31st Oct 2006 14:08
Weatherly International PLC31 October 2006 31 October 2006 WEATHERLY INTERNATIONAL PLC CHAIRMAN'S STATEMENT Highlights • Successful acquisition of Ongopolo smelter and mines. • Weatherly now positioned as fully-integrated mining group in Southern Africa. • Tsumeb smelter re-commissioned ahead of schedule making the Company immediately profitable at these levels of throughput. • Smelter production of 2,361 tonnes in September. • Significant early progress in increasing production from Ongopolo's mines. Overview It is with great pleasure that, in announcing our results for the financialperiod to 30 June 2006, I am able to report that Weatherly has now establisheditself as a fully-integrated mining group through its acquisition of OngopoloMining and Processing Limited ("Ongopolo"). Ongopolo, now 97% owned by Weatherly, is Namibia's principal copper mining andsmelting company with operations in central and northern Namibia. Weatherly's successful acquisition of Ongopolo was completed shortly after theend of the period under review, reflecting our efforts during the period tocomplete the acquisition. The process was complicated by financial difficultiesthat surrounded Ongopolo. Our restructuring had to take account of a wide rangeof interest groups, the importance of maintaining production and ensuring theworkforce was paid and maintained during this difficult period. We are very grateful for the support obtained from Ongopolo's principalcreditors, the Namibian government and our advisers in London, in carryingthrough what was eventually a complex and lengthy transaction. The acquisitionwas completed on 19 July 2006 and Weatherly's Chief Executive Officer RodWebster immediately took full control of the operations. The Ongopolo acquisition was funded through Weatherly's existing cash resourcesand a series of successful equity raisings which themselves served todemonstrate the increasing level of institutional interest that has been shownin the group. It has provided us with our first revenues, an impressive range ofassets that include one of only four copper smelters in Southern and CentralAfrica and several copper and zinc projects that are either in production ordevelopment or show strong potential for early future development. Ongopolo is essentially free of third-party debt. Weatherly is now a well-funded operation. It has a re-motivated management teamand workforce at Ongopolo, is increasing production and is attending to a numberof new or previously stalled projects. This will significantly increase anddiversify production. Results for the period to 30 June 2006 Before I focus in detail on Ongopolo I will report on the financial period underreview. The period to 30 June 2006 was Weatherly's last as purely a developmentcompany. Following our successful fundraising in December 2005, we raised a further £9.1million at 10.5p per share in April 2006 to obtain additional funds for theacquisition of Ongopolo. As I explained in my last statement to shareholders, itwas proposed to raise funds through a two-stage placing; we raised a further£10.3 million at 17p per share since the last period. At the balance sheet date we had cash resources of £10.4 million. Following theplacing at 17p and the acquisition of Ongopolo, it is pleasing to know that wecurrently have cash resources of some £9 million. The debtors shown in theperiod end balance sheet consisted principally of loans to Ongopolo under theterms of our Heads of Agreement. This enabled Ongopolo to continue to operateprior to the acquisition. We believe that our ability to finance the Ongopolo acquisition and its workingcapital needs through a series of successful equity placings at rising prices -as well as using our existing cash resources - demonstrates increasingshareholder and institutional support. Change of Financial Year End The Board decided that it would be appropriate to bring Weatherly's reportingperiod into line with that of Ongopolo. Therefore, the attached accounts covera shortened financial period for the six months to 30 June 2006 and the presentset of accounts are audited accounts rather than unaudited interims. This willhave the benefit of providing a full year's results for Ongopolo under themanagement and control of Weatherly when the Company reports for the period to30 June 2007. Ongopolo Mining and Processing Limited Acquisition terms The terms for acquisition were fully described in the document sent toshareholders on 22 June 2006. The terms were different in certain