Full year results for year ended 31 December 2017

Cradle Arc Plc / EPIC: CRA.L / Market: AIM / Sector: Mining

28 June 2018

Cradle Arc plc

("Cradle Arc" or the "Company")

Full year results for the year ended 31 December 2017

Cradle Arc (AIM: CRA), the African focused base and precious metals exploration and production company, announces its final results for the year ended 31 December 2017.

The annual financial statements will be posted to shareholders today and will also available on the Company's website at www.cradlearc.com.

Highlights:

· Much of financial year spent preparing the necessary documentation and completing the various work steps to conclude the transaction to buy Mowana;

· Completed successful acquisition of 60% in the Mowana copper mine in Botswana in November 2017;

· Enlarged group admitted to trading on AIM on 24 January 2018;

· Post financial year-end, independent JORC (2012) Mineral Resource estimate for Mowana published, comprising a Measured and Indicated resource of 55.0Mt at 1.17% Cu for 640,000 tonnes of contained copper;

· Within this Mineral Resource, a 31.8Mt Proven and Probable reserve was estimated at 1.17% copper of 370,800 tonnes of contained copper;

· An opportunity was identified to advance Mowana towards a point of steady state production and sustained positive cash flows more rapidly through an Accelerated Development Plan; and

· Recovery levels continue to improve from just 35% experienced in the oxide ores, to average of 56% on a steady state blending basis and up to 76% on the supergene material encountered at the current base of pit level at 940RL;

For further information on the Company, please visit www.cradlearc.com or contact:

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) 596/2014.

CHAIRMAN'S STATEMENT

Following a protracted, circa year-long, acquisition process, Cradle Arc plc ("Cradle Arc" or the "Company") transformed from a West Africa focused gold explorer to a copper producer following the successful acquisition of 60% of the Mowana mine ("Mowana") in Botswana.

Having announced the opportunity to acquire a 60% interest in the Mowana mine in December 2016, we spent 2017 preparing the necessary documentation and completing the various work steps to conclude the transaction, which was treated as a business combination in the financial statements. Following a protracted period to navigate and address the regulatory requirements for the transaction and a regrettable cancellation of the Company's shares from admission to trading on AIM in July 2017, completion of the acquisition of Mowana's holding company was achieved in November 2017, with the enlarged group admitted to trading on AIM on 24 January 2018.

Prior to our acquisition of Mowana, over US$170 million of capital had historically been invested by third parties in the mine, which was operational between 2008 and 2015. The Company and PenMin devised a new operating plan, which addressed some of the key operating issues suffered by the previous owners and restarted production on a campaign basis in March 2017, thereby enhancing our understanding of the asset and our development mine plan, which is focused on applying new mining models and techniques to achieve stable production from proven mining assets.

We are of the opinion that, anyone who had visited site and seen the condition of the mine workings first-hand when the Company took control of Mowana, compared to today and therefore what management has already achieved in such a short space of time, would be pleasantly surprised. As opposed to the selective mining approach applied previously, Cradle Arc, via owner operated mining, has invested funds to develop a large scale, flexible open pit operation on the North Deposit, with similar plans for the other resources on the mine site. This reflects our intention to build a long-term, sustainable mining project, of which all stakeholders can be proud.

We essentially inherited a working plant that, following an improvement in our understanding of the orebody, has now started to deliver the recoveries and concentrate quality that we expect. Over the coming months, we will also aim to progress our plans to add a Dense Media Separation ("DMS") pre-processing unit, as well as making other improvements, which should serve to further improve and enhance the extraction process.

Accordingly, we are now the operator of a sizeable producing copper mine located in an established and low-risk mining jurisdiction, with clear and improving value fundamentals. As set out in the Competent Person's Report in January 2018, the net present value ("NPV") (leveraged) of the Mowana project was approximately US$87.5 million at the time of admission (utilising the base case, pre-DMS, mine plan scenario), which had risen to approximately US$272.8 million (quoted in real terms using an 8% discount rate and a copper price of US$3.00/lb Cu) further to the publication, in late May 2018, of the Ore Reserve estimate and on the basis of the planned DMS upgrades being installed in due course, subject to financing.

Our focus has been on building volumes to achieve initial nameplate production capacity of 12,000 tonnes of copper in concentrate per annum at a throughput rate of 1.2 million tonnes at 1.16% Cu, which will sustain a 14-year life of mine (LOM).

As part of the work in preparing a maiden JORC (2012) Ore Reserve estimate for Mowana, in May 2018, we reported an independent update on Mowana's JORC (2012) Mineral Resource estimate, comprising a Measured and Indicated resource of 55.0Mt at 1.17% Cu for 640,000 tonnes of contained copper, representing an increase of 37% from the original maiden JORC (2012) Mineral Resource estimate published in April 2018, and an Inferred resource estimate of 20.0Mt at 1.08% for 220,000 tonnes of contained copper.

In light of this resource upgrade, and based on the results of metallurgical test work, we identified an opportunity to advance Mowana towards a point of steady state production and sustained positive cash flows more rapidly through an accelerated development plan (the "Accelerated Development Plan") as announced on 3 April 2018, which is currently being implemented.

This Accelerated Development Plan will enable us to fast-track access to the deeper supergene and sulphide ores, which have demonstrated better recoveries and grades, and in turn improve the overall economics of the project. Since commencement of the Accelerated Development Plan, we have had two mining units working full time in the Mowana Open Pit and seen recoveries improve as we have developed into the mixed and supergene ores. A third mining unit is scheduled to be brought on-line before the end of June 2018, following which the Company will focus on developing sufficient space in the mining pits to enable the fourth mining unit to commence operations towards the end of Q3 2018. From recovery levels of just 35% experienced in the oxide ores, we are now averaging recoveries of 56% on a steady state blending basis and up to 76% on the supergene material encountered at the current base of pit level at 940RL.

Further to the updated Mineral Resource estimate and assessment of the metallurgical test work data, in May 2018 the Company released an independent JORC (2012) Ore Reserve estimate (summarised in Table 1 below) for Mowana, comprising 12.4Mt @ 1.27% Cu for 157,700 tonnes contained copper metal classified as Proved reserves and 19.4Mt @ 1.10% Cu for 213,100 tonnes contained copper metal classified as Probable reserves. 

Table 1: Mowana Copper Mine - Maiden Ore Reserve Estimate

In mid-April 2018, in accordance with the Accelerated Development Plan, operations at Mowana switched from campaign runs, whereby the mine processed and tested different ore types from the Mowana open pit, historical stockpiles and tailings, to constant running of the expected ore types with production volumes steadily increasing. We continue to progress towards current nameplate production of processing 1.2 million tonnes of ore per annum in order, to achieve output of approximately 12,000 tonnes Cu per annum.

Once we have achieved our base case nameplate production, and subject to appropriate financing being secured, we can then seek to increase processing to 2.6 million tonnes per annum, producing over 21,000 tonnes Cu per annum, with an expected average LOM cash cost (C1) of US$4,099 per tonne Cu (US$1.86 per pound) and all-in sustaining costs of US$5,038 per tonne Cu (US$2.29 per pound) via planned Dense Media Separation (DMS) upgrades, which constitutes a low CAPEX expansion option through which we can process low oxide ores.

For all copper concentrate produced we have a strategic offtake agreement in place with Fujax Minerals and Energy Limited ("Fujax Minerals"), a minerals and energy trading company based in South Africa. Furthermore, Cradle Arc benefits from a top line management fee payable to the Company equating to 1.5% of gross mine revenues.

