31st Mar 2008 11:44
Weatherly International PLC31 March 2008 Weatherly International plc ('Weatherly' or the 'Company') Interim Results From the Chairman I have pleasure in presenting the un-audited accounts for the half year ending31 December 2007. These are our first accounts prepared in accordance withInternational Financial Reporting Standards (IFRS). The Company achievedrevenues for the half year ending 31 December 2007 of $41.5 million and showed aloss of US$1.2 million for the same period. The major change impacting the Company under IFRS results from the differenttreatment under IFRS of "discount on acquisition" (also known as negativegoodwill'). Under UK Generally Accepted Accounting Practices (GAAP) this sum isamortised over the life of the asset whilst under IFRS this is entered into theProfit and Loss account in the year it arises. The consequence of adopting IFRSparticularly impacts the accounting treatment of the Ongopolo acquisition andresults in the restating of the value of those assets which together with otherIFRS adjustments gives an increase in last year's profits of US$15.0 million,bringing the total profit for the last full financial year to US$27.4 million. Despite the modest loss, I am satisfied that its mine and smelter developmentsleave Weatherly on target to become a long-term, sustainable and fullyintegrated copper producer. During the financial period, production costs increased, largely due tounderground development work at Otjihase, mine commissioning expenses in ourNorthern Operational Region, and to a lesser extent, increases in oil, coal andpower costs. At Otjihase, considerable effort was invested in backfilling the mined out areasof a high grade block known as Karuma. This will allow the safe extraction ofremaining pillars during the coming five years. Output of copper from Otjihasefell to 2,687 tonnes for this period, but this is expected to significantlyincrease in 2008 when the Karuma block comes into full production. We also began commissioning two mines in our Northern Operational Region. TheTsumeb West mine was commissioned at the beginning of the half year and thenearby Tschudi mine was commissioned in October 2007. The Tsumeb concentrator was re-commissioned with changes to the circuitprogressing which is leading to improved copper recoveries. In addition, workcommenced on the conversion of a second concentrator to treat ore from theTsumeb West mine thus allowing the Tsumeb concentrator to treat ore from theTschudi mine. These developments are expected to increase the overall yearlymilling capacity of the Northern Operations to approximately 800,000 tonnes. In December 2007 we reported the suspension of mining at our Kombat mine becauseof flooding brought about by disruptions of electricity supplies by the SouthAfrican power utility, Eskom. Since then we have been in discussion with theNamibian Government, Namwater and Nampower to re-establish a secure power supplythat will allow resumption of mining at Kombat and increase the supply ofpotable water to the greater surrounding region, including the capital Windhoek. Suspension of mining at Kombat led us to reassess our regional developmentpriorities. Re-opening of the Berg Aukas lead/zinc mine near to the town ofGrootfontein is an attractive option that will utilise our existing workforce,infrastructure and equipment. We are also taking steps to reduce our dependenceon the national power grid to minimise disruptions from future power outages. In summary, during the half year to December 2007, Weatherly spent considerabletime and resources on substantial mine development that will provide theplatform for increased and more efficient and sustainable mining in the future. We also embarked on a two stage smelter expansion. Recommissioning of the firstelement, the 'Ausmelt' furnace, is progressing on schedule. This will increaseour yearly smelting capacity to approximately 35,000 tonnes of copper blister.Stage 2 includes the commissioning of an oxygen plant in mid 2009 that willconservatively increase yearly production capacity to approximately 50,000tonnes. We continue to evaluate appropriate financing options for the completionof these refurbishment works. To underpin smelter production and profitability we entered into three-yearcontracts to purchase copper concentrates with high arsenic contents directlyfrom two producers. These concentrates will be smelted on a 'cost plus' basis,with recovered arsenic being sold to the wood preservative industry. Following our January 2008 announcement, work on leaching remnant metals,especially copper, from historic tailings at Tsumeb continued under thedirection of Weatherly's JV partner for this project, Applied IntellectualCapital (AIC). Laboratory scale tests showed promising metal recoveries thatwill now be followed with on-site leaching work using a production size moduleof the plant that is being assembled in Tsumeb. In Zambia, the status of our disputed Luanshya Large Scale Prospecting Licence(PLLS 239) remained unchanged. In Burkina Faso, work commenced on a feasibility study to bring the large highgrade Tambao manganese deposit into production. In partnership with Dubai basedWadi Al Rawda Industrial Investments LLC, Weatherly has the opportunity toacquire a majority interest in this project by completing a bankable feasibilitystudy. Worley Parsons, an Australian engineering company, commenced this studyin November 2007. We will provide updates on this exciting project as progressmilestones are achieved. During the period to December 2007 copper prices increased steadily and thevalue of the Namibian dollar, which is equal to the South African Rand,depreciated steadily against the US dollar. Both of these trends work inWeatherly's favour as the full benefits of our mining and smelting investmentsin Namibia are realised. In February 2008 we announced that Weatherly had received an approach from athird party that may lead to an offer for the issued share capital of theCompany. We will update the market when appropriate. Dr Wolf G Martinick 27 March 2008 For further information contact: Weatherly InternationalMax Herbert, Company Secretary +44 (0) 207 868 2232Paul Craven, Chief Financial Officer Libertas CapitalJakob Kinde, Stephen Pickup +44 (0) 207 569 9650 BuckBiasAlex Buck +44 (0) 207 244 8053 +44 (0) 7932 740 452 Condensed consolidated incomestatement for the period 1 July to 31December 2007 6 months to 6 months to Year to 31 Dec 2007 31 Dec 2006 30 June 2007 $,000 $,000 $,000 Unaudited Unaudited Unaudited* Notes Revenue 41,542 31,182 63,158Cost of sales (36,649) (25,034) (53,453) Gross profit 4,893 6,148 9,705 Administrative expenses (5,262) (5,279) (10,356)Other operating income 12 1,492 1,608Discount on acquisition 8,9 - 17,725 17,725Loss on sale of assets (180) - 9,530 Operating (loss)/profit (537) 20,086 28,212 Finance income 324 83 350Finance charge (590) - -Finance charge - environmental (361) - (592)provision (Loss)/profit before taxation (1,164) 20,169 27,970Taxation - - - (Loss)/profit for the period after (1,164) 20,169 27,970tax Allocated as follows:(Loss)/profit attributable toshareholders of parent entity (1,145) 20,002 27,371Minority interests (19) 167 599 Total (loss)/profit (1,164) 20,169 27,970 (Loss)/earnings per share 5Basic (US cents per share) (0.29) 6.11 8.21Diluted (US cents per share) (0.29) 6.01 8.14 * The financial numbers produced are based on audited 30 June 2007 UKGAAPnumbers adjusted for unaudited IFRS adjustments. All operations are continuing. Condensed consolidated balance sheet As at 31 December 2007 31 Dec 31 Dec 30 Jun 2007 2006 2007 $,000 $,000 $,000 Note Unaudited Unaudited Unaudited** AssetsNon-current assetsProperty, plant and equipment 6 116,742 81,169 94,909Intangible assets (exploration licences) 7 6,175 6,661 6,175Investment property 6 1,556 1,539 1,534 Total non-current assets 124,473 89,369 102,618 Current assetsInventories 2,282 2,590 1,504Trade and other receivables 21,140 4,607 8,493Cash and cash equivalents 7,292 10,467 13,280 Total current assets 30,714 17,664 23,277 Current liabilitiesTrade and other payables (19,552) (1,181) (9,587)Unsecured creditors subject to acompromise on acquisition (2,701) (8,766) (6,963)Bank borrowings (3,369) - (1,204) Total current liabilities (25,622) (9,947) (17,754) Non-current liabilitiesTrade and other payables - (4,454) (381)Unsecured creditors subject to acompromise on acquisition (6,281) (5,575) (4,321)Provisions (4,816) (3,968) (4,248) Total non-current liabilities (11,097) (13,997) (8,950) Net assets 118,468 83,089 99,191 EquityIssued capital 3,519 2,874 3,043Share premium 71,702 47,820 53,665Merger reserve 18,471 18,471 18,471Capital redemption reserve 454 454 454Share-based payment reserve 625 86 271Foreign exchange reserve 4,674 998 3,100Retained earnings 16,807 10,583 17,952 Equity attributable to shareholders ofthe parent company 116,252 81,286 96,956Minority interests 2,216 1,803 2,235 Total equity 118,468 83,089 99,191 ** The financial numbers produced are based on audited 30 June 2007 UKGAAPnumbers adjusted for unaudited IFRS adjustments. Condensed consolidated statement of changes in equityfor the period 1 July 2006 to 31 December 2007 Issued Share Merger Capital Share Foreign Retained Minority Total capital premium reserve redemption based exchange earnings interest equity reserve payment reserve reserve $,000 $,000 $,000 $,000 $,000 $,000 $,000 $,000 $,000 At 1 July 2006 2,779 27,983 6,151 - 48 - (9,419) - 27,542 Exchangedifferences ontranslation offoreignoperations - - - - - 998 - - 998Profit/(Loss)for the period - - - - - - 20,002 167 20,169 Totalrecognisedincome and - - - - - 998 20,002 167 21,167expenses Minorityinterestrecognised - - - - - - 1,636 1,636directly inequity Issue of shares 95 19,837 12,320 454 - - - - 32,706Share based - - - - 38 - - - 38payments At 31 December 2006 2,874 47,820 18,471 454 86 998 10,583 1,803 83,089 Exchangedifferences ontranslation offoreignoperations - - - - - 2,102 - - 2,102Profit/(Loss)for the period - - - - - - 7,369 432 7,801 Totalrecognisedincome and - - - - - 2,102 7,369 432 9,903expense Issue of shares 169 5,845 - - - - - - 6,014Share based - - - - 185 - - - 185payments At 30 June 2007 3,043 53,665 18,471 454 271 3,100 17,952 2,235 99,191 Exchangedifferences ontranslation offoreignoperations - - - - - 1,574 - - 1,574Profit/(Loss)for the period - - - - - - (1,145) (19) (1,164)Totalrecognisedincome and - - - - - 1,574 (1,145) (19) 410expense Issue of shares 476 18,037 - - - - - - 18,513Share based - - - - 354 - - - 354payments At 31 December 3,519 71,702 18,471 454 625 4,674 16,807 2,216 118,4682007 Condensed consolidated cash flowstatement for the period 1 July to 31 December 2007 6 months 6 months Year to to to 30 June 31 Dec 31 Dec 2007 2006 2007 $ 000 $ 000 $ 000 Unaudited Unaudited Unaudited Cash flows from operating activities (Loss)/profit for the period (1,164) 20,169 27,970Adjusted by:Depreciation of non-current assets 4,312 3,000 6,742Discount on acquisition - (17,725) (17,725)Share-based payment expense 354 38 223Loss/(profit) on sale of assets 180 - (9,240)Charge for environmental provision 361 - 592Finance charge 590 - -Finance income (324) (83) (350) 4,309 5,399 8,212 Movements in working capital: (Increase)/decrease in inventories (778) (1,403) (313)(Increase)/decrease in trade and other (11,413) 5,831 1,960receivablesIncrease/(decrease) in trade and other 9,964 (13,358) (12,148)payables Net cash (used in)/generated by 2,082 (3,531) (2,289)operating activities Cash flows from investing activitiesInterest received 324 391 441Payments for property, plant and (23,696) (15,616) (33,372)equipmentReceipts from sales of property, plant 494 - 10,759and equipmentPurchase of shares in subsidiary - (20,000) (20,000)Net cash acquired in subsidiary - 14,893 14,893undertakingPayments to acquire investments - - (1,942) (1,942)acquisition costs Net cash used in investing activities (22,878) (22,274) (29,221) Cash flows from financing activitiesProceeds from issue of equity shares 20,007 18,492 27,205Associated costs of issue of equity (1,494) (349) (1,237)sharesFinancing of creditors compromise on (2,683) (2,281) (3,057)acquisitionInterest paid (590) (91) (91)Advance payments for commodity (1,234) - -contracts Net cash generated by financing 14,006 15,771 22,820activities Decrease in cash (6,790) (10,034) (8,690) Cash at beginning 12,076 18,842 18,842Decrease in cash (6,790) (10,034) (8,690)Foreign exchange gains (1,363) 1,659 1,924Net cash and cash equivalents at end 3,923 10,467 12,076of period Cash at bank 7,292 10,467 13,280Bank overdrafts (3,369) - (1,204) Cash and cash equivalents at end of 3,923 10,467 12,076the period Notes to the consolidated financial statements for the period 1 July to 31December 2007 1. a. Basis of preparation These interim condensed consolidated financial statements are for the six monthsended 31 December 2007. They have been prepared in accordance with IAS 34"Interim Financial Reporting" and the requirements of IFRS 1 "First-timeAdoption of International Financial Reporting Standards" relevant to interimreports, because they are part of the period covered by the Group's first IFRSfinancial statements for the year ended 30 June 2008. They do not include all ofthe information required for full annual financial statements, and should beread in conjunction with the consolidated financial statements of the Group forthe year ended 30 June 2007. These financial statements have been prepared under the historical costconvention, except for revaluation of certain properties and financialinstruments. Weatherly International plc's consolidated financial statements were prepared inaccordance with United Kingdom Accounting Standards (United Kingdom GenerallyAccepted Accounting Practice) until 30 June 2006. The date of transition to IFRSwas 1 July 2006. The comparative figures in respect of 2006 