Final Results

Final Results

Armadale Capital Plc

The information communicated in this announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) No. 596/2014.

Armadale Capital Plc / Index: AIM / Epic: ACP / Sector: Investment Company

23 May 2018

Armadale Capital Plc (‘Armadale’ or ‘the Company’)

Final Results and Notice of AGM

Armadale, the AIM quoted investment company focused on natural resource projects in Africa, is pleased to announce its final results for the year ended 31 December 2017.

HIGHLIGHTS

  • Rapid advancement of the high grade Mahenge Liandu Graphite Project in Tanzania (‘Mahenge Liandu’) during 2017 ahead of an anticipated decision to mine in early 2019:
    • High concentrate grades of up to 99.1% TGC produced using low-cost processing methods
    • Excellent flake size distribution and graphite expandability highlights Mahenge Liandu’s amenability to a range of applications, including the high growth battery market
    • 25% increase in total resource to 51.1Mt at 9.3% Total Graphitic Carbon (‘TGC’), including 38.7Mt Indicted at 9.3% and 12.4Mt at 9.1% TGC (post period end)
    • Scoping Study delivered post period end which highlighted a pre-tax IRR of 122%, NPV of US$349m with a low development capex of US$35m and low operating costs of US$408/t
    • Feasibility Study based on parameters of 400,000tpa over a 32-year mine life commenced in May 2018
  • Additional upside through royalty payments available from the Mpokoto Gold Project in the DRC – sale agreement with potential buyer anticipated to be finalised by end of Q2 2018
  • Active growth strategy – committed to identifying and investing in African resource projects, which offer prospective upside opportunity

Nick Johansen, Director of Armadale said: “2017 saw Armadale accelerate work at Mahenge Liandu as we approach our target of making a decision to mine early next year. Exploration and definition drill programmes, metallurgical testwork, feasibility studies, permitting activities and commercial marketing are all being conducted concurrently to ensure we meet this ambitious target and start delivering returns for our shareholders.

“We are confident that these returns for shareholders will be considerable. The recently released Scoping Study for Mahenge Liandu supported a pre-tax IRR of 122%, NPV of US$349m with a low development capex of US$35m and low operating costs of US$408/t, highlighting how attractive this project is from an economic standpoint. Coupled then with the exceptional quality, with concentrate purity of up to 99.1% TGC produced using low-cost processing methods, and desirable flake size distribution and graphite expandability attributed to the material from Mahenge Liandu, we are enthusiastic about beginning the formal marketing process of our product within markets including the high growth battery industry.

“Shareholders should also note that we are now well funded as we advance our Feasibility Study following the raising of £963,500 post period end, and we also expect to receive additional funds in respect of the sale of our non-core gold interests in the DRC over the coming months. It is with this in mind, together with a project which has consistently demonstrated its considerable economic and strategic value, that I look forward to providing investors with additional news over the coming months as we gear up to making a formal decision to mine in Q1 2019.”

NOTICE OF AGM & POSTING OF ANNUAL REPORT

The Company announces that its Annual General Meeting (‘AGM’) will be held at 3 St Michael’s Alley, London, EC3V 9DS on 21 June 2018 at 3.00 p.m. A notice of AGM, together with printed copies of the Company’s Annual Report for the year ended 31 December 2017 will be posted to shareholders today. Copies will also be available to view on the Company’s website: www.armadalecapitalplc.com.

STRATEGIC REPORT

To view a version of the strategic report with maps and figures, please go to the Company’s website at www.armadalecapitalplc.com.

During the year under review, Armadale has continued to operate as a diversified investing company focused on natural resource projects in Africa.

The Company’s investment portfolio is divided into two groups:

  • Actively managed investments: where the Company has majority ownership of the investment
  • Passively managed investments: where the Company has a minority investment, typically in a quoted company, and does not have management control.

Actively Managed Investments:

Mpokoto Gold Project, DRC (“MPOKOTO”)

The Mpokoto project was the subject of a joint venture agreement with Kisenge Mining Pty Ltd (‘Kisenge Mining’) throughout the year under review and, as such, is considered a non-core investment asset of Armadale.

During the year under review, our joint venture partners Kisenge Mining carried out work in following areas:

  • Review of the DFS study focusing on reducing capital costs and phased mining program starting with oxides.
  • Streamlining of ongoing costs in DRC

In the period after the year under review Armadale commenced negotiations towards a contract for divestment of its investment in Mpokoto with a potential buyer under following basic terms:

  • US$75,000 on contract signature
  • US$187,500 within 12 months of signing
  • US$300,000 on commencement of production
  • Gold production royalty of 1.5%

Kisenge Mining has agreed that it would withdraw from the joint venture agreement in order to allow the sale of Mpokoto to proceed once a contract for divestment of Mpokoto is finalised. Negotiations are continuing with a potential buyer with expectations for finalisation in May/June 2018. This will provide the Company with additional funds to accelerate the development of the Mahenge Liandu graphite project.

Mahenge Liandu Graphite Project, Tanzania ‘MAHENGE LIANDU’

The Company continued to deliver exceptional results at its 100% owned Mahenge Liandu Graphite project during 2017. The Project is located in a highly prospective region with a high-grade JORC compliant indicated and inferred mineral resource estimate of 51.1Mt @ 9.3% TGC, making it one of the largest high-grade resources in Tanzania, and work to date has demonstrated Mahenge Liandu’s potential as a commercially viable deposit with significant tonnage, high-grade coarse flake and near surface mineralisation (implying a low strip ratio) contained within one contiguous ore body.

The main focus of activities was the completion of a Scoping Study which was managed by Battery Limits, an Australian based engineering company. The study was based on a throughput of 400,000pta over a 32 year mine life. The results of the study showed the project has robust economics and warrants further development. The Company believes the timing of the planned mine development will coincide with growing opportunities in the graphite market with strong outlook for increased graphite demand from the burgeoning lithium ion battery, expandable graphite, as well as traditional graphite, markets.

Project Location

The Mahenge Project is located in the Morogoro region, Ulanga district, Tanzania close to existing transport infrastructure. It is 10 km south of the Mahenge township and about 76 km via a well-maintained dirt road to Ifakara after which it is 400 km by sealed road from Dar-es-Salaam port.

Project Geology

The prospect is situated within the pan African Mozambique belt, which is the orogenic belt resulting from activities taking place in the Neoproterozoic time. The belt extends along the eastern border of Africa from Ethiopia through Kenya and Tanzania. The orogenic event resulted in a complex series of geological events including the rifting system. The belt consists of high-grade mid-crustal rocks with a Neoproterozoic metamorphic overprint. It is divided into the Western Granulite and Eastern Granulite. The deposit is situated in the Eastern Granulites. The belt has undergone retrograde metamorphism which resulted in the present upper amphibolite metamorphic facies in the project area.

Systematic drilling indicated the existence of broad, shallow to steep dipping schists overlaying granitic gneisses/gneiss. The gneisses are underlaid by marble units. The graphitic schists form alternating compositional layering, with quartz being the content that differentiates these units. High grade graphite schists (graphite schist) have a lower composition of quartz. Medium to low grade graphite schists (quartz graphite schist) have a higher visual quartz percentage. The marble unit likely forms the base of the sequence (there has not been drilling done beyond the marble unit).

The drilling results have been very consistent with the structural measurements taken during the mapping program which suggested gentle to steep dipping to the south and south-southwest. The mineralization remains open in all directions.

Drilling Completed

Drilling in 2015-2016 comprised 21 RC holes. More drilling was completed in 2017, which increased the total to 49 RC holes for 2,419m of drilling. The 2015-2016 drilling aimed to define the mineralisation units and calculate the initial JORC compliant resource. The 2017 drilling aimed at infill drilling the existing pattern to upgrade the resource classification, extend the available resources and better define the mineralised units laterally within the deposit. The drilling targeted a higher-grade zone within the deposit and drilling was concentrated in the northern part of the tenement. A map of all of the drilling completed to date is shown below.

Resource Update

In December 2016, Armadale announced an upgraded estimated Inferred Resource for Mahenge of 40.9 Mt @ 9.4% Total Graphitic Carbon (TGC). Additional resource drilling was undertaken in 2017 and returned extensive high-grade intersections of graphite that show coarse graphite through visual inspection. Following this drilling program, a new Mineral Resource Estimate was announced in Feb 2018 comprising 51.1 Mt @ 9.3% TGC including Indicated Resource of 12.4 Mt @ 9.1% TGC and Inferred Resource of 38.7 Mt @ 9.3% TGC.

