Final results & notice of AGM

RNS Number : 2048H

Rose Petroleum PLC

06 June 2017

 

 6 June 2017

Rose Petroleum plc

("Rose", the "Company" or the "Group")

Final results for the year ending 31 December 2016

and notice of annual general meeting

Rose (AIM: ROSE), the AIM quoted natural resources business, announces its final results for the year to 31 December 2016.

The Company also announces that its Annual General Meeting of shareholders ("AGM") will be held at 9:30 am on 29 June 2017 at the offices of Allenby Capital Limited, 3 St. Helen's Place, London EC3A 6AB.  

A copy of the Company's annual report and accounts, which include the notice of AGM, will be available on its website, www.rosepetroleum.com, shortly and will be sent to shareholders later today.

Enquiries:

Matthew Idiens (CEO) Chris Eadie (CFO)	Rose Petroleum plc	Tel: [phone] Tel: [phone]
Jeremy Porter / James Reeve / Liz Kirchner	Allenby Capital Limited	Tel: [phone]
James Pope / Ben Turner	Turner Pope Investments	Tel:  [phone]

Chairman's Statement

In the Company's Interim Results statement for 2016, published in September 2016, it was outlined that the recent period has been one of restructuring, consolidation and transformation for the Group. This has been a continuing theme in the period since, and the Board has continued to adopt a strategy to ensure that the Group is positioned to create value from its existing assets while being flexible and agile to take advantage of opportunities that arise both before and after a recovery in the natural resources sector. Conserving existing cash resources has also been a key priority during the period.

There is no doubt that the prevailing market conditions of the last few years have provided the Board with an extremely challenging backdrop against which to operate, but the decisive action of the Board has sought to de-risk and safeguard the existing asset portfolio, reduced liabilities and operational overheads and enabled us to identify and chase some very convincing potential opportunities.

Despite the withdrawal from the Mancos acreage, and disposal of the Cisco Dome field, associated wells and associated infrastructure during the period, the Board fundamentally believes that the Group's Oil and Gas ("O&G") portfolio is of a scale and quality to deliver significant shareholder value. The Paradox assets were acquired due to their prospectivity, size, location and low breakeven price, and despite the downturn in the oil sector, the Board believes that they remain a highly desirable asset. In addition, by reducing the size of the Company's acreage through the disposal of the Mancos acreage, the Board achieved the twin objective of both retaining the core part of the Group's O&G portfolio and also significantly reducing costs and liabilities. We have kept the market regularly updated on our progress to secure the permit for the 3D seismic survey in the Paradox Basin and we remain on track to shoot the survey by the end of this year. This will be a major step in the process of unlocking value from the Paradox acreage and will hopefully be the precursor for the drilling of our first well in the Paradox Basin during 2018.

The Board has reviewed numerous potential opportunities in the natural resources sector since the downturn in the oil price, looking to create shareholder value ahead of the recovery in the sector, and I was delighted that we were able to secure an investment in the Company during the period to pursue some exciting prospects in Cuba. The overall economic and political changes taking place in Cuba present a striking opportunity, with direct foreign investment now being a priority, to realise the country's anticipated growth. While there is no certainty that any transaction will complete, we have had, and continue to be in direct discussions with the relevant Government owned corporations in Cuba about potential transactions in both the Oil and Gas and building materials sectors.

Post period end the Company announced that it had entered into negotiations to dispose of its SDA Mill in Mexico. While there is no guarantee that the transaction will complete, should it do so, the Group will allocate the funds towards the total funds required for the 3D seismic shoot in the Paradox Basin. While the SDA Mill remains a viable standalone business for Rose, albeit with a low level of profitability, the Board believes that the current outlook for US energy is extremely encouraging, and therefore a strategic focus on the Paradox acreage is currently the optimal way to deliver short-term value to shareholders.

While the cost cutting across the Group to date has been radical and far-reaching, the Board has ensured that it has retained an operational capability sufficient to meet its commitments for the foreseeable future. As well as protecting the existing asset base and positioning the Group for short-term growth, the Board is also confident that the Company has the capacity to take advantage of potential acquisition opportunities, such as those that we are currently looking at in Cuba, which we believe will inevitably arise.

I am looking forward to the period ahead, and I would like to take this opportunity to thank our investors, advisers and employees for their continuing support during this transformational period. The Board is looking forward to updating you on progress throughout 2017, which promises to be an exciting period in the Company's ongoing evolution.

PE Jeffcock

5 June 2017

REVIEW OF OPERATIONS

Oil & Gas Division

U.S.A.

During the strong oil price environment of 2014 and early 2015, the Group entered into agreements under which it was able to commence earning into a 75% working interest in approximately 263,000 gross acres in Utah. The area of focus of the acreage was on two unconventional oil and gas basins: the Uinta Basin, which targets the Mancos Shale at a maximum depth of approximately 3,200ft, and the Paradox Basin that targets the Paradox Clastics at a maximum depth of approximately 10,500ft.

Under the terms of the original agreement, the Group was to carry the seller of the acreage, Rockies Standard Oil Company LLC ("RSOC"), which was to retain a 25% working interest in the leasehold, for the first US$17 million expenditure on the projects: US$9.5 million in the Uinta Basin and US$7.5 million in the Paradox Basin. Under the terms of the agreement, the obligation is not contractually committed and therefore, no liability or contingent liability has been recognized in these financial statements.

During 2014, and subsequent to the acquisition of the Cisco Dome field, Ryder Scott Company LP ("Ryder Scott") completed a reserve report on the Utah leasehold. Based on that reserve report, the Group's Mean Un-Risked Recoverable Prospective Resources across its total acreage were estimated to be 1.8 billion barrels of oil ("BO") and 6.45 trillion cubic feet of gas ("TCFG"). Of these total resources, it was estimated by Ryder Scott that the Paradox acreage contained over 1.1 billion BO (61% of the total BO resources estimated) and circa 2.2 TCFG (34% of the total gas resources estimated), whilst the Mancos acreage contained circa 710 million BO (39% of the total BO resources estimated) and circa 4,260 TCFG (66% of the total gas resources estimated).

In the report, Ryder Scott also gave an opinion on the chance of success in the Paradox and Mancos acreage and concluded that the chance of success within the Paradox leases was up to 56%, compared with 30% in the Mancos leases.

During the latter part of 2014 and during 2015, the Group concentrated its efforts on the Mancos due to the relative ease of drilling with its shallow depth, low drilling costs, and good infrastructure. The Board was hopeful that a demonstration of the prospectivity of the Mancos could be achieved in quick time and that a successful drilling campaign would provide the catalyst of cashflow that would enable the commencement of the Paradox activity. However, following the initial work programme at the Mancos, the Board concluded that the Paradox Basin presented a lower risk opportunity, with greater scale and a higher chance of success.

Revised agreement with RSOC

Having considered all of the above, the Board announced in April 2016 that it had entered into an agreement with RSOC to cease earning into the Mancos acreage and dispose of the Cisco Dome field, wells, pipelines, gas tap, gas plant, and all the associated equipment and liabilities to RSOC, with the intention of focusing solely on the Group's Paradox acreage.

As part of the revised agreement with RSOC, the Group agreed to cover the cost of the existing plug and abandonment ("P&A") liability of the four wells already scheduled for P&A with the authorities, which was calculated to be US$0.3 million and which was settled in the year. The Group also agreed to leave the existing operator bonds in place with the State of Utah and Bureau of Land Management ("BLM"), which are now refundable to RSOC rather than the Group. 

RSOC, in turn, agreed to reduce the Group's obligation to earn the 75% working interest in the Paradox acreage by US$2 million to US$5.5 million. Under the terms of the agreement, the obligation is not contractually committed and therefore no liability or contingent liability has been recognized in these financial statements.

The revised agreement with RSOC has significantly reduced operational costs including lease rental/minimum royalty payments associated to the Mancos leasehold. Further, and potentially more importantly, the Group will no longer be liable for the P&A liability of the fifty plus wells in the Cisco Dome field. This reduction of acreage has also enabled a reduction of headcount and a material reduction in operating costs in the O&G Denver office.

