Annual Report and Accounts

Copper Resources Corporation 30 June 2006 Copper Resources Corporation Financial statements 31 December 2005 Financial statements for the year ended 31 December 2005 Contents Page Page Officers and professional advisors 3 Chairman's statement 4 Directors' report 10 Statement of directors' responsibilities 13 Independent auditors' report 15 Consolidated income statement 17 Consolidated balance sheet 18 Balance sheet 19 Consolidated statement of changes in equity 21 Company statement of changes in equity 21 Consolidated cash flow statement 22 Company cash flow statement 23 Notes to the financial statements 24 Officers and professional advisers Directors Sir Sam Jonah - Non-Executive Chairman (appointed 23 May 2005) Mitchell Alland - Executive Vice-Chairman Christopher Terrence Jordinson - Chief Executive Officer George Arthur Forrest - Non-Executive Director (appointed 5 December 2005) George Andrew Forrest - Non-Executive Director (appointed 5 December 2005) Michel Anastassiou - Non-Executive Director (appointed 5 December 2005) Roger Marshall - Non-Executive Director (appointed 5 December 2005 Elia Crespo - Non-executive Director/Chief Financial Officer (resigned 30 November 2005) James D Frank - Non-Executive Director (resigned 30 November 2005) Rebecca Taylor - Non-Executive Director (resigned 30 November 2005) Secretary Elia Maria Crespo - Chief Financial Officer (resigned 31 January 2006) George Gaetan Bru - Chief Financial Officer (appointed 1 February 2006) Registered office Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Island Registered number 626550 Principal bankers Royal Bank of Canada - 200 Bay Street, Main Floor, Toronto, Ontario, Canada M5J 2J5 Solicitors Pinsent Masons - Dashwood House, 69 Old Broad Street, London EC2M 1NR Auditors Chantrey Vellacott DFK LLP - Russell Square House, 10-12 Russell Square, London WC 1B 5LF Nominated advisor Nabarro Wells & Co Limited - Saddlers House, Gutter Lane, London EC2V 6HS Registrar Computershare Investor Services (Channel Islands) Limited - Ordnance House, 31 Pier Road, St Helier, Jersey JE4 8PW, Channel Islands Chairman's statement for the year ended 31 December 2005 Copper Resources Corporation (AIM: CRC), the minerals exploration and mining company, today released its 2005 annual report for the year ending 31 December 2005. A copy of the report and accounts will be available on the Company's website and posted to shareholders shortly. Financial highlights â€¢ Cash of US$11.6 million, as at the at 31 December 2005 Business highlights through 31 December 2005 â€¢ Admission to the AIM Market of the London Stock Exchange plc on 21st April 2005. â€¢ Acquisition of Haib Copper Project in the politically stable country of Namibia to complement CRC's existing substantial interest in the Hinoba copper project in the Philippines. â€¢ An increase in total copper resource to 3.2 billion pounds (7.2 billion pounds after acquisition of Congolese company (see below). â€¢ Appointment of Sir Samuel Jonah as non-executive Chairman. â€¢ Granted Mineral Production Sharing Agreement ('MPSA') on the Hinoba Project which allows commencement of operations in the Philippines â€¢ Acquisition of 75% interest in Miniere de Musoshi et Kinsenda sarl, which will enable the Company to become a producer in the near term from high-grade 5.3% Kinsenda deposit along Zambian border in Katanga Province, Democratic Republic of Congo. Samuel Jonah, Chairman, commented, '2006 promises to be an eventful year for CRC with significant developments on a number of fronts, including: â€¢ Advancing the Hinoba copper project toward completion of a bankable feasibility study, after having been granted the MPSA in August 2005; â€¢ Evaluating the optimal metallurgical process recovery route for the Haib copper project in Namibia to render a determination of its long-term economic viability; and â€¢ Implementing the Kinsenda Restart Project that will commence production in late 2007 and make CRC a substantial producer in the DRC with annual production stated at 54,000 tpa of copper in a rich, 45-50% concentrate. For further information: Mitchell Alland Executive Vice Chairman - CRC +44 (0)787 569 5563 Keith Smith Nabarro Wells & Co. +44 (0)20 7710 7405 Bill Staple / Cailey Westhouse Securities +44 (0)20 7601 6100 Barker Toby Hall / Jade gth media relations +44 (0)20 7153 8039/8035 Mamarbachi Chairman's statement for the year ended 31 December 2005 Dear Shareholders, 2005 was an eventful and pivotal year as we transformed Copper Resources Corporation ('CRC' or the 'Company') from a single-property private company with the prospect of production in three years to a public company listed on the AIM market of the London Stock Exchange with interests in three properties and plans to become a producer in as little as 18 months. At the same time, we increased CRC's resource base more than 31/2 times: from 2 billion pounds to 7.2 billion pounds of copper. In the successful IPO in April the Company raised Â£4 million which, coupled with the previous pre-IPO financing of US$11 million, provided the financial strength to: â€¢ accelerate its Bankable Feasibility Study ('BFS') on the Philippines-based Hinoba copper project, which has a resources base of 2 billion pounds of copper; â€¢ acquire an additional copper project in Namibia in May which increased CRC's copper resource base by 1.2 billion pounds; and â€¢ acquire in November a 75% interest in Miniere de Musoshi et Kinsenda ('MMK') in Katanga Province of Congo whose assets include world class copper deposits and infrastructure. The MMK acquisition enables CRC to become a producer imminently from the high-grade 5.3% Kinsenda deposit, and adds 4 billion pounds to the Company's copper resource base. LONDON AIM ADMISSION AND FINANCING Favourable market conditions and the requirement for additional capital led to the decision in early 2005 to list CRC's shares on the AIM market of the London Stock Exchange. This marked a major milestone for the Company, which, after the acquisition of the Hinoba Copper Project, operated for three years as a private company funded by a small group of private investors. CRC's shares were admitted to trading on AIM on 21 April 2005. The AIM listing has expanded the Company's institutional shareholder base and raised its profile in the mining industry. HINOBA COPPER PROJECT (PHILIPPINES) CRC effectively has a 92.5 per cent economic interest in the Hinoba-an Porphyry Copper Project ('Hinoba-an'), subject to a 3 per cent net benefits royalty payable to the original claim owners. The project is located on the island of Negros in the Philippines, approximately 700 km south of Manila. The Company's interest in the project is held under an Integrated Mining and Operating Agreement with Colet Mining and Development Corporation ('Colet'), which holds mining leases over 90 hectares and approximately 2,900 hectares of mineral claims (collectively, the 'Colet Claims'). The Colet Claims cover two known porphyry copper deposits, the Don Jose deposit and the A1 deposit, which comprise the Hinoba-an property. Over the years, a significant amount of exploration and metallurgical test work has been performed on the Hinoba-an property, with its previous owners having spent almost C$15 million. The Hinoba-an property has been subject to 48,000 metres of diamond drilling and 11,000 metres of reverse circulation drilling, totalling 59,000 metres of drilling. A scoping study undertaken in 1998 envisioned a 15-year mine life based on a geological resource of 254 million tonnes at 0.46% Cu at a 0.30% Cu cut-off. The study showed that the deposits could be profitably mined by open pit method with the ore processed in a conventional flotation milling operation to produce approximately 2 billion pounds of recoverable copper and other by-products. Annual production was estimated at 56,000 tonnes of recoverable copper with an average cash cost (including smelting, refining and by-product credits) of US$0.48/lb of copper. Chairman's statement for the year ended 31 December 2005 CRC is conducting additional infill core drilling on the property, which will be completed by mid-2006, and a BFS by the end of 2006. Upon completion of the BFS, and assuming favourable economics, CRC plans to develop a 15 million tonnes per annum open pit copper mine on the Hinoba-an property. The development of the project will be dependent on obtaining future financing. In August 2005, the MPSA was granted and registered to Colet by the Secretary of Environment and Mines of the Philippines. This was a significant milestone, as CRC proceeds with its BFS, which includes an infill drilling program and metallurgical test work. HAIB COPPER PROJECT (NAMIBIA) In May 2005, the Company acquired an option on the Haib Project a substantial low grade sulphide copper porphyry deposit, located in southern Namibia 8 km from the Orange River and the South African border. The property is held by Deep South Mining Company (Pty) Ltd. under Exclusive Prospecting License (EPL) 3140. The licence area is 74,563 hectares and incorporates all of the mineralisation within the Haib deposit and a substantial area around the deposit. The EPL renewal date is 21 April 2007. Renewal of the licence is assured under the Minerals Act of 1992 providing all