have been restatedto reflect changes in accounting policies as a result of adoption of IFRS. Thedisclosures required by IFRS 1 concerning the transition from UK GAAP to IFRSare given in the reconciliation schedules, presented and explained in note 9. The accounting policies have been applied consistently throughout the Group forthe purposes of preparation of these condensed consolidated interim financialstatements. The unaudited consolidated interim financial information is for the six-monthperiod ended 31 December 2007. The financial information has been prepared inaccordance with the accounting policies set out below which are based on therecognition and measurement principles of IFRS in issue as adopted by theEuropean Union (EU) and are effective at 30 June 2008 or are expected to beadopted and effective at 30 June 2008, our first annual reporting date at whichwe are required to use IFRS accounting standards adopted by the EU. The interimfinancial information does not include all of the information required for fullannual financial statements. From 1 July 2006, the Group has adopted International Financial ReportingStandards (IFRS) in the preparation of its consolidated financial statements.Comparative financial information previously published under UK GenerallyAccepted Accounting Principles has been restated on an IFRS basis for theopening balance sheet as at 1 July 2006, interim accounts as at 31 December2006, and for the year ended 30 June 2007. The change in the Group's reportedperformance and financial position on adopting IFRS is fully disclosed in theseinterim consolidated financial statements. The interim financial information has not been audited nor has it been reviewedunder ISRE 2410 of the Auditing Practices Board. The financial information setout in this interim report does not constitute statutory accounts as defined inSection 240 of the Companies Act 1985. The Group's statutory financialstatements for the year ended 30 June 2007 prepared under UK GAAP have beenfiled with the Registrar of Companies. The auditors' report on those financialstatements was unqualified and did not contain a statement under Section 237(2)of the Companies Act 1985. b. Nature of operations and general information Weatherly International plc and subsidiaries' ('the Group') principal activitiesinclude the sale of copper and other metals in the production of copper. Weatherly International plc is the Group's ultimate parent company. It isincorporated and domiciled in Great Britain. The address of WeatherlyInternational plc's registered office, which is also its principal place ofbusiness, is Marble Arch Tower, 55 Bryanston Street, London W1H 7AJ. WeatherlyInternational plc's shares are listed on the Alternative Investment Market ofthe London Stock Exchange. Weatherly International's consolidated interim financial statements arepresented in United States dollars (US$), which is also the functional currencyof the parent company. These consolidated condensed interim financial statements have been approved forissue by the Board of Directors on 28 March 2008. 2. First time adoption The opening IFRS balance sheet as at the date of transition on 1 July 2006 hasbeen prepared with regard to the measurement and recognition rules of IFRS 1'First time adoption of International Financial Reporting Standards'. The mostsignificant optional exemptions adopted are as follows: a) IAS 21 The effects of foreign exchange differences Cumulative translation differences on foreign operations which existed at thetime of the transition can be transferred into the retained earnings, and theforeign exchange reserve therefore shows only differences arising aftertransition (IFRS 1 'First time adoption of IFRS'). b) IFRS 3 Business combinations Business combinations prior to the date of transition to IFRS need not berestated (IFRS 1 'First time adoption of IFRS'). Business combinations prior tothe date of transition were dealt with by the purchase method of accounting. c) IFRS 2 Share-based payments IFRS2 Share-based payments has not been applied to share options granted after 7November 2002 but which had vested by 1 July 2006, the date of transition toIFRS. 3. Accounting policies The principal accounting policies adopted by the Group in conformity with theIFRS standards in force at 30 June 2008 are set out below. Consolidation Subsidiaries are all entities over which the Group has the power to govern thefinancial and operating policies generally accompanying a shareholding of overone half of the voting rights. The existence and effect of potential votingrights that are currently exercisable or convertible are considered whenassessing whether the Group controls another entity. Subsidiaries are fullyconsolidated from the date on which control is transferred to the Group. Theyare deconsolidated on the date control ceases. The Group uses the purchase method of accounting for the acquisition of asubsidiary. The cost of an acquisition is measured by the fair value of theassets given, equity instruments issued and liabilities incurred or assumed atthe date of exchange, plus costs directly attributable to the acquisition.Identifiable assets acquired and liabilities and contingent liabilities assumedin a business combination are measured initially at their fair values at theacquisition date, irrespective of the extent of any minority interest. Theexcess of the cost of acquisition over the fair value of the Group's share ofthe identifiable net assets acquired is recorded as goodwill. If the cost of theacquisition is less than the fair value of the net assets of the subsidiaryacquired, the difference is recognised directly in the income statement. The condensed consolidated financial statements consolidate those of the Groupand all of its subsidiaries drawn up to the balance sheet date. Inter-company transactions, balances and unrealised gains and losses ontransactions between group companies are eliminated. Foreign currency translation a) Functional and presentational currency Items included in the financial statements of each of the group's entities aremeasured using the currency of the primary economic environment in which theentity operates (the functional currency). The company's functional currency andthe Group's presentational currency is US dollars. b) Transactions and balances Foreign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of the transactions. Foreign exchangegains and losses resulting from the settlement of such transactions and from thetranslation at reporting period-end of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the income statement. c) Group companies The results and financial position of all Group entities that have a functionalcurrency different from the presentation currency are translated into thepresentation currency as follows: • Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the balance sheet; • Income and expenses for each income statement are