts within the meaning of Section 434(3) of the Companies Act 2006 and is unaudited.

The annual financial statements of Strategic Minerals Plc are prepared in accordance with IFRSs as adopted by the European Union. The comparative financial information for the year ended 31 December 2019 included within this report does not constitute the full statutory accounts for that period. The statutory Annual Report and Financial Statements for 2019 have been filed with the Registrar of Companies. The Independent Auditors' Report on that Annual Report and Financial Statement for 2019 was unqualified, and included an emphasis on matter paragraph regarding the Group's ability to continue as a going concern and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

Going concern basis

These financial statements have been prepared on the assumption that the Group is a going concern.

When assessing the foreseeable future, the Directors have looked at the Group's working capital requirements for the period to September 2021 being the period for which projections have been prepared and the minimum period the Directors are required to consider.

The Directors have reviewed the Group's current cash resources, funding requirements and ongoing trading of the operations. The Company forecasts that it has sufficient funds until September 2021 however the Group is reliant on cash being generated from the Cobre asset in line with forecast which includes the assumption that access to the Cobre asset will be rolled over in March 2021 as it has since entering into the underlying offtake agreement. Should Cobre not meet cash expectations the Directors would need to raise further funds.

In addition, there is a risk that, due to the impact of Covid-19 on global markets, a greater degree of uncertainty currently exists in relation to cashflows from Cobre being generated in line with forecast and the ability to raise additional funds if these are required. These conditions indicate a material uncertainty which may cast significant doubt as to the Group's ability to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business.

The financial statements do not include the adjustments that would result if the Group and Company was unable to continue as a going concern.

The same accounting policies, presentation and methods of computation are followed in these condensed consolidated financial statements as were applied in the Group's latest annual audited financial statements except for policies stated below.

 

Joint arrangements

Under IFRS 11 Joint Arrangements, investments in joint arrangements are classified as either joint operations or joint ventures. The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement. Strategic Minerals Limited as at 30 June 2019 had one joint venture being Cornwall Resources Ltd (CRL) after which the Company purchased the remaining 50% interest it did not own in CRL. Upon obtaining 100% ownership of CRL the entity was consolidated.

Joint Ventures

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have the rights to the net assets of the joint arrangement. Interests in joint ventures are accounted for using the equity method, after initially being recognised at cost in the consolidated statement of financial position.

Business Combinations

Business Combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is obtained, whereby the fair value of identifiable assets acquired and liabilities (including contingent liabilities assumed) is recognised.

All transaction costs incurred in relation to business combinations, other than those associated with the issue of a financial instrument are recognised as expenses in profit and loss when incurred

The acquisition of a business may result in the recognition of goodwill or gain from a bargain purchase.

New, revised or amending accounting standards and interpretations

IASB has issued a number of IFRS and IFRIC amendments or interpretations since the last annual report was published. The following amendments are effective for the period beginning 1 January 2020:

-  IAS 1 Presentation of Financial Statements.

-  IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment - Definition of Material).

-  IFRS 3 Business Combinations (Amendment - Definition of Business).

-  Revised Conceptual Framework for Financial Reporting.

The adoption of these amendments does not have an impact on the Group's financial statements.

3.  Critical accounting estimates and judgements

The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.  In the future, actual experience may differ from these estimates and assumptions.  The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Judgements

(a)  Joint arrangement and joint operation

The Company as at 30 June 2019 held a 50% interest in Cornwall Resources Limited ("CRL") which owns the Redmoor Tin-Tungsten project in the United Kingdom with the other shareholder being New Age Exploration Limited ("NAE").  Under the shareholders agreement with NAE, CRL is operated as a 50:50 joint venture with each party being entitled to appoint one Director. Based on this, the Group considers that they have joint control over the arrangement. Under IFRS 11, this joint arrangement is classified as a joint venture and has been included in the consolidated financial statements using the equity method. In July 2019, the Company purchased the remaining 50% interest in CRL at which point the entity was consolidated.

 

(b)  Contingent consideration as part of Asset acquisition

Judgement was required in determining the accounting for the contingent consideration payable as part of the CRL acquisition. The group has an obligation to pay AUD $1m on net smelter sales arising from CRL production reaching AUD $50m and a further AUD $1m on net smelter sales arising from CRL production reaching AUD $100m.

Whilst a possible obligation exists in relation to the consideration payable, given the early stage of the project it was concluded that at reporting date it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation. Therefore, in accordance with IAS 37, this obligation is considered to be a contingent liability.