     
    Tonnage (Mt)   Cutoff TGC (%)   Average TGC (%)
Inferred   12.4   3.3   9.1
Indicated   38.7   3.5   9.3
Total   51.1   3.5   9.3

Table 1. Mahenge Liandu Resource Statement

Metallurgical Testwork

During the year a metallurgical test work program was completed on bulk surface samples which was used as a basis for initial process design information as well as graphite flake size, concentrate grades and recoveries. The results of the program showed the deposit is capable of producing high purity coarse flake graphite.

Combined cleaner concentrate grade and size distribution from the bulk test

   
Flake Size Microns 4088-09
    Mass (%)   TGC Grade (%)
Super Jumbo   > 500   3.67   97.9
Jumbo   300 – 500   20.8   97.9
Large   180 – 300   23.6   97.9
Medium   150 – 180   18.4   98.1
Small   75 --150   21.8   98.3
Fine   < 75   11.8   97.1
 

Process Description

The Scoping Study was based on a processing plant designed to treat 400 ktpa of ore. The ore will be two-stage crushed, followed by grinding in a rod mill, with graphite recovered by flotation. The process includes separation of graphite into coarse and fine concentrates at an intermediate stage, followed by inter-stage re-grind milling and flotation to improve liberation and product purity. The flotation concentrate will then be then dewatered by filtration, dried, and bagged.

Results of the Scoping Study

During 2017 a Scoping Study was progressed at the Mahenge Liandu project which included the completion of a mine optimisation study, infill drilling and the resource upgrade. The results of the Scoping Study were announced in March 2018. The Scoping Study confirmed the combination of high graphite feed grade and coarse flake high purity graphite product and provided highly robust and compelling economics for the Mahenge Liandu project. The Scoping Study, based on a 400,000 tpa throughput, had following key economics:

  • Producing an average of 49,000tpa of high quality graphite products for a 32 year mine life.
  • The near surface nature of the deposit produced a low strip ratio of approximately 1:1 for the life of the mine.
  • The Project has a low operating cost of US$408/t and is based on an average life of mine grade of 12.5% Total Graphitic Carbon (‘TGC’)
  • The project has a pre-tax IRR of 122% and NPV of US$349m with a low development capex of US$35m
  • The maximum drawdown during the construction of the Project is US$34.9m and the after-tax payback period is 1.2 years
  • There remains significant scope to further improve returns, with staged expansions as the current mine plan is based on approximately 25% of the total resource.

Summary of project financial performance

   
Financial Performance Summary   Units   LOM
Project Life   (years)   31.8
Total LOM Net Revenue   (US$ M, real)   1,977.7
Total LOM EBITDA   (US$ M, real)   1,196.0
Total LOM Net Cash Flows Before Tax   (US$ M, real)   1,134.7
Total LOM Net Cash Flows After Tax   (US$ M, real)   794.3
NPV @ 10.0% - before tax   (US$ M, real)   348.7
NPV @ 10.0% - after tax   (US$ M, real)   239.1
IRR - before tax   (%, real)   122.5%
IRR - after tax   (%, real)   89.3%
Project Capital Expenditure   (US$ M, real)   34.9
Payback Period - after tax - from 1st ore   (years)   1.2
 

The Scoping Study results validate the Directors’ long held confidence in the commercial potential and economic value of the Mahenge project. The results will be used in the upcoming Definitive Feasibility Study to advance the project to a decision to mine in 2019.

Based on the Scoping Study results the Company will also commence negotiations with identified strategic funders and offtake partners and continue to examine a range of potential markets and customers.

Exploration Licences

The Company holds following exploration tenements for Mahenge Liandu:

  • PL10846/2016 granted on 21/9/2016 expires 20/9/2020 area 7.34 square kilometres
  • PL10840/2016 granted 21/9/2016 expires 20/9/2020 area 21.89 square kilometres

Exploration and Development Programme

The Definitive Feasibility Study for the Mahenge Liandu project will commenced in Q2 2018 and expected to be substantially complete by Q4 2018. The Feasibility Study will focus on defining graphite product quality with a wide diameter diamond core drilling programme aimed at generating samples for marketing.

During Q2 and Q3 2018, it is planned to conduct following activities to support the Feasibility Study:

  • A diamond drilling programme to obtain samples for metallurgical test work and marketing
  • A geotechnical drilling programme to define the final pit wall design
  • Product marketing towards the goal of achieving binding offtake agreements
  • The construction of water production bores to determine the flow rates and ground water conditions in the Project area
  • Environmental and social studies covering the Project area and completion of a Relocation Action plan (RAP) for the people who may be impacted through the development of the Project
  • Progressing towards application of mining permits
  • Calculation of Proved and Probable Reserves
  • Finalisation of production flowsheets and final plant design parameters

Passively Managed Investments:

Mine Restoration Investments Limited (“MRI”), South Africa

The shares in MRI are being carried at Nil market value (2016: Nil) as MRI shares were suspended from trading on the Johannesburg Stock Exchange.

Quoted portfolio

The Company has a small portfolio of quoted investments, principally in gold production companies where the directors believe there are opportunities for capital gain. The Company continues to keep its portfolio under review.

Funding Plan

The Company secured a £400,000 debt facility in October 2017 with a consortium of a few high net worth investors. Up to April 2018, £200,000 of the facility was drawn to support working capital and development work in completing the scoping study for Mahenge Liandu.

In addition to the debt facility, the Company raised £963,500 in April 2018 through the placement of 58,393,941 new ordinary shares to existing investors in UK and Australia. The funds raised will be used for working capital and for the commencement of Feasibility Study (FS) for Mahenge Liandu.

It is expected that further funding will be required during the 2018 financial year.

Sustainable development

The Company is committed to sustainable development and conducting its business ethically. Given that the Company invests in the mining industry, Armadale focuses on health and safety, being environmentally responsible, and supporting the communities close to its investments.

Corporate Information

Principal risks and uncertainties

There are numerous risks associated with the mineral industry, especially in Africa. The Board regularly reviews the risks to which the Group is exposed and endeavours to minimise them as far as possible. The following summary, which is not exhaustive, outlines some of the risks and uncertainties currently facing the Group:

  • The Group is exposed to two minerals namely gold and graphite. With gold, the Group is vulnerable to fluctuations in the prevailing market price of gold and to variations of the US dollar, in which sales will be denominated. Graphite is a relatively new commodity whose market is being driven by demand in renewable energy. It is thus vulnerable to global energy policies.
  • The impact of BREXIT on companies operating in the UK is still being monitored. Thus far Brexit has not impacted the Group’s ability to raise funds.
  • The exploration for and development of mineral resources involves technical risks, infrastructure risks and logistical challenges, which even a combination of careful evaluation and knowledge may not eliminate.
  • There can be no assurance that the Group’s projects will be fully developed in accordance with current plans.
  • Future development work and subsequent financial returns arising may be adversely affected by factors outside the control of the Group.
  • The availability and access to future funding within the global economic environment.
  • The Group operates in multiple national jurisdictions and is therefore vulnerable to changes in government policies which are outside its control. The mining regulation changes in Tanzania are still being evaluated, however they seem to have minimal impact on investment in graphite mining. The Group continues to monitor the implementation of the new changes to evaluate and mitigate sovereign risks.
  • The DRC has recently enacted new mining rules. It is not expected that the changes will have a significant impact on the divestment of the Company’s Mpokoto project.

Some of the mitigation strategies the Group applies in its present stage of development include, among others:

  • Proactive management to reducing fixed costs.
  • Rationalisation of all capital expenditures.
  • Maintaining strong relationships with government (employing local staff and partial government ownership), which improves the Group’s position as a preferred small mining partner.
  • Engagement with local communities to ensure our activities provide value to the communities where we operate.
  • Alternative and continued funding activities with a number of options to secure future funding to continue as a going concern.

The Directors regularly monitor such risks and will take actions as appropriate to mitigate them. The Group manages its risks by seeking to ensure that it complies with the terms of its agreements, and through the application of appropriate policies and procedures, and via the recruitment and retention of a team of skilled and experienced professionals.

Key performance indicators

The Group’s current key performance indicators (KPIs) are the performance of its underlying investments, measured in terms of the development of the specific projects they relate to, the increase in capital value since investment and the earnings generated for the Group from the investment. The Directors consider that it is still too early in the investment cycle of any of the investments held, for meaningful KPIs to be given.

Success is also measured through the identification and investment in suitable additional opportunities that fit the Group’s investment objectives. The acquisition of Mahenge Liandu graphite project is such success.

