Final Results

Final Results

Armadale Capital Plc

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

2 June 2017

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

Final Results and Notice of AGM

Armadale, the AIM quoted investment company focused on natural resource projects in Africa, is pleased to announce its final results for the year ended 31 December 2016. The Company also announces that its Annual General Meeting (‘AGM’) will be held at 55 Gower Street, London, WC1E 6HQ on 26 June 2017 at 11.00 am. A notice of AGM, together with printed copies of the Company’s Annual Report for the year ended 31 December 2016 will be posted to shareholders today. Copies will also be available to view on the Company’s website: www.armadalecapitalplc.com.

STRATEGIC REPORT

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

FINANCIAL RESULTS

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

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

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

ACTIVELY MANAGED INVESTMENTS:

Mpokoto Gold Project, DRC (“MPOKOTO”)

The Company obtained its initial interest in Mpokoto through the acquisition of Netcom Global Inc in November 2013.

In September 2016, the Company entered into a binding Heads of Agreement (‘HOA’) with African Mining Services Pty Ltd (‘AMS’) to form a joint venture to develop and operate Mpokoto. The key items to this agreement are:

  • An exclusive due diligence period of up to 90-days, during which AMS has management input and is generally responsible for all project-related expenses.
  • An initial ‘earn-in’ phase (‘Phase 1’) pursuant to which AMS can earn a 25% interest in Kisenge, by providing funding and project-related services to the value of US$1.25m.
  • A second ‘earn-in’ phase (‘Phase 2’) to apply, if AMS wishes to proceed, and Armadale does not source third-party funding for Mpokoto, pursuant to which AMS could earn a further 60% interest in Kisenge (total aggregate interest 85%) by funding the project through to commercial production. The definitive feasibility study (DFS) estimated this cost at US$25m to include all associated expenditure and managing the conduct of activities to reach the production stage.
  • Phase 1 will focus on optimising the DFS, with a focus on reducing capital costs, accelerating the timeline to production and expanding the existing JORC resource.
  • Phase 2 will focus on the construction and bringing Mpokoto into commercial production.

AMS was later renamed Kisenge Mining Pty Ltd (KMP). In December 2016, KMP completed due diligence and elected to exercise its option to proceed with the formation of a joint venture. This allowed the Company to concentrate its efforts in the newly acquired Mahenge Liandu graphite project.

Since opting to proceed with Phase 1 of the acquisition as set out in the announcement of 5 December 2016, KMP has completed a gap analysis of the project data to determine the required steps to bring Mpokoto into production as soon as possible. In addition, KMP has reassessed the mine plan and capital cost estimates with a view to significantly reducing the capex and preliminary results have indicated that this may be possible. Given the challenging funding environment for projects in the current market climate, KMP is also evaluating a staged production profile to minimise upfront capital costs further. KMP has also conducted an Independent review of the Resource estimate of the deposit which confirmed the existing Resource statement produced by CSA.

Mahenge Liandu Graphite Project, Tanzania “MAHENGE LIANDU”

The Company acquired Mahenge Liandu in south-east Tanzania (‘Liandu Project’) in July 2016. This project provides the Company with opportunities in the graphite market that will capitalise on the strong outlook for graphite from the burgeoning battery and other markets.

The acquisition was attractive owing to the following:

  • Provided the Company with access to the highly prospective graphite market – global demand for commercial graphite is expected to double within the next eight years
  • Growth fuelled by developments in the energy storage industry – graphite is an essential component of the modern lithium-ion battery, making it a key material in smart phones, tablets, laptops and electric cars
  • Mahenge Liandu is located in an area of proven coarse flake, high grade graphite resources – ASX listed Kibaran Resources Ltd (ASX:KNL) and Black Rock Mining Limited (ASX:BKT) have both identified and are developing significant proven and valuable graphite projects immediately adjacent to Mahenge Liandu
  • Results from previous sampling highlighted high grade mineralisation with results from seven previous samples ranging from 12.8% - 24.0% Total Graphite Content (‘TGC’).
  • Exploration drilling completed in December 2015 by the vendor had results that underpinned the licence prospectivity: 10m at 6.54% TGC, 24m at 12.9% TGC and 5m at 21.5% TGC.
  • Mineralised trend about 1.6 km in strike length and up to 500m wide identified, which remains open at depth

Resources and Reserves – JORC resource statement

The Company commenced exploration work at Mahenge Liandu in July 2016 and drilling work began in September 2016. In December 2016, the Company announced an exciting graphite discovery with a maiden JORC compliant inferred mineral resource estimate of 40.9Mt @ 9.41% TGC. The results indicated:

  • The Mahenge Liandu discovery has outstanding thick interceptions of high-grade coarse flake graphite identified across the entire 2.5km mineralised strike area
  • Strike remains open on three aspects – length, width and depth highlighting significant potential upside to current resource

Laboratory test work conducted on graphite samples from Mahenge Liandu between January 2017 and April 2017 returned exceptional results on flake distribution, grade, purity and expandability. This is shown in tables 1 and 2 below:

Table 1- Flake size and grade distribution for Mahenge Liandu Graphite sample

         
Size (µm)   Weight (%)   TGC (%)
500   3.7   98.4
300   24.4   98.5
180   32.9   99.1
150   11.7   98.9
106   11.9   98.9
75   7.5   98.7
25   6.2   97.9
<25   1.7   88.4
   

The flake size distribution indicates 28.1% of Mahenge Liandu graphite in the jumbo and super jumbo categories and all size fractions above 25 microns returns +97% TGC with a weighted average TGC grade across all size fractions of 98.5% TGC.

