African Copper Plc
TSX : ACU
AIM : ACU

African Copper Plc

March 26, 2007 03:00 ET

African Copper Plc: Preliminary Results for the Year Ended 31 December 2006

LONDON, UNITED KINGDOM--(CCNMatthews - March 26, 2007) - African Copper ("African Copper" or the "Company") (TSX:ACU)(AIM:ACU)(BSE:AFRICAN COPPER) announces its preliminary results for the year ended 31 December 2006. Highlights Corporate

  • Assembled our construction team in Botswana and commenced construction at Dukwe in Q4.
  • Raised a total of Pounds Sterling 52.9 million net of expenses from an equity issue of 75 million ordinary shares in Q2 of 2006 to finance the construction of Dukwe.
  • Dukwe deposit
  • The Company's goal is to develop the Dukwe deposit as its first mine in the Matsitama Belt of Botswana. In order to achieve its stated goal, the Company completed engineering studies for a combined open pit/underground mine with a dedicated flotation concentrator. Late in Q4, the government of Botswana gave final approval for the Dukwe Project by granting a 25-year Mining Licence. The Company commenced construction in Q4 and signed an engineering, procurement and construction management contract for Dukwe. The initial development strategy shows an open pit operation being constructed first, with the underground mine commencing production by the third year of operations.
  • Construction Activities - Construction activities commenced at Dukwe in October 2006. Work to date has included the stripping and stockpiling of top soil, the excavation and terracing of the mill and concentrator site, completion of surface water control structures, the completion of a 10 kilometre all-weather access road linking the site to the paved Francistown-Nata highway, completion of a 15 kilometre water pipeline linking the well field to the project site and the commencement of foundation excavations for the mill.
  • Equipment Acquisition - The Company has purchased primary, secondary and tertiary crushers that are currently undergoing refit in Johannesburg. An order for the ball mill was placed in June 2006 with an expected 14 month delivery and commissioning. By the end of the first quarter of fiscal 2007, the Company expects to have firm orders for over 80% of equipment and steel. The Company has accelerated the purchase of plant and equipment in an effort to minimize any potential cost overruns.
  • Mining Activities - The Company expects to execute a contract mining agreement to allow for a fleet to mobilize in the second half of fiscal 2007. Upon the signing of this agreement, orders will be placed for mining trucks, shovels and ancillary equipment. Delivery is expected within 6 months of placing orders, and the Company expects to commence mining and stockpiling activities at Dukwe before the end of fiscal 2007.
  • Dukwe Resources - A major resource definition drill programme was completed in 2006 which led to the release of new resource estimates late in 2006 (see 4 December 2006 Technical Reports as filed on SEDAR at www.sedar.com). Further drilling in Q4 of 2006 expanded the database available for resource estimation, and the Company expects to issue a new resource estimate in Q2 of 2007.
  • Matsitama Project
  • During 2006, the Company installed an exploration camp in the Matsitama Concession and increased the professional staff involved in exploration activities. Compilation work continued throughout the year, and a number of drill targets were selected for testing.
  • Thakadu Project - A 10,000 metre drill program was completed over the Thakadu and Makala deposits. The Company is awaiting final assays prior to completing an initial resource estimate. The Company believes that Thakadu-Makala deposits represents an advanced exploration project that might develop into a mining project in its own right or, alternatively, as a complementary project running either in parallel or in series with the development of the Dukwe deposit.
  • TITAN Survey - The Company completed an extensive distributed-array time-domain induced polarization survey over 20 kilometres of strike extent from Thakadu to the Mutsuku showing. A number of high-priority exploration targets have been identified. This information will be used to drive exploration efforts over the next three years.
  • Nakalakwana Hill - The Company believes that the Nakalakwana Hill area represents a potential large tonnage, low-grade copper-gold target. The Company has initiated a 100 line-kilometre TITAN survey over the area and is in the process of completing a 1,700 metre Phase 1 exploratory drilling program. Results will be released when they become available.
