18th Sep 2007 07:01
Alexander Mining PLC18 September 2007 Alexander Mining plc 18 September 2007 Interim Results for the six months ended 30 June 2007 Highlights •Good progress made with feasibility study on Leon copper project in northern Argentina. •AmmLeachTM a new ammonia heap leaching process developed at Leon, with significant commercial potential for use on other base and precious metals. •Leon regional exploration programme priority target is Arbol Solo, where encouraging trenching and diamond drilling results have been reported. •Metals market conditions and outlook remain favourable. •Strong cash position totalling £11.7 million at the end of June. Chairman's Review I am pleased to report on Alexander Mining plc's interim results for the sixmonths ended 30 June 2007. Leon Copper ProjectThe Company's focus remains its Leon copper project in northwest Argentina. Afeasibility study is being compiled internally by Alexander's senior technicalpersonnel, which reviews and summarises the studies carried out by specialistconsultants and contractors. We are delighted with the support that we have received at the local, provincialand national level. Moreover, consistent with our policy of having a sociallicence to operate we have maintained an ongoing community relations programme,including local press conferences, presentations and site visits. We havecontinued our policy of sourcing goods and services locally and employing localworkers and national professionals. AmmLeachTM technology In the course of conducting the feasibility study work at Leon, Alexander hasdeveloped a new ammonia heap leaching process, which it has named AmmLeachTM.Not only does AmmLeachTM have specific benefits for treating the Leon copperoxide deposit but it also has potentially significant advantages for treatingother copper oxide and base metals deposits, especially those deposits whereexisting mineral processing methods do not work or are uneconomic. Theseadvantages include operational, economic and environmental criteria. In order to maximise the commercial value of its intellectual property (IP),Alexander has filed a provisional patent and AmmLeachTM trade mark application.In addition, it has incorporated a wholly owned subsidiary, AmmLeach Limited, todevelop and commercialise the technology. Preliminary work has commenced on theapplication of the AmmLeachTM process to other base metals. In particular, theinitial laboratory testwork results on zinc have been highly promising and havethe potential for a significant breakthrough in the development of a new lowcost solvent extraction, electro-winning processing route. The AmmLeachTM process has major commercial potential. Approximately 40% of theworld's copper is produced using the acid heap leaching method and the price ofacid is at record highs. The AmmLeachTM process can significantly reduce theoperating cost of certain heap leaching projects. In addition, it has thepotential for a major breakthrough in the processing of previously untreatablezinc oxide deposits, with the development of the first heap leach zinc mines. ExplorationThe short term focus of the regional exploration programme at Leon has been toidentify and delineate economic and easily accessible satellite copper deposits.Several targets have been generated and, currently, the most promising prospectis Arbol Solo, where encouraging trenching and diamond drilling results havebeen reported. In northern Peru, at the Molinetes gold property, we are continuing to work withthe local community to reach an agreement to commence the first phase of theexploration work recommended by geological consultants, ACA Howe, after visitingthe property. The recommended work includes detailed sampling, mapping and trialgeophysical and soil surveys in the area of reported high grade gold artisanalmining. We will also do reconnaissance mapping and sampling and geophysical andsoil surveys if warranted elsewhere on the licence. Follow-up drilling oftargets identified in Phase 1 will be conducted in Phase 2. Financial ReviewThis is the first financial report prepared under the principles ofInternational Financial Reporting Standards (IFRS). Previously, Alexander Miningplc prepared financial statements in accordance with UK Generally AcceptedAccounting Principles (UK GAAP). The impact of the transition to IFRS, togetherwith details of the transition process, is set out below. The Company's cash balance at 30 June totalled £11.7 million. A total of £2.3million has been spent in the six months ended 30 June 2007, the majority ofwhich relates to the continuing work on the company's various projects. OutlookDespite the recent turbulence in world financial markets, we remain sanguineabout the impact on the generally positive fundamentals for the global economyand hence metals' markets. Global base metals' demand growth, especially fromChina and, increasingly, India remains healthy and supply is still struggling tokeep up. Our employees continue to be highly dedicated and hard working and I would liketo thank them and my fellow directors, consultants and advisors. The next fewmonths will be exciting times for the Company and we look forward to reportingin due course. Matt Sutcliffe14 September 2007 For further information please contact: Matt Sutcliffe, Chairman