Table 2- Graphite Purity and Expandability Results

             
Flake Size (µm)   Purity   Expansion Volume at 800 °C   Expansion Volume at 1000 °C
> 500 µm   99.93   440 cm³/g   480 cm³/g
> 300 µm   99.99   370 cm³/g   420 cm³/g
> 180 µm   99.98   300 cm³/g   380 cm³/g
> 106 µm   99.96   210 cm³/g   230 cm³/g
> 75 µm   99.94   165 cm³/g   170 cm³/g
< 75 µm   99.65       115 cm³/g
     

The achievements of 99.99% purity and expandability to 480 cm³/g show that the graphite from the Company’s Mahenge Liandu Project graphite should be suitable for a number of commercial applications including batteries and expandable graphite.

Exploration Licences

The Company holds following exploration tenements for Mahenge Liandu:

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

Exploration and Development Programme

During Q2 and Q3 2017, it is planned to infill drill the existing Inferred JORC Resource to upgrade the resource category to Indicated. In addition, some of the drilling will be used to extend the size of the deposit by drilling down dip of the existing areas of known mineralisation. Once completed, six diamond drill holes will be completed to obtain samples for metallurgical test work and to produce representative concentrate samples for potential customers.

A total of 2500 metres of RC drilling is planned, followed by a total of 300 metres of diamond drilling once RC drilling programme has been completed. Final diamond hole location will be determined using the results of the RC drilling.

After completing this programme, the Company will be in a position to both increase the size of the resource and move a substantial proportion of the resource into the Indicated Resource category. Further work programmes to conduct Reserve estimates and more a detailed metallurgical test work programme will be required later in 2017 in order to effectively progress the project.

PASSIVELY MANAGED INVESTMENTS:

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

During the year, the Company pursued its policy of disposing of MRI shares whenever an opportunity arose, but there was little demand for the shares and only some £16,500 was realised. By the end of the year, the shares had been suspended from trading on the Johannesburg Stock Exchange and MRI had become inactive. The directors have concluded that the shares have a nil market value and have accordingly provided full impairment for the remainder of the carrying value, resulting in a further impairment charge of £0.3 million.

Quoted portfolio

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

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

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

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

Key performance indicators

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

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

Outlook

Looking to the future, the positive early exploration results at Mahenge Liandu are very encouraging and the Directors consider that the outlook for the project, and hence for the Group is positive. Equally, we are pleased that the Mpokoto project continues to attract interest and investment from strong local partners.

Financial results

For the year ended 31 December 2016 the Group did not earn any revenues as its business related solely to the making of investments in non revenue producing resource projects and companies.

The Group made a loss after tax of £0.922 million (2015: £0.992 million) for the year ended 31 December 2016. The administrative expenses relate principally to fundraising and to the costs of operating a public company.

The year’s most significant event was the acquisition of the Mahenge Liandu graphite project, which was financed entirely by the issue of shares and loan notes. Other share issues during the year were in respect of loan note conversions, the settlement of creditors and to raise cash of £0.97 million. Since the year end, a further £0.651 million has been raised by a placement of shares.

As discussed above, trading in the shares of MRI has been suspended and the company has become inactive. In these circumstances the board has concluded that the market value of its holding is nil and a further impairment charge of some £0.3 million has been made. This is partially offset by gains on disposal and impairment releases in respect of other listed investments.

At 31 December 2016, the Group had total assets of £9.1million (2015: £5.8 million), cash of £0.116 million (2015: £0.161 million) and debt of £0.45 million, being the convertible loan notes issued during the year due in July 2017. Based on correspondence with the loan note holders, the Company expects to be able to extend 58.5% of the notes for a further period of 12 months on the same terms. The remaining notes are expected to be converted into Ordinary Shares under the terms of the governing deed subject to the condition that conversion does not cause the note holder’s shareholding to exceed 29.9%, which at present it is not expected to exceed. As further discussed in Note 2.2 to these Financial Statements, the Company currently has approximately £300,000 in cash which is sufficient for the next 10 months of operations in the ordinary course. Nevertheless, the Company has a proven ability to raise funds and is confident that it will continue as a going concern.

Emmanuel S Mahede

Director

31 May 2017

FINANCIAL STATEMENTS

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2016

             
    Note   2016   2015
        £   £
Other administrative expenses       (690,710)   (616,062)
Impairment of investments   13   (301,047)   (316,213)
Profit on disposal of investments   13   82,064   -
             
Operating loss       (909,693)   (932,275)
             
Finance costs       (11,982)   (59,237)
Loss before taxation   6   (921,675)   (991,512)
Taxation   9   -   -
Loss for the year from continuing operations attributable to the equity holders of the parent company       (921,675)   (991,512)
             
Loss after taxation       (921,675)   (991,512)
Other comprehensive income            
Items that may be reclassified to profit or loss:            
Exchange differences on translating foreign entities       1,016,566   93,278
Total comprehensive income/( loss) attributable to the equity holders of the parent company       94,891   (898,234)
             
Loss per share attributable to the equity holders of the parent company       Pence   Pence
Basic and fully diluted   10   (0.62)   (1.91)
     

The notes below form part of the financial statements.