respects fromthose described in my Chairman's Statement for the period to 31 December 2005.One important difference was that we acquired almost full ownership of Ongopoloas some of its secured creditors preferred to immediately exchange their holdingin Ongopolo for shares in Weatherly. As a result, Weatherly now owns 97% ofOngopolo's issued share capital. Weatherly subscribed £11.2 million (US$20 million) for a 50% interest inOngopolo's enlarged capital to provide new working capital for Ongopolo.Weatherly also paid £5 million (US$9 million) to obtain an additional 6.4%interest in Ongopolo, purchase part of the secured debt from creditors andacquire a property package that contains surface rights to the Tschudi copperand silver project near Tsumeb. In addition, 47,050,256 new ordinary shares in Weatherly were issued to the twoprincipal secured creditors of Ongopolo. As a consequence, we are pleased towelcome the Government Institutions Pension Fund (Namibia) and Bank WindhoekLimited (Namibia) as substantial shareholders. Their decision to consider theirWeatherly shareholdings as long-term investments is testament to theirconfidence in our vision, business model and management. A scheme of arrangement has been sanctioned by the High Court of Namibia throughwhich Ongopolo will pay existing trade creditors. The scheme protects Ongopolofrom any future claims arising from ordinary creditors prior to 25 April 2006. It is worth noting that an independent report by mining consultants RSG GlobalPty Limited (included in full in the circular to shareholders of 22 June 2006)placed a preferred valuation of Ongopolo at £90 million (US$158.5 million). Thiswas based on an assumed copper price of US$5,000 per tonne; spot rates forcopper today remain above US$7,000 per tonne. Background and Operations Details of Ongopolo's operating and exploration projects were provided in thedocument sent to shareholders on 22 June 2006. I do not propose to repeat theseat length, but give some indication of their present status and developmentssince the acquisition. The principal operating assets of Ongopolo are: • Otjihase and Matchless copper mines near Windhoek in central Namibia. • Kombat copper mining complex; this includes underground operations at Kombat West and the recently-built Asis Far West evaluation shaft. • Tsumeb copper smelter complex. Ongopolo has also been developing a number of advanced exploration projects andhas a number of additional proven underground and surface deposits of copper andother minerals. In the year ending 31 December 2005, Ongopolo processed 24,000tonnes of copper through its smelter. About half of this was obtained from itsown mines and the balance was from tolling imported concentrates. Productionfell significantly during the earlier part of 2006 due to Ongopolo's financialand operating difficulties. This was largely because infrastructure and miningequipment had been allowed to deteriorate to a condition where production hadreached uneconomical levels. Our initial objective was to restore production to earlier levels and to advancea number of additional projects. We also critically assessed Ongopolo'soperations and developments undertaken prior to the acquisition. At this stagewe believe some of the initiatives and investments made by the previousmanagement were ill-advised. However, we see considerable potential in severalother projects, some of which were previously overlooked and should addsignificant additional value to Ongopolo. We refurbished the Tsumeb smelter andcommitted to investing in new equipment to improve efficiency and productivity. I am pleased to report that smelter production for the month of September was2,361 tonnes (832 tonnes from Ongopolo's own mines), a level at which theCompany is operating profitably. There is still considerable improvementrequired to restore mining and smelter production to previous levels and toachieve our new targets. Never-the-less, there is no doubt that we have made anexcellent start. Consequently, we are confident of steady and ongoingimprovement. Otjihase: At the Otjihase copper mine we recommenced production by focussing onbackfilling to permit safe recovery of remnant ore in support pillars. This willallow us to access higher grade ore. April 2006 production reached an all timelow of 200 tonnes of copper. Despite our focus on backfilling the mine, we stillimproved production and mined about twice that amount of copper. Matchless: Copper ore is now being mined by contractors. Production is expectedto