Given the strong value fundamentals and growth prospects for Mowana, building production and revenues at this mine is our core focus. Accordingly, post the reporting period-end, we signed an option agreement with Singa Holdings Zambia Private Limited, to grant it an option to establish a joint venture (JV) and potentially acquire the Company's Matala and Dunrobin gold assets in Zambia, for consideration of US$2.5 million in cash and a US$2.5 million NPV royalty if the mine is taken into production. We continue to believe in the future value and upside potential of these assets and believe that this agreement is the best manner in which to realise such value whilst ensuring our resources are focused on Mowana.

We also continue to retain exposure to a number of prospective gold assets in Mali. This includes the Kossanto East Gold Project ("Kossanto East") in western Mali, where having previously been progressed via a JV agreement with Ashanti Gold Corp. ("Ashanti"), we agreed to sell the project to Ashanti in August 2017 for consideration of CAD$1 million whilst retaining a 1.5% Net Smelter Return ("NSR"). Ashanti has the right to purchase this NSR in whole or in part, by paying US$100,000 for each 0.1% (up to a maximum of US$1.5 million).

Proximal to Kossanto East is the Kossanto West Gold Project which, until May 2018, was the subject of a JV agreement with Randgold Resources (Mali) Sarl ("Randgold"). Randgold successfully developed this grassroots project for two years which has enabled us to greatly improve our understanding of the project. We are now focussed on securing a new JV partner to continue development work and are confident that we will be able to achieve this in the near term based on the prospective results received to date, Ashanti's ownership in the neighbouring Kossanto East property, and the expressions of interest that we have received from third parties.

Financial

The main focus of the group's financial activities during the year under review was the acquisition of a majority interest in Mowana held by Leboam Holdings (Pty) Ltd ("Leboam") via the Company's purchase of Cradle Arc Investments (Pty) Ltd ("CAI"), which holds 60% of Leboam, and funding of the re-commissioning of the mine, both pre and post completion of the acquisition on 13 November 2017, in order to progress the mine to sustained and commercial production during the Company's 2018 financial year.

The Company acquired 100% of CAI's share capital for an aggregate consideration of £12.5 million. The consideration comprised £1.0 million of deferred cash consideration, the issue of 40,517,689 new ordinary shares in the Company and a further 75,000,000 additional consideration shares (the "Additional Consideration Shares") to maintain the vendor's 60% shareholding in the Company following an equity raising of, in aggregate, up to £5 million on or prior to the admission of the Company's ordinary share capital to trading on AIM ("Admission").

The fair value of CAI's net assets acquired at the acquisition date was determined to be £20.9 million comprising assets of £76.2 million and liabilities of £55.3 million. A non-controlling interest (40%) of £8.4 million was recorded as CAI holds 60% of the issued share capital of Leboam.

Further details of the acquisition are provided in notes 4 and 29 to the financial statements.

Statement of financial position

The increase in the group's total assets by £68.1 million, from approximately £18.1 million to £86.2 million, is principally summarised as follows:

· £45.3 million of property, plant and equipment recognised on the acquisition of Mowana following a fair value exercise on acquisition comprising the mine development costs, infrastructure (mining properties), processing plant and mining equipment.

· £3.5 million of additions to property, plant and equipment since the acquisition including capitalisation of costs related to mine commissioning and the acquisition of additional mining equipment.

· Net increase in intangible assets of £15.9 million, comprising £28.4 million of mineral property recognised on acquisition of Mowana, less impairment of the group's gold exploration assets of £12.5 million. The assets include a fair value adjustment of £18.2 million to mineral properties representing the premium of the fair value of the consideration for the purchase of CAI over the fair value of the attributable net assets acquired, reflecting the underlying copper resource being acquired. The impairment of the gold exploration assets included a partial impairment of the Company's Zambian gold project to £1.8 million (US$2.5 million equivalent) and full impairment of its Burkina Faso licences previously held at £0.6 million.

· £2.0 million of working capital increases principally related to increased VAT receivables, inventories acquired with Mowana and cash.

The group's total liabilities increased from £5.3 million in 2016, to £69.9 million in 2017. Trade and other payables increased by £6.3 million and included £1 million of deferred cash consideration in respect of the CAI acquisition (50% current, 50% non-current) and £6.0 million of trade payables and accruals reflecting cash flow constraints at the year end prior to completion of a placing in January 2018.

The group's loans and borrowings of £44.9 million (£14.2 million current and £30.7 million non-current) include £30.4 million originating from the purchase of the mine payable to the liquidator and former shareholder of the mine and £5.2 million of finance leases for mining equipment. In addition, the group owed £3 million to Fujax Minerals in respect of funding it provided for commissioning as a pre-payment for copper concentrate. During the year, the Company issued three convertible loan notes to secure working capital and fund mine commissioning both pre and post acquisition. The proceeds from the January 2017, June 2017 and October 2017 convertible loan notes totalled £5 million gross. The convertible loan notes issued in October 2017 automatically converted into new ordinary shares on Admission in January 2018. £525,000 of the remaining loan notes were converted in to equity after the year end and the outstanding loan notes relate to the January 2017 and June 2017 loan note issues, which mature in December 2018, at which time they are repayable or can be converted at the option of the holders. The loan note instruments are designated at fair value through profit and loss and were carried at a fair value of £5.6 million at the year end. Details of the terms of the loans and borrowings are provided in note 15 to the financial statements.

The Additional Consideration Shares represented the vendor's rights to receive additional shares in order to ensure that it maintained a 60% shareholding in CAI following the Company completing an equity raising of, in aggregate, £5 million on or before Admission. Under IFRS, the estimated fair value of this element of the consideration is required to be classified as a liability rather than equity as the vendor would receive a variable number of shares, rather than a fixed number of shares. On Admission on 24 January 2018, the vendor received 75,000,000 shares at a price of 10 pence per share with no impact on cashflow from the issue of the Additional Consideration Shares.

The remaining principal liabilities include £5.1 million of mine rehabilitation provisions based on a life of mine of 14 to 16 years and other mine related provisions. Deferred income tax liability movements include an increase of £3.3 million related to the difference between the fair value of mineral property recorded on acquisition and the underlying tax base, movements in deferred tax and retranslation post acquisition less £3.6 million of deferred tax liabilities released following the partial impairment of the group's Zambian assets to which the brought forward balance related.

The Company has issued, in aggregate, 51,105,098 shares during the year in settlement of certain historical deferred consideration and convertible loan notes, shares issued in lieu of fees and salaries and shares issued as consideration for financing fees and charges. No shares were issued for cash in the year.

Income statement

The group generated revenues of £0.57 million (2016: Nil) comprising test production revenues from Mowana and fees from strategic partners. The group recorded a nil margin on the Mowana test production as mining and processing related costs post acquisition are capitalised as the mine is considered to remain in a pre-commercial production phase, with an adjustment recorded to increase cost of sales and reduce property, plant and equipment to eliminate the margin on such test revenue reflecting its contribution towards capitalised commissioning costs. Accordingly, the gross margin of £369 615 related to the fees charged to strategic partners.

Loss before income tax of £13.8 million consists mainly of the impairment of £12.5 million in the value of the Zambian exploration assets, other administrative costs of £2.7 million, foreign exchange gains on financing of £2.5 million and finance costs of £1.6 million. The increase in administrative expenses from £0.8 million in 2016 to £2.7 million in 2017 reflects the increased cost base associated with the enlarged group together with legal and professional costs associated with the acquisition of CAI and the AIM Admission process. Finance costs includes £1.5 million associated with the shares issued in settlement of fees and interest due on the convertible loan notes, £0.6 million associated with fair value changes on loan notes designated as fair value through profit and loss and £0.3 million of warrants issued in respect of convertible loan notes.

