Interim results for six months ended 30 June 2013

RNS Number : 1854P

Strategic Minerals PLC

30 September 2013

 



30 September 2013

Strategic Minerals Plc

("Strategic Minerals", "Group" or the "Company")

Interim results for the six months ended 30 June 2013

Strategic Minerals Plc (AIM: SML; USOTC: SMCDY), the magnetite iron ore producer and exploration company is pleased to announce its interim results for the six months ended 30 June 2013.

Financial Highlights

·    Total revenues generated £14 million (H1 2012: £0.3 million)

·    New Mexican operations EBITDA level profit £325k (H1 2012: loss £79k)

·    Consolidated EBITDA level loss for the period £430k (H1 2012: loss £1.2 million)

·    Total comprehensive loss for the period £3.5 million (H1 2012: loss £1.5 million)

·    Basic and fully diluted loss per share 0.69 pence (H1 2012: loss 0.31 pence)

·    Cash and cash equivalents at 30 June 2013 £1.3 million (H1 2012: £0.8 million)

·    Inventory at 30 June 2013 £2.8 million (30 June 2012: £60,000)

·    Net current assets at 30 June 2013 £1.3 million (30 June 2012: £0.2 million net liabilities)

Operational Highlights

·    Total sales 247,000 dry metric tonnes ("DMT") (H1 2012: 6,000 DMT )

·    240,000 DMT in export sales (H1 2012: nil)

·    Average export sales applicable Platts IODEX 62% Fe price: $123.21per DMT

·    Average net FOB price achieved: $88.91 per DMT

James Fyfe, Executive Chairman of Strategic Minerals, said:

"The Company achieved a satisfactory outcome from its first six months of full scale production at the Cobre stockpile in New Mexico delivering 247,000 dry metric tonnes of product to market. We are firmly focused on adding additional stockpile assets which will enable the Company to achieve cash-profitability at Group level and thereafter a profit after tax for our shareholders."

Paul Harrison, CEO of the Company, added:

"We have generated revenues of £14m in our maiden six months of production, which is a creditable performance. Whilst extreme volatility in the underlying iron ore price during the period (high $160, low $110) impacted our profitability, the business is now in full operation. Our priorities remain highly focused on three key areas namely maximising profitability of our first core asset; securing additional low operating cost tailings deposits and creating value out of our Australian exploration tenements."

For further information:

Company
Strategic Minerals plc
Paul Harrison, CEO	[phone]/[phone]
Nominated Adviser/Joint Broker
Allenby Capital Limited
Jeremy Porter / James Reeve	[phone]
Joint Broker
Daniel Stewart & Company Plc
Sean Lunn / David Hart	[phone]
Financial Public Relations
GTH Communications Limited
Toby Hall / Suzanne Johnson Walsh	[phone]/8492

About Strategic Minerals

Strategic Minerals PLC (AIM: SML) is developing a portfolio of projects that provide near term production along with those that potentially offer longer term capital gains. Strategic Minerals currently holds iron ore stockpile assets in North America and exploration properties in Australia. The Company has commenced production at its first magnetite operation, the Cobre stockpile in New Mexico and is actively seeking to acquire and develop other projects within the same segment. www.strategicminerals.net

Chairman's Statement

I am pleased to present our interim report for the six months ended 30 June 2013. During the period the Company operated in "full scale production mode" at the Cobre Mine in New Mexico for the first time. Revenues were generated by export sales and sales at mine-gate to the USA domestic market. We also focused our efforts firmly on securing further tailings assets and made progress with our Australian exploration assets.

Financial Highlights

Strategic Minerals delivered revenues of £14 million in the six month period ended 30 June 2013. (H1 2012: £334k). Such revenues were generated by our New Mexican operations, primarily from export sales which totalled £13.6 million (H1 2012: nil). Domestic sales in the USA totalled £398,000 (H1 2012: £334,000) generating a total gross profit of £547,000.

The Company however incurred a comprehensive loss for the financial period of £3.5 million compared to a loss of £1.5 million for the six month period ended 30 June 2012. The primary contributor to the increased loss was the amortisation of the carrying value of the Company's New Mexican operations which stood at £15.16 million at 31 December 2012. At EBITDA level our New Mexican operations generated a profit of £325k (2012: loss £79k), Australia a loss of £109k (2012: loss £628k) and head office and corporate a loss of £646k (2012: loss £482k), giving a consolidated loss at EBITDA level in the period of £430k (H1 2012: loss £1.2 million). Amortisation charges in respect of intangible assets totalled £3.14 million for the six months ended 30 June 2013 (H1 2012: £75k). Such amortisation charges when combined with depreciation of rail infrastructure (£0.4 million) and historic share based payments (£70k), resulted in an overall loss from operations of £4.1 million in the period (2012: loss £1.3 million).

