Final Results

UMC Energy Corporation

("UMC" or the "Company")

Final Results

For the year ended 31 December 2013

The Directors present the results of the UMC Energy Corporation consolidated entity, being the Company and its subsidiaries ("Group") and the Group's interest in associates, for the year ended 31 December 2013.

The financial statements are presented in United States dollars which is the Group's functional currency.

Principal activities and review of business

The principal activity of the Group is investment directly and indirectly in, and operation of, resource exploration and development projects. 

During the year the Group's main undertaking was the development of the Papua New Guinea petroleum project in which the Group holds a 30% interest following a subscription and financing arrangement entered into with CNOOC Limited in March 2012 (100% prior to that date) and continuing interest in the Morondava uranium exploration project, based in Madagascar, in which the Company has an 80% interest. 

Over the year, the Group expended $146,219 (31 December 2012: $493,060) on project related activities.

Key performance indicators

Review of operations and state of affairs

Papua New Guinea In September 2011, the Group acquired one on-shore (PPL 378) and two off-shore (PPLs 374 and 375) Petroleum Prospecting Licences (PPLs) in Papua New Guinea through the acquisition of PNG Energy Limited (PNG Energy) and that company's wholly owned subsidiary Gini Energy Limited (Gini Energy). Subsequently, in May 2012, Gini Energy was awarded an additional on-shore licence, PPL 405, by the Government of Papua New Guinea.

On 26 March 2012, the Group entered agreements with CNOOC Australia Limited (CNOOC), a subsidiary of CNOOC Limited, the Chinese multi-national oil and gas company, listed on the New York and Hong Kong Stock Exchanges, whereby CNOOC subscribed for a 70% equity interest in PNG Energy and UMC Energy retained a 30% equity interest.

Pursuant to the agreements, and in consideration for the share subscription, CNOOC is responsible for funding all exploration and appraisal expenditure in respect of the four PNG PPLs, up to commercial development. Such expenditure will be repaid to CNOOC out of production revenues and off-take of oil and gas once the assets of Gini Energy enter production, should such production occur. If exploration and appraisal work indicates the probable existence of commercial reservoirs of oil or gas in any part of the PPLs at the end of the exploration phase, the parties must each finance their pro-rata share of all expenditure required in respect of the development plan, either themselves or by procuring sufficient finance from a third party.

While CNOOC is the operator of the PPLs, UMC and its consultants continued to provide technical support to the joint venture during 2013.

Competent Person's Report

UMC Energy engaged 3D-GEO Pty Limited ("3D-GEO"), a Melbourne based firm of consulting petroleum geologists and engineers, experienced with regard to Papua New Guinea petroleum structural and geological interpretation, to review all available geological data, identify leads and prospects and quantify contingent resources and prospective resources in the licences.

The review incorporated additional historical geological, well and seismic data to that included in previous reviews and encompassed new seismic interpretation and mapping. The review of all four permits was published as a "Competent Person's Report" ("CPR"). The CPR was made publicly available on 5 August 2013.

Of particular note are the reported findings in relation to the Paua structure partly contained within PPL 378, as follows:

The Paua-1x well was drilled in 1996 by BP and is a declared discovery with oil recovered to surface from sands in the Iagifu Formation. The Paua Anticline is part of a major NW-SE fold trend bound to the south-west by a major thrust fault. The structure extends some 12km along strike with up to 450m of vertical closure. It extends outside PPL 378 West into adjacent acreage to the northwest and southeast. Independent expert assessment of the data has provided the following contingent resource values for potential oil and gas recoverable from the Iagifu sandstones within the PPL 378 West portion of the Paua Anticline, prepared in accordance with the definitions and guidelines set out in the Petroleum Resources Management System ("PRMS"):

*Note: MMbbls = million barrels of recoverable oil, Bcf = billion standard cubic feet of recoverable gas

PPL 378 contains a single oil discovery well, Paua-1x, which proved the presence of hydrocarbons in the Iagifu Sandstone, in a relatively low structural position on the Paua anticline. 3D-GEO has assigned Contingent Resources for the hydrocarbons found in the Iagifu, although there is a large element of uncertainty as to the relative proportions of oil versus gas in the accumulation. 3D-GEO has assigned Low, Best and High Estimate resource estimates for the oil volumes, with corresponding gas volumes representing the balance of the accumulation updip from the well in each case - resulting in a high gas volume estimate associated with a Low Estimate oil contingent resource, or a low gas volume estimate associated with a High Estimate oil contingent resource (see above).

