Half Year Accounts

RNS Number : 8184H

Berkeley Energia Limited

15 March 2018

 

BERKELEY ENERGIA LIMITED

Interim Financial Report for the Half Year Ended
31 December 2017

Informe financiero provisional correspondiente al semestre terminado el 31 de diciembre de 2017

abn 40 052 468 569

CORPORATE DIRECTORY | DIRECTORIO CORPORATIVO

Directors Mr Ian Middlemas                   Chairman Mr Paul Atherley                      Managing Director and CEO Mr Nigel Jones                        Non-Executive Director Mr Adam Parker                      Non-Executive Director Mr Deepankar Panigrahi      Non-Executive Director Mr Robert Behets                   Non-Executive Director   Company Secretary Mr Dylan Browne Spanish Office Berkeley Minera Espana, S.A. Carretera SA-322, Km 30 37495 Retortillo Salamanca Spain Telephone:     [phone] Main Office Unit 1B, Princes House 38 Jermyn Street London SW1Y 6DN United Kingdom Telephone: [phone] Registered Office Level 9, BGC Centre 28 The Esplanade Perth WA 6000 Australia Telephone:           [phone] Facsimile:             [phone] Website www.berkeleyenergia.com Email [e-mail] Auditor Spain Ernst & Young Espana Australia Ernst and Young Australia - Perth

Solicitors Spain Herbert Smith Freehills Spain LLP Uría Menéndez Abogados, S.L.P Australia DLA Piper Australia Bankers Spain Santander Bank Australia Australia and New Zealand Banking Group Ltd Share Registry United Kingdom Computershare Investor Services PLC The Pavilions, Bridgewater Road Bristol BS99 6ZZ Telephone:     [phone] Australia Computershare Investor Services Pty Ltd Level 11, 172 St Georges Terrace Perth  WA  6000 Telephone:         [phone] Facsimile:           [phone]   Stock Exchange Listing United Kingdom London Stock Exchange (AIM Code: BKY) Australia Australian Securities Exchange (ASX Code: BKY) Nominated Advisor and Broker WH Ireland Limited Telephone:          [phone]

CONTENTS HTMLPIPESYMBOL CONTENIDO
Directors' Report
Directors' Declaration
Consolidated Statement of Profit or Loss and Other Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
The following sections are available in the full version of the Interim Financial Report on our website at www.berkeleyenergia.com
Condensed Notes to the Financial Statements
Auditor's Independence Declaration
Auditor's Review Report

The Board of Directors of Berkeley Energia Limited present their report on the consolidated entity of Berkeley Energia Limited ('the Company' or 'Berkeley') and the entities it controlled during the half year ended 31 December 2017 ('Consolidated Entity' or 'Group').

DIRECTORS

The names of the Directors of Berkeley in office during the half year and until the date of this report are:

Mr Ian Middlemas                               Chairman      

Mr Paul Atherley                                   Managing Director and CEO

Mr Nigel Jones                                    Non-Executive Director

Mr Adam Parker                                   Non-Executive Director

Mr Deepankar Panigrahi                   Non-Executive Director (appointed 30 November 2017)
Mr Robert Behets                                Non-Executive Director

Unless otherwise disclosed, Directors were in office from the beginning of the half year until the date of this report.

REVIEW OF OPERATIONS AND ACTIVITIES

Operations

Berkeley is a high impact, clean energy company focused on bringing its wholly owned Salamanca mine into production.

This world class uranium project is being developed in an historic mining area about three hours west of Madrid, Spain. Final detailed project reviews are underway as the Company counts down to the commencement of construction at the Salamanca mine.

At the same time, production cuts are being announced at some of the world's largest uranium mines, which are likely to result in a 12% reduction in primary mine production this year.

The Salamanca mine, the only major uranium mine to be in construction in the world this year, is scheduled to reach production in 2019 as the market enters the long awaited supply/demand deficit that industry experts have called both fundamental and unavoidable.

The project continues to receive strong support among key stakeholders in Spain, reflecting the growing awareness of the benefits the investment will bring to a community that is experiencing some of the highest levels of unemployment in the European Union.

Highlights for and subsequent to the half year include:

·        Berkeley Energia completes strategic investment of up to US$120m with the Oman sovereign wealth fund:

o  Shareholders overwhelmingly voted to approve the strategic investment and the Company received the initial US$65 million tranche of funding in November 2017 which funds the capital costs for production;

o  Mr Deepankar Panigrahi, Investment Manager in the Private Equity division of the fund has joined the Board as a Non-Executive Director.

·      Construction preparation continues:

o  Following the receipt of funding, the Company is filling key management positions and finalising capital and operating costs;

o  As part of its commitment to develop the project in partnership with Spanish engineering excellence, Sanchez y Lago, one of Spain's major construction companies and contract mining firms has been selected as the preferred mining contractor.

·      Strong support from key stakeholders:

o  AENOR, the Spanish Association for Standardisation and Certification, recently re-awarded the Company certificates in Sustainable Mining and Environmental Excellence;

o  As part of its commitment to reduce unemployment in the region, the majority of new staff required for the first phase of construction activity will be recruited from the local villages of Retortillo and Villavieja.

·      Uranium market:

o  Cameco's recently announced suspension of operations at its low cost McArthur River mine, along with cuts announced by Areva and Kazatomprom, is expected to remove 17 million pounds U₃O₈ from the market this year (12 million pounds attributable to Cameco alone), representing 12% of primary mine supply;

o  The Company has 2.75 million pounds of U₃O₈ under contract for the first six years, with a further 1.25 million pounds of optional volume, at an average price above US$42, compared with a spot price of US$21 per pound;

o  The Company will continue to progressively build its offtake book and has granted the Oman sovereign wealth fund the right to match any future long term offtake transactions.

·       Exploration:

o  Exploration focused on identifying additional targets with similar characteristics to Zona 7 continued during the period;

o  Over 2,200 samples were collected during the first phase of the geochemical sampling programme and twelve potential uranium targets have been identified using a combination of Ionic Leach™ analysis and other methods.

Berkeley Energia completed strategic investment of up to US$120m with Oman sovereign wealth fund

During the half year, shareholders overwhelmingly voted to approve the strategic investment agreement with the Oman sovereign wealth fund ('SGRF').

All Conditions Precedent were met and the Company received the initial US$65 million tranche of funding in November 2017.

The investment comprises an interest-free and unsecured convertible loan note of US$65 million which can be converted into ordinary shares at 50 pence per share upon commissioning of the mine, as well as an options package exercisable at an average price of 85 pence per share contributing an additional US$55 million if exercised.

With funding in place, Berkeley takes final steps to prepare for full construction

The Company is now focused on awarding major contracts, filling key management positions and conducting detailed reviews focused on ensuring that the very best capital and operating costs are achieved.

The competitive quotes received which have driven capital and operating costs down have in some cases been offset by the appreciation of the Euro and higher than expected indirect costs.

In addition to the selection of contractors, the Company is making key appointments to the owner's team having recently appointed Mr Sergio Arenas as Plant Manager. Mr Arenas has over a decade of international operating experience.

Berkeley Energia awarded the Corporate Development Award at the London Mines and Money Awards Dinner

The progress made at the Salamanca mine over the past year was recognised when Berkeley Energia was awarded the London Mines and Money Corporate Development Award in December 2017.

The Company was selected from a group of finalists that included Rio Tinto, Ivanhoe Mines and Endeavour Mining.

The award recognized the Company's efforts in permitting, financing and commencing development of the only major uranium mine in the world today, located in the heart of the European Union, at a time when prices are at twelve-year lows.

Employment and training

The project is located in an area that has suffered badly from intergenerational unemployment and rural desertification.

