Interim Results

25th Sep 2008 07:00



Central African Gold Plc / Ticker: CAN / Market: AIM / Sub-sector: Gold Mining

25 September 2008

Central African Gold Plc ("CAG" or the "Company")

Interim Results

Central African Gold Plc, the AIM traded gold mining and exploration company, announces its unaudited interim results for the six months ended 30 June 2008.

Overview

Focus on becoming a leading mid-tier gold producer with a world class portfolio of exploration and production assets in Africa

Bibiani gold mine ("Bibiani")

 Underground production increased to circa 33,500 tonnes per month ("tpm") grading at 2.6 g/t Au in July 2008 and to circa 40,000 tpm grading at 2.6 g/t Au in August 2008

Underground drilling and sampling programme returning positive orebody grades and widths as good as and, in most cases, better than expected

Introducing monthly Key Performance Indicators ("KPIs") which include production, tonnage figures and grade analysis to ensure maximum visibility going forward

Operational initiatives to optimise performance and economies of scale introduced

Portfolio of assets in Ghana, Mali, Zimbabwe and Botswana - total attributable gold resource stands at 5.6 million oz Au, with a total attributable reserve base at 2.1 million oz Au

Continued exploration work at permits in western and southern Mali with promising results - 150 sq km Medinandi and Bokolobi permits currently have a mineral resource of circa 500,000 oz of Au grading 4.55g/t Au 

Strengthened Board and management team to support CAG in the development of its gold production and exploration assets

CEO's Statement

As our shareholders will know, CAG's focus is to become a leading mid-tier gold producer with a world class portfolio of exploration and production assets, an objective which the Board believes is within sight. We have, what I believe to be, a solid portfolio of assets in Ghana, Mali, Zimbabwe and Botswana. Our total attributable gold resource now stands at 5.6 million oz Au, and our total attributable reserve base at 2.1 million oz Au.

CAG has experienced a challenging period, mainly with regard to our Bibiani gold mine in Ghana, as was reported in the Chairman's Annual General Meeting ("AGM") statement, although recently we have seen an upturn in production. 

To ensure that the market is regularly updated on developments in the Company, particularly at Bibiani, we are initiating monthly KPIs which will include production and tonnage figures, as well as grade analysis. This will ensure maximum visibility to existing shareholders and potential new investors over a period that the Board believes will lead the market to reflect the underlying value of our operations and assets, which we will aim to translate into improved shareholder value.

As reported in our recent operational updates for Bibiani, the Company continues to increase both tonnage and grade. Underground production has increased to circa 33,500 tpm grading at 2.6 g/t Au in July 2008 and to circa 40,000 tpm grading at 2.6 g/t Au in August 2008.  Importantly, on an ongoing basis, the reconciliation between what the Company is mining and the orebody model is circa 95 per cent., with the underground drilling and sampling programme returning results that show the orebody grade and width to be as good and, in most cases, better than the Company expected. 

CAG has taken a number of operational initiatives to increase production levels, performance and economies of scale at Bibiani. Three new trucks are now on site and in operation and two new Caterpillar R1700D loaders are expected on site in October, which will enhance the haulage capacity of the mine and help to reduce maintenance costs. An agreement was signed with Barminco to sink the second decline, in order to gain easier access to the orebody and thus allow a further ramp up of production. The Company has upgraded the oxygen plant, as well as commenced commissioning of the Knelson concentrator, In-line reactor, Flash float cell, Regrind mill, and the Aachen reactors (oxygen and shear reactors). These initiatives are aimed at helping to enhance the recoveries currently being achieved.

While our focus is squarely on production, CAG is also conducting extensive exploration initiatives in the vicinity of the mine aimed at increasing the resource base and further underpinning the resource potential of the surrounding tenements. Updates on this work will be published later this year, as appropriate.

In Mali, we continue to advance our highly prospective portfolio of 17 properties spanning approximately 2,600 sq km of Birimian strata in the west and south of the country. The most advanced project remains the 150 sq km Medinandi and Bokolobi permits (Songhoi Ressources SA) in the prospective Kenieba district, which currently has a mineral resource of approximately 500,000 oz of gold grading 4.55g/t Au at the Fadougou Main Zone target.