continue to increase as new mining methods are implemented and more ore isaccessed at deeper levels. Kombat: The old Kombat copper mine was partially flooded in 2005. Significantcapital has been spent stabilising the upper level pump stations as a prelude todewatering the lower levels where most of the remaining high grade ore islocated. The main focus at Kombat is now on near surface mineralisationextending almost 4 kilometres eastwards from No 1 shaft. This area ofmineralisation, which had previously been largely ignored, looks veryencouraging as a future low-cost, open-pit mine. We believe there is goodpotential for new discoveries in the eastern part of the Kombat complex andneighbouring Gross Otavi area. Tsumeb Smelter: Weatherly decided it was necessary to shut down, rebuild andre-commission the operating smelter at Tsumeb. It was critical to fully re-fitthe number 1 furnace and increase its capacity and efficiency so that it wouldbe fully functional when production from the mines was increased. Refurbishmentwas completed in August 2006, ahead of time and within budget. In September 2006, the furnace operated close to its monthly capacity of 2,500tonnes. This was achieved through a combination of smelting concentratesobtained from Ongopolo's mines, ore and concentrates purchased from theDemocratic Republic of Congo (DRC) and tolling agreements. Tsumeb had previouslyprocessed a mixture of Ongopolo's own mining output and tolling materials fromother producers. Although we expect this to continue, we have been directing ourefforts to improving profitability by purchasing smelter feed instead of tollingmaterial belonging to other producers and traders. Efforts will continue tobroaden the supply base to Botswana and Angola as well as traditional sources ofthe DRC and Zambia. Ongopolo's smelter is one of only four operating in southern Africa. Throughout 2006 there has been an ongoing demand for smelter capacity in Africa.We believe this demand will increase as new mines come into production.Ongopolo's smelter is connected by rail and road to the Atlantic deep water portof Walvis Bay which has excellent access to copper markets around the world. Theport facilities are superior to those in Angola, Mozambique and Tanzania, and itis far less congested than the ports of South Africa. The Tsumeb smelter complexis also linked by an excellent highway to the Copperbelt of Zambia and theextensive copper mines of DRC's Katanga province. Tsumeb therefore has potentialto become a key link in an important regional copper corridor extending fromcentral Africa to Walvis Bay. In Tsumeb, Ongopolo also owns a much larger smelter (80,000 tonnes of copper peryear capacity) that has been decommissioned for some years. With sufficientsmelting demand in the southern African region this smelter can be relativelyquickly recommissioned. This possibility is currently also being evaluated. Other projects Ongopolo has a number of other properties which have produced copper and basemetals in the past or where exploration or development work has taken place.These include a copper and silver deposit at Tschudi, 26km from Tsumeb, BergAukas project near Grootfontein; and an interest in a uranium mining project atValencia in western Namibia. A number of tailings and slag retreatment projectsare also being evaluated. One small but important project we commenced is the establishment of a miningschool at Tsumeb. The objective is to provide Ongopolo with a flow of trainedyounger miners to augment, and in due course replace, older members of theworkforce. This is a valuable contribution to improving Namibia's skill base andreducing unemployment. In addition, this has resulted in modest levels ofproduction from the previously decommissioned Tsumeb mine. Since taking control of Ongopolo, the confidence and enthusiasm of Ongopolo'smanagement and workforce has been restored and improved, we have establishedexperienced and well-led operational teams for all operations and commencedstreamlining production. This workforce team will assist us greatly indeveloping other mineral opportunities in Africa. Our philosophy has been to retain and remotivate these teams and add to themwhere necessary; for example, we have appointed new senior managers at Kombatand Tsumeb. Ongopolo's middle management, including mining engineers, geologistsand others is very experienced and has the ability to rapidly identify anddevelop key areas and procedures. This will help make Ongopolo a more aware,productive and profitable