To date, the Company has received over 7,000 job applications just from residents of the Salamanca region, 400 of those come from villages surrounding the project and of those, over 110 from Villavieja alone.

The University of Salamanca has estimated that for this type of business there will be a multiplier factor of 5.1 indirect jobs for every direct job created, resulting in over 2,500 direct and indirect jobs being created as a consequence of the Company's investment in the area.

To date, over 120 locals have attended courses organised by the Company and 25% of residents from the local area have applied for jobs. The Company currently has a work force of nearly 70 people and over a quarter of these have been recruited from towns in the immediate vicinity.

Training programmes, which have been historically well attended and oversubscribed, will continue to run throughout the year ensuring that sufficient people from the local communities have the specialist skills required for jobs created during the construction and mining phases.

As part of its commitment to reduce unemployment in the region, the majority of new staff required to carry out upcoming work programmes will be recruited from the local villages of Retortillo and Villavieja.

Commitment to the community

The Company has invested more than ~€70 million developing the project over the past decade and plans to invest an additional €250 million over the life of the project.

The Company has signed Cooperation Agreements with the highly supportive local municipalities, demonstrating its commitment to fostering positive relationships with these communities.

To date, through these agreements, the Company has provided Wifi networks for local villages, built play areas for children, repaired sewage water plants, upgraded sports facilities, and sponsored various sporting events and local festivals.

Following consultations with the residents of the local community a number of infrastructure improvements to neighbouring villages have been identified, which the Company is looking to progress in the coming months.

The Company has worked tirelessly over the past decade to develop positive and mutually beneficial relationships with the local communities and will continue to do so as construction ramps up.

Committed to the highest environmental standards

The Salamanca mine is being developed to the highest international standards and the Company's commitment to the environment remains a priority. It holds certificates in Sustainable Mining and Environmental Excellence which were awarded by AENOR, an independent Spanish government agency. The Company was re-awarded both certificates in November 2017 following a week long consultation process with the agency.

The mine has been designed according to the very latest thinking on sustainable mining. The extraction and treatment areas will be continuously rehabilitated as operations progress and with minimum disturbance during operations. Once operations are complete, all areas utilised by the Company will be fully restored to an increased agricultural value.

As part of the Environmental Licence and the Environmental Measures Plan over 30,000 young oak trees will be planted over an area of 75 to 100 hectares. The first 20,000 of these will be planted in the nearby municipality of Vitigudino over an area of more than 500 hectares currently used by cattle farmers, despite its deteriorating ecological value.

Offtake programme and notable increase in public tender activity

The Company currently has 2.75 million pounds of U₃O₈ concentrate under long term contracts over the first six years of production. Potential exists to increase annual contracted volumes further as well as extend the contracts by a total of 1.25 million pounds.

The Company has maintained its preference to combine fixed and market related pricing across its contracts in order to secure positive margins in the early years of production whilst ensuring the Company remains exposed to potentially higher prices in the future.

Across the portfolio, the average fixed price per pound of contracted and optional volumes is above US$42 per pound. This compares favourably with the current spot price of around US$21 per pound.

The investment agreement signed with the Oman sovereign wealth fund grants the fund the right to match future long term uranium offtake transactions. This right to match is subject to an annual cap (on a rolling 12-month basis) which cannot exceed the greater of 1 million pounds of U₃O₈ concentrate per annum or 20% of annual production.

With the financing agreement signed, the Company intends to increase its offtake activity this year once full construction of the mine is underway, and will participate in public and private offtake opportunities with global utilities, reporting regularly on progress.

The Company's view is that the recent production cuts by Tier 1 producers, Cameco and KazAtomProm, could be a turning point in the uranium market. Cameco's suspension of production, the latest in a long line of production cuts, brings the total volume of uranium removed from the market in 2018 to 17 million pounds, about 12% of primary mine supply.