conditions of the EPL have been satisfied and a reasonable work program is submitted in support of the renewal application. Under the terms of the Option Agreement, CRC can earn a 60% interest in the Haib Project by incurring initial expenditures of US$1.2 million and through the issuance of 120,000 CRC shares. With further expenditures of US$1.0 million and the issuance of a further 150,000 CRC shares, CRC can earn up to a 90% interest in the Haib Project. With 52,000 meters of drilling, the Haib Project is a well-defined deposit that was placed on care and maintenance in the late 1990s owing to low copper prices. Previous work has been carried out by Falconbridge (Pty) Ltd. (1963-1964), King Resources of South Africa (1968-1969), Rio Tinto Zinc Corporation (1972-1975), Rand Merchant Bank Ltd. (1992-1993), and most recently by Great Fitzroy Mines NL (GFM) of Australia (1995-1998). The most recent feasibility study work, undertaken in 1995-1997, focused on producing cathode copper utilizing a roast-leach-electro-winning process plant. In 1996, Behre Dolbear estimated the Haib Project resource at 244 million tonnes, grading 0.37% Cu, using a cut-off grade of 0.3% Cu. This equates to 2 billion pounds of contained copper (net 1.2 billion pounds Cu to CRC based on 60% ownership). Namibia is a politically stable country in which mining is the major contributor to GDP. The Namibian Government has indicated its strong support to advance the Haib Project to a point where a production decision can be made. The extensive drilling and metallurgical database available for the Haib Project is already almost at the standard necessary for a bankable feasibility study. The acquisition of the Haib Project represents a low cost entry opportunity for CRC into a second major copper project. CRC intends to use the extensive geological and metallurgical database available on the Haib Project to evaluate the optimal process recovery method for project development, for which purpose it has engaged METS, a Perth-based mining engineering consultant, whose study will be completed by June 2006. ACQUISITION OF 75% INTEREST IN MMK On 29 November 2005 CRC completed its acquisition of a 75% interest in MMK which holds three concessions in the south of the Katanga Province in the DRC, located near the Zambian border. They are: Kinsenda, Lubembe and Musoshi. Chairman's statement for the year ended 31 December 2005 The Kinsenda and Musoshi properties were mined in 1972-1983 by a Japanese mining consortium and by Canadian management on behalf of the Zairian government from 1983 - 1987 and subsequently by Gecamines, a Congolese state mining company; and are now owned by MMK, which is held 20% by SODIMICO, a Government company, 75% by CRC, and 5% by the Forrest Group, the largest private business in Katanga and one of the largest in the country, with extensive diversified operations including mining, engineering, construction and cement. Having operated successfully in Congo since 1922, the Forrest Group has extensive operational and management experience in the country that will support and facilitate CRC's effort in successfully developing the properties. As part of the MMK transaction, the Forest Group became the largest shareholder of CRC, with a holding of 40% gained by acquiring 18 million new shares issued by CRC. The MMK concession area has extensive infrastructure including roads, water, staff accommodation and power. The power infrastructure includes a 220/110Kva line to both Kinsenda and Musoshi. There are also substations at Kinsenda and Musoshi with generators for back up if required. At Musoshi there is an 8,000 tpd ore dressing plant which will need to be refurbished prior to commencing operations. The accelerated programme planned by CRC involves starting production at Kinsenda within 9 months after the de-watering of the mine, which started in February 2006 and should take 9 months. Initial indications are that it will cost in the order of US$5 million to complete the de-watering of the mine and US$36 million to refurbish and regenerate the underground mine and Musoshi concentrator. FinOre Mining Consultants ('FinOre') of Perth, Australia have completed a new Resource Estimate for Kinsenda that upgrades previous estimates MMK to 'measured and inferred', as follows: Category Tonnes of Ore Cu% Cu Metal Measured 13,080,000 4.8% 632,000 Indicated 4.060,000 5.8% 234,500 Measured and Indicated 17,140,000 5.1% 866,500 The new FinOre mineral estimate is an important improvement in the Kinsenda resource picture, firstly, because earlier MMK estimates could only be classified at the lower 'inferred' category. The new estimate has 3% more copper than the 841,205 tonnes of the MMK estimate. Secondly, and as important, FinOre has identified a potential exploration target at Kinsenda, immediately to the south and southwest of the known resource, where drilling has intersected mineralization. FinOre considers that this major block could contain between 10-15 million tonnes of ore at a range of grades of 3-7% copper, which warrants more exploration that MMK will undertake to prove up this resource. The newly identified block could contain from 0.3m tonnes to 1.0m tonnes of copper metal, which has the potential for doubling the current resource. EXPANSION OF THE BOARD In May, the Board was pleased to welcome Samuel Jonah as non-executive Chairman. Samuel Jonah is non-executive president of AngloGold Ashanti Limited, a NYSE listed company, which is one of the world's largest gold producers with a market capitalization of more than US$11 billion. Previously, he was chief executive officer of Ashanti Goldfields Company Limited since 1986, and oversaw its growth and listing as the first Sub-Saharan African company on the NYSE. He became president of AngloGold Ashanti in May 2004, when Ashanti was acquired by AngloGold Limited. He is a member of numerous advisory committees including President Thabo Mbeki's International Investment Advisory Council of South Africa, President Kufuor's Ghana Investors' Advisory Council, and the United Nations Secretary General's Global Compact Advisory Council. His skills, knowledge and contacts complement the Board's existing operational and financial expertise. As part of the MMK transaction, the CRC board was expanded from six to eight directors, with James Frank, Elia Crespo and Rebecca Taylor resigning, and the following new directors being elected: Chairman's statement for the year ended 31 December 2005 George Arthur Forrest - Non Executive Vice-Chairman For more than 20 years, George Arthur Forrest has been Chairman and CEO of the Forrest Group of companies. The Forrest Group is a fully private group with companies located across Africa, Middle East and Europe. The companies are active across a broad range of sectors including Civil Works, Engineering, Cement, Trading, Mining, Refining. In the Democratic Republic of Congo, the Forrest Group currently employs a workforce of 6,500. In 2004, the mining/ refining activities of the group and its joint ventures produced in 7500 tons of cobalt contained, 17000 tons of copper contained and 15000 tons of zinc. George Arthur Forrest is an Honorary Consul for France since 1999; Conseiller au Commerce Exterieur for Belgium since 1999; and is First Vice President of the Federation des Entreprises du Congo. He currently holds the following decorations and orders: Grand Officier de l'Ordre National du Leopard (RDC); Commandeur de l'Ordre National du Merite Italien (Italy); Commandeur de l'Ordre de Saint Marc de l'Eglise Orthodoxe d'Alexandrie (Greece); Officier de l'Ordre de Leopold II (Belgium); Chevalier de l'Ordre National de la Legion d'Honneur (France); Chevalier de l'Ordre National du Merite (France); Medaille d'Or du Merite Sportif (RDC); Medaille de Vermeil (Commandeur) de la Courtoisie Francaise (France); Medaille d'Honneur (Argent) de la Societe d'Encouragement au Progres (France); Medaille du Merite Civique, Bronze, Argent, Or et Or avec Palme (RDC); Officier de l'Ordre National du Zaire (Zaire) George Andrew Forrest - Non-Executive Director George Andrew Forrest joined the Forrest Group 7 years ago. During the last five years he has held a number of directorships across the Forrest Group: George Andrew Forrest holds a B COM from the University of South Africa (Bachelor of Commerce) and a postgraduate diploma in management (WITS Business School) from the University of Witwatersrand - South Africa. Michel Anastassiou - Non-Executive Director Michel Anastassiou was employed by the Congolese state company Generale des Carrieres et des Mines from 1973 to 1993 where he held various positions the last one being Chief Financial Officer. He joined the Forrest Group in 1993. During the last five years he has held a number of directorship across the Forrest Group. Michel Anastassiou is currently the Managing Director of George Forrest International Afrique sprl ('GFIA') Michel Anastassiou holds a B COM from the University of Lubumbashi (economics). Roger Marshall, OBE - Non-Executive Director Mr Marshall has more than 40 years experience in the mining industry. He is currently Deputy Chairman of Macarthur Coal Limited, and Deputy Chairman of CITIC Australia Trading Limited. He was an Executive Director of the Operating board of BP Australia, and