Paradox Basin acreage

By way of background, the Paradox Basin has been actively exploited by Fidelity Exploration and Production ("Fidelity"), mainly in the Cane Creek Formation, south southeast of the Group's main group Paradox lease blocks. Fidelity has been the most active operator in the Paradox Basin over the past two years with average Q1 2015 production of 2,100 barrels of oil equivalent per day ("boepd"). In addition to Fidelity's success, multiple wells in the area of the Group's leases have produced oil and gas to surface from various formations, and it is a combination of all these factors that led the Board to the conclusion that it should focus on the Group's Paradox Basin acreage.

Throughout the period under review, and since, the Group has been undertaking the process of securing the permit to enable it to shoot a 3D seismic survey over the Paradox acreage. Consistent with Fidelity, the strategy is to shoot the seismic lines that will assist in identifying drilling targets for the Group's first wells in the Paradox.

Significant progress has been made in the process in recent months and on 7 March 2017, the Group announced that the 15-day public consultation period for its 3D seismic shoot permit had formally begun. Following the completion of this period, and based on comments received, the Group was informed by the Bureau of Land Management ("BLM") that certain questions raised in the comments received should have been addressed by the BLM in the original Environmental Assessment Study ("EA") that supports the permit application. As a result, the Group has now amended the shoot design to accommodate the points raised and resubmitted the documents to the BLM for review. Once this review is complete, the revised and updated EA will be published and made available for a further 15-day public consultation period. The BLM has assured Rose that the revised timing for granting of the permits will not impact the commencement of the proposed physical shoot in H2 2017.
 

The Company has also now begun the process of assembling its technical team for the seismic shoot and has engaged the services of two key individuals, Dave List and Todd Fockler. Dave and Todd are geophysicists and both previously worked for Fidelity Exploration and Production Company on their Paradox seismic shoots and subsequent drilling programmes. Dave and Todd bring with them substantial relevant expertise and will help the Group to ensure that the technical and operational aspects of the shoot are managed in the optimal way. Their extensive operational experience in the Basin will be of significant benefit to our programme going forward.

Mining Division

Gold and Silver Mining Operations, Mexico

Throughout most of 2016, the Group continued its milling operations through its wholly owned subsidiary, Minerales VANE S.A. de C.V., which owns the SDA Mill. All milling consisted of processing third-party ore ("toll milling") while joint-venture production opportunities were evaluated. A total of approximately 20,300 tonnes of ore were processed during the year which covered the unit's operating costs. A number of joint venture production opportunities were evaluated which resulted in two strong project candidates being pursued, however, factors outside the Company's control meant that no transaction was completed.

In early 2017, Magellan Gold Corporation (OTCBB: MAGE) approached the Company with a view to acquiring the SDA Mill and, in March 2017, the two companies entered into a Memorandum of Understanding ("MOU") in respect of a transaction. The transaction is presently in the due diligence phase.

Under the terms of the MOU, the Company has granted Magellan a 90-day option period, for a non-refundable US$0.05 million deposit, to purchase the SDA Mill subject to the satisfaction of a number of conditions. The MOU also provides Magellan with the option of extending this option period by a further 60 days in consideration of an additional US$0.1 million which would be credited against the final purchase price should the sale proceed. The total purchase price for the SDA Mill is US$1.5 million, payable as US$1.0 million in cash and US$0.5 million in restricted common stock (shares) in Magellan. On 1 June 2017, the Company announced that Magellan had exercised its option to extend the 90-day option period for a further 60 days and the non-refundable payment of US$0.1 million has been received.

Completion of the disposal of the SDA Mill is subject to a number of conditions, including, but not limited to, the Group and Magellan entering into a separate asset purchase agreement, the completion of satisfactory due diligence by Magellan and Rose, Magellan completing a financing to acquire the SDA Mill, and an audit by Magellan of the SDA Mill's financial statements at Magellan's cost. In addition, as the SDA Mill has contributed the majority of Rose's revenue in the past 12 months, any sale would be subject to the approval of the shareholders of Rose at a general meeting of the Company. There can therefore be no assurance at this stage that the sale of the SDA Mill will be completed.

Base and precious metals exploration, Mexico

The Group's single exploration project is the Tango copper/molybdenum porphyry and associated precious metals veins property located 70 kilometres east of Mazatlán in southern Sinaloa. Efforts to fund and organise the permitted drilling programme for 2017 are currently being re-evaluated due to the pending SDA Mill sale to Magellan Gold Corporation.

IVA recovery, Mexico

Throughout the period, the Group has been in the process of recovering approximately MX$17.9 million (c.US$1.0 million) of IVA (Mexican value added tax) and associated inflation adjustment payments owed to it from the Mexican tax authority, Servicio de Administración Tributaria ("SAT"). Post-period, SAT commenced refunding the Group's IVA claim and approximately MX$9.2 million (c.US$0.5 million) has been received at the date of this report. The Company continues to seek the recovery of the remaining MX$8.8 million (c.US$0.5 million) owed to it by SAT.

Copper exploration, southwest U.S.A.

In April 2016, the Group announced that it had entered into an agreement with privately held Burdett Gold LLC, to conduct exploration drilling on the Ardmore copper project which consists of 18 unpatented mining claims located north of Tucson, Arizona. Burdett assumed control of the claims and is the operator of the project and has commenced exploration work.  

Uranium exploration, U.S.A.

The bulk of the Group's uranium assets are held in a joint venture with Anfield Resources Inc. (TSXV: ARY) covering property holdings in the breccia pipe district of northern Arizona. The Group also owns 100% of the North Wash project in Utah. The land holdings in Arizona consist of a number of drill-proven breccia pipes, some containing mineralization, and breccia pipe targets. The North Wash project in Utah contains a resource of uranium and vanadium. These holdings are being held on care and maintenance while management reviews its options to develop the projects further. 

With respect to the political situation behind the land withdrawal in northern Arizona which negatively impacts all breccia-pipe holdings on federal lands, the election of President Trump provides optimism for a possible change in the status of those lands during his tenure.

In respect of the disposal of the Company's 50% interest in the Wate breccia pipe deposit to Energy Fuels Resources Inc. (TSE:EFR) in 2015, the Company and EFR further revised the terms of the Purchase and Sale Agreement during the period under review. Under the revised agreement, EFR paid the Company US$50,000 in 2016 and a further US$450,000 is payable on the date on which the first Commercial Production from the Wate Project occurs. 

Cuban Opportunities

In May 2016, the Group announced that it had raised gross proceeds of US$1.2 million (£0.8 million) from Earth Source Investment Inc, primarily to further develop opportunities that had arisen in Cuba and specifically around the processing and manufacturing of gypsum and associated building materials.

As announced on 4 July 2016 and in the period since, Rose, with the assistance of its technical team supported by Grenzebach BSH (GmbH) ("Grenzebach"), has been negotiating with Empressa Materiales de Construccion ("EMC"), the local state company, to construct the proposed gypsum processing and manufacturing facilities to supply the domestic and Caribbean market with various gypsum products including, but not limited to, gypsum wall and ceiling panels. Multiple models and plant facilities have been discussed involving various end products and production rates and Rose put forward its proposal on the agreed capacity and products at the end of the year, although the process is no longer exclusive to Rose. Having been through multiple versions of both capacity and end product requirements, which was an extremely challenging process, the Board of Rose would like to take this opportunity to thank Grenzebach for its continuing support. We are presently engaged in further discussions regarding the transaction and we will update the market when we have further clarity around the ongoing process.

As a result of the Group developing good relationships in Cuba, we have now also engaged with the Cuban national oil company, CUPET, and are in early stage discussions regarding oil & gas licences. We feel that the oil and energy sectors in Cuba offer excellent potential and hope to be able to progress our discussions.

 

FINANCIAL REVIEW

Income Statement

The Income Statement reports total revenue for the year ended 31 December 2016 of US$0.9 million (2015: US$4.3 million), arising from the Group's precious mining and milling operations in Mexico. The decrease in revenues was primarily the result of having a near full year of production from the Mina Charay gold and silver project in 2015, which ceased in December 2015.

The Group reports a net loss after tax of US$0.2 million or 0.01 cents per share for the year ended 31 December 2016 (2015: net loss after tax US$9.1million or 0.45 cents per share). Due to the radical cost cutting programme, administrative costs for the year fell to US$2.3 million (2015: US$5.1m). The Group has made a share-based payment charge of US$0.3 million (2015: US$1.5 million).