The Salamanca mine is scheduled to reach production as the market enters a supply/demand deficit that industry experts have called both fundamental and unavoidable. US utilities looking to re-contract will be competing with Chinese and Japanese reactor demand, which may lead to higher spot and term contract prices.

Exploration programme expanded targeting Zona 7 style deposits 

A major soil sampling programme was completed during the period focusing on identifying additional targets with similar characteristics to the Zona 7 and Retortillo deposits.

Over 2,200 samples were collected across 46km² area in both Salamanca I and Salamanca II and analysed using Ionic Leach™ which allows for very high levels of detection of uranium and other economic minerals.

The process involved developing a fingerprint of the Zona 7 discovery (where a low radiometric anomaly existed) and the Retortillo deposit and looking for repetitions of these unique signatures in other areas of interest and then matching these with co-incident radon and geochemical anomalies and finally placing them in a geological and structural setting.

The first phase of the survey of the Salamanca I area defined nine uranium anomalies, which have been divided into four high and five lower priority areas that have a combination of elevated uranium levels along with supporting multi-element signatures.

The survey of the Salamanca II area defined three anomalous areas for uranium, divided into two high priority areas and one lower priority area, all of which have a combination of elevated uranium levels and supporting multi-element signatures.

These twelve uranium anomalous areas are currently being followed up to generate high priority drill targets.

Permitting update

There is strong support for the Salamanca mine throughout all levels of government. To date, the Company has received more than 110 favourable reports and permits for the development of the mine.

The Urbanism Commission of Salamanca gave an Express Resolution for the granting of the Authorisation of Exceptional Land Use.

With the Mining Licence, Environmental Licence and the Authorization of Exceptional Land Use the next major approval is the Construction Authorization by the Ministry of Industry, Energy and Tourism for the treatment plant as a radioactive facility.

Approvals for the Zona 7 deposit are progressing well, the Exploitation Plan, the Reclamation and Closure Plan, the Environmental Impact Assessment and the Initial Authorization are complete and have all now been submitted to the relevant authorities. The final approval is expected during 2019 as previously announced.

Corporate

Appointment of SGRF Nominee Director

Mr Deepankar Panigrahi, Investment Manager in the Private Equity division of SGRF joined the Board as a Non-Executive Director on 30 November 2017. 

Mr Panigrahi has extensive experience across a variety of sectors and geographies covering all stages of the private equity process, including post investment management. Mr Panigrahi holds an Undergraduate and Master's degree in Economics with Distinction and Honours from the University of Michigan followed by an MBA from Cambridge University.

Results of Operations

The net loss of the Consolidated Entity for the half year ended 31 December 2017 was $40,714,000 (31 December 2016: $6,509,000). Significant items contributing to the current half year loss and the substantial differences from the previous half year include to the following:

(i)         Exploration and evaluation expenses of $7,817,000 (31 December 2016: $4,440,000), which is attributable to the Group's accounting policy of expensing exploration and evaluation expenditure incurred subsequent to the acquisition of the rights to explore and up to the successful completion of definitive feasibility studies for each separate area of interest;

(ii)        Business development expenses of $1,087,000 (31 December 2016: $1,128,000), which includes the Group's investor relations activities including but not limited to public relations costs, marketing and digital marketing, broker fees, travel costs, conference fees, business development consultant fees and stock exchange admission fees;

(iii)       Non-cash share based payments expense of $267,000 (31 December 2016: $513,000) was recognised in respect of incentive securities granted to directors, employees and key consultants. The Company's policy is to expense the incentive securities over the vesting period (which for Performance Rights is generally the life of the security). The decrease in this expense is a direct result of less incentive securities on issue at 31 December 2017 compared to 31 December 2016;

(iv)       Non-cash fair value movements of $24,868,000 (31 December 2016: nil) of the convertible note and unlisted options issued to SGRF ('SGRF Options'). These financial liabilities increase in size as the share price of the Company increase. With the share price increasing by over 22% since agreeing to issue the convertible note and SGRF Options to the end of the half year, the size of the fair value loss attributable to the financial liabilities has increased materially. As the convertible note and SGRF Options convert into shares, the liabilities will be reclassified to equity and will require no cash settlement by the Company.

