| Fri 23 Dec 2011, 9:00 | | ZCI - ZCI Limited - Reviewed Condensed Consolidated Interim Financial Statements |
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ZCI
ZCI
ZCI - ZCI Limited - Reviewed Condensed Consolidated Interim Financial Statements
for the six months ended 30 September 2011
ZCI Limited
(Bermudian registration number 661:1969)
(South African registration number 1970/000023/10)
JSE share code: ZCI ISIN: BMG9887P1068
Euronext share code: BMG9887P1068
("ZCI" or "the Company" or "the Group")
Reviewed Condensed Consolidated Interim Financial Statements for the six months
ended 30 September 2011
Condensed Consolidated Statement of Comprehensive Income
Reviewed Reviewed Audited
Six months Six months Twelve months
ended ended ended
30 September 30 September 31 March
2011 2010 2011
Note USD`000 USD`000 USD`000
Revenue 23 066 11 583 24 731
Cost of sales (28 264) (16 504) (22 663)
Gross (loss)/profit
from mining activities (5 198) (4 921) 2 068
Administrative expenses (2 865) (918) (5 150)
Other expenses (1 581) (846) (2 726)
Foreign exchange gains/(losses) 1 943 (61) 63
Operating loss (7 701) (6 746) (5 745)
Finance income 442 463 1 384
Finance expense (337) - (1 118)
Loss before tax (7 596) (6 283) (5 479)
Income tax 211 201 (657)
Loss for the period (7 385) (6 082) (6 136)
Other comprehensive income:
Exchange differences
on translation
of foreign operations (4 554) 3 726 7 006
Total comprehensive
income for the period (11 939) (2 356) 870
Loss attributable to:
Equity holders of the parent (4 849) (5 049) (4 718)
Non-controlling interest (2 536) (1 033) (1 418)
Total comprehensive
income attributable to:
Equity holders of the parent (8 683) (1 988) 1 181
Non-controlling interest (3 256) (368) (311)
Basic loss per
ordinary share
(US cents) 6 (8.71) (9.07) (8.47)
Diluted loss per
ordinary share
(US cents) 6 (10.42) (9.82) (9.31)
Condensed Consolidated Statement of Financial Position
Reviewed Audited
30 September 31 March
2011 2011
Note USD`000 USD`000
ASSETS
Property, plant and equipment 50 575 47 966
Intangible assets 51 971 51 425
Other financial assets 313 345
Long-term receivable 2 000 4 000
Total non-current assets 104 859 103 736
Inventory 6 538 10 483
Trade and other receivables 5 981 3 847
Current portion of long-term receivable 2 012 6 048
Cash and cash equivalents 24 147 26 417
Total current assets 38 678 46 795
TOTAL ASSETS 143 537 150 531
EQUITY
Share capital 102 688 102 688
Foreign currency translation reserve (133) 3 701
Share option reserve 8 362 -
Retained earnings 9 852 14 701
Equity holders of the parent 112 769 121 090
Non-controlling interest 2 004 5 260
Total equity 114 773 126 350
LIABILITIES
Deferred tax 6 976 7 187
Environmental rehabilitation provision 6 044 7 150
Loans and borrowings 942 -
Total non-current liabilities 13 962 14 337
Trade and other payables 14 135 9 844
Loans and borrowings 667 -
Total current liabilities 14 802 9 844
TOTAL EQUITY AND LIABILITIES 143 537 150 531
Condensed Consolidated Statement of Cash Flows
Reviewed Reviewed
Six months Six months
ended ended
30 September 30 September
2011 2010
USD`000 USD`000
Cash flow from operating activities
Cash generated/(utilised) by operations 55 (3 744)
Interest received 430 412
Interest paid (337) -
Cash inflow/(outflow) from operating activities 148 (3 332)
Cash flow from investing activities
Additions to property, plant and equipment (10 179) (4 558)
Additions to intangible assets (1 037) -
Proceeds of disposal of property, plant and equipment 400 65
Cash outflow from investing activities (10 816) (4 493)
Cash flow from financing activities
Repayment of long-term receivable 6 000 -
Additional finance raised 1 609 -
Cash outflow from financing activities 7 609 -
Effect of currency translation 789 (352)
Net decrease in cash and cash equivalents (2 270) (8 177)
Cash and cash equivalents at the beginning of
the period 26 417 48 430
Cash and cash equivalents at the end of the period 24 147 40 253
Notes
1. General information
ZCI is a public company incorporated and domiciled in Bermuda. It has a primary
listing on the Johannesburg Stock Exchange and a secondary listing on the
Euronext.