translated at the rate of exchange at the transaction date and; • On consolidation, exchange differences arising from the translation of the net investment in foreign entities are taken to a separate component of equity. On consolidation, exchange differences arising from the translation of the netinvestment in foreign entities are taken to equity and as previously described,the group has claimed the transitional exemption from retrospective applicationof IAS21 "The effects of changes in foreign exchange rates". This means thatequity will show any post transition foreign exchange differences.Post-transition differences initially brought to equity are realised on theincome statement on disposal of the business. Revenue recognition Revenue is the fair value of the total amount receivable by the Group inexchange for its performance and is recognised when the significant risks andrewards of ownership have passed to the buyer, usually on despatch of goods. VATor similar local taxes and trade discounts are excluded. Interest income is reported using the effective interest method. Dividendsreceived are recognised when the right to receive payment is established. Employee benefits The cost of pensions in respect of the Group's pension scheme is charged to theincome statement in the period in which it is incurred. The Group's pensionscheme is a defined contribution scheme. Intangible assets Exploration and evaluation expenditure Exploration and evaluation (E & E) expenditure costs comprise costs associatedwith the acquisition of mineral rights and mineral exploration and arecapitalised as intangible assets pending determination of the feasibility of theproject. They also include certain administrative costs that are allocated tothe extent that those costs can be related directly to operational activities. If an exploration project is deemed successful based on feasibility studies, therelated expenditures are transferred to development and production (D & P)assets and amortised over the estimated life of the ore reserves on a unit ofproduction basis. Where a project is abandoned or considered to be no longereconomically viable, the related costs are written off in the income statement. Goodwill Goodwill is the difference between the fair value of the consideration paid andthe fair value of the assets and liabilities acquired. It is capitalised as anintangible asset and allocated to cash generating units (with separatelyidentifiable cash flows) and is subject to impairment testing on an annual basisor more frequently if circumstances indicate that the asset may have beenimpaired. Negative goodwill is recognised immediately after acquisition in theincome statement. Property, plant and equipment Non mining assets Property, plant and equipment are recorded at cost net of accumulateddepreciation and any provision for impairment. Depreciation is provided usingthe straight line method to write off the cost of the asset less any residualvalue over its useful economic life as follows: Leasehold property The shorter of the lease term or the life of the mine Plant and machinery 5 to 15 years Development and production expenditure When exploration and evaluation work shows a mine to be commercially viable, theaccumulated costs are transferred to property, plant and equipment. Mining plantand equipment consist of buildings, machinery, vehicles and fixtures & fittingswhich are depreciated over the shorter of the estimated useful life of the assetor the life of the mine. Mining property for mines in production, including pre-stripping costs, iswritten off on a unit of production basis over the life of the mine. Development costs relating to major programmes at existing mines arecapitalised. These costs consist primarily of expenditure to expand the capacityof the operating mine. Asset residual values and useful lives are reviewed annually and amended asnecessary. Assets are reviewed for impairment whenever events or changes incircumstances indicate that the carrying amount of the fixed asset may not berecoverable. An asset's carrying amount is written down immediately to itsrecoverable amount if the asset's carrying amount exceeds the higher of theasset's fair value less costs to sell or value in use. Impairment For the purposes of assessing impairment, assets are grouped at the lowest levelfor which there are separately identifiable cash flows. As a result, some assetsare tested individually for impairment and some are tested at cash-generatingunit level. Goodwill, other individual assets or cash-generating units that includegoodwill, other intangible assets with an indefinite useful life and thoseintangible assets not yet available for use are tested for impairment at leastannually. All other individual assets or cash-generating units are tested forimpairment whenever events or changes in circumstances indicate that thecarrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amountexceeds the recoverable amount of the asset or cash-generating unit. Therecoverable amount is the higher of fair value, reflecting market conditionsless costs to sell, and value in use based on an internal discounted cash flowevaluation. With the exception of goodwill, all assets are subsequentlyreassessed for indications that an impairment loss previously recognised may nolonger exist. Investment property Investment properties are carried at fair value based on annual revaluation. Thechanges in fair value are charged to the income statement in the period in whichthey occur. Inventories Inventories are stated at the lower of cost and net realisable value, using theaverage cost or first-in first-out principle as appropriate. Cost includes alldirect expenditure and related overheads incurred to the balance sheet date.Cost is determined on the following bases: • Copper concentrate is valued at the average total production cost at the relevant stage of production; • Copper on hand is valued on an average total production cost method; • Consumable stores are valued on a first-in-first-out basis. Financial assets Financial assets consist of cash and financial instruments. Financial assets aresubdivided into trade receivables and fair value through profit and lossaccount. Financial assets are assigned to their different categories bymanagement on initial recognition, depending on the purpose for which they wereacquired. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, togetherwith other short-term, highly liquid investments that are readily convertibleinto known amounts of cash and which are subject to an insignificant risk ofchanges in value less bank overdrafts repayable on demand. Trade receivables Trade receivables are recognised initially at fair value and subsequentlymeasured at amortised cost using the effective interest method less provisionfor impairment. A provision for impairment of trade receivables is establishedwhen there is objective evidence that the Group will not be able to collect allamounts due according to the original terms of the receivables. Significantfinancial difficulties of the debtor, probability that the debtor will enterbankruptcy or financial reorganisation, and default in payments are consideredindicators that a trade receivable is impaired. The amount of the provision isthe difference between the asset's carrying amount and the present value ofestimated future cash flows, discounted at the original effective interest rate.The carrying amount of the asset is reduced through the use of an allowanceaccount, and the amount of the loss is recognised in the income statement withinadministrative expenses. When a trade receivable is uncollectible, it is writtenoff against the allowance account for trade receivables. Subsequent recoveriesof amounts previously written off are credited against administrative expensesin the income statement. Derecognition of financial instruments occurs when the rights to receive cashflows from the investments expire or are transferred and substantially all ofthe risks and rewards of ownership have been transferred. An assessment forimpairment is undertaken at least at each balance sheet date, whether or notthere is objective evidence that a financial asset or a group of financialassets is impaired. Financial liabilities The Group's financial liabilities include bank overdrafts and trade and otherpayables. Financial liabilities are recognised when the Group becomes a party to thecontractual agreements of the instrument. All interest-related charges arerecognised as an expense in 'finance costs' in the income statement. All loans and borrowings are initially recognised at the fair value of theconsideration received net of issue costs associated with the borrowing. Afterinitial recognition, loans and borrowings are subsequently measured at amortisedcost using the effective interest method. Amortised cost is calculated by takinginto account any issue costs and any discount or premium on settlement. Gainsand losses on derecognition are recognised in finance charges. The effective interest method is a method of calculating the amortised cost of afinancial liability and of allocating interest expense over the relevant period.The effective interest rate is that rate which exactly discounts estimatedfuture cash payments through the expected life of the financial liability or,where appropriate, a shorter period. Trade payables are recognised initially at their fair value and subsequentlymeasured at amortised costs less settlement payments. DividendsDividend distributions to shareholders are included when the dividends areapproved by the shareholders' meeting. Leases The Group as a lessor The Group provides equipment to its customers under operating leases,substantially all the risks and rewards of ownership being retained by theGroup; the assets are stated at historical cost less depreciation. Provision fordepreciation of all tangible assets of the Group is made in equal annualinstalments over their estimated useful lives. The Group as a lessee Where the Group retains substantially all the risks and rewards of ownership ofan asset subject to a lease, the lease is treated as a finance lease. Otherleases are treated as operating leases. Payments under operating leases are charged to the income statement on astraight-line basis over the lease term. Income taxes Current income tax assets and liabilities comprise those obligations to fiscalauthorities in the countries in which the Group carries out its operations. Theyare calculated according to the tax rates and tax laws applicable to the fiscalperiod and the country to which they relate. All changes to current taxliabilities are recognised as a component of tax expense in the income statementor equity as appropriate. Deferred income taxes are calculated using the liability method on temporarydifferences. This involves the comparison of the carrying amount of assets andliabilities in the consolidated financial statements with their respective taxbases. However, deferred tax is not provided on the initial recognition ofgoodwill, nor on the initial recognition of an asset or liability unless therelated transaction is a business combination or affects tax or accountingprofit. Deferred tax on temporary differences associated with shares insubsidiaries and joint ventures is not provided if reversal of these temporarydifferences can be controlled by the group and it is probable that reversal willnot occur in the foreseeable future. In addition, tax losses available to becarried forward as well as other income tax credits to the group are assessedfor recognition as deferred tax assets. Deferred tax liabilities are always provided for in full. Deferred tax assetsare recognised to the extent that it is probable that future taxable profitswill be available against which the temporary differences can be utilised.Deferred tax assets and liabilities are calculated at tax rates that areexpected to apply to their respective period of realisation, provided they areenacted or substantively enacted at the balance sheet date. Changes in deferred tax assets or liabilities are recognised as a component oftax expense in the income statement, except where they relate to items that arecharged or credited directly to equity (such as the revaluation of land) inwhich case the related deferred tax is also charged or credited directly toequity. Provisions Provisions are recognised when the present obligations arising from legal orconstructive commitment resulting from past events are expected to lead to anoutflow of economic resources from the Group which can be estimated reliably. Provisions are measured at the present value of the estimated expenditurerequired to settle the present obligation, based on the most reliable evidenceavailable at the balance sheet date. The Group provides for rehabilitation and environmental obligations and theincrease in the present value of the rehabilitation provision is capitalised toproperty, plant and machinery. All provisions are reviewed at each balance sheet date and adjusted to reflectthe current best estimates. Share-based employee compensation The Group operates equity-settled share-based compensation plans forremuneration of its employees. All employee services received in exchange for the grant of any share-basedcompensation are measured at their fair values. These are indirectly determinedby reference to the share option awarded. Their value is appraised at the grantdate and excludes the impact of any non-market vesting conditions (e.g.profitability or sales growth targets). All share-based compensation is ultimately recognised as an expense in profitand loss with a corresponding credit to a share based payment reserve, net ofdeferred tax where applicable. If vesting periods or other vesting conditionsapply, the expense is allocated over the vesting period, based on the bestavailable estimate of the number of share options expected to vest. Non-marketvesting conditions are included in assumptions about the number of options thatare expected to become exercisable. Estimates are subsequently revised if thereis any indication that the number of share options expected to vest differs fromprevious estimates. No adjustment to expense recognised in prior periods is madeif fewer share options than originally estimated are ultimately exercised. Upon exercise of share options, the proceeds received, net of any directlyattributable transaction costs, up to the nominal value of the shares issued arereallocated to share capital with any excess being recorded as additional sharepremium. Equity An equity instrument is any contract that evidences a residual interest in theassets of an entity after deducting all its liabilities. Equity instruments arerecorded at the proceeds received net of direct issue costs. The Group has inissue only ordinary shares and the conditions of the shares are such that theyare accounted for as equity. 