Consolidated Statement of Financial Position

At 31 December 2016

             
    Note   2016   2015
        £   £
Assets

Non-current assets

           
Exploration and evaluation assets   11   8,778,645   4,923,190
Property, plant and equipment   12   16,437   23,694
Investments   13   6,705   56,605
        8,801,787   5,003,489
Current assets            
Investment   13   -   322,708
Trade and other receivables   14   160,279   317,230
Cash and cash equivalents       115,861   160,938
        276,140   800,876
             
Total assets       9,077,927   5,804,365
             
Equity and liabilities            
Equity            
Share capital   18   2,946,587   2,823,582
Share premium   20   19,009,592   16,585,413
Shares to be issued   20   286,000   286,000
Share option reserve   20   85,850   182,000
Loan note reserve   20   37,500   -
Foreign exchange reserve   20   1,109,834   93,278
Retained earnings   20   (15,342,406)   (14,550,731)
Total equity       8,132,957   5,419,542
             
Current liabilities            
Trade and other payables   15   494,733   339,486
Loan notes   16   450,237   45,337
        944,970   384,823
             
             
Total equity and liabilities       9,077,927   5,804,365
     

The notes below form part of the financial statements.

Approved by the Board and authorised for issue on 31 May 2017

Signed on behalf of the Board

ES Mahede

       

N Johansen

Director

Director

Company Statement of Financial Position

At 31 December 2016

             
    Note   2016   2015
        £   £
Assets

Non-current assets

           
Investments   13   4,451,914   2,901,814
Other receivables   14   3,358,091   2,159,250
        7,810,005   5,061,064
             
Current assets            
Investment   13   -   322,708
Trade and other receivables   14   6,856   153,495
Cash and cash equivalents       100,879   125,811
        107,735   602,014
             
Total assets       7,917,740   5,663,078
             
Equity and liabilities            
Equity            
Share capital   18   2,946,587   2,823,582
Share premium   20   19,009,592   16,585,413
Shares to be issued   20   286,000   286,000
Share option reserve   20   85,850   182,000
Loan note reserve   20   37,500   -
Retained earnings   20   (14,984,733)   (14,345,365)
Total equity       7,380,796   5,531,630
             
Current liabilities            
Trade and other payables   15   86,707   86,111
Loan notes   16   450,237   45,337
        536,944   131,448
             
             
Total equity and liabilities       7,917,740   5,663,078
     

The Company has taken advantage of the exemption conferred by section 408 of Companies Act 2006 from presenting its own statement of comprehensive income. A loss after taxation of £769,368 (2015: £777,170) has been included in the financial statements of the parent company.

The notes below form part of the financial statements.

Approved by the Board and authorised for issue on 31 May 2017

Signed on behalf of the Board

ES Mahede

       

N Johansen

       

Director

Director Company

Registration No. 5541602

Consolidated Statement of Changes in Equity

For the year ended 31 December 2016

                                 
   

Share
Capital

 

Share
Premium

 

Shares
to be
issued

 

Share
Option
Reserve

 

 

Loan
Note
Reserve

 

 

Foreign
Exchange
Reserve

 

Retained
Earnings

  Total
    £   £   £   £   £   £   £   £
At 1 January 2015   2,562,914   14,807,570   286,000   1,610,361   -   -   (14,987,580)   4,279,265
Loss for the year   -   -   -   -   -   -   (991,512)   (991,512)
Other comprehensive income   -   -   -   -   -   93,278   -   93,278
Total comprehensive loss for the year                       93,278   (991,512)   (898,234)
Issue of shares   260,668   1,911,395   -   -   -   -   -   2,172,063
Expenses of issue   -   (133,552)   -   -   -   -   -   (133,552)
Transfer on expiry of options   -   -   -   (1,428,361)   -   -   1,428,361   -
Total other movements   260,668   1,777,843   -   (1,428,361)   -   -   1,428,361   2,038,511
                                 
At 31 December 2015   2,823,582   16,585,413   286,000   182,000   -   93,278   (14,550,731)   5,419,542
Loss for the year   -   -   -   -   -   -   (921,675)   (921,675)
Other comprehensive income   -   -   -   -   -   1,016,566   -   1,016,566
Total comprehensive income for the year   -   -   -   -   -   1,016,566   (921,675)   94,891
Issue of shares   123,005   2,540,790   -   -   -   -   -   2,663,795
Expenses of issue   -   (116,611)   -   -   -   -   -   (116,611)
Share based payment charges   -   -   -   33,850   -   -   -   33,850
Transfer on expiry of options   -   -   -   (130,000)   -   -   130,000   -
Equity element of convertible loan notes issued   -   -   -   -   37,500   -   -   37,500
Total other movements   123,005   2,424,179   -   (96,150)   37,500   -   130,000   2,618,534
                                 
At 31 December 2016   2,946,587   19,009,592   286,000   85,850   37,500   1,109,844   (15,342,406)   8,132,957
               

The notes below form part of the financial statements.

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

Reserve

   

Description and purpose

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

Company Statement of Changes in Equity

For the year ended 31 December 2016

                             
   

Share
Capital

 

Share
Premium

 

Shares to
be issued

 

Share
Option
Reserve

 

Loan
Note
Reserve

 

Retained
Earnings

  Total
    £   £   £   £       £   £
At 1 January 2015   2,562,914   14,807,570   286,000   1,610,361   -   (14,996,556)   4,270,289
Loss for the year   -   -   -   -   -   (777,170)   (777,170)
Total comprehensive loss for the year   -   -   -   -   -   (777,170)   (777,170)
Issue of shares   260,668   1,911,395   -   -   -   -   2,172,063
Expenses of issue   -   (133,552)   -   -   -   -   (133,552)
Transfer on expiry of options   -   -   -   (1,428,361)   -   1,428,361   -
Total other movements   260,668   1,777,843   -   (1,428,361)   -   1,428,361   2,038,511
                             
At 31 December 2015   2,823,582   16,585,413   286,000   182,000   -   (14,345,365)   5,531,630
Loss for the year   -   -   -   -   -   (769,368)   (769,368)
Total comprehensive loss for the year   -   -   -   -   -   (769,368)   (769,368)
Issue of shares   123,005   2,540,790   -   -   -   -   2,663,795
Expenses of issue   -   (116,611)   -   -   -   -   (116,611)
Share based payment charges   -   -   -   33,850   -   -   33,850
Transfer on expiry of options   -   -   -   (130,000)   -   130,000   -
Equity element of convertible loan notes issued   -   -   -   -   37,500   -   37,500
Total other movements   123,005   2,424,179   -   (96,150)   37,500   130,000   2,618,534
                             
At 31 December 2016   2,946,587   19,009,592   286,000   85,850   37,500   (14,984,733)   7,380,796
             

The notes below form part of the financial statements.

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

Reserve

   

Description and purpose

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

Consolidated Statement of Cash Flows

For the year ended 31 December 2016

         
    2016   2015
    £   £
         
Cash flows from operating activities        
Loss before taxation   (921,675)   (991,512)
Adjustment for:        
Depreciation   11,929   12,545
Unrealised foreign exchange differences   -   48,549
Loan note accretion   5,471   34,490
(Profit)/loss on sale of investments   (82,064)   24,335
Impairment of investment   301,047   316,213
Interest income   -   (49)
Share based payment charge   33,850   -
Shares issued in settlement of liabilities   327,050   165,250
Accrued interest payable   6,511   1,714
    (317,881)   (364,130)
Changes in working capital

Receivables

  21,951   415
Payables   155,247   60,412
Net cash generated from/used in operating activities   (140,683)   (303,303)
         
Cash flows from investing activities        
Expenditure on exploration and evaluation assets   (1,046,408)   (1,158,019)
         
Purchase of listed investments   -   (7,986)
Sale of listed investments   153,625   7,860
Interest received   -   49
Net cash used in investing activities   (892,783)   (1,158,096)
         
Cash flows from financing activities        
Proceeds from share placement   1,105,000   1,502,994
Issue costs   (116,611)   (133,552)
Proceeds from issue of loan notes   -   120,000
Repayment of loan notes   -   (80,619)
Net cash from financing activities   988,389   1,408,823
         
Net decrease in cash and cash equivalents   (45,077)   (76,911)
Cash and cash equivalents at 1 January 2016   160,938   237,849
Cash and cash equivalents at 31 December 2016   115,861   160,938
   

The notes below form part of the financial statements.

Company Statement of Cash Flows

For the year ended 31 December 2016

         
    2016   2015
    £   £
         
Cash flows from operating activities        
Loss before taxation   (769,368)   (777,170)
Adjustment for:        
Interest income   -   (49)
Share based payment charge   33,850   -
Loan note accretion   5,471   34,490
(Profit)/loss on sale of investments   (82,064)   24,335
Impairment of investment   301,047   316,213
Shares issued in settlement of liabilities   327,050   165,250
Accrued interest payable   6,511   1,714
    (177,503)   (235,217)
Changes in working capital        
Receivables   38,300   120,194
Payables   596   13,777
         
Net cash used in operating activities   138,607   (102,246)
         
Cash flows from investing activities        
Acquisition of investments and advances to subsidiaries   (1,028,339)   (1,415,353)
Purchase of listed investments   -   (7,986)
Sale of listed investments   153,625   7,860
Interest received   -   49
Net cash used in investing activities   (874,714)   (1,415,430)
Cash flows from financing activities        
Proceeds from share placement   1,105,000   1,502,994
Issue costs   (116,611)   (133,552)
Proceeds from issue of loan notes   -   120,000
Repayment of loan notes   -   (80,619)
Net cash from financing activities   988,389   1,408,823
         
         
Net decrease in cash and cash equivalents   (24,932)   (107,930)
Cash and cash equivalents at 1 January 2016   125,811   233,741
Cash and cash equivalents at 31 December 2016   100,879   125,811
   

The notes below form part of the financial statements.

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2016

1. Incorporation and principal activities

Country of incorporation

The Company was incorporated in the United Kingdom as Watermark Global Plc, a Public Limited Company, on 19 August 2005. The name of the Company was changed to Armadale Capital Plc on 2 July 2013. Its registered office is 55 Gower Street, London WC1E 6HQ. The Company is domiciled in the UK.

2. Accounting policies

2.1. Statement of compliance

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

The principal accounting policies are set out below.