The Group has made a provision for impairment of intangible exploration and evaluation assets of US$0.36 million (2015: US$3.7 million) during the year. The charge relates primarily to the Group's uranium and copper assets in the U.S.A. and Mexico respectively.

Foreign exchange gains on the restatement of the Company's loans to its subsidiaries were US$2.5 million (2015: US$0.4 million). This has had a significant impact on the results for the year and can be primarily attributed to the weakening of sterling since Brexit.

The income statement for the year includes a non-cash deferred tax credit of US$1.1m (2015: US$0.8 million).

Balance Sheet

Total investment in the Group's intangible exploration and evaluation assets at 31 December 2016 was US$10.1 million (2015: US$10.2 million) primarily reflecting investment in the Utah O&G assets.

The carrying value of property, plant and equipment at 31 December 2016 was US$0.3million (2015: US$0.6 million) reflecting the continued depreciation of the ore processing mill.

Trade and other receivables of US$1.2 million (2015: US$1.5 million) includes US$0.8 million in respect of VAT and tax recoverable in Mexico.

Cash and cash equivalents at 31 December 2016 were US$1.3 million (2015: US$2.4 million). During the period, the Company raised gross proceeds of US$2.4 million through the placing of the Company's Ordinary Shares.

Going Concern

The Directors have set out in note 3 to the financial statements their consideration of the future financing requirements of the Group and acknowledge that the circumstances represent a material uncertainty that may cast significant doubt upon the Group and Company's ability to continue as a going concern which has resulted in the auditor including an emphasis of matter in their report. Nevertheless, having given consideration to the uncertainties, the Directors have a reasonable expectation that a sale of the SDA mill will be completed in due course, and the 3D seismic permit will be granted, which will allow the Group to raise sufficient funding to continue in operational existence for the foreseeable future. Despite challenging capital markets, the Company and Group have been successful historically in raising equity finance and consider that they have reasonable grounds for believing these past successes will continue. For these reasons, the Directors continue to adopt the going concern basis in preparing the consolidated financial statements. 

This assessment has been carried out in the light of the guidance issued to the Directors by the Financial Reporting Council.

FUTURE DEVELOPMENTS

Your Board, management and dedicated teams continue to operate the Group's existing O&G and mining assets and will continue to look to enhance the value from these. In addition, the Group continues to investigate and evaluate new opportunities to increase shareholder value.

We would like to thank all shareholders for their continued support.

CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2016

	Notes	2016 US$'000	2015 US$'000
Continuing operations
Revenue	5	898	4,320
Cost of sales		(820)	(3,806)
Gross profit		78	514
Operating and development expenses	7	(600)	(1,522)
Administrative expenses		(2,313)	(5,123)
Project development expenses	8	(580)	-
Impairment of intangible exploration and evaluation assets	9	(360)	(3,694)
Foreign exchange gains		2,496	438
Loss on disposal of assets held for sale	24	-	(485)
Operating loss		(1,279)	(9,872)
Finance income	10	9	13
Finance costs	11	-	(5)
Loss before taxation	12	(1,270)	(9,864)
Taxation	15	1,120	797
Loss for the year attributable to owners of the parent company		(150)	(9,067)
Loss per Ordinary Share
Basic and diluted, cents per share	16	(0.01)	(0.45)

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2016

		2016 US$'000	2015 US$'000
Loss for the year attributable to owners of the parent company		(150)	(9,067)
Other comprehensive income
Items that may be subsequently reclassified to profit or loss, net of tax
Foreign currency translation differences on foreign operations		6,498	904
		6,498	904
Total comprehensive income for the year attributable to owners of the parent company		6,348	(8,163)

CONSOLIDATED BALANCE SHEET
As at 31 December 2016

	Notes	2016 US$'000	2015 US$'000
Non-current assets
Intangible assets	17	10,117	10,221
Property, plant and equipment	18	337	620
		10,454	10,841
Current assets
Inventories	21	-	19
Trade and other receivables	22	1,236	1,484
Cash and cash equivalents	23	1,273	2,399
		2,509	3,902
Total assets		12,963	14,743
Current liabilities
Trade and other payables	25	(524)	(684)
Provisions	27	(110)	-
Taxation payable		(1)	(3)
		(635)	(687)
Non-current liabilities
Provisions	27	-	(192)
		-	(192)
Total liabilities		(635)	(879)
Net assets		12,328	13,864
Equity
Share capital	28	40,362	38,765
Share premium account		32,183	31,471
Share-based payment reserve		3,028	2,899
Cumulative translation reserves		(8,376)	(4,384)
Retained deficit		(54,869)	(54,887)
Equity attributable to owners of the parent company		12,328	13,864

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2016

	Share capital	Share premium account	Share-based payment reserve	Cumulative translation reserves	Retained deficit	Total
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
As at 1 January 2015	37,130	28,471	1,540	(2,258)	(45,937)	18,946
Transactions with owners in their capacity as owners:
Issue of equity shares	1,635	3,271	-	-	-	4,906
Expenses of issue of equity shares	-	(271)	-	-	-	(271)
Share-based payments	-	-	1,523	-	-	1,523
Transfer to retained earnings in respect of forfeit options	-	-	(117)	-	117	-
Effect of foreign exchange rates	-	-	(47)	-	-	(47)
Total transactions with owners in their capacity as owner	1,635	3,000	1,359	-	117	6,111
Loss for the year	-	-	-	-	(9,067)	(9,067)
Other comprehensive income:
Currency translation differences	-	-	-	904	-	904
Total other comprehensive income for the year	-	-	-	904	-	904
Total comprehensive income for the year	-	-	-	904	(9,067)	(8,163)
Currency translation differences on equity at historical rates	-	-	-	(3,030)	-	(3,030)
As at 1 January 2016	38,765	31,471	2,899	(4,384)	(54,887)	13,864
Transactions with owners in their capacity as owners:
Issue of equity shares	1,597	783	-	-	-	2,380
Expenses of issue of equity shares	-	(71)	-	-	-	(71)
Share-based payments	-	-	326	-	-	326
Transfer to retained earnings in respect of forfeit options	-	-	(168)	-	168	-
Effect of foreign exchange rates	-	-	(29)	-	-	(29)
Total transactions with owners in their capacity as owner	1,597	712	129	-	168	2,606
Loss for the year	-	-	-	-	(150)	(150)
Other comprehensive income:
Currency translation differences	-	-	-	6,498	-	6,498
Total other comprehensive income for the year	-	-	-	6,498	-	6,498
Total comprehensive income for the year	-	-	-	6,498	(150)	6,348
Currency translation differences on equity at historical rates	-	-	-	(10,490)	-	(10,490)
As at 31 December 2016	40,362	32,183	3,028	(8,376)	(54,869)	12,328

CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2016

	2016 US$'000	2015 US$'000
Operating activities
Loss before taxation	(1,270)	(9,864)
Finance income	(9)	(13)
Finance costs	-	5
Adjustments for:
Depreciation of property, plant and equipment	201	234
Loss on disposal of property, plant and equipment	17	-
Impairment of Intangible exploration and evaluation assets	360	3,694
Loss on disposal of assets held for sale	-	485
Share-based payments	326	1,523
Unrealised foreign exchange	(2,626)	(725)
Operating outflow before movements in working capital	(3,001)	(4,661)
Decrease in inventories	19	38
Decrease(increase) in trade and other receivables	100	(514)
Decrease in trade and other payables	(163)	(171)
Cash used in operations	(3,045)	(5,308)
Income tax paid	-	(10)
Net cash used in operating activities	(3,045)	(5,318)
Investing activities
Interest received	4	13
Purchase of property, plant and equipment	-	(67)
Purchase of intangible exploration and evaluation assets	(272)	(5,433)
Proceeds on disposal of property, plant and equipment	9	-
Proceeds on disposal of intangible assets	5	-
Proceeds from disposal of assets held for sale	50	250
Net cash used in investing activities	(204)	(5,237)
Financing activities
Proceeds from issue of shares	2,380	4,906
Expenses of issue of shares	(71)	(302)
Net cash from financing activities	2,309	4,604
Net decrease in cash and cash equivalents	(940)	(5,951)
Cash and cash equivalents at beginning of year	2,399	8,408
Effect of foreign exchange rate changes	(186)	(58)
Cash and cash equivalents at end of year	1,273	2,399

SELECTED NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2016

3.           SIGNIFICANT ACCOUNTING POLICIES

BASIS OF ACCOUNTING

The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and as adopted by the European Union ("EU").

