RNS Number:0538U
Nikanor Plc
30 March 2007
30 March 2007
PRELIMINARY RESULTS ANNOUNCEMENT FOR THE YEAR ENDED 31 DECEMBER 2006
Nikanor PLC (LSE: NKR), the AIM listed copper and cobalt mining company with
world class assets based in the Democratic Republic of Congo ("DRC"), is pleased
to announce its maiden preliminary results for the year ended 31 December 2006.
This follows the company's successful IPO in July 2006.
Highlights
* Intense activity since IPO setting up company and operations
* Mining commenced at Kananga and Tilwezembe, Kolwezi concentrator in
production
* KOV project on track: detailed engineering largely complete
* Initial plan: Chinese EPC contractor to provide 80% of total project funding
- Terms not agreed; Company following more traditional project finance route
- Bateman Engineering acting on an EPCM basis
* Current capex estimate $1.6 billion; total funding requirement $1.8 billion
- Significant industry-wide cost pressures; project also affected
- More equity likely to be required to maintain timeline
- Founding shareholders (c. 72% combined shareholding) supportive, subject to
independent consultant review of capex estimate
* Project economics remain highly attractive
* Sustainable development plan advancing; already making positive local impact
Speaking on the occasion of Nikanor's first annual results, Executive Chairman
Jonathan Leslie said:
"We have achieved a great deal in the eight months since our IPO. The
management team has been brought up to full strength, the project team
established and we have successfully integrated more than 1,200 former Gecamines
employees into our operations. The project to rehabilitate KOV and build a
world class refinery is on track and we have restarted mining at Kananga and
Tilwezembe as well as producing concentrate from the Kolwezi concentrator.
Project costs have increased across the industry and our KOV project is not
immune to those pressures. The economics of this project, however, remain
extremely compelling and we have shareholder support to secure additional equity
funding to take the project forward. We are convinced that this remains one of
the world's most exciting stories in the mining industry today."
The results presentation is available on Nikanor's website www.nikanor.co.uk.
For further information, please contact:
Nikanor PLC +44 (0) 20 7529 5800
Jonathan Leslie, Executive Chairman
Peter Sydney-Smith, Finance Director
Richard Boorman, Head of Investor Relations
Citigate Dewe Rogerson +44 (0)20 7638 9571
Kate Delahunty
George Cazenove
Notes to Editors
Nikanor is a mining group which owns assets in the heart of the African
copperbelt in the Democratic Republic of Congo. The group's key mine is KOV,
containing one of the world's largest high quality copper and cobalt ore bodies.
Nikanor is rehabilitating this proven and well documented brownfield site and
building a major state of the art refining plant to produce 250,000 tonnes per
year of LME A-grade copper cathode and 27,500 tonnes per year of cobalt
products.
Nikanor was admitted to the London Stock Exchange (AIM) on 17 July 2006.
Preliminary Statement of Results For the Year Ended 31 December 2006
This is Nikanor's first preliminary statement of its annual results. Nikanor PLC
was incorporated on 26 June 2006 and admitted onto London's Alternative
Investment Market (AIM) in July following our successful IPO. After costs and
debt repayment the net proceeds to the Company were $380 million.
It has been a period of intense activity for the Group during which we have set
up the company infrastructure and brought the management team up to full
strength. We have commenced mining at Kananga and Tilwezembe, refurbished and
restarted the Kolwezi concentrator and started selling copper-cobalt
concentrate. With respect to the KOV project, the project management team has
largely been established, detailed engineering of the new refinery is well
advanced from the feasibility study, tenders for the vast majority of the
project have been obtained, and capital approvals have been given for $190
million of critical path items including the dewatering of KOV and earthworks
for the new refinery.
Project Progress
Our project to restart mining of the world class KOV ore body and build a new
250,000 tonnes SX-EW (solvent extraction - electro winning) refinery commenced
with the engineering and mining studies conducted by amongst others, Bateman
Engineering, Snowden and SRK. These studies embrace the many disciplines
necessary to restore infrastructure, drain the flooded pits and construct the
new refinery.
From this starting point, the process definition and value engineering exercises
including testing by Mintek, South Africa's national mineral research and mining
technology organisation, have been completed. Design changes have been made to
facilitate the potential future expansion of the refinery to 400,000 tonnes per
year, a dewatering plan has been devised and is being implemented, and the
earthworks to prepare the site and foundations are underway.
Additional changes have been determined during the detailed engineering phase
including reconfiguration of the SX plant into split high and low grade circuits
to remove the need for secondary solvent extraction and reduce overall
consumption of acid and lime. This will reduce operating costs and has allowed
us to reduce the size of the acid plant. In conjunction with these changes, we
intend to substitute thickeners for the originally proposed belt filters, which
will improve plant operability. This engineering and testing process has
facilitated detailed project costing and tenders have now been received for
items which constitute 80% of the total capital cost of the project.
While we initially hoped to award an EPC (engineering, procurement,
construction) contract for the construction of the plant in the first quarter of
this year, we remain on schedule for our critical path and we are well advanced
in the process of reviewing tenders. In the meantime we intend to manage the
project through Bateman Engineering acting as EPCM (engineering, procurement,
construction, management) and award a series of smaller LSTK (lump sum turn key)
packages.
Revised Project Cost
We have now received from Bateman Engineering and our project team a revised
capital cost estimate for the entire project of $1.6 billion. Bateman
Engineering's estimate covers the new refinery and our project team has been
responsible for the KOV mine and infrastructure estimate. This new capital
expenditure figure is in nominal terms including expected escalation and
compares with the unescalated figure for capital costs excluding KTK (Kananga,
Tilwezembe and Kolwezi concentrator) and certain other items of $1.280 billion
in 2006 terms as set out in our AIM admission document.
Table: Revised Project Cost
2006 IPO Cost* 2007 Revised Cost Change
($ million) ($ million - escalated) ($ million)
Refinery 714 1,078 364
KOV Mine 440 381 (59)
Infrastructure 126 156 30
Total Project Capex 1,280 1,615 335 (26%)
*The project cost of $1.31 billion shown in the 2006 IPO admission document has
been adjusted to exclude $30 million of KTK capital expenditure. $115 million
of import duties, insurance and other costs that were shown separately have been
directly allocated to either the new refinery, KOV or infrastructure.
The implied 26% increase is in line with cost pressures being experienced across
the mining industry and is driven primarily by significant escalation in the
cost of construction materials, equipment, consultants and contractors. Concrete
prices are currently 65% higher than at the time of the feasibility study,
stainless steel is up 60%, copper cabling is up 70%, and piping has become 34%
more expensive. In addition, geotechnical testing has revealed the need for a
substantial change to the foundations for the new refinery involving sinking
more than 3,000 piles.
The feasibility study included working capital such as pre-stripping, first fill
costs and capitalised overheads of approximately $200 million, which remain
appropriate. These are not included in the capital expenditure figures set out
above. In aggregate, this gives a revised total funding requirement of
approximately $1.8 billion before taking account of interest costs and the
expected offsetting cashflow contribution from KTK.
Funding Plan
At the time of the IPO we had in place a memorandum of understanding (MOU) with
a large Chinese engineering and construction group covering the construction of
the new refinery, funding for 80% of the capital costs of the project, possible
equity participation as well as copper and cobalt offtake. Following a series
of further discussions with this group and its financial advisers, we were not
able to agree terms that the Directors felt were in the long term best interest
of our shareholders. However, we are continuing discussions with potential
engineering partners in China and with a number of financial institutions who
may well ultimately participate in future debt financing.
We concurrently decided to seek other sources of debt financing and appointed NM
Rothschild & Sons as debt adviser. We have therefore chosen to seek project
finance debt from other sources, including potentially the debt capital markets
given the current liquidity.
With the increased funding requirement, it is recognised that substantial
additional equity may be necessary to complete the project on schedule. The
financing plan currently contemplates raising $1 billion of debt finance for the
project. Based on the current capital cost estimate and after allowing for
approximately $300 million of existing cash resource, the balance of equity
required is likely to be between $450-650 million without overrun funding. The
final amount depends on a number of factors including the performance of KTK and
levels of interest payable on future financings.