2.2. Going Concern

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

The Group had net current liabilities at 31 December 2016 of £668,830 including £450,000 of convertible loan notes due July 2017. Based on correspondence with the loan note holders, the Company expects to be able to extend 58.5% of the notes for a further period of 12 months on the same terms. The remaining notes are expected to be converted into Ordinary Shares under the terms of the governing deed subject to the condition that conversion does not cause the note holder’s shareholding to exceed 29.9%, which at present it is not expected to exceed.

Since the end of the year, the Company has continued its appraisal operations at its Mahenge Liandu graphite project. In order to fund this exploration and evaluation expenditure and to cover the net current asset deficit, the Company raised £650,750 through the issue of 26,030,000 Ordinary Shares at 2.5p per share.

At 23 May 2017, the Company had cash of approximately £300,000. The directors have prepared a cashflow forecast for the next twelve months which shows that the cash in hand is sufficient to meet current commitments in respect of exploration expenditure and corporate overheads for a period of approximately 10 months.

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

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

2.3. Basis of consolidation

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

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

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

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

2.4. Acquisitions of exploration licences

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

2.5. Foreign currencies

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

Transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in profit or loss in the period in which they arise.

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

2.6. Cash and cash equivalents

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

2.7. Share-based payments

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

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

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

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

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

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

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

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

2.8. Taxation

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

Current Tax

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

Deferred tax

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

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

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

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

Current and deferred tax for the period

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

2.9. Exploration and evaluation costs

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

2.10. Investments

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

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

2.11. Joint Arrangements

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

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

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

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

2.12. Plant, equipment and vehicles

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

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

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

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

2.13. Impairment of assets

At the end of each reporting period, the Directors review the carrying amounts of assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

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

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the statement of comprehensive income, unless the relevant asset is carried at a revalued amount, whereby impairment is first allocated to the revaluation reserve, to the extent that it has been previously revalued, with any excess taken to the statement of comprehensive income.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in other comprehensive income, unless the relevant asset is carried at a re-valued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

2.14. Financial assets

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

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

2.15. Financial liabilities and equity instruments issued by the Group

Classification as debt or equity

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

Equity instruments

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

Financial assets

Financial assets comprise debtors and other investments.

Financial liabilities

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

Financial liabilities represent trade payables and borrowings.

Convertible loan notes

The loan notes may be converted into the Company’s shares and are therefore classified as a compound financial instrument in accordance with the requirements of IAS 32. The debt element is calculated as the present value of future cash flows assuming the loan notes are redeemed at the redemption date, discounted at the market rate for an equivalent debt instrument with no option to convert to equity. The difference between the cash payable on maturity and the present value of the debt element is recognised in equity. The discount is charged over the life of the loan notes to the statement of comprehensive income and included within finance expenses.

2.16. Standards issued but not in force

New interpretations and revised standards effective for the year ended 31 December 2016

There were no new standards issued in respect of the year ended 31 December 2016 that were relevant for adoption by the Group.

Standards and interpretations in issue but not yet effective

A number of new standards and amendments to existing standards have been published which are mandatory, but are not effective for the year ended 31 December 2016:

  • IFRS 9 Financial instruments (effective 1 Jan 18);
  • IFRS 15 Revenue from contracts with customers (effective 1 Jan 18);
  • IFRS 16 Leases (effective 1 Jan 2019);
  • IAS 12 (amended) Recognition of deferred tax asset for unrealised losses (effective 1 Jan 17);
  • IAS 7 Disclosure initiative (effective 1 Jan 17); and
  • IFRS 2 (amended) Classification and measurement of share based payment transactions (effective 1 Jan 18).

The Group considers that the only Standard that may have any impact is IFRS 9. The new Standard will replace existing accounting Standards in relation to Financial Instruments. It is applicable to financial assets and liabilities and will introduce changes to existing accounting concerning classification, measurement and impairment (introducing an expected loss method). The Group is currently assessing the impact of IFRS 9.

The Group is not revenue generating thus there is no impact of IFRS 15 as there are no revenue contracts in place at this time.

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

3. Significant judgements and sources of estimation uncertainty

In preparing the annual financial statements of the Group, management is required to make estimates and assumptions that affect the amounts represented in the annual financial statements and related disclosures. Use of available information and the application of judgement are inherent in the formation of estimates. Actual results in the future could differ from these estimates which may be material to the annual financial statements. The directors consider that the only significant source of estimation uncertainty relates to the number of shares to be issued in respect of milestone achievements on the Mpokoto project (note 12).

The principal significant judgements are:

Going concern

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

Investment and debtors

At 31 December 2016 the Company held approximately 26% of the issued share capital of MRI, a South African listed company. In the judgement of the Directors, the Company does not have significant influence over MRI as it does not have any representation on the Board, nor does it have the power to appoint anyone to the Board. MRI is therefore held as an investment.

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

Exploration and evaluation assets

These represent the accumulated costs, including capitalised finance costs, to the Group of its mineral projects. Their commercial realisation is dependent upon the successful economic development of the gold and graphite deposits and should the development not be achieved, an impairment of these assets would arise. As at the year end the directors were of the opinion that there were no indicators of impairment.

In addition, at the Company level:

Impairment of investment in subsidiaries

Investments in subsidiaries represent the accumulated costs that the parent Company has invested in its subsidiaries to fund the mineral projects. The recovery of these investments is dependent upon the successful economic development of the gold and graphite deposits and should the development not be achieved, an impairment of these investments would arise. At the year end the directors were of the opinion that there were no indicators of impairment.