The financial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

The Directors continue to adopt the going concern basis in preparing the consolidated financial statements. The financial statements do not include any adjustment that would result from the basis of preparation being inappropriate.

The principal accounting policies adopted are set out below.

GOING CONCERN

In the period under review, the Group generated its revenue from third-party toll milling operations from the Group owned mill ("SDA mill" or "mill") in Mexico. Toll milling ceased in March 2017 and since then the Group has been generating revenue from the processing of historic tailings produced at the mill site. Also in March 2017, the Group announced that it had entered into a memorandum of understanding ("MOU") with Magellan Gold Corporation ("Magellan") for the potential disposal of the mill and its associated assets, licences and agreements for a total consideration of US$1.5 million (US$1.0 million cash and US$0.5 million in restricted common stock in Magellan). Under the terms of the MOU, the Group granted Magellan a 90-day option period, for a non-refundable US$0.05 million deposit, already paid by Magellan, to purchase the mill subject to the satisfaction of a number of conditions. The MOU also provided Magellan with the option of extending the period by a further 60 days in consideration of an additional US$0.1 million, which will be credited against the final purchase price should the sale proceed. At the date of signing of the accounts, Magellan has exercised its option to extend the MOU period by 60 days which expires on 31 July 2017.

During the year, the Group has been undertaking the process of securing the permit to enable it to complete a 3D seismic shoot over the Paradox acreage, which will enable the Group to identify future drilling targets. The application for the 3D shoot permit is currently under consideration by the Bureau of Land Management ("BLM") following the application being resubmitted to address points raised by the BLM in the first submission.

As primarily an exploration Group, the Directors are mindful that there is an ongoing need to monitor overheads and costs associated with delivering the exploration programme, and raise additional working capital on an ad hoc basis to support the Group's activities. The Group has no bank facilities and has been meeting its working capital requirements from cash resources. At the year end, the Group had cash and cash equivalents amounting to US$1.3 million (2015: US$2.4 million).

The Directors have prepared cash flow forecasts for the Group for the period to June 2018 based on their assessment of the prospects of the Group's operations. These cash flow forecasts include its normal operating costs for all operations, discretionary and non-discretionary exploration and development expenditure (including the 3D seismic shoot under the assumption that the permit will be issued by the BLM), and the sale of the SDA mill. These forecasts indicate that the Group will be required to raise additional equity funding in the forecasted period. In the event that the sale of the SDA mill does not proceed, or is completed at reduced consideration, and the Group ceases all discretionary expenditure (including the 3D seismic shoot), the forecasts still indicate that the Group will require additional equity funding in the foreseeable future. The ability of the Company to raise sufficient additional equity funding in the foreseeable future may be affected by market conditions and may be subject to shareholder approval.

The Directors acknowledge that the circumstances detailed above represent a material uncertainty that may cast significant doubt upon the Group and Company's ability to continue as a going concern and that therefore the Group and Company may be unable to realise their assets and discharge their liabilities in the normal course of business. Nevertheless, having given consideration to the uncertainties described above, the Directors have a reasonable expectation that a sale of the SDA mill will be completed in due course, and the 3D seismic permit will be granted, which will allow the Group to raise sufficient funding to continue in operational existence for the foreseeable future. Despite challenging capital markets, the Company and Group have been successful historically in raising equity finance and consider that they have reasonable grounds for believing these past successes will continue. For these reasons, the Directors continue to adopt the going concern basis in preparing the consolidated financial statements. The financial statements do not include any adjustment that would result from the basis of preparation being inappropriate.

SEGMENTAL REPORTING

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments and making strategic decisions, has been identified as the Board of Directors.

4.         CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group's accounting policies, which are described in note 3, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of the assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both the current and future periods.

The following are the critical judgements and estimations that the Directors have made in the process of applying the Group's accounting policies and that have the most significant effect on the amounts recognised in the financial statements:

RECOVERABILITY OF INTANGIBLE EXPLORATION AND EVALUATION ASSETS

Determining whether an exploration and evaluation asset is impaired requires an assessment of whether there are any indicators of impairment, including by reference to specific impairment indicators prescribed in IFRS 6 Exploration for and Evaluation of Mineral Resources. If there is any indication of potential impairment, an impairment test is required based on the recoverable amount of the asset. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. At 31 December 2016, the Directors determined that there were indicators of impairment in respect of the Group's intangible O&G exploration and evaluation assets held in Germany and of the Group's uranium and copper exploration and evaluation assets held in U.S.A and Mexico, on the basis that the carrying amount of these assets may not be recovered in full. The Directors therefore considered that it was appropriate to make a provision for impairment in respect of these assets at the year end.

The carrying amount of intangible exploration and evaluation assets at the balance sheet date was US$10.1 million (2015: US$10.2 million) and an impairment of US$0.36 million (2015: US$3.7 million) was identified and recognised in the year to 31 December 2016, US$0.34 in respect of uranium and copper assets and US$0.02 in respect of O&G assets held in Germany.

RECOVERABILITY OF LOANS TO SUBSIDIARY UNDERTAKINGS

The Company has outstanding loans from its directly held subsidiaries which have then made a number of loans to their own subsidiaries as the primary method of financing the activity of those subsidiaries. The principal loans are shown in the Company balance sheet on the basis that the loans incur interest at a commercial rate according to the Group's inter-company loan policy, which is being rolled up until such time as the subsidiaries are in a position to settle. However, there is a risk that the indirectly held subsidiaries will not commence revenue-generating activities and that the carrying amount of the Company's investment will, therefore, exceed the recoverable amount. The Board have assessed the recoverability of its loans based on this risk and the Directors consider that, in consideration of the losses currently being generated and the impairment of the Group's intangible exploration and evaluation assets which was recognised at 31 December 2016, a provision of US$1.5 million (2015: US$8.2 million) should be recognised by the Company in the year to 31 December 2016.

5.           REVENUE

The external revenue of the Group arises from the sale of precious minerals arising from activities in Mexico. The revenue reported during the year ended 31 December 2016 of US$0.9 million relates to the milling of third party ore in Mexico.

6.           SEGMENTAL INFORMATION

For management purposes, the Group is organised into three operating divisions based on its principal activities of gold and silver mining, research and evaluation of potential uranium and copper properties and the exploration and development of O&G resources. These divisions are the basis on which the Group reports its segment information.

Segment information about these divisions is presented below.

			2016 US$'000	2015 US$'000
Income statement
Revenue
		Gold and silver	898	4,129
		O&G	-	191
			898	4,320
Segmental results
		Uranium and copper	(483)	(3,470)
		Gold and silver	(454)	(698)
		O&G	1,544	(1,975)
		Total segment results	607	(6,143)
		Loss on disposal of assets held for sale	-	(485)
		Unallocated results	(1,877)	(3,236)
		Current and deferred tax	1,120	797
		Loss after taxation	(150)	(9,067)

The unallocated results of US$1.87 million include costs associated with the Cuba project (refer to note 8), Directors remuneration and other general and administrative costs incurred by the Company.                                