The Company`s business is not affected by any Government protection or
investment encouragement laws.
ZCI is the holding company of African Copper Plc ("ACU"), a copper producing and
mineral exploration and development group of companies (the "Group"). The
Group`s main project is the copper-producing open pit Mowana mine. The Group
also owns the rights to the adjacent Thakadu-Makala deposits and holds permits
in exploration properties at the Matsitama Project. The Mowana Mine is located
in the north-eastern portion of Botswana and the Matsitama Project is contiguous
to the southern boundary of the Mowana Mine.
The address of ZCI`s registered office is Clarendon House, 2 Church Street,
Hamilton, Bermuda. These condensed consolidated interim financial statements
were approved for issue on 20 December 2011 by the board of directors.
2. Basis of preparation
The condensed consolidated interim financial statements for the six months ended
30 September 2011 have been prepared in accordance with International Accounting
Standard IAS 34: Interim Financial Reporting, and the AC 500 series issued by
the Accounting Practices Board and in compliance with the Listings Requirements
of the JSE Limited.
The condensed consolidated interim financial statements are presented in United
States Dollars ("USD"), which is the Company`s functional currency. All
financial information presented in USD has been rounded to the nearest thousand.
3. Significant accounting policies
The accounting policies applied in the presentation of the condensed
consolidated interim financial statements are in accordance with International
Financial Reporting Standards ("IFRS") and are consistent with those applied for
the year ended 31 March 2011.
During the period, the following accounting pronouncements, none of which had a
material impact on the group`s results, became effective:
- IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments
- Improvements to IFRSs 2010
- IAS 24 - Related Party Disclosures (revised 2009)
A number of new standards, amendments to standards and interpretations that
could be relevant to the Group, are not yet effective for the period ended 30
September 2011, and have not been applied in preparing these condensed
consolidated interim financial statements:
- IAS 12 - Deferred Tax: Recovery of Underlying Assets - Amendments to IAS 12,
effective for annual periods beginning on or after 1 January 2012.
- IFRS 7 amendment - Disclosures - Transfers of Financial Assets, effective for
annual periods beginning on or after 1 July 2011.
- IFRS 9 (2010) - Financial Instruments, effective for annual periods beginning
on or after 1 January 2013.
- IFRS 10 (2011) - Consolidated Financial Statements, effective for annual
periods beginning on or after 1 January 2013.
- IFRS 12 (2011) - Disclosure of Interests in Other Entities, effective for
annual periods beginning on or after 1 January 2013.
- IFRS 13 (2011) - Fair Value Measurement, effective for annual periods
beginning on or after 1 January 2013.
- IFRIC 20 - Stripping Costs in the Production Phase of a Surface Mine,
effective for annual periods beginning on or after 1 January 2012.
With the exception of IFRS 9 and IFRIC 20, these standards and interpretations
are not expected to have a significant effect on the consolidated financial
statements of the Group. IFRS 9 (2010) which becomes mandatory for the Group`s
2013 consolidated financial statements and could change the classification and
measurement of financial assets. IFRIC 20 provides further guidance with regards
to the recognition of production stripping in surface mining activities. The
Group does not plan to adopt these standards or interpretations early and the
extent of the impact has not yet been determined.
4. Segment information
An operating segment is a component of the Group that engages in business
activities from which it may earn revenues and incur expenses, including
revenues and expenses that relate to transactions with any of the Group`s other
components. The Group`s only operating segment is the exploration for, and the
development of copper and other base metal deposits. All the Group`s activities
are related to the exploration for, and the development of copper and other base
metals in Botswana with the support provided from the Company and it is reviewed
as a whole by the Board (who is considered the chief operating decision maker)
to make decisions about resources to be allocated to the segment and assess its
performance, and for which discrete financial information is available. All
mining revenue derives from a single customer.
As such, a separate segmental report has not been prepared.
Consolidated Statement of Changes in Equity
Foreign
currency Share
Share translation option Retained
capital reserve reserve earnings
USD`000 USD`000 USD`000 USD`000
Balance as at 31 March 2010 102 688 (2 145) - 18 651
Loss for the period - - - (5 049)
Other comprehensive income
- foreign currency
translation differences - 3 061 - -
Total comprehensive income
for the period - 3 061 - (5 049)
Balance as at 30 September
2010 102 688 916 - 13 602
Balance as at 31 March 2011 102 688 3 701 - 14 701
Transactions with owners
recorded
directly in equity
Share option reserve (note 8) - - 362 -
Loss for the period - - - (4 849)
Other comprehensive income
- foreign currency
translation differences - (3 834) - -
Total comprehensive income
for the period - (3 834) - (4 849)
Balance as at 30 September
2011 102 688 (133) 362 9 852
Attributable
to equity Non-
holders of controlling Total
the parent interest equity
USD`000 USD`000 USD`000
Balance as at 31 March 2010 119 194 6 286 125 480
Loss for the period (5 049) (1 033) (6 082)
Other comprehensive income
- foreign currency translation
differences 3 061 665 3 726
Total comprehensive income for the
period (1 988) (368) (2 356)
Balance as at 30 September 2010 117 206 5 918 123 124
Balance as at 31 March 2011 121 090 5 260 126 350
Transactions with owners recorded
directly in equity
Share option reserve (note 8) 362 - 362
Loss for the period (4 849) (2 536) (7 385)
Other comprehensive income
- foreign currency translation
differences (3 834) (720) (4 554)
Total comprehensive income for the
period (8 683) (3 256) (11 939)
Balance as at 30 September 2011 112 769 2 004 114 773
5. Going concern
Since the publication of the Group`s annual financial statements in August 2011,
which contained details of the key assumptions and factors impacting the Company
and its subsidiary`s ability to continue as going concerns, progress has been
made in respect of production levels and a number of capital projects envisaged
have been successfully undertaken.
However, in spite of the progress on production and the ongoing capital projects
to upgrade and remove bottlenecks in the production facilities, the mass of
copper produced in concentrate has not attained the levels needed to generate
overall positive cash flows for the business and the Group incurred a loss of
USD7.4 million for the period ended 30 September 2011 (2010: USD6.1 million).
The Directors have updated the Group`s cash flow projections. These show that
the projected peak funding requirement by ACU, the Company`s subsidiary, is
estimated to be USD6.1 million and to occur in March 2012. The Directors of ZCI
have agreed with the directors of ACU that the Company will not demand payment
on any of the outstanding ACU debt due to them until 31 December 2013 unless the
performance of ACU, and its prospects, as determined by the Directors, permits
the repayment of debt beforehand. In addition, the Company has undertaken to
further make sufficient funding available to ACU until 31 March 2013 to allow it
to continue to meet its obligations as they fall due in the normal course of
business. In the view of the Directors, this will allow ACU to trade as a going
concern for at least 12 months from the date of the announcement of these
interim results.
The projections described above assume an average copper price of USD3.70 per lb
and average monthly production of 788 Mt of copper produced in concentrate over
the course of the four-month period until 31 March 2012. This compares to an
average monthly production of 588 Mt of copper produced in concentrate over the
course of the four-month period ended 30 November 2011. A 10% reduction in the
average price of copper applied to the projected production levels increases the
projected peak funding requirement by USD2.5 million. A 10% decrease in the
average monthly production tonnage, assuming that the projected average copper
price is achieved, increases the projected peak funding requirement by USD2.3
million.
The current Group cash flow projections forecast positive cash flows on a
monthly basis during the first half of the next financial year based on the
following anticipated factors:
- approximately 64% of ore processed during this period is anticipated to be
mined from the Thakadu open-pit with an average grade of 2.1%;
- the new secondary and tertiary crushers will be available thereby
significantly reducing downtime and increasing throughput to the mill;
and
- average recoveries are projected to increase to approximately 63%, reflecting
the processing of less pure oxide ore as mining progresses deeper in the Thakadu
and Mowana open-pits.
The unproven ability of the Group to achieve the forecasted production figures,
the volatility of the copper price and other factors discussed above, represent
a material uncertainty in relation to the ability of the Company and its
subsidiaries to realise their assets and discharge their liabilities in the
normal course of business.
Should the projected production levels and key financial assumptions not be
reached, the Company and its subsidiaries will have to source additional
external funding in order to realise their assets and discharge their
liabilities in the normal course of business. In the event that additional
funding is not forthcoming, these conditions may cast significant doubt about
the ability of the Company and its subsidiaries to continue as going concerns.
6. Loss per share
Six months Six months Twelve months
ended ended ended
30 September 30 September 31 March
2011 2010 2011
Basic loss per ordinary
share (US cents) (8.71) (9.07) (8.47)
Diluted loss per ordinary
share (US cents) (10.42) (9.82) (9.31)
Headline loss per ordinary
share (US cents) (8.71) (9.07) (8.47)
Diluted headline loss per
ordinary share (US cents) (10.42) (9.82) (9.31)
Number of ordinary shares
in issue 55 677 643 55 677 643 55 677 643
Basic and diluted weighted
average number of
ordinary shares in issue 55 677 643 55 677 643 55 677 643
USD`000 USD`000 USD`000
The following adjustments
to loss attributable to ordinary
shareholders were taken into account
in the calculation of diluted
earnings per share:
Loss attributable to equity
holders of the parent (4 849) (5 049) (4 718)
Increase in shareholding in
subsidiary with respect to
convertible portion of debt (950) (417) (464)
Tax effect - - -
Diluted loss attributable to
equity holders of the parent (5 799) (5 466) (5 182)
The following adjustments
to loss attributable to
ordinary shareholders were
taken into account in the
calculation of headline and
diluted headline earnings
per share:
Loss attributable to equity
holders of the parent and
headline loss attributable
to equity holders of the parent (4 849) (5 049) (4 718)
Increase in shareholding in
subsidiary with respect to
convertible portion of debt (950) (417) (464)
Tax effect - - -
Diluted headline loss
attributable to equity holders
of the parent (5 799) (5 466) (5 182)
7. Mineral Resources and Mineral Reserves
The Group`s Mineral Resources and Ore Reserves are under review to provide
updated estimations for 2012, however no material changes to the Mineral
Resources and Ore Reserves disclosed in the ZCI annual report for the year ended
31 March 2011 are expected, other than depletion, due to continued mining
activities.
8. Share bonus options
The Company`s subsidiary, ACU, granted 17 150 000 options over the ordinary
shares of the entity on 12 July 2011 to members of the executive management team
and Directors. The exercise price of the shares were 3.13 pence per
share. Options have a maximum term of 10 years and 40% are exercisable
immediately with the balance of 20% exercisable on each of the next three
annual anniversaries of the awards.
Details of the options awarded are as follows:
Subsidiary director Number of options
David Rodier (Non-executive Chairman) 500 000
R D Corrans (Non-executive Director) 500 000
Prof S Simukanga (Non-executive Director) 500 000
Jordan Soko (Interim Chief Executive Officer) 2 500 000
Brad Kipp (Chief Financial Officer) 2 500 000
Various executive team members 10 650 000
17 150 000
On 21 November 2011 Prof S Simukanga`s share options were cancelled to
maintain his independence.
9. Contractual commitments
The Company entered into an Investment Advisory and Management Agreement
("IAMA") with iCapital (Mauritius) Limited ("Advisor") on 11 December 2008 which
provided that the Advisor receive fees (fixed quarterly payments as well as
periodic performance payments) for services provided. As disclosed in the 31
March 2011 annual report, the Advisor and the Company were unable to reach
agreement as to the interpretation of certain clauses in the IAMA, and each
party retained legal counsel in order to resolve their differences in opinion.
Notice of termination of the agreement was subsequently given during July 2011
with effect January 2012. Under the termination clause of the current agreement,
there is a fee payable to the Advisor for services rendered during the period,
however, the extent of the liability cannot be reliably estimated at period-end.
Negotiations are in an advanced stage to settle the matter and terminate the
contract in its entirety.
There were no other significant changes to commitments and contingencies as
disclosed in the 31 March 2011 annual report.
10. Related party transactions
There were no changes with respect to the nature or terms of related party
transactions during the period to that previously reported.
11. Dividends
No dividends were declared for the period under review.
12. Events after the reporting period
No other material events have taken place since the period-end that require
adjustment to balances reported.
13. Review opinion
The condensed consolidated interim financial statements of ZCI for the period
ended 30 September 2011 have been reviewed by our auditors, KPMG Inc. In their
review report, dated 20 December 2011, KPMG Inc state that their review was
conducted in accordance with the International Standards on Review Engagements
2410, Review of Interim Information Performed by the Independent Auditor of the
Entity. They have expressed an unmodified conclusion with an emphasis of matter
as follows: "Without qualifying our conclusion, we draw attention to note 5,
which indicates that the Group incurred a loss for the six months ended 30
September 2011 of USD7.4 million. This condition, along with other matters as
set forth in the note, indicates the existence of a material uncertainty that
may cast significant doubt on the ability of the company and its subsidiaries to
continue as going concerns."
The review report is available for inspection at the registered office of the
Company (Clarendon House, 2 Church Street, Hamilton, Bermuda) and the offices of
the sponsor.
Chairman`s statement
I am pleased to present the Group`s condensed reviewed consolidated interim
results for the six months ended 30 September 2011. The Group returned an
operating loss of USD7.7 million from activities for the six months to 30
September 2011, compared to an operating loss of USD6.7 million for the same
period in the previous year.
Mining activities
While mining operations have yet to consistently achieve forecast production
levels, there have been some positive outcomes reported since 31 March 2011.
The archaeological site at Thakadu was excluded from the initial mining licence
granted. Permission to conduct mining activities in this area has now been
received from the Ministry of Minerals, Energy and Water Resources of the
Government of the Republic of Botswana.
In terms of copper produced in concentrate, production for the first and second
quarters of the financial year was 176% and 53% higher than the respective
quarters from last year.
Copper produced in concentrate continued to progressively increase during the
second quarter with total production of 3 486 tonnes for the six months ended 30
September 2011. During August 2011, the mine achieved a record production level
of 703 Mt recovered copper.
Higher production levels were achieved due to marked improvements in maintenance
strategies at the secondary and tertiary crushers, improved production at
Thakadu, higher availability of the mill and increasing recoveries as mining
moved from oxidic areas to more supergene rich areas at Mowana and Thakadu.
With copper prices falling from prices in excess of USD4.00 per lb at the time
of announcing the March 2011 results to approximately USD3.50 per lb in early
December 2011, the average weighted copper price achieved on sale of concentrate
has been approximately USD3.80 per lb compared with a budgeted figure averaging
approximately USD4.40 per lb. The combination of lower realised prices and lower
than expected production levels were primary contributors to the
underperformance of the operations compared to the Directors` original
projections. In addition, processing costs were higher than budgeted as a result
of higher than anticipated use of reagent chemicals to increase recoveries on
Thakadu oxide ore and ongoing maintenance costs on the secondary and tertiary
crushing circuit.
Continuing plant upgrades are in progress and are expected to be completed by
the year-end.
The mine is not yet performing at the expected levels, but we remain confident
that the projected production figures can still be met, despite uncertainties
disclosed in note 5 to the financial statements.
