Interim Results
Vane Minerals PLC
28 September 2007
VANE Minerals Plc (AIM: VML)
('VANE' or 'the Company')
Interim Report - Six Months to 30th June 2007
Highlights
• Continued production of gold and silver ore at the Diablito mine at
1,500 tonnes per month
• Acquisition and commencement of construction of a mill at San Dieguito
located 18 kms from the Diablito mine
• £1m debt financing raised in the form of a convertible loan at 8%
interest, converting at 29p per share
• 9,000 tonnes of lower grade ore stockpiled ready for processing
through VANE's own mill
• Acquisition of uranium breccia pipe targets increased the total number
to 34
• Drilling at the North Wash stratabound uranium prospect confirmed
results obtained during the 1970s
Post Period End Highlights
• Mineralised breccia pipe discovered at Miller Southwest
• Number of uranium breccia pipe targets increased to 38 - further
acquisitions anticipated
• Drilling commenced at North Alice Extension
• San Dieguito Mill nearing completion with processing expected to
commence in October 2007
• Ore mined in period to June 2007 now processed
• Exploration underway at Bonanza Mine, State of Nayarit, Mexico
Michael Spriggs, Chairman of VANE Minerals Plc, commented:
'Progress made this period has been encouraging for the Company. We continue to
generate revenues via our production at Diablito; in the coming months this will
be accelerated by the expected completion of construction of the mill at San
Dieguito. VANE continues to increase its breccia pipe targets, now owning a
total of 38. We anticipate to build on this further with the aid of the
successful £1m fund raising in February and with increased exposure to the north
American market through the appointment of Westwind Partners.
The full Chairman's Statement and the financial statements follow and can also
be found at: www.vaneminerals.com.
Enquiries:
VANE Minerals Plc Ambrian Partners Limited Parkgreen Communications
Matthew Idiens Richard Brown Laura Llewelyn / Beth Harris
+44 (0) 20 7667 6322 +44 (0) 20 7776 6417 +44 (0) 20 7851 7480
Chairman's and CEO's Statement
Vane Minerals plc is pleased to announce its results for the six months ended 30
June 2007.
The period has seen further progress by your Company on a number of fronts.
Production of silver-gold ore at the Diablito mine was accompanied by
commencement of construction of the VANE mill at San Dieguito. The Company
continues to explore energetically in a number of geographical areas for a
variety of geological targets, and has released a succession of encouraging
assay results in this period.
The basic philosophy of VANE continues; to explore and evaluate promising
precious and base metal opportunities identified from the Freeport McMoRan
database of mineral properties, under an arrangement with this company that has
been extended into 2009. This strategy has been strengthened in recent months by
the addition of a focused programme of exploration on a number of
highly-prospective uranium properties in the southwestern US.
Financing of these projects has been underpinned by the combination of
continuing revenue from the Company's Diablito gold-silver mine in Mexico and
the proceeds from a successful debt funding and convertible loan note concluded
during this period.
Progress with individual projects is considered in turn below.
Diablito
Mineralization at Diablito occurs in two flat-lying veins that are closely
spaced and nearly parallel. The highest gold and silver values are typically
found in the lower of the two structures. For technical and safety reasons ore
must first be extracted from the upper vein before higher grade material in the
lower vein can be removed. For this reason mining during the first half of 2007
was confined to the upper vein and although production was on target averaging
1,500 tonnes per month, grade was averaging 3 g/T gold and 300 g/T silver at the
Cosala mill. Recently, we have commenced extraction on the higher grade lower
vein and grades are expected to improve.
Ore of a grade suitable for processing through our own 120 tpd mill now under
construction at the San Dieguito mill site 18 km north of Diablito has been
stockpiled at the mine and now amounts to some 9,000 tonnes of material
averaging 1.25 g/T gold and 150 g/T silver. This material will be processed
along with higher grade lower-vein material starting in mid October following
construction and startup at San Dieguito.
The mining contract for the current year has been successfully negotiated with
the local firm in San Luis Potosi. Relations with these local contractors remain
strong and supportive. Improved results are expected during the second half as a
result of access to higher grade lower-vein ore and efficiency resulting from
utilization of our own custom mill. A drilling program is being scheduled for
early 2008 designed to elevate resources currently carried as 'inferred' to '
indicated/measured' status and to further expand the resource base.
Guadalcazar
Previous drilling at Guadalcazar has defined a very large gold-silver resource
amounting to 1.3 mm ounces of gold and 354 mm ounces of silver the grade of
which is too low to permit bulk mining.
The extent and character of the mineralization suggest the existence of a strong
gold system but widely spaced drilling has so far been unsuccessful in locating
a strongly mineralized centre. Additional work is needed to fully explore the
tuff unit and underlying limestone. In Q1 VANE management made the decision to
seek a farm out or joint venture partner to continue the exploration at
Guadalcazar. Because of the consistently anomalous results from drill core and
the widely-spaced nature of the drilling so far completed we are optimistic that
a centre of strong mineralization may yet be discovered by additional
exploration.
Other projects in Mexico
The San Dieguito mill was designed with some excess capacity with the idea of
eventually increasing production at Diablito, and/or accepting ore for toll
milling or from another mine in the district where VANE is actively exploring.