of MIM Holdings Limited (1984-1992) overseeing its extensive coal operations and served as Chairman of Energy Brix Australia Corporation (1993-1996). He has been responsible for the development and production of a number of mines. He is a former Chairman of both the Australian Coal Association and the Queensland Coal Association (1987-1988) and served on the Committee of the World Coal Institute, London (1983-1993) and was also an Australian representative to the International Energy Agency. He was appointed an Officer of the Order of the British Empire in 1989 for services to the Australian coal industry. Mr. Marshall is an Honorary Life Fellow of the Australasian Institute of Management. Chairman's statement for the year ended 31 December 2005 STRATEGY AND OUTLOOK 2006 promises to be an eventful year for CRC with significant developments on a number of fronts, including: â€¢ advancing the Hinoba copper project to completion of a Bankable Feasibility Study; â€¢ evaluating the optimal metallurgical process recovery route for the Haib copper project to determine its long-term economic viability; â€¢ restarting the Kinsenda Mine and reconditioning the existing Musoshi plant and infrastructure, which the Directors expect to commence production in the near term, producing up to 54,000t of copper per annum. By focusing on the development of CRC's assets in the Congo, Philippines and Namibia, CRC hopes to enhance shareholder value. We would like to express our appreciation to the management and our shareholders for their continued support. Sincerely Samuel Jonah KBE Mitchell Alland Chairman Executive Vice Chairman 30 June 2006 Directors' Report for the year ended 31 December 2005 Review of the business Copper Resources Corporation ('the Company') was incorporated on November 25, 2004, in the British Virgin Islands under the International Business Companies Act 2000. On January 11, 2005, the Company entered into an agreement to acquire the entire issued share capital of Hinoba Holdings by way of a share for share exchange. Further, on January 28, 2005, the Company became the registered holder of the entire issued share capital of Copper Spur that was previously held by Hinoba Holdings. Following the acquisition of Hinoba Holdings, the Company has, through a subsidiary, acquired the rights to the Hinoba-an Porphyry Copper Project on Negros Island in the Republic of the Philippines. Further, on 28 January 2005, the Company became the registered holder of the entire issued share capital of Copper Spur Mining Corporation ('Copper Spur') that was previously held by Hinoba Holdings. On 25 May, 2005, CRC entered into an option and operating agreement with Deep- South Mining Pty Ltd, Africa-can Marine Minerals Corporation and African Millennium Corporation on the Haib Porphry Copper Project in Namibia. On 30 November 2005 CRC also acquired 75% of Miniere de Musoshi et Kinsenda, in the DRC (Democratic Republic of Congo) which will enable the Company to become a producer in the near term. More details are given in the Chairman's Statement on pages 4 to 9. The principal activity of the Company is as a holding company for the Group, to pursue exploration and development of minerals. Results and Dividends The results of the Group for the year ended 31 December 2005 are set out in the accounts. The directors do not recommend a dividend for the year ended 31 December 2005 (2004: Nil) Directors & their Interests The director's interests in the shares of the Company were as stated below: Common Shares Number of ordinary shares At 31 December 2005 At 1 January 2005 Sir Samuel Esson Jonah 200,000 - Mitchell Alland 100,000 - Christopher Jordinson 257,333 227,333 Elia Crespo - - James D Frank 100,000 100,000 Rebecca Taylor - - Directors' Report for the year ended 31 December 2005 Options Directors hold the following options to subscribe for ordinary shares: Exercise price Date of grant Date of expiry Number of shares Sir Samuel Esson Jonah 59 pence 24/05/2005 23/05/2010 150,000 Mitchell Alland 100 pence 04/04/2005 04/04/2010 50,000 Mitchell Alland 42 pence 28/09/2005 28/09/2010 100,000 Christopher Jordinson 25 cents 19/01/2005 19/01/2010 75,000 Christopher Jordinson 100 cents 14/02/2005 13/02/2010 150,000 Christopher Jordinson 100 pence 04/04/2005 04/04/2010 100,000 Elia Crespo 100 pence 04/04/2005 04/04/2010 50,000 James D Frank 100 cents 13/02/2005 13/02/2010 100,000 James D Frank 25 cents 1901/2005 19/01/2010 100,000 Rebecca Taylor 100 pence 04/04/2005 04/04/2010 20,000 George Arthur Forrest 75 pence 30/11/2005 31/12/2010 125,000 George Andrew Forrest 75 pence 30/11/2005 31/12/2010 125,000 Michel Anastassiou 75 pence 30/11/2005 31/12/2010 125,000 Roger Marshall 75 pence 30/11/2005 31/12/2010 100,000 Substantial Shareholding The Forrest Group holds 40% of the shares of CRC, following the acquisition of CRC's 75% shareholding in MMK. The shares are held under different names and/or companies within the Forrest Group. The following shareholders hold in excess of 3% equity in CRC: Shareholder Number of Shares % L'enterprise Generale Malta Forrest sprl 21,597,121 35.64% Morstan Nominees Limited 9,636,778 15.9% Chase Nominees Limited 6,781,250 11.19% Credit Suisse Client Nominees (UK) Limited 2,600,000 4.29% George Forrest International Afrique sprl 1,871,770 3.09% Political and Charitable donations There was neither political nor charitable donations by CRC for 2005. Policy on Suppliers Payment It is the Group's policy to agree the terms of payment at the start of business with each supplier, ensure that the suppliers are aware of the terms of the payment, and pay in accordance with contractual and other legal obligations. Directors' Report for the year ended 31 December 2005 CORPORATE GOVERNANCE Annual General Meeting The Annual General Meeting of the Company will be held on the 28th August 2006. A Form of Proxy and a reply-paid envelope are enclosed with this document. Business at the Annual General Meeting In accordance with Article 105 the Business to be carried out at the Annual General Meeting will be: 1. Approve Annual Financial Statements for 31st December 2005. 2. Re-election of Directors who are required to be re-elected. 3. Reappointment of the auditors - Chantrey Vellacott DFK LLP Internal Control The directors are responsible for the Group's system of financial and other internal controls. The directors prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and of the Group and of the profit or loss of the Group for that period. In preparing those financial statements, the directors: â€¢ Select suitable accounting policies and then apply them consistently; â€¢ Make judgments and estimates that are reasonable and prudent; â€¢ State whether appropriate accounting standards have been applied; â€¢ Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group will continue in business. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and the group, Audit Committee The Audit Committee comprises of 1 executive director and 3 non-executive directors. The Audit Committee meetings take place 2 times a year. The main functions of the Committee are to review and recommend the release of the half year and full year Financial statements of the Company to the full Board of CRC. The Audit Committee is comprised of the following members: Sir Samuel Esson Jonah - Non-Executive Chairman George Andrew Forrest - Non-Executive Director Roger Marshall - Non-Executive Director Christopher Jordinson - Executive Director/Chief Executive Officer Directors' Report for the year ended 31 December 2005 Executive Committee The Executive Committee comprises of 2 executive directors and 1 non-executive director. The Executive Committee meetings take place as required and the decisions are then distributed to the full board for ratification. The main functions of the committee are to make executive day to day operating decisions without having to convene a meeting of the entire board. The members of the Executive Committee are: Mitchell Alland - Executive Vice-Chairman Michel Anastassiou - Non-Executive Director Christopher Jordinson - Executive Director/Chief Executive Officer Bonus Payments No bonus payments were paid to the directors or executive office holders. Going Concern The directors consider that the Group has adequate resources to continue in operational existence for the foreseeable future and accordingly have adopted the going concern basis in the preparation of the accounts. Income Statement The income statement of the company is not presented as part of these accounts. Interest received in relation to cash deposits and term investments amounted to US$0.298 million. Statement of directors' responsibilities The directors prepare financial statements for each financial year which give a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year and the profit or loss of the Group for the year. In preparing those financial statements, the directors: â€¢ Select suitable accounting policies and then apply them consistently; â€¢ Make judgements and estimates that are reasonable and prudent; â€¢ State whether applicable accounting standards have been followed; and â€¢ Prepare the financial statements on a going concern basis unless it is inappropriate to presume that the group will continue in business. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company, and the Group, and to enable them to ensure that the financial statements comply with IFRS. They are also responsible for safeguarding the assets of the Group and for taking reasonable steps for the prevention and detection of fraud and other irregularities. Directors' Report for the year ended 31 December 2005 Auditors A resolution for the reappointment of Chantrey Vellacott DFK LLP as auditors of the Company is to be proposed at the forthcoming Annual General Meeting. Director 30 June 2006 Independent auditors' report to the shareholders of Copper Resources Corporation We have audited the group and parent company financial statements of Copper Resource Corporation for the year ended 31 December 2005, which comprise of the consolidated income statement, consolidated and company balance sheets, consolidated and company statement of changes in equity, consolidated and company cash flow statements and the related notes. These financial statements have been prepared under the historical cost convention and the accounting policies set out therein. This report is made solely to the company's members, as a body. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As described in the statement of directors' responsibilities the company's directors are responsible for the preparation of financial statements in accordance with applicable law and International Financial Reporting Standards as adopted by the European Union. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a true and fair view and have been properly prepared in accordance with Article 4 of the IAS Regulation. We also report to you if, in our opinion, the directors' report is not consistent with the financial statements, if the group has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors' remuneration and other transactions are not disclosed. We read other information contained in the financial statements and consider whether it is consistent with the audited financial statements. This other information comprises only the Directors' report and the Chairmans statement. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Independent auditors' report to the shareholders of Copper Resources Corporation Opinion In our opinion â€¢ the financial statements give a true and fair view, in accordance with International Financial Reporting Standards as adopted by the European Union, of the state of the group's and the parent company's affairs as at 31 December 2005 and of the group's profit for the year then ended; and â€¢ the financial statements have been properly prepared in accordance with Article 4 of the IAS Regulation. â€¢ the information given in the directors' report is consistent with the financial statements. CHANTREY VELLACOTT DFK LLP Chartered Accountants Registered Auditors London 30 June 2006 Consolidated income statement for the year ended 31 December 2005 Notes 2005 2004 $'000 $'000 Revenue - - Gross profit - - Interest receivable and similar income 6 298 2 Unrealised foreign exchange gain/(loss) 78 (1) Administrative expenses (1,449) (744) Share option expenses (1,559) (74) Other write offs (435) - Loss on ordinary activities before taxation 3 (3,067) (817) Income tax expense 7 - - Minority interest 1 - Loss for the financial year (3,066) (817) Loss per share Basic 8 (13.6c) ($817,000) Diluted 8 (12.5c) ($817,000) All results derive from continuing activities Consolidated balance sheet as at 31 December 2005 Notes 2005 2004 $'000 $'000 Assets Non-current assets Property, plant and equipment 9 5,526 2 Development, exploration and evaluation costs 10 26,478 212 Investment in associate 11 - 78 Investment in other company 12 200 - 32,204 292 Current assets Inventories 15 5,422 - Trade and other receivables 17 2,300 9 Other current assets 16 - 448 Cash and cash equivalents 18 11,565 1,348 19,287 1,805 Total assets 51,491 2,097 Consolidated balance sheet as at 31 December 2005 Notes 2005 2004 $'000 $'000 Equity and liabilities Shareholder's equity Share capital 23 30,365 10 Contributed surplus 2,817 2,817 Other reserves 1,576 107 Retained earnings (3,973) (907) Total equity 30,785 2,027 Minority interests 4,304 - Net funds available to shareholders' 35,089 - Non-current liabilities Deferred tax liabilities 21 13 - Deferred purchase consideration 20 475 - Borrowings 22 354 - Total non-current liabilities 842 - Current liabilities Trade and other payables 19 5,097 70 Deferred purchase consideration 20 150 - Borrowings 22 10,313 - Total current liabilities 15,560 70 Total liabilities 16,402 70 Total equity and liabilities 51,491 2,097 Approved by the board of directors on 30 June 2006 Signed on behalf of the board of directors: Company balance sheet as at 31 December 2005 Notes 2005 2004 $'000 $'000 Assets Non-current assets Property, plant and equipment 9 3 - Investment in subsidiaries 13 14,434 - Investment in other company 12 200 - 14,637 - Current assets Loans to related undertakings 14 6,008 - Trade and other receivables 17 16 - Cash and cash equivalents 18 8,857 - 14,881 - Total assets 29,518 - Equity and liabilities Shareholders' equity Share capital 23 30,365 - Other reserves 1,559 - Retained earnings (3,267) - 28,657 - Non-current liabilities Deferred purchase consideration 20 475 - Total non-current liabilities 475 - Current liabilities Loans to related membership 14 218 - Trade and other payables 19 18 - Deferred purchase consideration 20 150 - Total current liabilities 386 - Total liabilities 861 - Total equity and liabilities 29,518 - Approved by the board of directors on Signed on behalf of the board of directors: Director Consolidated statement of changes in equity for the year ended 31 December 2005 Share Contributed Other Retained Total capital surplus reserves earnings $'000 $'000 $'000 $'000 $'000 Balance at 31 December 2003 5 815 - (90) 730 Loss for the year - - - (817) (817) Additional contributions of Capital 5 2,002 107 - 2,115 Balance at 31 December 2004 10 2,817 107 (907) 2,027 Loss for the year - - - (3,066) (3,066) Additional contributions of Capital 30,355 - - - 30,355 Share based transactions - - 1,559 - 1,559 Foreign exchange gain/(loss) - - (90) - (90) Balance at 31 December 2005 30,365 2,817 1,576 (3,973) 33,785 Company statement of changes in equity for the year ended 31 December 2005 Share Contributed Other Retained Total Capital Surplus reserves earnings $'000 $'000 $'000 $'000 $'000 Balance at 31 December 2004 10 - - - 10 Loss for the year - - - (3,267) (3,267) Additional contributions of 30,355 - - - 30,355 Capital Share based transactions - - 1,559 - 1,559 Balance at 31 December 2005 30,365 - - (3,267) 28,657 Included in capital reserves as at 31 December 2005 are amounts attributable to share based transactions of $1,559,000 (2004: nil). Consolidated cash flow statement for the year ended 31 December 2005 2005 2004 $'000 $'000 $'000 $'000 Cash flows from operating activities Loss from operations (3,364) (817) Adjustments for: Amortisation of intangible assets - 1 Share based transactions 1,559 452 Depreciation on property, plant and equipment 13 - Foreign exchange loss - 5 Operating cash flows before movement in working capital - (1,792) (359) Change in trade receivables (1,814) (8) Change in trade payables 5,218 31 Net cash (used in)/generated from operations (3,404) 23 Corporation tax paid - - Net cash used in operating activities (5,196) - (336) Cash flows from investing activities Interest received 298 - Acquisition of subsidiaries (12,914) (6) Cash acquired in acquisition of subsidiary companies 2,454 1 Investment in exploration costs (4,763) (4) Investment in associates 200 (60) Purchase of property, plant and equipment (217) (1) Net cash used in investment activities (14,942) (70) Cash flows from financing activities Share capital issued (net of costs) 30,355 - Contributions by shareholder - 1,592 Net cash from financing activities 30,355 1,592 Net increase in cash and cash equivalents 10,217 1,186 Cash and cash equivalents at beginning of period 1,348 162 Cash and cash equivalents at end of period 11,565 1,348 Company cash flow statement for the year ended 31 December 2005 2005 2004 $'000 $'000 $'000 $'000 Cash flows from operating activities Loss from operations (3,267) - Operating cash flows before movement in working capital Increase in receivables (5,806) - Increase in payables 18 - Cash used in operations (5,788) - Corporation tax paid - - Net cash used in operating activities (9,055) - Cash flows from investing activities Acquisition of subsidiary (15,22) - Acquisition of associate (200) - Acquisition of property, plant and equipment (3) - Net cash used in investment activities (15,426) - Financing activities Share capital issued (net of costs) 33,338 - Net cash from financing activities 33,338 - Net increase in cash and cash equivalents 8,857 - Cash and cash equivalents at beginning of period - - Cash and cash equivalents at end of period 8,857 - Notes to the financial statements For the year ended 31 December 2005 1. Presentation of financial statements The nature of the group's operations and its principal activities are set out in the Directors' Report on pages 10 to 14. The financial statements have been prepared in accordance with International Financial Reporting and Accounting Standards adopted by the European Union and therefore comply with Article 4 of the EU IAS Regulation. At the date of authorisation of these financial statements, there were Standards and Interpretations that were in issue but are not yet effective and have not been applied in these financial statements. The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statement of the group or company, except for additional disclosures when the relevant Standards come into effect. 