4. Financial Risk Management Policy

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

Financial risk factors

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

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

Liquidity Risk

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

Currency Risk

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

Capital Risk Management

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

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

Commodity risk

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

Fair value estimation

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

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

5. Segmental Information

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

In terms of assets and liabilities, the only material items are the exploration and evaluation asset relating to the Group’s projects in the Democratic Republic of Congo (“DRC”) and Tanzania. The analysis of this asset is as follows

         
    2016   2015
    £   £
DRC   5,820,128   4,923,190
Tanzania   1,998,838   -
    7,818,966   4,923,190
   

6. Loss before tax

This is stated after charging:

         
    2016   2015
    £   £
Directors’ emoluments - fees   150,000   99,087
Directors’ emoluments - compensation for loss of office   123,000   -
Depreciation   11,929   12,545
Auditors’ remuneration:        
Fees payable to the Company’s auditors for the audit of the Group and Company financial statements   30,000   30,000
Fees payable to the Company’s auditors for taxation compliance services   2,450   5,197
Gain on disposal of investments   (82,064)   -
Share based payment charge   33,850   -
Impairment of investments   301,047   316,213
   

7. Employees

         
    2016   2015
         
The average monthly number of persons (including Directors)

employed by the Group during the year was:

       
       
         
Group – management   3   3
Group – staff   9   12
    12   15
Company-management   3   3
         
Employment costs   £   £
Group        
Wages and salaries (including directors)   301,224   297,915
Payments in lieu of notice   123,000   -
Social security costs   22,511   11,914
    446,735   309,829
         
Company        
Wages and salaries (including directors)   150,000   99,087
Payments in lieu of notice   123,000   -
    273,000   99,087
   

8. Remuneration of Directors of the Company

         
Aggregate emoluments   273,000   99,087
         
Emoluments of the Highest Paid Director   96,000   49,999
   

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

Of the total employment costs, a value of £273,735 has been capitalised within E&E asset additions in the year ended 31 December 2016 (£210,742) for the year ended 31 December 2015).

9. Taxation

         
    2016   2015
    £   £
Continuing operations        
Current Tax        
Current tax on loss for the year   -   -
         
    2016   2015
    £   £
Continuing operations        
Factors affecting the tax charge for the year        
Loss on ordinary activities before taxation   (921,675)   (991,512)

Loss on ordinary activities before taxation multiplied
by standard rate of UK corporation tax of 20% (2015:
20.25%)

   (184,335)   (200,781)
Effects of:        
Losses carried forward not recognised as a deferred tax asset   177,565   200,781
Expenses disallowed   6,770   -
UK Corporation tax   -   -
   

A deferred tax asset of approximately £1,334,000 (2015: £1,179,000) has not been recognised owing to the uncertainty over the timing of future recoverability.

10. Loss per share

The calculation of loss per share is based on a loss of £921,675 (2015, £991,512), and on 148,922,833 ordinary shares (2015, 51,875,616 ), being the weighted average number of shares in issue during the year.

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

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

11. Exploration and evaluation assets

         
Group   2016   2015
    £   £
Cost        
At 1 January   4,923,190   3,515,769
Exchange movements   959,679   42,817
Acquisition of licence in Tanzania (note 13)   1,607,736   -
Additions   1,288,040   1,364,604
At 31 December   8,778,645   4,923,190
   

Included in additions are capitalised finance costs of £25,542 (2015, £131,958).

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

12. Property, plant and equipment

                 
Group                
    Plant   Equipment   Vehicles   Total
Cost   £   £   £   £
At 1 January 2015   11,902   9,983   15,300   37,185
Exchange Movements   663   556   853   2,072
At 31 December 2015   12,565   10,539   16,153   39,257
Exchange movements   2,477   2,078   3,184   7,739
At 31 December 2016   15,042   12,617   19,337   46,996
                 
Depreciation                
At 1 January 2015   71   1,157   1,630   2,858
Exchange Movements   4   65   91   160
Charge for the year   298   4,796   7,451   12,545
At 31 December 2015   373   6,018   9,172   15,563
Exchange Movements   73   1,186   1,808   3,067
Charge for the year   -   5,387   6,542   11,929
At December 2016   446   12,591   17,522   30,559
                 
Net book value                
At 31 December 2016   14,596   26   1,815   16,437
         
At 31 December 2015   12,192   4,521   6,981   23,694
 

13. Investments

 
Non-current asset investments - Group    
   

Listed
investments
Cost   £
At 1 January 2015   76,619
Additions   7,986
At 31 December 2015   84,605
Disposals   (77,900)
At 31 December 2016   6,705
     
Impairment    
At 1 January 2015   46,500
Impairment (release)   (18,500)
At 31 December 2015   28,000
Impairment (release)   (28,000)
At 31 December 2016   -
     
Net book value  
At 31 December 2016   6,705
   
At 31 December 2015   56,605
 

Non-current asset investments – Company

In addition to the above investments, included within non-current asset investments in the Company’s statement of financial position, is £4,445,209 (2015: £2,845,209) in relation to investments in its subsidiaries. Additions in the year were £1,600,000 (2015: £nil). There were no disposals or impairment charges in the current or prior year.