We are therefore investigating a number of equity options including strategic
investments from potential industrial partners. We have also consulted with our
founding shareholders, Oakey Invest Holdings Inc. (Oakey), Pitchley Properties
Limited (Pitchley) and New Horizon Minerals Limited (New Horizon), who between
them control approximately 72% of our share capital. Following our discussions
with the founding shareholders, the Group will engage an independent consultant
to review, and where possible, reduce the capital and related working capital
costs of the Project. This process should be completed within the next 4-6
weeks. In the event that following this review the equity funding requirement
remains material and the Group has not obtained binding commitments to provide
funding from other sources, the Board expects to raise the necessary funds in
the public equity markets and has engaged its advisers to make the necessary
preparations for an equity raising. This is expected to take place no later
than the end of May 2007. In this context, subject to being consulted by the
Directors regarding the anticipated equity requirement in light of the findings
of the review, Oakey (which has a right to appoint one director to the board)
has confirmed that it intends to participate in such equity financing pro rata
to its shareholding in the Company, and Pitchley and New Horizon (who together
have a right to appoint one director to the board) have confirmed that they
intend to participate in such equity financing pro rata to their combined
shareholdings in the Company.
In preparation for such a capital raising, the Directors will as soon as is
practicable seek authority from shareholders to issue new shares on a non
pre-emptive basis to allow the Group to take advantage of opportunities which
may arise in order to be prepared to raise equity funding, for example, through
potential strategic equity investments from industrial partners or by means of
capital raising in the public equity markets. For that purpose and in support
of the Company's endeavours, Pitchley and New Horizon who together represent 36%
of the total shareholding have each irrevocably undertaken to exercise their
votes - and Oakey representing 36% of the total shareholding, has confirmed that
it intends to exercise its votes - in favour of the resolutions to be proposed
at an EGM which will be convened as soon as practicable.
Project Economics
Despite the increase in capital expenditure, the economics of this project
remain highly attractive. Copper and cobalt prices are both significantly
higher than consensus expectations at the time of the IPO, and the consensus
price expectations themselves have now also increased materially. The average
consensus price for copper between now and late 2011 is currently 60 cents per
lb higher than at the time of the IPO and average cobalt consensus prices have
risen $1.60 per lb.
The cost pressures on our project are visible across the industry, and we
believe that this provides good support for the 'stronger for longer' school of
thought on copper and cobalt prices. Based on the above mentioned improved
prices, despite the expected increase in capital expenditure we believe that the
Group net cash flows will improve on those envisaged at the time of the IPO.
Operations Review - Personnel & Infrastructure
As mentioned earlier, substantial progress has been made with respect to
personnel, infrastructure, KOV rehabilitation, and KTK.
With respect to personnel, since the IPO in July most of our senior management
and staff were recruited by year end. The management team for the KOV project
has also been established and we have reached our target of integrating
approximately 1,200 ex-Gecamines employees. Our intention is to keep the number
of foreign expatriates utilised in the operations to a minimum and we are
pleased at the number of high-calibre formerly expatriate Congolese employees
that we have managed to recruit.
Roads are one of the crucial elements of basic infrastructure that needed
immediate attention. We have completed the refurbishment of 135km of the
Kolwezi-Nguba road and traffic is for the most part flowing freely. Culverts
are being installed in problem areas and a programme of maintenance to keep the
road serviceable is underway. Tenders have been issued for the widening and
sealing of this road to be completed before the onset of the next rainy season.
With respect to electricity, another key element of basic infrastructure, a
memorandum of understanding covering 100 MW of electricity was signed in
September with the DRC state electricity provider SNEL. Nikanor is one of the
first companies to actively invest in the region's electricity infrastructure
and has agreed to fund the refurbishment of hydroelectric units at Nzilo and
Nseke. Negotiations for a revised memorandum of understanding covering the
remainder of our power requirement are well advanced. A contract has also been
awarded to a local firm for the construction of an 8km 15KV line and substation
to supply power to the construction site.
Operations Review - KOV Rehabilitation
The key elements of rehabilitating KOV are dewatering the pits and procuring the
mining fleet to begin site preparation and pre-stripping. Nine dewatering pumps
with a capacity of 4,500m3 per hour are currently in place, leading to a small
reduction in the water level in the KOV pit despite almost 750mm of rain from
December to February. Well drilling equipment has arrived on site for
groundwater dewatering; in total, 33 boreholes will either be drilled or
rehabilitated. Agitation and slurry pumps for five rafts and three booster
stations will be on site by the end of the second quarter. Competitive tenders
for the mine fleet have been reviewed.
Two slumps of the side walls of the KOV pit over the last year have increased
the volume of mud to be removed from the pit from 0.5 million to 3.5 million
cubic metres. Various options are being evaluated into the best method to remove
this extra material. This will extend the period of de-sliming of the KOV pit
but it will not negatively impact the overall project schedule.
Operations Review - KTK (Kananga, Tilwezembe and Kolwezi concentrator)
In addition to the KOV project, we have an important existing business in our
ownership of the cobalt rich Tilwezembe and Kananga mines and the long term
lease of the Kolwezi concentrator. Given the significant rise in cobalt prices,
we took the decision to restart mining at both sites late last year before
completed mine plans were available and to refurbish the badly degraded
concentrator. So far we have spent some $11 million restarting KTK operations.
In total, we have budgeted $47 million for the KTK improvement programme.
Since September, 9,300 metres of exploration drilling has been completed and
revised resource estimates will be available in the second quarter. Initial
results from Tilwezembe are ahead of expectations, with high cobalt grades
albeit with high manganese content. Kananga is promising in the west but
disappointing in the east and likely to yield lower reserves than initially
expected.
Concentrate production began in September, with 6,500 tonnes produced by the end
of the year. Output in January and February was disappointing at 2,300 tonnes -
production was affected by extremely wet conditions in January, variable ore
grades and a lack of conveyor spares.
We have revised our management structure to place additional emphasis on KTK,
including appointing a Chief Geologist and supporting staff. March has been
characterised by enhanced grade control and improved output. We anticipate
further improvement in concentrate production from continued refurbishment - a
third milling section was recently commissioned and an additional thickener
refurbished - and from the implementation of mining plans by mid-year.
Marketing
When the new refinery commences production, our major products will be
electrolytic A-grade LME copper (250,000 tonnes per year) and cobalt hydroxide
(27,500 tonnes per year of contained metal).
In the meantime, our current sales and marketing initiatives revolve around the
cobalt-rich concentrate produced by KTK, spurred on by the more than doubling of
cobalt prices since the IPO. This important process of building customer
relationships forms part of our marketing plan in anticipation of our eventual
substantial share in the global cobalt market when the new refinery comes on
stream.
The broad principle of the cobalt strategy is to service a limited number of
large end users on a contract basis. The new refinery is currently designed to
produce cobalt in the form of cobalt hydroxide which will be capable of being
treated by the customers to whom Nikanor will be selling concentrates from KTK.
Maintaining these relationships is a key part of Nikanor's strategy and the
intention is to develop existing concentrate sales contracts into longer term
hydroxide sales agreements.
Results and Commitments
In the 6 months from admission to the end of the year we achieved our first
sales of concentrate, resulting in Group revenue of $1.7 million on sales of
1,800 tonnes. A further 4,700 tonnes was held in stock at the end of year. In
this period of mobilisation our costs totalled some $26 million including
one-off KTK start up costs of some $6 million and the cost of refurbishing the
Nguba to Kolwezi public road ($2.9 million). After net finance income of $10.1
million we incurred a consolidated loss for the period of $14 million.
The net cash outflow since the IPO was $32 million, consisting of $22 million at
KOV including early contracts for engineering, infrastructure and de-watering,
$11 million to commence operations at Kananga, Tilwezembe and the Kolwezi
concentrator and $4.8 million project working capital outflow. Corporate costs
were $4.6 million (net of working capital) offset by financial income of $10.1
million.
Included within the cash outflow was $24.7 million of capital expenditure. At
31 December, approved capital expenditure totalled $67.5 million increasing to
$190.7 million on 29 March 2007.
The Group's net cash balance at the end of the year was $350 million ($310
million as at 28 March 2007).
Gecamines and DRC Government
Our partnership with Gecamines (25% owner of DCP) is key to this project, and we
continue to value their contribution. The DRC government has confirmed that a
review of all mining contracts entered into during the period of the previous
transitional government will take place. We are confident that any such review
will serve to confirm that our joint venture agreement with Gecamines, which is
one of a limited number that was completed in accordance with the World Bank
sponsored Mining Code, does indeed provide fair and reasonable terms. The
completion of our agreement and the relevant mining licences followed all the
procedures stipulated by the DRC government. In addition, our project is one of
only a few that have already resulted in substantial investment, employment and
development at local communities.
DRC national elections were concluded in November 2006 and the new cabinet
announced in March 2007. Regional gubernatorial elections were held in March
2007. Recent political unrest in Kinshasa is regrettable; however, we are
encouraged by the strong MONUC (UN) presence in the country and can confirm that
there has been no impact on our operations, which are located some 1,500km
southeast of Kinshasa.