2. Significant accounting policies Basis of accounting The preparation of financial statements in conformity with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of the amount, even or actions, actual results ultimately may differ from those estimates The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are set out below. The Company's own operations and cash flows reflect the actual results of the Company from the date of incorporation, 1 January 2005, to 31 December 2005. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and enterprises controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of a subsidiary. On acquisition and when control is achieved, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition or at the date control is achieved. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognized as goodwill. Minority interests in the net assets of consolidated subsidiaries are identified separately from the group's equity therein. Minority interests consist of the amount of those interests at the date of the original business combination and the minority's share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority's interest in the subsidiary's equity are allocated against the interests of the group except to the extent that the minority has a binding obligation and is able to make additional investment to cover the losses. Notes to the financial statements For the year ended 31 December 2005 Basis of consolidation (continued) The results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. All intercompany transactions and balances between group enterprises are eliminated on consolidation. The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the acquisition date, of assets given, liabilities incurred or assumed, and equity instruments issued by the group, plus any costs directly attributable to the acquisition. The acquiree's identifiable assets, liabilities and contingent liabilities are recognised at their fair value at the acquisition date, except for non-current assets that are held for resale, which are recognised and measured at fair value less costs to sell. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of cost over the group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised of a subsidiary, associate or jointly controlled entity at the date of acquisition. Goodwill is recognised as an asset and is tested for impairment annually, or on such occasions that events or changes in circumstances indicate that its value might be impaired. On disposal of a subsidiary, the attributable amount of unamortised goodwill, which has not been subject to impairment, is included in the determination of the profit or loss on disposal. If the group's interest in the net fair value of a subsidiary's or joint venture's assets, liabilities and contingent liabilities exceeds cost of the business combination, the excess after any adjustment for fair value ('negative goodwill') is recognised in the income statement immediately. Investment in associates An associate is an entity over which the group is in a position to exercise significant influence, but not control or jointly control, through participation in the financial and operating policy decisions of the investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee but not control or joint control over these policies. The results and assets and liabilities of associated are incorporated in these financial statements using the equity method of accounting except when classified as held for sale. Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the group's share of net assets of the associate, less any impairment in the value of individual investments. Losses of the associate in excess of the group's interest in those associates are not recognised. Any excess of the cost of acquisition over the group's share of the fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill. Where the company transacts with an associate of the group, profits and losses are eliminated to the extent of the group's interest in the relevant associate. Losses may provide evidence of an impairment of the asset transferred in which case appropriate provision is made for impairment. Notes to the financial statements For the year ended 31 December 2005 Revenue recognition Interest income is accrued on a time basis, by reference to the principal outstanding and the interest rate applicable. Leasing 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. 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 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. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term. Borrowing costs All borrowing costs are recognised in the income statement in the period to which they are incurred. Taxation The tax charge represents the sum of current and deferred tax. Current tax payable is based on taxable profits for the year. Taxable profits differ from net profits as reported in the income statement because it excludes items that are taxable or deductible in other years and items that are not taxable or deductible. The group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the balance sheets date. Deferred tax is the tax expected to be payable or recoverable on 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, and is accounted for using the liability method. Deferred tax liabilities are recognised for all temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which 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 taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability or the asset is realised. Notes to the financial statements For the year ended 31 December 2005 Foreign Currency Translations 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 close rate. Transactions in currencies other than US Dollars are recorded at the rates of exchange prevailing on the dates of the transactions or translated at the average exchange rates for the period. Exchange differences resulting from the settlement of transactions denominated in foreign currency are included in the statement of income using the exchange rate ruling on that date. Transactions occurring in a subsidiary of Hinoba Holdings, were denominated primarily in Philippine Pesos. Management is of the opinion that these operations were integrated foreign operations for purposes of foreign currency translation and, accordingly, the accounts have been translated into U.S. dollars. Transactions occurring in a subsidiary of MMK, were denominated primarily in Congolese Francs. Management is of the opinion that these operations were integrated foreign operations for purposes of foreign currency translation and, accordingly, the accounts have been translated into U.S. dollars. The consolidated financial information is presented in US Dollars, which is considered by management to be the most appropriate presentation currency for its consolidated financial information. All assets and liabilities are translated at the closing rate existing at the balance sheet date. Income and expense items are translated at an average rate for the period. Equity items other than the net profit or loss for the period that is included in the balance of accumulated profit or loss are translated at the closing rate existing at the balance sheet date. All translations differences are recognised in a component US Equity. Impairment At each balance sheet date, the group reviews the carrying amount 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 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. If the recoverable amount of an asset is estimated to be less than its carrying amount, the impairment loss is recognised as an expense, unless the relevant asset is land or buildings 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 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. 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 treated as a revaluation increase. Impairment losses relating to goodwill are not reversed. Notes to the financial statements For the year ended 31 December 2005 Property, plant and equipment Property, fixtures and equipment are stated at cost less accumulated depreciation and any impairment losses. Depreciation is charged so as to write the cost less residual value over estimated useful lives, using the straight-line method commencing in the month following the purchase, on the following basis: - freehold property 25 years - heavy equipment 4 - 10 years - plant and equipment 4 - 10 years The useful lives and residual values of assets are reviewed annually. 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 lease. The gain or loss arising on the disposal of an asset including disposal costs is recognised in the income statement. Mineral Exploration Costs Expenditures for mineral exploration work prior to and subsequent to drilling are deferred as incurred. These shall be written off it the results of the exploration work are unsuccessful. If the results are successful, the deferred expenditures and the subsequent development cost will be capitalized and amortized from the start of commercial operations. Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value represents the estimated revenue less all estimated costs of completion and necessary selling costs. Financial instruments The carrying value of accounts receivable and accounts payable and accrued liabilities approximates fair value due to the relatively short term maturity of these instruments. Fair value represents the amount that would be exchanged in an arm's length transaction between willing parties and is best evidenced by a quoted market price. Fair value information about related party advances is not readily obtainable. Financial assets and financial liabilities are recognised in the group's and company's balance sheets when the group or company has become a party to the contractual provisions of the instrument. The Company follows the Black-Scholes option pricing model. Under this model, share-based payments are measured at the fair market at the date of grant. The fair value determined at the grant date is expensed to when options vest. Options vest immediately. Notes to the financial statements For the year ended 31 December 2005 Trade receivables Trade receivables are stated at their nominal value less allowances for irrecoverability. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term deposits and liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the income statement using the effective interest rate method Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that creates a residual interest in the assets of the group. 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 from which it is likely that an outflow of economic benefits will occur which can be reasonably quantified. Notes to the financial statements For the year ended 31 December 2005 3. Loss on ordinary activities 2005 2004 $'000 $'000 Loss on ordinary activities has been arrived at after charging: Auditors remuneration - audit 100 - Auditors remuneration - non-audit - - Depreciation of property, plant and equipment - owned assets 13 - Staff costs (note 5) 293 - Director's remuneration (note 6) 410 0 Auditors' remuneration for the audit of the company amounts to $30 (2004: $-) 4. Staff costs The costs of employing staff were: 2005 2004 $'000 $'000 Wages and salaries 292 - Social security costs 1 - 293 - No. No. The average number of employees during the period was - - 5. Directors' remuneration Remuneration paid to directors during the period was as follows: 2005 2004 $'000 $'000 Salaries 410 - The remuneration of directors and key executives is decided by the remuneration committee having regard to comparable market statistics. The directors consider the key management personnel of the Company to consist entirely of the directors and therefore, no additional disclosure has been made Notes to the financial statements For the year ended 31 December 2005 5. Directors' remuneration (continued) The emoluments (including pension contributions) of the highest paid director were as follows: 2005 2004 $'000 $'000 Salaries 155 - 6. Interest receivable and similar income 2005 2004 $'000 $'000 Interest on bank deposits 298 2 7. Income tax expense The British Virgin Islands under the IBC imposes no corporate taxes or capital gains. However, the Company as a group may be liable for taxes in the jurisdictions where it is developing mining properties. The tax rates in the Philippines and the Congo are 40% and 32.5% respectively. There are currently tax losses amounting to $0.19 million in the Philippines and $2.6 million in the Congo. No reconciliation has been produced as there is no taxable revenue in the current year. 8. Loss per share The calculations of the basic and diluted loss per share are based on the following data: 2005 2004 $'000 $'000 Loss for the purpose of basic loss per share 3,066 817 Number of shares Weighted average number of ordinary shares in issue during the year 22,615,528 1 Number of shares Weighted average number of fully diluted shares in issue during the year 24,498,534 - Notes to the financial statements For the year ended 31 December 2005 9. Property, plant and equipment Group Freehold Heavy equipment Plant and Total properties equipment $'000 $'000 $'000 $'000 Cost At 1 January 2005 - - 2 2 Additions 477 5,140 313 5,930 Disposals - (5) (3) (8) At 31 December 2005 477 5,135 312 5,924 Depreciation: At 1 January 2005 - - - - Charge for the year 11 348 39 398 At 31 December 2005 11 348 39 398 Net book value: At 31 December 2005 466 4,787 273 5,526 At 31 December 2004 - - - 2 The carrying amount of the group's fixtures and equipment includes an amount of $nil (2004: $nil) in respect of assets held under finance leases Company Plant and Total equipment $'000 $'000 At 1 January 2005 - - Additions 3 3 Net book value: At 31 December 2005 3 3 At 31 December 2004 - - Notes to the financial statements For the year ended 31 December 2005 10. Development, Exploration and Evaluation costs Group 2005 2004 Cost $'000 $'000 At 1 January 2005 212 - Additions 26,266 212 At 31 December 2005 26,478 212 At 31 December 2004 - - This relates to capitalised costs of exploration and development costs at the Hinoba-an Project, Haib Project and Congolese Projects. 11. Investment in associated undertaking Group 2005 2004 $'000 $'000 Cost At 1 January 2005 78 - Additions - 78 Disposals (78) - At 31 December 2005 - 78 This investment in associated undertaking related to Selenga Mining Corporation and the acquisition of the interest in Selenga by Hinoba Holdings Limited. This amount has been paid and was included in the contingent consideration. Notes to the financial statements For the year ended 31 December 2005 12. Investment in other company Company 2005 2004 $'000 $'000 Cost At 1 January 2005 - - Additions 200 - At 31 December 2005 200 - This relates to the investment in Afri-Can Marine Minerals Corporation, which is a listed entity on the Toronto Stock Exchange. Notes to the financial statements For the year ended 31 December 2005 13. Investments in subsidiary undertakings Company 2005 2004 $'000 $'000 Cost At 1 January 2005 - - Acquisitions 14,434 - At 31 December 2005 14,434 - All subsidiary companies are included in the consolidated accounts of Copper Resources Corporation. At December 31, 2005, the Company had the following subsidiaries: Name of company Place of incorporation Ownership interest Principal activity Hinoba Holdings Australia 100% Secretarial & (Australia) Pty Administration Offices Limited African Millennium British Virgin Islands 100% Mining exploration Corporation Hinoba Holdings Ltd. Commonwealth of the Bahamas 100% Holding company of Hinoba Holdings (Philippines), Inc. Hinoba Holdings Philippines 100% Holding company of (Philippines), Inc. Hinoba-an & Sipalay Holdings Hinoba-an & Sipalay Philippines 40% Holding company of Holdings Selenga Mining Corporation Selenga Mining Philippines 92.5% Mining exploration Corporation Miniere de Musoshi et Democratic Republic of Congo 75% Mining exploration Kinsenda sarl Notes to the financial statements For the year ended 31 December 2005 13. Investments in subsidiary undertakings (continued) Reverse Acquisition Copper Resources ('CRC') issued 10,756,600 common shares to the shareholders of Hinoba Holdings ('HHL'), representing 99.99% of all the issued and outstanding shares of the Company and issued 975,000 options on a one to one basis to HHL's optionees to acquire 100% interest in HHL. For accounting purposes, this transactions is considered as a reverse acquisition of CRC by HHL. The net assets of CRC at the date of acquisition consisted of share capital of $1 and a deficit of $4,872 relating to administrative expenses which have been charged to the consolidated income statement. Selenga Mining Corporation The 40% investment in Selenga Mining Corporation ('SMC ') was recorded on an equity basis during 2004. Hinoba Holdings (Philippines), Inc. ('HHPI'), a subsidiary of HHL, paid $60,000 on January 13, 2004 and a further $15,000 on January 15, 2005 when it exercised the assignable option dated January 13, 2004 allowing it the option to acquire the remaining 59.6% of the shares outstanding in SMC for a purchase price of $150,000. HHPI assigned its interest in SMC to its subsidiary, Hinoba-an & Sipalay Holdings Inc ('HSHI'), on January 15, 2005. As a result of the above assignment HSHI owns 92.5% of SMC. This transaction has been accounted for by the purchase method with the results of operations included in these financial statements from the date of acquisition. Details of the acquisition are as follows: Notes to the financial statements For the year ended 31 December 2005 13. Investments in subsidiary undertakings (continued) Selenga Mining Corporation Net assets acquired - at fair value Advances from Colet Mining $18,566 Mineral exploration costs 622,682 Accounts payable and accrued liabilities (7,371) Payable to HHPI (452,246) Minority Interest (13,622) $168,009 Consideration given - at fair value Cash $93,009 Deferred consideration 75,000 $168,009 African Millennium Corporation On May 25, 2005, CRC acquired 100 common shares of AMC, representing 100% of