Recoverable Prospective Resources were also calculated for Toro and Digimu reservoirs within the Paua structure. The Toro C horizon was intersected at a drillers depth of 2845mKB (-1250mSS). A gas only case was conducted for this reservoir using gross rock volumes above the well intersection. Probabilistic calculations were also conducted for the Digimu Sandstone with oil-water contacts above the existing well penetration for alternative oil and gas cases. The following table summarises the Paua Anticline recoverable Prospective Resource estimates within PPL 378 West, for the potential Toro and Digimu reservoirs over and above the Paua Contingent Resource estimates for the Iagifu reservoir.

*Note: MMbbls = million barrels of recoverable oil, Bcf = billion standard cubic feet of recoverable gas

Other structures in PPL 378 and in PPL 405 were also appraised for two, mutually exclusive, alternative cases: an oil case (assuming no gas) and a gas case (assuming no oil). The gross prospective resource of oil (P50 Best Estimate) for all structures was assessed at 1,692 MMbbl. The gross prospective gas resource (P50 Best Estimate) for all structures was 3,347 Bcf (3.347 Tcf), as follows:

*Note: MMbbls = million barrels of recoverable oil; assumes all oil with no gas fill in mapped closure

*Note: Bcf = billion standard cubic feet of recoverable gas; assumes all gas with no oil fill in mapped closure

Eight untested structures were identified in offshore licences PPL 374 and PPL 375. Alternative oil and gas cases gave gross prospective resources for all structures of 5,488 MMbbl oil or 6,673 Bcf (6.673 Tcf) gas, as follows.

*Note: MMbbls = million barrels of recoverable oil; assumes all oil with no gas fill in mapped closure

*Note: Bcf = billion standard cubic feet of recoverable gas; assumes all gas with no oil fill in mapped closure

Exploration activities

During 2013, CNOOC continued its technical work and exploration activities across the four PNG licences. CNOOC completed technical work to meet minimum work obligations in three of the four licenses, PPLs 378, 374 and 375. However, due to delays in collecting critical well and seismic data in PPL 405, the work program in this licence, which required the drilling of one exploration well, was not completed by 8 May 2014, the end of the first two year licence term. A significant amount of existing data had been received late in the year while other important data has not yet been received. This has seriously delayed the technical evaluation of PPL 405 and progress was less than anticipated. It is anticipated that the PNG Government will be approached by CNOOC as the Operator seeking a variation in work program commitments for this licence.

PPL 378 comprises two blocks (East and West) situated onshore in the Papuan fold Belt. The western block is particularly well located with respect to existing oil and gas fields production facilities and infrastructure at Moran. The recently completed pipeline that will transport gas from Hides to ExxonMobil's Port Moresby LNG plant transgresses PPL 378 West.

The licence contains the Paua-1x oil discovery drilled by BP in 1996. Oil was recovered from RFT wireline tests form two sandstone reservoir sequences in the Iagifu Formation. Some 37m of net oil pay is interpreted in 5 layers in separate Upper and Lower Iagifu reservoirs. The Toro Formation is water-bearing although the wireline log evaluation suggests the presence of residual hydrocarbon saturation.

New PSTM and PSDM reprocessing of existing 2D seismic data using new velocity modelling across the Paua and Moran structures was completed during the year. Despite the difficulties in processing seismic in the PNG Highlands, the final results suggest that this modern reprocessing produced cleaner sections with significant reduction in noise and multiples originating from the shallow section.

Initial interpretation and mapping by CNOOC supported by structural balance restoration, indicates significant structural closure up-dip from Paua-1x to the NE. The structural high is co-incident with the surface anticline defined by surface geology and topography. The mapping supports volumetric oil and gas estimates made by 3D-GEO and suggests that Paua is a robust structure of a sufficient size and commercial potential to warrant appraisal drilling.

A preliminary well location on the back-limb of the Paua structure up-dip of Paua-1x has been identified and a preliminary well design has been formulated.

BGP PNG Exploration's 2D seismic acquisition vessel, the Dong Fang Kan Tan No. 1 successfully completed the 2D acquisition project over the two offshore licences, PPLs 374 and 375, on 3 January 2014. A total of 3,015 line kilometres of 2D seismic data was acquired over 26 days without incident and ahead of schedule. Seismic data quality was described as very good. Processing of the 2D data is currently underway by CNOOC with interpretation and mapping expected to be completed during 2014.