operation. To provide the impetus for a turnaround at Ongopolo, a significant investment ofcapital and a fresh management approach was essential. After less than fourmonths under our ownership, we believe we have successfully provided both. Thisis already being reflected in production and efficiency. Luanshya (Zambia) Weatherly's wholly owned Zambian company, Puku Minerals Limited ("Puku"),acquired three prospecting licenses on the Zambian Copperbelt - PLLS 239 andPLLS 240 in April 2005 and prospecting license PLLS 252 in June 2005. Thelicenses were granted for a period of two years. We carried out a drillingprogramme of part of the tailings stored on PLLS 240 and a resources report wascompleted in May 2006. This identified a resource of 39 million tonnes with acopper content of 0.4% within the area that was sampled. Samples are currentlybeing tested to determine the most profitable processing route before advancingthe project further. In license area PLLS 239 we have been denied access by the previous licenseholder, Luanshya Copper Mines plc ("LCM"), who still owns the surface rights. Wehave lodged a legal claim that oxide caps contained in the license area alsobelong to Weatherly. Neither of these issues have been resolved. License PLLS 239 was issued to Puku subsequent to a Certificate of Abandonmentbeing issued to LCM in January 2005. The Director of Mines and the Minister ofMines and Minerals Development of Zambia reconfirmed, in June and July 2005 thatthe abandonment and granting of PLLS 239 to Puku were valid. Consequently, we were surprised when in early October 2006 Puku received aletter from the Permanent Secretary of Mines and Minerals of Zambia stating thatthe previous Certificate of Abandonment had been issued 'erroneously' andpurporting to cancel PLLS 239. We have appointed legal counsel in the UK and inZambia to rebut the claims and will take further action as required. Legaladvice from both sets of lawyers has confirmed that Puku's PLLS 239 remainsvalid. It is difficult to predict the outcome on this matter but we intend to pursueour rights to PLLS 239 and to seek a timely resolution. This dispute will haveno impact on our ability to treat the tailings on PLLS 240 for the recovery ofcopper nor does it effect our operations in Namibia where most of Weatherly'svalue and most of its production potential in the short to medium term islocated. Share Registry Weatherly had a class of deferred shares because of an historic share capitalreorganisation. These shares had no voting rights and were economicallyvalueless. Consequently, the Company sought approval from deferred shareholdersto re-purchase their shares for a total consideration of 1 penny. This wascompleted on 4 September 2006 and all these shares were cancelled. Weatherlynow has a single class of ordinary shares in issue. On behalf of the Weatherly Board I thank the Government of the Republic ofNamibia for its support throughout the year. I particularly want to thank Rod Webster our CEO for having identified Ongopoloas an investment opportunity, and having been largely responsible for theacquisition strategy, its details and having attended to extensive andsuccessful negotiations. I also wish to thank my fellow directors, Weatherly and Ongopolo employees,advisers and contractors for their support and efforts during this period. Ourentire Ongopolo workforce deserves a special thank you for its understanding andenthusiasm in welcoming Weatherly and embracing the new focus on sustainabledevelopment and production. This support and skill base gives me and my fellowdirectors' great confidence for the years ahead. Finally, I thank all our shareholders for their support; this is muchappreciated. Wolf MartinickChairman October 2006 For further information please contact: Weatherly International plc +44 (0) 20 7917 2989 Wolf Martinick, Chairman Rod Webster, CEO John Norris, Company Secretary First City Financial Allan Piper +44 (0) 20 7436 7486 WEATHERLY INTERNATIONAL PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE PERIOD 1 JANUARY 2006 TO 30 JUNE 2006 Period Ended Year Ended 30 June 31 December 2006 2005 Notes £ £ TURNOVER - continuing operations - - Administrative expenses: - other (707,459) (346,728) - Provision for impairment in the carrying value of intangible assets - (459,592) (707,459) (806,320) Other operating income 2 181,166 5,329 OPERATING LOSS 2 (526,293) (800,991) Interest receivable and similar income 116,318 23,260 LOSS ON ORDINARY ACTIVITIESBEFORE TAXATION (409,975) (777,731) Tax