(c)  Contingent liabilities as part of Business Combination

Under the terms of the various agreements in relation to the LCCM, the Company would have the following contingent liabilities:

- 1% royalty on copper sales payable over the life of the project; and

- AUD $100,000 following 3,000 tonnes of copper sales from the project.

In accordance with IFRS3 the Group has recognised for the estimated fair value of the mining royalty in these financial statements.

Estimates and assumptions

(a)  Carrying value of intangible assets

In assessing the continuing carrying value of the exploration and evaluation costs carried the Company has made an estimation of the value of the underlying tenements and exploration licenses held.

(b)  Share based payments, warrants and options

The fair value of share-based payments recognised in the statement of comprehensive income is measured by use of the Black Scholes model after taking into account market based vesting conditions and conditions attached to the vesting and exercise of the equity instruments. The expected life used in the model is adjusted based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The share price volatility percentage factor used in the calculation is based on management's best estimate of future share price behaviour based on past experience.

(c)  Carrying value of amounts owed by subsidiary undertakings

IFRS9 requires the parent company to make assumptions when implementing the forward- looking expected credit loss model. This model is required to be used to assess the intercompany loan receivables from its subsidiaries for impairment. Arriving at an expected credit loss allowance involved considering different scenarios for the recovery of the intercompany loan receivables, the possible credit losses that could arise and probabilities for these scenarios.

The following were considered; the exploration project risk, the future sales potential of product, value of potential reserves and the resulting expected economic outcomes of the project.

(d)  Carrying Value of Development Assets - LCCM

Management assessed the carrying value of Development assets for indicators of impairment based on the requirements of IAS36 which are inherently judgemental.

The following are the key assumptions used in this assessment of Carrying value.

i)  Mineable reserves over life of project

ii)  Forecasted Copper pricing

iii) Capital and operating cost assumptions to deliver the mining schedule

iv) Foreign exchange rates

v) Discount rate

vi) Estimated project commencement date.

 

4.	Segment information

The Group has five main segments during the period:

· Southern Minerals Group LLC (SMG) - This segment is involved in the sale of magnetite to both the US domestic market and historically transported magnetite to port for onward export sale. 

· Head Office - This segment incurs all the administrative costs of central operations and finances the Group's operations.  A management fee is charged for completing this service and other certain services and expenses.

· Australia - This segment holds the Central Australian Rare Earths Pty Ltd tenements in Australia and incurs all related operating costs.

· Development Asset - This segment holds the Leigh Creek Copper Mine Development Asset in Australia and incurs all related operating costs.

· United Kingdom - The investment in the Redmoor project in Cornwall, United Kingdom is held by this segment.

Factors that management used to identify the Group's reportable segments

The Group's reportable segments are strategic business units that carry out different functions and operations and operate in different jurisdictions.

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the board and management team which includes the Board and the Chief Financial Officer.

Measurement of operating segment profit or loss, assets and liabilities

The Group evaluates segmental performance on the basis of profit or loss from operations calculated in accordance with EU Adopted IFRS but excluding non-cash losses, such as the effects of share-based payments.

Segment assets exclude tax assets and assets used primarily for corporate purposes. Segment liabilities exclude tax liabilities. Loans and borrowings are allocated to the segments in which the borrowings are held. Details are provided in the reconciliation from segment assets and liabilities to the Group's statement of financial position.

 

	6 Months to 30 June 2020 (Unaudited)	SMG	Head Office	Australia	United Kingdom	Development Asset	Intra Segment Elimination	Total
		$'000	$'000	$'000	$'000	$'000	$'000	$'000
	Revenues	1,645	-	-	-	-	-	1,645
	Other Revenue	47	-	-	-	-	-	47
	Cost of sales	(314)	-	-	-	-	-	(314)
		_______	_______	_______	_______	_______	_______	_______
	Gross profit	1,378	-	-	-		-	1,378
	Overhead expenses	(516)	(237)	(135)	(14)	-	-	(902)
	Management fee income/(expense)	(450)	441	-		-	9	-
	Share based payments	-	(149)	-	-	-	-	(149)
	Depreciation	(6)	-	-	-	-	-	(6)
	(Loss)/ gain on intercompany loans	-		-	-	-		-
	Impairment of DEE	-	-	(17)	-	-	-	(17)
	Foreign exchange gain/(loss)	-	145	(23)	-	-	(165)	(43)
		_______	_______	_______	_______	_______	_______	_______
	Segment profit /(loss) from operations	406	200	(175)	(14)	-	(156)	261
		_______	_______	_______	_______	_______	_______	_______
	Segment profit /(loss) before taxation	406	200	(175)	(14)	-	(156)	261
		_______	_______	_______	_______	_______	_______	_______