With this in mind, an option to purchase agreement has been signed to explore
the Bonanza mine, a former silver and gold producer, located approximately 25 km
south southeast of San Dieguito
Paraguay
The regional exploration programme in Paraguay continues with encouraging
results. As a result of stream sediment and soil sampling, the original La
Paloma Sur Investigation area of 124,000 Ha has been reduced to 22,600 Ha which
will be designated the Itabo Exploration concession. VANE's title to the
concession has never been in doubt but progress has been very slow in obtaining
final government approval for the concession due principally to complications
arising as a result of implementation of the new mining law. At the moment,
however, final approval is imminent.
Pending final government approval of the concession, VANE geologists have been
active in the field completing a program of closely-spaced soil sampling and
deep hand dug pits. Pitting has produced samples anomalous in gold and copper
(up to 75 ppb gold and 364 ppm copper) and enabled selection of six drilling
targets which will be drill tested as soon as final approval is received and
drilling equipment arranged.
Uranium exploration
Highlights for Period Post Period
Breccia pipe drilling underway with encouraging Mineralised breccia pipe discovered at Miller
mineralization encountered Southwest
Acquisition of uranium breccia pipe targets increased Number of uranium breccia pipe targets increased to
the total number to 34 38 - further acquisitions anticipated
Drilling at the North Wash stratabound prospect Drilling Commenced at North Alice Extension
confirmed results obtained during the 1970's
Acquisition of North Alice Extension and North La Sal
properties
The combination of buoyant markets and access to highly attractive prospects in
key districts in the southwestern US has spawned a number of exploration
programs and mine start-ups in areas adjacent to VANE's operations. During Q2
the Company added two field geologists, one at the position of Exploration
Manager to meet staffing needs arising as a result of the increased pace of
exploration activity.
In the Northern Arizona Breccia Pipe District, VANE initiated its drilling
program as planned and has drilled continuously, as conditions permitted, during
the six-month period. Encouraging mineralization has been discovered on the Red
Dike, Big Red and Miller pipes, and the results are currently being evaluated.
Five additional pipe targets have been identified and acquired, three which are
situated on the Eastern Star patented claim which, because it is privately owned
by VANE, is not subject to permitting requirements for exploration.
In Utah, where VANE is evaluating a number of stratabound uranium targets, an
aggressive exploration and drilling programme is underway. First round programs
were completed on the North Wash project and at the Happy Jack Mine which
previously produced uranium. At the North Wash project, the drilling verified
the results obtained by Cotter Corporation in their project carried out during
the 1970's thus setting the stage for additional drilling to expand the
resource. Additionally, acquisitions of the North Alice Extension, formerly
owned by Homestake Mining, and the North La Sal property were finalized.
Drilling permits were granted on the North Alice Extension property and a 25
drill hole programme commenced on the 30th July.
In order to underpin this campaign to develop this uranium potential, the
Company in April secured an unsecured loan note for £1,000,000 at 8% coupon and
convertible at 29p, which represented a 29% premium to the share price at the
time.
Financial Results
These interim financial statements are the first the Company has prepared under
International Financial Reporting Standards ('IFRS') and include a
reconciliation to the previously reported figures prepared under UK GAAP. The
figures reported for 31 December 2006 have been audited under UK GAAP but not
under IFRS. The major reconciling items between UK GAAP and IFRS are in respect
of deferred taxation and currency exchange adjustments detailed in Note 6 to
these Interim Accounts.
Revenues for the period were less than for the comparable period last year owing
to the unavailability of milling facilities which resulted in a higher than
normal inventory level at the period-end. The whole of the mine production for
the period was milled after the end of the period.
Intangible assets increased in the period owing to continued exploration
activities in Mexico, Paraguay and the USA. Tangible assets, before
depreciation, increased in the period as a result of the acquisition and
construction of the San Dieguito Mill.
During the period the £750,000 convertible loan notes shown on the balance sheet
at 31 December 2006 were converted at 12p per share, resulting in the issuing of
6,250,000 ordinary shares. In addition, Geiger Counter Limited subscribed for
1,000,000 shares at a price of 15p per share, and Mr Robert Jeffcock, a
director, exercised 1,000,000 fully vested share options at a price of 11p per
share.
Outlook
Your Company continues to examine a range of prospective targets in a wide range
of geological environments. It has the depth of technical and regional expertise
to be able to evaluate these opportunities rapidly and at low cost.
The commencement of operations at the San Dieguito Mill will reduce production
and transport costs and smooth out cash flow as we will no longer have to await
Mill availability in order to process our ore.
The current focus on uranium properties in areas of established production in
Arizona and Utah, at a time of sustained elevated uranium prices, will remain a
major exploration thrust, and we are confident that we will be able to announce
further encouraging results as this programme continues.