			2016 US$'000	2015 US$'000
Depreciation
	Uranium and copper		2	2
	Gold and silver		164	182
	O&G		35	50
			201	234
			2016 US$'000	2015 US$'000
Impairment
		Uranium and copper	344	3,141
		O&G	16	553
			360	3,694

Employees

The average numbers of employees for the year for each of the Group's principal divisions were as follows:

				2016 Number	2015 Number
			Uranium and copper	1	2
			Gold and silver	36	41
			O&G	2	9
			Total segment employees	39	52
			Unallocated employees	2	2
			Total employees	41	54
				2016 US$'000	2015 US$'000
	Balance Sheet
Segment assets
			Uranium and copper	60	467
			Gold and silver	1,410	2,318
			O&G	10,237	10,289
			Total segment assets	11,707	13,074
			Unallocated assets including cash and cash equivalents	1,256	1,669
			Total assets	12,963	14,743
Segment liabilities
			Uranium and copper	5	3
			Gold and silver	192	306
			O&G	105	163
			Total segment liabilities	302	472
			Unallocated liabilities	332	404
			Current and deferred tax	1	3
			Total liabilities	635	879
Segment net assets
			Uranium and copper	55	464
			Gold and silver	1,217	2,009
			O&G	10,132	10,126
			Total segment net assets	11,404	12,599
			Unallocated net assets including cash and cash equivalents	924	1,265
			Total net assets	12,328	13,864

 

7.           OPERATING AND DEVELOPMENT EXPENSES

		2016 US$'000	2015 US$'000
Operating expenses - mining		162	364
Operating expenses - O&G		405	818
Development expenses		33	340
		600	1,522

Development expenses represent expenditure incurred by the Group in respect of mining activities prior to the commencement of production.

8.           PROJECT DEVELOPMENT EXPENSES

		2016 US$'000	2015 US$'000
Cuba project		580	-

Project development expenses represent expenditure incurred by the Group in respect of the assessment and pursuit of new projects.

9.           IMPAIRMENT OF INTANGIBLE EXPORATION AND EVALUATION ASSETS

			2016 US$'000		2015 US$'000
	Uranium and copper assets		344		3,141
	O&G assets		16		553
			360		3,694

During 2016, the Group relinquished its interest in its hydrocarbon licences in the Weiden Basin, located in the State of Bavaria, southeast Germany. The assets were impaired in full during the year, resulting in an impairment charge of US$0.01 million being recognised in the year, and the Group ceased to recognise the assets at 31 December 2016. See note 17.

At 31 December 2016, there were indicators of impairment of both the Group's intangible uranium assets held in the U.S.A. and its intangible copper assets held in Mexico. The Directors consider that there is reasonable uncertainty that the Group will recover the carrying value of these assets and as a result an impairment charge of US$0.3 million has been recognised in the year.

In April 2016, the Board announced that it had entered into an agreement with Rockies Standard to terminate its earn-in rights to the Mancos acreage and dispose of the Cisco Dome field and related assets. The Group had a number of operator bonds in place with the State of Utah and Bureau of Land Management ("BLM"), and under the terms of this agreement the Group agreed to leave these bonds in place for the benefit of Rockies Standard. The Board determined that it was appropriate to make a provision for impairment in respect of these bonds, and as a result an impairment charge of US$0.006 million (2015: US$0.4 million) has been recognised in the year.

The remaining intangible exploration and evaluation assets have not reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves. These assets are not amortised until technical feasibility and commercial viability is established.

10.         FINANCE INCOME

		2016 US$'000	2015 US$'000
Interest on bank deposits		4	13
Unwinding of discount on provisions		5	-
		9	13

11.         FINANCE COSTS

		2016 US$'000	2015 US$'000
Unwinding of discount on provisions		-	5

12.         LOSS BEFORE TAXATION

The loss for the year has been arrived at after charging/(crediting):

			2016 US$'000	2015 US$'000
Depreciation of property, plant and equipment			201	234
Loss on disposal of property, plant and equipment			17	-
Staff costs excluding share-based payments			1,409	2,788
Share-based payments			326	1,523
Operating leases - land and buildings			166	284
Net foreign exchange gains			(2,496)	(438)

13.         AUDITOR'S REMUNERATION

Amounts payable to the external auditors and their associates in respect of both audit and non-audit services:

				2016 US$'000			2015 US$'000
	Audit of these financial statements				23	23
Amounts receivable by the Company's auditor and its associates in respect of: Audit of financial statements of subsidiaries of the Company					41	46
					64	69

14.         STAFF COSTS

The average monthly number of employees (including Executive Directors) was:

				2016             Number		2015    Number
Office and management			2		6
Operations			39		48
			41		54

Their aggregate remuneration comprised:

				2016 US$'000	2015 US$'000
Wages and salaries				1,204	3,079
Social security costs				177	294
Other pension costs				29	129
Share-based payments				210	1,398
				1,620	4,900

There were no wages and salaries capitalised to intangible exploration and evaluation assets during the year ended 31 December 2016 (2015: US$0.7 million).

The remuneration of the highest paid Director was US$0.2 million (2015: US$0.3 million) and pension contributions of US$0.02 were made on their behalf.

15.         TAXATION

			2016 US$'000	2015 US$'000
Current tax:
		Current year	8	10
		Total current tax	8	10
Deferred tax:
		Origination and reversal of temporary differences	(1,128)	(807)
		Total deferred tax	(1,128)	(807)
Tax credit on loss for the year			(1,120)	(797)

The credit charge for the year can be reconciled to the loss per the income statement as follows:

Loss before tax			1,270	9,864
Loss multiplied by rate of corporation tax for UK companies of 20% (2015: 20.25%)			(254)	(1,998)
		Effects of:
		Expenses not deductible for tax purposes	153	960
		Temporary differences	(605)	(407)
		Share-based payments	65	309
		Unrelieved tax losses carried forward	42	734
		Difference in foreign tax rates	(521)	(395)
Tax credit on loss for the year			(1,120)	(797)

There has been no impact due to changes in UK taxation rates during the years reported.

Unrelieved tax losses carried forward, as detailed in note 26, have not been recognised as a deferred tax asset, as there is currently insufficient evidence that the asset will be recoverable in the foreseeable future. The losses must be utilised in relation to the same operations. Tax for other jurisdictions is provided at rates prevailing in those countries.

Income tax charge included in other comprehensive income during the year is:

			2016 US$'000	2015 US$'000
Foreign tax on net investment in foreign operations			1,128	1,212

16.         LOSS PER ORDINARY SHARE

Basic loss per Ordinary Share is calculated by dividing the net loss for the year attributable to owners of the parent company by the weighted average number of Ordinary Shares in issue during the year. The calculation of the basic and diluted loss per Ordinary Share is based on the following data:

			2016 US$'000	2015 US$'000
Losses
		Losses for the purpose of basic loss per Ordinary Share being net loss attributable to owners of the parent company	(150)	(9,067)
			Number '000	Number '000
Number of shares
		Weighted average number of shares for the purpose of basic loss per Ordinary Share	3,008,811	2,037,308
Loss per Ordinary Share
		Basic and diluted, cents per share	(0.01)	(0.45)

Due to the losses incurred in the years reported, there is no dilutive effect from the existing share options, share based compensation plan or warrants.

17.         INTANGIBLE ASSETS

				Exploration and evaluation assets US$'000
Cost
		At 1 January 2015		15,433
		Additions		4,010
		Relinquishment of licences		(887)
		Exchange differences		(45)
		At 1 January 2016		18,511
		Additions		276
		Disposals		(607)
		Relinquishment of licences		(2,303)
		Exchange differences		(54)
		At 31 December 2016		15,823
Impairment
		At 1 January 2015		5,486
		Impairment charge		3,694
		Relinquishment of licences		(887)
		Exchange differences		(3)
		At 1 January 2016		8,290
		Impairment charge		360
		Disposals		(602)
		Relinquishment of licences		(2,303)
		Exchange differences		(39)
		At 31 December 2016		5,706
Carrying amount
		At 31 December 2016		10,117
		At 31 December 2015		10,221

ROCKIES STANDARD EARN-IN AGREEMENT

In March 2014, the Group signed an agreement under which its subsidiary, Rose Petroleum (Utah) LLC ("Rose Utah"), acquired the right to commence earning into a 75 per cent working interest of certain oil, gas and hydrocarbon leases in Grand and Emery Counties, Utah, from Rockies Standard Oil Company LLC ("RSOC"), which retains the remaining 25 per cent working interest.

Farm-in costs incurred by the Group are accounted for as required by the relevant accounting standards including the capitalisation of intangible exploration and evaluation assets in accordance with IFRS 6.

In April 2016, the Group entered into a revised agreement with RSOC to cease earning into the Mancos acreage and dispose of the Cisco Dome field, wells, pipelines, gas tap, gas plant and all the associated equipment and liabilities.

As part of the revised agreement the Group agreed to cover the cost of the existing plug and abandonment liability of the four wells already scheduled with the authorities for the sum of US$0.3 million, and this obligation was settled during the year. The Group also agreed to leave the existing operator bonds in place with the State of Utah and Bureau of Land Management, which are now refundable to RSOC rather than the Group.