Cash flows

The consolidated cash inflows of the group primarily related to funds raised from its financing activities. At the Company level, this took the form of issuing convertible loan notes in the amount of £5.0 million gross, of which £4.2 million was then advanced to CAI to fund activities at Mowana prior to acquisition. At the project level, £3 million of loans were received by Leboam (CAI's subsidiary) from Fujax Minerals prior to and post-acquisition which was used to purchase mining equipment and fund capitalised commissioning costs. The net cash outflow from operating activities of £0.7 million principally related to the administrative costs of the group.

Post Balance Sheet Funding

As announced on 3 April 2018, the committed Fujax Minerals funding of US$7.6 million at admission was ultimately not utilised due to a number of commercial factors and was instead replaced by funds raised via the issue of Loan Notes of US$10 million (gross), which was secured on 2 April 2018. The Loan Notes mature in April 2019 and accrue interest at 18%, payable quarterly in arrears, with 30 June 2018 being the first date for an interest payment. In addition, £1.3 million remains outstanding under the January 2017 and June 2017 convertible loan notes which mature in December 2018. Unfortunately, this change in source of working capital for the mine, the temporary shutdown of the plant to facilitate the completion of a mill re-line, along with other essential maintenance activities and to formulate the Accelerated Development Plan, slowed the base case production build up at Mowana.

In conjunction with the issue of the Loan Notes, the Company agreed, subject to shareholder approval, to grant to the investors in the Loan Notes, in aggregate, 71,336,852 warrants to subscribe for new ordinary shares in the Company. Such warrants were exercisable at a price of 5 pence per share during the exercise period of 12 months from 2 April 2018.

On 5 June 2018, the Company announced that, as the Company had insufficient share capital authorities to issue all of the abovementioned 71,336,852 warrants by the original deadline of 30 May 2018, on 28 May 2018, the Company issued an initial tranche of 35,668,432 warrants (being approximately 50 per cent. of the warrants) to the Loan Note investors, utilising the Company's existing share capital authorities. The Company agreed that, as announced on 5 June 2018 and 18 June 2018, the remaining 35,668,420 warrants would be issued pursuant to the terms and conditions of a new warrant instrument, subject to the receipt of shareholder approval at the forthcoming Annual General Meeting, and that the exercise period shall be extended by a further six months, to 2 February 2020, with all other rights and restrictions remaining the same.

Further details of funding and liquidity risk are set out in note 2.3.

Corporate

As part of our corporate re-structuring process that saw us transition from exploration focussed Alecto Minerals, to production focussed Cradle Arc, a number of changes were made to the Board. Firstly, Kevin van Wouw was appointed as Chief Executive Officer ("CEO"). Kevin has extensive mining experience, having been involved in the industry for over 25 years, and has an excellent knowledge of the Mowana mine, having been one of the leading parties that first identified the Mowana acquisition opportunity.

Kevin, along with Mark Jones (formerly Alecto Minerals' CEO and now Executive Director - Business Development), were joined by Roger Williams as a Non-Executive Director, who joined the Board in 2017, and myself, continuing in my role as Non-Executive Chairman. Together, Roger and I bring experience in the fields of corporate finance and accountancy, ensuring that the Board benefits from a diverse skill-set. Post the period-end, in April 2018, Oscar Kirkovits also joined the Board as a further Non-Executive Director. We believe his experience in investment management and investor contacts in the resource space will be beneficial to the long-term growth of the Company.

Outlook

Cradle Arc's vision is to become a diversified metals producer in Africa. We intend to achieve this by applying new mining models and techniques in order to achieve cash positive production from proven mining assets, as is being undertaken at Mowana, while securing strategic JV partnerships / farm-outs for our exploration assets to maximise value. It is thanks to this dynamic portfolio approach that I believe we are now firmly positioned for growth.

The Mowana mine has a project NPV of US$272.8 million (quoted in real terms using an 8% discount rate and a copper price of US$3.00/lb Cu) following planned DMS plant upgrades and a clear path for future development. Our focus remains firmly on building production and revenues. In support of this, the long-term pricing fundamentals for copper remain strong and our current ramp-up to pre-DMS nameplate capacity of 12,000 tonnes per annum continues to advance in accordance with our Accelerated Development Plan.

We look forward to providing updates in due course and offer our thanks to our investors for their continued long-term support, particularly during what I know was a protracted acquisition process.

Thanks must also go to our team. It is thanks to their undoubted skills, knowledge, experience, and hard work that we are now the operator of a large-scale copper mine with additional upside available via our strategic portfolio of JV / exploration assets. We look forward to enhancing and progressing Mowana into a world-class copper mining asset.

Toby Howell

Non-Executive Chairman

27 June 2018

CHIEF EXECUTIVE OFFICER'S REPORT

During the year it took to acquire the mine and subsequently achieve admission of the enlarged group to trading on AIM, we were incredibly active re-starting and ramping-up operations at the mine, despite our cash resources being extremely tight.

Firstly, an assessment of all the existing infrastructure and equipment on site was completed; crucially, power, water and communication links were all re-established. The processing plant itself was found to be in excellent condition and, after initial commissioning work, test production commenced in March 2017, producing saleable concentrate of up to 28% copper (Cu), which comprised part of the initial batch of product later delivered to Fujax Minerals, under the terms of our five-year copper offtake contract. Prior to this test production, the conventional crushing and screening circuit had been successfully operating for two weeks, thereby stockpiling crushed ore.

In March 2017, Capital Drilling Limited were also awarded a contract for Drill and Blast services, with the first blast completed on 29 April 2017. By May 2017, operations were continuing on a full-time basis to enable campaign phase production and ore testwork, with, in aggregate, over 1,900 tonnes of copper concentrate having been produced and sold to Fujax Minerals to date since the re-commencement of operations.

A drilling campaign conducted in 2017 comprising a total of 51 reverse circulation (RC) holes for 2,546 metres was augmented by the inclusion of data from other historical drill holes. This facilitated the commissioning of a maiden independent JORC (2012) mineral resource estimate for Mowana, which we reported in April 2018.

Our Accelerated Development Plan at Mowana involves accelerating access to the sulphide and supergene ores at the 950 level and below where grades are higher and recoveries have been shown to be strong. Test work completed by our onsite metallurgists, which was subsequently independently verified in South Africa, confirmed that these higher-grade ores should provide excellent metallurgical recoveries, with the average plant recovery ultimately expected to be in excess of 85%.

In order, to implement the Accelerated Development Plan, in April 2018, additional mining equipment comprising 20 x 40-tonne articulated dump trucks (ADTs), 3 x CAT D8 dozers, 2 x CAT374 excavators, a grader and a water truck, along with the accompanying support equipment and spares, were delivered to site. The Accelerated Development Plan envisages having four mining units in service in the Mowana open pit, with a mining unit consisting of a 75-tonne excavator and five 40 tonne ADTs. With the ability to operate each mining unit independently in the open pit, the Accelerated Development Plan enables the Group to mine additional faces in the ore body simultaneously and thereby increase the volume of ore and waste mined.

As well as accelerating access to the deeper, higher grade ores, the Accelerated Development Plan should increase the tonnes of ore delivered to the run of mine (ROM) pad. This increase in ROM tonnage will enable improved blending and the establishment of stockpiles of ore ahead of planned further upgrades.