the outstanding shares. This transaction has been accounted for by the purchase method with the results of operations included in these financial statements from the date of acquisition. Details of the acquisition are as follows: Net assets acquired - at fair value Cash $100 Exploration option rights 915,550 $915,650 Consideration given - at fair value Cash 250,000 Common shares in the Company 40,650 Deferred consideration 625,000 $915,650 $250,000 of the deferred consideration is contingent upon the successful completion of the bankable feasibility study of the project and $375,000 is contingent upon the commencement of commercial production at the Haib project. CRC through its acquisition of AMC holds option rights to certain mineral properties located in southern Namibia close to the South African border, referred to as the Haib Copper Project. ('Haib Project'). On May 25, 2005, the Company entered into agreement with Afri-can Marine Minerals Corporation ('AFA') and Deep-South Mining Company (Pty) Limited ('Deep-South') to explore and develop the Haib Project. Under the terms of the agreement, the Company has paid $162,00 to AFA, subscribed for US$200,000 in AFA's shares and issued 60,000 common shares of the Company to Deep-South and has a further commitment to fund US$1,200,00 in expenditures on the project within 40 months. The company shall be entitled to a 60% interest in a new company which will be formed to hold the Haib Project at the time the Company has fulfilled its funding obligations. Notes to the financial statements For the year ended 31 December 2005 13. Investments in subsidiary undertakings (continued) Hinoba Holdings (Australia) Pty Ltd. On April 28, 2005, HHPI, a subsidiary of HHL incorporated a wholly owned subsidiary, Hinoba Holdings (Australia) Pty Ltd. The results of operations have been included in the financial statements from the date of incorporation. As HHPI was the founding shareholders there was no acquisition of net assets. Miniere de Musoshi et Kinsenda sarl Copper Resources Corporation entered into a Memorandum of Understanding to acquire 75% of Miniere Musoshi Kinsenda (MMK) which holds three deposits in the south of Katanga Province of the Democratic Republic of Congo (DRC). In exchange for the 75% shareholding in MMK, CRC issued 18,717,734 new shares. Net assets acquired - at fair value $'000 Cash $2,454 Exploration option rights 22,462 Property, plant and equipment 5,357 Inventories 5,204 Trade receivables 2,121 Borrowings (15,667) Trade Creditors (4,712) Net liabilities 17,219 75% the assets 12,914 Consideration given - at fair value Common shares in the Company 11,834 Acquisition costs 1,080 $12,914 Notes to the financial statements For the year ended 31 December 2005 14. Loans to related undertakings Company 2005 2004 $'000 $'000 Within one year: At 1 January 2005 - - Net Funds provided 6,008 - At 31 December 2005 6,008 - Loans from subsidiaries At 1 January 2005 - - Funds advanced 218 - At 31 December 2005 218 - The directors consider that the fair values of the loans outstanding are not considered to be materially different from their book values. The loans are interest free with no fixed-terms of repayment. The loans are for the working capital required for each entity to perform its day to day activities. 15. Inventories Group 2005 2004 $'000 $'000 Raw Materials 2,645 - Wrappings 10 - Work in progress 1,173 - Finished products 1,369 - Stocks in transit 225 - 5,422 - Notes to the financial statements For the year ended 31 December 2005 16. Other Current assets Group 2005 2004 $'000 $'000 Cost At 31 January 2005 448 - Additions 2 - Disposals (450) - At 31 December 2005 - 448 Other current assets relate to the Copper Spur property where CRC relinquished its rights thereto and wrote off the expenditure incurred. 17. Trade and other receivables Group Company 2005 2004 2005 2004 $'000 $'000 $'000 $'000 Trade receivables 2,286 - 16 - Other taxes 14 9 - - 2,300 9 16 - The average credit period taken on sales of services was 90 days (2004: 0 days). The amounts presented in the financial statements are net of allowances for doubtful receivables, estimated by the group's management based on prior experience and their assessment of the current economic environment. The directors consider that the carrying amount of trade and other receivables approximates to their fair value. Credit risk The group and company have no significant concentration of credit risk, with exposure spread over a large number of counterparties. Notes to the financial statements For the year ended 31 December 2005 18. Cash and cash equivalents Group Company 2005 2004 2005 2004 $'000 $'000 $'000 $'000 Useable cash 11,565 1,348 8,857 1 Cash secured against borrowings - - - - 11,565 1,348 8,857 1 Bank balances and cash comprise cash held by the group and company and short-term bank deposits with an original maturity of three months or less. The carrying value of these assets approximates their fair value. The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies. 19. Trade and other payables Group Company 2005 2004 2005 2004 $'000 $'000 $'000 $'000 Trade payables 4,842 70 18 - Accruals and deferred income 241 - - - 5,097 70 18 - 20. Deferred purchase consideration Group Company 2005 2004 2005 2004 $'000 $'000 $'000 $'000 Deferred consideration 625 - 625 - Description of deferred consideration maturity profile Group Company 2005 2004 2005 2004 $'000 $'000 $'000 $'000 Within one year 150 - 150 - One - two years 150 - 150 - Two - five years 325 - 325 - 625 - 625 - Notes to the financial statements For the year ended 31 December 2005 21. Provision for deferred tax - Group Accelerated tax Total depreciation $'000 $'000 31 December 2004 - - Charge/(credit) to income - - Acquisition to subsidiary 13 13 31 December 2005 13 13 Certain deferred tax assets and liabilities have been offset. The following is an analysis of the deferred tax balances (after offset) for financial reporting purposes: 2005 2004 $'000 $'000 Deferred tax liabilities 13 - Deferred tax assets 13 - Net position at 31 December 2005 13 - 22. Borrowings 2005 2004 $'000 $'000 EGMF - current 10,313 - EGMF - non-current 354 - Net position at 31 December 2005 10,667 - EGMF, an associated company of a current Shareholder and previous majority Shareholder of MMK provided the Company with several amounts of financing through the company's Belgolaise account. The Loan is interest free. Notes to the financial statements For the year ended 31 December 2005 23. Share capital 2005 2005 2004 2004 $'000 Number of $'000 Number of Shares shares Authorised: Ordinary shares of no par value - 500,000,000 - 500,000,000 Called up, allotted and fully paid: Balance - 1 January 2005 - 1 - - Issued - 25 November 2004 - - 10 1 Total - 31 December 2004 - - 10 - Shares Issued at Reverse takeover 1,911 10,756,600 - - Founder Shares 13 1,300,000 - - Exercise of stock options 216 600,000 - - Private Placement 10,516 11,100,000 - - Initial Public Offering 7,516 4,000,000 - - Initial Public Offering costs (1,948) - - - Common shares to acquire AMC 41 60,000 - - Common shares issued for Haib Project earn 41 60,000 - - in Common shares for MMK acquisition 11,834 18,717,734 - - Common shares for MMK fees 126 200,000 - - Balance at 31 December 2005 30,365 46,794,335 10 1 Shares Issued since Incorporation: Date Number of Ordinary Shares Issue Price On 25 November 2004 1 100 cents On 20 December 2004 1,300,000 1 cent On 11 January 2005 10,756,600 17.76 cents On 11 January 2005 600,000 25 cents On 4 February 2005 11,100,000 100 cents On 21 April 2005 4,000,000 100 pence On 25 May 2005 120,000 37 pence On 30 November 2005 18,717,734 36.5 pence On 30 November 2005 200,000 36.5 pence As at 31 December 2005 46,794,335 (a) Under reverse take over accounting, the share capital is presented as if the consolidated financial statements are a continuation of the legal subsidiary, HHL. Therefore, the opening balance of $10,000 represents the book value of the share capital of HHL on 1 January 2005. The number of shares in issue, however, reflect that of the legal parent company. (b) On April 1, 2005, the Company issued 1,300,000 common shares to founders at a price of $0.01 each for cash and 600,000 common shares pursuant to the exercise of share options at an exercise price of $0.25 each for cash consideration of $150,000. Notes to the financial statements For the year ended 31 December 2005 23. Share capital (continued) (c) Pursuant to a private placement carried out by the Company, the Company issued 11,100,000 common shares at a price of $1.00 on April 1, 2005 for cash with financing costs of $583,919. (d) Following the Company's admission to AIM, the Company issued 4,000,000 shares at a price of 1 British pound (US$1.9039) on April 21, 2005 for cash. (e) On May 25, 2005, in consideration for the acquisition of African Millennium Corporation, the Company issued 60,000 shares to the vendors and 60,000 shares to a joint venture partner for an earn-in interest in the Haib project. The market price of these shares at the time of issue was 37 British pence (US$0.68) per share. (f) On November 30, 2005 the Company issued 18,717,734 common shares at 36.5 pence to the vendors in consideration for the acquisition of a 75% shareholding in MMK. (g) On November 30, 2005 