         
    2016   2015
Current asset investments – Group and Company   £   £
         
         
At 1 January 2016   322,708   689,616
Disposals   (21,661)   (32,195)
Impairment charge for year   (301,047)   (334,713)
Valuation at 31 December 2016   -   322,708
   

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

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

The subsidiary companies are:

             
Name and nature of business   Registered Office  

Class of
shares

 

%
held

Netcom Global Inc.

(intermediate holding company)

 

555 Hunkins Waterfront

Plaza, Charleston, Nevis

  Ordinary  

100

Kisenge Limited

(intermediate holding company)

 

171 Main Street, Road Town,

British Virgin Islands

  Ordinary  

100

Cluff Mining Congo, SARL*

(mining project operator)

  34 Avenue de la Liberte,

Lubumbashi

Democratic Republic of Congo

  Ordinary   100
Mines D’Or de Kisenge, SARL*

(mining licence holder)

  34 Avenue de la Liberte,

Lubumbashi,

Democratic Republic of Congo

  Ordinary   80
Graphite Advancements Pty Ltd  

3 Queens Grove, Mount Claremont,

Western Australia 40010

  Ordinary   100
Graphite Advancements (Tanzania)

Limited†

  PO Box 105589, Dar es Salaam,

Tanzania

  Ordinary   100
Water Utilities Limited

(in process of dissolution)

  171 Main Street, Road Town,

British Virgin Islands

  Ordinary   100
     

* Held through Kisenge Limited

† Held through Graphite Advancements Pty Ltd

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

In July 2016, the Company completed the acquisition of 100% of Graphite Advancements Pty Ltd (“GA”) which through its subsidiary, Graphite Advancements (Tanzania) Limited, holds the exploration rights to the Mahenge Liandu graphite project in Tanzania. Consideration for the acquisition was £1,600,000, satisfied by the issue of 57.5 million ordinary shares of 0.1p in the company and of £450,000 unsecured loan notes. As disclosed in the accounting policies the acquisition of GA was accounted for as an asset acquisition rather than a business combination and the value of the consideration paid was recognised by the Group as additions to exploration and evaluation assets in note 11.

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

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

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

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

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

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

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

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

14. Trade and other receivables

         
Group   2016   2015
    £   £
         
Unpaid proceeds of share placing   -   135,000
Other debtors and prepayments   160,279   182,230
Total current receivables   160,279   317,230
         
Company        
Amounts owed by group undertakings   3,358,091   2,159,250
Total non-current receivables   3,358,091   2,159,250
         
Unpaid proceeds of share placing   -   135,000
Other receivables   6,856   18,495
Total current receivables   6,856   153,495
   

The company is also owed a debt of £998,000 secured on shares in MRI. In the opinion of the directors, the ability of the debtor to repay the debt is seriously in doubt and accordingly the amount has been provided against in full.

15. Trade and other payables

         
Group   2016   2015
    £   £
Trade payables   144,366   178,599
Other creditors and accruals   350,367   160,887
    494,733   339,486
Company        
         
Trade payables   27,795   30,361
Other creditors and accruals   58,912   55,750
    86,707   86,111
   

All trade and other payables are due within three months.

16. Loan notes

             
Group and Company   2016   2016   2015
    10% Notes   12% Notes   12% Notes
    £   £   £
Balance 1 January   -   45,337   200,000
Issued   450,000   -   -
Transfer to loan note reserve   (37,500)   -   -
Accrued interest   20,096   906   5,530
Accretion of liability   17,641   -   -
Repaid   -   -   (160,193)
Converted   -   (46,243)   -
             
Balance 31 December   450,237   -   45,337

The 10% Loan Notes were issued on 11 July 2016 as part of the consideration for the acquisition of Graphite Advancements Pty Ltd (see note 13). The Loan Notes are unsecured, pay interest at 10% per annum, and are convertible into Ordinary Shares at 2p per Ordinary Share, together with any interest owing. The Loan Notes convert 12 months from issue, or earlier at the option of the Company, provided such conversion does not result in the holders owning more than 29.9% of the issue share capital of the Company. The liability component of the loan notes was valued in accordance with the accounting policy set out in note 1 using an interest rate of 20%.

The 12% loan notes were issued on 8 June 2015 to fund the repayment of the convertible loan notes (see note 17). The notes accrued interest at 12 per cent per annum and were repayable six months from the date of issue. The remaining notes together with accrued interest were repaid in full on 29 February 2016 by conversion into Ordinary Shares in the Company (see note 18).

17. Convertible loan notes (non-current)

         
    2016   2015
Group and Company   £   £
At 1 January   -   216,570
Issued in year   -   -
Converted   -   (208,626)
Transfer from /(to) derivative liability   -   41,416
Accretion on loan notes   -   111,259
Repaid   -   (160,619)
    -   -
   

18. Share capital

             
   

Ordinary Shares
of 0.01p/0.1p each*

 

Deferred Shares
of 0.14p each

 

Deferred Shares
of 1.4p each

    Number   £   Number   £   Number   £
                         
At 1 January 2015   4,189,901,168   418,991   1,531,374,350   2,143,923   -   -
Issue of shares   2,149,178,829   214,918   -   -   -   -
Consolidation and reorganisation   (6,296,819,464)   (591,648)   -   -   42,260,533   591,648
Issue of shares   45,750,000   45,750,000   -   -   -   -
At 31 December 2015   88,010,533   88,011   1,531,374,350   2,143,923   42,260,533   591,648
Issue of shares                        
For cash   45,000,000   45,000   -   -   -   -
In part consideration of acquisition of subsidiary   57,500,000   57,500   -   -   -   -
On conversion of loan notes   1,541,434   1,541   -   -   -   -
To settle liabilities   18,964,343   18,964   -   -   -   -
At 31 December 2016   211,016,310   211,016   1,531,374,350   2,143,923   42,260,533   591,648
           

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

19. Share based payment arrangements

3,000,000 options over Ordinary Shares in the Company were granted during the year (2015, nil).