In January 2018, results from an independent test report produced by SGS South Africa (Pty) Ltd ("SGS") confirmed the applicability of DMS for Mowana as a low capex expansion option. The test work demonstrated that DMS pre-concentration can be deployed on all low oxide ores (those that contain less than 25% acid soluble copper). Furthermore, the results confirmed that a mass yield of 30-40%, and an expected copper recovery in excess of 85% can be expected; mill feed grades in excess of 2% can also be anticipated, nearly double the current ROM; an optimal crushing top size of 10-12mm should be designed for with respect to the upgrade project; and, good rejection of gangue minerals is achievable, including carbon and silicon (with more than 75% being rejected).

Based on the positive outcome of the test work, we began initial DMS preparatory work for the upgrades to the Mowana processing plant. Once the initial nameplate capacity of approximately 12,000 tonnes of copper per annum has been achieved from the Accelerated Development Plan, we will look to further advance our DMS plans and thereby build production to over 21,000 tonnes per annum, subject to securing the requisite additional funding or financing from retained cash flows.

Alongside revenue generation from the sale of copper concentrate, it is important to note that Cradle Arc has a 10-year management contract (valid from December 2016) which provides for it to receive management fees equating to 1.5% of gross revenue from the mine.

Accordingly, the Company has made good progress over this review period in both successfully acquiring the Mowana mine and then subsequently by improving efficiencies at the mine. This would not have been possible without the dedicated support and hard work from our stakeholders - our employees, contractors, shareholders, the local community and the Botswana government. I would like to acknowledge our thanks to all of them.

I am most excited about what Cradle Arc can achieve over the next few years and beyond, and look forward to pursuing continued growth and making further progress.

Kevin van Wouw

Chief Executive Officer

27 June 2018

CONSOLIDATED AND COMPANY STATEMENTS OF FINANCIAL POSITION

As at 31 December 2017

The Company has elected to take the exemption under Section 408 of the Companies Act 2006 from presenting the Parent Company Income Statement and Statement of Comprehensive Income. The Company loss for the year was £5,973,151 (2016: £2,271,501).

The Financial Statements were approved and authorised for issue by the Board on 27 June 2018 and were signed on its behalf by:

Kevin Van Wouw

*Comparative loss per share is presented adjusted for the effect of the share consolidation in the current year.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2017

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2017

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2017

1. General information

The principal activity of Cradle Arc plc ("Cradle Arc" or the 'Company') and its subsidiaries (together the 'Group') is the mining of, and exploration for, minerals. The Company's shares are quoted on the AIM market of the London Stock Exchange plc. The Company is incorporated and domiciled in the UK. The address of its registered office is 27-28 Eastcastle Street, London, United Kingdom, W1W 8DH.

2. Summary of Significant Accounting Policies

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

2.1. Basis of Preparation of Financial Statements

The consolidated financial statements of Cradle Arc have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRIC Interpretations Committee (IFRS IC) as adopted by the European Union and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have also been prepared under the historical cost convention, as modified by the accounting treatment of certain financial instruments as set out below.

The financial statements are presented in UK Pounds Sterling rounded to the nearest pound.

The preparation of financial statements in conformity with IFRSs 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.

The financial information for the year ended 31 December 2017 and 31 December 2016 set out in this announcement does not constitute the Company's statutory annual report and financial statements for the year ended 31 December 2017 but is extracted from the audited financial statements for those years. The 31 December 2016 accounts have been delivered to the Registrar of Companies. The statutory annual report and financial statements for 2017 will be delivered to the Registrar of Companies in due course.

The auditors have reported on the financial statements for the year ended 31 December 2017; their report contained a paragraph drawing attention to disclosures in the financial statements regarding the existence of a material uncertainty related to the ability of the Company to continue as a going concern. Their opinion on the financial statements was not modified in respect of this matter. The report did not contain statements under section 498 (2) or (3) of the Companies Act 2006

2.2. Basis of Consolidation

The consolidated financial statements consolidate the financial statements of the Company and the results of all of its subsidiary undertakings made up to 31 December 2017.

Subsidiaries are entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The Group applies the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Non-controlling interests existing in the acquired entity at acquisition are recorded at either fair value or at the non-controlling interest's proportionate share of the fair value of identifiable assets and liabilities, elected on a transaction by transaction basis.

Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group's equity. Non-controlling interests consist of the non-controlling shareholder's share of changes in equity. The non-controlling interests' share of losses, where applicable, are attributed to the non-controlling interests irrespective of whether the non-controlling shareholders have a binding obligation and are able to make an additional investment to cover the losses. On acquisition of a non-controlling interest the relevant non-controlling interest share of equity is extinguished and the difference between the fair value of consideration paid and the relevant carrying value of the non-controlling interest is recorded in retained earnings.

Acquisition-related costs are expensed as incurred.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 in profit or loss. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity. Contingent consideration settled in a variable number of shares is classified as a fair value liability and transferred to equity on settlement of shares.

Investments in subsidiaries are accounted for at cost less impairment. Advances to subsidiaries are initially recorded at fair value based on a market rate of interest and subsequently at amortised cost. The difference between funds advanced and fair value is recorded in investments.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by other members of the Group. All intercompany transactions and balances between Group enterprises are eliminated on consolidation.

Disposal of subsidiaries

When the Group ceases to have control any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

2.3. Going Concern

As part of the process for achieving admission of the Company's ordinary shares to trading on AIM in January 2018, a facility in an amount of US$7.6 million was agreed by Fujax to be made available to the group as part of the Offtake Funding Agreement in place with Leboam Holdings (Pty) Ltd. This committed facility (the "Fujax Financing Agreement") formed an integral part of the group's working capital requirements to complete the re-commissioning of the Mowana Mine to full commercial production.

Subsequent to admission, no funds were actually received pursuant to the Fujax Financing Agreement owing to a number of commercial factors, which prompted the Company to replace this facility with alternative funding by way of the issue of US$10 million of loan notes which are scheduled to mature in April 2019. Furthermore, at the end of February 2018, the plant was shut down temporarily to facilitate the completion of a mill re-line, along with other essential maintenance activities, in readiness for the pursuit of steady state operations. As a consequence of the requirement to replace the abovementioned funding that was to be provided by Fujax Minerals, such maintenance activities and the formulation of the Company's Accelerated Development Plan, there was no material change to the quantity of copper concentrate produced from that reported in the Company's general meeting circular published on 26 February 2018 prior to the commencement of the Accelerated Development Plan.

The delay in commencement of commercial production caused the Group's cash flow to be significantly lower than anticipated as standing and infrastructure costs had to be absorbed during this period from February to mid-April 2018 in preparation of the Mowana Mine commencing commercial production.

The Board has reviewed cash flow forecasts for a period of at least 12 months from the date of approval of the financial statements. The base case cash flow forecasts indicate that the Group maintains cash headroom throughout the period without additional working capital facilities. In preparing the forecasts, significant judgment was required in respect of key assumptions such as copper prices which have been forecast at US$3.0/lb, production tonnages, grade and plant recovery rates as well as future costs and the timing of supplier payments. In particular, the forecasts assume significant growth in production volumes (tonnages, grade and recovery) in the short term associated with build up in mine production under the budgeted mine plan. In forming the production growth estimates management have considered information including drill and blast schedules, the grades in areas planned for mining based on geological data and metallurgical data on expected recovery rates.

However, the Board recognises that there is inherent risk associated with the short-term production, particularly during the transition to sustained commercial production levels. Sensitivity scenarios have been assessed in respect of copper prices, grade, plant recovery and tonnages. Under those sensitivity scenarios, in the event that production growth is significantly lower than anticipated in the next three months, the forecasts indicate that the Group would need additional working capital.

In addition, the group holds £1.3m of convertible loan notes which mature in December 2018 and a $10m loan note which matures in April 2019. The ability to meet these repayments is dependent upon a) securing sufficient short term working capital as detailed above if short term production is significantly below forecast; and b) the mine performing sufficiently in line with the budgeted mine plan and associated feasibility study over the remainder of the period.

Whilst the Board considers the mine plan will deliver significant long term value and considers the forecasts for the next 12 months to be achievable, there can be no guarantee that the production growth will be delivered in line with plan and therefore that the group can meet its working capital requirements without additional funding. The Board are in discussions to secure an additional working capital facility and remain confident that the group will secure the necessary funding, if required. However, at present there is no binding commitment in place for such funding.

These circumstances and considerations indicate the existence of a material uncertainty which may cast doubt on the group's ability to continue as a going concern. The financial statements do not include any adjustments that would result if the group was unable to continue as a going concern.

2.4. New and Amended Standards

(a) New and amended standards mandatory for the first time for the financial periods beginning on or after 1 January 2017

There are no IFRSs or IFRIC interpretations that were effective for the first time for the financial year beginning 1 January 2017 that had a material impact on the Group or Company.

(b) New standards, amendments and Interpretations in issue but not yet effective or not yet endorsed and not early adopted

Standards, amendments and interpretations that are not yet effective and have not been early adopted are as follows:

* Subject to EU endorsement

The Group is evaluating the impact of the new and amended standards above.

IFRS 15 Revenue from contracts with customers

IFRS 15 is intended to introduce a single framework for revenue recognition and clarify principles of revenue recognition. This standard modifies the determination of when to recognise revenue and how much revenue to recognise. The new standard becomes mandatory for financial years beginning on or after 1 January 2018. The new standard will be relevant to the Group through its copper sales, which are undertaken through an offtake agreement. The Group is currently in the process of assessing the impact of IFRS 15 to the contract following the acquisition of Cradle Arc Investments (Pty) Limited and will complete the assessment ahead of the release of its H1 2018 results.

IFRS 9 Financial instruments

The complete standard was issued in July 2014 including the requirements previously issued and additional amendments. The new standard replaces IAS 39 and includes a new expected loss impairment model, changes to the classification and measurement requirements of financial assets as well as to hedge accounting. The new standard becomes effective for financial years beginning on or after 1 January 2018. The Group is currently assessing the impact of this standard however based on current operations does not expect this standard to have a material impact on the consolidated financial statements.

IFRS 16 Leases

The new standard was issued in January 2016 replacing the previous leases standard, IAS 17 Leases, and related Interpretations. IFRS 16 establishes the principles for the recognition, measurement, presentation and disclosure of leases for the customer ('lessee') and the supplier ('lessor'). IFRS 16 eliminates the classification of leases as either operating or finance as is required by IAS 17 and, instead, introduces a single lessee accounting model requiring a lessee to recognise assets and liabilities for all leases unless the underlying asset has a low value or the lease term is twelve months or less. This new standard applies to annual reporting periods beginning on or after 1 January 2019. The Group has a number of finance leases acquired as part of its acquisition of Cradle Arc Investments (Pty) Limited, together with service agreements which need to be assessed to determine the extent to which they contact lease arrangements. The Group is currently in the process of assessing the impact of IFRS 16.

2.5. Segment Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors that makes strategic decisions.

2.6. Foreign Currencies

(a) Functional and presentation currency

Items included in the Financial Statements of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the 'functional currency'). The functional currency of the UK parent entity is Pounds Sterling and the functional currency of the BVI subsidiary is US Dollars. The currency of Botswana is the Botswanan Pula and is considered to be the functional currency of the Botswanan subsidiaries following an assessment of factors including the subsidiary sales contract, cost base, funding, capital and the economic environment in which it operates. The currency of Mali is the Central African Franc, which is therefore considered to be the functional currency of the Malian subsidiary. The currency of Burkina Faso is the Central African Franc, which is therefore considered to be the functional currency of the Burkina Faso subsidiary. The currency of Zambia is the Zambian kwacha; however all material contracts and activity with the Zambian subsidiaries are denominated in US Dollars which is, therefore considered to be, its functional currency. The Financial Statements are presented in Pounds Sterling, rounded to the nearest pound, which is the Company's functional and Group's presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where such items are re-measured. 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. Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within 'finance income or costs'. All other foreign exchange gains and losses are presented in the income statement within 'Other (losses)/gains - net'.

Translation differences on non-monetary financial assets measured at fair value, such as equities classified as available for sale, are included in other comprehensive income.

(c) Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

· assets and liabilities for each Statement of Financial Position presented are translated at the closing rate at the date of that Statement of Financial Position sheet;

· income and expenses for each Income Statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

· translation differences on assets and liabilities arising on acquisitions, including fair value uplifts and goodwill, which are related to the foreign entity.

· all resulting exchange differences are recognised in other comprehensive income.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken to other comprehensive income. When a foreign operation is sold, such exchange differences are recognised in the Statement of Comprehensive Income as part of the gain or loss on sale.

2.7. Intangible assets

(a) Goodwill

Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured at fair value is less than the fair value of the net assets of the subsidiary acquired, in the case of a bargain purchase, the difference is recognised directly in the Income Statement.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.

Goodwill impairment reviews are undertaken annually, or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised immediately as an expense and is not subsequently reversed. Where goodwill is recorded in respect of the acquisition of businesses involved solely in exploration for mineral resources the carrying value is assessed for impairment with the relevant exploration assets.

(b) Exploration and evaluation

The Group recognises expenditure as exploration and evaluation assets when it determines that those assets will be successful in finding specific mineral resources. Expenditure included in the initial measurement of exploration and evaluation assets and which are classified as intangible assets, relate to the acquisition of rights to explore, topographical, geological, geochemical and geophysical studies, exploratory drilling, trenching, sampling and activities to evaluate the technical feasibility and commercial viability of extracting a mineral resource..

Exploration and evaluation assets are recorded and held at cost.

Exploration and evaluation assets are assessed annually for impairment. The assessment is carried out by allocating exploration and evaluation assets to cash generating units, which are based on specific projects or geographical areas.

Whenever the exploration for and evaluation of mineral resources in cash generating units does not lead to the discovery of commercially viable quantities of mineral resources and the Group has decided to discontinue such activities of that unit, the associated expenditures are written off to the Income Statement.

(c) Mineral properties

Mineral properties relate to the fair value attributed to mineral resources arising on acquisition. Additions to mineral properties are recorded at cost.

Mineral properties commence depreciation on a unit of production basis once the relevant mine commences commercial production and depreciation is charged on a pattern which reflects the consumption of the associated mineral reserves and resources.

Mineral properties are tested for impairment as part of the cash generating unit to which they relate, which is typically determined to be the relevant mine.

2.8. Property, plant and equipment

Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the Income Statement during the financial period in which they are incurred.

Costs incurred which are directly attributable to enhancing the economic value of the mine are capitalised during commissioning of the mine as 'mine set up cost' and include costs such as consumables utilised in the commissioning phase, power and salaries and wages for personnel involved in commissioning the asset. During the commissioning phase, revenue generated is considered to be test production and an adjustment is recorded to increase cost of sales and reduce mine set up costs equal to the margin attributable to such revenues.

Property, plant and equipment is depreciated over the shorter of the estimated useful life of the asset using the straight-line method, or the life of mine using the unit of production method and life of mine tonnes.:

Mining properties - units of production

Plant and mining equipment - units of production

Field equipment - 20% straight line

Motor vehicles - 20% straight line

Computer equipment - 20-50% straight line

Property, plant and equipment related to mining activity starts to be depreciated once the mine is available for use and able to operate in the manner intended by management. This is considered to be the point at which commercially viable steady state levels of production are achieved, with reference to the life of mine plan.