RSOC has, in turn, agreed to reduce the Group's carry obligation to earn the 75 per cent working interest in the Paradox acreage by US$2.0 million to US$5.5 million. Under the terms of the agreement, the obligation is not contractually committed and therefore no liability or contingent liability has been recognised in these financial statements. The Group was also given an exclusive option to acquire RSOC's 25 per cent interest in the Paradox acreage for a one-time payment of US$1.0 million at any time prior to 30 June 2016, however, this option was not exercised.

The Group has not recognised any disposal of its intangible exploration and evaluation assets, other than the bonds, as it considers its total expenditure on the project as one cost pool whose carrying value is supported by the remaining acreage in the Paradox.

The Group's total expenditure in respect of its U.S.A. O&G assets, included within intangible exploration and evaluation assets, as at 31 December 2016 is US$10.1 million (2015: US$9.9 million).

TANGO PROJECT

On 25 August 2014, Minerales VANE S.A. de C.V., a wholly owned subsidiary of the Group, entered into an agreement with Minera Camargo S.A de C.V. ("Camargo"), in respect of both gold and silver and base metal exploration. Under the terms of the agreement MV has the right to operate gold and silver mining activities at concessions owned by Camargo with gross margin earned to be allocated on the basis of 50 per cent to MV and 50 per cent to Camargo. In addition, MV has the option to earn a 75 per cent ownership of the base metals (porphyries) by investing US$5.0 million in work expenditures over a period of 5 years. Under the terms of the agreement, the option to earn-in is not contractually committed and therefore no liability or contingent liability has been recognised in these financial statements.

The Directors consider that there is reasonable uncertainty that the Group will recover the carrying value of these assets and as a result they have been impaired in full at 31 December 2016.

GERMAN LICENCES

At 31 December 2015, the Group had relinquished, and ceased to recognise its interest in two hydrocarbon licences in south-western Germany. During 2016, the Group has further relinquished its interest in its hydrocarbon licences in the Weiden Basin, located in the State of Bavaria, southeast German, and has ceased to recognise them at 31 December 2016.

U.S.A. COPPER PROJECTS

On 2 March 2016, the Group entered into an agreement with Burdett Gold LLC ("Burdett") to conduct exploration drilling on the Ardmore copper project. The terms included a cash payment of US$5,350 and the Group retained a 15 per cent net profit interest in the Ardmore project and any other claims that Burdett might acquire within a three-mile area.

In May 2016, the Group assigned its interest in the Bouse copper project to a third party. No compensation was received in respect of this assignment.

All remaining licences relating to U.S.A. copper projects were relinquished during the year and have ceased to be recognised at 31 December 2016.

18.         PROPERTY, PLANT AND EQUIPMENT

		Diablito mine US$'000	Ore processing mill US$'000	Plant and machinery US$'000	Total US$'000
Cost
	At 1 January 2015	6,752	797	930	8,479
	Additions	-	56	66	122
	De-recognition	(6,343)	-	-	(6,343)
	Exchange differences	(409)	(119)	(117)	(645)
	At 1 January 2016	-	734	879	1,613
	Additions	-	10	-	10
	Disposals	-	-	(64)	(64)
	Exchange differences	-	(120)	(110)	(230)
	At 31 December 2016	-	624	705	1,329
Accumulated depreciation
	At 1 January 2015	6,752	543	361	7,656
	Charge for the year	-	79	155	234
	De-recognition	(6,343)	-	-	(6,343)
	Exchange differences	(409)	(88)	(57)	(554)
	At 1 January 2016	-	534	459	993
	Charge for the year	-	93	108	201
	Disposals	-	-	(38)	(38)
	Exchange differences	-	(96)	(68)	(164)
	At 31 December 2016	-	531	461	992
Carrying amount
	At 31 December 2016	-	93	244	337
	At 31 December 2015	-	200	420	620

The depreciation has been charged to the income statement as follows:

					2016 US$'000		2015 US$'000
	Cost of sales				124		110
	Operating and development expenses				38		69
	Administrative expenses				39 ______		55 ______
					201 ______		234 ______

19.         INVESTMENTS

					Company
					Shares in subsidiary undertakings		Loans to subsidiary undertakings	Total
					US$'000		US$'000	US$'000
Cost
	At 1 January 2015				6,040		34,268	40,308
	Additions				-		8,810	8,810
	Capital contribution				-		797	797
	Exchange differences				(283)		(1,629)	(1,912)
	At 1 January 2016				5,757		42,246	48,003
	Additions				-		2,194	2,194
	Capital contribution				-		(195)	(195)
	Exchange differences				(958)		(7,079)	(8,037)
	At 31 December 2016				4,799		37,166	41,965
Impairment
	At 1 January 2015				-		23,800	23,800
	Impairment charge				-		8,186	8,186
	Exchange differences				-		(1,376)	(1,376)
	At 1 January 2016				-		30,610	30,610
	Impairment charge				3,572		(2,050)	1,522
	Exchange differences				(320)		(4,910)	(5,230)
	At 31 December 2016				3,252		23,650	26,902
Carrying amount
	At 31 December 2016				1,547		13,516	15,063
	At 31 December 2015				5,757		11,636	17,393

The Company has a number of loans made to its subsidiaries which incur interest at a commercial rate, according to the Group's inter-company loan policy. However, there is a risk that the subsidiaries will not commence revenue-generating activities and that the carrying amount of the investments exceed the recoverable amount. The Board have assessed the recoverability of these loans and consider that a provision of US$1.5 million (2015: US$8.2 million) should be recognised in the period.

The Company had investments in the following subsidiary undertakings as at 31 December 2016 which principally affected the losses and net assets of the Group:

				Place of incorporation (or registration) and operation	Proportion of ownership interest		Proportion of voting power held		Principal activity
Directly owned:
	VANE Minerals (UK) Limited		UK		100%		100%			Holding company
	Rose Petroleum (UK) Limited		UK		100%		100%			Holding company
	Rose Cuba Limited		UK		100%		100%			Holding company
	Rose Resources Limited		UK		100%		100%			Holding company
Indirectly owned:
	AVEN Associates LLC		U.S.A.		100%		100%			Exploration
	VANE Minerals (US) LLC		U.S.A.		100%		100%			Exploration
	Minerales VANE S.A. de C.V.		Mexico		100%		100%			Mining
	Minerales VANE Operaciones S.A. de C.V.		Mexico		100%		100%			Mining
	Naab Energie GmbH		Germany		100%		100%			Exploration
	Rose Petroleum (US) LLC		U.S.A.		100%		100%			Holding company
	Rose Petroleum (Utah) LLC		U.S.A.		100%		100%			Exploration
	Rose Gypsum Limited		UK		100%		100%			Holding company

Parkyn Energy Germany GmbH, a wholly owned subsidiary of Rose Petroleum (UK) Limited, was dissolved on 11 August 2015 and the required period of liquidation was completed on 31 December 2016.

Parkyn Energy (Holdings) plc and Parkyn Energy (Germany) Limited were struck off by the Company during the year.

The registered office address of all companies incorporated in the United Kingdom is 20-22 Wenlock Road, London, N1 7GU.

The registered office address for VANE Minerals (US) LLC and AVEN Associates LLC is 8987 E. Tanque Verde Road, Tucson, Arizona 85749.

The registered office address for all companies registered in Mexico is Humboldt No. 121, Colonia del Valle, C.P. 78200, San Luis Potosi, S.L.P.

The registered office address for Rose (US) LLC and Rose Petroleum (Utah) LLC is 383 Inverness Parkway, Ste 330, Englewood, CO 80112.

The registered office address for Naab Energie GmbH is Merzhauser Strasse 4, D-79100 Freiburg, Germany.

20.         JOINT OPERATIONS

ARIZONA PROJECT

On 1 September 2008, the Group entered into a Mining Venture Agreement with Uranium One Americas Inc. ("U1"). The terms of this agreement created a Joint Venture Agreement ("JVA") between VANE Minerals (US) LLC ("VANE") and U1, with each partner holding a 50 per cent interest. The Mining Venture Agreement was amended on 15 July 2013 to extend the terms of the agreement to 31 December 2017. During the year ended 31 December 2015, U1 sold its 50 per cent interest to Anfield Resources Inc. ("Anfield").