Corporate Social Responsibility (CSR)
Our clear goal with respect to CSR is that the social and economic benefits from
our activities should endure beyond the life of the mine. In order to achieve
this goal, we need to ensure that we take a broad and structured view. This
should help us to avoid the pitfall of focusing too much on immediate issues and
not placing enough emphasis on the longer term development of the communities in
which we operate. With this in mind, we recognise the International Council on
Mining and Metals (ICMM) sustainable development framework and intend to track
our performance through the incremental application of Global Reporting
Initiative (GRI) guidelines.
SRK have completed an environmental impact study for us that highlighted a
number of areas for action such as water management and workforce retraining.
We have put together an environmental management plan to deal with these issues
and will engage external support and expertise where necessary.
The main vehicle for our community development work is the DCP Foundation, which
is modelled on similar successful structures at other mining companies and
headed by David Godfrey. The Group has already made good progress on repairing
water supplies and roads and the DCP Foundation will focus on education,
healthcare, HIV/AIDS and malaria prevention and treatment, and fostering local
entrepreneurship.
Outlook
'Recognising opportunity, realising potential', the theme of our inaugural
annual report, aptly summarises the Nikanor story. We have an unparalleled
opportunity with one of the world's great copper-cobalt ore bodies, and the
challenge ahead of us is to realise this potential.
In the eight months since our IPO, we have made good progress building a strong
management team, commencing KTK operations and maintaining the critical path
commitments for the KOV project. We are unfortunately not immune to the cost
inflation that has affected the entire industry; however, the economics of our
project remain compelling and we continue to strive to maintain the project
schedule.
The admission document envisaged the production of cathode at the end of 2009
and full ramp up by the end of 2010. While we may not be in a position to make
major new commitments during the review by the independent consultant, we expect
that with the Board's decision to seek additional equity and the support
provided by our founding shareholders, the Company is in a strong position to do
so upon the completion of the review. While this will make achieving the first
production of cathode by the end of 2009 a demanding objective, it nevertheless
remains achievable and with the support of our shareholders, we fully expect the
ramp-up to be completed on schedule by the end of 2010.
In the meantime, we will continue progress on the current commitments for the
KOV project and to further develop the work of the DCP Foundation. We will also
continue to focus on KTK, which we expect to start generating cash surpluses in
the third quarter of this year.
Dividends
In line with our policy, the Directors do not recommend the payment of any
dividend for the period covered by the preliminary statement of the Company's
results.
General Information
The preliminary statement of results for the year ended 31 December 2006 does
not constitute statutory accounts. Statutory accounts have not been delivered to
the Registrar of Companies and the auditors have not reported on these accounts.
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER
2006 2005
Notes $'000 $'000
unaudited unaudited
Revenue 4 1,677.9 -
Cost of sales (5,369.3) -
Gross loss (3,691.4) -
Selling and distribution costs (387.8) -
Administration expenses (13,398.4) -
Other operating expenses (6,619.3) (39.7)
Operating loss 6 (24,096.9) (39.7)
Finance income 8 10,411.6 4.1
Finance costs 8 (275.5) -
Net finance income 10,136.1 4.1
Loss before income tax (13,960.8) (35.6)
Income tax expense 9 (34.7) -
Loss for the year (13,995.5) (35.6)
Attributable to:
Equity holders of the Company (13,995.5) (35.6)
Minority interests 28 - -
Loss per share for loss attributable to equity holders of the Company during the year
(expressed US cents per share)
Basic 10 (11.9) -
Diluted 10 (11.9) -
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER
2006 2005
Notes $'000 $'000
unaudited Unaudited
ASSETS
Non-current assets
Property, plant and equipment 12 43,691.9 294.6
Intangible assets 11 - 14,681.9
43,691.9 14,976.5
Current assets
Inventories 13 4,589.8 -
Trade and other receivables 14 10,400.1 0.1
Cash and cash equivalents 15 349,709.9 1,530.2
364,699.8 1,530.3
Total assets 408,391.7 16,506.8
LIABILITIES
Current liabilities
Trade and other payables 16 (13,149.0) (228.8)
Shareholder loans 17 - (16,436.9)
Current tax liabilities 16 (34.7) -
(13,183.7) (16,665.7)
Net current assets/(liabilities) 351,516.1 (15,135.4)
Total liabilities (13,183.7) (16,665.7)
Net assets/(liabilities) 395,208.0 (158.9)
EQUITY
Capital and reserves attributable to equity holders of the Company
Share capital 19 1,398.5 1,000.0
Share premium 405,423.0 -
Share based payment reserve 786.5 -
Accumulated deficit (12,400.0) (1,158.9)
Total equity attributable to parent 395,208.0 (158.9)
Minority interest in equity 28 - -
Total equity 395,208.0 (158.9)
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the Year ended 31 December
Attributable to equity holders of the Company
Share based Accumulated Minority
Share Share payment deficit Total interests Total
capital premium reserve equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000
unaudited unaudited unaudited unaudited unaudited unaudited unaudited
Balance at 1 January 2005 - - - (123.3) (123.3) - (123.3)
Shares issued pursuant
to share exchange
agreements(A) 1,000.0 - - (1,000.0) - - -
Loss for the year - - - (35.6) (35.6) - (35.6)
Balance at 31 December 2005 1,000.0 - - (1,158.9) (158.9) - (158.9)
Shares issued pursuant 396.0 433,661.0 - - 434,057.0 - 434,057.0
to admission of the Company(B)
Transaction costs associated - (28,238.0) - - (28,238.0) - (28,238.0)
with issue of shares(B)
Loss for the year - - - (13,995.5) (13,995.5) - (13,995.5)
Share based payments(C) 2.5 - 3,540.9 - 3,543.4 - 3,543.4
Transfers(C) - - (2,754.4) 2,754.4 - - -
Balance at 31 December 2006 1,398.5 405,423.0 786.5 (12,400.0) 395,208.0 - 395,208.0
A See note 19 for details of share exchange agreements.
B During the year the Company issued 39.6 million ordinary shares at #6 pursuant
to the Company being admitted onto the Alternative Investment Market.
Attributable share issue costs of $28.2 million have been capitalised to share
premium.
C See note 19 for details of share based payment transactions.
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER
2006 2005
Notes $'000 $'000
unaudited unaudited
Cash flows from operating activities 20 (26,577.7) (148.2)
Interest (paid)/received (148.2) 4.1
Income tax paid - -
Net cash flows used in operating activities (26,725.9) (144.1)
Cash flows from investing activities
Interest received 8,682.6 -
Purchase of intangible assets (5,743.9) (5,995.8)
Purchase of property, plant and equipment (19,013.9) (330.4)
Net cash flows used in investing activities (16,075.2) (6,326.2)
Cash flows from financing activities
Proceeds from issue of ordinary shares 434,059.5 -
Transaction costs associated with issue of shares (28,238.0) -
Issue of shareholder loans 9,646.3 8,000.0
Repayment of shareholder loans (26,083.2) -
Net cash from financing activities 389,384.6 8,000.0
Net increase in cash and cash equivalents 346,583.5 1,529.7
Cash and cash equivalents at the beginning of the year 1,530.2 0.5
Exchange gains on cash 1,596.2 -
Cash and cash equivalents at end of the year 349,709.9 1,530.2
In the period prior to the Company being admitted to AIM on 17 July, in addition
to the cash loans from shareholders, certain expenditure was incurred by the
shareholders on behalf of the Group. Such expenditure is not reflected in the
Group's cash flows from investing activities or cash flows from financing
activities but is reflected in the movements in borrowings from shareholders.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING POLICIES
1. GROUP STRUCTURE AND OPERATIONS
(A) ORGANISATION AND OPERATION
Nikanor PLC (the 'Company') is a public limited company incorporated in the Isle
of Man. The Company's registered address is 15-19 Athol Street, Douglas, Isle of
Man, IM1 1LB.
The Group comprises the Company and its consolidated subsidiaries as set out in
note 27. The Group's operations are primarily conducted through the Company's
principal subsidiary, Democratic Republic of Congo Copper and Cobalt Project
S.a.r.l ('DCP').
The purpose of DCP is to hold the mining and exploration permits issued by the
Government of the Democratic Republic of Congo (DRC), and to explore,
reconstruct and develop the copper and cobalt mines of KOV, Kananga and
Tilwezembe near the town of Kolwezi, in accordance with the terms and conditions
of the agreement entered into on 9 September 2004 between Global Enterprises
Corporate Ltd (GEC) (a wholly owned subsidiary of the Company) and La Generale
des Carriers et des Mines ("Gecamines"). Under this agreement, GEC holds 75% of
DCP while Gecamines holds 25% of DCP.