and Chief Executive OfficerAlexander Mining plc1st Floor35 PiccadillyLondonW1J 0DW Tel: +44 (0) 20 7292 1300Fax: +44 (0) 20 7292 1313Mobile: +44 (0) 7887 930 758 Email: [email protected]: www.alexandermining.com Nominated Advisor and BrokerAlasdair Younie/John PriorArbuthnot Securities Limited,Arbuthnot House,20 Ropemaker Street,London, EC2Y 9AR Tel: +44 (0) 20 7012 2000 Public/Media RelationsTim BlackstoneBritton Financial PR,62 Britton StreetLondonEC1M 5UY Tel: +44 (0) 20 7251 2544Mobile : +44 (0) 7957 140 416 INDEPENDENT REVIEW REPORT TO ALEXANDER MINING PLC IntroductionWe have been instructed by the company to review the financial information forthe six months ended 30 June 2007 which comprises the consolidated incomestatement, the consolidated balance sheet and the consolidated cash flowstatement and related notes. We have read the other information contained in theinterim report and considered whether it contains any apparent misstatements ormaterial inconsistencies with the financial information. This report is made solely to the company in accordance with the terms of ourengagement. Our review has been undertaken so that we might state to the companythose matters we are required to state to it in this report and for no otherpurpose. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the company for our review work, for thisreport, or for the conclusions we have reached. Directors' responsibilitiesThe interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the AIMRules of the London Stock Exchange which require that it must be prepared in aform consistent with that which will be adopted in the next annual accountshaving regard to the accounting standards applicable to such annual accounts. Review work performedWe conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly we do not express an audit opinion on the financial information. Review conclusionOn the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2007. PKF (UK) LLPLondon, UK14 September 2007 Consolidated income statement Note Six months Six months Year ended ended ended 31 December 30 June 2007 30 June 2006 2006 £'000 £'000 £'000Continuing operationsRevenue - - -Cost of sales - - -________________________________________________________________________________ Gross profit - - -Administrative expenses (1,142) (1,533) (2,510)Exploration and evaluation expenses 3 (345) (405) (931)________________________________________________________________________________ Operating loss 2 (1,487) (1,938) (3,441)Interest receivable 316 407 784Interest payable and similar charges (127) - (669)________________________________________________________________________________ Loss on ordinary activities before taxation (1,298) (1,531) (3,326)Tax on loss on ordinary activities (34) - (20)________________________________________________________________________________ Loss for the period (1,332) (1,531) (3,346)________________________________________________________________________________ Basic and diluted loss per share 5 (pence) (0.99)p (1.14)p (2.49)p________________________________________________________________________________ Consolidated balance sheet Note As at As at As at 30 June 2007 30 June 2006 31 December 2006 £'000 £'000 £'000AssetsProperty, plant & equipment 134 198 167Intangible assets 3 5,455 3,846 4,260Available for sale investments 154 198 151________________________________________________________________________________ Total non-current assets 5,743 4,242 4,578________________________________________________________________________________ Other receivables and prepayments 178 290 222Cash and cash equivalents 11,699 16,279 13,998________________________________________________________________________________ Total current assets 11,877 16,569 14,220________________________________________________________________________________________________________________________________________________________________ Total assets 17,620 20,811 18,798________________________________________________________________________________ EquityIssued share capital 4 13,453 13,453 13,453Share premium 4 11,850 11,850 11,850Other reserves 4 (1,910) (1,945) (2,002)Retained losses 4 (6,210) (3,063) (4,878)________________________________________________________________________________ Total equity 17,183 20,295 18,423________________________________________________________________________________ LiabilitiesTrade and other payables 437 516 375________________________________________________________________________________ Total current liabilities 437 516 375________________________________________________________________________________________________________________________________________________________________ Total equity and liabilities 17,620 20,811 18,798________________________________________________________________________________ Consolidated statement of changes in shareholders' equity Share Share Other Retained Total capital premium reserves losses equity £'000 £'000 £'000 £'000 £'000 As at 1 January 2006 13,453 11,850 (2,150) (1,532) 21,621Loss for the period - - - (1,531) (1,531)Exchange loss on foreign currency net investments - - (130) - (130)Gain on available for sale investments - - 98 - 98________________________________________________________________________________ Total income and expense recognised directly in equity - - (32) (1,531) (1,563)________________________________________________________________________________ Total recognised income and expense - - (32) (1,531) (1,563)________________________________________________________________________________ Share option costs recognised in reserves - - 237 - 237________________________________________________________________________________ As at 30 June 2006 13,453 11,850 (1,945) (3,063) 20,295Loss for the period - - - (1,815) (1,815)Exchange loss on foreign currency net investments - - (269) - (269)Loss on available for sale investments - - (47) - (47)________________________________________________________________________________ Total income and expense recognised directly in equity - - (316) (1,815) (2,131)________________________________________________________________________________ Total recognised income and expense - - (316) (1,815) (2,131)________________________________________________________________________________ Share option costs recognised in reserves - - 259 - 259________________________________________________________________________________ As at 31 December 2006 13,453 11,850 (2,002) (4,878) 18,423Loss for the period - - - (1,332) (1,332)Exchange loss on foreign currency net investments - - (80) - (80)Gain on available for sale investments - - 3 - 3________________________________________________________________________________ Total income and expense recognised directly in equity - - (77) (1,332) (1,409)________________________________________________________________________________ Total recognised income and expense - - (77) (1,332) (1,409)________________________________________________________________________________ Share option costs recognised in reserves - - 169 - 169________________________________________________________________________________ As at 30 June 2007 13,453 11,850 (1,910) (6,210) 17,183________________________________________________________________________________ Consolidated statement of cash flows Six months Six months Year ended ended ended 31 December 30 June 2007 30 June 2006 2006 £'000 £'000 £'000Cash flows from operating activityOperating loss (1,487) (1,938) (3,441)Depreciation and amortisation charge 34 18 42Decrease/(increase) in other receivables and prepayments (22) 191 210Increase/(decrease) in trade and other payables 68 207 172Share option charge 168 237 497Intangible fixed assets written-off or provided for 345 405 931Income taxes paid (35) - (3)________________________________________________________________________________ Net cash outflow from operating activities (929) (880) (1,592)________________________________________________________________________________ Cash flows from investingactivitiesInterest received 386 466 887Acquisition of property, plant and equipment (52) (26) (84)Acquisition of intangible assets (1,569) (2,282) (3,512)________________________________________________________________________________ Net cash outflow from investing activities (1,235) (1,842) (2,709)________________________________________________________________________________ Net decrease in cash and cash equivalents (2,164) (2,722) (4,301)Cash and cash equivalents at beginning of period 13,998 19,000 19,000Exchange differences (135) 1 (701)________________________________________________________________________________Cash and cash equivalents at end of period 11,699 16,279 13,998________________________________________________________________________________ Notes to the interim financial statements 1. Basis of preparation IFRS The interim financial statements have been prepared on the basis of therecognition and measurement requirements of International Financial ReportingStandards (IFRS) as adopted by the European Union (EU) and implemented in theUK. Previously, Alexander Mining plc prepared financial statements in accordancewith UK Generally Accepted Accounting Principles (UK GAAP). As the 2007 interimfinancial statements include comparatives for 2006, the Group's date oftransition to IFRS was 1 January 2006 and the 2006 comparatives are restatedaccording to IFRS. Details of the accounting policies applied in the preparation of the interimfinancial statements are set out below. An explanation of how the transition toIFRS has affected the reported financial position, results and cash flows of theGroup is provided below. The Group's first IFRS annual financial statements will be prepared for the yearending 31 December 2007. The IFRS interim financial statements do not includeall the information required for full IFRS annual financial statements. The financial information for the six months ended 30 June 2007 and 30 June 2006is unaudited. The comparative figures for the year ended 31 December 2006 werederived from the Group's audited financial statements for that period as filedwith the Registrar of Companies as restated for IFRS. It does not constitute thefinancial statements for that period. Those accounts received an unqualifiedaudit report which did not contain any statement under sections 237(2) or (3) ofthe Companies Act 1985. 2. Segment reporting Business segments The Group has only one business segment, namely the exploration for anddevelopment of mineral projects. This is considered to be the primary reportingsegment for the Group. 