Summary of Results
		As restated
	6 months to	6 months to	Year to
	30 June	30 June	31 December
	2013	2012	2012
	(Unaudited)	(Unaudited)	(Audited)
	£'000	£'000	£'000
Revenue	13,954	334		3,754
Cost of sales	(13,407)	(173)		(2,851)
	________	________		________
Gross profit	547	161		903
Exploration and evaluation expenditure	-	-		(835)
Administrative expenses	(977)	(1,350)		(3,356)
EBITDA	(430)	(1,189)		(3,288)
Non cash item:
Depreciation of railway infrastructure	(411)	-		(86)
Share based payment	(70)	(34)		(95)
Amortisation of intangible asset	(3,144)	(75)		(810)
Loss from operations	(4,055)	(1,298)		(4,279)

Basic and fully diluted loss per share for the period was 0.69 pence (H1 2012 0.31 pence).

New Mexican Operations

The Company receives all of its revenues in US dollars. The majority of the Company's revenues are generated from export sales to Glencore from the United States which are made on a FOB Port of Guaymas, Mexico basis. The FOB price is the applicable Platts IODEX 62% Fe spot market price ("Platts Price") less sea freight and buyer commissions as adjusted, if applicable, by chemical analysis results. In the period under review the Platts Price ranged from a high of $160.00/DMT in February to a low of $110.75/DMT in June. The applicable Platts Price averaged $123.21 and sea freight and buyer commissions averaged $34.30/DMT, resulting in an average FOB price of $86.32/DMT after net chemical analysis adjustments penalty of $2.59/DMT. The chemical analysis adjustments were unusually high in the period as samples were contaminated in a one-off incident at the load port for one shipment by pet-coke being unloaded close by as our shipment was being loaded, significantly increasing sulphur levels in the samples.

With regard to the Company's direct costs these comprise operating costs and royalty payments to Freeport-McMoRan, owner of the New Mexican stock pile at the Cobre mine. Operating costs are made up of inside mine gate costs, rail freight to port costs, export/border-crossing costs to Mexico and port receiving, unloading, storing and ship loading costs. These were largely in line with budget at an aggregate of approximately $63/DMT during the period. Inside mine gate costs comprise excavating, screening, hauling and loading activities which are outsourced to an unrelated third party.

Turning to royalty payments to Freeport-McMoRan, these are incurred as material leaves the mine gate. The royalty rate is linked to the Platts Price in that the monthly royalty payable per SWT (short wet ton) is determined by the average Platts Price in the month prior to the material leaving the mine. The royalty payable ranges from the lowest rate per SWT at a monthly average Platts Price below $116/DMT to a maximum if the monthly average Platts Price exceeds $150/DMT. In between these Low:High levels the royalty level is variable. Accordingly, in gross profit terms the Company benefits from a rising Platts Price but is adversely affected when the Platts Price is falling, as it was in this period. It is worth noting that if the Platts Price were stable at a fixed level for an extended period our breakeven Platts Price/DMT would be approximately $105.00 at gross profit level assuming sea freight, buyer commissions and operating costs at the actual levels incurred in the six months ended 30 June 2013.

The Company's domestic sales are made at a fixed royalty and at negotiated selling prices unrelated to the Platts Price.

Australian Operations

The primary focus for Strategic Minerals now is the monetisation of tailings rather than exploration assets. However, the Company's exploration properties in Australia, in particular the Iron Glen and Jotanooka tenements, hold significant potential. The first of these is located approximately 40km from the deep water port of Townsville, Queensland, and is close to existing road and rail infrastructure. Within an established mining region, areas of the 2,100 hectare tenement have been subject to extensive magnetic and geochemical analysis.

The Iron Glen project comprises three tenements. To understand the potential extent of magnetite resources within these tenements and therefore their potential value it is essential that we test the extent of magnetic anomalies previously identified. In that regard we plan to undertake a modest early stage exploration programme. The goal is to detail any buried magnetic features within the main magnetic anomaly including the area to the west of where the presence of magnetite was proven in June 2013 by a site visit with our retained advisors, Terra Search. The soil sampling target area is approximately 200 hectares.