During the six month period to 30 June 2008, a further phase of RC drilling was completed at Medinandi.  A total of 86 RC boreholes for 10,374m were drilled over a number of target areas outside the Fadougou Main Zone. These areas are known as Fadougou-MZ south extension, Fadougou-SE, the NE extension of FMZ, FMZ east (a newly defined Au-in-soil geochemistry anomaly structure (1.3x0.5km) east of FMZ-N), and the Medinandi prospect. The Mali properties are providing us with encouraging results which the Board believes, with further quantification, will deliver on their early promise with a significant resource.  A resource update will be published shortly.

In Zimbabwe, we maintain our interests in both Falgold and Olympus, which are producing entities with extensive claim holdings in Zimbabwe. Our focus has been on maintaining our existing operations although current adverse conditions have affected production levels. The management of CAG remains positive about the longer term prospects for doing business in the country, although the current environment remains challenging. The Board notes that Falgold today published its interim results for the six month period to 30 June 2008 in The Herald, The Chronicle and The Independent newspapers in Zimbabwe.

We maintain the 430 sq km Kraaipan prospecting licence in Botswana, which spans the highly prospective Achaean Kraaipan greenstone belt, which the Company believes is prospective for gold and provides excellent exploration potential. Exploration is on-going, the results of which will be published on completion.

With regard to the Board, we have made a number of appointments in line with our strategy of assembling a board with the relevant experience and contacts to advance our assets.  In May 2008, Roy Lander joined as Non-Executive Chairman, Mr David Glennie as Non-Executive Director and Mr Thomas Gibian as Non-Executive Director and representative for Emerging Capital Partners LLC ("ECP"), a substantial shareholder in CAG (with Mr Navaid Burney periodically attending as his alternate). Post the period end, as announced on 11 September 2008, Craig Campbell was appointed to the management team as the Company's Chief Financial Officer. 

Financial Review

Turnover for the 6 months to 30 June 2008 was £8.6 million from the sale of 18,262 oz Au with a gross profit of £0.8 million. 

Administrative expenses were £3.6 million (June 2007: £1.8 million) and the operating loss for the period was just over £2.8 million (June 2007: £1.5 million) or a loss of 3.58p per share (June 2007: 0.32p per share). Included in administrative expenses are share based payments of £0.4 million (June 2007: £0.4 million).

The net result reflects a mark to market loss of £3.1 million (US$6.2 million) for the period applying a gold price at 30 June 2008 of US$924/oz. At 17 September 2008, the gold sale agreement reflected a mark to market loss of £1.9 million (US$3.5 million) applying a gold price at the time of US$781/oz.

The Zimbabwe financial results have a functional currency of US dollars.  In translating any Zimbabwean dollar transactions in those results, the Old Mutual Implied Rate has been utilised. The Old Mutual Implied Rate has been used rather than the official rate, since the Company believes that the Old Mutual Implied Rate gives a more accurate representation of the purchasing power of the Zimbabwean dollar.

Total assets increased to £50.8 million (June 2007: £25.1 million) mainly due to the capital expansion at Bibiani and exploration in Mali. Liabilities increased to £26.7 million (June 2007: £10.6 million), due mainly to the issuing of US$6.94 million convertible notes by the Company and the impact of Bibiani not achieving its short term production objectives.

On 15 January 2008, a capital raise of £15.6 million was completed through the issue of 60 million new ordinary shares at 26 pence per share.

Cash at the end of the period was £3.2 million (June 2007: £3.7 million), of which £2.2 million (June 2007: £1.4 million) is restricted to fund the rehabilitation liability at Bibiani.

The financial statements are prepared on a going concern basis which the Directors believe to be appropriate for the following reasons:

Management has projected cash flow information for the period ending twelve months from the date of the Board's approval of the interim financial statements.

Cash resources at the date of reporting are severely limited in the main as a result of Bibiani not achieving its short term production objectives and the Directors have identified a need for the Company to raise capital to support operations.

Support of US$7.94 million was provided by two shareholders by way of US$6.94 million in Convertible Loan Notes with a 6-month term and the issue of US$1 million of new ordinary shares (the "Placing Shares"), further details of which are set out below. 