4. Share issue Shares issued and authorised for the period to 30 June 2007 may be summarised asfollows: 6 months to 31 December 2007 Number US$At 1 July 2007 356,146,555 75,633,035Issue of shares 48,375,010 18,513,781At 31 December 2007 404,521,565 94,146,816 ============== =============== = === 6 months to 31 December 2006 Number US$At 1 July 2006 230,904,593 36,459,275Issue of shares 108,359,267 33,159,725At 31 December 2006 339,263,860 69,619,000 ============== =============== = === Year to 30 June 2007 Number US$At 1 July 2006 230,904,953 36,459,275Issue of shares 125,241,602 39,173,760At 30 June 2007 356,146,555 75,633,035 ============== =============== = === Share-based employee compensation The Group operates equity-settled share-based compensation plans forremuneration of its employees. 5. Earnings per share 6 months to 6 months to Year to 31 Dec 31 Dec 30 June 2007 2006 2007 $'000 $'000 $'000 Unaudited Unaudited Unaudited (Loss)/profit for the period attributableto equity shareholders (1,145) 20,002 27,371 US cents per US cents per US cents per share share share Basic (loss)/earnings per share (0.29) 6.11 8.21Diluted (loss)/earnings per share (0.29) 6.01 8.14 Shares Shares SharesIssued ordinary shares at start of the 356,146,555 230,904,593 230,904,953periodAdditions 48,375,010 108,359,267 125,245,962Issued ordinary shares at end of the 404,521,565 339,263,860 356,146,555period Weighted average number of shares in issueduring the period 391,979,359 327,300,025 333,325,298 Dilutive effect of options in issue 8,196,042 5,763,822 3,082,894Weighted average number of fully dilutedshares in issue during the period 400,175,401 333,063,874 336,408,191 Where a loss has been incurred for the period, the diluted loss per share doesnot differ from the basic loss per share as the exercise of share options wouldhave the effect of reducing the loss per share and is therefore not dilutiveunder the terms of IAS 33. 6. Tangible assets, additions and disposals Consolidated Investment Freehold Plant and Development Totals properties land machinery costs & buildings US$,000 US$,000 US$,000 US$,000 US$,000 Cost or valuation:At 1 July 2006 - - - - -Acquisition of subsidiary 1,503 45,171 23,095 300 70,069undertakingAdditions - - 12,957 20,415 33,372Disposals - - (842) (1,000) (1,842)Exchange adjustment 31 1,305 70 (18) 1,388 At 30 June 2007 1,534 46,476 35,280 19,697 102,987 Depreciation:At 1 July 2006 - - - - -Provided during the year - (2,750) (3,992) - (6,742)Disposals - - 323 - 323Exchange adjustment - (55) (70) - (125) At 30 June 2007 - (2,805) (3,739) - (6,544) Net book value at 30 June 1,534 43,671 31,541 19,697 96,4432007 Net book value at 1 July - - - - -2006 Consolidated Investment Freehold Plant and Development Totals properties land machinery costs & buildings US$,000 US$,000 US$,000 US$,000 US$,000 Cost or valuation:At 1 July 2006 - - - - -Acquisition of subsidiary 1,503 45,171 23,095 300 70,069undertakingAdditions - - 6,063 9,553 15,616Disposals - - - - -Exchange adjustment 36 - - - 36 At 31 December 2006 1,539 45,171 29,158 9,853 85,721 Depreciation:At 1 July 2006 - - - - -Provided during the year - (1,375) (1,625) - (3,000)Disposals - - - - -Exchange adjustment - (8) (5) - (13) At 31 December 2006 - (1,383) (1,630) - (3,013) Net book value at 31 1,539 43,788 27,528 9,853 82,708December 2006 Net book value at 1 July - - - - -2006 Consolidated Investment Freehold Plant and Development Totals properties land machinery costs & buildings US$,000 US$,000 US$,000 US$,000 US$,000 Cost or valuation:At 1 July 2007 1,534 46,476 35,280 19,697 102,987Additions - 122 5,649 16,851 22,622Disposals - - (180) - (180)Exchange adjustment 69 1,974 1,338 492 3,873 At 31 December 2007 1,603 48,572 42,087 37,040 129,302 Depreciation:At 1 July 2007 - (2,805 ) (3,739) - (6,544)Provided during the year (46) (1,437) (2,875) - (4,358)Disposals - - - - -Exchange adjustment (1) (34) (67) - (102) At 31 December 2007 (47) (4,276) (6,681) - (11,004) Net book value at 31 1,556 44,296 35,406 37,040 118,298December 2007 Net book value at 1 July 1,534 43,671 31,541 19,697 96,4432007 7. Intangible assets, additions and disposals Mining licences US$,000Carrying amount at 1 July 2007 6,175 Carrying amount at 31 December 2007 6,175 US$,000Carrying amount at 1 July 2006 7,010Amortisation (349) Carrying amount at 31 December 2006 6,661 US$,000Carrying amount at 1 July 2006 7,010Amortisation (835) Carrying amount at 30 June 2007 6,175 8. Business combination On 19 July 2006, following approval from both Ongopolo and Weatherly, thecompany completed the purchase of a 97% stake in Ongopolo for consideration ofUS$35.16 million (including US$2.41m costs), consisting of a cash component andan issue of 47,050,256 new ordinary shares (at 14.75p per share) to the securedcreditors of Ongopolo who had exchanged their debt for equity in Ongopolo. Thepurchase of Ongopolo has been accounted for by the acquisition method ofaccounting. Advantage has been taken of Section 131 of the Companies Act 1985 onmerger relief in respect of the premium on the issue of shares to finance theacquisition. The acquired assets and liabilities of Ongopolo were as follows: Book value Fair value Cash Effect of Creditors Fair value adjustments subscribed 3rd party agreements 1 on acquisition settlements 4 2 3 US$,000 US$,000 US$,000 US$,000 US$,000 US$,000Non-current assetsProperty plant and equipment 15,869 52,697 - - - 68,566 Investment property - 1,503 - - - 1,503 Current assetsInventories 1,191 - - - - 1,191 Trade and other receivables 6,713 - - - - 6,713 Bank and cash 805 - 15,743 - - 16,548 Total assets 24,578 54,200 15,743 - - 94,521 Non-current liabitiesBank loans (54,689) - - 53,034 - (1,655)Trade and other payables (33,511) - - - 8,635 (24,876)Other creditors (4,026) 3,057 - (8,930) - (9,899)Provisions (3,569) - - - - (3,569)Total liabilities (95,795) 3,057 - 44,104 8,635 (39,999)Net assets (71,217) 57,257 15,743 44,104 8,635 54,522 Total consideration 35,161 Discount on acquisition * (19,361)Eliminate minority interest 3% 1,636 Discount on acquistion attributable to Weatherly International plc (17,725) * Discount on acquisition (formally negative goodwill under UK GAAP) arose as aresult of the fair value of the net assets acquired being greater than the fairvalue of the purchase consideration paid which is accounted for under IFRS3,Business Combinations. The effect on transition to IFRS is that the discount onacquisition is credited to retained earnings for the 6 months ended 31 December2006 and year ended 30 June 2007. 