The end goal is to define an economically viable high grade magnetite concentrate of at least 5 million tonnes (up from 0.6 million tonnes). In addition to magnetite it is hoped that significant additional credits can also be obtained from silver and base metals and possibly gold.

Terra Search have mapped out and provided a preliminary costing for taking the programme to its conclusion with JORC resource estimates and an application for a Mining Licence. The overall investment estimated for all phases is approximately AUD2.35 million.

In order to comply with regulatory requirements as approved by Department of Natural Resources and Mines and to capitalise on the benefits of Satellite Imagery work previously undertaken by Spectral Geology, it is essential that preliminary field surveys be undertaken on all identified "hot spots". These so called "hot spots" were identified based upon the magnetite signature identified in the Iron Glen Pit area. This work could lead to a significant increase in the resource potential of the Iron Glen project.

The Jotanooka tenement is located in Western Australia and is only 300 kilometres from a deep water port with existing rail infrastructure nearby, which could potentially contain a significant iron ore resource. More importantly it neighbours the large SinoSteel iron ore mine which is adjacent to the Company's tenement. Prior evaluations suggested the possibility of an extension of the SinoSteel deposit continuing into the Company's acreage. Consequently, a carefully defined and highly targeted exploration programme has been recommended by the Company's independent geologists to test the existence of this extension. This work will be carried out in the second half of fiscal 2013.

Other Matters

During the financial period, Steven Sanders, former Chairman of the Company, stepped down as a non-executive director of the Company. On behalf of the board I would like to thank Steven for his efforts on behalf of the Company during his tenure as a director.

I would like to take this opportunity to thank my fellow Directors, our management and staff in New Mexico and our advisers for their support and hard work during the period and thank our contractors, suppliers and partners for their on-going support.

Full Year Outlook

Subsequent to 30 June 2013 our New Mexican operations completed a 65,000 DMT shipment in August and we anticipate a similar export shipment shortly. Accordingly we anticipate completing total sales of approximately 500,000 DMT in fiscal 2013.

James J. Fyfe

Executive Chairman

30 September 2013

STRATEGIC MINERALS PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE PERIOD ENDED 30 JUNE 2013

		As restated
	6 months to	6 months to	Year to
	30 June	30 June	31 December
	2013	2012	2012
	(Unaudited)	(Unaudited)	(Audited)
	£'000	£'000	£'000
Continuing operations
Revenue	13,954	334	3,754
Cost of sales	(13,407)	(173)	(2,851)
	________	________	________
Gross profit	547	161	903
Exploration and evaluation expenditure	-	-	(835)
Administrative expenses	(977)	(1,350)	(3,356)
Amortisation of intangible asset	(3,144)	(75)	(810)
Depreciation of railway infrastructure	(411)	-	(86)
Share based payment	(70)	(34)	(95)
	________	________	________
Loss from operations	(4,055)	(1,298)	(4,279)
Finance income	-	-	-
Finance expense	(387)	(28)	(714)
	________	________	________
Loss before taxation	(4,442)	(1,326)	(4,993)
Income tax credit	786	19	635
	________	________	________
Loss for the period	(3,656)	(1,307)	(4,358)
Other comprehensive income
Exchange (losses) / gains arising on translation of foreign operations	175	(176)	(676)
	________	________	________
Total comprehensive income	(3,481)	(1,483)	(5,034)
	________	________	________
Loss for the period attributable to:
Owners of the parent	(3,656)	(1,307)	(4,358)
	________	________	________
Total comprehensive income attributable to:
Owners of the parent	(3,481)	(1,483)	(5,034)
	________	________	________
Loss per share attributable to the ordinary equity holders of the parent:
Continuing activities - Basic and diluted	(0.69)p	(0.31)p	(1.00)p
	________	________	________