	6 Months to 30 June 2019 (Unaudited)	SMG	Head Office	Australia	Development Asset	Inter Segment Elimination	Total
		$'000	$'000	$'000	$'000	$'000	$'000
	Revenue	1,395	-	-	-	-	1,395
	Cost of sales	(229)	-	-	-	-	(229)
		______	_______	_______	_______	_______	_______
	Gross Profit	1,166	-	-	-	-	1,166
	Depreciation	(16)	-	(3)	-	-	(19)
	Overhead expenses	(475)	(552)	(184)	-	-	(1,211)
	Management fee	(100)	100	-	-	-	-
	Impairment Charge	-	-	(760)	-	-	(760)
	Share based expense	-	(163)	-	-	-	(163)
	Write back of provisions		1,744	-	-	(1,744)	-
	Equity accounting profit(loss)	-	(38)	-	-	-	(38)
	Foreign Exchange	-	-	(2)	-	-	(2)
	Gain on Shares available for resale	-	-	1	-	-	1
		________	________	________	________	________	________
	Segment profit/(loss) from operations	575	1,091	(948)	-	(1,744)	(1,026)
		________	________	________	________	________	________
	Segment profit/(loss) before taxation	575	1,091	(948)	-	(1,744)	(1,026)
		________	________	________	________	________	________

 

	Year to 31 December 2019 (Audited)	SMG	Head Office	Australia	United Kingdom	Development Asset	Intra Segment Elimination	Total
		2019	2019	2019	2019	2019	2019	2019
		$'000	$'000	$'000	$'000	$'000	$'000	$'000
	Revenues	2,488	-	-	-	-	-	2,488
	Other Revenue	900	-	-	-	-	-	900
	Cost of sales	(511)	-	-	-	-	-	(511)
	Gross profit	2,877	-	-	-		-	2,877
	Overhead expenses	(1,026)	(923)	(295)	(22)	-	-	(2,266)
	Management fee income/(expense)	(393)	362	35		-	(4)	-
	Share based payments	-	(275)	-	-	-	-	(275)
	Depreciation	(16)	-	-	(1)	-	-	(17)
	Gain on available  for sale assets	-	-	13		-	-	13
	Share of net loss from joint venture	-	(38)	-	-	-	-	(38)
	(Loss)/ gain on intercompany loans	-	(1,014)	-	-	-	1,014	-
	Impairment of DEE	-	-	(1,122)	-	-	-	(1,122)
	Foreign exchange gain/(loss)	-	(141)	(27)	-	-	203	35
		_______	_______	_______	_______	_______	_______	_______
	Segment profit /(loss) from operations	1,442	(2,029)	(1,396)	(23)	-	1,213	(793)
		_______	_______	_______	_______	_______	_______	_______
	Finance Expense	-	-	(52)	-	-	-	(52)
		_______	_______	_______	_______	_______	_______	_______
	Segment profit /(loss) before taxation	1,442	(2,029)	(1,448)	(23)	-	1,213	(845)
		_______	_______	_______	_______	_______	_______	_______

	As at 30 June 2020 (Unaudited)		Head		United	Development
		SMG	Office	Australia	Kingdom	Asset	Total
		$'000	$'000	$'000	$'000	$'000	$'000
	Additions to non-current  assets	-	-	16	80	96	192
		_______	_______	_______	_______	______	_______
	Reportable segment assets	1,066	95	15	4,414	7,395	12,985
		_______	_______	_______	_______	______	_______
	Reportable segment liabilities	591	121	93	14	843	1662
		_______	_______	_______	_______	_______	_______
							_______
	Total Group Liabilities						1,662
							_______

 

	As at 30 June 2019 (Unaudited)
		SMG	Head Office	Australia	United Kingdom	Development Asset	Total
		$'000	$'000	$'000	$'000	$'000	$'000
	Additions to non-current  assets	-	37	91	-	1,272	1,400
		_______	_______	_______	_______	______	_______
	Reportable segment assets	579	3,324	2,350	-	5,849	12,102
		_______	_______	_______	_______	______	_______
	Reportable segment liabilities	762	108	108	-	1,528	2,506
		_______	_______	_______	_______	_______	_______
							_______
	Total Group Liabilities						2,506
							_______

	As at 31 December 2019 (Audited)
		SMG	Head Office	Australia	United Kingdom	Development Asset	Total
		$'000	$'000	$'000	$'000	$'000	$'000
	Additions to non-current  assets	-	-	94	460	2,558	3,112
		_______	_______	_______	_______	______	_______
	Reportable segment assets	1,023	43	601	4,672	7,428	13,767
		_______	_______	_______	_______	______	_______
	Reportable segment liabilities	529	1,802	484	8	973	3,796
		_______	_______	_______	_______	_______	_______
							_______
	Total Group Liabilities						3,796
							_______