3. Intangible fixed assets Six months Six months Year ended ended ended 31 December 30 June 2007 30 June 2006 2006Deferred exploration costs £'000 £'000 £'000Cost and net book valueAt beginning of period 4,260 2,120 2,120Additions 1,617 2,224 3,233Written-off (345) (405) (610)Provided - - (321)Exchange difference (77) (93) (162)________________________________________________________________________________ At end of period 5,455 3,846 4,260________________________________________________________________________________ Costs associated with the Group's Trinidad project were written-off during thesix months ended 30 June 2007. 4. Capital and reserves Share capital and share premium At 30 June 2007 the Company's issued share capital comprised 134,534,667Ordinary Shares of £0.10 each. No shares have been issued in the period (30 June2006 and 31 December 2006: nil) Other reserves Other reserves comprise the following: • The merger reserve, totalling £(2,487,000) (30 June 2006 and 31 December 2006: £(2,487,000)), arose from the Company's acquisition of Alexander Gold Group Limited on 22 March 2005. As permitted by IFRS 1 this acquisition has not been restated under the terms of IFRS 3 and was accounted for in accordance with the merger accounting principles of UK GAAP. • The share option reserve, totalling £1,002,000 (30 June 2006: £574,000; 31 December 2006: £833,000), includes an expense based on the fair value of share options issued since 7 November 2002 that had not vested by 1 January 2006. The Company did not issue any share options during the period. • The translation reserve, totalling £(479,000) (30 June 2006: £(130,000); 31 December 2006: £(399,000)), comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations that do not have a Sterling functional currency. • The fair value reserve totalling £54,000 (30 June 2006: £98,000; 31 December 2006: £51,000) comprises the fair value adjustment on the revaluation of the Company's available for sale investments. 5. Loss per share The calculation of loss per share is based on a loss of £1,332,000 for theperiod ended 30 June 2007 (30 June 2006: £1,531,000; 31 December 2006:£3,346,000) and the weighted average number of shares in issue in the period to30 June 2007 of 134,534,667 (30 June 2006 and 31 December 2006: 134,534,667).There is no difference between the diluted loss per share and the loss per sharepresented. At 30 June 2007 there were 11,058,333 (30 June 2006: 9,183,333; 31 December2006: 11,058,333) share options in issue that could have a potentially dilutiveeffect on the basic earnings per share in the future. Transition to IFRS The Group has adopted IFRS with effect from 1 January 2007. The directors haveelected a transition date of 1 January 2006 as this is the start date for whichthe Group will present full comparative information under IFRS in the 2007Annual Report and Accounts. Basis of transition The accounting policies set out herein have been applied in preparing therestatement of the financial statements for the year ended 31 December 2006 andin the preparation of an opening IFRS balance sheet at 1 January 2006 (theGroup's date of transition). In preparing its opening IFRS balance sheet, the Group has adjusted amountsreported previously in financial statements prepared in accordance with itsprevious basis of accounting (UK GAAP). An explanation of how the transitionfrom UK GAAP to IFRS has affected the Group's financial position, financialperformance and cash flows is set out in the following tables and the notes thataccompany the tables. IFRS 1 exemptions The Group has elected to apply the following exemptions from full retrospectiveapplication. a) Business combinations: The Group has chosen not to restate business combinations prior to 1 January 2006 in accordance with IFRS 3. b) Fair value or revaluation as deemed cost: The Group has chosen not to restate items of property, plant and equipment to fair value at the transition date. c) Cumulative translation differences: The Group has elected to set the previously accumulated translation difference to zero at the date of transition. d) Share based payments: The Group has elected to apply IFRS 2 only to those options that were granted after 7 November 2002 but that had not vested by 1 January 2006. Effects of adopting IFRS on the Group's accounting policies The adoption of IFRS 6 has resulted in the directors reclassifying part of theamounts previously included within deferred exploration costs from intangiblefixed assets to tangible fixed assets as a result of the guidance set out inthat standard. The adoption of IAS 21 has resulted in a change to the method of translating theGroup's activities in Argentina for the consolidated financial statements. UnderUK GAAP these activities were considered to be a direct extension of theoperations of Alexander Gold Group Limited and were translated using thetemporal method. Under the guidance set out in IAS 21 these activities areconsidered to have an US Dollar functional currency and the financial statementsare translated to the Group's presentation currency using the closing exchangerate at the balance sheet date and average exchange rate for the period asdefined in IAS 21. The adoption of IAS 39 has resulted in the Group revaluing available for salefinancial assets at each period end. Valuation changes are recognisedimmediately in the Statement of Changes in Shareholders Equity. Previously, suchinvestments were carried at the lower of cost and net realisable value. 