Madagascar Madagascar continues to experience a period of political upheaval and uncertainty. Despite the fact that the Company has not, in any way, been negatively affected by these events, it has resolved to take a cautious approach to exploration and accordingly has not conducted exploration activities during the 2013 financial year. The Company continues to monitor the situation. Given these circumstances, the Directors have resolved that it is appropriate to recognise an impairment adjustment of $nil (31 December 2012: $3,050,548) against the carrying value of the intangible asset.

Financing The Company remains dependent on loan funds being made available to it by Natasa Mining Ltd to meet its working capital and other requirements.

Corporate During the year, the Company redomiciled from the United Kingdom to the Cayman Islands following shareholders' approval on 29 August 2013 and Court confirmation on 18 September 2013. The accounts presented are those of the newly incorporated Cayman Islands company. However, in order to present a true and fair comparison for shareholders the business has been treated as continuing despite the change in legal entity, and the comparative figures are those of the predecessor company domiciled in the United Kingdom. Further details are given in Notes 1 and 28 to the accounts.

Future developments

The directors anticipate the Company's major future developments will revolve around further investment in and development of the Papua New Guinea petroleum and Morondava uranium projects.

Principal risks and Uncertainties facing the Group

The principal risks faced by the Company and Group are as follows:

· The ability to raise sufficient funds to pursue the exploration of its exploration permits.

· The exploration licences are located in remote parts of Papua New Guinea and Madagascar where power and communications infrastructure is rudimentary.

· The operations of the Group are in foreign jurisdictions where there may be a number of associated risks over which it will have no control. These may include economic, social or political instability or change, terrorism, hyperinflation, currency non-convertibility or instability, changes of laws affecting foreign ownership, government participation, taxation, working conditions, rates of exchange, exchange control, and exploration licensing.

· Papua New Guinea and Madagascar may have less developed legal systems than more established economies.

· The exploration licences may be subject to conditions which, if not satisfied, may lead to the revocation of such licences.

· The exploration for and development of mineral and petroleum deposits involves significant risks, which even a combination of careful evaluation, experience and knowledge may not eliminate. Few properties, which are explored, are ultimately developed into producing mines/fields. There can be no guarantee that the estimates of quantities and grades of minerals or petroleum disclosed will be available to extract. With all mining/extraction operations there is uncertainty and, therefore, risk associated with operating parameters and costs resulting from the scaling up of extraction methods tested in pilot conditions. Mineral/petroleum exploration is speculative in nature and there can be no assurance that any mineralisation/ reservoir will be discovered or if discovered that it will prove to be economic.

Results and dividends

The loss for the year on ordinary activities before and after tax amounted to $2,594,252 (31 December 2012: $6,482,013). The directors do not recommend the payment of a dividend.

Share capital

Details of the share capital are given in note 19 to the financial statements.

Events since the balance sheet date

Since 1 January 2014, the Company has advanced a further $12,588 to Uramad SA, for use on uranium exploration project development activities.

Since 1 January 2014, the Company has borrowed a further $217,109 from Natasa Mining Ltd, for working capital purposes.

Financial assets and liabilities

See note 27 to the financial statements.

Directors and their interests

At 31 December 2013, the directors and their interests in the Company's Ordinary Shares were as follows:

* C Kyriakou is a director of Natasa Mining Ltd, the Company's major shareholder. Entities associated with C Kyriakou hold shares in Natasa Mining Ltd. The shares owned by Natasa Mining Ltd in the Company's share capital have been included in C Kyriakou's interests.

Options held by the directors at 31 December 2013 were as follows.

* C. Hart holds an option over (i) 3 million ordinary shares under the 2012 Participants' Option Plan and (ii) 3 million ordinary shares beneficially owned by a shareholder of the Company.

No options were exercised by the directors during the year.

Substantial shareholdings

On 31 December 2013 the following shareholders held 3% or more of the issued share capital of the Company:

Corporate Governance

As UMC Energy Corporation. is not a fully listed company, it is not required to comply with the Code of Best Practice published by the Committee on the Financial Aspects of Corporate Governance ("the UK Corporate Governance Code"). However, the directors do place a high degree of importance on ensuring that high standards of corporate governance are maintained. As a result, most of the relevant principles set out in the Combined Code have been adopted during the year and these are summarised below.

The Board of Directors is responsible for the corporate governance of the Company. It oversees the business and affairs of the Company, establishes the strategic and financial objectives to be implemented by management and monitors standards of performance.

The Board has established a framework for the management of the Company including internal controls, a business risk management process and the establishment of appropriate ethical standards.

The Board of Directors currently consists of a Chairman, two Executive Directors and one Non-Executive Director, who is an Independent Non-Executive Director. Responsibility for the operation and administration of the Company is delegated by the Board to the executive management team who are accountable to the Board.

