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Titanium Resources (SRX)

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Wednesday 14 May, 2008

Titanium Resources

Preliminary Results

RNS Number : 3838U
Titanium Resources Group Ltd
14 May 2008
 



Titanium Resources Group Limited 

Preliminary Results



May 14, 2008: Titanium Resources Group ('TRG' or 'the Company') announces preliminary results for the year ended 31 December, 2007. 


Highlights


  • Sales of US$67.8 million in the year (year ended 31 December 2006: US$51.3 million)
  • Loss before interest, tax, depreciation, amortisation and exceptional items of US$0.3 million (year ended 31 December 2006: profit of US$8.3 million) 
  • Loss before taxation US$17 million (year ended 31 December 2006: loss of US$1.5 million)
  • Rutile production up by 12% to 82,530 tonnes (2006, 73,802 tonnes)
  • Ilmenite production up by 14% to 15,750 tonnes (2006, 13,819 tonnes)
  • Bauxite production up by 9% to 1,168,141 tonnes (2006, 1,072,159 tonnes)
  • Completed construction and commissioning of Dredge D2
  • Imported and commenced installation of major components for the Mineral Separation Plant
  • Imported all major components for 30MW HFO fired Power Station and commenced its construction
  • Completed design and imported all the structural elements for Dredge D3: commissioning is expected in early 2009
  • Commenced feasibility study on dry mining project to supplement dredge feed to expanded Mineral Separation Plant

Commenting on the results, TRG Chief Executive Len Comerford said:

'During the last twelve months, the Company has been highly active on all fronts: with good progress made towards extending existing reserves, a doubling of rutile production capacity and improvements in operational efficiencies.


Despite the difficulties associated with the substantial operational improvements which have been our focus over the year, the transformation of our business is now largely complete. Our markets remain robust and the new Government of Sierra Leone has acknowledged the Company's determination to ensure that we have the skills to match the potential of the country's resources and to cope with the competitive pressures in the global mining industry.  


Production of the Company's key minerals increased in the year, with rutile production up by 12%, ilmenite production up by 14% and bauxite production up by 9%.  Production from the Sierra Rutile mine is now at a level which covers both corporate and operating overheads and this is set to continue and improve over the remainder of the current financial year.'



For further information 


Titanium Resources Group 

Len Comerford, Chief Executive

Walter Kansteiner, Non-executive Chairman 

Tel: +44 (0) 207 321 0000 


Nominated Advisor

David Nabarro 

Nabarro Wells & Co. Limited 

Telephone: +44 (0)207 634 4705


Aura Financial 

Michael Oke 

Andy Mills Tel: +44 (0) 207 321 0000


Chief Executive's Review


Despite the difficulties associated with the substantial operational improvements which have been our focus over the year, the transformation of our business is now largely complete. Our markets remain robust and the new Government of Sierra Leone has acknowledged the Company's determination to ensure that we have the skills to match the potential of the country's resources and to cope with the competitive pressures in the global mining industry.  


During the last twelve months, the Company has been highly active on all fronts: with good progress made towards extending existing reserves, a doubling of rutile production capacity and improvements in operational efficiencies. In addition, the Company is also considering its options with regards to its non-core operations. 


In total, we spent US$57 million of expansionary capital expenditure on our operations during the year, an increase of 54% on the previous year. In May 2007, we raised £17.6 million via a placing of shares to support this investment in our operations. 


Production of the Company's key minerals increased in the year, with rutile production up by 12%, ilmenite production up by 14% and bauxite production up by 9%.  Production from the Sierra Rutile mine is now at a level which covers both corporate and operating overheads and this is set to continue and improve over the remainder of the current financial year.


We have also announced a number of Board changes during the year and I am delighted to welcome the new appointees to the Board.


Production


The Sierra Rutile mine produced 82,530 tonnes of rutile and, 15,750 tonnes of high TiOilmenite in the year. In addition, we produced 1,168,141 tonnes of bauxite from the Sierra Minerals mine, slightly below the mines historic production capacity of 1.2 million tonnes per annum. This result was achieved despite power shortages in the first six months of 2007 which were then resolved such that production for the second half of 2007 remained steady.


Work to upgrade the land plant at Sierra Rutile has progressed well and the plant now has the capacity to process the increased production from Dredges D1 and D2 whilst also providing improved rutile recovery.


Although Dredge D2 commenced production on schedule in January 2008, after the end of the year we experienced reliability problems with the dredge which negatively impacted production and resulted in increased costs on a per tonne basis. This was due to the failure of a number of its components. However, following rapid remedial action we alleviated the problem and first shipments of product from Dredge D2 were made in the first quarter of 2008 as planned. 


Operations at the port of Nitti ran smoothly throughout the year, with no major problems. Operating our own port has meant that the mines have been very successful in minimising port and demurrage costs which are a major concern to the industry as a whole. Following ongoing work to upgrade the marine fleet at Nitti we will be able to further reduce demurrage costs in the year ahead.

 

Progress on the development of Dredge D3 has been less positive. We are currently re-evaluating the programme for the construction of the dredge and our dredge building team is now fully focused on developing the project as rapidly as possible. The results of this re-evaluation will be completed shortly and once an accurate commissioning date has been determined we will inform investors. At this stage we expect to commission Dredge D3 in early 2009.