1. Reconciliation of equity Equity Re- Fair value Change of Equity as classifi- of trans- as reported cation available lation re- under UK of for sale method stated GAAP tangible invest- under fixed ments IFRS assets (note 1) (note 2) (note 3) £'000 £'000 £'000 £'000 £'000 1 January 2006Property, plant & equipment 73 156 - 1 230 Intangible assets 2,253 (156) - 23 2,120Available for sale investments 100 - - - 100Other net assets 19,171 - - - 19,171________________________________________________________________________________ Total equity at 1 January 2006 21,597 - - 24 21,621________________________________________________________________________________ 30 June 2006Property, plant & equipment 54 144 - - 198Intangible assets 3,931 (144) - 59 3,846Available for sale investments 100 - 98 - 198Other net assets 16,053 - - - 16,053________________________________________________________________________________ Total equity at 30 June 2006 20,138 - 98 59 20,295________________________________________________________________________________ 31 December 2006Property, plant & equipment 54 115 - (2) 167Intangible assets 4,716 (115) - (341) 4,260Available for sale investments 100 - 51 - 151Other net assets 13,845 - - - 13,845________________________________________________________________________________ Total equity at 31 December 2006 18,715 - 51 (343) 18,423________________________________________________________________________________ Notes to the reconciliation of equity 1) In accordance with IFRS 6, amounts relating to deferred exploration costs have been reclassified from Intangible fixed assets to Tangible fixed assets. 2) In accordance with IAS 39, available for sale investments have been recognised as assets at fair value, increasing Non-current investments and the Fair value reserve. 3) In accordance with IAS 21, the Group's operations in Argentina have been translated using the closing exchange rate for assets and liabilities and the average exchange rate for income and expenses with all exchange differences recognised directly in equity within the Translation Reserve. Under UK GAAP these operations were translated using the actual exchange rate ruling at the date of the transaction and exchange differences were recognised in the income statement. 4) The Group has elected to set the previously accumulated foreign currency translation adjustments to zero at the date of transition. At 30 June 2006 and 31 December 2006 foreign currency translation adjustments totalling £130,000 and £399,000 respectively have been reclassified from Retained Losses to the Translation Reserve. The effect of the above adjustments on retained losses is as follows: 1 Jan 30 Jun 31 Dec 2006 2006 2006 £'000 £'000 £'000 As reported under UK GAAP (1,556) (3,252) (4,934)Adjustments to retained earnings brought forward - 24 24Adjustments to the income statement (8) (1) (15)Foreign currency translation adjustments 32 166 47________________________________________________________________________________ Restated in accordance with IFRS (1,532) (3,063) (4,878)________________________________________________________________________________ 2. Explanation of adjustments to the income statement On adoption of IAS 21 exchange differences previously recognised in the incomestatement relating to monetary assets of Argentinean operations have beenre-classified as movements in the Translation reserve. At 1 January 2006, 30June 2006 and 31 December 2006 these total £8,000, £1,000 and £15,000respectively. There are no other differences between the income statement presented under IFRSand the income statement presented under UK GAAP. 3. Explanation of adjustments to the cash flow statement The movement in liquid resources, which comprise the cash equivalents of theGroup, was classified as a cash flow under UK GAAP. Under IFRS, liquid resourceshave been reclassified as cash equivalents and movements are a component of theincrease or decrease in cash and cash equivalents in the year. The re-classification of deferred exploration costs from Intangible fixed assetsto Tangible fixed assets has resulted in expenditure of £25,000 in the periodended 30 June 2006 and £60,000 in the year ended 31 December 2006 beingreclassified from Acquisition of Intangible Assets to Acquisition of Property,Plant and Equipment. There are no other differences between the cash flow statement presented underIFRS and the cash flow statement presented under UK GAAP. Accounting policies The principal accounting policies of the Group on the adoption of IFRS are setout below. Basis of consolidation i) SubsidiariesThe consolidated financial statements incorporate the financial statements ofthe Company and entities controlled by the Company (its subsidiaries) made up to31 December each year. Control is recognised where the Company has the power togovern the financial and operating policies of an investee entity so as toobtain benefits from its activities. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies into line with those used by theGroup. ii) Transactions eliminated on consolidationIntra-group balances and any unrealised gains and losses or income and expensesarising from intra-group transactions, are eliminated in preparing theconsolidated financial statements. Unrealised gains arising from transactions with associates are eliminated to theextent of the Group's interest in the entity. Unrealised losses are eliminatedin the same way as unrealised gains, but only to the extent that there is noevidence of impairment. iii) Business combinationsBusiness combinations made prior to 1 January 2006 were accounted for inaccordance with the relevant UK GAAP at the time. The transitional requirementsof IFRS 1 allow prospective application for all business combinations subsequentto the transition date (1 January 2006). Accordingly these combinations have notbeen re-stated in accordance with that standard. For subsequent business combinations, the assets, liabilities and contingentliabilities of a subsidiary are measured at their fair value at the date ofacquisition. Any excess of the cost of the acquisition over the fair values ofthe identifiable net assets acquired is recognised as goodwill, which issubsequently tested for impairment rather than amortised. If the cost of theacquisition is less than the fair value of net assets of the subsidiaryacquired, the difference is recognised directly in the income statement. The results of subsidiaries acquired or disposed of during the year are includedin the consolidated income statement from the effective date of acquisition orup to the effective date of disposal, as appropriate. Foreign currency The Company's functional and presentational currency is Sterling rounded to thenearest thousand and is the currency of the primary economic environment inwhich the Group operates. i) Foreign currency transactionsTransactions in foreign currencies are translated at the foreign exchange rateruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies at the balance sheet date are translated toSterling at the foreign exchange rate ruling at that date. Foreign exchangedifferences arising on translation are recognised in the income statement. ii) Financial statements of foreign operationsOn consolidation, the assets and liabilities of the Group's overseas operationsthat do not have a Sterling functional currency are translated at exchange ratesprevailing at the balance sheet date. Income and expense items are translated atthe average exchange rate for the period. Exchange differences arising areclassified as equity and transferred to the Group's translation reserve. Suchtranslation differences are recognised in the income statement in the period inwhich the operation is disposed of. iii) Net investment in foreign operationsExchange differences arising from the translation of the net investment inforeign operations are taken to the translation reserve. They are released intothe income statement upon disposal of the foreign operation. Financial instruments i) InvestmentsEquity financial instruments held by the Group are classified as beingavailable-for-sale and are stated at fair value, with any resultant gain or lossrecognised directly in equity, except for impairment losses. When theseinvestments are sold the cumulative gain or loss previously recognised directlyin equity is recognised in the income statement. ii) Trade and other receivablesTrade and other receivables are not interest bearing and are stated at cost. iii) Cash and cash equivalentsCash and cash equivalents include cash in hand, deposits held at call withbanks, other short-term highly liquid investments with original maturities ofthree months or less, and bank overdrafts. Bank overdrafts are shown withinborrowings in current liabilities on the balance sheet. iv) Trade and other payablesTrade and other payables are not interest bearing and are stated at amortisedcost. Property, plant and equipment i) Owned assetsItems of property, plant and equipment are stated at cost less accumulateddepreciation (see below) and impairment losses (see accounting policy f below). ii) Subsequent costsThe Group recognises in the carrying amount of an item of property, plant andequipment the cost of replacing part of such an item when that cost is incurredif it is probable that the future economic benefits associated with the itemwill flow to the Group and the cost of the item can be measured reliably. Allother costs are recognised in the income statement as an expense as incurred. iii) DepreciationDepreciation is charged to the income statement on a straight-line basis overthe estimated useful lives of each item of property, plant and equipment. Landis not depreciated. The estimated useful lives of all other categories of assetsare three years. The residual value is assessed annually. Gains and losses on disposal aredetermined by comparing proceeds with carrying amount and are included in theincome statement. Intangible assets Deferred exploration and evaluation costs All costs incurred prior to obtaining the legal right to undertake explorationand evaluation activities on a project are written-off as incurred. Costsassociated with large scale early stage exploration activity to identifyspecific targets for detailed exploration and evaluation work are recognised inthe