Outlook

Looking to the future, the positive scoping study results strengthen the directors view that the Mahenge Liandu project provides a positive outlook for the progression of the project, and hence for the Group.

Financial results

For the year ended 31 December 2017 the Group did not earn any revenues as its business related solely to the making of investments in non-revenue producing resource projects and companies.

The Group made a loss after tax of £6.177 million (2016: £0.922 million) for the year ended 31 December 2017. The principal component of this loss was an impairment charge of £5.726 million in respect of the Mpokoto project. The directors are in the process of negotiating the sale of this project and determined that it is appropriate to recognise an impairment charge based on the estimated net sales proceeds that will be received upon a disposal. Other than this, the loss comprises the administrative expenses associated with operating a public company and finance costs.

Funds raised during the year amounted in total to £0.85 million of which £0.65 million came from a placing of shares and £0.2 million from the initial drawdown of a new loan facility of £0.4 million. Other share issues during the year were in respect of loan note conversions and the discharge of certain consultants’ invoices. Since the year end, a further £0.964 million has been raised from a placing of shares and the balance of the new loan facility, £0.2 million, remains available for drawdown.

At 31 December 2017, the Group had cash of £0.065 million (2016: £0.116 million) and debt of £0.634 million (2016: £0.45 million).

Emmanuel S Mahede
Director
22 May 2018

FINANCIAL RESULTS

Consolidated Statement of Comprehensive Income
For the year ended 31 December 2017

     
    Note   2017   2016
        £   £
Other administrative expenses       (399,938)   (538,763)
Impairment of investments   13   -   (301,047)
Profit on disposal of investments   13   -   82,064
             
Operating loss       (399,938)   (909,693)
             
Finance costs       (44,478)   (11,982)
Loss before taxation   6   (444,416)   (921,675)
Taxation   9   -   -
Loss for the year from continuing operations       (444,416)   (921,675)
       
Loss from discontinued operations, net of tax   15   (5,917,411) (151,947)
       
Loss after taxation       (6,177,014)   (921,675)
             
Other comprehensive income            
Items that may be reclassified to profit or loss:            
Exchange differences on translating foreign entities       (771,989)   1,016,566

Total comprehensive (loss) / income attributable to the
equity holders of the parent company

      (6,949,003)   94,891
       

Loss per share attributable to the equity holders of the
parent company

      Pence   Pence
Basic and diluted total loss per share   10   (2.58)   (0.62)
Basic and diluted loss per share from continuing operations   10   (0.19)   (0.52)
 

The notes found below form part of the financial statements.

Consolidated Statement of Financial Position
At 31 December 2017

     
    Note   2017

£

  2016

£

Assets

Non-current assets

           
Exploration and evaluation assets   11   2,384,036   8,778,645
Property, plant and equipment   12   -   16,437
Investments   13   6,705   6,705
        2,390,741   8,801,787
Current assets            
Trade and other receivables   14   54,563   160,279
Cash and cash equivalents       65,163   115,861
        119,726   276,140
Non-current assets classified as held for sale   15   322,412   -
        442,138   276,140
       
Total assets       2,832,879   9,077,927
Equity and liabilities      
Equity            
Share capital   19   2,980,211   2,946,587
Share premium   21   19,720,193   19,009,592
Shares to be issued   21   286,000   286,000
Share option reserve   21   94,884   85,850
Loan note reserve   21   -   37,500
Foreign exchange reserve   21   337,845   1,109,834
Retained earnings   21   (21,481,920)   (15,342,406)
Total equity       1,937,213   8,132,957
Current liabilities            
Trade and other payables   16   133,619   494,733
Loan notes   17   431,406   450,237
        565,025   944,970

Liabilities directly associated with non-current assets
classified as held for sale

  15   128,011   -
        693,036   944,970
Non-current liabilities      
Long term borrowings   18   202,630   -
Total Liabilities       895,666   944,970
             
Total equity and liabilities       2,832,879   9,077,927
 

The notes found below form part of the financial statements.

Company Statement of Financial Position
At 31 December 2017

     
    Note   2017

£

  2016

£

Assets

Non-current assets

           
Investments   13   1,606,705   4,451,914
Other receivables   14   972,544   3,358,091
        2,579,249   7,810,005
Current assets            
Investments held for disposal   13   194,401   -
Trade and other receivables   14   43,750   6,856
Cash and cash equivalents       10,809   100,879
        248,960   107,735
             
Total assets       2,828,209   7,917,740
Equity and liabilities            
Equity            
Share capital   19   2,980,211   2,946,587
Share premium   21   19,720,193   19,009,592
Shares to be issued   21   286,000   286,000
Share option reserve   21   94,884 85,850
Loan note reserve   21   - 37,500
Retained earnings   21   (20,953,744)   (14,984,733)
Total equity       2,127,544   7,380,796
Current liabilities            
Trade and other payables   16   66,629   86,707
Loan notes   17   431,406   450,237
        498,035   536,944
Non-Current liabilities
Long term borrowings   18   202,630   -
Total liabilities       700,665   536,944
             
Total equity and liabilities       2,828,209   7,917,740
 

The Company has taken advantage of the exemption conferred by section 408 of Companies Act 2006 from presenting its own statement of comprehensive income. A loss after taxation of £6,006,511 (2016: £769,368) has been included in the financial statements of the parent company.

The notes found below form part of the financial statements.

Consolidated Statement of Changes in Equity
For the year ended 31 December 2017

               
   

Share
Capital

 

Share
Premium

 

Shares
to be
issued

 

Share
Option
Reserve

 

Loan
Note
Reserve

 

Foreign
Exchange
Reserve

 

Retained
Earnings

  Total
    £   £   £   £   £   £   £   £
At 1 January 2016   2,823,582   16,585,413   286,000   182,000   -   93,278   (14,550,731)   5,419,542
Loss for the year   -   -   -   -   -   -   (921,675)   (921,675)
Other comprehensive income   -   -   -   -   -   1,016,566   -   1,016,566

Total comprehensive income
for the year

   -   -   -   -   -   1,016,566   (921,675)   94,891
Issue of shares   123,005   2,540,790   -   -   -   -   -   2,663,795
Expenses of issue   -   (116,611)   -   -   -   -   -   (116,611)
Share based payment charges   -           33,850               33,850
Transfer on expiry of options   -           (130,000)           130,000   -

Equity element of convertible
loan notes issued

   -               37,500       -   37,500
Total other movements   123,005   2,424,179   -   (96,150)   37,500   -   130,000   2,618,534
                                 
At 31 December 2016   2,946,587   19,009,592   286,000   85,850   37,500   1,109,844   (15,342,406)   8,132,957
 
Loss for the year - - - - - - (6,177,014) (6,177,014)
Other comprehensive loss   -   -   -   -   -   (771,989)   -   (771,989)

Total comprehensive loss
for the year

   -   -   -   -   -   (771,989)   (6,177,014)   (6,949,008)
Issue of shares   33,624   771,501   -   -   -   -   -   802,125
Expenses of issue   -   (60,900)   -   -   -   -   -   (60,900)
Share based payment charges   -   -   -   9,034   -   -   -   9,034

Transfer on conversion of loan
notes

   -   -   -   -   (37,500)   -   37,500   -
Total other movements   33,624   710,601   -   9,034   (37,500)   -   37,500   753,259
                                 
At 31 December 2017   2,980,211   19,720,193   286,000   94,884   -   337,845   (21,481,920)   1,937,213
 

The notes found below form part of the financial statements.