On 17 July 2006 the Company acquired a 100% interest in GEC as a result of a
share exchange representing a combination of businesses under common control.
The share exchange is described in note 2.
2. BASIS OF PREPARATION
(A) ACCOUNTING FOR THE SHARE EXCHANGE AGREEMENT RELATING TO THE ACQUISITION OF
GEC
On 12 July 2006, the Company entered into a sale and purchase agreement with its
shareholders, pursuant to which the shareholders agreed to transfer their shares
in GEC to the Company in exchange for the issue and allotment by the Company
conditional on, and with effect from Admission, of 999,999,990 ordinary shares
to the shareholders, pro rata to the shareholders' shareholding in GEC.
As this transaction involved the combination of businesses under common control,
merger accounting has been applied in the presentation of the consolidated
financial statements for the two years ended 31 December 2006 which present the
results of the Group as if the Company had always been the parent company of
GEC.
(B) BASIS OF ACCOUNTING
The consolidated financial statements have been prepared under the historical
cost convention, except for certain financial instruments, principally
provisionally priced sales which are measured at fair value.
(C) BASIS OF CONSOLIDATION
The consolidated financial statements incorporate the results of the Company and
all its subsidiaries, being the companies that it controls. 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.
Subsidiaries are consolidated from the date on which control is transferred to
the Group and cease to be consolidated from the date on which control is
transferred out of the Group. On acquisition of a subsidiary, the purchase
consideration is allocated to the assets, liabilities and contingent liabilities
on the basis of their fair value at the date of acquisition. The excess of the
cost of the acquisition over the fair value of the Group's share of identifiable
net assets of the subsidiary acquired is recognised as positive goodwill.
Negative goodwill arises where the fair value of the Group's share of
identifiable net assets of the subsidiary exceeds the cost of the acquisition.
Negative goodwill is recognised directly in the income statement.
The financial statements of subsidiaries are prepared for the same reporting
year as the Company, using consistent accounting policies.
All intercompany balances and transactions, including unrealised profits arising
from intra-Group transactions, have been eliminated in full.
Minority interests represent the interests in DCP held by Gecamines.
See note 27 for a list of the Company's subsidiaries.
(D) STATEMENT OF COMPLIANCE
The consolidated financial statements of the Company and all its subsidiaries
have been prepared in accordance with IFRS's issued by the International
Accounting Standards Board ('IASB') and interpretations issued by the
International Financial Reporting Interpretations Committee ('IFRIC') of the
IASB.
(E) ADOPTION OF NEW STANDARDS AND INTERPRETATIONS
The Group has adopted the following new standards and interpretations, effective
from 1 January 2006:
IFRIC 4 'Determining whether an Arrangement contains a Lease'.
IFRIC 5 'Rights to Interests arising from Decommissioning, Restoration and
Environmental Rehabilitation Funds'.
Amendment to IAS 19 'Employee Benefits - Actuarial Gains and Losses, Group Plans
and Disclosures'.
There has been no material impact on the Group by adopting these standards.
(F) EARLY ADOPTION OF STANDARDS AND INTERPRETATIONS
The Group adopted IFRS 6 'Exploration for and Evaluation of Mineral Resources'
from 1 January 2005.
(G) NEW STANDARDS AND INTERPRETATIONS NOT YET ADOPTED
In preparing the consolidated financial statements, the Group has not applied
the following relevant standards and interpretations that have been issued but
are not yet effective:
IFRS 7 'Financial Instruments: Disclosures' and consequential amendments to IAS
1 'Presentation of Financial Statements', which are effective for annual periods
beginning on or after 1 January 2007.
IFRS 8 'Operating Segments', which is effective for periods beginning on or
after 1 January 2009.
IFRIC 9 'Reassessment of Embedded Derivatives', which is effective for annual
periods beginning on or after 1 June 2006.
The Directors anticipate that the adoption of these standards and
interpretations in future periods will have no material impact on the
consolidated financial statements of the Group.
(H) COMPARATIVE FIGURES
Where a change in the presentational format of the consolidated financial
statements has been made during the year, comparative figures have been restated
accordingly.
(I) CHANGES IN ACCOUNTING POLICIES
There have been no changes in accounting policies. The accounting policies
adopted are consistent with those of the previous financial year.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies have been applied in the
preparation of the consolidated financial statements. These accounting policies
have been consistently applied.
(A) FOREIGN CURRENCY
The functional currency for each entity in the Group is determined as the
currency of the primary economic environment in which it operates. The
consolidated financial statements are presented in US dollars which is the
functional currency of all companies in the Group.
Transactions in currencies other than the functional currency are initially
recorded in the functional currency at the rate ruling at the date of
transaction. Monetary assets and liabilities denominated in foreign currencies
are retranslated at year end exchange rates. Exchange gains and losses on
settlement of foreign currency transactions translated at the rate prevailing at
the date of the transactions, or the translation of monetary assets and
liabilities at year end exchange rates, are taken to the income statement.
Non-monetary assets and liabilities denominated in foreign currencies that are
stated at historical cost are translated to the functional currency at the
foreign exchange rate ruling at the date of the transaction.
(B) REVENUE RECOGNITION
Revenue represents the net invoice value of goods and is measured at the fair
value of consideration received or receivable, after deducting discounts, volume
rebates, value added tax and other sales taxes.
A sale is recognised when the significant risks and rewards of ownership have
passed, and when revenue can be measured reliably.
Copper and cobalt concentrate sale agreements are generally made at a
provisional price in the month of shipment with final pricing based on average
copper and cobalt prices at a specified period after delivery to the customer.
This provisional sale results in an embedded derivative, the host contract being
the sale of metal at provisional price and the embedded derivative being the
forward contract for which the provisional sale is subsequently adjusted. At
each reporting date open provisionally priced sales are marked-to-market based
on London Metal Exchange ("LME") forward prices for copper and spot London
Metals Bulletin ("LMB") prices for cobalt, with adjustments being recorded in
revenue in the income statement and trade debtors in the balance sheet. The mark
to market gain for the year was $120,000, (prior year $nil).
Lease payments are payable to Gecamines (1.5%-2%) and royalties to the DRC
treasury, (2%) based on net sales receipts. Net sales receipts is defined as
gross revenues (calculated as the actual amounts received by DCP from its
production) less permitted deductions (costs related to the transportation,
sale, storage and insurance of products, applicable taxes, other than taxes on
the net sales revenues, and any amounts that may be paid to Gecamines by DCP for
the purchase of assets or the provision of services required for the project).
Mining royalties are included within other operating expenses.
(C) FINANCE INCOME
Finance income comprises interest income on funds invested and foreign exchange
gains. Interest income is recognised in the income statement as it accrues,
using the effective interest rate method.
(D) FINANCE COSTS
Financing costs comprise interest payable on borrowings calculated using the
effective interest rate method, the accumulation of interest on provisions and
foreign exchange losses.
(E) INCOME TAX
Income tax expense comprises the sum of current tax payable and deferred tax.
Current tax assets and liabilities for the current and prior periods are
measured at the amount expected to be recovered from or paid to the taxation
authorities. The tax rates and tax laws used to compute the amounts are those
that are enacted or substantively enacted by the balance sheet date.
Deferred tax is provided, using the balance sheet method, on all temporary
differences at the balance sheet date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes.
Deferred tax assets are recognised only to the extent that it is more likely
than not that they will be recovered. The carrying amount of deferred tax assets
is reviewed at each balance sheet date and is adjusted to the extent that it is
no longer probable that sufficient taxable profit 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 to the year when the asset is realised or the liability is
settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted at the balance sheet date. Deferred tax is charged or
credited to the income statement, except when it relates to items charged or
credited to equity, in which case the deferred tax is also taken to equity.
(F) EXPLORATION AND EVALUATION
The Group has continued its policy for the recognition and measurement of
exploration and evaluation expenditure, in accordance with IFRS 6 'Exploration
for and Evaluation of Mineral Resources'. Exploration and evaluation expenditure
is capitalised from the point when it is considered probable that future
economic benefits will be recoverable. Until such time, exploration and
evaluation expenditure is expensed as incurred.
Exploration and evaluation expenditure capitalised includes acquisition of
rights to explore, topographical, geological, geochemical and geophysical
studies, exploration drilling, trenching, sampling, activities in relation to
evaluation of the technical feasibility and commercial viability of extracting a
mineral resource. Exploration and evaluation expenditure which is not
sufficiently closely related to a specific mineral resource to support
capitalisation is expensed as incurred.
Exploration and evaluation expenditure is classified as either a tangible or
intangible asset. Identifiable items of property, plant and equipment
specifically for the purposes of exploration and evaluation activities are
classified as tangible assets. Exploration and evaluation assets held as
intangible assets are transferred to property, plant and equipment once
development of a related mine commences.
The Group's exploration and evaluation assets are reviewed at each balance sheet
date to determine whether there is any indication of impairment. If any such
indication exists, the asset's recoverable amount is estimated. Each of the
Group's exploration and evaluation cash generating units are grouped together
for impairment testing.
(G) TANGIBLE ASSETS
(i) Property, plant and equipment
Property, plant and equipment, which comprise buildings and infrastructure,
plant and machinery, motor vehicles, and furniture and equipment are stated at
historical cost less accumulated depreciation and any accumulated impairment
losses. The cost of self constructed assets includes the cost of materials,
direct labour and an appropriate proportion of construction overheads. Cost of
plant also includes the initial estimate of the costs of dismantling and
removing the plant.
Where parts of an item or property, plant and equipment have different useful
lives, they are accounted for as separate items of property,
plant and equipment.
Depreciation is charged to the income statement on a straight-line basis over
the estimated useful lives of the assets, or on a units-of-production basis,
depending on the nature of the assets. Motor vehicles, and furniture and
fittings are deemed to have a useful life of three years. Buildings are
depreciated over 20 years. Land is not depreciated. Mine development assets and
leasehold improvements relating to the KZC concentrator are depreciated on a
units-of-production basis from the point of commercial production. Items of
plant and equipment are assessed on an individual basis.
Useful lives of assets, depreciation methods and any residual values are
re-assessed on an annual basis.
(ii) Mine development costs
Once the technical and commercial viability of extracting a mineral resource are
demonstrable, expenditure related to such development will not be capitalised as
exploration and evaluation assets but as mine development costs.
Mine development costs include costs relating to the acquisition and development
of mineral properties and are capitalised until such time as an economic
resource is defined and mining commences or the mining property is abandoned.
The costs capitalised include the cost of materials, direct labour and an
appropriate portion of overheads. Other mine development costs are recognised in
the income statement as an expense as incurred. Mine development costs are
depreciated from the time the mine is deemed to enter commercial production.
Incidental revenue generated prior to the commercial production date is offset
against the capitalised mine development costs.
The KOV Project is determined to be in the stage of Mine development following
the IPO. Attributable operating costs have been capitalised and depreciation has
not commenced as the project has not yet reached commercial production.
(iii) Pre-Production costs
Pre-production expenses incurred as processing operations ramp up to commercial
production are expensed as incurred. Revenue generated during pre-production is
included in the income statement. This includes directly attributable costs and
allocated overheads.
The KZC concentrator and Tilwezembe and Kananga ore bodies are in the stage of
pre-production. Operating costs have been expensed to the income statement and
depreciation of capital expenditure has not commenced as operations have not yet
reached commercial production.
(iv) Subsequent expenditure
Subsequent expenditure relating to an item of property, plant or equipment is
capitalised only when it is probable that future economic benefits associated
with the item will flow to the Group and the cost of the item can be measured
reliably.
All other subsequent expenditure is recognised as an expense in the period in
which it is incurred.
(v) Construction in progress
Assets under construction are capitalised and included as work in progress at
purchase price plus directly attributable costs to bring the asset into working
condition for its intended use. On completion construction in progress is
transferred to the appropriate category of property, plant and equipment.
(H) IMPAIRMENT OF TANGIBLE AND INTANGIBLE ASSETS
All assets are reviewed at each balance sheet date to determine whether there is
any indication of impairment. If any such indication exists, the asset's
recoverable amount is estimated. Recoverable amount is the higher of fair value
less costs to sell and value in use. Value in use is assessed as estimated
future cash flows discounted to their present value using a pre-tax discount
rate that reflects current market assessment of the time value of money and
risks specific to that asset which are not reflected in estimated cash flows.
An impairment loss is recognised whenever the carrying amount of an asset or its
cash generating unit exceeds its recoverable amount. Impairment losses are
recognised in the income statement.
(I) INVENTORY
Raw materials and consumables are stated at the lower of cost and net realisable
value on a first-in first-out ('FIFO') basis. Cost includes all costs incurred
in the normal course of business in bringing each product to its present
location and condition. Cost for raw materials and consumables is purchase price
and for work in progress and finished goods is the cost of production, including
the appropriate proportion of depreciation and overheads. The cost of work in
progress and finished goods is based on the weighted average cost method. In the
case of work in progress and finished goods, cost includes an appropriate share
of overheads based on normal operating capacity.
Net realisable value is based on estimated selling price in the ordinary course
of business less any further costs expected to be incurred to completion and
disposal.
(J) LEASES
Operating lease rentals are charged to the income statement on a straight-line
basis over the lease term.
(K) FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are recognised on the Group's balance
sheet when the Group becomes a party to the contractual arrangements.
Financial instruments recognised on the balance sheet include accounts
receivable, cash and cash equivalents, current and non-current liabilities,
trade and other accounts payable, bank overdrafts and accrued liabilities.
The Group has not held or issued any derivative instruments for speculative
purposes.
(L) CASH AND CASH EQUIVALENTS
Cash and cash equivalents comprise cash at bank and in hand, short-term deposits
held on call or with maturities less than three months and highly liquid
investments that are readily convertible into known amounts of cash and which
are subject to insignificant risk of changes in value, and bank overdrafts. The
carrying amount of cash and cash equivalents is stated at cost, which
approximates fair value.
(M) TRADE AND OTHER RECEIVABLES
Trade and other receivables do not carry any interest and are stated initially
at fair value and subsequently measured at amortised cost using the effective
interest rate method.
(N) TRADE AND OTHER PAYABLES
Trade and other payables do not carry any interest and are stated initially at
fair value and subsequently measured at amortised cost using the effective
interest rate method.
(O) BORROWINGS
Borrowings are recognised initially at fair value less attributable issue costs.
Subsequent to initial recognition, borrowings are stated at amortised cost with
any difference between cost and redemption value being recognised in the income
statement. Finance charges are accounted for on an accruals basis using the
effective interest rate method and recognised in the income statement.
(P) PROVISIONS
Provisions are recognised when the Group has a present legal or constructive
obligation as a result of past events, for which it is probable that an outflow
of economic benefits will occur, and where a reliable estimate can be made of
the amount of the obligation. Where the effect of discounting is material,
provisions are discounted. The discount rate used is a pre-tax rate that
reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability.
(Q) EMPLOYEE BENEFITS
The Group only has short-term employee benefits. The cost of these employee
benefits is recognised during the period in which the employees render the
related service.
(R) SHARE-BASED PAYMENTS
The Group makes equity-settled share-based payments to certain employees, which
are measured at fair value at the date of grant.
The fair value of share awards with non market-related vesting conditions was
determined by an external valuer, Kepler Associates. The fair value was assessed
using a binomial option model. The fair value at the grant date is expensed on a
straight-line basis over the vesting period based on the Group's estimate of
shares that will eventually vest. The estimate of the number of awards likely to
vest is reviewed at each balance sheet date up to the vesting date at which
point the estimate is adjusted to reflect the current expectations. No
adjustment is made to the fair value after the vesting date even if the awards
are forfeited or not exercised.
Proceeds received net of directly attributable transaction costs are credited to
share capital (nominal value) and share premium when options are exercised.
(S) MINORITY INTEREST
Minority interest in losses are not recorded to the extent there is no binding
agreement for the minority to increase their investment to cover losses.
4 REVENUE
Production commenced at the KZC concentrator in September 2006. Total production
during the period was 6,500 dry tonnes of concentrate. During December 1,800
tonnes of concentrate were shipped with provisional invoice proceeds being
received in February 2007. Revenue in the accounts is at a provisionally
adjusted price - see note 3b. 4,700 tonnes of concentrate is included in stock
as finished goods.
5 SEGMENTAL INFORMATION
PRIMARY REPORTING FORMAT - BUSINESS SEGMENT
The Group's primary format for segment reporting is business segments. The
operations of the Group which involve the production and processing of copper
and cobalt are managed as one business. The products are subject to the same
risks and returns, exhibit similar long-term financial performance and are sold
through the same distribution channels. One business segment is therefore
identified as a reportable segment.
GEOGRAPHIC SEGMENT
The Group's principal operations are in the Democratic Republic of Congo which
is a single geographic segment.
Business and geographic segment disclosures are not provided here as they are
not different from those presented in the primary financial statements and
supporting notes.
The Group made one sale during 2006, the final destination being China.
6 LOSS FROM OPERATIONS
The following items have been included in arriving at operating loss before
finance income and finance costs:
2006 2005
$'000 $'000
unaudited unaudited
Depreciation
Motor vehicles 140.4 32.1
Furniture and fittings 29.2 3.6
Land and buildings 6.7 -
Auditor's remuneration 465.9 -
Operating lease costs 171.9 -
Inventories recognised as an expense during the period 2,391.7 -
A more detailed analysis of auditors' remuneration is presented below:
Group Auditors' Remuneration
Audit services pursuant to legislation - fees payable:
Audit of the Group's annual accounts 314.5 -
Audit of the accounts of the Group's subsidiaries(A) 38.2 -
352.7 -
Other services
Other services supplied pursuant to legislation 856.4 -
Taxation services 42.1 -
Other 71.1 -
969.6 -
Total 1,322.3 -
(A) Includes the statutory audit of subsidiaries and other audit work performed
to support the audit of the Group financial statements.
Auditors' remuneration of $856,400 relating to the share issue of the Company
have been capitalised to Share Premium.
7 EMPLOYEE BENEFIT EXPENSE
2006 2005
$'000 $'000
unaudited unaudited
Wages and salaries 5,367.3 471.4
Social security costs 1,253.9 -
Share based payments 3,540.9 -
10,162.1 471.4
The number of employees including executive directors at the end of each period
were as follows:
2006 2005
unaudited unaudited
Mining and processing 880 4
Admininstration and finance 126 1
1,006 5
Analysed as
United Kingdom 5 -
South Africa 3 -
Democratic Republic of Congo 998 5
1,006 5
8 FINANCE INCOME AND FINANCE COSTS
2006 2005
$'000 $'000
unaudited unaudited
Finance income
Interest receivable 8,682.6 4.1
Foreign exchange gains 1,729.0 -
Finance costs
Interest payable (148.2) -
Foreign exchange losses (127.3) -
Net foreign exchange gains 1,601.7 -
Net finance income 10,136.1 4.1
Interest capitalised in the current year was $nil, prior year $nil.
9 INCOME TAX EXPENSE
INCOME STATEMENT
Major components of income tax expense for the years presented are:
2006 2005
$'000 $'000
unaudited unaudited
Current income tax
Foreign tax 34.7 -
34.7 -
Income tax expense 34.7 -
Effective tax rate (0.25%) 0%
OVERVIEW OF THE TAX REGIME IN THE DEMOCRATIC REPUBLIC OF CONGO
DCP is subject to tax under the rules outlined under the Mining Code of the DRC
and its associated regulations. Profits are taxed at 30%, with fiscal
depreciation of 60% of the purchase price claimable in the first year, and
thereafter on a declining balance basis according to the law. Tax losses can be
carried forward up to five years following the year of the loss.
A reconciliation of income tax expense applicable to accounting profit before
income tax at the DRC statutory income tax rate to income tax expense at the
Group's effective income tax rate for the periods presented is as follows:
2006 2005
$'000 $'000
unaudited unaudited
Loss before taxation (13,960.8) (35.6)
At statutory DRC rate of 30% (4,188.2) -
Expenses not deductible 493.8 35.6
Overseas rate differences (2.1) -
Other timing differences not recognised 11.3 -
Losses carried forward not recognised 4,574.1 -
Income taxed at a lower rate (854.2) -
At effective rate of (0.25%) (2005: 0%) 34.7 -
The Group has unutilised tax losses of $15,247,000 with an expiry date of 2011.
No deferred tax asset has been recognised in respect of these losses due to the
uncertainty concerning the timing of future profit streams.
10 EARNINGS PER SHARE
The earnings per share ('EPS') calculation has assumed that the number of
ordinary shares issued pursuant to share exchange agreements in relation to the
acquisition of GEC have been in issue throughout the two year period ended 31
December 2006 consistent with merger accounting for combinations of businesses
under common control.
The directors believe that this basis for the EPS calculation provides a more
relevant performance measure of the Group's performance than using an EPS
calculation which reflected shares issued based on the actual date of issue.
Basic earnings per share is calculated by dividing the earnings/loss
attributable to ordinary shareholders by the weighted average number of shares
outstanding during the year.
For diluted earnings per share, the weighted average number of ordinary shares
in issue is adjusted for the effects of dilutive options. The only potential
dilutive ordinary shares are share options. As the Company is loss making these
would be anti-dilutive by decreasing the loss per share and therefore are not
included in diluted EPS.
2006 2005
$'000 $'000
unaudited unaudited
Net loss attributable to equity holders of the parent (13,995.5) (35.6)
2006 2005
'000 '000
unaudited unaudited
Weighted average number of shares for basic EPS 118,046 100,000
Effect of dilution:
Share options - -
Weighted average number of shares for diluted EPS 118,046 100,000
2006 2005
US cents US cents
per share per share
unaudited unaudited
Basic EPS (11.9) -
Diluted EPS (11.9) -
11 INTANGIBLE ASSETS
Exploration Advance
and payment on
evaluation exploration
assets licence Total
$'000 $'000 $'000
unaudited unaudited unaudited
Cost
At 1 January 2005 2,402.1 - 2,402.1
Additions at cost 9,279.8 3,000.0 12,279.8
At 31 December 2005 11,681.9 3,000.0 14,681.9
Additions at cost 5,744.7 - 5,744.7
Transfers to tangible fixed assets (17,426.6) (3,000) (20,426.6)
At 31 December 2006 - - -
Net book value
At 1 January 2005 2,402.1 - 2,402.1
At 31 December 2005 11,681.9 3,000.0 14,681.9
At 31 December 2006 - - -
All Intangible assets were transferred to tangible assets on completion of a
Definitive Feasibility Study and the KOV project commencing development during
the period.
12 PROPERTY, PLANT AND EQUIPMENT
Mine
development Land and Motor Fixtures Plant and Work in
and
assets buildings vehicles fittings equipment progress Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000
unaudited unaudited unaudited unaudited unaudited unaudited unaudited
Cost
At 1 January 2005 - - - - - - -
Additions at cost - 57.5 263.4 9.4 - - 330.3
At 31 December 2005 - 57.5 263.4 9.4 - - 330.3
Additions at cost 14,213.0 591.6 653.9 337.7 3,803.8 3,547.0 23,147.0
Transfers from intangible assets 20,426.6 - - - - - 20,426.6
At 31 December 2006 34,639.6 649.1 917.3 347.1 3,803.8 3,547.0 43,903.9
Depreciation
At 1 January 2005 - - - - - - -
Depreciation charge - - 32.1 3.6 - - 35.7
At 31 December 2005 - - 32.1 3.6 - - 35.7
Depreciation charge - 6.7 140.4 29.2 - - 176.3
At 31 December 2006 - 6.7 172.5 32.8 - - 212.0
Net book value
At 1 January 2005 - - - - - - -
At 31 December 2005 - 57.5 231.3 5.8 - - 294.6
At 31 December 2006 34,639.6 642.4 744.8 314.3 3,803.8 3,547.0 43,691.9
All Mine Development Assets relate to the KOV Project. No depreciation has been
charged to date as the Project has not yet reached commercial production. Plant
and equipment also includes $2 million in relation to the KOV Project which is
not depreciated. Also included in Plant and equipment are KZC leasehold
improvement costs of $1.8 million. These have not been depreciated as KZC is in
pre-production.
No items of Property, plant and equipment were pledged as security in the
current or prior period.
13 INVENTORIES
2006 2005
$'000 $'000
unaudited unaudited
Raw materials 1,827.7 -
Work in progress 121.4 -
Finished goods 2,640.7 -
4,589.8 -
14 TRADE AND OTHER RECEIVABLES
2006 2005
$'000 $'000
unaudited unaudited
Trade receivables 1,281.2 -
Other receivables 533.4 -
Amounts owed from related parties - 0.1
Prepayments and accrued income 8,585.5 -
10,400.1 0.1
The fair value of trade and other receivables is not materially different to the
carrying values presented.
15 CASH AND CASH EQUIVALENTS
2006 2005
$'000 $'000
unaudited unaudited
Cash at bank and in hand 349,709.9 1,530.2
The fair value of cash and cash equivalents is not materially different to the
carrying values presented due to the short-term maturity of these deposits. Cash
and cash equivalents are placed in money market funds and bank deposits with a
minimum AAA rated funds/counterparties. A maximum of $100 million is placed with
each fund/counterparty.
Cash at bank earns interest at floating rates based on daily bank deposit rates.
Cash is held in liquidity funds which can be accessed at 24 hours notice.