income statement as incurred. Exploration and evaluation costs arising following the acquisition of anexploration licence are capitalised on a project-by-project basis, pendingdetermination of the technical feasibility and commercial viability of theproject. Costs incurred include appropriate technical and administrativeoverheads. Deferred exploration costs are carried at historical cost less anyimpairment losses recognised. If an exploration project is successful, the related expenditures will betransferred to mining assets and amortised over the estimated life of the orereserves on a unit of production basis. The recoverability of deferred exploration and evaluation costs is dependentupon the discovery of economically recoverable ore reserves, the ability of theGroup to obtain the necessary financing to complete the development of orereserves and future profitable production or proceeds from the disposal thereof. Impairment Whenever events or changes in circumstance indicate that the carrying amount ofan asset may not be recoverable an asset is reviewed for impairment. An asset'scarrying value is written down to its estimated recoverable amount (being thehigher of the fair value less costs to sell and value in use) if that is lessthan the asset's carrying amount. Impairment reviews for deferred exploration and evaluation costs are carried outon a project by project basis, with each project representing a potential singlecash generating unit. An impairment review is undertaken when indicators ofimpairment arise but typically when one of the following circumstances apply: i) unexpected geological occurrences that render the resource uneconomic; ii) title to the asset is compromised; iii) variations in metal prices that render the project uneconomic; and iv) variations in the exchange rate for the currency of operation. Share capital The Company's ordinary shares are classified as equity. Share based payment transactions The Group has applied the requirements of IFRS 2 (share based payments), inaccordance with the transitional provisions, to all equity instruments grantedafter 7 November 2002 which had not vested at 1 January 2006. Directors, seniorexecutives and consultants of the Group have been granted options to subscribefor ordinary shares. All options are share settled. The fair value of services received in return for share options granted ismeasured by reference to the fair value of the share options granted, at date ofgrant, and this is expensed on a straight line basis over the estimated vestingperiod. This estimate is determined using an appropriate valuation modelconsidering the effects of the vesting conditions, expected exercise period andthe payment of dividends by the Company. Provisions Provisions are recognised when the Group has a legal or constructive obligationas a result of past events, it is more likely than not that an outflow ofresources will be required to settle the obligation and the amount can bereliably estimated. Expenses i) Operating lease paymentsPayments made under operating leases are recognised on a straight-line basisover the term of the lease. Taxation The charge for taxation is based on the profit or loss for the year and takesinto account deferred tax. Deferred tax is the tax expected to be payable orrecoverable on differences between the carrying amounts of assets andliabilities in the financial statements and the corresponding tax bases used inthe computation of taxable profit or loss, and is accounted for using thebalance sheet method. Deferred tax assets are only recognised to the extent that it is probable thatfuture taxable profit will be available in the foreseeable future against whichthe temporary differences can be utilised. Segment reporting A segment is a component of the Group distinguishable by economic activity(business segment), or by its geographical location (geographical segment),which is subject to risks and rewards that are different from those of othersegments. Critical accounting estimates and judgements The preparation of financial statements under the principles of IFRS requiresmanagement to make judgements, estimates and assumptions that affect theapplication of policies and reported amounts of assets and liabilities, incomeand expenses. The estimates and associated assumptions are based on historicalexperience and various other factors that are believed to be reasonable underthe circumstances, the results of which form the basis of making the judgementsabout carrying values of assets and liabilities that are not readily apparentfrom 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 theestimate is revised if the revision affects only that period, or in the periodof the revision and future periods if the revision affects both current andfuture periods. Information about such judgements and estimates is contained in the accountingpolicies and/or the notes to the interim statement and the key areas aresummarised below. Areas of judgement that have the most significant effect onthe amounts recognised in the interim financial statements are: • Capitalisation and impairment of exploration and evaluation costs • Estimation of share based payment costs This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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