1 Fair value adjustments: Land and buildings were fair valued using aprofessional value and plant and equipment was fair valued on the basis of valuein use. The amount shown as property, plant and equipment was further adjustedby an impairment that related to the year ending 30 June 2006 and an amount offair value allocated to the sale of lease 1496. 2 Cash subscribed to on acquisition: Bank and cash adjusted by the amountsubscribed for shares on acquisition, reduced by the interest payable onacquisition. The cash was retained in Ongopolo less the minority interest. 3 Effect of third party settlements: Loans settled with Standard Bank, BankWindhoek and the Government of Namibia. 4 Creditor agreements: Waiver of tax penalties previously accrued and thediscount on settlement under creditors' voluntary arrangement. Satisfied by: 19 July 2006 US$,000 Issue of share 12,752 Transaction costs 2,409 Cash 20,000 Total consideration 35,161 During the period from 1 July 2006 to the acquisition date of 19 July 2006, theoperating loss of Ongopolo was not material. However, transactions occurred thatrelated to the pre-acquisition results were as follows: 19 July 2006 US$,000 Waiver of tax penalties previously accrued 4,803 Discounting of settlement under creditors' voluntary arrangement 3,832 Impairment of development costs (700)Interest on settlement of hire purchase lease on acquisition (485)Total pre-acquisition profits 7,450 The amounts were adjusted in arriving at the fair value of the liabilitiesacquired. The business combination resulting in an adjustment under IFRS and has beenshown in Note 9 Transition to IFRS. The result of this acquisition under theIFRS impacted the 6 month periods ended 31 December 2006 and year ended 30 June2007. 9. Transition to IFRS With effect from 1 July 2006 the Group has adopted International FinancialReporting Standards (IFRS) in the preparation of its financial statements. The main items contributing to the change in financial information compared withthat reported under UK GAAP as at the transition date are shown below: a) IAS 21 The effects of changes in foreign exchange rates Under UK GAAP the Group reported differences in exchange rates on consolidationwithin retained earnings. Under IFRS the Group has claimed the exemption fromretrospective application of IAS 21 and is now required to show allpost-transition differences on consolidation as a separate item within equity. b) IFRS 3 Business combinations Business combinations prior to the date of transition to IFRS need not berestated (IFRS 1 First time adoption of IFRS). Positive goodwill is no longeramortised and is subject to regular impairment testing. Negative goodwill iscredited to the income statement in the period in which it occurs. c) IFRS 2 Share based payments IFRS2 Share-based payments has not been applied to share options granted after 7November 2002 but which had vested by 1 July 2006. d) IAS40 Investment property Under UK GAAP revaluations of Investment property were reflected in equitythrough a revaluation reserve. Under IFRS they are carried at fair value withgains and losses through the income statement. This has not impacted earlierperiods as the properties were acquired in July 2006 and their values did notmaterially change in the period to 30 June 2007 or 31 December 2007. Detailed reconciliations between UK GAAP and IFRS of both equity and loss areshown below: Reconciliation of equity as at 1 July 2006 UK GAAP IFRS IFRS Adjustment $,000 $,000 $,000AssetsNon-current assetsIntangible assets (exploration 6,175 - 6,175licences)Investments 467 - 467 Total non-current assets 6,642 - 6,642 Current assetsTrade and other receivables 3,740 - 3,740Cash and cash equivalents 18,842 - 18,842 Total current assets 22,582 - 22,582 Current liabilitiesTrade and other payables (1,682) - (1,682) Total current liabilities (1,682) - (1,682) Net assets 27,542 - 27,542 EquityIssued capital 2,779 - 2,779Share premium 27,983 - 27,983Merger reserve 6,151 - 6,151Share-based payment reserve 48 - 48Retained earnings (9,419) - (9,419) Equity attributable to equityholders of the parent 27,542 - 27,542 Total equity 27,542 - 27,542 Reconciliation of equity as at 31 December 2006 UK GAAP IFRS 3 IFRS 3 IFRS Adjustment Adjustment $,000 $,000 $,000 $,000 1 2AssetsNon-current assetsProperty, plant and equipment 29,093 52,076 - 81,169Intangible assets 49,065 (58,241) 15,837 6,661Investment property 1,539 - - 1,539 Total non-current assets 79,697 (6,165) 15,837 89,369 Current assetsInventories 2,590 - - 2,590Trade and other receivables 4,607 - - 4,607Cash and cash equivalents 10,952 (485) - 10,467 Total current assets 18,149 (485) - 17,664 Current liabilitiesTrade and other payables (18,589) 8,642 - (9,947) Total current liabilities (18,589) 8,642 - (9,947) Non-current liabilitiesTrade and other payables (10,029) - - (10,029)Provision for liabilities and (3,968) - - (3,968)charges Total non-current liabilities (13,997) - - (13,997) Net assets 65,260 1,992 15,837 83,089 EquityIssued capital 2,874 - - 2,874Share premium 46,608 1,212 - 47,820Merger reserve 18,471 - - 18,471Capital redemption reserve 454 - - 454Share-based payment reserve 86 - - 86Foreign exchange reserve - 998 - 998Retained earnings (3,159) (2,095) 15,837 10,583 Equity attributable toshareholders of the parententity 65,334 115 15,837 81,286Minority interests (74) 1,877 - 1,803 Total equity 65,260 1,992 15,837 83,089 1. Fair value adjustment on acquisition: previous information at 31 December2006 did not include fair value adjustments which resulted from a valuation ofplant and equipment, subsequent to 31 December 2006.In addition there wereamendments relating to third party settlements and creditor agreements, whichwere fair valued on acquisition per IFRS 3. 