After consultation with the Chairman, each Director has the right to seek independent professional advice at the consolidated entity's expense.

The Board may at any time appoint a director to fill a casual vacancy and at each annual general meeting, one-third of directors together with any director appointed since the last annual general meeting retire from office and may stand for re-election.

The composition of the Board is reviewed regularly to ensure that the range of expertise and experience of Board members is appropriate for the activities and operations of the Company.

The Articles of Association specifies that the aggregate remuneration of Directors, other than salaries paid to Executive Directors, shall be determined from time to time by a general meeting. An amount not exceeding the amount determined is divided between those Directors as they agree.

The Role of Shareholders

The Board of Directors aims to ensure the shareholders are informed of all major developments affecting the Company's state of affairs. Information is communicated to shareholders as follows:

• The annual report is distributed to all shareholders who have requested a hard copy and is displayed on the Company's website. The Board ensures that the annual report includes relevant information about the operations of the Company during the year, changes in its state of affairs and details of future developments, in addition to the other disclosures required by International Financial Reporting Standards.

• The half-yearly report contains summarised financial information and a review of the operations of the Company during the period. Half-year financial statements prepared in accordance with the requirements of International Financial Reporting Standards are displayed on the Company's website. The financial statements are sent to any shareholder who requests them.

• The external auditor attends the annual general meetings to answer questions concerning the conduct of the audit, the preparation and content of the Auditor's Report, accounting policies adopted by the Company and the independence of the auditor in relation to the conduct of the audit.

The Board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and identification with the consolidated entity's strategy and goals.

The Nomination Committee oversees the appointment of directors and the selection, appointment and succession planning of the Company's Chairman. The committee makes recommendations to the Board on the appropriate skill mix, personal qualities, expertise and diversity of each position. Where, through whatever cause, it is considered that the Board would benefit from the services of a new director with particular skills, the Board would then appoint the most suitable candidate who must stand for election at a general meeting of shareholders.

The committee comprises the following members:

• Mr C. Kyriakou (Chairman of the Committee) Executive

• Mr R Shakesby Non-executive

The Board has appointed an Audit Committee which operates under written terms of reference. The Audit Committee oversees the financial reporting process to ensure the balance, transparency and integrity of published financial information; reviews the effectiveness of the Company's internal financial control; ensures an independent audit process; recommends the appointment of the external auditor; assesses the performance of the external auditor; and oversees the Company's compliance with acts and regulations in relation to financial reporting.

The committee comprises the following members:

• Mr C. Kyriakou (Chairman of the Committee) Executive

• Mr R Shakesby Non-executive

• Mr J Reynolds Executive

External Auditors

The Audit Committee monitors the performance of the external auditors. The current external auditors were appointed in 2013. The external auditors are provided with the opportunity, at their request, to meet with the Board of Directors without management being present.

The Board has appointed a Remuneration Committee which operates under written terms of reference. Remuneration of senior management personnel is determined by the remuneration committee, taking into account information obtained via reputable industry remuneration surveys and / or independent consultant reports. This also includes responsibility for share option schemes, incentive performance packages, retirement and termination entitlements.

The committee comprises the following members:

• Mr C. Kyriakou (Chairman of the Committee) Executive

• Mr R Shakesby Non-executive

The Board oversees the establishment, implementation and operation of the Company's risk management procedures for assessing, monitoring and managing all risks, including material business risks. Material business risks for the Company may arise from such matters as governmental policy changes, the impact of exchange rate movements and the impact of changes in commodity prices.

Internal Control Framework

The Board acknowledges that it is responsible for the overall internal control framework but recognises that no cost effective internal control system will preclude all errors and irregularities. The system is based upon policies and guidelines and the careful selection and training of qualified personnel. The Board believes the current control framework to be suitable for the Company's current operations. There is no internal audit function as the cost would significantly outweigh the benefits given the size of the current operations.

Director Dealings in Company Shares

Directors and senior management may acquire shares in the Company, but are prohibited from dealing in Company shares or exercising options during Close Periods or whilst in the possession of price sensitive information that has not been made public. The Company has established a written code on share dealing.

Transactions with Natasa Mining Ltd ("Natasa")

Any proposed transaction between the Company (or a subsidiary undertaking of the Company) and Natasa or a director of Natasa (whilst Natasa holds not less than 30% of the issued ordinary shares of the Company) must be on arms length commercial terms and be approved by the independent non-executive directors of the Company in advance of it being entered into by the Company. For the avoidance of doubt, no director who is interested in any way in such a contract shall take part in any deliberations on the part of the Company (or a subsidiary undertaking of the Company) with regard to the approval of such a contract.

Conflict of Interest

Directors must keep the Board advised, on an ongoing basis, of any interest that could potentially conflict with those of the Company. Details of director related entity transactions with the Company are set out in Note 25 to the accounts.

Ethical Standards and Performance

The Company is not of sufficient size to warrant the preparation of a formal code of ethical business standards for the Company. The Board does, however, require of itself and its employees the highest ethical standards when carrying out their duties and when acting on behalf of the Company. In particular, any transactions with Directors of the Company are formally approved by the Board. The Director concerned does not participate in discussion or approval of the transaction.

Political and charitable donations

No political or charitable donations were made during the year.

Auditors

Sawin & Edwards have indicated their willingness to continue in office. A resolution to reappoint Sawin & Edwards for the ensuing year will be proposed at the 2014 Annual General Meeting.

By order of the board.

J Reynolds

Company Secretary

28 May 2014

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2013

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2013

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2013

The financial statements were approved by the Board of directors on 28 May 2014 and signed on its behalf by:

C Kyriakou

Chairman

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2013

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2013

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2013

1. General information and Corporate restructure

UMC Energy Corporation is a company incorporated in the Cayman Islands. The consolidated financial report of the Company as at and for the year ended 31 December 2013 comprises the Company and its subsidiaries (together referred to as the "Group") and the Group's interest in associates.

UMC Energy Corporation was incorporated and registered under the laws of the Cayman Islands on 10 October 2012 as an exempted company with limited liability and limited by shares under the Cayman Islands Companies Law with Cayman Islands company registered number MC-272327 with the name UMC Cayman Corporation. On 21 February 2013, the name of the company was changed to UMC Energy Corporation. The Company acquired all the assets and liabilities of UMC Energy PLC (incorporated in the United Kingdom ("PLC")). The acquisition of the assets and liabilities was met by the issue of 484,444,763 ordinary shares in the Company, which shares were distributed to the shareholders of PLC on a 1:1 basis such that the shareholders of PLC became the shareholders of the Company. The results for the year ended to 31 December 2013 are those of the Group as if no capital reconstruction has taken place, as is the comparative information. See note 28 for additional detail.

The principal activity of the Group is the investment in, and exploration and development of natural resources projects, specifically in a petroleum exploration project in Papua New Guinea and a uranium exploration project in Madagascar.

The Group's principal activity is carried out in US dollars. The financial statements are presented in United States dollars which is the Group's functional currency. The 2012 figures have been restated from sterling to US dollars.

The Board of directors has authorised the issue of these financial statements on the date of the statement.

2. Accounting policies

Basis of accounting

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs).

The financial statements have been prepared on the historical cost basis except that certain financial instruments are accounted for at fair values. The principal accounting policies adopted are set out below.

Standards applied

During the year the Group has adopted the following relevant standards:

The adoption of these standards did not have a material impact on the Group's financial position or performance.

Going Concern

The financial statements have been prepared on a going concern basis, which contemplates continuity of normal business activities and the realisation of assets and settlement of liabilities in the ordinary course of business.

The Directors believe that it is appropriate to prepare the financial statements on a going concern basis principally as the Company has secured from Natasa Mining Ltd (Natasa) a loan facility whereby Natasa has agreed to make available to the Company an amount of not less than £1.7 million for the period up to 31 January 2015. The loan is repayable on 60 days notice provided that such notice cannot be given prior to 31 January 2015 except on the occurrence of an event of default (which would include Natasa not having two representatives on the Board of the Company) and the Directors do not believe an event of default will arise. In addition, the Directors are confident that the Company will be able to raise additional funds through further debt or equity raisings when required. The Directors are of the opinion that the Natasa loan facility, any proposed debt or equity raising measures and the existing cash resources of the Company will provide sufficient funds to enable the Company to continue its operations for at least the next twelve months.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities.

On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to the income statement in the period of acquisition.

The results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

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

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

The acquisition of UMC Energy PLC has been accounted for as a group reconstruction as explained in Note 1 and 28 of the financial statements.

Non-controlling interests

Non-controlling interests are that part of the net results of operations and of net assets of a subsidiary attributable to interests which are not owned directly or indirectly by the Group. They are measured at the non-controlling interests' share of the fair value of the subsidiary's identifiable assets and liabilities at the date of acquisition by the Group and the non-controlling interests' share of changes in equity since the date of acquisition. Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to non-controlling interests. Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance as non-controlling interests are considered to participate proportionally in the risks and rewards of an investment in the subsidiary whether or not they have a legal obligation to make any further investment.