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposal are determined by comparing the proceeds with the carrying amount and are recognised within 'Other (losses)/gains' in the Income Statement.

2.9. Impairment of non-financial assets

Property, plant and equipment is 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 asset's carrying amount 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). Non-financial assets that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

2.10. Financial Assets

Classification

The Group classifies its financial assets in the following categories: loans and receivables; and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

(i) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the Statement of Financial Position date. These are classified as non-current assets. The Group's loans and receivables comprise trade and other receivables, cash and cash equivalents in the Statement of Financial Position.

(ii) 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 the investment matures or management intends to dispose of the investment within 12 months of the end of the reporting period.

Recognition and measurement

Regular purchases and sales of financial assets are recognised on the trade date - the date on which the Group commits to purchasing or selling the asset. Financial assets are de-recognised when the rights to receive cash flows from the assets have expired or have been transferred, and the Group has transferred substantially all of the risks and rewards of ownership.

Available-for-sale financial assets are subsequently carried at fair value unless the Group is precluded from doing so as, in the case of unlisted equity securities, the range of reasonable fair value estimates is significant and the probabilities of the various estimates cannot be reasonably assessed. In such circumstances available-for-sale financial assets are held at cost and reviewed annually for impairment.

Loans and receivables are subsequently carried at amortised cost using the effective interest method.

Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are recognised in other comprehensive income. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the Income Statement as "gains and losses from investment securities."

Interest on available-for-sale securities calculated using the effective interest method is recognised in the Income Statement as part of other income. Dividends on available-for-sale equity instruments are recognised in the Income Statement as part of other income when the Group's right to receive payments is established.

Impairment of financial assets

The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset, or a group of financial assets, is impaired. A financial asset, or a group of financial assets, is impaired, and impairment losses are incurred, only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a "loss event"), and that loss event (or events) has an impact on the estimated future cash flows of the financial asset, or group of financial assets, that can be reliably estimated.

2.11. Trade Receivables

Trade receivables are amounts due from third parties in the ordinary course of business. If collection is expected in one year or less they are classified as current assets. If not they are presented as non-current assets.

Trade receivables are recognised initially at fair value, and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

2.12. Cash and Cash Equivalents

Cash and cash equivalents comprise cash at bank and in hand, and are subject to an insignificant risk of changes in value.

2.13. 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 a deduction, net of tax, from the proceeds.

2.14. Share Based Payments

The Group operates a number of equity-settled, share-based schemes, under which the entity receives services from employees or third party suppliers as consideration for equity instruments (options and warrants) of the Group. The fair value of the third party suppliers' services received in exchange for the grant of the options is recognised as an expense in the Statement of Comprehensive Income or charged to equity depending on the nature of the service provided. The value of the employee services received is expensed in the Income Statement and its value is determined by reference to the fair value of the options granted:

· including any market performance conditions;

· excluding the impact of any service and non-market performance vesting conditions (for example, profitability or sales growth targets, or remaining an employee of the entity over a specified time period); and

· including the impact of any non-vesting conditions (for example, the requirement for employees to save).

Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. The total expense or charge is recognised over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the entity revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the Income Statement or equity as appropriate, with a corresponding adjustment to a separate reserve in equity.

When the options are exercised, the Company issues new shares. The proceeds received, net of any directly attributable transaction costs, are credited to share capital (nominal value) and share premium when the options are exercised.

2.15. Reserves

Share Premium Reserve - the share premium reserve includes any premiums received on issue of share capital. Any transaction costs associated with the issuing of shares are deducted from the share premium.

Other reserve - refers to the premium above nominal value of shares issued as consideration under the acquisition of 100% of the shares of Luiri Gold Mines Limited and Cradle Arc Investments (Pty) Limited which qualified for merger relief under Companies Act 2006.

Share Option Reserve - the share option reserve represents the total fair value of share based options and warrants of the Group measured at grant date and spread over the period over which the options or warrants vest.

Available-For-Sale Financial Asset Reserve - the available-for-sale financial asset reserve represent the changes in fair value of monetary and non-monetary securities classified as available-for-sale financial assets.

Translation Reserve - the translation reserve represents the cumulative differences arising due to foreign exchange on consolidation of all the Company's subsidiaries.

Retained Losses - the retained losses reserve includes all current and prior periods retained profit and losses.

Non-controlling interest - the non-controlling interest refers to the 40% minority shareholding in Leboam Holdings Limited.

2.16. Trade Payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.

Trade payables are recognised initially at fair value, and subsequently measured at amortised cost using the effective interest method.

2.17. Taxation

There has been no tax credit or expense for the period relating to current or deferred tax. Tax is recognised in the Income Statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred tax is not accounted for if it 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.

In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred tax assets and liabilities relate to taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled. Deferred tax assets and liabilities are not discounted.

2.18. Leases

Determining whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether fulfilment of the arrangement is dependent on the use of a specific asset or assets and whether the arrangement conveys a right to use the asset. Leases of plant and equipment where the group assumes a significant portion of risks and rewards of ownership are classified as a finance lease. Finance leases are capitalised at the estimated present value of the underlying lease payments. Each lease payment is allocated between the liability and the finance charges to achieve a constant rate on the finance balance outstanding. The interest portion of the finance payment is charged to the statement of comprehensive income over the lease period. The plant and equipment acquired under the finance lease are depreciated over the useful lives of the assets, or over the lease term if shorter.

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the statement of comprehensive income on a straight-line basis over the period of the lease.

2.19. Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for goods or services supplied in course of ordinary business, stated net of discounts, returns and value added taxes. The Group recognises revenue when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when specific criteria have been met for the Group's activities described below.

The Group generates revenue from the sale of copper under an offtake agreement. Revenue is recorded when risks and rewards have substantially passed under the contract and the sale proceeds can be reliably measured, which is considered to be the point at which the offtake provider takes title and possession and is responsible for the insurance risk on the concentrate. As sales from gold contracts are subject to customer survey adjustment and copper prices subsequent to the date of shipment, sales are initially recorded on a provisional basis using the group's best estimate of the contained metal and market forward copper prices. Subsequent adjustments are recorded in revenue to take into account from final copper content and pricing.

Revenue is recognised in respect of amounts recharged to project strategic partners in accordance to their contractual terms.

2.20. Finance income

Interest income is recognised using the effective interest method.

2.21. Borrowings

Compound financial instruments not designated at fair value through profit and loss

Compound financial instruments issued by the Group as a form of consideration for business combinations comprise convertible notes that can be converted to share capital at the option of the holder and include a host liability together with a derivative.

The derivative portion is initially recorded at fair value and the liability component is recognised initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the derivative component.

Subsequent to their initial recognition, the liability component of a compound financial instrument is measured at amortised cost using the effective interest method. The derivative component of a compound financial instrument is held at fair value where material, determined using a Black Scholes model.

Convertible financial instruments designated at fair value through profit and loss

When a convertible instrument meets the qualifying criteria under IFRS and is designated as a fair value through profit and loss instrument at inception it is initially recorded at fair value based on the transaction proceeds and subsequently held at fair value with changes in fair value recorded in the income statement.

2.22. Deferred consideration

Deferred consideration issued as part of a business combination to be settled in cash but with an option for either party to settle in shares in a form which significantly modifies the cash flows that would otherwise be required under the agreement is initially recorded at fair value and designated as fair value through profit and loss. Subsequent changes in the fair value of the deferred consideration are recorded in the income statement.