The currency exposure of cash and cash equivalents is as follows:
2006 2005
$'000 $'000
unaudited unaudited
US dollars 321,173.6 1,530.1
British pounds 27,583.0 -
South African rand 521.0 0.1
DRC franc 432.3 -
349,709.9 1,530.2
16 TRADE AND OTHER PAYABLES
2006 2005
$'000 $'000
unaudited unaudited
Trade payables 4,017.1 -
Accruals 4,853.6 193.9
Amounts owed to related parties (see note 25) 1,920.7 -
Taxation and social security(A) 2,187.0 -
Other payables 205.3 34.9
13,183.7 228.8
(A) Taxation and social security includes $34,700 of current tax liabilities.
The fair value of trade and other payables is not materially different to the
carrying values presented.
17 SHAREHOLDER LOANS
2006 2005
$'000 $'000
unaudited unaudited
Current borrowings
Oakey Invest Holdings Inc.(A) - 15,103.6
Kennon Management Inc.(B) - 1,333.3
- 16,436.9
(A) The loan from Oakey Invest Holdings Inc. ('Oakey') was solely for the
purposes of funding the costs of pre-exploration and project feasibility studies
of DCP, a subsidiary of GEC. This loan was repaid to Oakey following Admission.
The amount repaid was $22.7 million which includes advances of $7.5 million made
by Oakey to the Group during the year.
(B) The loan from Kennon Management Inc. ('Kennon') was solely for the purposes
of funding the costs of pre-exploration and project feasibility studies of DCP,
a subsidiary of GEC. As part of the new shareholder agreement this loan was
assigned to Oakey on 29 March 2006 and was repaid to Oakey following admission
to the Alternative Investment Market. The amount repaid was $3.5 million, which
includes advances of $2.2 million made to the Group during the year.
18 FINANCIAL INSTRUMENTS
FINANCIAL RISK AND RISK MANAGEMENT
The Group does not use derivative instruments and financial instruments to
manage its exposure to fluctations in foreign currency rates, interest rates and
commodity prices.
(a) Foreign currency risk
The functional currency of all entities in the Group is US dollars, (USD).
Although the majority of the Group's transactions are recorded in USD, some
operating costs and investments are incurred in Euros, British pounds, (GBP)
South African rand, (ZAR) and Congolese francs, (CFA). The Group is thus exposed
to fluctuations in the USD/EURO, USD/GBP, USD/ZAR and USD/CFA exchange rates.
The Group's results are positively affected when the USD strengthens against
these foreign currencies and adversely affected when the USD weakens against
these foreign currencies.
The Group policy is to hedge non USD working capital by holding sufficient cash
resources in non USD currencies.
The currency exposure of the Group's cash and cash equivalents is given in note
15.
The Group has not entered into any exchange rate derivatives in the current year
or prior period.
The effect of gains and losses included in the income statement are given in
note 8.
(b) Interest rates and liquidity risk
Fluctuations in interest rates impact on the value of cash investments and
financing activities, giving rise to interest rate risks. In the ordinary course
of business, the Group receives funds from its shareholders and interest income
which is required to fund working capital and capital expenditure requirements.
This cash is managed to ensure surplus funds are invested in a manner to achieve
maximum returns while minimising risks. The Group's policy is maximum capital
protection through AAA rated investments of IPO proceeds.
None of the financial liabilities currently held by the Group are exposed to
interest rate risk.
(c) Commodity price risk
The Group generally sells its copper and cobalt production concentrate output at
prevailing market prices, subject to final pricing adjustments after delivery to
the customer. The Group is therefore exposed to changes in market prices for
copper and cobalt both in respect of future sales and previous sales which are
open to final pricing. Sales contracts are at the sellers' option and therefore
the Group has no production performance risk. See note 3b for details of revenue
recognition.
The Group has not used any commodity derivatives in the current year or prior
period.
(d) Concentration of credit risk
The Group's principal financial assets are cash and cash equivalents and trade
and other receivables. The Group's credit risk is primarily to trade
receivables.
The Group's financial instruments do not represent a concentration or material
exposure of credit risk, because the Group deals with a variety of major banks
and financial institutions as set out above. Furthermore, its debtors are
regularly monitored and assessed for recoverability. Where it is appropriate to
raise a provision, an adequate level of provision is maintained.
2006 2006 2005 2005
$'000 $'000 $'000 $'000
Carrying Fair value Carrying Fair value
value value
unaudited unaudited unaudited unaudited
Financial assets
Cash and cash equivalents 349,709.9 349,709.9 1,530.2 1,530.2
Trade and other receivables 10,400.1 10,400.1 0.1 0.1
Financial liabilities
Trade and other payables (13,183.7) (13,183.7) 228.8 228.8
Borrowings - - 16,436.9 16,436.9
The fair value of financial assets and liabilities is not materially different
to the carrying values presented.
19 SHARE CAPITAL AND SHARE BASED PAYMENT
As described in note 2 a) merger accounting has been applied in the presentation
of the consolidated financial statements.
This method presents the results of the Group as if the Company had always been
the parent company. This has the effect that although the Company was not
incorporated until 26 June 2006, the ordinary share capital shown throughout the
period of the consolidated financial statements is that of the Company resulting
from the share exchange with the previous shareholders of GEC. The share
exchange occured on 12 July 2006. This has no effect on total equity for prior
period comparatives but does result in an increase in prior period share capital
and prior period accumulated deficit from that previously disclosed.
On 17 July 2006 the Company issued 36 million ordinary shares at #6 pursuant to
the Company being admitted to the Alternative Investment Market. On 11 August
2006 an over-allotment option was exercised in full and an additional 3.6
million shares were issued at #6. Attributable share issue costs of $28.2
million have been capitalised to share premium.
Number $'000
unaudited unaudited
Authorised (on incorporation on 26 June 2006)
Ordinary shares of $0.01 each 1,000,000,000 10,000
Ordinary shares issued and fully paid
At 1 January 2005
On incorporation 10 0.0001
Shares issued pursuant to share exchange agreements 99,999,990 1,000
At 31 December 2005 100,000,000 1,000.0
Shares issued pursuant to the Company's admission 39,600,000 396
Issued under share scheme 250,000 2.5
At 31 December 2006 139,850,000 1,398.5
SHARE BASED PAYMENT
The Group operates a share-based payment arrangement with employees. There were
no brought forward options at the start of the period, total grants were
1,290,466, (as detailed below) and there were no exercises, expirees or
forfeitures during the period. All of the Group's schemes are equity settled, in
accordance with IFRS 2, by award of options to acquire ordinary shares or award
of ordinary shares. The fair value of these awards has been calculated at the
date of grant of the award. The fair value, adjusted for an estimate of the
number of awards that will eventually vest is expensed uniformly over the
vesting period. The fair value of the options granted were calculated using a
binomial expected life model. The assumptions used in the calculation are set
out below.
The share based payment charge for the year was $3,540,891 (prior year $nil).
This included a charge of $2,754,350 recognised immediately as an expense for
250,000 shares awarded at nominal value to the Executive Chairman following the
successful admission of the Company. The fair value was calculated using the
issue price of the shares on admission, #6.
2006 Grant Date 2005
11 July 25 n/a
September
unaudited unaudited unaudited
Number of instruments 1,020,700 269,766 n/a
Exercise price (#) 6 6 n/a
Share price at the date of grant (#) 6 5.995 n/a
Contractual life (years) 10 10 n/a
Vesting conditions none none n/a
Expected volatility (%) 33 33 n/a
Expected option life (years) 2-5 2-5 n/a
Risk free interest rate (%) 4.77 4.71 n/a
Expected departures (%) 0 0 n/a
Fair value per option granted (weighted average) (#) 2.26 2.25 n/a
The expected volatility is based on historical share price volatility. The
expected life is the time at which options are expected to vest. Options vest in
four equal tranches on the second, third, fourth and fifth anniversaries of the
grant date, and therefore continued employment is a non-market condition for
options to vest. The risk free rate of return is the yield on zero coupon UK
government bonds with a term equal to five years.
20 CASH FLOW ANALYSIS
RECONCILIATION OF PROFIT BEFORE TAX TO CASH FLOW FROM OPERATING ACTIVITIES
2006 2005
$'000 $'000
unaudited unaudited
Loss before income tax (13,960.8) (35.6)
Adjusted for:
Interest received (8,682.6) (4.1)
Interest paid 148.2 -
Depreciation 176.3 35.7
Stock absorption costing adjustment (2,762.1) -
Share option expense 3,540.9 -
Foreign exchange gains (1,601.7) -
Increase in inventories (1,827.7) -
Increase in debtors (10,399.8) -
Increase/(decrease) in creditors 8,791.6 (144.2)
Cash outflow from operating activities (26,577.7) (148.2)
21 MOVEMENT IN NET LIQUID FUNDS
Cash and
cash Shareholder
equivalents loans Total
$'000 $'000 $'000
unaudited unaudited unaudited
Balance at 1 January 2005 0.5 2,152.9 2,152.4
Cash flow 1,529.7 8,000.0 9,529.7
Non-cash movements - 6,284.0 6,284.0
Balance at 31 December 2005 1,530.2 16,436.9 17,967.1
Cash flow 346,583.5 (16,436.9) 330,146.6
Foreign exchange 1,596.2 - 1,596.2
Balance at 31 December 2006 349,709.9 - 349,709.9
22 CAPITAL COMMITMENTS
2006 2005
$'000 $'000
unaudited unaudited
Legal commitments for future capital expenditure not provided for in the financial 3,000.0 -
statements
Total capital and other financial commitments 3,000.0 -
The commitments at 31 December 2006 primarily related to legal commitments made
to contractors for Dewatering services at the KOV Project.