  • The 2006 fiscal year represented a period intense study of the Dukwe Project leading up to a production decision. With the commencement of construction activities in Q4 of 2006, the Company anticipates that its 2007 fiscal year will be a period of transition from explorer to producer for African Copper. Exploration will continue throughout 2007 at our high priority targets. Financial Results The 2006 financial statements are the Company's first full year statements reported under International Financial Reporting Standards ("IFRS"). This change of standards has been undertaken in anticipation of the requirement for all issuers listed on AIM to report under IFRS for years commencing on or after 1 January 2007. The loss for 2006 was pound sterling2,100,884 (compared with a loss of pound sterling612,206, restated under IFRS for fiscal 2005). Included in the loss for fiscal 2006 was a foreign exchange loss of pound sterling2.1 million related primarily to foreign currency translation losses on currency holdings of Canadian Dollars and Rand. As Sterling has strengthened against the Rand and Botswana Pula during fiscal 2006, the funding situation of the Company has improved due to the fact that future costs of developing the Dukwe Project are predominately Rand and Botswana Pula based. Following the public offering in June 2006, the directors deemed it appropriate to retain subscription funds in both Sterling and Canadian Dollars as both currencies were viewed as likely to remain stable or to strengthen compared to the South African Rand and Botswana Pula. As set out in Impact of Exchange Rates under "Performance - Dukwe Project" in the Management Discussion and Analysis for the year ended 31 December 2006, there has been no significant change in the rates achieved in exchanging Canadian Dollars into Rand compared to rates available in June 2006 but, as the Canadian Dollar weakened against Sterling, this resulted in an exchange loss during 2006 as recorded in the income statement. Please see the Management Discussion and Analysis for the year ended 31 December 2006 available on the SEDAR website at www.sedar.com. This document contains or refers to forward-looking information, including statements regarding but are not limited to, statements concerning mineral resource estimates, exploration and mine development plans, timing of the development of the Company's projects in Botswana, exploration results, the impact of exchange rates and other statements which are not historical facts. When used in this document, the words such as "could," "plan," "estimate," "expect," "intend," "may," "potential," "should," and similar expressions are forward-looking statements. Although the Company believes that its expectations reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Important factors that could cause actual results to differ from these forward-looking statements include risks related to failure to convert estimated mineral resources to reserves, the grade and recovery of ore which is mined varying from estimates, future prices of copper, capital and operating costs varying significantly from estimates, political risks arising from operating in Africa, uncertainties relating to the availability and costs and availability of financing needed in the future, changes in equity markets, inflation, changes in exchange rates, fluctuations in commodity prices, delays in the development of projects, conclusions of economic evaluations, changes in project parameters as plans continue to be refined, uninsured risks and other risks involved in the mineral exploration and development industry. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. These forward-looking statements are made as of the date hereof and the Company makes no responsibility to update them or to revise them to reflect new events or circumstances, except as required by law. Further information about our properties, to download a copy of our Annual Report or any technical report or to access our Press Release Archive please visit www.sedar.com or our website at www.africancopper.com. CHAIRMAN'S STATEMENT Dear Shareholder, African Copper was extremely busy in fiscal 2006. The first quarter of fiscal 2006 saw the continuation of delineation drilling at the Dukwe Project, the release of a preliminary resource estimate for the northern portions of the deposit, completion of locked cycle flotation tests on the supergene and sulphide ore, finalization of the flowsheet for the flotation concentrator and the establishment of an exploration camp in Matsitama. The second quarter of fiscal 2006 saw the completion of a pound sterling52.9 million net of expenses equity fund raising, the commencement of exploration activities at the Thakadu and Makala licence areas and the continued recruitment of senior engineers and geologists. The third quarter of fiscal 2006 was the most important of the year. During the quarter, delineation drilling at the Dukwe Project was completed and results from the twin hole drilling of the near-surface oxide and supergene mineralization of the deposit indicated that at least some of the historic drilling likely underestimated the grade of the near surface mineralization. At about the same time, preliminary metallurgical tests on the oxide material were sufficiently encouraging that the oxide resource was considered as potential mill feed. With these two new developments in hand the possibility of an open-pit was re-examined. The flow sheet for the mill was finalized and a final capital cost and operating cost estimate was made for the processing plant. Late in the third quarter of fiscal 2006, the board formally approved the commencement of construction activities subject to receiving the necessary permissions from the Government of Botswana. In late September 2006, the Government granted a waiver that allowed the Company to commence certain preparatory surface earthworks prior to obtaining final permits and a Mining Licence. Work commenced almost immediately with the stripping of topsoil, erection of a construction camp and laying of the water pipeline and overhead power line from the well fields. During the fourth quarter of fiscal 2006, the Company released a comprehensive independent mineral resource estimate for the Dukwe Project completed by two globally recognized independent consultants. The use of two consultants utilizing different methodologies added confidence in allowing the Company to finalize the resource base available to support an extended mine life at Dukwe. In the middle of the fourth quarter of 2006, the Company received approval of the Environmental Impact Assessment, the Environmental Management Plan, conditional Archaeological discharges and Water Abstraction permits. A 25-year Mining Licence was awarded by the Government of Botswana in late December 2006. Also in December, EPCM contracts were awarded and orders began to be placed for long-lead time items. The first quarter of 2007 saw the finalization of orders for about 80% of the equipment required for the processing plant. Site activities accelerated with the completion of a pipeline to the borefield for process water, the completion of the access road, the completion of the plant site terrace and the excavation and pouring of the ball mill footings. Pre-stripping of the open pit area commenced with the stockpiling of topsoil. Mining activities are expected to increase over the remainder of this year with a target for initial production during the first quarter of fiscal 2008. Planned management changes occurred in early January 2007. It was with great pleasure that the Board welcomed Mr. Chris Fredericks, our new COO, into the African Copper team. Joe Hamilton moved to the CEO position and Dave Jones was appointed Deputy Chairman. The Board would like to thank Dave for his tireless work throughout 2004, 2005 and 2006. As one of the founding shareholders of African Copper his contributions cannot be overlooked or over-emphasized. While the Board's goal is to develop the Dukwe Project as its first mine, it is also excited about the prospects within the Matsitama and Thakadu and Makala exploration licenses. A 10,000 metre diamond drill programme was completed at Thakadu and Makala during fiscal 2006. Initial results are encouraging, but final assays have been delayed in favour of processing samples from in-fill drilling at Dukwe. The Company expects to be in a position to complete a resource estimate for the Thakadu and Makala areas in the second quarter of fiscal 2007. There can be little doubt that fiscal 2006 was an extremely important year for African Copper as it continues to grow towards production. As a shareholder, you can be assured that the Board will encourage management to achieve ever greater goals, will require the Company to develop projects in a sensible and environmentally sustainable manner, and will ensure the engagement of communities and stakeholders at all stages. As custodians of the business, your Board will continue to place significant emphasis on corporate governance and transparency throughout the group. On behalf of the Board, I would like to thank the shareholders and employees of African Copper for their support and loyalty over the past three years. I would also like to thank my fellow Directors for their active participation and contributions to the Company in its formative stages as it makes the transition from exploration to mining company. I expect that fiscal 2007 and 2008 will be exciting years for the Company, and for our shareholders. Roy Corrans, Chairman 23 March 2007
    
    African Copper Plc
    Consolidated income statement
                                              Year ended 31 December
                                                        2006              2005
                                             Pounds Sterling   Pounds Sterling
                                                        '000              '000
    Administrative expenses                           (1,581)           (1,121)
    
    Exchange loss                                     (2,103)               (4)
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    Operating loss                                    (3,684)           (1,125)
    
    Finance income
    
    Bank interest receivable                           1,646               530
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    Loss before tax                                   (2,038)             (595)
    
    Tax                                                  (62)              (17)
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    Loss after tax                                    (2,100)             (612)
    
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    Basic and diluted loss per ordinary share           2.20p             1.19p
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    The comparative information has been restated in accordance with IFRS as 
    set out in Note 4.
    
    
    African Copper Plc
    Balance Sheets
                                                           As at 31 December
    
                                                       2006                2005
                                        Pounds Sterling'000 Pounds Sterling'000
    ASSETS
    
    Property, plant and equipment                    13,964                 120
    
    Deferred exploration costs                        2,007               7,159
    
    Long term receivables                                 -                   -
    
    Investments in subsidiaries                           -                   -
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    Total non-current assets                         15,971               7,279
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    Other receivables and prepayments                   648                 227
    
    Cash and cash equivalents                        53,254              10,676
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    Total current assets                             53,902              10,903
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    Total assets                                     69,873              18,182
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    EQUITY
    
    Issued share capital                              1,305                520
    
    Share premium                                    69,844             16,158
    
    Merger reserve                                        -                  -
    
    Acquisition reserve                               4,485              4,485
    
    Foreign currency translation reserve             (1,979)              (315)
    
    Retained losses                                  (5,687)            (4,579)
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    Total equity                                     67,968             16,269
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    LIABILITIES
    
    Trade and other payables                          1,905              1,913
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    Total current liabilities                         1,905              1,913
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    Total equity and liabilities                     69,873              18,182
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    African Copper Plc
    Consolidated statement of changes in shareholders' equity
    
                                                          
                                                          
                                                          For-
                                                          eign 
                                                          Cur-
                                                         rency 
                                                   Acq- Trans-
                                                   uis-  ation    Ret-
                              Share      Share    ition   Res-   ained   Total
                            Capital    premium  Reserve   erve    Loss  Equity
                             Pounds     Pounds   Pounds Pounds  Pounds  Pounds
                             Sterl-     Sterl-   Sterl- Sterl-  Sterl-  Sterl-
                                ing        ing      ing    ing     ing     ing
                               '000       '000     '000   '000    '000    '000
     
    Balance at 1 January       
     2005                       500     15,157    4,485      -  (4,475) 15,667
    Foreign exchange 
     adjustments                  -          -        -   (315)      -    (315)
    Loss for the year             -          -        -      -    (612)   (612)
    ---------------------------------------------------------------------------
    Total recognised loss
     for the year                 -          -        -   (315)   (612)   (927)
    
    New share capital
     subscribed                  20      1,001        -      -       -   1,021
    Credit arising on 
     share options                -          -        -      -     508     508
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    Balance at 31 December
     2005                       520     16,158    4,485   (315) (4,579) 16,269
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    Foreign exchange
     adjustments                  -          -        - (1,664)      -  (1,664)
    Loss for the year             -          -        -      -  (2,100) (2,100)
    ---------------------------------------------------------------------------
    Total recognised loss
     for the year                 -          -        - (1,664) (2,100) (3,764)
    
    New share capital
     subscribed                 785     58,702        -      -       -  59,487
    Share issue costs             -     (5,016)       -      -       -  (5,016)
    Credit arising on 
     share options                -          -        -      -     992     992
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    Balance at 31 
     December 2006            1,305     69,844    4,485 (1,979) (5,687) 67,968
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    The comparative information has been restated in accordance with IFRS, as
    set out in Note 4.
    
    
    African Copper Plc
    Consolidated cash flow statement
                                                        Year ended 31 December
    
                                                           2006           2005
                                                  Pounds Sterl-  Pounds Sterl-
                                                        ing'000        ing'000
    Cash flows from operating activities
    Administration expenses                              (1,581)        (1,121)
    Tax                                                     (62)           (17)
    ---------------------------------------------------------------------------
    Operating loss from continuing operations            (1,643)        (1,138)
    Decrease in receivables                                (421)           (68)
    Decrease/(increase) in payables                          (5)            67
    Share based payment expense                             562            120
    Tax                                                      62             17
    ---------------------------------------------------------------------------
    Cash used in operating activities                    (1,445)        (1,002)
    
    Interest received                                     1,646            530
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    Net cash inflow/(outflow) from 
     operating activities                                   201           (472)
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    Cash flows from investing activities
    Payments to acquire property, plant and equipment    (3,805)           (92)
    Payments of deferred exploration expenditures        (6,186)        (3,187)
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    Net cash outflow from investing activities           (9,991)        (3,279)
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    Cash flows from financing activities
    Issue of equity share capital                        52,948              -
    Issue of equity upon exercise of warrants             1,378          1,021
    Issue of equity upon exercise of options                145              -
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    Net cash inflow from financing activities            54,471          1,021
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    Net increase/(decrease) in cash and cash
     equivalents                                         44,681         (2,730)
    Cash and cash equivalents at beginning of the year   10,676         13,410
    
    Exchange loss                                        (2,103)            (4)
    
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    Cash and cash equivalents at end of the year         53,254         10,676
    
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    The comparative information has been restated in accordance with IFRS, as
    set out in Note 4.
    
    
    1. Nature of operations, going concern and adequacy of project finance African Copper Plc ("African Copper" or the "Company") is a public limited company incorporated and domiciled in England and is listed on the AIM market of the London Stock Exchange, the Toronto Stock Exchange and the Botswana Stock Exchange. African Copper is a holding company of a mineral exploration and development group of companies (the "Group"). The Group is involved in the exploration and development of copper deposits in Botswana and is currently developing its first copper mine at the Dukwe Project and is conducting an exploration programme at the Matsitama Project. The Dukwe Project is located in the north-eastern portion of Botswana and the Matsitama Project is contiguous to the southern boundary of the Dukwe Project. On 30 March 2006 a report prepared by A.C.A. Howe International Limited entitled "Technical Report on the Dukwe Copper Project and Matsitama Prospecting Licences Botswana Africa" (the "Technical Report") was released (a copy of which is available at www.africancopper.com or SEDAR at www.sedar.com). The Technical Report reviewed work completed to date and provided recommendations to advance the Company's two Botswana projects. On 5 June 2006 the Company received shareholder approval at an Extraordinary General Meeting for the completion of a public offering to raise pound sterling52.9 million, net of expenses, through the issue of 34,375,000 ordinary shares at 77.5p per share and 40,625,000 ordinary shares at Can$1.60. The Board plans to use the funds raised to develop a mine at the Dukwe Project and further the exploration of the Matsitama Project. The strategy contemplates cashflow generated from the proposed mining operations at the Dukwe deposit to continue funding the further exploration and development of the Matsitama Belt. The Company believes that it has sufficient financial resources to develop Dukwe and adequate working capital for the foreseeable future being a period of not less than twelve months from the date of signing these financial statements. The Directors therefore consider it appropriate to prepare these financial statements on a going concern basis. In the event of project cost overruns or delays, the Company believes it has adequate flexibility to manage expenditures and to obtain project debt or further equity to complete the development of Dukwe. However, there can be no certainty in this regard and if the Company is unable to secure the further finance required, the Company may not be able to fully develop these projects and their carrying values and the investment of the parent company may become impaired. The address of African Copper's registered office is 100 Pall Mall, St James's London SW1Y 5HP. These consolidated financial statements have been approved for issue by the Board of Directors on 23 March 2007. 2. Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. a) Statement of Compliance The consolidated financial statements of African Copper have been prepared in accordance with International Financial Reporting Standards ("IFRS") and its interpretations adopted by the International Accounting Standards Board ("IASB"), which are the same as those adopted by the European Union and with the parts of the Companies Act 1985 applicable to companies reporting under IFRS. The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements and in preparing an opening balance sheet at 1 January 2005 for the purposes of the transition to IFRS. A detailed explanation of how the transition to IFRS has affected the reported financial position, financial performance and cash flows of the Group are provided in Note 22. As permitted by section 230 of the Companies Act 1985, the income statement of the Company has not been presented in these financial statements. b) Basis of preparation The consolidated financial statements of African Copper are presented in Pounds Sterling and have been prepared on the historical cost basis. Prior to 2006, the Group prepared its audited financial statements and unaudited interim financial statements under UK Generally Accepted Accounting Practice ("UK GAAP") principles. From 1 January 2006, the Group has elected to prepare annual consolidated financial statements in accordance with IFRS. As the 2006 annual financial statements include comparatives for 2005, the Group's date of transition to IFRS was 1 January 2005 and the 2005 comparatives are restated according to IFRS. c) Foreign currency translation (i) Functional and presentation currency 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 consolidated financial statements are presented in Pounds Sterling, which is the Group's presentation currency and the functional currency of the Company. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement. (iii) Group companies The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
  • assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
  • income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
  • all resulting exchange differences are recognized as a separate component of equity.
  • On consolidation, exchange differences arising from the translation of the net investment in foreign operations are taken to shareholders' equity. When a foreign operation is sold, exchange differences that were recorded in equity are recognized in the income statement as part of the gain or loss on sale.
  • d) Property, plant and equipment Property, plant and equipment are recorded at cost less accumulated amortisation and less any accumulated impairment losses. Pre-production expenditure relating to testing and commissioning is capitalised to property, plant and equipment. The recognition of costs in the carrying amount of an asset ceases when the item is in the location and condition necessary to operate as intended by management. Any net income earned while the item is not yet capable of operating as intended reduces the capitalised amount. Interest on borrowings, specifically to finance the establishment of mining assets, is capitalised during the construction phase. Subsequent costs are included in the asset's carrying amount only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be reliably measured. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Amortization methods and amortization rates are applied consistently within each asset class except where significant individual assets have been identified which have different amortisation patterns. Residual values are reviewed at least annually. Amortisation is not adjusted retrospectively for changes in the residual amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in the income statement. Other assets consist of vehicles, information technology equipment and furniture and equipment. Mining development and infrastructure Individual mining assets are amortised using the units-of-production method based on the respective estimated economically recoverable metal during the life of mine plan. Mining plant and equipment Individual mining plant and equipment assets are depreciated using the straight line method over the useful life of the asset once the assets are available for use. Other Assets These assets are depreciated using the straight line method over the useful life of the asset as follows:
    
    - Vehicles                     4 years
    
    - Information technology       3 years
    
    - Furniture & equipment        5 years
    
    
    e) Deferred exploration and evaluation All costs incurred prior to obtaining the legal right to undertake exploration and evaluation activities on a project are written-off as incurred. Exploration and evaluation costs arising following the acquisition of an exploration licence are capitalised on project-by-project basis, pending determination of the technical feasibility and commercial viability of the project. Costs incurred include appropriate technical and administrative overheads. Deferred exploration costs are carried at historical cost less any impairment losses recognised. Upon demonstration of the technical and commercial feasibility of a project, any past deferred exploration and evaluation costs related to that project will be reclassified as Mine Development and Infrastructure. Capitalised deferred exploration expenditures are reviewed for impairment losses (see accounting policy note below) at each balance sheet date. In the case of undeveloped properties, there may be only inferred resources to form a basis for the impairment review. The review is based on a status report regarding the Group's intentions for development of the undeveloped property. The recoverability of deferred exploration and evaluation costs is dependent upon the discovery of economically recoverable ore reserves, the ability of the Group to obtain the necessary financing to complete the development of the reserves and future profitable production or proceeds from the disposal thereof. f) Impairment Whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable an asset is reviewed for impairment. An asset's carrying value is written down to its estimated recoverable amount (being the higher of the fair value less costs to sell and value in use) if that is less than the asset's carrying amount. Impairment reviews for deferred exploration and evaluation costs are carried out on a project by project basis, with each project representing a potential single cash generating unit. An impairment review is undertaken when indicators of impairment arise but typically when one of the following circumstances applies: (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 currency of operation. g) Share based payment Certain Group employees and consultants are rewarded with share based instruments. These are stated at fair value at the date of grant and either expensed to the income statement or capitalized to deferred exploration costs, based on the activity of the employee or consultant, over the vesting period of the instrument. Fair value is estimated using the Black-Scholes valuation model. The estimated life of the instrument used in the model is adjusted for management's best estimate of the effects of non-transferability, exercise restrictions and behavioural considerations. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. h) Asset retirement obligations Mine closure and site restoration costs are comprised of asset retirement obligations, employee severance and ongoing expenditures related to the protection of the environment. The fair value of a liability for an asset retirement obligation is recognized when it is incurred. Also, when a liability is initially recorded, a corresponding increase to the carrying amount of the related asset is recorded. On an annual basis, the fair value of the future liability for an asset retirement obligation is recognized in the period in which it is incurred with an offsetting amount being recognized as an increase in the carrying amount of the corresponding asset. This asset is amortized over the estimated life of the mine while the corresponding liability accretes to its future value by the end of the mine's life. Mine closure costs for employee severance are accrued as earned using a pre-determined formula based upon the employees' number of years of employment service with the mine. Ongoing expenditures related to the protection of the environment are charged to earnings in the period they are incurred. 3. Basic and diluted loss per share The calculation of basic loss per ordinary share on the net basis is based on the loss of ordinary activities after taxation of pound sterling2,100,884 (2005: pound sterling612,206) and on 95,516,505 (2005: 51,500,444) ordinary shares being the weighted average number of ordinary shares in issue and ranking for dividend during the year. No diluted loss per share is presented as the effect of the exercise of share options would be to decrease the loss per share. 4. Transition to IFRS Introduction The Group has adopted IFRS with effect from 1 January 2006. The directors have elected a transition date of 1 January 2005 as this is the start date for which the Group has presented full comparative information under IFRS in the 2006 Annual Report and Accounts. Basis of transition to IFRS The accounting policies as set out in note 2 have been applied in preparing the restatement of the financial statements for the year ended 31 December 2005 and in the preparation of the opening IFRS balance sheet at 1 January 2005 (the Group's date of transition). In preparing its opening IFRS balance sheet, the Group has adjusted amounts reported previously in financial statements prepared in accordance with its previous basis of accounting (UK GAAP). An explanation of how the transition from UK GAAP to IFRS has affected the Group's financial position, financial performance and cash flows is set out in the following tables and the notes that accompany the tables. Effects of adopting IFRS on the Group's accounting policies The following reconciliations provide a quantification of the more significant effects of the transition to IFRS.
    
    Reconciliation of equity 1 January 2005
    
                                                Mort-
                                   Mort-         bury     
                                    bury        Pref-      Share
                                  Trans-       erence      based
                                  action       Shares   payments            
                   UK GAAP       Note (a)     Note (b)   Note (c)         IFRS
                    Pounds        Pounds       Pounds     Pounds        Pounds
                    Sterl-        Sterl-       Sterl-     Sterl-        Sterl-
                       ing           ing          ing        ing           ing
                      000s          000s         000s       000s          000s
    
    Goodwill         8,684        (5,440)      (3,244)         -             -
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    EQUITY
    
    Merger reserve   8,606        (5,661)      (2,945)         -             -
    Acquisition
     reserve                       1,540        2,945          -         4,485
    Share based 
     payment reserve   740          (312)           -       (428)            -
    Retained losses   (652)       (1,007)      (3,244)       428        (4,475)
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    Reconciliation of equity 1 January 2006
    
                                                Mort-
                                   Mort-         bury     
                                    bury        Pref-      Share
                                  Trans-       erence      based
                                  action       Shares   payments            
                   UK GAAP       Note (a)     Note (b)   Note (c)         IFRS
                    Pounds        Pounds       Pounds     Pounds        Pounds
                    Sterl-        Sterl-       Sterl-     Sterl-        Sterl-
                       ing           ing          ing        ing           ing
                      000s          000s         000s       000s          000s
    
    
    
    Goodwill         8,684        (5,440)      (3,244)         -             -
    ---------------------------------------------------------------------------
    ---------------------------------------------------------------------------
    
    EQUITY
    
    Merger reserve   8,606        (5,661)      (2,945)         -             -
    Acquisition
     reserves            -         1,540        2,945          -         4,485
    Foreign exchange 
     translation      (315)            -            -          -          (315)
    reserve 
    Retained losses    (16)       (1,319)      (3,244)         -        (4,475)
    ---------------------------------------------------------------------------
    
    
    Reconciliations between IFRS and UK GAAP (a) Mortbury Transaction Under UK GAAP, the Mortbury acquisition that occurred in 2004 was accounted for as an acquisition of Mortbury by African Copper. This share exchange resulted in the former shareholders of Mortbury owning a majority of African Copper. Under UK GAAP the transaction was not considered a reverse take-over and was accounted for as an acquisition of Mortbury by African Copper with pound sterling5.4 million recorded as goodwill. Under IFRS, the exchange of shares of African Copper for the shares of Mortbury is considered a reverse-takeover transaction. Given that African Copper was not an operating business prior to the share exchange, and did not yet generate a return for its investors, it was not considered a business under IFRS for the purpose of applying business combination accounting under IFRS 3. As such the reverse take-over acquisition is accounted for as an acquisition of the net assets of African Copper by Mortbury with no goodwill being recorded on the transaction. The effect at 1 January 2005 and 1 January 2006, is to eliminate the goodwill (Pounds Sterling 5.4 million) and merger reserves (Pounds Sterling 5.7 million) recorded under UK GAAP. The reverse take-over transaction was recorded at the book value of the net assets of African Copper acquired, being $1. The excess of the amount of issued equity in Mortbury over the nominal value of shares issued by African Copper was Pounds Sterling 1,540,000 and this was recorded as an acquisition reserve. As Mortbury is considered to be the continuing entity, an adjustment of Pounds Sterling1,319,000 was made to retained losses representing the losses accumulated by Mortbury prior to the transaction. (b) Re-purchase Mortbury Preference Share As a result of the accounting treatment given the Mortbury share exchange, as described previously in (a) Mortbury Transaction, the subsequent purchase of the Mortbury Class C Preference Shares was also treated as a capital transaction for IFRS purposes. Accordingly, the excess of the fair value of the consideration given for the Preference Share over its book value was reflected as a premium on repurchase of the shares, charged separately to the retained loss account. The effect at 1 January 2005 and 1 January 2006, was to eliminate the goodwill recognized under UK GAAP of Pounds Sterling 3.2 million by recording the transaction against retained losses and to record the Pounds Sterling 2.9 million premium on re-purchase against the acquisition reserve. c) Share based payments Under UK GAAP, the Group and the Company recorded the credit to equity arising on share based payments as a separate reserve. On moving to IFRS, it has been determined that this reserve may be eliminated against retained losses. Explanation of material adjustments on the income statement There were no adjustments to the income statement arising from the adoption of IFRS by the Group Explanation of material adjustments on the cashflow statement Interest received has been reclassified under net cash from investing activities where, under UK GAAP, it formed part of the return on investments and servicing of finance. The movement in liquid resources, which comprise the cash equivalents of the Group, was classified as a cash flow under UK GAAP. Under IFRS, liquid resources have been reclassified as cash equivalents and movements are a component of the increase or decrease in cash and cash equivalents in the year. There are no other material differences between the cash flow statement presented under IFRS and the cashflow statement presented under UK GAAP.

    Contact Information

    • African Copper Plc
      Brad Kipp / Joseph Hamilton
      +44 (0) 20 7321 3721
      Website: www.africancopper.com
      or
      Numis Securities Limited (NOMAD)
      John Harrison / James Black
      +44 (0) 20 7260 1000
      or
      Parkgreen Communications
      Clare Irvine / Justine Howarth
      +44 (0) 20 7851 7480