2.23. Joint operations

The group is a party to joint arrangements when there is a contractual arrangement that confers joint control over the relevant activities of the arrangement to the group and at least one other party. The group classifies its interests in joint arrangements as a joint operation where it has both the rights to assets and obligations of the joint arrangement.

The Group accounts for its interests in joint operations by recognizing its share of assets, liabilities, revenues and expenses in accordance with its contractually conferred rights and obligations. Where the Group enters into an 'earn in' arrangement by which the partner funds the costs of exploration and receives a percentage interest in the asset in return for the works performed and milestones achieved, the costs incurred by the partner are not recorded by Group.

2.24. Restoration provisions

An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the development or ongoing production of a mining property. Such costs arising from the decommissioning of plant and other site preparation work, discounted to their net present values, are provided for in full as soon as the obligation to incur such costs arises and can be quantified. On recognition of a full provision, an addition is made to property, plant and equipment of the same amount; this addition is then charged against profits on a unit of production basis over the life of the mine. Closure provisions are updated annually for changes in cost estimates as well as for changes to life of mine, with the resulting adjustments made to both the provision balance and the net book value of the associated non-current asset.

2.25. Inventories

Inventories include ore stockpiles, concentrates, stores and materials, and are stated at the lower of cost or net realisable value. The cost of ore stockpiles and copper concentrate produced is determined principally by the weighted average cost method using related production costs.

Cost of ore stockpiles include costs incurred up to the point of stockpiling, such as mining and grade control costs, but exclude future costs of production. Ore extracted is allocated to stockpiles based on estimated grade, with grades below defined cut-off levels treated as waste and expensed.

The net realisable value of ore stockpiles is determined with reference to estimated contained copper and market copper prices applicable less applicable deductions under offtake agreements.

Costs of copper concentrate inventories include all costs incurred up until production of metal such as milling costs, mining costs and directly attributable mine general and administration costs but exclude transport costs, refining costs and royalties. Net realisable value is determined with reference to estimated contained copper and market copper prices less applicable deductions under offtake agreements.

Stores and materials consist of consumable stores and are valued at weighted average cost after appropriate impairment of

redundant and slow moving items. Consumable stock for which the group has substantially all the risks and rewards of ownership are brought onto the statement of financial position as current assets.

2.26. Interest/borrowing costs

Interest is recognised on a time proportion basis, taking into account the principal outstanding and the effective rate over the period to maturity. Borrowing costs are expensed as incurred except to the extent that it relates directly to the construction of property, plant and equipment during the time that is required to complete and prepare the asset for its intended use, when it is capitalised as part of property, plant and equipment. Borrowing costs are capitalised as part of the cost of the asset where it is probable that the asset will result in economic benefit and where the borrowing cost can be measured reliably.

3. Financial Risk Management

3.1. Financial Risk Factors

The Group's activities expose it to a variety of financial risks: market risk (including foreign currency risk), credit risk and liquidity 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.

Risk management is carried out by management under policies approved by the Board of Directors.

Market Risk (including foreign currency risk)

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Euro, Botswana Pula, Central African Franc, Zambian kwacha, Mauritanian Ouguiya and the Pound Sterling.

Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. The Group negotiates all material contracts for exploration activities in relation to its subsidiaries in either Pounds Sterling or Euros which in the Directors' opinion are more stable than the respective local currencies. The Group's Botswanan operation holds certain funding instruments in US Dollars which creates foreign exchange risk but the majority of its trading contracts are denominated on Botswanan Pula to reduce currency risk. The Group also holds minimal liquid assets in Central African Franc, Zambian kwacha and Mauritanian Ouguiya. The Group does not hedge against the risks of fluctuations in exchange rates. The volume of transactions is not deemed sufficient to enter into forward contracts. The Directors will continue to assess the effect of movements in exchange rates on the Group's financial operations and initiate suitable risk management measures where necessary.

Credit Risk

Credit risk arises from cash and cash equivalents as well as outstanding receivables. Management does not expect any losses from non-performance of these receivables. The maximum credit risk is represented by the carrying value of the assets.

The amount of exposure to any individual counter party is subject to a limit, which is assessed by the Board.

The Group considers the credit ratings of banks in which it holds funds in order to reduce exposure to credit risk. Further disclosures regarding trade and other receivables, which are neither past due nor impaired, are provided in note 11 and 26.

Liquidity Risk

In keeping with similar sized mineral exploration and production groups, the Group's continued future operations depend on the ability to generate sufficient working capital through its mine production, ability to raise debt funding and the issue of equity share capital.

Fair value hierarchy

The fair value measurement of the Group's financial and non-financial assets and liabilities utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different levels based on how observable the inputs used in the valuation technique utilised are (the 'fair value hierarchy'):

- Level 1: Quoted prices in active markets for identical items (unadjusted)

- Level 2: Observable direct or indirect inputs other than Level 1 inputs

- Level 3: Unobservable inputs (i.e. not derived from market data).

3.2. Capital Risk Management

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern, in order to enable the Group to continue its exploration, evaluation and production activities, and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the issue of shares or sell assets to reduce debts.

At 31 December 2017 the Group had convertible loan note liabilities of £5,652,325 (2016: £181,775), finance lease liabilities of £5,238,699 and borrowings of £33,751,165 and defines capital based on the total equity of the Company.

4. Critical Accounting Estimates and Judgements

The preparation of the Financial Statements in conformity with IFRSs requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the year. Actual results may vary from the estimates used to produce these Financial Statements.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Significant items subject to such estimates and assumptions include, but are not limited to:

Accounting for the acquisition of Cradle Arc Investments (Pty) Limited (Mowana)

As detailed in Note 29, the Group acquired 100% of the share capital of Cradle Arc Investments (Pty) Limited ("CAI") on 13 November 2017 with consideration comprised of deferred cash consideration, Consideration Shares and Additional Consideration Shares to provide the vendors with a 60% shareholding in the Company following a £5 million fundraise on or before admission of the Company's ordinary shares to trading on the AIM market of the London Stock Exchange ("Admission").

Judgment was required in determining whether the transaction represented a business combination under IFRS 3 in which the Company acquired control of CAI or a reverse acquisition for accounting purposes in which CAI acquired control of the Company. In concluding that the transaction represented a business combination in which the Company acquired control of CAI various factors and indicators were considered including the impact of the Relationship Agreement entered by the vendors which restricts their ability to make changes to the Board whilst their shareholding is above 20%, the composition of the Board and senior management, the relative size of the respective businesses and the terms of the acquisition as well as the background to the transaction.

Judgment and estimation was required in assessing the fair value of assets and liabilities acquired at acquisition as shown in Note 29.

Judgment was also required in determining the fair value of consideration. Under the terms of the transaction, the vendors received an initial 40,517,689 of Consideration shares on 13 November 2017 together with a right to a further tranche of Additional Consideration Shares upon the Company's Admission due to be completed shortly thereafter. The Additional Consideration Shares were intended to maintain the vendors' 60% shareholding after allowing for the otherwise dilutionary impact of the £2.4m share placing at 10p per share and conversion of loan notes and other instruments as part of Admission (up to a maximum value of £5 million). Following assessment of alternative approaches, the fair value of the overall share consideration was determined with reference to the placing price in January 2018 as the best market evidence of fair value. The fair value has been allocated between the Consideration Shares issued at acquisition and the Additional Consideration Shares to be issued upon Admission (classified as a liability due to the variability in the number of shares to be issued), which together formed part of the consideration for the acquisition. In assessing the fair value of the elements of share consideration judgment was also required in determining the probability of Admission and whether material changes in the fair value of the shares existed between acquisition and Admission.