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2013

		As restated
	30 June	30 June	31 December
	2013	2012	2012
	(Unaudited)	(Unaudited)	(Audited)
	£'000	£'000	£'000
Assets
Non-current assets
Intangible assets	13,110	18,495	16,280
Property, plant and equipment	1,664	2,145	2,003
Deferred tax asset	437	-	437
	________	________	________
	15,211	20,640	18,720
	________	________	________
Current assets
Inventories	2,800	60	1,722
Trade and other receivables	1,305	470	1,097
Cash and cash equivalents	1,331	789	763
	________	________	________
	5,436	1,319	3,582
	________	________	________
Total Assets	20,647	21,959	22,302
	________	________	________
Equity and liabilities
Share capital	554	448	448
Share premium reserve	25,106	20,966	20,914
Merger reserve	12,483	12,483	12,483
Foreign exchange reserve	70	395	(105)
Share options reserve	1,327	1,291	1,352
Other reserves	(14,363)	(14,363)	(14,363)
Accumulated loss	(11,609)	(4,902)	(7,953)
	________	________	________
Total Equity	13,568	16,318	12,776
	________	________	________
Liabilities
Non-current liabilities
Loans and borrowings	-	-	951
Deferred tax liability	2,986	4,094	3,791
	________	________	________
	2,986	4,094	4,742
	________	________	________
Current liabilities
Loans and borrowings	851	1,333	2,059
Trade and other payables	3,242	214	2,725
	________	________	________
	4,093	1,547	4,784
	________	________	________
Total Liabilities	7,079	5,641	9,526
	________	________	________
Total Equity and Liabilities	20,647	21,959	22,302
	________	________	________

CONSOLIDATED STATEMENT OF CASH FLOW

FOR THE PERIOD ENDED 30 JUNE 2013

		As restated
	6 months to	6 months to	Year to
	30 June	30 June	31 December
	2013	2012	2012
	(Unaudited)	(Unaudited)	(Audited)
	£'000	£'000	£'000
Cash flows from operating activities
Loss before tax	(4,442)	(1,326)	(4,993)
Adjustments for:
Depreciation of tangible fixed assets	411	11	86
Amortisation of intangible assets	3,144	75	810
Exploration and evaluation expenditure	-	-	835
Loss on disposal of property, plant and equipment	-	-	11
Increase in inventory	(1,012)	(60)	(1,722)
(Increase) / decrease in trade and other receivables	(166)	33	(680)
Increase / (decrease) in trade and other payables	602	(931)	1,845
Share based payment expense	70	34	95
Finance expense	387	28	714
	_______	_______	_______
Cash absorbed by operating activities	(1,006)	(2,136)	(2,999)
Finance income	-	-	-
Finance expense	(480)	(28)	(111)
	_______	_______	_______
Net cash flows from operating activities	(1,486)	(2,164)	(3,110)
	_______	_______	_______
Investing activities
Acquisition of intangible fixed assets	(21)	(200)	(113)
Acquisition of tangible fixed assets	-	(637)	(646)
	_______	_______	_______
Net cash used in investing activities	(21)	(837)	(759)
	_______	_______	_______
Financing activities
Net proceeds from issue of equity share capital	4,203	3,275	3,006
Net (repayment) proceeds (of) /from borrowings	(2,159)	229	1,335
	_______	_______	_______
Net cash from financing activities	2,044	3,504	4,341
	_______	_______	_______
Net increase / (decrease) in cash and cash equivalents	537	503	472
Cash and cash equivalents at beginning of period	763	299	299
Exchange gains / (losses) on cash and cash equivalents	31	(13)	(8)
	_______	_______	_______
Cash and cash equivalents at end of period	1,331	789	763
	_______	_______	_______

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED 30 JUNE 2013

	Share capital	Share  premium  reserve	Merger  reserve	Share  options  reserve	Other Reserves	Foreign  exchange  reserve	Accumulated loss	Total Equity
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Balance as at 1 January 2012 (as restated)	399	17,102	12,483	1,257	(14,363)	571	(3,595)	13,854
Loss for the period						-	(1,307)	(1,307)
Foreign exchange translation						(176)	-	(176)
						_______	_______	_______
Total comprehensive income  for the period						(176)	(1,307)	(1,483)
Shares issued in the year	49	4,031	-	-	-	-	-	4,080
Expense of share issue	-	(167)	-	-	-	-	-	(167)
Share based payments (restated - Note 3)	-	-	-	34	-	-	-	34
	_______	_______	_______	_______	_______	_______	_______	_______
Balance at 30 June 2012 (as restated) - Unaudited	448	20,966	12,483	1,291	(14,363)	395	(4,902)	16,318
	_______	_______	_______	_______	_______	_______	_______	_______
Loss for the period						-	(3,051)	(3,051)
Foreign exchange translation						(500)	-	(500)
						_______	_______	_______
Total comprehensive income for the year						(500)	(3,051)	(3,551)
Shares issued in the period	-	-	-	-	-	-	-	-
Expenses of share issue	-	(52)	-	-	-	-	-	(52)
Share based payments	-	-	-	61	-	-	-	61
	_______	_______	_______	_______	_______	_______	_______	_______
Balance at 31 December 2012 - Audited	448	20,914	12,483	1,352	(14,363)	(105)	(7,953)	12,776
	_______	_______	_______	_______	_______	_______	_______	_______
Loss for the period							(3,656)	(3,656)
Foreign exchange translation						175	-	175
						_______	_______	_______
Total comprehensive income for the year						175	(3,656)	(3,481)
Shares issued in the year	103	4,517	-	-	-	-	-	4,620
Expenses of share issue	-	(420)	-	-	-	-	-	(420)
Exercise of options	3	95	-	(95)	-	-	-	3
Share based payments	-	-	-	70	-	-	-	70
	_______	_______	_______	_______	_______	_______	_______	_______
Balance at 30 June 2013 - Unaudited	554	25,106	12,483	1,327	(14,363)	70	(11,609)	13,568
	_______	_______	_______	_______	_______	_______	_______	_______