on loss on ordinary activities - - LOSS FOR THE FINANCIAL PERIODAFTER TAXATION (409,975) (777,731) DEFICIT FOR THE PERIOD (409,975) (777,731) LOSS PER SHARE IN PENCE 3 (0.23) (2.22) CONTINUING OPERATIONS All activities are continuing operations. None of the group's activities werediscontinued during the current period and in previous periods. TOTAL RECOGNISED GAINS AND LOSSES The company has no recognised gains or losses other than the losses for thecurrent period and in previous periods. WEATHERLY INTERNATIONAL PLC CONSOLIDATED BALANCE SHEET AT 30 JUNE 2006 30 June 2006 31 December 2005 Notes £ £ £ £ FIXED ASSETS Intangible assets 3,657,090 3,400,000 CURRENT ASSETS Debtors 2,058,807 93,674 Cash at bank 10,374,100 3,652,906 12,432,907 3,746,580 CREDITORS Amounts falling due within one year 926,061 140,736 NET CURRENT ASSETS 11,506,846 3,605,844 TOTAL ASSETS LESS CURRENT LIABILITIES 15,163,936 7,005,844 CAPITAL AND RESERVES Called up share capital 1,392,866 956,790 Share premium 16,374,615 8,269,168 Merger reserve 3,473,619 3,473,619 Other reserves 26,544 - Profit and loss account (6,103,708) (5,693,733) SHAREHOLDERS' FUNDS 15,163,936 7,005,844 WEATHERLY INTERNATIONAL PLC CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD 1 JANUARY 2006 TO 30 JUNE 2006 Period Ended Year Ended 30 June 31 December 2006 2005 Notes £ £ Net cash outflowfrom operating activities 4 (1,679,556) (399,817) Returns on investments andservicing of finance 5 116,318 23,260 (1,563,238) (376,557) Capital expenditure and financial Investment 5 (257,090) - Financing 5 8,541,522 3,899,078 Increase in cash in the period 6,721,194 3,522,521 WEATHERLY INTERNATIONAL PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD 1 JANUARY 2006 TO 30 JUNE 2006 1. GENERAL The financial information herein does not constitute statutory accounts asdefined in section 240 of the Companies Act 1985. The financial information has been extracted from the Group's 2006 statutoryfinancial statements upon which the auditors reported on 31 October 2006. Theopinion was unqualified and does not include any statement under section 237 ofthe Companies Act 1985. The accounts have been prepared in accordance with theapplicable accounting standards and under the historical cost convention. Copies of the annual report will be available from the Company's registeredoffice in the near future. 2. OPERATING LOSS The operating loss is stated after charging/(crediting): 2006 2005 £ £ Other operating income - management fees receivable (181,166) - Auditors' remuneration - audit services 19,000 17,000 Auditors' remuneration - VAT and Tax Compliance 6,065 3,000 Foreign exchange differences (126,653) (329) In addition to the above, the auditors received £136,944 for Reporting Accountant work which has been charged to the share premium account (2005: £38,000). Management fees were received by the group from Ongopolo Mining and Processing Limited from 25 April 2006 to 30 June 2006, prior to acquisition. 3. LOSS PER SHARE Loss per ordinary share has been calculated using the weighted average number ofshares in issue during the relevant financial periods. The weighted averagenumber of shares in issue was 2006: 176,152,954 (2005: 34,970,328) and theearnings attributable to shareholders, being losses after tax, were £409,975(2005: £777,731). Due to losses, there is no dilutive effect of Warrants to subscribe for ordinaryshares. 4. RECONCILIATION OF OPERATING LOSS TO NET CASH OUTFLOW FROM OPERATING ACTIVITIES 2006 2005 £ £ Operating loss (526,293) (800,991) Provision for impairment in the carrying value of intangible fixed assets - 459,592 Fair value adjustment on grant of options 26,544 - Increase in debtors (1,965,132) (92,499) Increase in creditors 785,325 34,081 Net cash outflow from operating activities (1,679,556) (399,817) 5. FINANCING 2006 2005 £ £ Returns on investments and servicing of finance Interest received 116,318 23,260 Net cash inflow for returns on investments and servicing of finance 116,318 23,260 WEATHERLY INTERNATIONAL PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD 1 JANUARY 2006 TO 30 JUNE 2006 5. FINANCING (continued) 2006 2005 £ £ Capital expenditure and financial investment Transaction costs 257,090 - Net cash outflow from capital expenditure and financial investment 257,090 - Financing Issue Costs (616,053) (586,948) Share issue 9,157,575 4,486,026 Net cash inflow from financing 8,541,522 3,899,078 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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