The following describes the nature and purpose of each reserve within owners’ equity:

     

Reserve

Description and purpose

Share capital amount subscribed for share capital at nominal value
Share premium amount subscribed for share capital in excess of nominal value, net of allowable expenses
Shares to be issued share capital to be issued in connection with the acquisition of Netcom
Share option reserve cumulative charge recognised under IFRS 2 in respect of share-based payment awards
Loan note reserve equity element of convertible loan notes
Foreign exchange reserve gains/losses arising on re-translating the net assets of overseas operations into sterling
Retained earnings cumulative net gains and losses recognised in the statement of comprehensive income
 

Company Statement of Changes in Equity
For the year ended 31 December 2017

             
   

Share
Capital

 

Share
Premium

 

Shares to
be issued

 

Share
Option
Reserve

 

Loan
Note
Reserve

 

Retained
Earnings

  Total
    £   £   £   £       £   £
At 1 January 2016   2,823,582   16,585,413   286,000   182,000   -   (14,345,365)   5,531,630
Loss for the year   -   -   -   -   -   (769,368)   (769,368)

Total comprehensive loss for
the year

   -   -   -   -   -   (769,368)   (369,368)
Issue of shares   123,005   2,540,790   -   -   -   -   2,663,795
Expenses of issue   -   (116,611)   -   -   -   -   (116,611)
Share based payment charges   -           33,850           33,850
Transfer on expiry of options   -       -   (130,000)   -   130,000   -

Equity element of convertible
loan notes issued

   -   -   -   -   37,500   -   37,500
Total other movements   123,005   2,424,179   -   (96,150)   37,500   130,000   2,618,534
                             
At 31 December 2016   2,946,587   19,009,592   286,000   85,850   37,500   (14,984,733)   7,380,796
Loss for the year   -   -   -   -   -   (6,006,511)   (6,006,511)

Total comprehensive loss for
the year

   -   -   -   -   -   (6,006,511)   (6,006,511)
Issue of shares   33,624   771,601   -   -   -   -   805,125
Expenses of share issue   -   (60,900)   -   -   -   -   (60,900)
Share based payment charges   -   -   -   9,034   -   -   9,034

Transfer on conversion of
loan notes

   -   -   -   -   (37,500)   37,500   -
Total other movements   33,624   710,601   -   9,034   (37,500)   37,500   753,259
                             
At 31 December 2017   2,980,211   19,720,193   286,000   94,884   -   (20,953,744)   2,127,544
 

The notes found below form part of the financial statements.

The following describes the nature and purpose of each reserve within owners’ equity:

     

Reserve

Description and purpose

Share capital amount subscribed for share capital at nominal value
Share premium amount subscribed for share capital in excess of nominal value, net of allowable expenses
Shares to be issued share capital to be issued in connection with the acquisition of Netcom
Share option reserve cumulative charge recognised under IFRS 2 in respect of share-based payment awards
Loan note reserve equity element of convertible loan notes
Retained earnings cumulative net gains and losses recognised in the statement of comprehensive income
 

Consolidated Statement of Cash Flows
For the year ended 31 December 2017

       
        2017   2016
        £   £
             
Cash flows from operating activities            
Loss before taxation       (6,177,014)   (921,675)
Adjustment for:            
Depreciation       1,806   11,929
Profit on sale of investments       -   (82,064)
Impairment charge       5,726,445   301,047
Share based payment charge       9,034   33,850
Shares issued in settlement of liabilities       67,500   327,050
Finance costs       44,478   11,982
        (327,751)   (317,881)
Changes in working capital

Receivables

      (36,133)   21,951
Payables       72,101   155,247
Net cash used in operating activities       (287,577)   (140,683)
             
Cash flows from investing activities            
Expenditure on exploration and evaluation assets       (548,766)   (1,046,408)
Sale of listed investments       -   153,625
Net cash used in investing activities       (548,766)   (892,783)
             
Cash flows from financing activities            
Proceeds from share placement       650,753   1,105,000
Issue costs       (60,900)   (116,611)
Proceeds from loan (Note 18)       200,000   -
Net cash from financing activities       789,851   988,389
             
Net decrease in cash and cash equivalents       (50,698)   (45,077)
Cash and cash equivalents at 1 January       115,861   160,938
Cash and cash equivalents at 31 December       65,163   115,861
 

The notes found below form part of the financial statements.

Company Statement of Cash Flows
For the year ended 31 December 2017

       
        2017   2016
        £   £
             
Cash flows from operating activities            
Loss before taxation       (6,006,511)   (769,368)
Adjustment for:            
Share based payment charge       9,034   33,850
Profit on sale of investments       -   (82,064)
Impairment charge       5,730,587   301,047
Shares issued in settlement of liabilities       67,500   327,050
Finance costs       44,478   11,982
        (154,912)   (177,503)
Changes in working capital            
Receivables       (36,894)   38,300
Payables       (20,078)   596
Net cash used in operating activities       (211,884)   138,607
             
Cash flows from investing activities            
Advances to subsidiaries       (668,037)   (1,028,339)
Sale of listed investments       -   153,625
Net cash used in investing activities       (668,037)   (874,714)
     
Cash flows from financing activities            
Proceeds from share placement       650,751   1,105,000
Issue costs       (60,900)   (116,611)
Proceeds from loan (Note 18)       200,000   -
Net cash from financing activities       789,851   988,389
             
Net decrease in cash and cash equivalents       (90,070)   (24,932)
Cash and cash equivalents at 1 January       100,879   125,811
Cash and cash equivalents at 31 December       10,809   100,879
 

The notes found below form part of the financial statements.

Notes to the financial statements
For the year ended 31 December 2017

1. Country of incorporation

The Company was incorporated in the United Kingdom as Watermark Global Plc, a Public Limited Company, on 19 August 2005. The name of the Company was changed to Armadale Capital Plc on 2 July 2013. Its registered office is 1 Arbrook Lane, Esher, Surrey, KT10 9EG. The Company is domiciled in the UK.

2. Accounting policies

2.1. Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The principal accounting policies are set out below.

2.2. Going Concern

The financial statements have been prepared on the going concern basis as, in the opinion of the directors, there is a reasonable expectation that the Group and the Company will continue in operational existence for the foreseeable future.

At 31 December 2017, the Group had cash of £65,163 and borrowings of £634,036, comprising convertible loan notes of £431,406 due July 2018 and a loan of £202,630 due October 2019. The Noteholders have confirmed their willingness to extend the Notes for a further period of 12 months on the same terms.

Since the end of the year, the Company has continued its appraisal operations at its Mahenge Liandu graphite project. In order to fund this exploration and evaluation expenditure together with Group overheads, the Company raised £963,500 through a share placing.

At 18 May 2018, the Company had cash of approximately £560,000 and an available loan facility of £200,000. The directors have prepared a cash flow forecast for the next twelve months which shows that the cash in hand is sufficient to meet current commitments in respect of exploration expenditure and corporate overheads for a period of approximately seven months.

The Company’s ability to continue as a going concern and to achieve its long term strategy of developing its exploration projects is dependent on the extension and/or conversion of the loan notes and further fundraising. As described above, the Directors expect to be able to convert or extend the existing loan notes, and against the background of the encouraging initial results from the Mahenge Liandu graphite project and the Company’s history of raising funds through the issue of equity, the directors also consider that the Company is likely to be able to raise the required capital. However, there are currently no binding agreements in place. Should the

Directors be unable to raise sufficient funds and extend or convert the loan notes, the Company may be unable to realise its assets and discharge its liabilities in the normal course of business.

These factors indicate the existence of a significant material uncertainty which may cast doubt over the Group’s and Company’s ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Group or Company were unable to continue as a going concern.

2.3. Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the Consolidated Statement of Comprehensive Income from the effective date of acquisition and up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Group.

All intra-Group transactions, balances, income and expenses are eliminated in full on consolidation.

2.4 Acquisitions of exploration licences

The acquisition of Netcom, Kisenge and Graphite Advancement, were principally the acquisition of mining licences effected through non-operating corporate structures. As the structure does not represent a business, it is considered that the transactions do not meet the definition of a business combination. Accordingly each transaction is accounted for as the acquisition of an asset. Future consideration for shares is contingent and is recognised as an asset or liability based on the valuation of the shares as at the date of acquisition. Contingent future consideration for shares is not subsequently revalued and is derecognised on disposal of the asset to which it relates.

2.5 Foreign currencies

The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each Group entity are expressed in pounds sterling, which is the functional currency of the Company and the presentation currency for the consolidated financial statements.

Transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated 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. Exchange differences are recognised in profit or loss in the period in which they arise.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are expressed in Pounds using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income.

2.6. Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand, with a maturity date of less than three months from inception.

2.7. Share-based payments

IFRS 2 ‘Share-based Payment’ requires the recognition of equity-settled share-based payments at fair value at the date of grant and the recognition of liabilities for cash-settled share based payments at the current fair value at each reporting date.

The Group provides benefits to employees and service providers (including senior executives) of the Group in the form of share based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions).

Where the equity-settled transactions are share options their cost is measured by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using a Black-Scholes model.

In valuing equity-settled transactions, no account is taken of any performance conditions, other than market conditions linked to the price of the shares of the Company, if applicable.

The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or other service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting period).

The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i) the extent to which the vesting period has expired and (ii) the Group’s best estimate of the number of equity instruments that will ultimately vest. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. The profit and loss account charge or credit for a period represents the movements in cumulative expense recognised as at the beginning and end of that period.

If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award. The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share.