Michael Spriggs Steven Van Nort
27 September 2007
Consolidated income statement
Unaudited Unaudited
6 months ended year ended
30 June 31 December
Notes 2007 2006 2006
£ £ £
Continuing operations
Revenue 4 692,008 1,005,084 1,592,632
Cost of sales (960,183) (836,523) (957,740)
Gross (loss)/profit (268,175) 168,561 634,892
Operating and administration expenses (669,790) (521,808) (1,500,558)
Operating loss 4 (937,965) (353,247) (865,666)
Investment income 11,897 8,618 19,381
Finance costs (42,003) - (25,598)
Loss before taxation (968,071) (344,629) (871,883)
Taxation 103,462 105,420 105,679
Loss for the period attributable to equity holders (864,609) (239,209) (766,204)
Loss per share
Basic & diluted 3 (0.58p) (0.16p) (0.52p)
Consolidated balance sheet
Unaudited Unaudited
30 June 31 December
2007 2006 2006
£ £ £
Non-current assets
Intangible assets 8,184,539 7,989,690 7,828,224
Property, plant and equipment 3,641,255 3,772,944 3,737,359
Deferred tax asset 154,350 132,171 115,039
11,980,144 11,894,805 11,680,622
Current assets
Inventories 446,805 175,105 579,668
Trade and other receivables 174,854 163,917 228,990
Cash and cash equivalents 942,939 703,170 624,374
1,564,598 1,042,192 1,433,032
Total assets 13,544,742 12,936,997 13,113,654
Current liabilities
Trade and other payables (245,206) (198,864) (194,875)
Taxation (4,550) (1,184) (4,107)
Provision for other liabilities and charges - (11,406) -
(249,756) (211,454) (198,982)
Net current assets 1,314,842 830,738 1,234,050
Non-current liabilities
Convertible loan notes (930,171) - (676,474)
Deferred tax (2,836,171) (2,922,075) (2,900,112)
Obligations under finance leases (9,248) - (7,454)
Provisions (37,500) - -
(3,813,090) (2,922,075) (3,584,040)
Total liabilities (4,062,846) (3,133,529) (3,783,022)
Net assets 9,481,896 9,803,468 9,330,632
Equity
Called up share capital 15,439,382 14,614,382 14,614,382
Share premium account 55,500 - -
Share option reserve 140,585 120,720 143,769
Other reserves 209,219 - 79,628
Accumulated deficit (6,087,554) (4,746,330) (5,273,325)
Cumulative translation reserve (275,236) (185,304) (233,822)
Equity shareholders' funds 9,481,896 9,803,468 9,330,632
Consolidated statement of changes in equity
Share capital Share Share option Other Cumulative Accumulated Total
premium reserve reserves translation deficit
reserves
£ £ £ £ £ £ £
As at 1 January 14,614,382 - 95,100 - 43,957 (4,507,121) 10,246,318
2006
Loss for the period - - - - - (239,209) (239,209)
Exchange - - - - (229,261) - (229,261)
translation
differences on
foreign operations
Total recognised - - - - (229,261) (239,209) (468,470)
income and expense
Share based payment - - 25,620 - - - 25,620
As at 30 June 2006 14,614,382 - 120,720 - (185,304) (4,746,330) 9,803,468
Consolidated statement of changes in equity
Share capital Share Share option Other Cumulative Accumulated Total
premium reserve reserves translation deficit
reserves
£ £ £ £ £ £ £
As at 1 January 14,614,382 - 95,100 - 43,957 (4,507,121) 10,246,318
2006
Loss for the period - - - - - (766,204) (766,204)
Exchange - - - - (277,779) - (277,779)
translation
differences on
foreign operations
Total recognised - - - - (277,779) (766,204) (1,043,983)
income and expense
Equity component of - - - 79,628 - - 79,628
convertible loan
note
Share based payment - - 48,669 - - - 48,669
As at 31 December 14,614,382 - 143,769 79,628 (233,822) (5,273,325) 9,330,632
2006
Consolidated statement of changes in equity
Share Share Share option Other Cumulative Accumulated Total
capital premium reserve reserves translation deficit
reserves
£ £ £ £ £ £ £
As at 1 January
2007 14,614,382 - 143,769 79,628 (233,822) (5,273,325) 9,330,632
Loss for the period - - - - - (864,609) (864,609)
Exchange
translation
differences on - - - - (41,414) - (41,414)
foreign operations
Total recognised
income and expense - - - - (41,414) (864,609) (906,023)
Share based payment - - 47,196 - - - 47,196
Issue of equity
shares 100,000 50,000 - - - - 150,000
Issue of equity
shares on
conversion of 625,000 - - 58,376 - - 683,376
convertible loan
note
Issue of equity
shares on exercise 110,000
of option 100,000 10,000 - - - -
Transfer on share
option exercise - - (50,380) - - 50,380 -
Expenses of issue
of equity shares - (4,500) - - - - (4,500)
Equity component of
convertible loan
note - - - 71,215 - - 71,215
As at 30 June 2007 15,439,382 55,500 140,585 209,219 (275,236) (6,087,554) 9,481,896
Consolidated cash flow statement
Unaudited Unaudited
30 June 31 December
2007 2006 2006
£ £ £
Net cash (outflow)/inflow from operating a
activities (424,312) 214,964 (451,551)
Net cash outflow from investing b (492,850) (222,465) (381,345)
activities
Net cash flow from financing activities c 1,253,953 - 750,000
Net increase/(decrease) in cash and cash 336,791 (7,501) (82,896)
equivalents
Effect of foreign exchange rate changes (18,226) (21,261) (24,662)
Cash and cash equivalents at beginning
of period 624,374 731,932 731,932
Cash and cash equivalents at end of
period 942,939 703,170 624,374
Appendices to the consolidated cash flow statement
Unaudited Unaudited
30 June 31 December
2007 2006 2006
£ £ £
a Cash flow from operating activities
Operating loss from continuing operations (937,965) (353,247) (865,666)
Depreciation and amortisation 267,448 422,721 518,963
Impairment of intangible fixed assets - - 316,825
Share based payments 47,196 25,620 48,669
Effect of foreign exchange rate changes 1,440 - (62,106)
Operating cash (outflow)/inflow before movements in (621,881) 95,094 (43,315)
working capital
Decrease/(increase) in inventories 132,863 (52,212) (456,775)
Decrease in trade and other receivables 54,118 117,286 33,518
Increase in trade and other payables 27,665 54,796 41,392
Cash generated by operations (407,235) 214,964 (425,180)
Taxes paid (1,652) - (6,875)
Interest paid (15,425) - (19,496)
Net cash (outflow)/inflow from continuing operations (424,312) 214,964 (451,551)
b Cash flow from investing activities
Interest received 11,897 8,618 19,381
Purchase of property, plant and equipment (135,921) (24,368) (148,206)
Purchase of intangible assets (368,826) (206,715) (252,520)
Net cash outflow from investing activities (492,850) (222,465) (381,345)
c Cash flow from financing activities
Repayment of obligations under finance leases (1,547) - -
Proceeds from the issue of share capital 260,000 - -
Issue costs paid (4,500) - -
Proceeds from the issue of convertible loan notes 1,000,000 - 750,000
Net cash generated from financing activities 1,253,953 - 750,000
Notes to the consolidated financial statements
1. Accounting Policies
Basis of preparation
This Report was approved by the directors on 27 September 2007.