		External revenue by location of customers		Non-current assets by location of assets
		30 June 2020	30 June 2019	30 June 2020	30 June 2019
		$'000	$'000	$'000	$'000
	United States	1,645	1,020	171	177
	United Kingdom	-	-	4,391	2,264
	Australia	-	-	7,391	7,893
		_______	_______	_______	_______
		1,645	1,020	11,953	10,334
		_______	_______	_______	_______

Revenues from Customer A totalled $281,805 (2019: $351,140), which represented 17% (2019: 34%) of total domestic sales in the United States, Customer B totalled $795,125 (2019: $$563,945) which represented 48% (2019: 55%).  There were no export sales in the year (2019: Nil).

 

5.	Operating loss

Administration costs by nature

		6 months to	6 months to	Year to
		30 June	30 June	31 December
		2020	2019	2019
		(Unaudited)	(Unaudited)	(Audited)
		$'000	$'000	$'000
	Operating gain/loss is stated after charging/(crediting):
	Directors' fees and emoluments	146	401	573
	Depreciation	6	19	17
	Equipment rental	131	145	276
	Equipment maintenance	21	26	46
	Share of net loss (profit) from joint operations	-	38	38
	Auditors' remuneration	-	13	96
	Salaries, wages and other staff related costs	260	274	559
	Insurance	28	15
	Legal, professional and consultancy fees	273	178	420
	Loss on sale of tenements	-	-	-
	Impairment charge	17	760	1,122
	Loss (gain)on financial assets held at fair value through profit and loss	-	(1)	(13)
	Travelling and related costs	-	51	5
	Foreign exchange	43	2	(35)
	Share based payments	149	163	275
	Other expenses	43	108	291

6.	Intangible assets - exploration and evaluation costs
		6 months to	6 months to	6 months to
		30 June	31 December	30 June
		2020	2019	2019
	Cost	$'000
	Opening balance for the period	4,567	342	1,037
	Additions for the period	96	163	91
	Acquired through assets acquisition of CRL (ii)	-	4,392	-
	Interest and borrowings costs - CRL	33	62	-
	Research and development incentive	-	(317)	-
	Sale of mineral rights	(80)		-
	Foreign exchange difference	(209)	287	(26)
	Impairment Charge - CARE (i)	(17)	(362)	(760)
		_______	_______	_______
	Closing balance for period	4,390	4,567	342
		_______	_______	_______

(i)  The Company has recognised an impairment charge in relation to the CARE assets due to their lower strategic value and that there is no intention, in the short term, to spend additional funds on these assets.

(ii)  In July 2019 the Company purchased the remaining 50% interest of CRL it did not own and recorded the transaction as an asset acquisition. Hence, the additions represent the carrying value of the exploration and evaluation assets at cost.

 

8.  Property, plant and equipment
			Development	Plant and
			Asset	Machinery	Total
Group			$'000	$'000	$'000
Cost
At 1 January 2019 (audited)			4,907	461	5,368
Additions for period			1,834	57	1,891
Foreign exchange difference			(16)	-	(16)
			________	________	________
At 30 June 2019 (unaudited)			6,725	518	7,243
Acquired on acquisition of CRL			-	7	7
Additions for period			459	208	667
Research and development incentive			(796)	-	(796)
Foreign exchange difference			3	2	5
			________	________	________
At 31 December 2019 (audited)			6,391	735	7,126
			________	________	________
Additions			96	-	96
Interest and borrowings costs			27	-	27
Foreign exchange difference			(132)	(6)	(138)
			_______	________	_______-
At 30 June 2020 (Unaudited)			6,382	729	7,111
			________	________	________
Depreciation
At 1 January 2019 (audited)			-	(198)	(198)
Charge for the period			-	(16)	(16)
Foreign exchange difference				(3)	(3)
			________	________	________
At 30 June 2019 (unaudited)			-	(217)	(217)
Charge for the period			-	(1)	(1)
Acquired on acquisition of CRL			-	(4)	(4)
Foreign exchange difference			-	(6)	(6)
			________	________	________
At 31 December 2019 (audited)			-	(228)	(228)
			________	________	________
Charge for the period			-	(6)	(6)
			________	________	________
As at 30 June 2020 (unaudited)			-	(234)	(234
			________	________	________
Carrying Value
As at 30 June 2019 (unaudited)			6,725	301	7,026
			________	________	________
As at 31 December 2019 (audited)			6,391	507	6,898
			________	________	________
As at 30 June 2020 (unaudited)			6,382	495	6,877
			________	________	________