We are particularly excited by the prospects for introducing dry mining at Sierra Rutile following the successful completion of a feasibility study in the year. Dry mining will enable us to mine a number of high grade deposits more efficiently and at lower cost than by dredging, whilst also giving us increased options in relation to the blending of product. 


Other major projects underway during the year have included upgrades to rutile storage facilities, the completion of all preparation works on the Lanti South Deposit which will be mined by Dredge D1 shortly and the completion of feasibility study on a zircon upgrade plant.  




Financials


The Company generated sales of US$67.8 million in the year, representing an increase of 32.2% on the prior year. Attributable losses before taxation of US$17 million (2006 US$1.5 million) resulted in part from a shortfall in production which led to a reduction in planned sales by US$9 million and which was compounded by an increase in fuel costs of US$3 million.  Costs were also impacted by unrealised foreign exchange losses of just over US$3 million arising on retranslation of the Euro denominated European Union loan and increased operating costs at our bauxite operation of just under US$ 4 million.


The Company also used US$57 million of cash in investing activities during the year, mainly in the acquisition of property, plant and equipment underlining our commitment to expand and develop our operations. This sum principally relates to expenditures on Dredge D2 and D3, the upgrading of the land plant and the construction of the new power station at Sierra Rutile. 



Cost Structure


Although prices for our rutile products increased during the year, we have, like other mining companies, seen a rise in the operating costs, including fuel costs. In order to ensure that Sierra Rutile becomes the largest lowest-cost producer in the world, we are continuing to invest in certain key capital assets, in particular our Heavy Fuel Oil ('HFO') power station. The construction of this new power station is a crucial element in reducing production costs on site. There is no mains power available to us and with diesel prices increasing by 42% in 2007 it is a key element in our cost reduction strategy.  Fuel represents a significant element of our operating costs and we believe that the new HFO plant will reduce fuel costs by approximately 50%, saving the Company nearly US$1 million a month.


All of the key elements of the power station have been delivered and the generators have been assembled and are ready to be transferred to the operation from our port at Nitti. Major civil engineering work has also been completed and we expect the project to be completed in the autumn of this year.


Marketing


Demand for rutile and ilmenite continued to remain high during the year, and new contracts were negotiated with major titanium dioxide pigment producers. In addition, distributor agreements were also successfully initiated with respect to the sales of industrial grade rutile for consumption in the welding rod industry.


The outlook for 2008 is promising in terms of titanium mineral sales, with high demand from the titanium pigment, titanium sponge, and welding rod industries, and the Company anticipates that sales will match production.


Bauxite continued to be sold on contract to Alcoa and Glencore, with a price increase negotiated during the year.


Exploration


The Company's exploration programmes continued to focus on areas outside of current mining plans but within the Company's mining licences.  However, we also initiated an exploration programme on the Turners' Peninsula concession located 40km from the current operations.


The Sierra Rutile exploration strategy is initially to concentrate on increasing the resource base in current and planned dredge mining areas to ensure the longevity of our dredge operations whilst also minimising the capital expenditure associated with moving dredges to new deposits.  Further optimisation of the Sierra Rutile dredge mine plans is currently underway on the basis of drilling results from 2007 and we expect to publish a JORC compliant reserve and resource upgrade for Sierra Rutile in October 2008.  A comprehensive re-evaluation of our Sierra Minerals bauxite tenement was carried out in the year. A number of potential bauxite areas have been identified, which require further drilling. The Company has already identified additional material to be mined. Progress in exploring the bauxite deposit has been greatly assisted by the return of Paul McGrane as General Manager. Paul worked on the mine prior to its closure in 1995, and has extensive knowledge of the deposit and the Sierra Minerals facilities which has proved invaluable as many of the records were destroyed or lost whilst the mine was not in operation.


Towards the end of the year, initial drilling commenced in our Exclusive Prospecting Licence on Turners' Peninsular, a 1,742km2 area along the south eastern coast of Sierra Leone. Initial exploration and historic records from the Geological Survey of Sierra Leone indicates the presence of heavy minerals, comprising ilmenite, zircon, rutile and monazite.  Suites of samples have been collected, which have been sent to Australia for detailed analysis to determine potential mineralogical changes along strike of the identified beach sequences and to provide preliminary information on the quality of individual heavy minerals.  


Outlook 


Marketing of the additional rutile and ilmenite production arising from Dredge D2 has not been difficult. The demand for premium end product has grown and prices have been increasing. Marketing of material from Dredge D3 is underway but, with current demand already outpacing the growth in supply, the outlook appears positive for future sales. Much of the demand has been generated from existing customers so we believe that further demand may be available from untapped markets should additional production from dry mining, for instance, be initiated. 


Our relationship with the new Government in Sierra Leone remains very positive. As we are one of the biggest employers and foreign exchange generators in the country our partnership with the Government is based on a mutual understanding of the benefits that our success can bring to the country as a whole.


The issues pertaining to Dredge 2 production losses have been resolved and we are confident that the dredge is now consistently operating at a profitable level of production.  We have amended the mine plan based on exploration information and the processing characteristics of the ore contained in the deposits and both Dredges D1 and D2 are now on slightly different paths from those originally planned.  This will enable us to recover from the lower than expected initial production from Dredge D2.  


The Company is looking at other exploration projects both within Sierra Leone and overseas in order to further enhance its overall resource base.