Investments in associates

An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the investee.

The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Investments in associates are carried in the statement of financial position at cost as adjusted by post-acquisition changes in the Group's share of net assets of the associate, less any impairment in the value of individual investments. Losses of the associates in excess of the Group's interest in those associates are not recognised.

Where a Group company transacts with an associate of the Group, unrealised profits and losses are eliminated to the extent of the Group's interest in the relevant associate. Losses may provide evidence of an impairment of the asset transferred, in which case appropriate provision is made for impairment.

The Group and its associated undertakings have complied with the requirements of IFRS 6 - Exploration for and evaluation of mineral resources.

Revenue recognition

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, to that asset's net carrying amount.

Other operating income represents the amounts receivable for the provision of consultancy, management and office services provided in the normal course of business, net of VAT.

Segmental reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group's other components. All operating segments' operating results are regularly reviewed by the Board of Directors to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete financial informational is available.

Segment results that are reported to the Board of Directors include items directly attributable to the segment as well as those that can be allocated on a reasonable basis.

Foreign currencies

Transactions in currencies other than US dollars are recorded at the rates of exchange prevailing on the dates of the individual transactions. For practical reasons, a rate that approximates to the actual rate at the date of the transaction is often used. At each year end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the year end date. Non-monetary assets and liabilities that are denominated in foreign currencies are retranslated at historical rates. Gains and losses arising on retranslation are included in the income statement for the period. On consolidation, the assets and liabilities of the Group's overseas operations are translated at exchange rates prevailing on the year end date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly. Exchange differences arising, if any, are classified as equity and transferred to the Group's translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.

Non-current intangible assets 

Non-current intangible assets have a finite life and are shown at cost less any provisions made in respect of impairment.

Costs relating to the acquisition, exploration and development of mining projects are capitalised under intangible assets. When it is determined that such costs will be recouped through successful development and exploitation or alternatively by sale of such interests acquired, the expenditure will be transferred to tangible assets and depreciated over the expected productive life of the asset. Whenever a project is considered no longer viable, the associated exploration expenditure is written off to the income statement.

Impairment of tangible and intangible assets

At each year end date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated, in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indication that the asset may be impaired.

The recoverable amount is the higher of fair value less costs to sell and value in use. Value in use is assessed by reference to the net present value of expected future cash flows of the relevant income generating unit or disposal value, if higher. If an asset is impaired, a provision is made to reduce the carrying amount to its estimated recoverable amount. An impairment loss is recognised as an expense immediately.

Non-current asset investments

Loan investments are shown at cost less provision for any permanent diminution in value. Loan investments are recognised as an asset when sums are advanced.

Property, plant and equipment

Equipment and furniture are shown at cost less accumulated depreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost of assets over their estimated useful lives, using the straight line method on the following basis:

Equipment 25% -100%

Furniture 25% - 100%

Financial instruments

Financial assets and financial liabilities are recognised on the statement of financial position when the Company becomes a party to the contractual provisions of the instrument.

Cash and cash equivalents

Cash and cash equivalents comprise cash held at bank and on short term deposits.

Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangement entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities.

Trade payables

Trade payables are not interest bearing and are stated at their nominal value.

Trade receivables

Trade receivables do not carry any interest and are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts.

Borrowing costs

Borrowing costs on loans payable are recognised in the income statement in the period in which they are incurred.

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received except where those proceeds appear to be less than the fair value of the equity instruments issued, in which case the equity instruments are recorded at fair value. The difference between the proceeds received and the fair value is reflected in the share based payments reserve.

Share based payments

The Group has applied the requirements of IFRS 2 Share-based Payments.

The Group issues equity-settled based payments to Directors and certain professional advisors of the Group. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest.

Fair value is measured by use of a Black Scholes model. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.

Critical Accounting Judgements and Key Sources of Estimation Uncertainty

In the process of applying the Company's accounting policies above, management necessarily makes judgements and estimates that have a significant effect on the amounts recognised in the financial statements. Changes in the assumptions underlying the estimates could result in a significant impact to the financial statements. The most critical of these accounting judgement and estimation areas are as follows:

Exploration and evaluation expenditure has been incurred in respect of the Papua New Guinea petroleum exploration project which has yet to reach a stage of development where a determination of the technical feasibility and commercial viability of the project can be assessed on a comprehensive basis. In these circumstances, the directors have used their experience to determine whether there is any indication that the asset has been impaired and have concluded that an impairment adjustment is required in the Group accounts of $nil (31 December 2012: $nil) in relation to intangible assets; and of $nil (31 December 2012: $nil) in relation to the investment in group undertakings.