Commercially, the intentions of both SGRF and the Company prior to completing the convertible note transaction was to enter into an equity type deal. The Company has however complied with the accounting standards and accounted for the convertible note as a financial liability.

Under the ASX Listing Rules, the convertible note and SGRF options are defined as equity securities.

Due to the conversion terms of the convertible note leading to the issuance of a variable number of ordinary shares in the Company in return for conversion of the convertible note, the Company is required under the accounting standards to account for the convertible note as a current financial liability at fair value through profit and loss, despite the Company having no obligation to extinguish the convertible note using its cash and cash equivalents.

(v)        The Group also incurred one off costs to issue the convertible note and associated securities of $2,697,000 (31 December 2016: nil).

Financial Position

At 31 December 2017, the Group is in an extremely strong financial position with cash reserves of $105,375,000.

The Group had net assets of $8,234,000 at 31 December 2017 (30 June 2017: $48,467,000), a decrease of 67% compared with 30 June 2017. This decrease is consistent and largely attributable to the recognition of the non-cash financial liabilities at fair value through profit and loss (the convertible note and SGRF Options).

SIGNIFICANT EVENTS AFTER THE REPORTING PERIOD

At the date of this report there were no significant events occurring after balance date requiring disclosure.

ROUNDING

The amounts contained in the half-year financial report have been rounded to the nearest $1,000 (where rounding is applicable) where noted ($000) under the option available to the Company under ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191. The Company is an entity to which this legislative instrument applies.

AUDITOR'S INDEPENDENCE DECLARATION

Section 307C of the Corporations Act 2001 requires our auditors, Ernst & Young, to provide the Directors of Berkeley Energia Limited with an Independence Declaration in relation to the review of the half year financial report. This Independence Declaration is on page 19 and forms part of this Directors' Report.

Signed in accordance with a resolution of Directors.

Paul Atherley

Managing Director and CEO

15 March 2018

DIRECTORS' DECLARATION

In accordance with a resolution of the Directors of Berkeley Energia Limited, I state that:

In the opinion of the Directors:

(a)        the financial statements and notes, as set out on pages 8 to 18, are in accordance with the Corporations Act 2001, including:

(i)         complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001; and

(ii)        giving a true and fair view of the consolidated entity's financial position as at 31 December 2017 and of its performance for the half year ended on that date.

(b)        there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable.

On behalf of the Board

Paul Atherley

Managing Director and CEO

15 March 2018

CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE HALF YEAR ENDED 31 DECEMBER 2017

		Half Year Ended 31 December 2017 $000	Half Year Ended 31 December 2016 $000
Revenue		140	179
Exploration and evaluation costs		(7,817)	(4,440)
Corporate and administration costs		(824)	(607)
Business development expenses		(1,087)	(1,128)
Share based payments expense		(267)	(513)
Cost to issue convertible note		(2,697)	-
Fair value movements on non-cash settled financial liabilities		(24,868)	-
Foreign exchange movements		(3,294)	-
Loss before income tax		(40,714)	(6,509)
Income tax expense		-	-
Loss after income tax		(40,714)	(6,509)
Other comprehensive income, net of income tax:
Items that may be reclassified subsequently to profit or loss:
Exchange differences arising on translation of foreign operations		214	93
Other comprehensive income, net of income tax		214	93
Total comprehensive loss for the half year attributable to Members of Berkeley Energia Limited		(40,500)	(6,416)
Basic and diluted loss per share (cents per share)		(16.00)	(3.08)

The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2017

		31 December 2017 $000	30 June 2017 $000
ASSETS
Current Assets
Cash and cash equivalents		105,375	34,815
Trade and other receivables		2,180	1,478
Total Current Assets		107,555	36,293
Non-current Assets
Exploration expenditure		7,993	7,945
Property, plant and equipment		10,499	9,799
Other financial assets		453	161
Total Non-Current Assets		18,945	17,905
TOTAL ASSETS		126,500	54,198
LIABILITIES
Current Liabilities
Trade and other payables		5,668	5,208
Other financial liabilities		535	523
Non-cash settled convertible note liability		97,627	-
Non-cash settled option liability		14,436	-
Total Current Liabilities		118,266	5,731
TOTAL LIABILITIES		118,266	5,731
NET ASSETS		8,234	48,467
EQUITY
Issued capital		168,068	168,051
Reserves		571	107
Accumulated losses		(160,405)	(119,691)
TOTAL EQUITY		8,234	48,467

The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE HALF YEAR ENDED 31 DECEMBER 2017

	Issued Capital	Share Based Payments Reserve	Foreign Currency Translation Reserve	Accumulated Losses	Total
	$000	$000	$000	$000	$000
As at 1 July 2017	168,051	2,791	(2,684)	(119,691)	48,467
Total comprehensive loss for the period:
Net loss for the period	-	-	-	(40,714)	(40,714)
Other comprehensive income:
Exchange differences arising on translation of foreign operations	-	-	214	-	214
Total comprehensive income/(loss)	-	-	214	(40,714)	(40,500)
Transactions with owners, recorded directly in equity
Issue of ordinary shares	17	-	-	-	17
Share based payments	-	250	-	-	250
As at 31 December 2017	168,068	3,041	(2,470)	(160,405)	8,234
As at 1 July 2016	129,515	2,769	(2,340)	(103,641)	26,302
Total comprehensive loss for the period:
Net loss for the period	-	-	-	(6,509)	(6,509)
Other comprehensive income:
Exchange differences arising on translation of foreign operations	-	-	93	-	93
Total comprehensive income/(loss)	-	-	93	(6,509)	(6,416)
Transactions with owners, recorded directly in equity
Issue of ordinary shares	39,728	-	-	-	39,728
Exercise of incentive options	58	-	-	-	58
Share issue costs	(2,203)	-	-	-	(2,203)
Adjustment for performance rights forfeited	-	(179)	-	-	(179)
Transfer from share based payments reserve	950	(950)	-	-	-
Share based payments	-	662	-	-	662
As at 31 December 2016	168,048	2,302	(2,247)	(110,150)	57,952

The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE HALF YEAR ENDED 31 DECEMBER 2017

	Half Year Ended 31 December 2017 $000	Half Year Ended 31 December 2016 $000
Cash flows from operating activities
Payments to suppliers and employees	(10,148)	(7,255)
Interest received	147	128
Net cash outflow from operating activities	(10,001)	(7,127)
Cash flows from investing activities
Proceeds from sale of royalty	-	6,531
Payments for property, plant and equipment	(550)	(5,099)
Net cash outflow from investing activities	(550)	1,432
Cash flows from financing activities
Proceeds from issue of securities	-	39,698
Transaction costs from issue of securities	-	(2,184)
Proceeds from issue of convertible note and options	85,823	-
Transaction costs from issue of convertible note and options	(2,697)	-
Net cash inflow from financing activities	83,126	37,514
Net increase/(decrease) in cash and cash equivalents held	72,575	31,819
Cash and cash equivalents at the beginning of the period	34,815	11,348
Effects of exchange rate changes on cash and cash equivalents	(2,015)	12
Cash and cash equivalents at the end of the period	105,375	43,179

The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

The following sections in the full version of the Interim Financial Report, along with all figures and illustrations, are available on our website at www.berkeleyenergia.com
Condensed Notes to the Consolidated Financial Statements
Auditor's Independence Declaration
Auditor's Review Report

 

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