Notes


2007


2006

ASSETS 



USD'000


USD'000

Non-current assets






Property, plant and equipment

5


  142,348 


  92,665 

Intangible assets

6


  13,150 


  13,115 

Non-current receivables

9


  753 


  753 

Deferred tax assets

10 (a)


  86,879 


  86,373 





  243,130 


  192,906 








Current assets






Inventories

11


  14,890 


  15,054 

Trade and other receivables

12


  21,562 


  14,275 

Current tax assets

18 (d)


  211 


  - 

Cash and cash equivalents

28( c)


  25,731 


  52,393 





  62,394 


  81,722 








Total assets



  305,524 


  274,628 








EQUITY AND LIABILITIES






Capital and reserves






Share capital 

13


  237,041 


  198,160 

Revenue reserve



  4,154 


  20,869 

Equity holders' interest



  241,195 


  219,029 








LIABILITIES






Non-current liabilities






Borrowings

15


  44,119 


  36,856 

Provisions for liabilities and charges

16


  2,833 


  2,150 





  46,952 


  39,006 








Current liabilities






Trade and other payables

17


  17,233 


  16,464 

Current tax liabilities

18 (d)


  - 


  85 

Borrowings

15


  144 


  44 





  17,377 


  16,593 

Total liabilities



  64,329 


  55,599 








Total equity and liabilities



  305,524 


  274,628 



These financial statements have been approved for issue by the Board of Directors on :-




)







)

DIRECTORS






)




The notes form an integral part of these financial statements.







Notes


2007


2006





USD'000


USD'000








Sales

2 (o)


  67,849 


  51,304 








Cost of sales

20


  (72,261)


  (44,621)








Gross (loss)/profit



  (4,412)


  6,683 








Other income

22


  2,618 


  2,812 








Administrative and marketing expenses

20


  (6,281)


  (7,078)












  (8,075)


  2,417 








Exceptional item

23


  (2,445)


  (2,200)








Finance costs

24


  (6,497)


  (1,694)








Loss before taxation

19


  (17,017)


  (1,477)








Taxation

18 (a)


  302 


  35,923 








(Loss)/profit for the year attributable 






to equity holders of the group



  (16,715)


  34,446 








(Loss)/earnings per share (USD)






- basic

26 (a)


  (0.07)


  0.16 

- diluted

26 (b)


  (0.07)


  0.15 
































The notes form an integral part of these financial statements.









Revenue





Share


reserve/





capital


(deficit)


Total



USD'000


USD'000


USD'000








Balance at January 1, 2007

  198,160 


  20,869 


  219,029 

Issue of share capital

  34,658 


  -  


  34,658 

Employee share options:






 - value of employee services

  3,984 


  -  


  3,984 

 - shares issued on exercise of options

  239 


  -  


  239 

Loss for the year

  -  


  (16,715)


  (16,715)

At December 31, 2007

  237,041 


  4,154 


  241,195 








Balance at January 1, 2006

  194,951 


  (13,577)


  181,374 

Employee share options:






 - value of employee services

  3,209 


  -  


  3,209 

Profit for the year

  -  


  34,446 


  34,446 

At December 31, 2006

  198,160 


  20,869 


  219,029 































































































The notes form an integral part of these financial statements.








Notes


2007


2006





USD'000


USD'000

Cash flows from operating activities






Cash (absorbed in)/ generated from operations

28(a)


  (5,913)


  7,308 

Interest received



  2,182 


  2,542 

Interest paid



  (81)


  (60)

Tax paid



  (500)


  (71)

Net cash (used in)/generated from operating activities


  (4,312)


  9,719 








Cash flows from investing activities






Purchase of property, plant and equipment



  (57,399)


  (37,215)

Purchase of intangible assets



  (78)


  (167)

Proceeds from disposal of plant



  14 


  -  

Loans and advance granted



  -  


  (26)

Investments in financial assets



  -  


  (2,200)

Net cash used in investing activities



  (57,463)


  (39,608)








Cash flows from financing activities






Issue of ordinary shares



  34,658 


  -  

Proceeds from exercise of options



  355 


  -  

Proceeds from long term borrowings



  -  


  2,556 

Net cash from financing activities



  35,013 


  2,556 








Net decrease in cash and cash equivalents



  (26,762)


  (27,333)








Movement in cash and cash equivalents






At January 1,



  52,349 


  79,682 

Decrease



  (26,762)


  (27,333)

At December 31,

28(c)


  25,587 


  52,349 















The notes form an integral part of these financial statements.











1.

GENERAL INFORMATION























Titanium Resources Group Ltd is a public limited liability company incorporated and domiciled in the 



British Virgin Islands. The address of its registered office is at P.O.Box 4301, Trinity Chambers, Road Town,



Tortola, British Virgin Islands.























These financial statements will be submitted for consideration and approval at the forthcoming Annual



Meeting of shareholders of the group.





















2.

SIGNIFICANT ACCOUNTING POLICIES






















The principal accounting policies adopted in the preparation of these financial statements are set out below.


These policies have been consistently applied to all the years presented, unless otherwise stated.














(a)

Basis of preparation























The financial statements of Titanium Resources Group Ltd have been prepared in accordance with 



International Financial Reporting Standards (IFRS). Where necessary, comparative figures have been 



amended to conform with change in presentation in the current year. The financial statements are prepared 



under the historical cost convention, except that available-for-sale investments are stated at their fair value.















Amendments to published standards, Standards and Interpretations issued but not yet effective.