Financial statements and operations
The weakening of the Botswana Pula of approximately 10% against the US Dollar
during the period impacted the financial position negatively.
Additions to property, plant and equipment over the reporting period comprised
principally two sources: increased capital work in progress (arising from the
Mowana North drilling programme, completion of the wet tailings dam and further
plant expansion projects) as well as significant waste stripping activity at
Mowana mine. The impact of these on the statement of financial position at
period end was reduced by the weakening in the exchange rate.
Additional liquidity for the Group`s operations was provided through the
repayment of USD6 million of the loan facility extended to Ndola Lime Company
Limited.
ZCI continued to provide financing for mining activities of its subsidiary with
an additional USD4 million of the USD12.5 million loan facility drawn down
during the six-month period ended 30 September 2011, and an additional USD4.5
million drawn down subsequent to this period. The additional funds have been
used to finance a range of activities including growth projects, plant capital
expenditure, plant enhancements, working capital and additional stripping. The
benefits of this additional investment are expected to be evidenced by higher
production levels and improved efficiencies in coming periods.
Decreased stock pile inventory quantities on hand together with a decrease in
the price thereof, resulted in an overall decrease in inventory balances at 30
September 2011.
Pressure has been placed on cash balances over the period due to the demands of
expansion and plant projects, as well as increased mining activity and waste
stripping.
Trade payables for the period increased largely due to increased contractor
activity with respect to extended waste stripping at Mowana mine. Expansion
programmes at Mowana North also necessitated increased work on the part of
contractors with a flow on effect into trade payables.
Better pricing and higher grades achieved had a positive influence on revenue
for the six-month reporting period when compared to the prior period.
Corporate governance developments
Significant changes have taken place at a ZCI board level. Steven Georgala and
David Rodier did not seek re-election to the board of ZCI at the recent Annual
General Meeting but continue to be actively involved in Group`s operations. On
behalf of the Board of Directors I again thank them for their contributions to
the Company over many years of service.
With an effective date of 1 November 2011, Thomas Kamwendo resigned as Non-
executive Chairman and was appointed to the role of Chief Executive Officer of
ZCI. Mr Kamwendo has served for several years as Chairman of the Company and is
now tasked with leading the strategy of the Company to help drive value for
shareholders. On behalf of the Board of Directors I extend my congratulations to
Mr Kamwendo for his appointment and we look forward to supporting him in the
role.
With Mr Kamwendo vacating the seat of Chairman of the Company, I am pleased to
announce that effective 1 November 2011 I have accepted the honour of being
elected to the position of Non-executive Chairman of the Board of Directors.
ZCI also continues to make advancements in its long-term plan for the
incremental implementation of King III corporate governance principles. ZCI
recognises the benefits of the principles of King III and the long-term
sustainability it can help achieve within the Group.
In July 2011, ZCI provided notice of the termination of the Investment Advisory
and Management Agreement (the "IAMA") between ZCI and iCapital (Mauritius)
Limited. The termination of the IAMA will assist ZCI in achieving its strategic
objectives and ZCI and iCapital (Mauritius) Limited are in advanced negotiations
on all outstanding matters.
I am confident that the period to 31 March 2012 will be one in which the ongoing
investment of ZCI in the mining operations of the Group will continue to result
in production levels moving closer to achieving the intended level of steady
state copper production.
Edgar Hamuwele Bermuda
Chairman 23 December 2011
Company secretary
John Kleynhans
Registered office
Clarendon House, 2 Church Street, Hamilton,
Bermuda
Transfer secretaries
Computershare Investor Services (Pty) Limited,
70 Marshall Street, Johannesburg, 2001, South Africa
Sponsor
Bridge Capital Advisors (Pty) Limited, 27 Fricker Road, Illovo
Boulevard, Illovo, 2196, South Africa
Auditors
KPMG Inc, KPMG Crescent, 85 Empire Road, Parktown,
2193, Private Bag X9, Parkview, 2122, South Africa
Website: www.zci.lu
Date: 23/12/2011 09:00:01 Produced by the JSE SENS Department.
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