2. Discount on acquisition: under UKGAAP the discount on acquisition waspreviously termed 'negative goodwill' and was allocated under intangible assets.Under IFRS 3 this amount being, the discount on acquisition is must berecognised in the profit and loss account. Reconciliation of equity as at 30 June 2007 UK GAAP IFRS 3 IFRS $,000 Adjustment $,000 $,000 1AssetsNon-current assetsProperty, plant and equipment 94,909 - 94,909Negative goodwill (14,952) 14,952 -Intangible assets (exploration 6,175 - 6,175licenses)Investment properties 1,534 - 1,534 Total non-current assets 87,666 14,952 102,618 Current assetsInventories 1,504 - 1,504Trade and other receivables 8,493 - 8,493Cash and cash equivalents 13,280 - 13,280 Total current assets 23,277 - 23,277 Current liabilitiesTrade and other payables (16,550) - (16,550)Bank overdrafts (1,204) - (1,204) Total current liabilities (17,754) - (17,754) Non-current liabilitiesTrade and other payables (4,702) - (4,702)Provision for liabilities and (4,248) - (4,248)charges Total non-current liabilities (8,950) - (8,950) Net assets 84,239 14,952 99,191 EquityIssued capital 3,043 - 3,043Share premium 53,665 - 53,665Merger reserve 18,471 - 18,471Capital redemption reserve 454 - 454Share-based payment reserve 271 - 271Foreign exchange reserve 3,100 - 3,100Retained earnings 3,000 14,952 17,952 Equity attributable to 82,004 14,952 96,956shareholders of the parententityMinority interests 2,235 - 2,235 Total equity 84,239 14,952 99,191 1. Discount on acquisition: under UKGAAP the discount on acquisition waspreviously termed 'negative goodwill' and was allocated under intangible assets.Under IFRS 3 this amount being, the discount on acquisition is must berecognised in the profit and loss account. Reconciliation of profit for the six months ended 31 December 2006 UK GAAP IFRS 3 IFRS 3 IFRS Adjustment Adjustment $,000 $,000 $,000 $,000 1 2Revenue 31,182 - - 31,182Cost of sales (25,034) - - (25,034) Gross profit 6,148 - - 6,148 Administrative expenses (5,230) 1,839 (1,888) (5,279)Other operating income 1,492 - - 1,492Discount on acquisition - - 17,725 17,725 Operating profit 2,410 1,839 15,837 20,086 Finance income 83 - - 83 Profit before taxation 2,493 1,839 15,837 20,169 Taxation - - - - Profit for the period after 2,493 1,839 15,837 20,169tax Allocated as follows:Profit attributable toshareholders of parent entity 2,326 1,839 15,837 20,002Minority interest 167 - - 167 Total profit 2,493 1,839 15,837 20,169 1. Fair value adjustment on acquisition:previous information at 31 December 2006 did not include fair value adjustmentswhich resulted from a valuation of plant and equipment, subsequent to 31December 2006. In addition there were amendments relating to third partysettlements and creditor agreements, which were fair valued on acquisition perIFRS 3. 2. Discount on acquisition: under UKGAAPthe discount on acquisition was previously termed 'negative goodwill' and wasallocated under intangible assets. Under IFRS 3 this amount being, the discounton acquisition is must be recognised in the profit and loss account. Reconciliation of profit for the year ended 30 June 2007 UK GAAP IFRS IFRS Adjustment $,000 $,000 $,000 1Revenue 63,158 - 63,158Cost of sales (53,453) - (53,453) Gross profit 9,705 - 9,705 Administrative expenses (7,583) (2,773) (10,356)Other operating income 1,608 - 1,608Discount on acquisition - 17,725 17,725Profit on sale of assets 9,530 - 9,530 Operating profit 13,260 14,952 28,212 Finance income 350 - 350Finance expense - Charge for (592) - (592)environmental provision Profit before taxation 13,018 14,952 27,970 Taxation - - - Profit for the period after tax 13,018 14,952 27,970 Allocated as follows:Profit attributable toshareholders of parent entity 12,419 14,952 27,371Minority interest 599 - 599 Total profit 13,018 14,952 27,970 1. Discount on acquisition: under UKGAAP the discount on acquisition waspreviously termed 'negative goodwill' and was allocated under intangible assets.Under IFRS 3 this amount being, the discount on acquisition is must berecognised in the profit and loss account. Cash flow The transition to IFRS has resulted in changes being made to the cash flowstatement. The definition of cash under UK GAAP is narrower than under IFRS, where highlyliquid investments that are readily convertible to a known amount of cash andwith an insignificant risk of a change in value are regarded as cashequivalents. Under UK GAAP, payments to acquire property, plant and equipment were classifiedas part of 'Capital expenditure and financial investment'; under IFRS, suchpayments have been reclassified as part of 'Investing activities'. There are no other material differences between the cash flow statementpresented under IFRS and that presented under UK GAAP. 10. Impairment review of Kombat operation Property, plant and equipment includes $21.27 million in respect of thedevelopment costs at Kombat at 31 December 2007 (see note 11 below). Followingthe suspension of operations at Kombat Weatherly's management undertook animpairment review and concluded no write down was needed of this amount. The recoverable amount for this cash-generating unit was calculated as $21.37million and was determined based on forecast value-in-use calculations once thedevelopment of Kombat is completed. The projections covered a detailed four-yearforecast, followed by an extrapolation of expected cash flows based on JORCcompliant mine model. The discount rate used is 13%. Weatherly's management's key assumptions for the unit include stable copperprices estimated at $7,000 per ton, which is in line with the current commodityprice. Weatherly's management believe that this is the best available input forforecasting this market. Apart from the considerations described in determining the value in use of thecash generating units described above, the management of Weatherly is notcurrently aware of any other probable changes that would necessitate changes inits key estimates. 11. Post balance sheet events • Operational update on Kombat Following an extensive review of the company's operations in the Otavi Valley,where dewatering activity at the Kombat mine was disrupted by a series ofelectricity outages during the reporting period, Weatherly suspended thedewatering programme and is currently in discussion with the NamibianGovernment, Nampower and Namwater to implement a dependable power and water planfor the region. Provided that a suitable and sustainable solution is identifiedthe company currently expects to resume operations at Kombat. The suspension resulted in an impairment test under IAS 36, which concluded thatthe amount being carried in the accounts relating to Kombat was recoverable andaccordingly no impairment loss has been made. • Long-term supply agreement to smelt copper concentrates In January 2008, the company signed a long-term copper concentrate supplyagreement with Louis Dreyfus Commodities. Under the agreement, Weatherly willpurchase and process up to 50,000 tonnes per annum of Peruvian copperconcentrate at its Tsumeb smelter for an initial three-year term. The firstshipment of copper concentrate is due to be delivered in the second quarter of2008. • Sale of non-core assets In February 2008, the company announced the sale of its blast furnace and reverbslag dumps to Emerging Metals Limited (EML) for a total consideration worthapproximately £5.7 million, payable in two tranches over 24 months in cash,shares and options in EML. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Weatherly International Plc