 The JVA established an agreed sharing of control with decisions about the relevant activities requiring the unanimous consent of VANE and Anfield. The parties have rights to the assets and obligations for liabilities relating to the arrangement and the JVA has, therefore, been accounted for as a joint operation recognising the Group's relevant share of assets, liabilities, revenues and expenses as appropriate.

The JVA combined interests in over 60 breccia pipe targets, including 10 known mineralised pipes, in northern Arizona and also secured access to U1's Ticaboo Mill in Utah for ore developed on JV properties.

The aggregate amounts related to the joint operation included within the consolidated accounts are:

				2016 US$'000			2015 US$'000
	Net assets			47			53
	Expenses			(3)			(3)

21.         INVENTORIES

		Group
		2016 US$'000	2015 US$'000
Work in progress		-	19

22.         TRADE AND OTHER RECEIVABLES

		Group		Company
		2016 US$'000	2015 US$'000	2016 US$'000	2015 US$'000
Trade receivables		-	12	-	-
Amounts owed by Group companies		-	-	-	242
Amounts owed by joint arrangement partners		35	35	-	-
VAT recoverable		608	683	25	16
Tax recoverable		263	311	-	-
Other receivables		35	161	3	15
Prepayments & accrued income		295	282	41	49
		1,236	1,484	69	322

At 31 December 2015, other receivables included the sum of US$0.05 million in respect of the disposal of assets held for sale at 31 December 2014 and which was received during the year ended 31 December 2016. See note 24.

The Directors consider that the carrying amount of trade and other receivables approximates their fair value.

23.         CASH AND CASH EQUIVALENTS

Cash and cash equivalents held by the Group and the Company as at 31 December 2016 were US$1.3 million and US$1.2 million respectively (2015: US$2.4 million, US$1.6 million). The Directors consider that the carrying amount of these assets approximate to their fair value.

24.         ASSETS HELD FOR SALE

At 31 December 2014, the Board had resolved to dispose of the Group's interest in Wate Mining Company LLC and these operations were classified as non-current assets held for sale and presented separately in the balance sheet.

On 17 February 2015 (the "closing"), the Company completed the sale of its 50 per cent interest in Wate Mining Company LLC ("Wate") to EFR Arizona Strip LLC ("EFR"). As consideration for the 50 per cent interest EFR agreed to pay a total of US$1.75 million, consisting of an immediate cash payment of US$0.25 million, a US$0.5 million non-interest bearing promissory note, payable in two equal instalments of US$0.25 million on each of the first and second anniversaries of the closing, a further US$0.5 million conditional cash, and 2 per cent production royalty on EFR's stake in the project. The royalty can be purchased by EFR upon payment to the Company of an additional sum of US$0.75 million, less any royalties previously paid.

The Company received the immediate cash payment of US$0.25 million on closing, however, prior to payment of the first instalment of the non-interest bearing promissory note due, an addendum to the terms of the original agreement was agreed with EFR. Under the terms of this addendum it was agreed that EFR would make a payment of US$0.05 million in respect of the US$0.25 million due on 17 February 2016 and defer the remainder of all payments due under the non-interest bearing promissory note until the commencement of commercial production. No further payments have fallen due during the year ended 31 December 2016.

Due to the uncertainty surrounding the commencement of commercial production and receipt of further funds the Company has only recognised those funds of which there was certainty, when calculating the loss on disposal of Wate.

The net assets of Wate at the date of disposal were:

								17 February 2015 US$'000
Intangible exploration and evaluation assets									785
Loss on disposal									(485)
Proceeds on disposal										300

Wate Mining Company LLC did not contribute to the Group's net operating cash flows during the year ended 31 December 2015.

25.         TRADE AND OTHER PAYABLES

		Group			Company
		2016 US$'000		2015 US$'000	2016 US$'000		2015 US$'000
Trade payables		102		134	55		58
Amounts owed to Group companies		-		-	-		31
VAT payable		7		14	-		-
Taxes and social security		40		38	17		16
Other payables		-		-	-		-
Accruals		375		498	92		99
		524		684	164		204

Trade payables and accruals principally comprise amounts outstanding for trade purchases and on-going costs. The average credit period taken for trade purchases is 30 days (2015: 30 days). The Group has financial risk management policies to ensure that all payables are paid within the credit time frame.

The Directors consider that the carrying amount of trade and other payables approximates to their fair value. No interest is generally charged on balances outstanding.

26.         DEFERRED TAX

There are unrecognised deferred tax assets in relation to:

				2016 US$'000		2015 US$'000
UK tax losses					5,252	5,428
U.S.A. tax losses					15,952	17,355
German tax losses					-	57
Mexican tax losses					2,271	1,953
Republic of Ireland tax losses					-	41
					23,475	24,834

The unrecognised deferred tax asset in relation to tax losses in the Company at 31 December 2016 was US$0.8 million (2015: US$0.5 million).

There has been no impact due to changes in UK taxation rates during the years reported.

27.         PROVISIONS

					Group
					Decommissioning
				2016                                US$'000		2015 US$'000
At 1 January					192	52
Additions					10	143
On disposal					(87)	-
Unwinding of discount					(5)	5
Exchange differences					-	(8)
At 31 December					110	192
Current provision					110	-
Non-current provision					-	192
At 31 December					110	192

In accordance with the Group's environmental policy and applicable legal requirements, the Group expects to restore sites where it has carried on activities, following final conclusion of those activities.

Under the terms of the revised agreement with RSOC, the Group no longer has any restoration obligations in respect of its O&G assets. See note 17.

A provision is required to cover the decommissioning costs for the ore processing mill and the Directors' assumptions are that restoration of the Mill will take place within twelve months of the Balance Sheet date.

28.         SHARE CAPITAL

	Group and Company
		2016			2015
		Number '000		US$'000	Number '000	US$'000
Authorised
Ordinary Shares of 0.1p each		7,779,297		9,599	7,779,297	11,515
Deferred Shares of 9.9p each		190,108		23,223	190,108	27,858
		7,969,405		32,822	7,969,405	39,373
Allotted, issued and fully paid
Ordinary Shares of 0.1p each		3,764,471		5,722	2,550,185	4,125
Deferred Shares of 9.9p each		190,108		34,640	190,108	34,640
		3,954,579		40,362	2,740,293	38,765

The Deferred Shares are not listed on AIM, do not give the holders any right to receive notice of, or to attend or vote at, any general meetings, have no entitlement to receive a dividend or other distribution or any entitlement to receive a repayment of nominal amount paid up on a return of assets on a winding up nor to receive or participate in any property or assets of the Company. The Company may, at its option, at any time redeem all of the Deferred Shares then in issue at a price not exceeding £0.01 from all shareholders upon giving not less than 28 days' notice in writing.

ISSUED ORDINARY SHARE CAPITAL

On 6 May 2016, the Company issued 500,000,000 Ordinary Shares of 0.1p each at a price of 0.16p per share, raising gross proceeds of US$1.16 million (£0.8 million).

On 26 October 2016, the Company issued 714,285,714 Ordinary Shares of 0.1p each at a price of 0.14p per share, raising gross proceeds of US$1.22 million (£1.0 million). In addition, for every two shares issued the subscriber received a warrant to subscribe for a new Ordinary Share at a price of £0.25p per share, resulting in the issue of 357,142,857 warrants which are exercisable at any time until October 2019. Considering the Company's average share price during the year in relation to the exercise price of the warrants, no value has been attributed to the warrants and the full value of the consideration received for the share placing has been allocated to share capital.

						Ordinary Shares
						Number
						'000
At 1 January 2015						1,510,185
Allotment of shares						1,040,000
At 1 January 2016						2,550,185
Allotment of shares						1,214,286
At 31 December 2016						3,764,471

 

29.         SHARE-BASED PAYMENTS

EQUITY SETTLED SHARE OPTION PLAN

The Company has a Share Option Plan under which options to subscribe for the Company's shares have been granted to certain Directors and to selected employees and consultants. The Rose Petroleum plc Share Option Plan was originally adopted by the Company on 25 May 2004, and in August 2013, was replaced by the adoption of the 2013 Share Option Plan Part A (employees) and 2013 Share Option Plan Part B (non-employees).