Certain standards, amendments to published standards and interpretations have been issued that are



mandatory for accounting periods beginning on or after 1 January 2008 or later periods but which the



Group has not early adopted.























Except for IFRS 8, 'Operating segments', the revised IAS 1, 'Presentation of Financial Statements' and



the amendment to IAS 23 'Borrowing costs' (effective for periods on or after 1 January 2009) , these 



standards, amendments and interpretations are not relevant to the Group's operations.
















IFRS 8 and the revised IAS 1 are disclosure requirements only and will not when adopted, affect the results



of the Group. The amendment to IAS 23 eliminates the alternative treatment of expensing borrowing costs on


qualifying assets. The revised IAS 1 affects the presentation of owner changes in equity and of comprehensive


income.























The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting 


estimates. It also requires management to exercise its judgement in the process of applying the group's 



accounting policies. The areas involving a higher degree of judgement or complexity, or areas where 



assumptions and estimates are significant to the financial statements, are disclosed in Note 4.



2.

SIGNIFICANT ACCOUNTING POLICIES (CONT'D)




















(b)

Investment in subsidiaries











Consolidated financial statements











The consolidated financial statements incorporate the financial statements of the company and enterprises 



controlled by the company (its subsidiaries) made up to December 31, each year. Control is achieved where the 


company has the power to govern the financial and operating policies of an investee enterprise so as to obtain 


benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in 


the consolidated income statement from the date of their acquisition or up to the date of their disposal. 















The consolidated financial statements have been prepared in accordance with the purchase method. The excess 


of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is 



recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary 



acquired, the difference is recognised directly in the income statement in the year of acquisition. The results of 


subsidiaries which are not consolidated are brought into the financial statements to the extent of dividends 



received.























All significant intercompany transactions, balances and unrealised gains on transactions between group 



companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of


an impairment of the asset transferred.






















Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting



policies used in line with those adopted by the Group.  



















(c)

Property, plant and equipment























Property, plant and equipment are stated at historical cost less accumulated depreciation. The cost of self-



constructed assets includes the cost of materials, direct labour and an appropriate proportion of production 


overheads. Cost also includes environmental decommissioning costs that are recognised as a liability.















Depreciation is provided on a straight-line basis over the estimated useful lives of the assets.
















Where an item of property, plant and equipment comprises major components with different useful lives, the 


components are accounted for as separate items of property, plant and equipment.

















Subsequent expenditure relating to an item of property, plant or equipment is capitalised when it is probable 


that the future economic benefits from the use of the asset will increase by more than the expenditure incurred.  


All other subsequent expenditure is recognised as an expense in the period in which it is incurred.






































2.

SIGNIFICANT ACCOUNTING POLICIES (CONT'D)




















(c)

Property, plant and equipment (cont'd)






















Deposit, exploration, evaluation, mine development expenditure and deferred project expenditure















In respect of deposit, minerals, exploration, evaluation, and deferred project, expenditure is charged to the 



income statement as incurred except where:










-

it is expected that the expenditure will be recouped by future exploitation or sale; or




substantial exploration and evaluation activities have identified a mineral resource but these activities 




have not reached a stage which permits a reasonable assessment of the existence of commercially 




recoverable reserves in which case the expenditure is capitalised.


















Expenditure relating to both deposit and dam development and mine development are accumulated separately 


for each identifiable area of interest. Such expenditure comprises net direct costs and an appropriate portion 


of related overhead expenditure.























Expenditure is carried forward when incurred in areas where economic mineralisation is indicated, but activities 


have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable 


reserves, and active and significant operations in relation to the area are continuing. Each such project is 



regularly reviewed. If the project is abandoned or it is considered unlikely that the project will proceed to 



development, accumulated costs to that point are written off immediately. 


















Each area of interest is limited to a size related to a known or probable mineral resource capable of supporting 


a mining operation. Projects are advanced to development status when it is expected that accumulated and 



future expenditure can be recouped through project development or sale.


















Expenditure relating to other expenses consists primarily of costs which provides benefit to the development 


of the Mine in general and is not specifically identifiable to a particular project. 


















Mining leases











The Group's mining leases are of sufficient duration (or convey a legal right to renew for sufficient duration) to


enable all reserves on the leased properties to be mined in accordance with current production schedules.






















































2.

SIGNIFICANT ACCOUNTING POLICIES (CONT'D)




















(d)

Amortisation and depreciation























Amortisation of deferred project expenditure is based on the estimated useful life of the asset to which the



expenditure relates.























Depreciation is provided at rates calculated to write off the cost of fixed assets to their residual value



value over their estimated useful lives as follows:






















Building


- 4%








Infrastructure


- 5%








Plant, machinery & equipment


- 5% to 20%








Vehicles


- 3 to 5 years








Mineral rights


- Based on the estimated life of reserves




Exploration, evaluation and mine development 

- Based on the estimated life on proven and




expenditure, and expenditure on mineral rights

  probable reserves


















Changes in estimates are accounted for over the estimated remaining economic life of the remaining 



commercial reserves of each project as applicable. 




















(e)

Intangible assets























(i)

Goodwill












Goodwill represents the excess of cost of acquisition over the Group's interest in the fair value 




of the net identifiable assets of the acquired subsidiaries at the date of acquisition.

















Goodwill on acquisitions of subsidiaries is included in intangible assets. Any net excess of the 




Group's interest in the net fair value of acquiree's net identifiable assets over cost is recognised 




in the income statement.
























Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses.  




On disposal of a subsidiary, the attributable amount of goodwill is included in the determination 




of the gains and losses on disposal.  























Goodwill is allocated to cash-generating units for the purpose of impairment testing.  
















(ii)

Computer software












Acquired computer software licences are capitalised on the basis of costs incurred to acquire 




and bring to use the specific software and are amortised over their estimated useful lives estimated 




to be 5 years.






















2.

SIGNIFICANT ACCOUNTING POLICIES (CONT'D)




















(f)

Impairment of assets























Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment.  


Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances 


indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by 


which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher 


of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are 


grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).














(g)

Foreign currencies























(i)

Functional and presentation currency











Items included in the financial statements of each of the group's entities are measured using 




United States Dollars, the currency of the primary economic environment in which the entity operates 




('functional currency'). The consolidated financial statements are presented in United States Dollars, 




which is the group's functional and presentation currency.




















(ii)

Transactions and balances












Foreign currency transactions are translated into the functional currency using the exchange rates 




prevailing on the dates of the transactions. Foreign exchange gains and losses resulting from the 




settlement of such transactions and from the translation at year-end exchange rates of monetary assets 



and liabilities denominated in foreign currencies are recognised in the income statement except when 




deferred in equity as qualifying cashflow hedges and qualifying net investment hedges.

















Non-monetary items that are measured at historical cost in a foreign currency are translated using the 




exchange rate at the date of the transaction.  























Non-monetary items that are measured at fair value in a foreign currency are translated using the 




exchange rates at the date the fair value was determined.  





























































2.

SIGNIFICANT ACCOUNTING POLICIES (CONT'D)




















(h)

Financial instruments























(i)

Financial assets












Categories of financial assets












The group classifies its financial assets as available-for-sale financial assets.


















The classification depends on the purpose for which the investments were acquired. Management




determines the classification of its financial assets at initial recognition.


















(a)

Available-for-sale financial assets











Available for sale financial assets are non-derivatives that are either designated in this category 




or not classified in any of the other categories. They are included in non-current assets unless 




management intends to dispose of the investment within twelve months of the balance sheet date.
















Initial measurement












Purchases and sales of financial assets are recognised on trade date, the date on which the 




company commits to purchase or sell the asset. Investments are initially measured at fair value 




plus transaction costs for all financial assets except those that are carried at fair value through 




profit or loss.
























Subsequent measurement












Available-for-sale financial assets are subsequently carried at their fair values.

















Investments in equity instruments that do not have a quoted market price in an active market




and whose fair value cannot be reliably measured are measured at cost.



















Unrealised gains and losses arising from changes in the fair value of financial assets classified 




as available-for-sale are recognised in equity. When financial assets classified as available-for-




sale are sold or impaired, the accumulated fair value adjustments are included in the income 




statement as gains and losses on financial assets.





















The fair values of quoted investments are based on current bid prices. If the market for a 





financial asset is not active, the Group establishes fair value by using valuation techniques.  




These include the use of recent arm's length transactions and reference to other instruments 




that are substantially the same.









2.

SIGNIFICANT ACCOUNTING POLICIES (CONT'D)




















(h)

Financial instruments (cont'd)























(a)

Available-for-sale financial assets (cont'd)























Impairment of financial assets












The group assesses at each balance sheet date whether there is objective evidence that a





financial asset or a group of financial assets is impaired. In the case of financial assets classified 




as available-for-sale, a significant or prolonged decline in the fair value of the security below 




its cost is considered in determining whether the securities are impaired. If any such evidence 




exists for available-for-sale financial assets, the cumulative loss - measured as the difference 




between acquisition cost and the current fair value, less any impairment loss on that financial 




asset previously recognised in equity - is removed from equity and recognised in the income




statement.
























If the fair value of a previously impaired debt security increases and the increase can be 





objectively related to an event occuring after the impairment loss was recognised, the impairment 




loss is reversed and the reversal recognised in the income statement. Impairment losses for




an investment in an equity instrument are not reversed through the income statement.
















(ii)

Long term receivables












Long term receivables with fixed maturity terms are measured at amortised cost using the effective




interest rate method, less provision for impairment. The carrying amount of the asset is reduced 




by the difference between the asset's carrying amount and the present value of estimated cash flows 




discounted using the effective interest rate. The amount of loss is recognised in the income 




statement. Long term receivables without fixed maturity terms are measured at cost. If there is objective 



evidence that an impairment loss has been incurred, the amount of impairment loss is measured as the 




difference between the carrying amount of the asset and the present value (PV) of estimated cash flows 



discounted at the current market rate of return of similar financial assets. 


















(iii)

Trade receivables












Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using 



the effective interest method, less provision for impairment. A provision for impairment of trade receivables 



is established when there is objective evidence that the Group will not be able to collect all amounts 




due according to the original terms of receivables. The amount of the provision is the difference between 



the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective 



interest rate. The amount of provision is recognised in the income statement.




2.

SIGNIFICANT ACCOUNTING POLICIES (CONT'D)




















(h)

Financial instruments (cont'd)























(iv)

Trade payables












Trade payables are stated at fair value and subsequently measured at amortised cost using the effective



interest method.























(v)

Borrowings












Borrowings are recognised initially at fair value being their issue proceeds net of transaction costs incurred. 















Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction 



costs) and the redemption value is recognised in the income statement over the period of the borrowings using 



the effective interest method.
























Preference shares, which are mandatorily redeemable on a specific date, are classified as liabilities. The 



dividends on these preference shares are recognised in the income statement as interest expense.
















Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement 



of the liability for at least twelve months after balance sheet date.


















(vi)

Cash and cash equivalents












Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly



liquid investments with original maturities of 3 months or less, and bank overdrafts. Bank overdrafts are 



shown within borrowings in current liabilities on the balance sheet.


















(vii)

Share capital












Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares



or options are shown in equity as deduction, net of tax, from proceeds.

















(i)

Inventories























Inventories are stated at the lower of cost or net realisable value where cost is defined as follows:















Titanium bearing minerals

- Production cost and attributable overheads






Concentrates

- Production cost









Washed bauxite

- Production cost and attributable overheads






Stockpiles

- Production cost









Materials

- Average cost










Fuel and sundry expenses

- Purchase cost









Goods-in-transit

- Invoice cost excluding freight




















Net realisable value is the estimate of the selling price in the ordinary course of business, less the costs of



completion and selling expenses.  



















2.

SIGNIFICANT ACCOUNTING POLICIES (CONT'D)




















(j)

Deferred income taxes























Deferred income tax is provided in full, using the liability method, on temporary differences arising between 



the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, if the 


deferred income tax arises from initial recognition of an asset or liability in a transaction, other than a business 


combination, that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not 



accounted for.























Deferred income tax is determined using tax rates that have been enacted by the balance sheet date and are 



expected to apply in the period when the related deferred income tax asset is realised or the deferred income 


tax liability is settled.  























Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available 



against which deductible temporary differences can be utilised.  



















(k)

Agricultural Development Fund























The Group commits the higher of 0.1% (one tenth of one percent) of gross sales revenue in US dollars for each


year (for rutile and ilmenite, it is based on gross sales free alongside ship at the Sierra Leone Port of Shipment) 


or USD75,000 and this shall be used exclusively for the development of agriculture in the areas affected by 



operations under the mining lease or in areas adjacent thereto within the same chiefdom. The annual amounts 


are paid over to the separate fund set up and controlled by the GOSL, Chiefdom representatives, and the 



Company's representatives.






















(l)

Borrowing costs























Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are



capitalised until such time as the assets are substantially ready for their intended use or sale. Other borrowing 


costs are expensed.






















(m)

Retirement benefit obligations























Short-term employee benefits











The cost of all short-term employee benefits is recognised during the period in which the employees render the 


related service.























Long-term employee benefits











The Group does not operate any retirement benefit plan for its employees. For Sierra Leone based companies, 


the companies make a contribution of 10% of the employees basic salary to the National Social Security and 


Insurance Trust for payment of pension to staff on retirement. The employees also contribute 5% of their basic 


salary to the Trust.










2.

SIGNIFICANT ACCOUNTING POLICIES (CONT'D)




















(m)

Retirement benefit obligations (cont'd)










Share options scheme











The Group operates a share option scheme. The fair value of the employee services received in exchange for 


the grant of the options was recognised as an expense up to May 16, 2007, date on which the conditions 



pertaining to ''consideration to be paid on exercise of the option'' were changed. Henceforth, the consideration 


values of the options vesting are accounted as receivables. The total amount to be expensed over the vesting 


period is determined by reference to the fair value of the options granted. At each balance sheet date, the entity 


revises its estimates of the number of options that are expected to become exercisable. It recognises the impact 


of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity


 over the remaining vesting period.





















(n)

Provision for rehabilitation























Costs of reclamation and rehabilitation are assessed on a regular basis and estimated costs are provided over the 


life of the Mine. The expenditure and provisions include costs of labour, materials, and equipment required to 


rehabilitate disturbed areas, cost of reclamation, plant and infrastructure closure and subsequent environmental 


monitoring. The estimates are not discounted and are based on current costs, legislature and community 



requirements and technology. Expenditure relating to ongoing rehabilitation and restoration programmes is



charged against the provisions made.





















(o)

Revenue recognition























Revenue comprises the fair value for the sale of goods and services, net of value-added tax, rebates and 



discounts and after eliminating sales within the Group.




















Sales of goods are recognised when goods are delivered and title has passed. Sales of services are recognised 


in the accounting year in which the services are rendered (by reference to completion of the specific transaction 


assessed on the basis of the actual service provided as a proportion of total services to be provided).















Other revenues earned by the Group are recognised on the following bases:


















•  

Interest income - on a time-proportion basis using the effective interest method. When a receivable is 




impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash 



flow discounted at original effective interest rate, and continues unwinding the discount as interest income.  



Interest income on impaired loans is recognised either as cash is collected or on a cost recovery basis as 



conditions warrant.











•  

Dividend income - when the shareholder's right to receive payment is established.















(p)

Provisions























Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events;



it is probable that an outflow of resources that can be reliably estimated will be required to settle the obligation.














Provisions for restructuring costs are recognised when the Group has a detailed formal plan for the restructuring 


which has been notified to affected parties and comprise lease termination penalties and employee termination 


payments. Provisions are not recognised for future operating losses.

















3.