the Company issued 200,000 common shares to Sir Sam Jonah at 36.5 pence in consideration for his services in connection with the MMK acquisition. (h) Option Plan The Company has established a share option scheme whereby the Directors may from time to time at their discretion grant to the Directors, employees and consultants of the Group Options to subscribe Common Shares. Under the plan, the exercise price of each option shall be the average of the middle market quotation for the thirty dealing days preceding the grant and the number of options may be granted is limited to 10 per cent of the total Common shares issued. An Option is exercisable on the date it is granted and expires on the fifth anniversary of the grant date. The details of the changes in the number of stock options outstanding as at 31 December 2005 are shown in note 31. The fair value of stock options granted during the period ended June 30, 2005 has been estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions: risk free interest rate of 3.45%, expected dividend yield of nil, expected volatility of 50%, expected option life of 4.17 years. Notes to the financial statements For the year ended 31 December 2005 24. Related party transactions a) Transactions between group companies are eliminated on consolidation and are not disclosed in this note. b) General and administrative expenses include $410,308 of fees paid or payable to directors, officers and entities related to directors and officers of the Company in respect of the year ended December 31, 2005. During the year ended December 31, 2005, in the normal course of business, 150,000 notional shares were given to the director, or a company controlled by the director, as consideration for advisory services. The value assigned to these notional shares was $37,500. These transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Included in Related Party Transactions were the issue of Shares and Options to Directors of Copper Resources Corporation, Sir Samuel Jonah and Mr Mitchell Alland. These are noted in Directors Remuneration as set out above. 25. Contingencies A Financial or Technical Assistance Agreement ('FTAA') was filed jointly by HHPI and SMC in July 1995. Actual ground exploration work started in October 1996. In December 1996, all FTAA activities were stopped due to the uncertainty of the Philippine's government policies affecting FTAAs where the constitutionality of The New Mining Law was being questioned before the Supreme Court. Also, the government enacted Republic Act (RA) No. 8371, otherwise known as the Indigenous People Rights Act of 1997, which if implemented, would negate the traditional provision that all natural resources belong to the State and would adversely affect the local mining industry. The constitutionality of RA No. 8371 was also questioned before the Supreme Court whose decision rendered in January 2001 resulted in a deadlock. On February 1, 2005, the Supreme Court upheld its decision on December 1, 2004 declaring the Philippines Mining Act (RA No. 7942) of 1995 as constitutional. At February 28, 2005, all registered motions of reconsideration in relation to RA No. 8371 have been dismissed by the Supreme Court of the Philippines. Notes to the financial statements For the year ended 31 December 2005 26. Royalty commitments On December 17, 2004, SMC entered into an Integrated Mining and Operating Agreement with Colet in order to rationalize and govern their relationship with respect to the mineral properties and consolidate the terms of the operating agreement dated December 7, 1991 and the Royalty Reduction Agreement dated December 8, 2003. Under the terms of the Integrated Mining and Operating Agreement SMC is committed to pay a 3% net benefit royalty to Colet in return for the possession, occupancy, use and enjoyment, for purposes of exploring, developing, equipping, mining and operating for production of the mineral properties in the Project. Further, SMC is committed to pay Colet an additional $48,000 upon the transfer of the MPSA to SMC, as referred to in Note 10. SMC is also committed to pay Colet $105,000 upon completion of the Bankable Feasibility Study. If the Bankable Feasibility Study is not completed by December 17, 2006, SMC shall pay Colet $52,500 upon demand, with the remaining $52,500 to be paid upon completion of the Bankable Feasibility Study. Within six months of commencing commercial operations, SMC has the option to reduce the 3% net benefits royalty to 2%. In consideration for reducing the royalty, SMC must pay to Colet $2,000,000. At the election of SMC, an amount up to $600,000 of the $2,000,000 payment can be satisfied by the issuance of common shares of the Listed Company. These 2% net benefits royalties may be bought out by SMC for $6,000,000 to be satisfied with cash of $4,000,000 and $2,000,000 by the issuance of common shares of the Listed Company. In the event that SMC buys out the remaining 2% net benefits royalties of Colet, then Colet shall be liable to repay SMC $1,000,000 out of the $2,000,000 advance paid in consideration of reducing the net benefits royalties to 2%. Colet is also entitled to 7.5 % of the outstanding par value capital stock of SMC. SMC is to advance to Colet the funds needed to pay for their subscriptions. This advance will reduce the future net benefit royalties owing to Colet. 27. Non-cash transactions The Company's non-cash transactions are described in Note 6. 28. Ultimate parent company Copper Resources Corporation is the Ultimate Parent Company. Copper Resources Corporation is registered in the Bahamas. Registered office Craigmuir Chambers, P.O.Box 71, Road Town, Tortola, British Virgin Island Registered number 626550 Notes to the financial statements For the year ended 31 December 2005 29. Subsequent events The Company completed a US$7.7M Private Placement for the proceeds to be used for the restart of the Kinsenda redevelopment, in Katanga Province of the Democratic Republic of The Congo. The Company placed 8 million new units with investors at US$0.97 cents per share. In addition, the Forrest Group elected to extinguish US$5.28M of the Loan and CRC will issue 5,499,857 new shares to the Forrest Group whose shareholding will remain at 40%. RMB Resources Limited have been appointed to arrange a Loan Facility of US$32M Miniere de Kinsenda et Musoshi sarl. The 75% owned Congolese (DRC) subsidiary. Proceeds of the loan will be used to restart the Kinsenda copper mine and CRC does not anticipate that nay furhter equity financing will be required for the Kinsenda restart project. 30. Share Options During the year ended 31 December 2005, the group had the following share options in issue: Options exercisable at 100 pence, expiring 21 October 2006 2005 Beginning of year - Granted during year 400,000 End of year 400,000 Options exercisable at 100 pence, expiring 21 April 2008 2005 Beginning of year - Granted during year 208,175 End of year 208,175 Options exercisable at 59 pence, expiring 23 May 2010 2005 Beginning of year - Granted during year 150,000 End of year 150,000 Options exercisable at 100 pence, expiring 4 April 2010 2005 Beginning of year - Granted during year 220,000 End of year 220,000 Notes to the financial statements For the year ended 31 December 2005 30. Share options (continued) During the year ended 31 December 2005, the group had the following share options in issue: Options exercisable at 42 pence, expiring 28 September 2010 2005 Beginning of year - Granted during year 100,000 End of year 100,000 Options exercisable at 25 cents, expiring 19 January 2010 2005 Beginning of year - Granted during year 175,000 End of year 175,000 Options exercisable at 100 cents, expiring 13 February 2010 2005 Beginning of year - Granted during year 250,000 End of year 250,000 Options exercisable at 75 pence, expiring 31 December 2010 2005 Beginning of year - Granted during year 475,000 End of year 475,000 The options shown above were granted to officers, directors and employees. Notes to the financial statements For the year ended 31 December 2005 31. Segmental Analysis Americas UK Australia South East Asia Africa Total US US US US US US $000 $000 $000 $000 $000 $000 2005 Segment loss: (3,280) 2 351 566 (4) (3,067) Loss on ordinary activities (3,280) 2 351 566 (4) (3,067) before taxation Operating loss of Copper (3,267) Resources Corporation included in the above Segment assets 10,079 60 91 7,272 21,651 39,173 Segment liabilities 505 - 55 320 5,209 6,089 Acquisition of property, 48 - 59 96 5,720 5,720 plant and equipment, intangibles and other non-current segment assets Depreciation and amortisation - - - 6 7 - expense 2004 Segment loss: 733 - - 84 - 817 Loss on ordinary activities before taxation 733 - - 84 - 817 Operating loss of Copper Resources Corporations included in the above - - - - - - Total US$000 2004 Segment loss: 907 Loss on ordinary activities before taxation 907 Operating loss of Copper Resources Corporation included in the above 907 Segment assets 2,097 Segment liabilities 70 Acquisition of property, plant and equipment, intangibles and other non-current segment assets 1,688 Depreciation and amortisation expense - This information is provided by RNS The company news service from the London Stock Exchange

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