All comprehensive income is attributable to the owners of the parent.

The accompanying accounting policies and notes form an integral part of these financial statements

NOTES FORMING PART OF THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2013

1.   General information

Strategic Minerals Plc ("the Company") is a public company incorporated in England and Wales.  The condensed consolidated interim financial statements of the Company for the six months ended 30 June 2012 comprise the Company and its subsidiaries (together referred to as the "Group").

2.   Accounting policies

Basis of preparation

These consolidated financial statements have been prepared using policies based on International Financial Reporting Standards (IFRS and IFRIC interpretations) issued by the International Accounting Standards Board ("IASB") as adopted for use in the EU. They do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2012 Annual Report. The financial information for the half years ended 30 June 2013 and 30 June 2012 does not constitute statutory accounts within the meaning of Section 434(3) of the Companies Act 2006 and is unaudited.

The annual financial statements of Strategic Minerals Plc are prepared in accordance with IFRSs as adopted by the European Union. The comparative financial information for the year ended 31 December 2012 included within this report does not constitute the full statutory accounts for that period. The statutory Annual Report and Financial Statements for 2012 have been filed with the Registrar of Companies. The Independent Auditors' Report on that Annual Report and Financial Statement for 2012 was unqualified, did not draw attention to any matters by way of emphasis, and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly consolidated financial statements.

The same accounting policies, presentation and methods of computation are followed in these condensed consolidated financial statements as were applied in the Group's latest annual audited financial statements.

In addition, the IASB has issued a number of IFRS and IFRIC amendments or interpretations since the last annual report was published. It is not expected that any of these will have a material impact on the Group.

3.  Critical accounting estimates and judgements

The Group makes certain estimates and assumptions regarding the future.  Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.  In the future, actual experience may differ from these estimates and assumptions.  The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Judgements

(a)  Revenue recognition

The eventual price invoiced for export sales is determined based on a formula linked to the Platts IODEX 62% Fe CFR China in months following the month of sale and quality analysis post loading.  For 2012 the amount recorded as revenue was the final agreed invoice value so no judgement has been applied in recording revenue for the year.  In the period to 30 June 2013 an estimate of future Platts IODEX 62% Fe CFR China price has been used in determining the amount of revenues recognised in respect of one of the shipments.

Estimates and assumptions

(b)  Carrying value of intangible assets

In assessing the continuing carrying value of the exploration and evaluation costs carried the Company has made an estimation of the value of the underlying tenements and exploration licenses held.

In assessing the continuing carrying value of the other intangible asset, being the contractual relationship acquired on the acquisition of Ebony Iron Pty Limited, the key estimate and assumption made in the valuation model adopted has been estimated Platts IODEX 62% Fe CFR China price over the term of the contract.  The quantity of material is known and our direct costs have been assumed to be fixed at current levels.  The variable is thus the market price of magnetite for both 62% Fe and the discount for the lower grade material at 59% Fe.  The material we have been granted exclusive rights over contains in total approximately 800,000 tonnes at 64.2% Fe and approximately 770,000 tonnes at an average grade of 59.1% Fe.  These future prices cannot be forecast with certainty as changes are determined by reference to external market forces.  The price range used in considering whether impairment arises is management's estimates based on the range of available external forecasts

(c)  Share based payments, warrants and options

The fair value of warrants and options recognised in the income statement is measured by use of the Black Scholes model, which takes into account conditions attached to the vesting and exercise of the equity instruments. The expected life used in the model is adjusted; based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The share price volatility percentage factor used in the calculation is based on management's best estimate of future share price behaviour based on past experience, future expectations and benchmarked against peer companies in the industry.