Issue of Convertible Loan Notes and Ordinary Shares

The first of the Convertible Loan Notes has been issued to Emerging Capital Partners Africa Fund II ("ECP") for $3.9 million (£2.17 million) and carries an interest coupon of 10 per cent. per annum, compounded monthly and payable on maturity. Under the terms of this Convertible Loan Note, ECP may convert the Convertible Loan Note into new Ordinary Shares in the Company at the time of the next equity fundraising undertaken by the Company, at a price which is 10 per cent. below the issue price of such fundraising. In the event that the Company raises at least $10 million (£5.56 million) in such fundraising, the Convertible Loan Note and accrued interest will convert automatically. In addition, ECP has been granted options over 761,137 Ordinary Shares exercisable at a price of 0.5 pence per share for a period of 2 years from the date of their grant.

The second of the Convertible Loan Notes has been issued to Investec Asset Management (Proprietary) Limited ("Investec") for $3 million (£1.67 million) and also carries an interest coupon of 10 per cent. per annum, compounded monthly and payable on maturity. Under the terms of this Convertible Loan Note, Investec may convert the Convertible Loan Note into new Ordinary Shares in the Company at the time of the next equity fundraising undertaken by the Company, at a price which is 10 per cent. below the issue price of such fundraising. In the event that the Company raises at least $10 million (£5.56 million) in such fundraising, the Convertible Loan Note and accrued interest will convert automatically. In addition, Investec has been granted a warrant over 1,150,000 new Ordinary Shares at a price of 25 pence per share for a term of 2 years.

On 22 July 2008, an equity capital raising of £0.5 million (US$1 million) was completed through the placing of 2.74 million new ordinary shares at 18.5 pence per share to Investec. An application for the Placing Shares to be admitted to AIM has been made and it is expected that the shares will begin trading on AIM on 2 October 2008.

Update on financial position

On the basis of the cash flow information prepared, and the Board's capital raising assumptions, the Directors consider that the Company will be able to continue in operational existence for the foreseeable future by meeting its liabilities as they fall due.

However, there can be no certainty in relation to these matters, which may cast significant doubt on the Company's ability to continue as a going concern. The Company may, therefore, be unable to continue realising its assets and discharging its liabilities in the normal course of business, but the financial statements do not include any adjustments that might result from this basis of preparation being appropriate. If this basis was appropriate there may be significant write down of assets within the financial statements and long term loan agreements may become immediately recallable.

Outlook

The second half of the financial year will be critical for the Company.  Management and the Board's focus are firmly on ensuring that our key asset, Bibiani, is now on a path of sustainable and ongoing delivery. An underground technical review to support our mining plan has been and continues to be scrutinised by an independent third party, SRK. This is aimed at confirming the short term potential of the mine and will give an indication of future cash requirements. As previously announced, we have appointed RBC Capital Markets to conduct a strategic review, including examining options for a capital injection, aimed at maximising shareholder returns.

Improved output in the second half is expected to lead to better cash flows, but volatility of the dollar gold price remains of concern to the Board.

The Board has held informal discussions with a number of the Company's shareholders and, in light of the value of the Company's gold reserves and the independent confirmation that those reserves can be successfully recovered, are confident of the continuing support of shareholders and therefore the continued funding of the business.

Greg Hunter

Chief Executive

Un-audited consolidated income statement

For the period ended 30 June 2008

All activities were in respect of continuing operations

Un-audited consolidated balance sheets

As at 30 June 2008

Statement of cash flows

For the period ended 30 June 2008

Statement of recognised income and expenses

For the period ended 30 June 2007

Notes to the Interim Accounts

For the period ended 30 June 2008

1. Basis of preparation

The financial information contained in this interim report does not constitute statutory accounts within the meaning of section 240 of the Companies Act 1985. The figures relating to the year ended 31 December 2007 have been extracted from the audited accounts which have been filed with the Registrar of Companies and were not qualified, however did contain an emphasis of matter with respect to disclosure in respect of going concern.  The auditors' report did not contain a statement under section 237(2) or (3) Companies Act 1985. 

The consolidated financial statements incorporate those of Central African Gold Plc and its subsidiary undertakings for the period. The current and the comparative half year financial statements to June are un-audited and have been prepared using accounting policies and practices consistent with those adopted in the audited financial statements for the year ended 31 December 2007.

The financial statements are presented in pounds sterling, rounded to the nearest thousand. The preparation of financial statements in conformity with adopted International Financial Reporting Standards ("IFRS") requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. 