Share based payments in respect of third party services are measured by reference to the value of services provided and share price at the relevant date.

2.8 Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current Tax

The tax currently payable is based on taxable profit for the year. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax and current tax assets and liabilities are offset when there is a legally enforceable right to set off when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Current and deferred tax for the period

Current and deferred tax are recognised as an expense or income in profit or loss, except when they relate to items that are recognised outside profit or loss (whether in other comprehensive income or directly in equity), in which case the tax is also recognised outside profit or loss, or where they arise from the initial accounting for a business combination. In the case of a business combination, the tax effect is included in the accounting for the business combination.

2.9. Exploration and evaluation costs

Once an exploration licence or an option to acquire an exploration licence has been obtained, all costs associated with exploration and evaluation are capitalised on a project-by-project basis pending determination of the feasibility of the project. Costs incurred include appropriate technical and administrative expenses and a pro-rata share of the Group’s finance costs but not general overheads. If a mining property development project is successful, the related expenditures will be amortised over the estimated life of the commercial ore reserves on a unit of production basis. Where a licence is relinquished, a project is abandoned, or is considered to be of no further commercial value to the Company, the related costs will be written off to the statement of comprehensive income in the period the impairment is identified. Unevaluated mineral properties are assessed at reporting date for impairment in accordance with the policy set out below. If commercial reserves are developed, the related deferred development and exploration costs are then reclassified as development and production assets within property, plant and equipment.

2.10. Investments

Investments in the individual company accounts, including those in subsidiary companies, are stated at cost less any provision for impairment, which is recognised as an expense in the statement of comprehensive income in the period the impairment is identified.

In the Group accounts, equity investments are included on the balance sheet as assets available for sale at fair value with value changes being recognised in other comprehensive income unless an impairment is considered to be permanent in which case it is recognised in the statement of comprehensive income. Associates in the Group accounts are recognised at cost less the Group’s share of profits or losses of the associate.

2.11. Joint Arrangements

The group is a party to a joint arrangement when there is a contractual arrangement that confers joint control over the relevant activities of the arrangement to the group and at least one other party. Joint control is assessed under the same principles as control over subsidiaries.

The group classifies its interests in joint arrangements as either: (a) Joint ventures: where the group has rights to only the net assets of the joint arrangement; (b) Joint operations: where the group has both the rights to assets and obligations for the liabilities of the joint arrangement.

In assessing the classification of interests in joint arrangements, the Group considers: (a) The structure of the joint arrangement; (b) The legal form of joint arrangements structured through a separate vehicle; (c) The contractual terms of the joint arrangement agreement; and (d) Any other facts and circumstances (including any other contractual arrangements).

The Group accounts for its interests in joint operations by recognising its share of assets, liabilities, revenues and expenses in accordance with its contractually conferred rights and obligations.

2.12. Plant, equipment and vehicles

Fixtures and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives, using the straight-line method. The estimated useful lives and residual values are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis.

Plant, equipment and vehicles 3-10 years on a straight line basis

The depreciation cost relating to assets used in the development of mineral deposits is capitalised until the deposit is bought into production.

2.13. Impairment of assets

At the end of each reporting period, the Directors review the carrying amounts of 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 it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

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 not 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 (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the statement of comprehensive income, unless the relevant asset is carried at a revalued amount, whereby impairment is first allocated to the revaluation reserve, to the extent that it has been previously revalued, with any excess taken to the statement of comprehensive income.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or 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 (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in other comprehensive income, unless the relevant asset is carried at a re-valued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

2.14. Non-current assets held for sale and disposal groups

Non-current assets and disposal groups are classified as held for sale when:

  • They are available for immediate sale
  • Management is committed to a plan to sell
  • It is unlikely that significant changes to the plan will be made or that the plan will be withdrawn
  • An active programme to locate a buyer has been initiated
  • The asset or disposal group is being marketed at a reasonable price in relation to its fair value, and
  • A sale is expected to complete within 12 months from the date of classification.

Non-current assets and disposal groups classified as held for sale are measured at the lower of:

  • Their carrying amount immediately prior to being classified as held for sale in accordance with the group's accounting policy; and
  • Fair value less costs of disposal.

Following their classification as held for sale, non-current assets (including those in a disposal group) are not depreciated.

The results of operations disposed during the year are included in the consolidated statement of comprehensive income up to the date of disposal.

A discontinued operation is a component of the Group's business that represents a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale, that has been disposed of, has been abandoned or that meets the criteria to be classified as held for sale.

Discontinued operations are presented in the consolidated statement of comprehensive income as a single line which comprises the post-tax profit or loss of the discontinued operation along with the post-tax gain or loss recognised on the re-measurement to fair value less costs to sell or on disposal of the assets or disposal groups constituting discontinued operations.

2.15. Financial assets

Loans and receivables are recognised when the Company and Group become party to the contractual provisions of the financial instrument.

Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

2.16. Financial liabilities and equity instruments issued by the Group

Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognised at the proceeds received, net of direct issue costs.

Financial assets

Financial assets comprise debtors and other investments.

Financial liabilities

Financial liabilities are recognised when the Company and Group become party to a financial liability.

Financial liabilities represent trade payables and borrowings.

Convertible loan notes

As detailed in note 17, the loan notes are classified as a compound financial instrument in accordance with the requirements of IAS 32. The debt element is calculated as the present value of future cash flows assuming the loan notes are redeemed at the redemption date, discounted at the market rate for an equivalent debt instrument with no option to convert to equity. The difference between the total proceeds and the present value of the debt element is recognised in equity. The discount is charged over the life of the loan notes to the statement of comprehensive income and included within finance expenses. When conversion occurs the associated equity element is released directly to retained earnings.

2.17 Changes in accounting standards

The standards which applied for the first time this year have been adopted and have not had a material impact.

The International Accounting Standards Board (IASB) has issued the following new and revised standards, amendments and interpretations to existing standards that are not effective for the financial year ending 31 December 2017 and have not been adopted early. The Group is currently assessing the impact of these standards and based on the Group’s current operations do not expect them to have a material impact on the financial statements.

     

New Standards

Effective Date

IFRS 15 Revenue from Contracts with Customers 01-Jan-18
IFRS 9 Financial Instruments 01-Jan-18
IFRS 16 Leases 01-Jan-19
IFRS 17 Insurance Contracts 01-Jan-21
 
     

Amendments to Existing Standards

Classification and Measurement of Share-based Payment Transactions
(Amendments to IFRS 2) 01-Jan-18
IFRIC 22 Foreign Currency Transactions and Advance Consideration 01-Jan-18
Annual Improvements to IFRSs (2014-2016 Cycle) 01-Jan-18
IFRIC 23 Uncertainty over Income Tax Treatments* 01-Jan-19
Annual Improvements to IFRSs (2015-2017 Cycle)* 01-Jan-19

* Not yet adopted by European Union

IFRS 9 replaces the incurred loss model of IAS 39 with a model based on expected credit losses or losses on loans. The standard requires entities to use an expected credit loss model for impairment of financial assets. Under the new standard, the loss allowance for a financial instrument will be calculated at an amount equal to 12 month expected credit losses or lifetime expected credit losses if there has been a significant increase in credit risk of the financial instrument.

The Company has a loan to the 100% owned subsidiary that is the license holder of the assets. Management are still undertaking a full assessment but do not expect there to be any material impact as in line with the work the Company completed to test whether the intangible assets should be impaired, it has determined that there currently is no reason to expect a loss from this loan. The Group is not revenue generating thus there is no impact of IFRS 15 as there are no revenue contracts in place currently.

There is no impact of IFRS 16 as there are no lease agreements in place currently.

The Group will adopt the above Standards at the time stipulated by that Standard. The Group does not currently anticipate voluntary early adoption of any of the Standards.

3. Significant judgements and sources of estimation uncertainty

In preparing the annual financial statements of the Group, management is required to make estimates and assumptions that affect the amounts represented in the annual financial statements and related disclosures. Use of available information and the application of judgement are inherent in the formation of estimates. Actual results in the future could differ from these estimates which may be material to the annual financial statements. The directors consider that the only significant source of estimation uncertainty relates to the value of the Group’s exploration assets.

The principal significant estimates and judgements are:

Going concern

The financial statements have been prepared on the going concern basis as, in the opinion of the directors, there is a reasonable expectation that the Group will continue in operational existence for the foreseeable future, as explained more fully in note 2.2.