4.	Prior-year adjustment

During 2012 the Directors commenced a review of the accounting for the acquisition of Ebony Iron Pty Limited in 2011.  Concurrently the Conduct Committee of the Financial Reporting Council ("FRC") raised a number of queries regarding the accounting for the transaction and other matters.  As a result of our review and correspondence with the FRC the Directors concluded on the need to restate the 2011 financial statements with the consequent need to restate the comparatives for the 6 month period to 30 June 2012.

A reconciliation of the comparative amounts previously stated in the condensed consolidated statements for the period to 30 June 2012 to re-stated comparative amounts for the consolidated statement of comprehensive income and consolidated statement of financial position is provided below.  A detailed description of each adjustment then follows. 

		As previously
		stated	Adjustments	Restated
		£'000	£'000	£'000
	Assets
	Non-current assets
	Goodwill	8,744	(8,744)	-
	Intangible assets	2,119	16,376	18,495
		_______	_______	_______
		10,863	7,632	18,495
	Property, plant and equipment	2,145	-	2,145
		_______	_______	_______
		13,008	7,632	20,640
		_______	_______	_______
	Current assets
	Inventories	60	-	60
	Trade and other receivables	470	-	470
	Cash and cash equivalents	789	-	789
		_______	_______	_______
		1,319	-	1,319
		_______	_______	_______
		_______	_______	_______
	Total Assets	14,327	7,632	21,959
		_______	_______	_______
	Equity and liabilities
	Share capital	448	-	448
	Share premium reserve	30,272	(9,306)	20,966
	Merger reserve	-	12,483	12,483
	Foreign exchange reserve	(22)	417	395
	Share options reserve	1,062	229	1,291
	Other reserves	(14,363)	-	(14,363)
	Accumulated loss	(4,617)	(285)	(4,902)
		_______	_______	_______
	Total Equity	12,780	3,538	16,318
		_______	_______	_______
	Liabilities
	Current liabilities
	Loans and borrowings	1,333	-	1,333
	Trade and other payables	214	-	214
		_______	_______	_______
		1,547	-	1,547
		_______	_______	_______
	Non-current liabilities
	Deferred tax liability	-	4,094	4,094
		_______	_______	_______
	Total Equity and Liabilities	14,327	7,632	21,959
		_______	_______	_______

		As previously
		stated	Adjustments	Restated
		£'000	£'000	£'000
	Revenue	334		334
	Cost of Sales	(173)		(173)
		_______		_______
	Gross profit	161		161
	Amortisation of intangible asset		(75)	(75)
	Share based payments	-	(34)	(34)
	Administrative expenses	(1,350)		(1,350)
		_______		_______
	Loss from operations	(1,189)		(1,298)
	Finance income	-		-
	Finance expense	(28)		(28)
		_______		_______
		(1,217)		(1,326)
	Income tax benefit/(expense)	-	19	19
		_______		_______
	Loss for the period	(1,217)		(1,307)
		_______		_______

Prior-year adjustments description

(a)   Revision to acquisition accounting for Ebony Iron Pty Limited

On 2 September 2011 the Company acquired 100% of the issued share capital of Ebony Iron Pty Limited by the issuance of 94,000,000 ordinary shares in the Company.  In the accounts to 31 December 2011 the fair value of the consideration was calculated using 10p per share, being the amount stated in the acquisition agreement, and the difference between this consideration and the fair value of the identifiable net assets acquired was treated as goodwill.

IFRS 3 (Revised) Business combinations require the consideration transferred in a business combination to be measured at the acquisition date fair value.  On 2 September 2011 the market price of the Company's shares was 13.38p.  The use of 10p per share was thus an error.  The increase in the fair value of the consideration of £3,177,000 is reflected in the table above. 

Following a reassessment of the net assets acquired the Directors have concluded that an intangible asset should have been recognised being a contract entered into by a wholly owned subsidiary of Ebony Iron Pty Limited, Southern Minerals Group LLC, pursuant to which it had the exclusive rights to market a magnetite stockpile held at the Cobre mine in New Mexico, as referred to in other parts of these financial statements.  The fair value of this contract at the date of acquisition has been assessed as £15,895,000 with the result that no goodwill now arises from this acquisition.

In accordance with IAS 21 The effects of changes in foreign exchange rates, the carrying value of the intangible asset has been expressed in the functional currency of Southern Minerals Group LLC, being the US dollar, and translated at closing rate which has resulted in the foreign exchange adjustments.