From January 1 2007, the Group has adopted International Financial Reporting
Standards ('IFRS') and the International Financial Reporting Interpretations
Committee ('IFRIC') interpretations in the preparation of its consolidated
financial statements. The financial statements have been prepared under the
historical cost basis. Information on the impact on accounting policies and
financial results resulting from the conversion from UK Generally Accepted
Accounting Practice ('UK GAAP') to IFRS is provided later in this report.
Prior to 2007, the Group prepared its audited financial statements and unaudited
interim financial statements under UK GAAP. From 1 January 2007, the Group is
required to prepare annual consolidated financial statements in accordance with
IFRS as adopted in the EU. As the 2007 annual financial statements will include
comparatives for 2006, the Group's date of transition to IFRS is 1 January 2006
with the 2006 comparatives restated to IFRS. Accordingly the financial
information for the six months to 30 June 2006 has been restated to present the
comparative information in accordance with IFRS based on the transition date of
1 January 2006.
The accounting policies applied in these unaudited interim financial statements
are those that the group expects to apply in its annual financial statements for
the year ending 31 December 2007, which will be prepared in accordance with
IFRS, and those parts of the Companies Act 1985 that remain applicable to
companies reporting under IFRS.
This half-year report does not constitute statutory accounts of the Group within
the meaning of section 240 of the Companies Act 1985. Statutory accounts for the
year ended 31 December 2006, which were prepared under UK GAAP, have been filed
with the Registrar of Companies. The auditors' report on those accounts was
unqualified and did not contain any statement under section 237 (2) or (3) of
the Companies Act 1985. The audited results for the year ended 31 December 2006
disclosed in this report are an abridged version of the company's Annual Report
and Accounts adjusted for the transition to IFRS. It does not constitute the
Financial Statements for that period.
At the date of authorisation of this report the following Standards and
Interpretations, which have not been applied in these financial statements, were
in issue but not yet effective:
IFRS 8 Operating Segments
IFRIC 8 Scope of IFRS 2
IFRIC 9 Reassessment of Embedded Derivatives
IFRIC10 Interim Financial Reporting and Impairments
IFRIC 11 Group and Treasury Share Transactions
IFRIC 12 Service Concession Arrangements
IFRIC 13 Customer loyalty programmes
IFRIC 14 IAS 19 The limit on a defined benefit asset, minimum funding requirements and their
interaction
Amendments of IAS1 and IAS 23
The directors anticipate that the adoption of these Standards and
Interpretations in future periods will have no material impact on the financial
statements of the Group when the relevant standards come into effect for periods
commencing on or after 1 January 2008.
Principal accounting policies of the Group
This interim financial information has been prepared on the basis of the
recognition and measurement requirements of IFRSs in issue that either are
endorsed by the EU and effective (or available for early adoption) at 30 June
2007 or are expected to be endorsed and effective (or available for early
adoption) at 31 December 2007, the Group's first annual reporting under IFRS.
Based on these adopted and unadopted IFRS, the directors have made assumptions
about the accounting policies expected to be applied, which are as set out
below, when the first annual IFRS financial statements are prepared for the year
ending 31 December 2007.
The adopted IFRS that will be effective (or available for early adoption) in the
annual financial statements for the year ending 31 December 2007 are still
subject to change and to additional interpretations and therefore cannot be
determined with certainty. Accordingly, the accounting policies for the annual
period will be determined finally only when the annual financial statements are
prepared for the year ending 31 December 2007.
Transitional arrangements
The Group has taken the following optional exemptions contained in IFRS 1 '
First-time Adoption of International Financial Reporting Standards' in preparing
the Group's balance sheet on transition to IFRS at 1 January 2006:
• Business combinations - the Group has elected not to apply IFRS 3
Business Combinations retrospectively to past business combinations (business
combinations that occurred before the date of transition to IFRS).
A UK GAAP to IFRS reconciliation for the comparative periods is included in this
interim statement in note 6.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of
Vane Minerals plc ('the Company') and all of its subsidiary undertakings
(together, 'the Group').
Subsidiary undertakings are those entities controlled directly or indirectly by
the Company. Control arises when the Company has the ability to direct the
financial and operating policies of an entity so as to obtain benefits from its
activities.
On acquisition, the assets and liabilities and contingent liabilities of a
subsidiary are measured at their fair values at the date of acquisition. Any
excess of the cost of the acquisition over the fair values of the identifiable
net assets acquired is recognised as goodwill. Any deficiency of the cost of
acquisition below the fair values of the identifiable net assets acquired (i.e.
discount on acquisition) is credited to the income statement in the period of
acquisition.
The results of subsidiaries acquired or disposed of during the year are included
in the consolidated income statement from the effective date of acquisition or
up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used into line with those used by
the Group.
All intra-group transactions, balances, income, expenses and unrealised gains on
transactions between group companies are eliminated on consolidation.
Intangible assets
The Group applies the full cost method of accounting for Exploration and
Evaluation ('E&E') costs, having regard to the requirements of IFRS 6
Exploration for and Evaluation of Mineral Resources.
Expenditure including related overheads on the acquisition, exploration and
evaluation of interests in licences not yet transferred to the cost pool is
capitalised under intangible fixed assets once it has been established that
there are resources present that may be capable of recovery. Cost pools are
established on the basis of geographic area. When it is determined that such
costs will be recouped through successful development and exploitation or
alternatively by sale of the interest, expenditure will be transferred to
tangible fixed assets and depreciated over the expected productive life of the
asset. Whenever a project is considered no longer viable the associated
exploration expenditure is written off to the profit and loss account.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation
and any accumulated impairment losses. The cost of an item of property, plant
and equipment comprises its purchase price and any costs directly attributable
to bringing the asset into use.
Depreciation is provided on all tangible fixed assets at rates calculated to
write assets down to their estimated residual value evenly over their useful
economic lives at the following rates:
- Diablito project over the life of the mine
- Plant & machinery over 5 to 10 years
Assets held under finance leases are depreciated over their expected useful
lives on the same basis as owned assets or, where shorter, over the term of the
relevant lease.
The assets residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date. The gain or loss arising on the
disposal or retirement of an asset is determined as the difference between the
sale proceeds and the carrying amount of the asset and is recognised in the
income statement.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost
comprises direct materials and, where applicable, directs labour costs and those
overheads that have been incurred in bringing the inventories to their present
location and condition. Cost is calculated using the weighted average method.
Net realisable value represents the estimated selling price less all estimated
costs to completion and costs to be incurred in marketing, selling and
distribution.
Leases
Leases are classified as finance leases whenever the terms of the lease transfer
substantially all the risks and rewards of ownership to the lessee. All other
leases are classified as operating leases.
The Group as lessee
Assets held under finance leases are recognised as assets of the Group at their
fair value or, if lower, at the present value of the minimum lease payments,
each determined at the inception of the lease. The corresponding liability to
the lessor is included in the balance sheet as a finance lease obligation.
Lease payments are apportioned between finance charges and reduction of the
lease obligation so as to achieve a constant rate of interest on the remaining
balance of the liability. Finance charges are charged directly against income,
unless they are directly attributable to qualifying assets, in which case they
are capitalised in accordance with the Group's general policy on borrowing
costs.
Rentals payable under operating leases are charged to income on a straight-line
basis over the term of the relevant lease.
Retirement benefit costs
The Group makes contributions to the personal pension schemes of its employees
and directors. The amount charged to the income statement in respect of pension
costs is the contributions payable in the year. There were no unpaid
contributions at the period end.
Investments in subsidiaries
Investments in subsidiaries in the company's balance sheet are held at cost less
any provision for impairment in the value of the investment.
Impairment of tangible and intangible assets excluding goodwill
At each balance sheet date, the Group reviews the carrying amounts of its
tangible and intangible assets to determine whether there is any indication that
those assets have suffered an impairment loss. If any such indication exists,
the recoverable amount of the asset is estimated in order to determine the
extent of the impairment loss (if any). Where the asset does not generate cash
flows that are independent from other assets, the Group estimates the
recoverable amount of the cash generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in
use. In assessing value in use, the estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks specific to the
asset for which the estimates of future cash flows have been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to
be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised as an expense immediately, unless the relevant asset is carried at
a revalued amount, in which case the impairment loss is treated as a revaluation
decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset
(cash-generating unit) is increased to the revised estimate of its recoverable
amount, but so that the increased carrying amount does not exceed the carrying
amount that would have been determined had no impairment loss been recognised
for the asset (cash-generating unit) in prior years. A reversal of an impairment
loss is recognised as income immediately, unless the relevant asset is carried
at a revalued amount, in which case the reversal of the impairment loss is
treated as a revaluation increase.
Financial instruments
The following policies for financial instruments have been applied in the
preparation of the Group's interim financial statements. Financial assets and
financial liabilities are recognised on the Group's balance sheet when the Group
becomes a party to the contractual provisions of the instrument.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, and other
short-term highly liquid investments that are readily convertible to a known
amount of cash with three months or less remaining to maturity and are subject
to an insignificant risk of changes in value.
Trade and other receivables
Trade and other receivables do not carry any interest and are stated at their
fair value as reduced by appropriate allowances for estimated irrecoverable
amounts.
Trade payables
Trade payables are not interest bearing and are stated at their fair value.
Financial liabilities and equity instruments
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument is
any contract that evidences a residual interest in the assets of the group after
deducting all of its liabilities.
Equity instruments issued by the company are recorded at the proceeds received,
net of direct issue costs.
Provisions
Provisions are recognised when the Group has a present obligation as a result of
a past event, and it is probable that the Group will be required to settle that
obligation. Provisions are measured at the directors' best estimate of the
present value of the expenditure required to settle the obligation at the
balance sheet date.
Decommissioning
Provision for decommissioning is recognised in full when the related facilities
are installed. The decommissioning provision is calculated as the net present
value of the Group's share of the expenditure expected to be incurred at the end
of the producing life of the facility in the removal and decommissioning of the
production, storage and transportation facilities currently in place. The cost
of recognising the decommissioning provision is included as part of the cost of
the relevant asset and is thus charged to the income statement on a unit of
production basis in accordance with the Group's policy for depletion and
depreciation of property, plant and equipment. Period charges for changes in the
net present value of the decommissioning provision arising from discounting are
included in finance costs.
Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on the taxable profit for the period.
Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in
other years and it further excludes items that are never taxable or deductible.
The Group's liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities for financial statements
and the corresponding tax bases used in the computation of taxable profit, and
is accounted for using the balance sheet liability method. Deferred tax
liabilities are generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is probable that future
taxable profits will be available against which deductible temporary differences
can be utilised.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
profits will be available to allow all or part of the assets to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realised. Deferred tax is
charged or credited in the income statement, except when it relates to items
charged or credited directly to equity, in which case the deferred tax is also
dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority.
Foreign currencies
The individual financial statements of each group company are presented in the
currency of the primary economic environment in which it operated (its
functional currency). For the purpose of the consolidated financial statements,
the results and financial position of each group company are expressed in pound
sterling, which is the functional currency of the Company, and the presentation
currency for the consolidated financial statements.
Transactions in currencies other than the functional currency of each group
company ('foreign currencies') are recorded in the functional currency at the
rates of exchange prevailing on the dates of the transactions. At each balance
sheet date, monetary assets and liabilities that are denominated in foreign
currencies are retranslated into the functional currency at the rates prevailing
on the balance sheet date. Non-monetary assets and liabilities carried at fair
value that are denominated in foreign currencies are translated at the rates
prevailing at the date when the fair value was determined. Non-monetary items
that are measured in terms of historical cost in a foreign currency are not
retranslated.
Gains and losses arising on retranslation are included in net profit or loss for
that period, except for exchange differences arising on non-monetary assets and
liabilities where the changes in fair value are recognised directly in equity.
For the purpose of presenting consolidated financial statements, the income
statement and balance sheet of foreign operations and foreign entities are
translated into the functional currency (pound sterling) on consolidation at the
average rates for the period and the rates prevailing at the balance sheet dates
respectively. Exchange gains and losses arising on the translation of the
group's net investment in foreign operations and foreign entities, are
recognised as a separate component of shareholders' equity. On disposal of
foreign operations and foreign entities, the cumulative translation differences
are recycled to the income statement and recognised as part of the gain or loss
on disposal.
Fair value adjustments arising on the acquisition of a foreign entity are
treated as assets and liabilities of the foreign entity and translated at the
closing rate. The Group has elected to treat fair value adjustments arising on
acquisitions before the date of transition to IFRS as sterling denominated
assets and liabilities.
The most important foreign currencies for the Group are the US dollar and the
Mexican peso. The relevant exchange rates for these currencies in sterling were:
30 June 30 June 2007 30 June 2006 30 June 31 December 2006 31 December 2006
2007 average closing average 2006 closing average closing
US dollar 1.9684 2.0044 1.8485 1.8485 1.8426 1.9617
Mexican peso 21.5526 21.6808 20.8657 20.8657 20.0915 21.2893
Revenue Recognition
Revenue from the sale of minerals is recognised when persuasive evidence,
usually in the form of an executed sales agreement, of an arrangement exists
indicating that there has been a transfer of risks and rewards to the customer,
no further work or processing is required by the Group, the quantity and quality
of the goods has been determined with reasonable accuracy, the price is fixed or
determinable, and collectability is reasonably assured. This is generally when
title passes.
Share-based payments
The Group operates an equity-settled, share-based compensation plan. The fair
value of the employee service received in exchange for the grant of the options
is recognised as an expense. The total amount to be expensed over the vesting
period is determined by reference to the fair value of the options granted,
excluding the impact of any non-market vesting conditions. Non-market vesting
conditions are included in assumptions about the number of options that are
expected to become exercisable. At each balance sheet date the Group revises
its estimates of the number of options that are expected to become exercisable.
It recognises the impact of the revision to original estimates, if any, in the
profit and loss account, with a corresponding adjustment to equity.
Fair value is measured by use of a Monte Carlo valuation model. The expected
life used in the model has been adjusted, based on management's best estimate,
for the effect of non-transferability, exercise restrictions and behavioural
considerations.
The proceeds received are credited to share capital (nominal value) and share
premium when the options are exercised. The costs of an equity transaction are
accounted for as a deduction from equity to the extent they are incremental
costs directly attributable to the equity transaction that would otherwise have
been avoided.
Convertible Loan Notes
Convertible loan notes are regarded as compound financial instruments,
consisting of a liability component and an equity component. At the date of
issue, the fair value of the liability component is estimated using the
prevailing market interest rate for similar non-convertible debt. The difference
between the proceeds of issue of the convertible loan notes and the fair value
assigned to the liability component, representing the embedded option to convert
the liability into equity of the Group is included in equity.
Issue costs are apportioned between the liability and equity components of the
notes based on their relative carrying amounts at the date of issue. The portion
relating to the equity component is charged directly against equity.
The interest expense on the liability component is calculated by applying the
prevailing market interest rate for similar non-convertible debt to the
liability component of the instrument. The difference between this amount and
the interest paid is added to the carrying amount of the convertible loan note.
Segmental reporting
A business segment is a group of assets and operations engaged in providing
products or services that are subject to risks and returns that are different
from those of other business segments. A geographical segment is engaged in
providing products or services within a particular economic environment that are
subject to risks and return that are different from those of segments operating
in other economic environments.
2. Dividends
The directors do not recommend the payment of a dividend for the period.
3. Loss per ordinary share
The calculation of basic and diluted loss per ordinary share is based on the
loss on ordinary activities after taxation and on the following weighted average
number of shares in issue.
Shares in Issue
30 June 2007 30 June 2006 31 December 2006
Weighted average number of shares 148,317,856 146,143,823 146,143,823
As a result of the loss incurred in the periods ended 30 June 2007, 30 June 2006
and 31 December 2006 there is no dilutive effect from the subsisting share
options.
4. Segmental analysis
The Group's principal geographic segments are:
6 months to 6 months to 12 Months to
Geographical Location 30 June 2007 30 June 2006 31 December 2006
£
£ £
Revenue
UK - - -
USA - - -
Mexico 692,008 1,005,084 1,592,632
Paraguay -
692,008 1,005,084 1,592,632
Loss after taxation
UK (336,816) (159,305) (445,976)
USA (204,334) (233,976) (528,532)
Mexico (323,459) 154,072 208,304
Paraguay - - -
(864,609) (239,209) (766,204)
Net Assets
UK (3,224,077) (2,754,845) (3,220,110)
USA 1,618,189 1,142,223 1,252,102
Mexico 10,911,159 11,416,090 11,173,393
Paraguay 176,625 - 125,247
9,481,896 9,803,468 9,330,632
Activities in Mexico are currently concerned with gold and silver mining and
exploration. Activities in the USA are split between research of the Freeport
database and other sources for further gold and silver properties, and research
and evaluation of potential uranium properties. Activities in Paraguay are
concerned with gold and copper exploration. Activities in the United Kingdom are
concerned with administration and management of the Group.
5. Explanation of transition to IFRS
As required by IFRS 1, the impact of the transition from UK GAAP to IFRS is
explained below.
The accounting policies set out above have been applied consistently to all
periods presented in this interim financial information and in preparing an
opening IFRS balance sheet at 1 January 2006 for the purposes of the transition
to IFRS.
IAS 1 - Presentation of Financial Statements. The form and presentation of the
UK GAAP financial statements has been changed to be in compliance with IAS 1.
IAS 7 - Cash Flow Statements. The IFRS Cash Flow Statement, prepared under IAS
7, presents cash flows in three categories; cash flows from operating
activities, cash flows from investing activities and cash flows from financing
activities. Other than the reclassification of cash flow into the new disclosure
categories, there are no significant differences between the Group's Cash Flow
Statement under UK GAAP and IFRS. Consequently, no cash flow reconciliations are
provided.
6. Reconciliation of UK GAAP to IFRS
Six months ended 30 June 2006 Income Statement
IFRS adjustments
UK GAAP Restated
£ £ £
Revenue 1,005,084 - 1,005,084
Cost of sales (836,523) - (836,523)
Gross profit 168,561 - 168,561
Operating and administration expenses (521,808) - (521,808)
Operating loss (353,247) - (353,247)
Investment Revenue 8,618 - 8,618
Loss on ordinary activities before taxation (344,629) - (344,629)
Taxation (B) - 105,420 105,420
Loss on ordinary activities after taxation (344,629) 105,420 (239,209)
Loss per share
Basic & diluted (0.24p) (0.16p)
6. Reconciliation of UK GAAP to IFRS (continued)
Six months ended 30 June 2006 Balance Sheet
IFRS adjustments
UK GAAP Restated
£ £ £
Non-current assets
Intangible assets 7,989,690 - 7,989,690
Property, plant and equipment 3,772,944 - 3,772,944
Deferred tax asset 132,171 - 132,171
11,894,805 - 11,894,805
Current assets
Inventories 175,105 - 175,105
Trade and other receivables 163,917 - 163,917
Cash and cash equivalents 703,170 - 703,170
1,042,192 - 1,042,192
Total assets 12,936,997 - 12,936,997
Current liabilities
Trade and other payables (198,864) - (198,864)
Taxation (1,184) - (1,184)
Provision for other liabilities and charges (11,406) - (11,406)
(211,454) - (211,454)
Net current assets 830,738 - 830,738
Non-current liabilities
Deferred tax (B) - (2,922,075) (2,922,075)
Total liabilities (211,454) (2,922,075) (3,133,529)
Net assets 12,725,543 (2,922,075) 9,803,468
Equity
Called up share capital 14,614,382 - 14,614,382
Share option reserve 120,720 - 120,720
Accumulated deficit (A) (B) (2,009,559) (2,736,771) (4,746,330)
Cumulative translation reserve (A) - (185,304) (185,304)
Equity shareholders' funds 12,725,543 (2,922,075) 9,803,468
6. Reconciliation of UK GAAP to IFRS (continued)
Year ended 31 December 2006 Income Statement
IFRS adjustments
UK GAAP Restated
£ £ £
Revenue 1,592,632 - 1,592,632
Cost of sales (957,740) - (957,740)
Gross profit 634,892 - 634,892
Operating and administration expenses (1,500,558) - (1,500,558)
Operating loss (865,666) - (865,666)
Investment Revenue 19,381 - 19,381
Finance costs (25,598) - (25,598)
Loss on ordinary activities before taxation (871,883) - (871,883)
Taxation (B) (21,704) 127,383 105,679
Loss on ordinary activities after taxation (893,587) 127,383 (766,204)
Loss per share
Basic & diluted (0.61p) (0.52p)
6. Reconciliation of UK GAAP to IFRS (continued)
31 December 2006 Balance Sheet
IFRS adjustments
UK GAAP Restated
£ £ £
Non-current assets
Intangible assets 7,828,224 - 7,828,224
Property, plant and equipment 3,737,359 - 3,737,359
Deferred tax asset 115,039 - 115,039
11,680,622 - 11,680,622
Current assets
Inventories 579,668 - 579,668
Trade and other receivables 228,990 - 228,990
Cash and cash equivalents 624,374 - 624,374
1,433,032 - 1,433,032
Total assets 13,113,654 - 13,113,654
Current liabilities
Trade and other payables (194,875) - (194,875)
Taxation (4,107) - (4,107)
(198,982) - (198,982)
Net current assets 1,234,050 - 1,234,050
Non-current liabilities
Convertible loan notes (676,474) - (676,474)
Deferred tax (B) - (2,900,112) (2,900,112)
Obligations under finance leases (7,454) - (7,454)
(683,928) (2,900,112) (3,584,040)
Total liabilities (882,910) (2,900,112) (3,783,022)
Net assets 12,230,744 (2,900,112) 9,330,632
Equity
Called up share capital 14,614,382 - 14,614,382
Share option reserve 143,769 - 143,769
Other reserves 79,628 - 79,628
Accumulated deficit (A) +(B) (2,607,035) (2,666,290) (5,273,325)
Cumulative translation reserve (A) - (233,822) (233,822)
Equity shareholders' funds 12,230,744 (2,900,112) 9,330,632
(A) Cumulative translation reserve
The translation reserve results from exchange gains and losses arising on the
translation of the Group's net investment in its overseas operating
subsidiaries. These exchange differences were previously taken to the profit
and loss reserve but have been shown as a separate translation reserve for IFRS
reporting purposes. The foreign exchange impact of translating foreign
operations since 1 January 2006 is as follows: £229,261 for the six month period
to 30 June 2006 and £277,779 for the year ended 31 December 2006.
6. Reconciliation of UK GAAP to IFRS (continued)
(B) Deferred tax
Provision has been made for a deferred tax liability in relation to fair value
adjustments made on business combinations which took place prior to 1 January
2006. Provision is required in accordance with IAS 12 and a corresponding
adjustment has been made to retained earnings. The impact of this provision
since 1 January 2006 is as follows: £105,420 deferred tax credit in the income
statement for the six month period to 30 June 2006 and £127,383 credit for the
year ended 31 December 2006.
1 January 2006 Consolidated Balance Sheet
IFRS adjustments
UK GAAP Restated
£ £ £
Non-current assets
Intangible assets 7,990,975 - 7,990,975
Property, plant and equipment 4,171,297 - 4,171,297
Deferred tax asset 150,866 - 150,866
12,313,138 - 12,313,138
Current assets
Inventories 122,893 - 122,893
Trade and other receivables 262,508 - 262,508
Cash and cash equivalents 731,932 - 731,932
1,117,333 - 1,117,333
Total assets 13,430,471 - 13,430,471
Current liabilities
Trade and other payables (150,170) - (150,170)
Taxation (6,488) - (6,488)
Provision for other liabilities and charges - - -
(156,658) - (156,658)
Net current assets 960,675 - 960,675
Non-current liabilities
Deferred tax - (3,027,495) (3,027,495)
Total liabilities (156,658) (3,027,495) (3,184,153)
Net assets 13,273,813 (3,027,495) 10,246,318
Equity
Called up share capital 14,614,382 - 14,614,382
Share option reserve 95,100 - 95,100
Accumulated deficit (1,435,669) (3,071,452) (4,507,121)
Cumulative translation reserves - 43,957 43,957
Equity shareholders' funds 13,273,813 (3,027,495) 10,246,318
7. Capital and reserves
Shares issued
During the period ended 30 June 2007 1 million new ordinary shares were issued
for a cash consideration of £145,500 net of expenses.
Share option rights were exercised during the period ended 30 June 2007
resulting in the issue of a further 1 million new ordinary shares for a cash
consideration of £110,000.
In addition Geiger Counter Limited and City Natural Resources High Yield Trust
plc exercised their conversion rights on a convertible loan note, resulting in
the issue of a further 6,250,000 shares.
Share option reserve
The share option reserve includes an expense based on the fair value of share
options issued since 7 November 2002.
Other reserve
The other reserve represents recognition of the equity component of the
convertible loan notes.
Cumulative translation reserve
The translation reserve comprises all foreign exchange differences arising from
the translation of the financial statements of operations that do not have a
sterling functional currency. Exchange differences are classified as equity and
transferred to the Group's translation reserve. Such translation differences are
recognised in the income statement in the period in which the operation is
disposed of.
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