Investment and debtors

At 31 December 2017 the Company held approximately 26% of the issued share capital of MRI, a South African listed company. In the judgement of the Directors, the Company does not have significant influence over MRI as it does not have any representation on the Board, nor does it have the power to appoint anyone to the Board. MRI is therefore held as an investment.

Trading in the shares of MRI has been suspended and the company is not trading. Accordingly, in the opinion of the directors, the market value of the shares is nil and full provision for impairment was made in 2016.

Exploration and evaluation assets

These represent the accumulated costs, including capitalised finance costs, to the Group of its mineral projects. Their commercial realisation is dependent upon the successful economic development of the gold and graphite deposits and should the development not be achieved, an impairment of these assets would arise. At the year end, the directors were of the opinion that there was an indicator of impairment in respect of the Mpokoto project, where sales negotiations are in progress at a price significantly below the carrying value of the relevant net assets. In the opinion of the directors, the price under negotiation best represents the value of the project. In arriving at the sale price for this purpose, the directors have excluded those elements that are contingent on production being achieved, which is regarded as uncertain. See Note 15 for details of the accounting treatment of the Mpokoto project.

Impairment of investment in subsidiaries

Investments in subsidiaries represent the accumulated costs that the parent Company has invested in its subsidiaries to fund the mineral projects. The recovery of these investments is dependent upon the successful economic development of the gold and graphite deposits and should the development not be achieved, an impairment of these investments would arise. At the year end the directors were of the opinion that there was an impairment to the Mpokoto gold project E&E asset and the Company’s intercompany debtor, as described above. See Note 15 for details of the accounting treatment of the Mpokoto project.

4. Financial Risk Management

Policy

The Group and Company regularly monitor the cash position to ensure liabilities can be met.

Financial risk factors

The risk in relation to financial assets is considered to be minimal and is managed on a day-to-day basis.

The Group and Company is exposed to liquidity risk, currency risk and capital risk management arising from the financial instruments it holds. The Company has receivables from its subsidiaries as disclosed in note 14. The recovery of these receivables is dependent on whether the mining projects are successful and they are not expected to be recovered in the short term. The risk management policies employed by the Group and Company to manage these risks are discussed below:

Liquidity Risk

Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. The Group and Company manages liquidity risk by maintaining adequate reserves and banking facilities, by monitoring cash flows and managing the maturity profiles of financial assets and liabilities within the bounds of contractual obligations.

The Group’s loan notes as described in note 17, stated at their gross, contractual and undiscounted amount of £431,406 were issued on 11 July 2016 with a conversion/payment date of 11 July 2017.

The Group’s long term debt facility stated at its gross, contractual and undiscounted amount of £202,630 as described in note 18 is repayable on 11 October 2019.

Currency Risk

Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions and recognised assets and liabilities are denominated in a foreign currency that is not the relevant company’s functional currency. The Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the South African Rand and the US Dollar. The Group’s management monitors the exchange rate fluctuations on a continuous basis. The Group’s loans are denominated in GBP as disclosed in note 17.

The effect of a 10% strengthening of AUD in 2017 would result in a £21k reduction (2016: £21k) of the Group’s net assets.

Capital Risk Management

The Group and Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. This is done through the monitoring of cash flows.

The capital structure of the Group and Company consists of cash and cash equivalents, equity attributable to equity holders of the parent, (comprising issued capital and reserves less accumulated losses) and loan notes.

Commodity risk

The value of the Group’s exploration and evaluation assets is principally exposed to two commodities, gold and graphite. The value of the projects is vulnerable to fluctuations in the prevailing market price of these commodities.

Fair value estimation

The fair values of the Group’s and Company’s financial assets and liabilities approximate to their carrying amounts at the reporting date.

Non-current asset investments (excluding investments in subsidiaries at the Company level) are measured at fair value. The fair value is based upon observable inputs and the level of the fair value hierarchy within the measurement is categorised as Level 1. Current asset investments are measured at fair value and are categorised as Level 2. There were no transfers between Level 1 and Level 2 for the year.

Financial Instruments by Category

The Group’s financial instruments consist of cash and cash equivalents, trade and other receivables, borrowings, trade payables and accruals, loan term borrowings and convertible loan notes. Financial instruments are initially recognized at fair value with subsequent measurement depending on classification as described below. Classification of financial instruments depends on the purpose for which the financial instruments were acquired or issued, their characteristics, and the Company’s designation of such instruments.

The Group’s and Company’s financial instruments are all subsequently recognised at amortised cost.

5. Segmental Information

Costs incurred in developing the Group’s exploration projects are capitalised in full, accordingly, the expenses reported in the Consolidated Statement of Comprehensive Income solely represent central Group overheads and impairments.

In terms of assets and liabilities, the only material items are the exploration and evaluation assets relating to the Group’s projects in the Democratic Republic of Congo (“DRC”) and Tanzania. Following a review by the directors, it has been determined that the value of the DRC project has been impaired and accordingly a provision has been made to reduce its net carrying value to estimated realisable value. The assets, net of impairment provision, attributable to each project are as follows:

   
    2017

£

  2016

£

DRC (reported as assets held for disposal, Note 15)   322,412   5,820,128
Tanzania (reported as exploration and evaluations assets)   2,384,036   1,998,838
    2,706,448   7,818,966
 

6. Loss before tax

This is stated after charging:

   
    2017   2016
    £   £
Directors’ emoluments - fees   67,000   150,000
Directors’ emoluments - compensation for loss of office   -   123,000
Depreciation   1,806   11,929
Auditors’ remuneration:        

Fees payable to the Company’s auditors for the audit of the
Group and Company financial statements

  32,000   30,000

Fees payable to the Company’s auditors for taxation
compliance services

  2,500   2,450
Gain on disposal of investments   -   (82,064)
Share based payment charge   9,034   33,850
Impairment of PPE   13,206   -
Impairment of exploration and evaluation assets   5,713,239   -
Impairment of investments   -   301,047
 

7. Employees

   
    2017   2016
         

The average monthly number of persons (including Directors)

employed by the Group during the year was:

       
       
         
Group – management   3   3
Group – staff   -   9
    3   12
Company-management   3   3
         
Employment costs   £   £
Group        
Wages and salaries (including directors)   78,500   301,224
Payments in lieu of notice   -   123,000
Social security costs   -   22,511
    78,500   446,735
         
Company        
Wages and salaries (including directors)   78,500   150,000
Payments in lieu of notice   -   123,000
    78,500   273,000
 

The exploration and evaluation work on the Group’s projects is undertaken by third party consultants.

8. Remuneration of Directors of the Company

   
Aggregate emoluments   67,000   273,000
         
Emoluments of the Highest Paid Director   30,000   96,000
 

All Directors of the Group and Company are considered to be the key management personnel.

9. Taxation

     
      2017   2016
      £   £
Continuing operations          
Current Tax          
Current tax on loss for the year     -   -
           
      2017   2016
      £   £
Continuing operations          
Factors affecting the tax charge for the year          
Loss on ordinary activities before taxation     (6,177,014)   (921,675)

Loss on ordinary activities before taxation multiplied
by standard rate of UK corporation tax of 19.25%
(2016: 20%)

     (1,189,075)   (184,335)
Effects of :          
Temporary difference carried forward not recognised as a deferred tax asset     5,811,440   177,565
Expenses disallowed     (4,622,365)   6,770
UK Corporation tax     -   -
 

A deferred tax asset of approximately £1,419,000 (2016: £1,334,000) has not been recognised owing to the uncertainty over the timing of future recoverability.

10. Loss per share

The calculation of total loss per share is based on a loss of £6,177,014 (2016: £921,675), and on 239,228,310 ordinary shares (2016: 148,922,833), being the weighted average number of shares in issue during the year.

The calculation of loss per share from continuing activities is based on a loss of £444,416 (2016: £769,728), and on 239,228,310 ordinary shares (2016: 148,922,833), being the weighted average number of shares in issue during the year.

There is no difference between basic loss per share and diluted loss per share as the potential ordinary shares are anti-dilutive.

The company has issued options over ordinary shares which could potentially dilute basic earnings per share in the future.

11. Exploration and evaluation assets

   
Group   2017   2016
    £   £
Cost        
At 1 January   8,778,645   4,923,190
Exchange movements   (751,721)   959,679
Acquisition of licence in Tanzania (note 13) - 1,607,736
Additions 695,825 1,288,040
Impairment and transfer to assets held for disposal   (6,338,713)   -
At 31 December   2,384,036   8,778,645
 

Included in additions are capitalised finance costs of £13,018 (2016: £25,542).

As production has not commenced, no amortisation was charged during the year, in accordance with the Group’s accounting policy.

12. Property, plant and equipment

Group PPE is solely allocated to the DRC operating segment, see note 5.

       
Group                
    Plant   Equipment   Vehicles   Total
Cost   £   £   £   £
At 1 January 2016   12,565   10,539   16,153   39,257
Exchange Movements   2,477   2,078   3,184   7,739
At 31 December 2016 15,042 12,617 19,337 46,996
Exchange movements (1,304) (1,094) (1,677) (4,075)
Impairment (note 15)   13,738   11,523   17,660   42,921
At 31 December 2017   -   -   -   -
                 
Depreciation                
At 1 January 2016   373   6,018   9,172   15,563
Exchange Movements   73   1,186   1,808   3,067
Charge for the year   -   5,387   6,542   11,929
At 31 December 2016   446   12,591   17,522   30,559
Exchange Movements   (39)   (1,092)   (1,519)   (2,650)
Charge for the year 125 24 1,657 1,806
Impairment (note 15)   (532)   (11,523)   (17,660)   (29,715)
At December 2017   -   -   -   -
                 
Net book value                
At 31 December 2017   -   -   -   -
At 31 December 2016   14,596   26   1,815   16,437
 

An impairment loss of £13,206 has been recognised in the comprehensive statement of income in order to impair the carrying value of the Groups PPE to £Nil, as management are of the opinion that the assets are obsolete.

13. Investments

 
Non-current asset investments - Group    
   

Listed
investments
Cost   £
At 1 January 2016   84,605
Disposals   (77,900)
At 31 December 2016   6,705
Additions/(Disposals)   -
At 31 December 2017   6,705
     
Impairment    
At 1 January 2016   28,000
Impairment (release)   (28,000)
At 31 December 2016   -
Additions/(Disposals)   -
At 31 December 2017   -
     
Net book value
At 31 December 2017   6,705
 
At 31 December 2016   6,705
     
Non-current asset investments - Company            
    Subsidiaries  

Listed
Investments

  Total
Cost   £   £   £
At 1 January 2016   2,845,209   84,605   2,929,814
Additions   1,600,000   -   1,600,000
Disposals   -   (77,900)   (77,900)
At 31 December 2016   4,445,209   6,705   4,451,914
Impairment   (2,650,808)   -   (2,650,808)
Transfer to investments held for disposal   (194,401)   -   (194,401)
At 31 December 2017   1,600,000   6,705   1,606,705
 

An impairment has been recognised for the value of £2,650,808. Comparison of the carrying value of the investment in the Mpokoto gold project with the potential selling price indicates that an impairment in the value of the investment has occurred and, accordingly, an impairment has been recognised by reference to the potential selling price taking account only of those elements of the selling price that would be receivable regardless of the future outcome of the project, on the grounds that the future outcome is uncertain.

   
    2017   2016
Current asset investments – Group and Company   £   £
         
         
At 1 January   -   322,708
Disposals   -   (21,661)
Impairment charge for year   -   (301,047)
Valuation at 31 December   -   -
 

The Group has an interest of approximately 26% in MRI, a company involved in the processing of coal fines.

As there is an intention to sell the investment in MRI, in 2016 it was classified as a current asset investment. Trading in MRI’s shares has been suspended and the company is inactive. In the opinion of the directors, the market value of the shares is nil and accordingly an impairment charge has been recorded to reduce the value of the investment to nil.

Investments held for disposal Company

As explained in note 15, the board has determined that the value of the Mpokoto gold project has been impaired. Accordingly the value of the Company’s holdings in shares of Netcom Global Inc. and Kisenge Limited has similarly been impaired. As the intention is to dispose of these shares, they have been transferred from non-current to current assets, as follows

   
    2017   2016
    £   £
         
Transferred from non-current investments   2,845,209   -
Impairment   (2,650,808)   -
Carrying value   194,401   -
 

The subsidiary companies are:

     
Name and nature of business   Registered Office   Class of

shares

  %

held

Netcom Global Inc.

(intermediate holding company)

Kisenge Limited

(intermediate holding company)

  555 Hunkins Waterfront

Plaza, Charleston, Nevis

171 Main Street, Road Town,

British Virgin Islands

  Ordinary

 

Ordinary

  100

 

100

Cluff Mining Congo, SARL*

(mining project operator)

  34 Avenue de la Liberte,

Lubumbashi

Democratic Republic of Congo

  Ordinary   100
Mines D’Or de Kisenge, SARL*

(mining licence holder)

  34 Avenue de la Liberte,

Lubumbashi,

Democratic Republic of Congo

  Ordinary   80

Graphite Advancements Pty Ltd
(intermediate holding company)

  

3 Queens Grove, Mount Claremont,
Western Australia 40010

   Ordinary   100
Graphite Advancements (Tanzania)

Limited† (mining project operator)

  PO Box 105589, Dar es Salaam,

Tanzania

  Ordinary   100
Water Utilities Limited

(in process of dissolution)

  171 Main Street, Road Town,

British Virgin Islands

  Ordinary   100
 

*Held through Kisenge Limited
† Held through Graphite Advancements Pty Ltd

The interest of 20% in Mines d’Or de Kisenge, SARL not held by the Group is held by Entreprise Miniere de Kisenge- Manganese SARL (“KMC”) a Congolese Government entity. KMC is entitled to participate in future revenues from the project. As KMC was not required to contribute to its share of exploration and evaluation costs and no revenues have yet been generated, there is no non-controlling interest to report in these financial statements.

Under the terms of acquisition of Netcom Global Inc, completed on 15 November 2013, further ordinary shares in the company were potentially to be issued to the vendors as follows:

i. 350 million (now 2.333 million*) Ordinary Shares issued upon the grant of Exploration Licences for the Mpokoto Project to the Company (the “Further Consideration Shares”). The Further Consideration Shares, valued at 0.26p per share, were included as part of the cost of the investment in Netcom.

ii. up to 220 million (now 1.467 million*) Ordinary Shares were to be issued upon the completion of three key milestones (the “Milestone Shares”):

  • 60 million (now 0.4 million*) Ordinary Shares upon completion of a pre-feasibility study;
  • 60 million (now 0.4 million*) Ordinary Shares upon the delineation of a JORC reserve of at least 120,000 ounces of gold; and
  • 100 million (now 0.667 million*) Ordinary Shares upon the production of the first 5,000 ounces of gold from the project.

The directors assessed a 100% likelihood of the first two milestones being achieved and a 50% likelihood of the third milestone being achieved.

The value of the milestone shares was included as part of the cost of the investment in Netcom, valued at 0.26p per share.

During 2014, the conditions applying to the Further Consideration Shares and the first tranche of Milestone Shares were fulfilled and accordingly 410 million (now 2.733 million*) Ordinary Shares in the Company were issued to the vendors.

The conditions applying to the second and third tranche of Milestone Shares have not yet been fulfilled.

*refer to note 19 for more details on share consolidation and restructure

14. Trade and other receivables

     
Group     2017   2016
      £   £
           
Other debtors and prepayments     54,563   160,279
Total current receivables     54,563   160,279
           
Company  
Amounts owed by group undertakings   4,052,323 3,358,091
Provision     (3,079,779)   -
Total net non-current receivables     972,544   3,358,091
           
Other receivables     43,750   6,856
Total current receivables     43,750   6,856
 

The provision is required to provide in full against amounts due from subsidiaries associated with the Mpokoto gold project. In view of the impairment in the value of the project (see note 15) these amounts are considered to be wholly irrecoverable.

The company is also owed a debt of £998,000 secured on shares in MRI. In the opinion of the directors, the ability of the debtor to repay the debt is seriously in doubt and accordingly the amount has been provided against in full in previous years, there has been no movement in the provision in 2017.

15. Disposal group classified as held for sale

On 12 January 2018 the board announced that it had entered into a heads of agreement (“HOA”) with Weghsteen Capital Advice SA (“WCA”) to sell its interest in the Mpokoto gold project for total potential consideration of US$562,500 plus future royalty provisions.

At the date of approval of these financial statements the potential sale has not become subject to unconditional agreement, but the directors have determined that the project should be sold and that, accordingly, should the sale to WCA not be concluded, an alternative buyer will be sought.

Comparison of the carrying value of the assets relating to the Mpokoto gold project with the potential selling price indicates that an impairment in the value of those assets has occurred and, accordingly, an impairment has been recognised by reference to the potential selling price taking account only of those elements of the selling price that would be receivable regardless of the future outcome of the project, on the grounds that the future outcome is uncertain such that the value of the contingent consideration is estimated at nil.

The resulting assets and liabilities are as follows:

     
      2017   2016
      £   £
Assets held for sale          
Exploration and evaluation assets     320,902   -
Cash     1,510   -
      322,412   -
           
Liabilities held for sale          
Provision     128,011   -
 

In the statement of comprehensive income the following loss has been recognised:

     
        2017   2016
        £   £
Loss from discontinued operations            
Impairment charge (PPE)   12   13,206   -
Impairment charge (E&E asset)   11   5,713,239   -
Other expenses       29,537   151,947
        5,917,411   151,947

Basic and diluted loss per share from discontinuing
operations

      2.39   0.1
 

An impairment loss of £13,206 has been recognised in the comprehensive statement of income in order to impair the carrying value of the Groups PPE to £0, as management are of the opinion that the assets are obsolete.

Subsequently an impairment loss of £5,713,239 on the measurement of the disposal group to fair value less cost to sell has been recognised and is included in the statement of comprehensive income as a discontinued operation, in line with IFRS 5, as the project represents a major line of business and a geographical area of operation, see below.

The fair value measurement is based on the heads of agreement and are categorised as a level 3 non-recurring fair value measurement.

The calculation of loss per share from discontinued activities is based on a loss of £5,917,411 (2016: £151,947), and on 239,228,310 ordinary shares (2016: 148,922,833), being the weighted average number of shares in issue during the year.

The statement of cash flows includes the following amounts relating to discontinued operations:

     
      2017   2016
      £   £
           
Operating activities     (4,347)   (140,018)
Financing activities     -   (896,938)
Investing activities     -   -
Net cash from discontinued operations     (4,347)   (1,036,956)
 

16. Trade and other payables

     
Group     2017   2016
      £   £
Trade payables     54,697   144,366
Other creditors and accruals     78,922   350,367
      133,619   494,733
Company          
           
Trade payables     7,581   27,795
Other creditors and accruals     59,048   58,912
      66,629   86,707
 

All trade and other payables are due within three months.

17. Loan notes (current)

     
Group and Company   2017   2016   2016
    10% Notes   10% Notes   12% Notes
    £   £   £
Balance 1 January   450,237   -   45,337
Issued   -   450,000   -
Transfer to loan note reserve   -   (37,500)   -
Accrued interest   48,184   20,096   906
Accretion of liability   19,859   17,641   -
Converted   (86,874)   -   (46,243)
Balance 31 December   431,406   450,237   -
 

The 10% Loan Notes were issued on 11 July 2016 as part of the consideration for the acquisition of Graphite Advancements Pty Ltd (see note 13). The Loan Notes are unsecured, pay interest at 10% per annum, and are convertible at the option of the company into Ordinary Shares at 2p per Ordinary Share, together with any interest owing. The Loan Notes convert 12 months from issue, or earlier at the option of the Company, provided such conversion does not result in the holders owning more than 29.9% of the issue share capital of the Company.

On 11 July 2017 the 2017 loan notes matured, 4,343,724 shares of nominal value 0.1p were issued at a share price of 2p. All other loan notes were extended by the holders for a period of 12 months.

The 12% loan notes were issued on 8 June 2015 to fund the repayment of the convertible loan notes. The notes accrued interest at 12 per cent per annum and were repayable six months from the date of issue. The remaining notes together with accrued interest were repaid in full on 29 February 2016 by conversion into Ordinary Shares in the Company (see note 19).

18. Loan (non-current)

   
    2017   2016
Group and Company   £   £
At 1 January   -   -
Advances in year   200,000   -
Accrued interest   2,630   -
    202,630   -
 

The loan was advanced under the terms of a £400,000 facility contracted on 11 October 2017. The loan bears interest at 10% per annum and is payable by 11 October 2019. The balance of the facility may be drawn by the company at any time in tranches of not less than £50,000.

19. Share capital

     
    Ordinary Shares

of 0.01p/0.1p each*

  Deferred Shares

of 0.14p each

  Deferred Shares

of 1.4p each

    Number   £   Number   £   Number   £
                         
At 1 January 2016   88,010,533   88,011   1,531,374,350   2,143,923   42,260,533   591,648
Issue of shares:                        
For cash   45,000,000   45,000   -   -   -   -

In part consideration of
acquisition of subsidiary

   57,500,000   57,500   -   -   -   -
On conversion of loan notes   1,541,434   1,541   -   -   -   -
To settle liabilities   18,964,343   18,964   -   -   -   -
At 31 December 2016 211,016,310   211,016 1,531,374,350   2,143,923 42,260,533   591,648
Issue of shares:                        
For cash   26,030,000   26,030   -   -   -   -
On conversion of loan notes   4,343,724   4,344   -   -   -   -
To settle liabilities   3,250,000   3,250   -   -   -   -
At 31 December 2017   244,640,034   244,640   1,531,374,350   2,143,923   42,260,533   591,648
 

*The nominal value of each Ordinary Share was 0.01p until the consolidation and reorganisation of the share capital on 22 June 2015 and 0.1p thereafter

20. Share based payment arrangements

No options over Ordinary Shares in the Company were granted during the year (2016, 3,000,000).

A summary of outstanding options is as follows:

             
   

Exercise
price

  

Held at 1
January
2016

   Granted   Expired  

Held at 1
January
2017

   Expired  

Held at 31
December
2017
Directors                            
PA Marks                            
Granted 01.10.13   15p   333,333   -   (333,333)   -   -   -
Granted 19.11.14   15p   333,333   -   (333,333)   -   -   -
JLG Lewis                            
Granted 01.10.13   15p   333,333   -   (333,333)   -   -   -
Granted 19.11.14   15p   666,667   -   (666,667)   -   -   -
W Frewen               -            
Granted 21.07.16   2p   -   1,000,000   -   1,000,000   (1,000,000)   -
Granted 21.07.16   4p   -   1,000,000       1,000,000   (1,000,000)   -
ES Mahede                            
Granted 10.08.16   2p   -   250,000   -   250,000   -   250,000
Granted 10.08.16   4p   -   250,000   -   250,000   -   250,000
N Johansen                            
Granted 16.10.16   2p   -   250,000   -   250,000   -   250,000
Granted 16.10.16   4p   -   250,000   -   250,000   -   250,000
Consultants                            
Granted 01.10.13   15p   266,667   -   -   266,667   (200,000)   66,667
Granted 19.11.14   15p   400,000   -   -   400,000   (100,000)   300,000
        2,333,333   3,000,000   (1,666,666)   3,666,667   (2,300,000)   1,366,667*
 

The number of options and their exercise prices have been adjusted for the effects of the share capital sub-division on 28 June 2013 and the share capital consolidation and reorganisation on 22 June 2015
*representing 0.56% of the issued share capital of the company

All of the outstanding options held at year end were exercisable at a weighted average exercise price of 6p (2016:5p).

The Mahede and Johannsen options have a life of four years from the date of grant. The consultant options have a life of 10 years. All options are time based with no other conditions. The average contractual life of options held is 74 months (2016: 87 months)

21. Reserves

A description of the nature of each Reserve and a summary of movements are shown in the Statements of Changes in Equity on pages 29 and 30.

22. Related party transactions

In respect of the Company, amounts, net of provisions, due from subsidiary undertakings were £972,544 (2016 - £3,358,091), the movement being amounts lent to the subsidiaries.

23. Ultimate controlling party

There was no ultimate controlling party during the year.

24. Subsequent events

On 9 April 2018, the Company placed 58,393,941 Ordinary Shares of 0.1p at a price of 1.65p to raise £963,500 before expenses.

25. Notes to the group and company statement of cash flows

     

 

Loan Notes

£

 

Long Term
Borrowings
£

 

 

Total

£

As at January 1, 2017 450,237 - 450,237
Cash flows from/(used in) financing activities - 200,000 200,000
Non-cash flows
Interest charged 48,184 2,630 50,814
Unwinding 19,859 - 19,859
Conversion of loan notes (86,874)   -   (86,874)
As at December 31, 2017 431,406   202,630   634,036
 

**ENDS**

     
Enquiries:
Armadale Capital Plc

Tim Jones, Company Secretary

+44 20 7236 1177
Nomad and broker: finnCap Ltd

Christopher Raggett / Simon Hicks

+44 20 7220 0500
Joint Broker: SVS Securities

Tom Curran / Ben Tadd

+44 20 3700 0093
Press Relations: St Brides Partners Ltd

Susie Geliher / Charlotte Page

+44 20 7236 1177
 

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