FINANCIAL RISK MANAGEMENT


















3.1

Financial risk factors




















The Group's activities expose it to a variety of financial risks:







(a) market risk (including currency risk, fair value interest risk and price risk);






(b) credit risk;










(c) liquidity risk; 










(d) cash flow interest-rate risk; and









(e) country risk.  




















The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks 



to minimise potential adverse effects on the Group's financial performance. 
















A description of the significant risk factors is given below together with the risk management policies applicable.











(a)

Market risk




















Currency risk










The Group operates internationally and is exposed to foreign exchange risk arising from various currency 



exposures, primarily with respect to Euro and Sterling. Foreign exchange risk arises from future commercial 



transactions, recognised assets and liabilities and net investments in foreign operations. The Group 




places its excess of liquidity in stable currencies as a means to hedge its exposure to foreign currency risks.












(b)

Credit risk










The Group's credit risk is primarily attributable to its trade receivables. The amounts presented in the balance 



sheet are net of allowances for doubtful receivables, estimated by the Group's management based on prior 



experience and the current economic environment.


















The Group has no significant credit risk for the time being, as sales are based on off-take agreements with 



corporate customers. The Group has policies in place to ensure that sales of products and services are 



made to customers with an appropriate credit history.

















(c)

Liquidity risk










Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through 



an adequate amount of committed credit facilities. The Group aims at maintaining flexibility in funding by 



keeping committed credit lines available.






































3.

FINANCIAL RISK MANAGEMENT (CONT'D)

















3.1

Financial risks factors (cont'd)



















(c)

Liquidity risk (cont'd)




















Management monitors rolling forecasts of the Group's liquidity reserve on the basis of expected cash flow.



Forecasted liquidity reserve as of December 31, 2007 is as follows:











2008

2009









USD'000

USD'000





Opening balance for the period




  25,587 

  8,468 





Operating proceeds




  93,022 

  139,491 





Operating outflows




  (81,536)

  (85,777)





Outflows - Investing activities




  (49,335)

  (21,674)





Financing proceeds




  25,000 

  -  





Payments of debts




  (4,270)

  (21,658)





Closing balance for the year




  8,468 

  18,850 















The table below analyses the Group's financial liabilities into relevant maturity groupings based on the



remaining period at the balance sheet to the contractual maturity date.  



















Less than

Between 1

Between 2

Over







1 year

and 2 years

and 5 years

5 years















At December 31, 2007










Bank borrowings - overdraft


  144 

  -  

  -  

  -  





Government of Sierra Leone loan

  -  

  -  

  14,367 

  29,752 





Trade and other payables (including tax)

  17,233 

  -  

  -  

  -  







  17,377 

  -  

  14,367 

  29,752 





At December 31, 2006










Bank borrowings - overdraft


  44 

  -  

  -  

  -  





Government of Sierra Leone loan

  -  

  -  

  4,745 

  32,111 





Trade and other payables (including tax)

  16,549 

  -  

  -  

  -  







  16,593 

  -  

  4,745 

  32,111 














(d)

Cash flow and fair value interest rate risk









As the Group has significant interest-bearing assets, its income and operating cash flows are substantially



dependent on changes in market interest rates. The Group's interest rate risk arises from long-term borrowings.



Borrowings issued at variable rates expose the Group to cash flow interest-rate risk. Borrowings issued



at fixed rates expose the Group to fair value interest-rate risk.  

















Group policy is to maintain all its borrowings in fixed rate instruments. At year end, all borrowings 




were at fixed rates.  



















(e)

Country risk










The Group has two operating subsidiaries, namely Sierra Rutile Limited and Sierra Mineral Holdings 1 Limited, based




at Sierra Leone. The Group has taken appropriate insurance cover to mitigate exposure to the risks present there. 


3.

FINANCIAL RISK MANAGEMENT (CONT'D)

















3.2

Fair value estimation




















The nominal value less estimated credit adjustments of trade receivables and payables are assumed to 



approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by 



discounting the future contractual cash flows at the current market interest rate that is available to the Group



for similar financial instruments.



















3.3

Capital risk management




















The Group's objectives when managing capital are:








• to safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for



  shareholders and benefits for other stakeholders, and


















• to provide an adequate return to shareholders by pricing products commensurately with the level of risk.













The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes 



adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying



assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid



to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.















Consistently with others in the industry, the Group monitors capital on the basis of the debt-to-adjusted capital



ratio. This ratio is calculated as net debt to adjusted capital. Net debt is calculated as total debt (as shown in the 


Balance sheet) less cash and cash equivalents. Adjusted capital comprises all components of equity (ie share capital, 


share premium, minority interest, retained earnings, and revaluation reserve) other than amounts recognised in equity 


relating to cash flow hedges, and includes some forms of subordinated debt.
















During 2007, the Group's strategy was to maintain the debt-to-capital ratio at the lower end of the range 1:13 to 1:9, in


order to secure access to finance at a reasonable cost. The debt-to-capital ratios at 31 December 2007 and at 



31 December 2006 were as follows:























2007

2006









USD'000

USD'000





Total debt




  44,263 

  36,900 





Less: cash and cash equivalents



  (25,731)

  (52,393)





Net debt




  18,532 

  (15,493)















Total equity




  241,195 

  219,029 















Debt-to-capital ratio




1:13 

N/A















The increase in the debt-to-capital ratio during 2007 resulted primarily from the cash absorbed in operations



and increasing investment in capital assets. As a result, cash and cash equivalent decreased. The group expects to 


increase its gearing ratio closer to 1:4 through the contracting of new debts and the payment of dividends.



4.

CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS




















Estimates and judgements are continuously evaluated and are based on historical experience and other factors, 


including expectations of future events that are believed to be reasonable under the circumstances.














4.1

Critical accounting estimates and assumptions






















The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, 


by definition, seldom equal the related actual results. 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.






















(a)

Estimated impairment of goodwill











The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting 


policy stated in Note 2(e)(i). These calculations require the use of estimates (note 6).




5.

PROPERTY, PLANT AND EQUIPMENT





















Infrastructure

Plant, machinery and equipment




Marine fleet

Mineral sand prospect and Mine development


Capital work in progress




Exploration





Total








USD'000


USD'000


USD'000


USD'000


USD'000


USD'000


USD'000




(a)

COST



















At January 1, 2007


  19,827 


  131,242 


  1,303 


  41,314 


  41,579



  30 



  235,295 


Addition


  442 


  11,981 


  -  


  6,747 


  37,184 



  1,045 



  57,399 


Transfer


  72 


  (72)


  -  


  -  


  -  



  -  



  -  


Disposal


  -  


  (21)


  -  


  -  


  -  



  -  



  (21)


At December 31, 2007


  20,341 


  143,130 


  1,303 


  48,061 


  78,763 



  1,075 



  292,673 




















DEPRECIATION


















At January 1, 2007


  14,202 


  102,729 


  130 


  25,401 


  168 



  -  



  142,630 


Charge for the year


  576 


  5,380 


  130 


  1,623 


  -  



  -  



  7,709 


Transfer


  7 


  (7)


  -  


  -  


  -  



  -  



  -  


Disposal adjustment


  -  


  (14)


  -  


  -  


  -  



  -  



  (14)


At December 31, 2007


  14,785 


  108,088 


  260 


  27,024 


  168 



  -  



  150,325 




















NET BOOK VALUES


















At December 31, 2007


  5,556 


  35,042 


  1,043 


  21,037 


  78,595 



  1,075 



  142,348 

  

5.

PROPERTY, PLANT AND EQUIPMENT (CONT'D)























Infrastructure

Plant, machinery and equipment




Marine fleet

Mineral sand prospect and Mine development


Capital work in progress




Exploration





Total







USD'000


USD'000


USD'000


USD'000


USD'000



USD'000


USD'000



(b)

COST



















At January 1, 2006


  14,216 


  106,898 


  324 


  27,763 


  48,879 



  -  


  198,080 




Addition


  87 


  2,471 


  979 


  7,687 


  25,961 



  30 


  37,215 




Transfers


  5,524 


  21,873 


  -  


  5,864 


  (33,261)



  -  


  -  




At December 31, 2006


  19,827 


  131,242 


  1,303 


  41,314 


  41,579 



  30 


  235,295 























DEPRECIATION



















At January 1, 2006


  13,668 


  98,241 


  -  


  24,724 


  168 



  -  


  136,801 




Charge for the year


  534 


  4,488 


  130 


  677 


  -  



  -  


  5,829 




At December 31, 2006


  14,202 


  102,729 


  130 


  25,401 


  168 



  -  


  142,630 























NET BOOK VALUES



















At December 31, 2006


  5,625 


  28,513 


  1,173 


  15,913 


  41,411 



  30 


  92,665 






















(c)

Expenditure capitalised in respect of the construction in progress amounted to USD 37m (2006: USD 26m). As at December 31, 2007, Powerhouse 2, Dredge 2,

Dredge 3 and Land Plants Upgrade constructions were ongoing. Therefore no depreciation was charged. Similarly, depreciation has not been charged

where the assets are presently not in the condition necessary to operate in the manner intended by management.


(d)


Depreciation charge of USD 7,709,000 (2006: USD 5,829,000) has been charged in cost of sales.














6.

INTANGIBLE ASSETS








Computer














software












Goodwill


costs


Total










USD'000


USD'000


USD'000


(a)

COST














At January 1, 2007






  12,876 


  282 


  13,158 



Addition during the year






  -  


  78 


  78 



At December 31, 2007






  12,876 


  360 


  13,236 

















AMORTISATION













At January 1, 2007






  -  


  43 


  43 



Charge for the year






  -  


  43 


  43 



At December 31, 2007






  -  


  86 


  86 

















NET BOOK VALUE













At December 31, 2007






  12,876 


  274 


  13,150 
















(b)

COST














At January 1, 2006






  12,876 


  115 


  12,991 



Addition during the year






  -  


  167 


  167 



At December 31, 2006






  12,876 


  282 


  13,158 

















AMORTISATION













At January 1, 2006






  -  


  6 


  6 



Charge for the year






  -  


  37 


  37 



At December 31, 2006






  -  


  43 


  43 

















NET BOOK VALUE













At December 31, 2006






  12,876 


  239 


  13,115 
















(c)

Amortisation charge of USD 43,000 (2006: USD 37,000) has been charged in cost of sales.















(d)

Impairment tests for goodwill: goodwill is allocated to the Group's cash-generating units identified


according to country of operation and business activity.







 

To view the full text of this press release, click on the link below:


http://www.rns-pdf.londonstockexchange.com/rns/3838U_1-2008-5-14.pdf

This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
FR GGGMKVDGGRZG