(b)   Revision to deferred tax

A deferred tax liability of £4,168,000 was recognised at the date of acquisition in respect of the temporary difference arising on the intangible asset recognised on the acquisition of Ebony Iron Pty Limited (see (a) above).

(c)   Accounting for a Merger reserve

As the Company acquired over 90% of the equity holding in Ebony Iron Pty Limited, section 612 of the Companies Act 2006 applies and requires the difference between the fair value of consideration received and nominal value of the shares issued to be transferred to a Merger reserve rather than the Share premium reserve.  After adjusting for the £3,177,000 noted in (a) above an amount of £12,483,000 has been transferred to the Merger reserve

(d)   Revision to share-based payment expense

In the period to 31 December 2011 warrants were issued to various suppliers in settlement of services provided and share options granted to certain of the Group's Directors and key management personnel.  In valuing these warrants and options using the Black-Scholes option pricing model an expected volatility of 10% was used.  In the opinion of the Directors this was inappropriate and an appropriate rate would be 55%.  This has led to the share based payment charge for 2011 increasing by £195,000 to £1,257,000.  In the period to 30 June 2012 further warrants were issued and an expected volatility of 10% was also used.  Revising this to 55% gave rise to a charge in the period of £34,000. 

The cumulative additional charge of £229,000 is reflected in the adjusted balance sheet shown above.

(e)   There was no effect on the consolidated statement of cash flow as a result of the above amendments other than to increase the loss before tax and the amount of share based payment expenses and amortisation arising from the sales in the period shown in the reconciliation to cash absorbed by operating activities.

5.	Segment information

The Group has three main segments:

·     Southern Minerals Group LLC (SMG) - This segment is involved in the sale of magnetite to both the US domestic market and shipment of magnetite to port for onward export sale. 

·     Head Office - This segment incurs all the administrative costs of central operations and finances the Group's operations.  A management fee is charged for certain of these expenses.

·     Australia - This segment holds the tenements in Australia and incurs all related operating costs.

Factors that management used to identify the Group's reportable segments

The Group's reportable segments are strategic business units that carry out different functions and operations and operate in different jurisdictions.

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the management team including the Executive Chairman, Chief Executive Officer, and the Finance Director.

Measurement of operating segment profit or loss, assets and liabilities

The Group evaluates segmental performance on the basis of profit or loss from operations calculated in accordance with EU Adopted IFRS but excluding non-cash losses, such as the amortisation of intangible assets, and the effects of share-based payments.

Segment assets exclude tax assets and assets used primarily for corporate purposes. Segment liabilities exclude tax liabilities. Loans and borrowings are allocated to the segments in which the borrowings are held. Details are provided in the reconciliation from segment assets and liabilities to the Group position.

				Head
			SMG	Office	Australia	Total
	6 Months to 30 June 2013 (Unaudited)		2013	2013	2013	2013
			£'000	£'000	£'000	£'000
	Revenue		13,954	-	-	13,954
	Cost of sales		(13,407)	-	-	(13,407)
			_______	_______	_______	_______
	Gross profit		547	-	-	547
	Depreciation of railway infrastructure		(411)	-	-	(411)
	Administrative expenses		(222)	(646)	(109)	(977)
			_______	_______	_______	_______
	Segment profit / (loss) from operations		(86)	(646)	(109)	(841)
	Finance expense		-	(387)	-	(387)
			_______	_______	_______	_______
	Segment profit / (loss) before taxation		(86)	(1,033)	(109)	(1,228)
			_______	_______	_______
	Amortisation of intangible asset					(3,144)
	Share-based payments charge					(70)
						_______
	Group loss before taxation					(4,442)
						_______

				Head
	6 months to 30 June 2012 (Unaudited)		SMG	Office	Australia	Total
			2012	2012	2012	2012
			£'000	£'000	£'000	£'000
	Revenue		334	-	-	334
	Cost of sales		(173)	-	-	(173)
			_______	_______	_______	_______
	Gross profit		161	-	-	161
	Administrative expenses		(240)	(482)	(628)	(1,350)
			_______	_______	_______	_______
	Segment loss from operations		(79)	(482)	(628)	(1,189)
	Finance expense		-	(28)	-	(28)
			_______	_______	_______	_______
	Segment loss before taxation		(79)	(510)	(628)	(1,217)
			_______	_______	_______
	Amortisation of intangible asset					(75)
	Share-based payments (as restated)					(34)
						_______
	Group loss before taxation (as restated)					(1,326)
						_______