A summary of outstanding options is as follows:

                             
   

Exercise
price

  

Held at 1
January
2015

   Expired  

Held at 1
January
2016

   Granted   Expired  

Held at 31
December
2016
Directors                            
PA Marks                            
Granted 01.10.13   15p   333,333   -   333,333   -   (333,333)   -
Granted 19.11.14   15p   333,333   -   333,333   -   (333,333)   -
JLG Lewis                            
Granted 01.10.13   15p   333,333   -   333,333   -   (333,333)   -
Granted 19.11.14   15p   666,667   -   666,667   -   (666,667)   -
W Frewen                            
Granted 21.07.16   2p   -   -   -   1,000,000   -   1,000,000
Granted 21.07.16   4p   -   -   -   1,000,000       1,000,000
ES Mahede                            
Granted 10.08.16   2p   -   -   -   250,000   -   250,000
Granted 10.08.16   4p   -   -   -   250,000   -   250,000
N Johansen                            
Granted 16.10.16   2p   -   -   -   250,000   -   250,000
Granted 16.10.16   4p   -   -   -   250,000   -   250,000
Consultants                            
Granted 11.02.08   100.5p   6,667   (6,667)   -   -   -   -
Granted 01.07.09   30p   13,333   (13,333)   -   -   -   -
Granted 01.10.13   15p   266,667   -   266,667   -   -   266,667
Granted 19.11.14   15p   400,000   -   400,000   -   -   400,000
        *2,353,333   (20,000)   2,333,333   3,000,000   1,166,166   3,666,667*
             

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

* representing 1.73% of the issued share capital of the company

All of the outstanding options held at year end were exercisable at a weighted average exercise price of 5p (2016:15p).

The following information is relevant in the determination of the fair value of the options granted during the year:

The inputs to the Black-Scholes model were as follows:

     
    2016
Share price   2p to 3.12p
Exercise price   2p to 5p
Expected volatility   71%
Risk free rate of interest   1%
Expected dividend yield   0%
Expected life   4 years
 

Expected volatility was determined by reference to the historical volatility of similar listed entities.

20. Reserves

A description of the nature of each Reserve and a summary of movements are shown in the Statements of Changes in Equity on pages 25 and 26.

21. Related party transactions

During the year payments of £30,000 (2015: £40,000) and £nil (2015: £40,000) were made to Henslow Pty Ltd and Halcyon Corporate Pty Limited respectively for consultancy services. The services provided include fundraising and corporate services, as well as the provision of additional time by Justin Lewis. Justin Lewis is a director of Henslow Pty Ltd and Halcyon Corporate Pty Limited, There were no amounts outstanding in respect of these transactions at 31 December 2016 (2015, nil).

In respect of the Company, amounts due from subsidiary undertakings were £3,358,091 (2015 - £2,159,250), the movement being amounts lent to the subsidiaries.

22. Ultimate controlling party

There was no ultimate controlling party during the year.

23. Subsequent events

On 18 January 2017, the Company placed 26,030,000 Ordinary Shares of 0.1p at a price of 2.5p to raise £650,750 before expenses. On the same date, the company issued 1,250,000 ordinary shares to a service provider.

**ENDS**

For further information please visit www.armadalecapitalplc.com or contact:

Enquiries:  
Armadale Capital Plc

Nick Johansen

+44 20 7236 1177

Nomad and broker: finnCap Ltd

Christopher Raggett / Simon Hicks

+44 20 7220 0500
Joint Broker: Beaufort Securities Limited

Jon Belliss

+44 20 7382 8300
Press Relations: St Brides Partners Ltd

Susie Geliher / Charlotte Page

+44 20 7236 1177

Notes

Armadale Capital Plc is focused on investing in and developing a portfolio of investments, targeting the natural resources and/or infrastructure sectors in Africa. The Company, led by a team with operational experience and a strong track record in Africa, has a strategy of identifying high growth businesses where it can take an active role in their advancement.

The Company owns the Mahenge Liandu graphite project in south-east Tanzania, which is now its main focus. The Project is located in a highly prospective region with a high-grade JORC compliant inferred mineral resource estimate of 40.9Mt @ 9.41% TGC. At least 32Mt of this resource has an average grade of 10.47% TGC, one of the largest high-grade resources in Tanzania, and work to date has demonstrated Mahenge Liandu’s potential as a commercially viable deposit with significant tonnage, high-grade coarse flake and near surface mineralisation (implying a low strip ratio) contained within one contiguous ore body.

Other assets Armadale has an interest in include the Mpokoto Gold project in the Democratic Republic of Congo and a portfolio of quoted investments.

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