The financial statements have been prepared on the going concern basis, notwithstanding net current liabilities of £53,000, which the directors believe to be appropriate for the following reasons. The directors have performed a detailed review of current trading which has included consideration of the company's funding position as at the date of these interim results and the projected funding requirement covering the next 12 months. As is common with many mining companies, the company raises money for exploration and capital projects as and when required. 

There can be no assurance that the Group's projects will be fully developed in accordance with current plans or completed on time or to budget. Future work on the development of these projects, the levels of production and financial returns arising there from may be adversely affected by factors outside the control of the group.

In July 2008 the Group completed the raising of the following additional funding via an arranged with Investec Asset Management and Emerging Capital Partners with the immediate raising of £4 million (US$8 million) in the form of convertible loan notes £3.5 million (US $6.94 million) and new ordinary shares £0.5 million (US$1 million).

A general authority to allot securities in line with CAG's need to raise capital was sought and granted at the Company's AGM. The directors have held informal discussions with a number of the Company's shareholders and, in light of the value of the Company's gold reserves and the independent confirmation that those reserves can be successfully recovered, are confident of the continuing support of shareholders and therefore the continued funding of the business.

The Group continues to engage in negotiations for an overdraft facility of £0.5 million (US$1 million) and lease finance for equipment at Bibiani of £1.75 million.

The additional funding and arrangements in itself are not sufficient to enable the Group to fund all aspects of its operations, exploration and working capital requirements over the next 12 months from the date of interim results and as such the Company is planning to issue further shares. The directors believe that it will be able to secure the necessary financing through a combination of the issue of new equity and debt instruments.

However, there is no assurance that the Group will be successful in these actions. These financial statements do not reflect the adjustments, which could be material, to the carrying value of assets and liabilities, the reported revenues, expenses and balance sheet classifications that would be necessary were the going concern assumption inappropriate.

2. Foreign currencies

Transactions in foreign currencies are recorded using the rate of exchange ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to pounds sterling at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to pounds sterling at foreign exchange rates ruling at the dates the fair value was determined.

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to pounds sterling; the Group's reporting currency, at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations, excluding foreign operations in hyperinflationary economies, are translated to pounds sterling at rates approximating to the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on retranslation are recognised directly in a separate component of equity.

The Company's policy is to assess and determine the functional currency of subsidiaries. The Zimbabwe subsidiaries have been determined to have a US dollar functional currency. Transactions denominated in Zimbabwean dollars and other currencies are translated into US dollars at the rate prevailing at the date of the transaction or the average exchange rate as appropriate. Monetary assets and liabilities are retranslated into US dollars at the rate prevailing at the balance sheet date. The resulting exchange differences are recorded in the income statement.

In translating the Zimbabwean dollar ("Z$") transactions into US dollars ("US$'), the Group has used the Old Mutual Implied Rate ("OMIR"), which is the calculated by dividing the Zimbabwe Stock Exchange share price of Old Mutual shares by the London Stock Exchange share price of these shares. The Old Mutual Implied Rate has been used rather than the official rate, since the Group believes that the Old Mutual Implied Rate gives a more accurate representation of the purchasing power of the Zimbabwean dollar. 

The Group has applied the average of the Old Mutual rate to transactions denominated in Zimbabwean dollars and recorded in the income statement. The effective average rate for the year end was Z$ 27,424,736,578 to US$1. The Group has applied the year end exchange rate of Z$ 163,468,496,351 to US$1 to the assets and liabilities denominated in Zimbabwean dollars.

3. Basic and diluted loss per share

Basic and diluted loss per share was based on the loss attributable to ordinary equity holders of the parent of 

£5.8 million (June 2007: £1.5 million) and the weighted average number of ordinary shares outstanding during the period of 164,557,783 (June 2006: 466,737,727).

4. Acquisitions

The Company is currently in the process of finalising the purchase of assets of an engineering business in Zimbabwe which is expected to be concluded shortly.

5. Subsequent events

Subsequent to the date of these financial statements

6. Reconciliation of movement in equity shareholders' funds

7. Segmental Information 

8. These interim accounts were approved by the directors on 18 September 2008. 

* * ENDS * *

For further information please visit www.centralafricangold.com or contact:

Related Shares: