African Copper Plc
AIM : ACU

African Copper Plc

December 03, 2010 02:00 ET

African Copper Plc: Half-Year Results

LONDON, UNITED KINGDOM--(Marketwire - Dec. 3, 2010) - African Copper plc (AIM:ACU)(BOTSWANA:AFRICAN COPPER) ("African Copper", "the Company" or "the Group"), today announces interim results for the sixth month period ended 30 September 2010.

Highlights

  • Sound increase in production profile with August seeing highest ever production levels of 561 Cu tonnes at Mowana mine;
  • Improvement to Mowana plant reducing production bottlenecks and ready to lessen impact of rainy season;
  • Interim Revenues of US$8.1 million;
  • Geological work continues to indicate increased resource base at Mowana;
  • Full mining licence anticipated during December 2010 for Thakadu deposit, which will share all infrastructure with Mowana; Under the current development permit issued in September 2010 Thakadu ore was treated in Mowana plant in September and October 2010;
  • Strengthening of Company's technical team with highly competent and focused people, to ensure effective ore scheduling and delivery to the process plant.
  • Post period end agreement of loan of US$7.5 million from majority shareholder ZCI to fund exploratory drilling on Matsitama Exploration Project and Mowana North deposit and other Mowana plant improvements.

Commenting on the results, Jordan Soko, Interim Chief Executive Officer and director of African Copper, said, "African Copper has made transformational strides in the past six months and this has been recognised by the agreement, post period end, of a further development loan from ZCI Limited to support the Company's plans going forward. African Copper now has an exciting mix of production, near production and exploration assets on the highly prospective Matsitama base, an asset base of the highest quality which we look forward to developing further in the future."

He added: "African Copper continues to add to its administrative and technical teams and I would like to thank all of the Company's staff, whose skill and dedication has been instrumental in advancing the Company's production profile and exploratory programmes forward in the past six months".

The technical information in this announcement has been reviewed and approved by David De'Ath, BSc (Hons), MSc, GDE-Mining, MIMM and MAusIMM, the Company's Manager - Geology, of the Mowana Mine for the purposes of the current Guidance Note for Mining, Oil and Gas Companies issued by the London Stock Exchange in June 2009.

For further information please visit www.africancopper.com.

Chairman's and Chief Executive's Review

The six month period under review has seen a good improvement in African Copper's production profile, with the Company increasingly starting to see the benefits of the infrastructure improvements implemented at the flagship Mowana mine. Mowana's current production levels are starting to justify the investment which has gone into rectifying issues at the site, with record production figures achieved in August of 561 Cu tonnes. Mowana continues to demonstrate its enduring quality as an asset, with several recent geological developments at the site giving us the ability to identify opportunities to potentially increase the Mowana Resource Base beyond that which is currently indicated.

In addition to the ramp up of operations at Mowana, African Copper is stepping up its activities at its deposit at Thakadu whilst currently awaiting a full mining licence from the Botswanan Government, which is expected to be granted sometime in December 2010. A development permit has already been granted and Thakadu will benefit from sharing the infrastructure at Mowana, giving it an anticipated short lead time to profitable production.

Mowana Processing

African Copper's operations continued to develop steadily and August saw the best ever production figures achieved at the Mowana mine. From a mining perspective we have increased the reliability of ore availability by engaging an additional drilling and mining contractor and a separate contractor to focus on primary crusher feed. As a result we now have the capacity to feed the primary crusher, with the result that production has reached volumes of up to 5,000t/day during the period.

These improvements have been complemented by the completion of a 'wet season' mining plan to avoid mining wet ore. This has consisted of constructing a lifted road around the pit perimeter to stop surface drainage into the pit, the construction of adequate sumps and associated pipe installation for pit dewatering, and the cost effective acquisition of sufficient pit dewatering pumps.

The results of the recent improvements to infrastructure at Mowana have been marked, and perhaps best seen over this reported six month period. Production in August of this year was 561Cu tonnes, our best ever month, followed by September (363 Cu tonnes). Processing of high grade but highly oxidized Thakadu ore caused the drop in Cu tonnes in September. Our crushing and milling levels also hit high points in August and, also in August, we achieved recovery levels of 68%, against a target of 53% (a Company record).

    July Aug. Sept.   Half Oct/Nov
Description Qtr 1 2010 2010 2010 Qtr 2 Year 2010*
Ore processed (Mt) 146,052 55,607 70,206 47,499 173,312 319,364 117,757
Cu grade (%) 1.22 1.02 1.17 1.60 1.24 1.23 1.46
Recovery (%) 34.1 45.7 68.1 47.7 55.0 45.6 45.5
Concentrate produced (Mt) 2,641 1,195 2,317 1,762 5,274 7,915 3,770
Copper produced in 607 259 561 363 1,183 1,790 782
Concentrate (Mt)              
Payable copper sold (Mt) 482 192 574 348 1,113 1,595 612
*Post period reporting – October and November 2010

Thakadu oxide ore was processed in the Mowana plant starting mid-September and continued throughout October. This was a challenging period at the plant as highly oxidized near surface Thakadu ore required different plant set-up and settings while the processing characteristics of this ore was being understood. Oxide recoveries reached up to 47% (prior expectations based on test work had been around 40%) which were well below the 68% recoveries on the Mowana ore achieved in August 2010. We expect recoveries on Thakadu ore to increase significantly with depth once the Thakadu oxide ore is exhausted and we begin processing the sulphide ore which underlies this oxide ore, 30m from surface. We further expect the Thakadu oxide ore to be exhausted in early \ since there is a small oxide component at the Thakadu deposit.

As previously announced to the market, we have also purchased and installed mobile crushing capacity at the Mowana site, which provides the capability to back up secondary and tertiary crushing ("SNT") capacity and will ultimately provide us with greater flexibility during the rainy season. The capacity for year round mining is highly important to the Company's future strategy and I am delighted with the improvements implemented to facilitate this.

On the technical side, we continued with projects/studies designed to improve mill feed tonnages. Our redesign of the SNT, which is being performed by AMEC Minproc, is progressing well with basic engineering and a cost budget estimate mostly completed by November 2010. The modification of the SNT is to be completed by the start of next year's rainy season. In addition the construction of the wet tailings system being undertaken by Scott Wilson Africa progressed very well during the period with wet tailings being deposited into a temporary tailings pond basin during the interim.

Thakadu

Thakadu represents an exciting opportunity for the Company and I am delighted to say that, following the approval of the Environmental Impact Assessment and the receipt of the Development Permit, Thakadu ore was treated in the Mowana plant in September and continued throughout October. The development permit (driven by the approved Archaeological Impact Assessment) has allowed mining to start at Thakadu, in line with the approved Environmental Impact Assessment, ahead of the grant of a full Mining Licence from the Botswana Government. I am pleased how successfully our team has engaged all stake holders in Botswana for the acquisition of the Thakadu Mining license, which we expect to be granted sometime during December 2010.

Geology/Exploration

The period under review has seen a strengthening of our technical team with new hiring taking place within our Mine Technical Services Team, which covers Geology, Mine Planning, Survey and Geotechnical Services.

The team has identified several possible opportunities to increase the Mowana Resource Base. We have undertaken successful drilling of a Mowana Deep borehole north of the current pit, examining its implications for future underground mining, and as a result of this drilling we have proved potential lateral and vertical extent of mineralisation at the site. The recruitment of a Senior Mine Geologist to manage the near mine exploration programmes highlights the serious potential we believe is present here.

The recommencement of exploration at the Matsitama Project, nearby to African Copper's producing Mowana mine, encompasses the highly prospective Matsitama Schist Belt, which has demonstrated similarities to iron oxide copper gold ("IOCG") deposit types, and consists of four licences totaling 2,276km2 in extent. African Copper has hired an experienced exploration manager to oversee the project over the next year and secured the services of a panel of internationally recognised geological experts to help generate new exploration strategies, refine mineral emplacement and deposit models, and assist in target generation. This programme was designed to ensure that exploration commitments of the Company are met and exploration expenditures optimally spent, in order to allow African Copper to apply for retention licences over a portion or portions of the exploration permits by mid-2011.

Results

Income Statement

The Group reports revenue of US$8.1 million (2009: nil), an increase from the previous period owing to production only commencing at the Mowana Mine in late August 2009 and no concentrate being sold in September 2009.

Operating Costs:

  US$ (000's)  
Mining 5,215  
Processing 4,035  
Engineering 3,469  
Recognition of stockpile inventory (4,597 )
Operating costs excluding amortization 8,122  

Operating costs per ton remained above budgeted levels as a result of the higher maintenance costs (caused by major component inefficiencies and design upgrades), throughout the plant than originally anticipated. While many of the production bottlenecks were proactively addressed during the six month period ended 30 September 2010 the Mowana plant saw the introduction of highly oxidized ore from the Thakadu deposit which required different plant set-up and settings while the processing characteristics of the oxide ore were understood. Due to the demands of responding to these challenges, production related costs consequently increased. The Company does not believe that the operating results for this period of production will be indicative of those it will achieve over time, after the plant is operated at full commercial levels.

During the period concentrate and stockpile inventories were recognized as the Company believes the processing of these stockpiles will now have future economic benefit. At 31 March 2010 inventory of concentrates was being valued at net realisable value (due to cost being in excess of this as the plant was operating sub optimally) and ore was valued at $nil on the presumption that further production costs exceed the current sales value.

With production ongoing during the period, the Company also amortized US$2.1 million (2009: nil) of the Mowana Mine©s property, plant and equipment during the period.

Administrative expenses totaled US$ 2.1 million (2009:US$ 3.9 million) and are reflective of a reduction in costs that were incurred during 2009 as a result of the restructuring of the Company during that period.

Payments of US$ 3.4 million were made during the six months ended 30 September 2010 on property plant and equipment with a portion of this amount reflecting the recognition, effective September 2010, of a rehabilitation liability estimate for the Thakadu deposit that must be met when, in the future, the mine is exhausted and closes. At that point, environmental legislation mandates site remediation. Accounting standards require that this future liability be estimated and discounted back to the current period. The amount so obtained is added to the relevant property, plant and equipment and also recorded as a liability included within provisions on the consolidated statement of financial position.

During the six month comparative period in 2009 the Company recognized a US$ 45.7 million partial reversal of the impairment of property, plant and equipment provision that was recognized in fiscal 2008. At 30 September 2008 and at 31 December 2008 the Directors undertook a review of mining assets in light of the then economic environment and the Company's need for working capital. As a result during the three months ended 30 September 2008, a write down of US$ 75.6 million was recorded and a further US$ 92.4 million write down was recorded during the three months ended 31 December 2008 for a total of $168.0 million.

At 30 June 2009 the Directors undertook further reviews of mining assets in light of certain indicators that the previously recognized impairment loss had decreased including the significant impact of the Company completing the agreements in May 2009 pursuant to which ZCI agreed to provide the Company and its stakeholders with a comprehensive financing package. The Directors concluded that US$ 45.7 million of the impairment loss recognized in 2008 no longer existed and that a partial impairment reversal was appropriate.

Cashflow

The Group recorded a net cash outflow from operating activities of US$3.8 million (2009: US$ 14.7 million). Capital investment comprised US$ 3.4 million (2009: US$ 2.3 million) related to additions Mowana property plant and equipment and including US$1.3 million of the Thakadu rehabilitation cost provision. In addition US$ 1.7 million (2009: US$ 0.1 million) was spent on Mowana near-mine exploration drilling and expenditures on the Matsitama Project.

At 30 September 2010, the Group held cash balances of US$2.8 million (2009: US$5.8 million). On 29 November 2010 the Company announced that it had secured a further loan from ZCI of US$ 7.5 million. The purpose of this new loan is to enable exploration drilling on the Company©s Matsitama Exploration Project and Mowana North deposit and the completion of a scoping study for the Makala deposits as well as Mowana plant enhancements.

After reviewing the detailed financial mine plan including the impact of the latest ZCI loan, the nearness of anticipated commercial production rates at Mowana and the current market price of copper, the Board has concluded that the Company will likely have a requirement for additional working capital in the next 12 months. It currently expects this requirement to be at a level that can be financed with providers of finance. In anticipation of these working capital needs, the Company's subsidiary Messina is in discussions with finance providers in Botswana regarding a working capital credit facility (See Note 2 – Going Concern).

Outlook

The Company is addressing the issues that have impacted the ramp-up to full production at the Mowana Mine since production recommenced last year. Good progress has been made on all outstanding issues, albeit the addition of the Thakadu highly oxidized ore, with different characteristics from that at the Mowana pit, has resulted in a temporary slowing of that progress. With the additional work planned for the second half of the year, production levels, on an annualised basis, should improve further and levels achieved during the forthcoming rainy season should be significantly better than last year as a result of investments already made.

The Company's exploration assets hold considerable potential and work programmes over the next twelve months are aimed at proving up resources. The management team at African Copper is focused on building up production and moving exploration and development properties into production in order to realise the full potential of the Company's high quality asset base for all shareholders.

REGISTERED IN ENGLAND AND WALES NO. 5041259  
   
African Copper Plc  
Consolidated Statement of Comprehensive Income  
   
    Six Months   Six Months   15 Months  
    ended   ended   ended  
    30 September   30 September   31 March  
    2010   2009   2010  
    Unaudited   Unaudited   Audited  
  Note US$'000   US$'000   US$'000  
Continuing operations              
Revenue   8,065   -   7,392  
Operating costs excluding depreciation   (8,122 ) -   (11,839 )
Depreciation of mining properties and equipment   (2,067 ) -   (1,104 )
               
Operating loss from mining operations   (2,124 ) -   (5,551 )
               
Foreign exchange gain   1,626   2,911   2,075  
Rehabilitation cost   (681 ) -   -  
Administrative expenses   (2,102 ) (3,946 ) (8,097 )
Reversal of impairment of property, plant and equipment   -   45,702   46,013  
Operating (loss)/profit   (3,281 ) 44,667   34,440  
Investment income   16   15   44  
Finance costs   (2,841 ) (1,391 ) (3,770 )
   
Loss/profit before tax 7 (6,106 ) 43,291   30,714  
               
Income tax expense   -   -   -  
Loss/Profit for the period from continuing operations attributable to equity shareholders of the parent company 7 (6,106 ) 43,291   30,714  
   
Other comprehensive income/(expense):              
Exchange differences on translating foreign operations   8,484   (1,777 ) (6,288 )
Other comprehensive income/(expenditure) for theperiod, net of tax   8,484   (1,777 ) (6,288 )
Total comprehensive income for the period attributable to equity shareholders of the parent company   2,378   41,514   24,426  
   
Basic (loss)/earnings per ordinary share 7 $(0.01 ) $0.07   $0.05  
Diluted (loss)/earnings per ordinary share 7 $(0.01 ) $0.07   $0.04  
   
   
African Copper Plc    
Balance Sheets  
   
    Group As at  
               
    30 September   30 September   31 March  
    2010   2009   2010  
  Note US$'000   US$'000   US$'000  
ASSETS              
Property, plant and equipment   76,713   69,100   65,224  
Evaluation and exploration assets   1,712   188   38  
Other financial assets   335   332   327  
Total non-current assets   78,760   69,620   65,589  
Inventories 6 6,748   3,772   1,780  
Other receivables and prepayments   1,820   865   936  
Cash and cash equivalents 8 2,837   5,830   10,047  
Total current assets   11,405   10,467   12,763  
Total assets   90,165   80,087   78,352  
   
EQUITY              
Issued share capital   13,469   13,469   13,469  
Share premium   162,328   162,328   162,328  
Other reserve- ZCI convertible loan   502   -   502  
Acquisition reserve   8,931   8,931   8,931  
Foreign currency translation reserve   5,625   2,274   (2,859 )
Accumulated losses   (171,480 ) (154,652 ) (165,374 )
Total equity   19,375   32,350   16,997  
   
LIABILITIES              
Rehabilitation costs 10 5,762   3,999   4,051  
Amounts payable to ZCI Ltd 9 31,924   29,931   31,924  
Total non-current liabilities   37,686   33,930   35,975  
   
Trade and other payables   13,659   4,362   5,935  
Amounts payable to ZCI Ltd 9 19,445   9,445   19,445  
Total current liabilities   33,104   13,807   25,380  
Total equity and liabilities   90,165   80,087   78,352  
 
The accompanying notes are an integral part of these consolidated financial statements

African Copper Plc
Consolidated statement of changes in equity

          Foreign            
          Currency            
    Share Share Acquisition Translation   Hedging/ Accumulated   Total  
  Note Capital Premium Reserve Reserve   Other Loss   Equity  
              (ZCI)        
              Reserve        
    US$'000 US$'000 US$'000 US$'000   US$'000 US$'000   US$'000  
                       
Balance at 1 January 2009   2,911 162,328 8,931 3,429   - (196,131 ) (18,532 )
Foreign exchange adjustments   - - - (1,155 ) - -   (1,155 )
Total comprehensive income recognised directly in equity   - - - (1,155 ) - -   (1,155 )
Loss for the period   - - - -   - 41,438   41,438  
Total comprehensive income for the period   - - - (1,155 ) - 41,438   40,283  
       
New share capital subscribed   10,558 - - -   - -   10,558  
Credit arising on share options   - - - -   - 41   41  
Balance at 30 September 2009   13,469 162,328 8,931 2,274   - (154,652 ) 32,350  
       
Foreign exchange adjustments   - - - (5,133 ) - -   (5,133 )
Total comprehensive income recognised directly in equity   - - - (5,133 ) - -   (5,133 )
Loss for the period   - - - -   - (10,724 ) (10,724 )
Total comprehensive income for the period   - - - (5,133 ) - (10,724 ) (15,857 )
       
New share capital subscribed   - - - -   - -   -  
Credit arising on share options   - - - -   - 2   2  
Equity component of ZCI convertible loan   - - - -   502 -   502  
Balance at 31 March 2010   13,469 162,328 8,931 (2,859 ) 502 (165,374 ) 16,997  
       
       
Foreign exchange adjustments   - - - 8,484   - -   8,484  
Total comprehensive income recognised directly in equity   - - - 8,484   - -   8,484  
Loss for the period   - - - -   - (6,106 ) (6,106 )
Total comprehensive income for the period   - - - 8,484   - (6,106 ) 2,378  
       
New share capital subscribed   - - - -   - -   -  
Credit arising on share options   - - - -   - -   -  
Equity component of ZCI convertible loan   - - - -   - -   -  
Balance at 30 September 2010   13,469 162,328 8,931 5,625   502 (171,480 ) 19,375  
   
   
African Copper Plc  
Consolidated cash flow statement  
   
    Six Month   Six Month   15 Month  
    Period ended   Period ended   Period ended  
    30 September   30 September   31 March  
   
    2010   2009   2010  
  Note US$'000   US$'000   US$'000  
   
Cash flows from operating activities              
Operating (loss)/profit from continuing operations   (3,281 ) 44,667   34,440  
   
(Increase)/decrease in receivables   (893 ) (393 ) 725  
(Increase) in inventories   (4,968 ) (2,516 ) (636 )
Increase/(decrease) in payables   4,883   (6,459 ) (4,101 )
Share based payment expense   -   17   33  
Reversal of impairment of property, plant and equipment   -   (45,702 ) (46,013 )
Foreign exchange profit   (1,626 ) (2,911 ) (2,075 )
Depreciation and amortisation   2,067   -   1,303  
Cash used in operating activities   (3,818 ) (13,297 ) (16,324 )
   
Interest received   16   15   44  
Finance costs   -   (1,391 ) (3,770 )
Net cash outflow from operating activities   (3,802 ) (14,673 ) (20,050 )
   
Cash flows from investing activities              
Payments to acquire property, plant and equipment   (3,359 ) (2,294 ) (8,075 )
Payments for evaluation and exploration assets   (1,675 ) (107 ) (38 )
Net cash outflow from investing activities   (5,034 ) (2,401 ) (8,113 )
   
Cash flows from financing activities              
Issue of equity share capital, net of issue costs   -   10,433   10,558  
Repayment from interest bearing borrowings   -   (20,835 ) (19,383 )
Proceeds from ZCI Convertible/non-convertible loans   -   27,881   32,426  
Proceeds from ZCI March 2010 Facility   -   -   10,000  
Net cash inflow from financing activities   -   17,479   33,601  
   
Net (decrease) in cash and cash equivalents   (8,836 ) 405   5,438  
   
Cash and cash equivalents at beginning of the period   10,047   2,514   2,534  
   
Exchange gain   1,626   2,911   2,075  
Cash and cash equivalents at end of the period 8 2,837   5,830   10,047  
 
 
AFRICAN COPPER PLC
INTERIM FINANCIAL REPORT FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2010

Notes to the financial statements

1. General Information

The condensed interim financial report of African Copper Plc ("African Copper" or the "Company") for the six months ended 30 September 2010 was authorised for issue in accordance with a resolution of the Directors dated 2 December 2010.

These condensed consolidated interim financial statements for the six months ended 30 September 2010 have been prepared in accordance with the accounting policies set out in the 2010 Annual Report (except as stated below) which comply with International Financial Reporting Standards ("IFRS"), as adopted by the European Union ("EU") in accordance with EU laws (IA's regulation EC 1606/2002), and also in accordance with IAS 34, 'Interim Financial Reporting' as adopted by the EU. The interim results for the six months ended 30 September 2010 are unaudited. They do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the period ended 31 March 2010, which have been prepared in accordance with IFRS as adopted by the EU. The financial information set out in this document in respect of the period ended 31 March 2010 does not constitute the Group's statutory accounts for the period ended 31 December 2009.

African Copper is a public limited company incorporated and domiciled in England and is listed on the Alternative Investment Market ("AIM") of the London Stock Exchange and the Botswana Stock Exchange. Its registered place of business is 100 Pall Mall, St. James's, London, England SW1Y 5HP.

African Copper is a holding company of a copper producing and mineral exploration and development group of companies (the "Group"). The Group's main project is the copper producing open pit Mowana mine. The Group also owns the rights to the adjacent Thakadu-Makala deposits and holds permits in exploration properties at the Matsitama Project. The Mowana Mine is located in the northeastern portion of Botswana and the Matsitama Project is contiguous to the southern boundary of the Mowana Mine.

2. Basis of preparation, accounting policies, going concern and adequacy of project finance

(a) Basis of preparation

This condensed interim financial report of African Copper and all its subsidiaries for the six months ended 30 September 2010 has been prepared in accordance with IAS34 Interim Financial Statements.

It is recommended that the condensed interim financial report be read in conjunction with the annual report for the 15 months ended 31 March 2010 and considered together with any public announcements made by African Copper during the half-year ended 30 September 2010 in accordance with the continuous disclosure obligations of the AIM listing rules.

The consolidated interim financial statements of African Copper are presented in US Dollars and have been prepared on the historical cost basis or the fair value basis where the fair valuing of relevant assets and liabilities has been applied.

Items included in the financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the "Functional Currency"). The Functional Currency of the Company remains Pounds Sterling since this is a non-trading holding Company located in the United Kingdom that has Pounds Sterling denominated share capital.

(b) Going Concern

The financial statements have been prepared on the going concern basis, which contemplates the realisation of assets and settlement of liabilities in the normal course of business.

ZCI Limited ("ZCI") owns 82.16 percent of the Company. At 30 September 2010 the Company is currently indebted to ZCI pursuant to a US$31.9 million Convertible Loan Facility (the "Convertible Loan Facility"), to US$9.5 million of the Company's trade debts that ZCI acquired in May 2009 (the "ZCI Trade Debts") and to a US$10 million working capital facility provided in March 2010 (the "Working Capital Facility") for a total indebtedness of US$51.4 million. The Convertible Loan Facility is a longer term debt, repayable in approximately three and a half years time. The ZCI Trade Debts are repayable on demand and the Working Capital Facility is due on 31 March 2011 but is renewable subject to ZCI giving its written consent to the renewal prior to the repayment date.

On 29 November 2010 the Company announced that it has secured a further loan from ZCI of US$ 7.5 million. The purpose of this new loan is to enable exploration drilling on the Company's Matsitama Exploration Project and Mowana North deposit and the completion of a scoping study for the Makala deposits as well as plant enhancements. The interest rate is 12% per annum payable half yearly, to be repaid on or before 30 November 2014 and may be renewed for a further 2 years, subject to ZCI giving its written consent to such renewal, prior to the repayment date. The terms and conditions are otherwise on the same terms as with the previous term loans from ZCI, including security provided.

The Group's ability to continue as a going concern is dependent upon its ability to generate positive cashflows from operations at the Mowana Mine and the continuing support of ZCI not to call for the repayment of amounts owed to it. The Mowana Mine recommenced operations in August 2009 but has yet to reach full commercial production rates on a consistent basis or produce positive cashflow. As a result the Company has utilised more working capital than it previously expected.

After reviewing the detailed financial mine plan including the impact of the latest ZCI loan, the nearness of anticipated commercial production rates at Mowana and the current market price of copper, the Board has concluded that the Company will likely have a requirement for additional working capital in the next 12 months. It currently expects this requirement to be at a level that can be financed with providers of finance. In anticipation of these working capital needs, the Company's subsidiary Messina is in discussions with finance providers in Botswana regarding a working capital credit facility. However, in the event that ZCI demands payments of the ZCI Trade Debts and does not extend the Working Capital Facility within this 12 month period, or that the Company experiences further delays in reaching commercial production rates or any material reductions in tonnages grades and/or recovery rates and overruns or lower copper prices, this requirement would be accelerated and the Company would be required to seek greater additional working capital financing than it currently anticipates which may not be available when needed or, if available, the terms of such financing might not be favourable to the Company and might involve further dilution to existing shareholders.

Management also intends to further evaluate the possibility of developing the underground portion of the mine at Mowana. Further project finance will be required to complete this initiative. The Directors expect that additional capital equipment and other project funding will be required to develop the underground portion of the mine and may be provided in the future by financial institutions in Botswana and/or the UK or by ZCI.

Terms of any further funding by ZCI or extensions of existing funding such as the ZCI Trade Debts or the Working Capital Facility will be subject to separate commercial negotiations between the Company and ZCI if such funds and/or extensions are necessary and become known. Additional working capital and/ or project financing may not be available when needed or if available, the terms of such financing might not be favourable to the Company and might involve further dilution to existing shareholders. In the event that the Company is unable to secure the further finance required, the Company may not be able to fully develop the projects as contemplated and their carrying values may become impaired.

(c) Accounting policies

Except as described below, the accounting policies applied by the Consolidated Entity in these condensed consolidated interim financial statements are the same as those applied by the Consolidated Entity in its consolidated financial statements as at and for the 15 months ended 31 March 2010.

(d) Accounting policies and new standards

The consolidated financial statements of African Copper plc have been prepared in accordance with International Financial Reporting Standards ("IFRSs") and their interpretations issued by the International Accounting Standards Board ("IASB"), as adopted by the European Union and with IFRSs and their interpretations issued by the IASB. They have also been prepared in accordance with those parts of the Companies Act 2006 applicable to companies reporting under IFRSs.

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

As permitted by section 408 of the Companies Act 2006, the Statement of Comprehensive Income of the Company has not been presented in these financial statements.

In the current year, the Group has adopted all new and revised Standards and Interpretations issued by the IASB and the International Financial Reporting Interpretation Committee ("IFRIC") of the IASB that are relevant to its operations and effective for accounting periods beginning on or after 1 January 2010. The adoption of these new and revised Standards and Interpretations has not resulted in any changes to the Groups accounting policies.

Any standards and interpretations that have been issued but are not yet effective, and that are available for early application, have not been applied by the Group in these financial statements. Application of these Standards and Interpretations are not expected to have a material effect on the financial statements in the future except in the event of future business combinations. These changes would be treated only prospectively and only affect acquisitions made in the future financial years.

3. Estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from the estimates.

Except as described below, in preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the 15 months ended 31 March 2010.

During the six months ended 30 September 2010 management reassessed its estimates in respect of:

  • Ore stockpile inventories (Note 6)
  • Rehabilitation costs (Note 10)

4. Financial Risk Management

The Group's financial risk management objectives and policies are consistent with those disclosed in the consolidated financial statements as at and for the 15 months ended 31 March 2010.

5. Operating Segments

An operating segment is a component of the Group distinguishable by economic activity or by its geographical location, which is subject to risks and returns that are different from those of other operating segments. The Group's only operating segment is the exploration for, and the development of copper and other base metal deposits. All the Group's activities are related to the exploration for, and the development of copper and other base metals in Botswana with the support provided from the UK.

6. Inventories

  30 September 30 September 31 March
  2010 2009 2010
  US$'000 US$'000 US$'000
 
Stockpile inventories 5,455 1,605 233
Consumables 1,293 2,167 1,547
Total Inventories 6,748 3,772 1,780

Inventories include ore stockpiles, copper concentrate and supplies and spares and are stated at the lower of cost or net realisable value. As at the 31 March 2010 inventory of concentrates was being valued at net realisable value (due to cost being in excess of this as the plant was operating sub- optimally) and ore was valued at $nil on the presumption that further production costs exceed the current sales value. As at 30 September 2010 the Company believes the processing of the Company's stockpiles will have a future economic benefit and accordingly the net realizable value of these stockpiles has increased. The cost of ore stockpiles and copper produced is determined principally by the weighted average cost method using related production costs. Costs of copper inventories include all costs incurred up until production such as milling costs, mining costs and directly attributable mine general and administration costs but exclude transport costs, refining costs and royalties. Net realisable value is determined with reference to current market prices.

7. Loss per share

The following reflects the income used in the basic and diluted earnings per share computations:

  Six Month   Six Month 15 Month
  Period ended   Period ended Period ended
  30 September   30 September 31 March
  2010   2009 2010
  US$'000   US$'000 US$'000
(a) Earnings used in calculating earnings per share        
         
For basic and diluted earnings per share:        
         
(Loss)/profit from continuing operations attributable to equity shareholders of the parent (6,106 43,291 30,714
         
         
  Number of Shares
(b) Weighted average number of shares        
Weighted average number of ordinary shares for basic earnings per share 823,419,500   634,867,059 613,758,960
Weighted average number of ordinary shares for diluted earnings per share 823,419,500   643,323,043 692,584,935
Basic earnings (loss)/earnings per share (cents per share) $(0.01 $0.07 $0.05
Diluted earnings (loss)/earnings per share (cents per share) $(0.01 $0.07 $0.04

Basic loss per share

Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares on issue during the half-year.

Diluted loss per share

Diluted loss per share amounts are calculated by dividing the net loss attributable to ordinary shareholders by the weighted number of ordinary shares outstanding during the half-year adjusted for the effects of dilutive options.

8. Cash and cash equivalents

  At 30 At 30 At 31
  September September March
  2010 2009 2010
  US$'000 US$'000 US$'000
Cash at bank - - -
Short-term bank deposits 2,837 5,830 10,047
Cash and cash equivalents in the statement of cashflows 2,837 5,830 10,047

9. Amounts payable to ZCI Ltd

  At 30 At 30 At 31
  September September March
  2010 2009 2010
  US$'000 US$'000 US$'000
Due to ZCI- Convertible loan (non-current liability) 7,891 - 7,891
Due to ZCI- Non-convertible loan (non-current liability) 24,033 29,931 24,033
  31,924 29,931 31,924
Due to ZCI- March 2010 Facility (current liability) 10,000 - 10,000
Due to ZCI- Debt acquisitions(current liability) 9,445 9,445 9,445
  19,445 9,445 19,445
Balance 51,369 39,376 51,369

On 9 May 2009 the Company announced it had entered into agreements pursuant to which ZCI agreed to provide the Company a financing package:

The ZCI Financing Package comprises:

Share Subscription:

- a share subscription for gross proceeds to the Company of approximately US$9.9 million (the "Share Subscription"). The Share Subscription was completed on 22 May 2009 and the New Ordinary Shares were admitted to AIM. Following the Share Subscription, the Company had 823,429,500 ordinary shares in issue and ZCI had an interest in 82.16 per cent. of the issued ordinary share capital of the Company;

Convertible Loan Facility which Refinanced Bridge Loans advanced by ZCI during May and June 2009 (the "Bridge Loans"):

- The Convertible Loan Facility which is a four year secured part convertible credit facility of US$31.1 million comprising a convertible Tranche A of US$8.4 million with a coupon of 12 per cent. per annum and Tranche B that is not convertible of US$22.8 million with a coupon of 14 per cent. per annum. The Convertible Loan Facility was signed on 18 June 2009. Tranche B was subsequently increased from US$22.8 million to US$24.0 million. Tranche A of the Convertible Loan Facility is convertible into ordinary shares of African Copper at a conversion price of 1p per share. The maximum aggregate number of new ordinary shares which may be issued pursuant to the conversion rights attaching to Tranche A is 556,307,263 new ordinary shares (subject to usual adjustments), which would, were Tranche A to be converted in full, increase ZCI©s interest in the enlarged issued share capital of the Company from 82.16 per cent. to 89.36 per cent.

The advance of funds under the Convertible Loan Facility was subject to the satisfaction of certain conditions precedent including that ZCI's shareholders having approved the Convertible Loan Facility and security over Messina's assets, including the Mowana Mine, becoming effective. The Bridge Loans were refinanced out of the proceeds of the Share Subscription and the Convertible Loan Facility. The Convertible Loan Facility contains typical covenants, warranties and events of default for an agreement of this nature. The Convertible Loan Facility is guaranteed by African Copper and all other African Copper group companies and is secured over Messina's assets including a share pledge over the shares of Messina.

On 31 January 2010 the Company and ZCI completed the conditions precedent under the Convertible Loan Facility resulting in the Bridge Loans being refinanced by the Convertible Loan Facility.

On 26 March 2010 the board of directors of ZCI resolved that the interest payment on the Tranche B Convertible Loan due by the Company on 31 March 2010 be postponed for a period of one year until 31 March 2011.

ZCI Trade Debts

In May 2009 ZCI acquired certain debts due to suppliers of the Group representing US$9.4 million. This balance is due by ZCI on demand.

Working Capital Facility

On 31 March 2010 the Company announced it had arranged agreement with ZCI pursuant to which ZCI would fund immediately a US$10.0 million term loan facility at an interest rate of 6% per annum, payable quarterly, to be repaid on or before 31 March 2011 and may be renewed, subject to ZCI giving its written consent to such renewal, prior to the repayment date of the Working Capital Facility. The Working Capital Facility is secured under the existing Convertible Loan Facility.

As a consequence of the Convertible Loan Facility, ZCI Trade Debts and the Working Capital Facility the Group is indebted to ZCI at 30 September 2010 in an aggregate amount of approximately US$51.4 million.

10. Rehabilitation Costs

The net present value of estimated future rehabilitation costs is provided for in the financial statements and capitalised within mining assets on initial recognition. Rehabilitation will generally occur on closure or after closure of a mine. Initial recognition is at the time of the disturbance occurring and thereafter as and when additional disturbances take place. The estimates are reviewed annually to take into account the effects of inflation and changes in estimates and are discounted using rates that reflect the time value of money. Annual increases in the provision due to the unwinding of the discount are recognised in the statement of comprehensive income as a finance cost. The present value of additional disturbances and changes in the estimate of the rehabilitation liability are capitalised to mining assets against an increase in the rehabilitation provision. The rehabilitation asset is amortised as noted previously. Rehabilitation projects undertaken, included in the estimates, are charged to the provision as incurred. Environmental liabilities, other than rehabilitation costs, which relate to liabilities arising from specific events, are expensed when they are known, probable and may be reasonably estimated.

Mowana

The Company estimates the total discounted amount of cash flows required to settle its rehabilitation costs at 30 September 2010 is US$4.5 million (31 March 2010 – US$4.1 million). Although the ultimate amount to be incurred is uncertain, the independent Environmental Impact Statement, completed on the Mowana Mine by Water Surveys Botswana (Pty) Limited in September 2006, using an assumption that mining continues to 2023, estimated the undiscounted cost to rehabilitate the Mowana Mine site of 24.3 million Botswana Pula.

Under the terms of the Mowana Environmental Management Plan, by the end of the first financial year in which copper is produced and sold, the Company must establish a trust fund to provide for rehabilitation of the Mowana Mine site once the mine closes. The Company will annually make contributions to this fund over the life of the mine so that these capital contributions together with the investment income earned will cover the anticipated costs. At the end of each financial year the Company will reassess the estimated remaining life of mine as well as the cost to rehabilitate the mine site and adjust its annual contributions accordingly.

Thakadu

During the six months ended 30 September 2010 the Company received approval of the Thakadu Environmental Impact Assessment and the receipt of a Development Permit for its Thakadu copper-silver deposit some 70 km from the Mowana Mine. This allowed mining to start during the period, in line with the approved Archaeological Impact Assessment, ahead of the grant of a full Mining Licence from the Botswana Government.

The Company estimates (based on an internal estimate) the total discounted amount of cash flows required to settle its rehabilitation costs at 30 September 2010 is US$1.3 million (31 March 2010 – Nil). As part of the preparation of the financial statements for the year ended 31 March 2011 the Company will review the Thakadu estimate with input from an independent engineering firm.

  At 30 September At 30 September At 31 March
  2010 2009 2010
Rehabilitation Costs US$'000 US$'000 US$'000
Opening Balance 4,051 3,488 3,488
Unwinding of discount 212 119 371
Additional provision 1,290 - -
Foreign exchange on translation 209 392 192
Closing Balance 5,762 3,999 4,051

11. Related party transactions

The following amounts were paid/accrued to companies in which directors of the Group have an interest and were incurred in the normal course of operations and are recorded at their exchange amount;

       Balance
      Outstanding as at
  Six Month 15 Month    
  Period Period    
  ended ended    
  30 31 30 31
  September March September March
  2010 2010 2010 2010
  US$'000 US$'000 US$'000 US$'000
Due to ZCI (see Note 9) - - 51,369 51,369
Amount accrued to ZCI being interest on loan 3,492 2,790 3,538 1,035
Amount paid to iCapital Limited for the provision of technical and operational support to the Company. J. Soko, a director of the Company, is a principal of iCapital Limited. 200 418 36 17
 
Amount paid to Aegis Instruments, Micro mine, MGE and Quantec, companies controlled by a director of a subsidiary, in respect of provision of geophysical and geological consulting, administration services and reimbursed expenses 15 8 5 -

Directors and key management personnel

The Directors and key management personnel of the Company during the six months ended 30 September 2010, and up to the date of this report were as follows:

David Rodier – Non-Executive Director and Chairman
Roy Corrans – Non-Executive Director Professor
Stephen Simukanga – Non-Executive Director
Jordan Soko – Acting Chief Executive Officer and Executive Director
Bradley Kipp – Chief Financial Officer and Executive Director

12. Ultimate Controlling Party

The directors regard ZCI, a company registered in Bermuda, as the Company's immediate parent undertaking. Copies of the accounts of ZCI Limited, the smallest and largest group for which accounts are prepared, may be obtained from the ZCI Limited registered office.

The Company's ultimate controlling party is The Copperbelt Development Foundation.

13. Commitments and contingencies

The commitments and contingencies are consistent with those reported on the 31 March 2010 annual financial report. There were no significant changes to the commitments and contingencies during the six months ended 30 September 2010.

14. Subsequent Events

On 29 November 2010 the Company announced that it has secured a loan (the "ZCI Loan") of US$7.5 million from ZCI. The purpose of ZCI Loan is to enable exploration drilling on the Company©s Matsitama Exploration Project and Mowana North deposit and the completion of a scoping study for the Makala deposits as well as Mowana plant enhancements. Under the terms of the ZCI Loan the interest rate is 12% per annum payable half yearly, to be repaid on or before 30 November 2014 and may be renewed for a further 2 years, subject to ZCI giving its written consent to such renewal, prior to the repayment date. The terms and conditions are otherwise on the same terms as with the previous term loans from ZCI, including security provided. ACU has drawn down US$2.5 million from this facility.

Contact Information

  • African Copper
    Brad Kipp
    Chief Financial Officer
    (416) 847 4866
    bradk@africancopper.com
    or
    Tavistock Communications
    Simon Hudson / James Midmer
    020 7920 3150
    shudson@tavistock.co.uk
    or
    Canaccord Genuity Limited
    Andrew Chubb / Tarica Mpinga
    020 7050 6500