				Head
	Year to 31 December 2012 (Audited)		SMG	Office	Australia	Total
			2012	2012	2012	2012
			£'000	£'000	£'000	£'000
	Revenue		3,754	-	-	3,754
	Cost of sales		(2,851)	-	-	(2,851)
			_______	_______	_______	_______
	Gross profit		903	-	-	903
	Exploration and evaluation expenditure		-	-	(835)	(835)
	Depreciation of railway infrastructure		(86)	-	-	(86)
	Administrative expenses		(603)	(1,258)	(1,495)	(3,356)
			_______	_______	_______	_______
	Segment profit / (loss) from operations		214	(1,258)	(2,330)	(3,374)
	Finance expense		-	(714)	-	(714)
			_______	_______	_______	_______
	Segment profit / (loss) before taxation		214	(1,972)	(2,330)	(4,088)
			_______	_______	_______
	Amortisation of intangible asset					(810)
	Share-based payments charge					(95)
						_______
	Group loss before taxation					(4,993)
						_______

				Head
			SMG	office	Australia	Total
	As at 30 June 2013 (Unaudited)		£'000	£'000	£'000	£'000
	Additions to non-current assets (excluding deferred tax)		-	-	21	21
			_______	_______	_______	_______
	Reportable segment assets (excluding deferred tax)		17,468	1,245	1,497	20,210
			_______	_______	_______	_______
	Reportable segment liabilities		2,509	1,394	190	4,093
			_______	_______	_______
	Deferred tax liabilities					2,986
						_______
	Total Group liabilities					7,079
						_______

	As at 30 June 2012 (Unaudited)		£'000	£'000	£'000	£'000
	Additions to non-current assets		637	-	200	837
			_______	_______	_______	_______
	Reportable segment assets		18,669	770	2,520	21,959
			_______	_______	_______	_______
	Reportable segment liabilities		102	1,310	135	1,547
			_______	_______	_______
	Deferred tax liabilities					4,094
						_______
	Total Group liabilities					5,641
						_______

				Head
			SMG	office	Australia	Total
	As at 31 December 2012 (Audited)		£'000	£'000	£'000	£'000
	Additions to non-current assets (excluding deferred tax)		577	4	698	1,279
			_______	_______	_______	_______
	Reportable segment assets (excluding deferred tax)		19,749	657	1,459	21,865
			_______	_______	_______	_______
	Reportable segment liabilities		1,290	3,691	754	5,735
			_______	_______	_______
	Deferred tax liabilities					3,791
						_______
	Total Group liabilities					9,526
						_______

6.	Operating loss

Costs by nature

		6 months to	6 months to	Year to
		30 June	30 June	31 December
		2013	2012	2012
		(Unaudited)	(Unaudited)	(Audited)
		£'000	£'000	£'000
	Operating loss is stated after charging/(crediting):
	Directors' fees and emoluments	418	194	491
	Auditors' remuneration	10	47	106
	Salaries, wages and other staff related costs	127	221	459
	Operating lease - land and buildings	27	31	59
	Legal, professional and consultancy fees	221	584	1,690
	Travelling and related costs	62	97	140
	Foreign exchange (gain) / loss	(58)	9	64
	Other expenses	170	167	347
		________	________	________
		977	1,350	3,356
		________	________	________

7	Loss per share

Losses per ordinary share have been calculated using the weighted average number of shares in issue during the relevant financial year. The weighted average number of shares in issue during the period was basic 531,305,190 (year to 2012 - 434,531,331; 6 months to 30 June 2012 - 420,687,484) adjusted for the historic share reorganisation and consolidation. Fully diluted the weighted average was 531,305,190 (year to 2012 - 434,531,331; 6 months to 30 June 2012 - 420,687,484). The loss for the financial period was £1,682,000 (year to 2012 as restated - £4,358,000; 6 months to 30 June 2012 as restated - £1,307,000).

As the Group has made a loss for the period, diluted earnings per share is deemed to be the same as the basic earnings per share.

8.	Share capital
		2013	2013	2012	2012
		No	£'000	No	£'000
	Allotted, called up and fully paid
	Ordinary shares	553,825,560	554	448,158,893	448
		__________	__________	__________	__________

On 7 February 2013 the Company completed a private placing of 102,666,667 ordinary shares of £0.001 each at £0.045 per share to raise £4,200,000 net of expenses.

On 27 March 2013 the Company received notice of the exercise of 3,000,000 warrants to subscribe for 3,000,000 new ordinary shares of £0.001 each.

 

END

 

 

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