Exploration and evaluation expenditure has been incurred in respect of the Morondava uranium exploration project which has yet to reach a stage of development where a determination of the technical feasibility and commercial viability of the project can be assessed on a comprehensive basis. In these circumstances, the directors have used their experience to determine whether there is any indication that the asset has been impaired and have concluded that an impairment adjustment is required in the Group accounts of $nil (31 December 2012: $3,050,548) in relation to intangible assets.

3. Segmental analysis

The Group has one reportable segment which is that of the investment directly and indirectly in, and operation of, resource exploration and development projects. The Group's operational activities are wholly focused in Papua New Guinea and Madagascar. The Board of Directors reviews internal management reports at least monthly.

The Group has not yet commenced commercial resource production and has no turnover in the year.

Information regarding the results of the reportable segments is shown below. Performance is measured based on the segment profit before income tax as included in the internal management reports that are reviewed by the Board of Directors. There is no inter-segment pricing.

Reportable segment 

Geographical segments

In presenting information on the basis of geographical segments, segment assets are based on the geographical location of the assets.

The Group did not generate any revenue during the financial year ended 31 December 2013 (31 December 2012: $nil).

4. Net loss from operations

Net loss from operations is stated after charging/(crediting):

5. Finance costs

6. Particulars of employees and directors

The Group had no employees during the year or previous year.

The Group had 5 (31 December 2012: 5) directors during the year with aggregate emoluments in respect of qualifying services as follows:

7. Income tax expense

8. Loss per share

Including share of associate's results

Loss per share has been calculated by dividing the loss for the year after taxation, including share of associate's results attributable to the equity holders of the parent company of $2,594,252 (31 December 2012: $6,482,013) by the weighted average number of shares in issue at the year end of 484,444,763 (31 December 2012: 484,444,763).

Excluding share of associate's results

Loss per share has been calculated by dividing the loss for the year after taxation, excluding share of associate's results including share of associate's results, attributable to the equity holders of the parent company of $2,507,027 (31 December 2012: $6,468,576) by the weighted average number of shares in issue at the year end of 484,444,763 (31 December 2012: 484,444,763).

9. Intangible assets

The development expenditure relates to development of the petroleum exploration project in Papua New Guinea and the uranium exploration project in the Morondava basin of Madagascar.

The licences relate to uranium exploration licences in the Morondava basin and, for 2012, the petroleum exploration project in Papua New Guinea.

The Morondava uranium project has yet to reach a stage of development where a determination of the technical feasibility or commercial viability can be assessed. In addition, as Madagascar is presently experiencing a period of political upheaval and uncertainty, the Company has resolved to take a cautious approach to exploration and accordingly has not conducted exploration activities during the current financial year and does not expect to undertake any material exploration activities in Madagascar whilst this period of uncertainty prevails. In these circumstances, whether there is any indication that the asset has been impaired is a matter of judgement, as is the determination of the quantum of any required impairment adjustment. The directors have resolved that it is not appropriate to capitalise any further expenditure on the intangible asset until circumstances change. The Directors have used their experience to conclude that an impairment adjustment of $nil is required in the current year (31 December 2012: $3,050,548).

In March 2012, the PNG Energy Group ceased to be controlled by the company and therefore, the exploration licences were transferred on dilution of the subsidiary. See note 11 for further information.

10. Property, plant and equipment

11. Investments in associated undertaking

On 26 March 2012, UMC Energy PLC ("PLC") entered agreements with CNOOC Australia Limited ("CNOOC"), a subsidiary of CNOOC Limited, the Chinese multi-national oil and gas company listed on the New York and Hong Kong Stock Exchanges, whereby CNOOC subscribed for a 70% equity interest in PNG Energy Limited with UMC Energy retaining a 30% equity interest.

As a result of this transaction, in March 2012 the PNG Energy group ceased to be controlled by the Group and became an equity accounted associate.

On 4 December 2012, PLC entered a deed with UMC Energy Ltd (incorporated in the British Virgin Islands (BVI)), an indirect wholly owned subsidiary of the Company, whereby PLC transferred its shares in PNG Energy Ltd to UMC Energy Ltd. At the same time, PLC assigned the intellectual property rights it held, pertaining to the assets owned by PNG Energy Ltd, to UMC Energy Ltd.