23 CONTINGENT LIABILITIES
No material contingent liabilities exist at 31 December 2006 (2005: $nil).
24 OPERATING LEASES
The Group had the following commitments under non-cancellable operating leases:
2006 2005
$'000 $'000
unaudited unaudited
Expiry date
Less than one year 390.4 72.0
Between one and five years 407.2 264.0
Total 797.6 336.0
The Group leases offices in London, Johannesburg, Kinshasa and Lubumbashi and
also a number of houses in Kolwezi. No amounts are included above in respect of
the KZC lease (see note 27), as lease payments are dependent on production. In
the year an amount of $25,500 (prior year $nil) has been charged in relation to
the KZC lease.
25 RELATED PARTY DISCLOSURES
IDENTIFICATION OF RELATED PARTIES
The Group has a related party relationship with its majority shareholders and
related companies.
The Group was initially funded by founding shareholder loans which were repaid
in full during the year ended December 2006. An amount of $26,231,000 was
repaid, including interest of $148,000.
The following companies provided services to the Group during the period and/or
have been identified as related parties:
BSGR Transitional Services Agreement: The BSGR Group owns Oakey Investment
Holdings Inc., a major shareholder of Nikanor PLC. Prior to the Company's
admission onto AIM, the Group had a limited number of employees. In recognition
that the Group required assistance immediately post Admission, the Group and
Resource Advisory Services Limited, a company in the BSGR Group, entered into a
Transitional Services Agreement. Resource Advisory Services Limited, agreed to
continue to provide corporate finance and management accounting, information
technology/computer, administration, accounts and logistical advice and services
to the Group. In addition the BSgR Group provided rented premises to the Group.
This support was limited post August 2006 as a result of establishment of the
Group's Corporate functions. All support has now ceased.
DEM Mining: In December 2006, the company through its subsidiary company, DCP
entered into a short term (two year contract) with DEM Mining to drill, mine and
transport ore from the Tilwezembe mine to the crusher at the KZC plant. DEM
Mining is a company registered in the DRC, based in Lubumbashi, with 30% of its
shares held by Dan Gertler. Dan Gertler owns 14.30% of the Company (registered
under the name New Horizon Minerals Limited). The letting of the contract to DEM
Mining was the subject of a competitive tender process with the Board approving
this related party transaction.
Virtus Trust: In 2005, Rt. Hon Earl of Balfour (an independent Non-Executive
Director of the company), together with two colleagues, set up Virtus Trust as a
new independent fiduciary to focus on both family and corporate work. Rt. Hon
Earl of Balfour holds one-third of the shares of Virtus Trust Limited. Virtus
Trust Limited currently provides treasury and accounting-related services to the
Group. However, this arrangement will cease by the end of April 2007.
Bateman: Rt. Hon Earl of Balfour is an independent Non-Executive Director of
Bateman Engineering N.V., a company in the BSGR Group. The BSGR Group owns Oakey
Investment Holdings Inc., a major shareholder of Nikanor PLC. The Group, through
its subsidiary company in DRC, is engaging Bateman to undertake certain
projects. Bateman Engineering N.V. has recently been admitted on AIM. Although
Rt. Hon Earl of Balfour is a director of Bateman Engineering N.V. he is not
involved in the day-to-day running of the business and is not remunerated on the
basis of the performance of that company. Rt. Hon Earl of Balfour has not
engaged in any of the commercial discussions between the Group and Bateman and
the Board has concluded that Rt. Hon Earl of Balfour is independent of the BSGR
Group.
Gecamines: As part of the Joint Venture Arrangement Gecamines has a 25% minority
interest in DCP, a Group subsidiary. Gecamines is entitled to appoint 2 of the 8
Directors of the DCP Board. DCP is required to make lease payments to Gecamines
at 1.5%-2% of net sales receipts. Certain past service payments are owed by
Gecamines to its employees. DCP may (at Gecamines request) pay its lease fees
directly to Gecamines employees instead of Gecamines. $890,000 has been advanced
during the year ended 2006.
The following table provides the total amount of transactions entered into
between related parties:
2006 2005
$'000 $'000
unaudited unaudited
Amounts owed to related parties
Oakey Investment Holdings Inc. - 15,103.6
Kennon Management Inc. - 1,333.3
Bateman 1,920.7 148.8
1,920.7 16,585.7
Purchases from related parties
DEM Mining 590.0 -
Bateman 6,189.8 1,109.9
BSGR 604.8 6,095.1
Virtus Trust 122.0 -
Gecamines 25.5 -
7,532.1 7,205.0
Remuneration of key management was as follows:
2006 2005
$'000 $'000
unaudited unaudited
Salaries and bonuses 2,050.6 198.1
Share based payments 2,754.4 -
4,805.0 198.1
Directors' remuneration was as follows:
2006 2005
$'000 $'000
unaudited unaudited
Aggregate emoluments 1,211.0 -
Aggregate gains on the exercise of share options 2,754.4 -
3,965.4 -
26 POST BALANCE SHEET EVENTS
There have been no post balance sheet events.
27 GROUP COMPANIES
ULTIMATE PARENT COMPANY
The ultimate parent company is Nikanor PLC. The Company was incorporated on 26
June 2006 in the Isle of Man as a public limited company.
Following the IPO offering, the Company's three founding shareholders, BSG
Resources Ltd (through Oakey Invest Holdings Inc - 36%), the Gertner Group
(through Pitchley Properties Ltd - 21%) and the Dan Gertler International Group
of Companies (through New Horizon Minerals Ltd - 14%) continue to be the
majority sharesholders in Nikanor PLC with a combined interest of 71%.
Issued Percentage Immediate
Country of Principle share equity owned holding
Subsidiary undertakings incorporation business capital 2006 2005 company
activity
Nikanor Services (UK) Ltd UK Service company #1 100% - Nikanor PLC
Global Enterprises Corporate
Ltd (GEC) BVI Holding company $100 100% - Nikanor PLC
Nikanor Services (South Africa)
(Pty) Ltd South Africa Service company 1 ZAR 100% - Nikanor PLC
DCP (Copper and Cobalt project
Sarl)(1) DRC Copper mining US$1,000,000 75% 75% GEC
Phoenix Mining Sprl DRC Non trading FC100,000,000 100% 100% GEC
(1)On 21 October 2005, in accordance with the agreement entered into between GEC
and Gecamines, the Group incorporated Democratic Republic of Congo Copper and
Cobalt Project S.a.r.l (DCP), with an authorised and issued share capital of
US$1,000,000.
JV AGREEMENT
On 9 September 2004 GEC and Gecamines entered into a Joint Venture Arrangement
("JVA") for the establishment of DCP as a joint venture vehicle for the
rehabilitation and operation of the open pit mines of KOV, Katanga and
Tilwezembe previously held by Gecamines. The agreement is set to expire on 3
April 2039. The JVA has been structured for compliance with the Mining Code and
was authorised by the Council of Ministers in July 2005 and by presidential
decree on 13 October 2005. DCP is 75% owned by GEC and 25% by Gecamines. Under
the JVA Gecamines is required to make certain contributions to DCP, including
transfer of exploitation and mining permits, and leases over certain industrial
sites and processing installations (including the Kolwezi concentrator).
DCP has been accounted for as a subsidiary as it is evident from the JVA that
Nikanor PLC through its 75% holding has operational control. The acquisition of
assets is not treated as a business combination and not subjected to a fair
value exercise but accounted for at cost.
KOLWEZI CONCENTRATOR LEASE
As mentioned above a number of assets were leased by Gecamines to DCP under the
terms of the JVA, including the Kolwezi concentrator. The Kolwezi concentrator
has been treated as an operating lease in the financial statements with lease
payments recognised as they fall due.
28 MINORITY INTERESTS
Minority interests in losses are not recorded as there is no binding agreement
for the minority to increase their investment to cover the losses.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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