No share options were granted during the year ended 31 December 2016 (2015: 20 million).

At 31 December 2016, 130.8 million options had been granted under the terms of the Share Option Plans and not exercised.

The Company has no legal or constructive obligation to repurchase or settle the options in cash. The latest date for exercise of the options is 15 March 2025 and the options are forfeited if the employee or consultant leaves the Group before the options vest, or if those options which have vested are not exercised within three months of leaving.

Details of the share options outstanding at the end of the year were as follow:

	2016		2015
	Number of options '000	Weighted average exercise price	Number of options '000	Weighted average exercise price
Outstanding at 1 January	155,533	1.938p	183,200	1.725p
Granted	-	-	20,000	1.800p
Forfeited/cancelled	(24,750)	2.437p	(47,667)	1.062p
Outstanding at 31 December	130,783	1.843p	155,533	1.938p
Exercisable at 31 December	104,950	1.615p	71,967	1.596p

The options outstanding and not yet vested at 31 December 2016 had an estimated weighted average remaining contractual life of 0.7 years (2015: 1 year), with an exercise price ranging between 1.625p and 3.425p.

SHARE-BASED COMPENSATION

Under the terms of a contract of employment the Company agreed to issue Ordinary Shares in the Company to a Director in return for services provided. The fair value of the services provided can be measured directly, and accordingly, an expense of US$0.05 million was recognised in the year ended 31 December 2015. No further expense has been recognised in the current year.

WARRANTS

On 26 October 2016, the Company issued 42,857,142 warrants to Turner Pope Investments, in respect of broker services provided by them in relation to the placing of the Company's shares which took place on the same date. The warrants permit the holder to subscribe for one new Ordinary Share at a price of 0.25 pence per share and are exercisable at any time until October 2019.

As the fair value of the services provided by the warrant holder cannot be measured directly, the Company has measured the value of the services by reference to the fair value of the equity instruments granted as consideration, using the Black-Scholes model. The significant inputs into the model for the IFRS 2 valuation were as follows:

				Grants in year 42,857,142 warrants
Exercise price (pence)				0.25
Expected volatility (%)				105-117
Expected life (years)				2.52
Risk free rates (%)				0.19-0.27
Expected dividends				-
Performance condition				None

Expected volatility was calculated considering Rose Petroleum plc share price movements over a period commensurate with the expected term immediately prior to the issue date.

The fair value of the warrants issued during the year was US$0.05 million (2015: US$ nil).

In the year ended 31 December 2016, the Company recognised a total expense of US$0.32 million (2015: US$1.5 million) related to equity-settled share-based payment transactions. This represented US$0.27 million (2015: US$1.45 million) in respect of the Share Option Plan, US$0.05 million (2015: US$ nil) in respect of warrants and US$ nil (2015: US$0.05) in respect of share-based compensation.

30.         COMMITMENTS UNDER OPERATING LEASES

The Group has entered into commercial leases on certain properties. The future minimum rentals payable under non-cancellable operating leases are as follows:

		Group		Company
		2016 US$'000	2015 US$'000	2016 US$'000	2015 US$'000
Land and buildings
Amounts due within one year		74	126	6	59
Amounts due in 2-5 years		83	232	83	163
		157	358	89	222

31.         FINANCIAL INSTRUMENTS

CAPITAL RISK MANAGEMENT

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns, while maximising the return to shareholders through the optimisation of the debt and equity balance. The Group's overall strategy remains unchanged from 2015.

The capital structure of the Group consists of cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings.

The Group is not subject to externally imposed capital requirements.

The Group plans its capital requirements on a regular basis and as part of this review the Directors consider the cost of capital and the risks associated with each class of capital.

SIGNIFICANT ACCOUNTING POLICIES

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement, the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 3.

CATEGORIES OF FINANCIAL INSTRUMENTS

		Group		Company
		2016 US$'000	2015 US$'000	2016 US$'000	2015 US$'000
Financial assets measured at amortised cost
Cash and cash equivalents		1,273	2,399	1,185	1,582
Trade receivables		-	12	-	242
Amounts owed by joint arrangement partners		35	35	-	-
Other receivables		35	161	3	15
Loans to subsidiary undertakings		-	-	13,599	11,636
		1,343	2,607	14,787	13,475
		Group		Company
		2016 US$'000	2015 US$'000	2016 US$'000	2015 US$'000
Financial liabilities measured at amortised cost
Trade payables		102	134	55	89
		102	134	55	89

On 26 October 2016, the Company issued 714,285,714 Ordinary Shares of 0.1p each at a price of 0.14p per share, raising gross proceeds of US$1.22 million (£1.0 million). In addition, for every two shares issued the subscriber received a warrant to subscribe for a new Ordinary Share at a price of £0.25p per share, resulting in the issue of 357,142,857 Warrants which are exercisable at any time until October 2019. Considering the Company's average share price during the year in relation to the exercise price of the warrants, no value has been attributed to the warrants and the full value of the consideration received for the share placing has been allocated to share capital.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Directors consider that the carrying amount of its financial instruments approximates their fair value.

FINANCIAL RISK MANAGEMENT OBJECTIVES

Management provides services to the business, co-ordinates access to domestic and international financial markets and monitors and manages the financial risks relating to the operations of the Group. These risks include foreign currency risk, credit risk, liquidity risk and cash flow interest rate risk.

The policies for managing these risks are regularly reviewed and agreed by the Board.

The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

FOREIGN EXCHANGE RISK AND FOREIGN CURRENCY RISK MANAGEMENT

The Group undertakes certain transactions denominated in foreign currencies, with the result that exposure to exchange rate fluctuations arise.

The Group does not normally hedge against the effects of movements in exchange rates. The Group policy is not to repatriate any currency where there is the requirement or obligation to spend in the same denomination. When foreign exchange is required the Group purchases using the best spot rate available. As a result, there is limited currency risk within the Group and the carrying amount of the Group's currency denominated monetary assets and liabilities at the reporting date are not material.

INTEREST RATE RISK MANAGEMENT

The Group's policy on interest rate management is agreed at Board level and is reviewed on an on-going basis.

The Group has no substantial exposure to fluctuating interest rates on its liabilities. The Group has no liabilities which attract interest charges at 31 December 2016.

LIQUIDITY RISK MANAGEMENT

Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group's short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate cash reserves and by continuously monitoring forecast and actual cash flow.

CREDIT RISK MANAGEMENT

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group does not have any significant credit risk exposure on trade receivables.

The Group makes allowances for impairment of receivables where there is an identified event which, based on previous experience, is evidence of a reduction in the recoverability of cash flows.

The credit risk on liquid funds (cash) is considered to be limited because the counterparties are financial institutions with high and good credit ratings assigned by international credit-rating agencies.

The carrying amount of financial assets recorded in the financial statements represents the Group's maximum exposure to credit risk.

32.         RELATED PARTY TRANSACTIONS

AMOUNTS DUE FROM SUBSIDIARIES

Balances and transactions between the Company and its subsidiaries which are related parties, have been eliminated on consolidation and are not disclosed in this note.

The Company has entered into a number of unsecured related party transactions with subsidiary undertakings. The most significant transactions carried out between the Company and their subsidiary undertakings are management charges for services provided to the subsidiary company and long-term financing. Details of these transactions are as follows:

				2016				2015
			Transactions in the year US$'000			Amounts owing US$'000	Transactions in the year US$'000		Amounts  owing US$'000
		Loans	1,092			29,787	7,162		34,422
		Management charges	562			2,783	1,070		2,664
		Interest (1.5%)	539			3,712	578		3,865
		Capital contribution	(195)			884	797		1,295

During the year, Group companies entered into the following transactions with related parties who are not members of the Group:

				2016						2015
			Transactions in the year US$'000			Amounts owing US$'000		Transactions in the year US$'000			Amounts  owing US$'000
		Accommodation and office rent	10			4		-			-

The related party is a relative of a Director of the Company.

33.         POST BALANCE SHEET EVENTS

All matters relating to events since the balance sheet date have been disclosed elsewhere in the financial statements.

 

END

 

 

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