As a result of these transactions, the Company has an equity holding in the following associate undertaking:

The country of incorporation of the associate undertaking is the British Virgin Islands and the principal place of business is Papua New Guinea.

The Papua New Guinea petroleum project has yet to reach a stage of development where a determination of the technical feasibility or commercial viability can be assessed. In these circumstances, whether there is any indication that the asset has been impaired is a matter of judgment, as is the determination of the quantum of any required impairment adjustment. The Directors have used their experience to conclude that no impairment adjustment is required in the current year (31 December 2012: $nil).

Summarised results of the associate undertaking, PNG Energy Group, as translated into US dollars are as follows:

12. Controlled entities

On 18 December 2012, UMC Energy PLC sold 398 ordinary shares which it held in Uramad SA to Uramad Ltd, a company incorporated in the British Virgin Islands (BVI). Uramad Ltd is a wholly owned subsidiary of the Company.

The 398 ordinary shares (being the Group's entire equity interest in Uramad SA) were sold at a par value of MGA 20,000 each for a consideration of $3,057,910. This amount was subsequently fully impaired in the 2012 financial year.

On 4 December 2012, UMC Energy PLC sold to UMC Energy Ltd, a company incorporated in the British Virgin Islands (BVI), in accordance with the terms of the Deed of Accession and Indemnity Agreement, 1 million ordinary shares of no par value in PNG Energy Ltd (being the Group's entire equity interest in PNG Energy Ltd).

The Company also assigned and transferred to UMC Energy Ltd all intellectual property rights it held pertaining to the assets of PNG Energy Ltd (company incorporated in BVI) and its wholly owned subsidiary, Gini Energy Ltd (company incorporated in Papua New Guinea).

The consideration for the sale of the securities and the assignment of transfer of the intellectual property was $26,252,100.

13. Taxation receivable - non-current

The value added tax is recoverable upon commencement of production of the mining project in Madagascar.

Following the impairment write down of the intangible assets (see note 9) the receivable has been impaired in full.

14. Taxation receivable - current

15. Trade and other receivables - current

16. Cash and cash equivalents

17. Loans

In February 2008, UMC Energy PLC ("PLC") secured an A$0.5 million (£224,000 as translated at 1 February 2008) loan facility from Natasa Mining Ltd ("Natasa"). The loan bore interest at 15% per annum on funds drawn, was unsecured and was repayable in August 2008 or upon PLC raising further debt or equity funding. The facility bore a facility fee of A$15,000 (£6,729). The loan was not repaid in August 2008 and with the forbearance of Natasa became repayable under the same terms as the March 2008 loan, referred to below.

In March 2008, PLC secured a further loan facility from Natasa for an unspecified amount to be used in meeting its working capital requirements, including funds to be expended on the Morondava uranium project and the Papua New Guinea petroleum project. The loan bore interest at 15% per annum on funds drawn, was secured by a negative pledge over the equity interest in Uramad SA and was repayable within 60 days following a demand by Natasa. The facility bore a draw down fee of 3% of funds drawn.

In October 2009, PLC repaid A$2.4 million (£1,345,920) of the loan amount through the issue of 213,638,095 ordinary £0.005 shares at a premium of £0.0013 per share to Natasa.

On 2 August 2013, Natasa, the Company and PLC entered into a loan facility agreement whereby Natasa agreed to make available to the Company a loan facility of not less than £1.7 million ($2.8 million) for the period up to 31 January 2015 at a rate of interest of 15% compounded annually and a fee of 3% of amounts drawn down, capitalised with the loan, and repayment on 60 days notice provided that such notice cannot be given prior to 31 January 2015 or earlier on the occurrence of an event of default (which would include Natasa not having two representatives on the Board of the Company). Security for this facility is a charge over the shares held by the Company in its subsidiaries. At the same time, the parties entered a deed of novation whereby the Company assumed all of the liabilities of PLC to Natasa pursuant to the various facilities described above.

18. Trade and other payables

19. Called up share capital

The Company has one class of ordinary shares which carry no right to fixed income. Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders' meetings.

Share options over ordinary shares in existence at 31 December 2013 are as follows:

20. Share based payment reserve

The share based payment reserve relates to share options granted to directors, consultants, staff and certain professional advisors.

The share options vested on grant and are capable of being exercised at any time between the date of grant and the expiry date, subject to that, unless exercised, these share options expire 180 days following the grantee ceasing to be an executive / consultant of the Company.

Movement on share options was as follows:

21. Translation reserve

22. Non-controlling interest

The non-controlling interest is in relation to a 20% share in Uramad SA.

23. Cash flows from operating activities