Carrying value of mineral properties and mining related assets

The Group holds mineral property of £29,922,459 and mining related assets of £50,079,058 related to the Mowana mine as detailed in Note 6 and 7. Judgment and estimation was required in performing an impairment indicator review under IFRS. In concluding that no impairment was applicable the Group considered the Life of Mine Plan which indicates substantial net present value in excess of the carrying value of the assets, the Competent Person's Report and Reserves and Resources Statement and the recent acquisition fair value.

Restoration provision

The Group's restoration provision totals £5,096,290 and is shown in Note 13. The provision required estimates regarding the extent and cost of decommissioning and rehabilitation works, the timing of such works and the appropriate inflation and discount rates. The restoration requirements and cost was supported by an external environment report and inflation of 3.2% and discount rate of 4.98%.

Ore stockpiles

The Group holds an ore stockpile of £486,782 as detailed in Note 12 held at net realisable value and the assessment of carrying value requires significant judgment and estimation. The net realisable value has been determined based on assessment of prevailing copper prices less adjustments for discounts under the offtake agreements, estimates of the cost to process allowing for the nature of the stockpile and estimates of copper content.

Commercial production and cost capitalisation

Judgment is required in determining the point at which the Group reaches commercial production and is available for use as intended and its assets should begin to be depreciated. In concluding that the Mowana mine has yet to reach commercial production at year end the Group considered mining volumes and the nature of ores mined, plant throughout and recovery rates against the Life of Mine plan and other factors. Judgment has been required in determining which costs are eligible for capitalisation during the period prior to commercial production being achieved.

Impairment of exploration and evaluation costs

Exploration and evaluation costs have a carrying value at 31 December 2017 of £3,163,710 (2016: £17,179,620). Management tests for impairment indicators under IFRS 6 annually to assess whether exploration projects have future economic value in accordance with the accounting policy stated in Note 2.7 to the Financial Statements. Each exploration project is subject to an annual review by either a consultant or senior company geologist to determine if the exploration results returned during the year warrant further exploration expenditure and have the potential to result in an economic discovery. This review takes into consideration long term metal prices, anticipated resource volumes and supply and demand outlook and strategic priorities. In the event that a project does not represent an economic exploration target and results indicate there is no additional upside a decision will be made to discontinue exploration and the asset impaired. Similarly, if the licence is due to expire and the Group do not believe the licence will be renewable the asset is impaired. The Directors also consider the values indicated by transactions subsequent to the year end where applicable. The Directors have reviewed the estimated value of each project prepared by management and have concluded that an impairment charge of £12,553,949 is appropriate as detailed in note 7.

Value Added Taxation

The Company has VAT receivable of £546,406 (2016: £344,203) and there is an ongoing inquiry by HMRC regarding the Company's VAT registration. The Directors' are confident that the VAT registration in place for the Company is fully compliant and will result in a repayment of VAT to the Company but have exercised judgment in forming this assessment given the inquiry. Refer to note 26.

Contingent consideration

As part of the acquisition of Gazelle Resources Inc, the Group has entered into a contractual arrangement with Swala Resources Inc ('Swala'), in which, under certain milestones being reached, would result in the Group paying further consideration of US$1.5m. For full details on the arrangement, please see Note 27.

The Directors have reviewed the progress of the project and consider reaching the milestones unlikely. Given this, the Directors have assessed the fair value of the contingent consideration to be nil and consider that it is unlikely that the Company will have any additional liability arising.

5. Segment Information

Management has determined the operating segments based on reports reviewed by the Board of Directors that are used to make strategic decisions. During the prior year the Group had interests in six geographical segments; the United Kingdom, Botswana, Mauritania, Burkina Faso, Mali and Zambia. Activities in the UK are mainly administrative in nature whilst the activities in Botswana, Mauritania, Burkina Faso, Mali and Zambia relate to exploration and evaluation work. During 2017, the Group acquired the Mowana mine in Botswana.

Segment assets exclude tax assets and assets used primarily for corporate purposes. Segment liabilities exclude tax liabilities. Loans and borrowings are allocated to the segments based on relevant factors (e.g. funding requirements). Details are provided in the reconciliation from segment assets and liabilities to the group position.

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A reconciliation of adjusted loss from operations per reportable segment to profit/(loss) before tax is provided as follows:

Revenue for the year comprised £200,964 (2016: Nil) of copper sales for the period since the acquisition of Mowana Copper mine and £369,615 (2016: £nil) of management fees to strategic partners.

6. Property, Plant and Equipment

No depreciation has been charged on mining properties and plant and equipment associated with the Mowana Copper mine in the period as the mine is yet to enter commercial production. Refer to note 15 for details of finance leases secured over equipment. Additions are stated net of test production adjustments whereby cost of sales are increased and PP&E reduced to eliminate the margin on revenues during the pre-commercial production period.

7. Intangible Assets

The Mowana mine was acquired during the year in Botswana as detailed in note 29.

Exploration projects in Burkina Faso, Mauritania, Zambia and Mali are at an early stage of development. The Kossanto Project has a JORC Code compliant inferred resource estimate of 247,000 oz Au as at 31 December 2017 and the Zambian exploration asset had a gold JORC compliant resource estimate of 760,000 ounces in the measured, indicated and inferred categories at an average grade of 2.3 grams per ton. The remaining projects had no JORC or non-JORC compliant resource estimates available to enable value in use calculations to be prepared. The Directors undertook an assessment of the following areas and circumstances that could indicate the existence of impairment:

• The Group's right to explore in an area has expired, or will expire in the near future without renewal;

• No further exploration or evaluation is planned or budgeted for;

• A decision has been taken by the Board to discontinue exploration and evaluation in an area due to the absence of a commercial level of reserves; and

• Sufficient data exists to indicate that the book value will not be fully recovered from future development and production.

An impairment review of exploration and evaluation assets is carried on out an annual basis in order to ensure that it is valued at the lower of cost and recoverable amount. Following their assessment, the Directors concluded that an impairment charge of £11,974,312 was necessary at the year end to reflect the fair value for Zambian licenses equivalent to £1,853,054 ($2,500,000) based on the terms of the option agreement entered into for the asset post year end. No value was attributed to future royalties given the project remains in a pre-development phase.. The Directors also concluded given the current security situation with the assets held in Burkina Faso that a full impairment to nil value was necessary and an impairment charge of £579,637 has been booked. Refer to note 4.

In 2016, following their assessment, the Directors concluded that an impairment charge of £961,523 was necessary to provide for Mauritanian licences that are not intended to be renewed and a charge of £2,310,820 was applied to the Kossanto East licenses held in Mali to reflect market value at year end based on the subsequent sale value achieved on the disposal of the licence to Ashanti in 2017. The Kossanto East licences were sold for cash consideration of £627,005 and the impairment in 2016 reduced the carrying value to the fair value of consideration.

The goodwill relates to the exploration cash generating unit having arisen on the acquisition of a company holding the exploration asset in prior years. Given the nature of the underlying business the cash generating unit and associated goodwill is tested for impairment indicators under IFRS 6. The impairment in 2016 refers to goodwill associated with Kossanto East.

8. Investments in Subsidiary Undertakings

Advances to Group undertakings representing loans are discounted at a market rate of interest and recorded in trade and other receivables. The difference between the fair value and funds advanced is recorded as part of investments. Impairment in the year relates to investments and advances to Luiri Gold Mines Limited and Societe Miniere de Kerboulé SARL related to the Zambian and Bukina Faso projects detailed in note 7.

Details of Subsidiary Undertakings

9. Available-for-Sale Financial Assets

All available-for-sale financial assets are UK listed equity securities denominated in Pounds Sterling.

10. Trade and Other Receivables