 

9.	Loans and borrowings
		Loan R&D Tax Incentive	Loan CRL Acquisition	Total
	Cost	$'000	$'000	$'000
	At 30 June 2019 (unaudited)	-	-	-
	Loan Advance	403	1,858	2,261
	Loan repayments	-	(206)	(206)
	Interest	16	21	37
	Foreign exchange difference	-	19	19
		________	________	________
	As at 31 December 2019 (audited)	419	1,692	2,111
	Loan Advance	68	-	68
	Loan repayments	(447)	(1579)	(2,026)
	Interest accrued	27	33	60
	Interest paid	(43)	(53)	(96)
	Foreign exchange difference	(24)	(93)	(117)
		________	________	________
	As at 30 June 2020 (unaudited)	-	-	-
		________	________	________

Loan CRL Acquisition

In July 2019 SML entered into a Convertible Note with NAE to finalise the purchase of CRL.

SML made an initial payment totalling AUD $300,000 and entered into an 11 month payment schedule for the balance of AUD $2,700,000 (US$1,858,000). A payment of AUD $300,000 (US$206,000) was paid on or around 31 October 2019. During the six months to 30 June 2020 the remaining principal of AUD $2,400,000 (US$1,579,000) was repaid along with interest of AUD $80,000 (US$53,000).

Loan R&D tax incentive

In September 2019 SML entered into a loan agreement against the anticipated receipt of a Research and Development Tax Incentive (RDTI) from the Australian Tax Office. A drawdown on the loan of $68,000 occurred in February 2020 while the principal of $447,000 and interest of $43,000 was paid in May 2020 which fully extinguished the debt.

10.

Dividends

No dividend is proposed for the period. 

11.	Earnings per share

Earnings per ordinary share have been calculated using the weighted average number of shares in issue during the relevant financial year as provided below.

		6 months to	6 months to	Year to
		30 June	30 June	31 December
		2020	2019	2019
		(Unaudited)	(Unaudited)	(Audited)
	Weighted average number of shares - Basic	1,485,627,639	1,391,249,064		1,434,077,744
	Weighted average number of shares - Diluted	1,557,127,639	1,391,249,064		1,434,077,744
	(Loss)/earnings for the period	$77,000	($1,182,000)		($1,230,000)
	(Loss)/earnings per share in the period - Basic	$0.000052	($0.000850)		($0.000858)
	(Loss)/earnings per share in the period - Diluted	$0.000049	($0.000850)		($0.000858)

12.	Share capital and premium
		30 June 2020	30 June  2020	30 June 2019	30 June  2019
		No	$'000	No	$'000
	Allotted, called up and fully paid
	Ordinary shares	1,734,297,948	51,103	1,467,631,282	50,656
		__________	__________	__________	__________

As a result of a placement in June 2020 the Company issued 266,666,666 ordinary shares at a price of GBP 0.045. The total proceeds of the placement after fees was GBP 1,139,100 ($1,485,000).

Share options and warrants

The number of options and warrants as at 30 June 2020 and a reconciliation of the movements during the half year are as follows:

Date of Grant	Granted as at 31 December 2019	Expired/ Exercised	Granted as at 30 June 2020	Exercise price	Date of vesting	Date of expiry
10.04.15	-		-	1.00p	19.05.17	30.06.19
06.01.17	-		-	1.00p	19.05.17	30.06.19
15.02.18	72,000,000	(72,000,000)	-	2.75p	01.04.20	30.06.20
15.02.18	38,500,000	-	38,500,000	3.75p	01.01.21	30.06.21
15.02.18	17,500,000	-	17,500,000	5.00p	01.01.22	30.06.22
09.08.18	35,250,000	(35,250,000)	-	2.75p	01.04.20	30.06.20
09.08.18	10,750,000	-	10,750,000	3.75p	01.01.21	30.06.21 3030
09.08.18	4,750,000	-	4,750,000	5.00p	01.01.22	30.06.22
	178,750,000	(107,250,000)	71,500,000

13.

Post balance date events The Company has appointed NRG Capital to assist in progressing the Redmoor Tin and Tungsten project and it has begun a process to identify interest in the project which is expected to complete by the end of the year. In September 2020, the Company lodged a full PEPR in relation to the Leigh Creek Copper Mine and anticipates this being approved prior to year end.

Copies of this interim report will be made available on the Company's website, www.strategicminerals.net.

 

END

 

 

IR USSWRRUUKARR