AAA.L Regulatory News (AAA)

31 Jan 2005 11:13

Adastra Minerals Inc31 January 2005 ADASTRA MINERALS INC. Results for the period ended October 31, 2004 Highlights • Acquired unequivocal title to the Kolwezi Tailings Deposits • Name changed to Adastra Minerals Inc. to reflect better both the company's geographic operations and corporate structure and values • Final phase of Kolwezi Definitive Feasibility Study commenced by GRD Minproc and Murray & Roberts • Environmental and Social Impact Assessment ongoing by SRK of South Africa • Signed Memorandum of Understanding ("MoU") with Umicore to • conclude a long-term supply agreement for cobalt purchases • assist and facilitate the placing of Kolwezi's cobalt production with Umicore's customers • to provide technical assistance to the development of the Kolwezi production facilities. • Industrial Development Corporation of South Africa (IDC) announced decision to exercise option for 10% of Kolwezi tailings project • Recommenced negotiations relating to the Kipushi zinc-copper project • Raised an additional US$5 million of equity capital President's Message to Shareholders Dear fellow shareholders: In 2004, your company became Adastra Minerals Inc. and its ticker symbols onboth the TSX and AIM became AAA. These changes to your company's external facewere timed to coincide with equally radical changes to both its asset base andownership. In May, we received clear and unequivocal title to the enormousKolwezi tailings deposit whilst, over the course of the year, Adastra becamepredominantly owned by European financial institutions. We chose the nameAdastra, derived from the Latin "to the stars", because it aptly reflects theCompany's principal corporate objective of commercializing one of the World'smost significant cobalt and copper resources. It furthermore effectivelyrepresents Adastra's current portfolio of assets and geographic focus. Our twoprincipal assets are both located in the Democratic Republic of Congo (DRC) andthe field of that country's national flag comprises seven stars. Adastra has yetto reach the stars but we are determinedly on our way. In 2004, we achieved the most important corporate objectives set at thebeginning of the fiscal year. In particular, our 82.5% owned subsidiaryKingamyambo Musonoi Tailings SARL, ("KMT") secured unequivocal title to Kolwezi.On November 17, 2003, we announced that the Kolwezi Contract of Association (theshareholders' operating agreement) had been agreed and initialled by Adastra(then America Mineral Fields or AMF), the Government of the DRC and La Generaledes Carrieres et des Mines (Gecamines), the state-owned mining company. Shortlythereafter, in January 2004, the Economic and Finance Committee of theGovernment approved the project. In March of 2004, His Excellency PresidentJoseph Kabila of the Democratic Republic of Congo ("DRC") signed PresidentialDecree No. 04/020, approving the incorporation of KMT, the Congolese operatingcompany that now holds the Kolwezi Tailings Exploitation Permit. Adastraimmediately thereafter signed the Contract of Association, with the Governmentand Gecamines. This agreement, inter alia, set Adastra's shareholding of KMT at82.5%, Gecamines at 12.5% and the DRC Government at 5.0%. The Tailings Exploitation Permit, giving formal title to the project wasreceived by KMT on May 27th 2004. This allowed your company to take severalimmediate and important actions, including: • commissioning the final phase of the Environmental and Social ImpactAssessment (ESIA) from SRK Consulting of South Africa, who earlier performed theEnvironmental Audit and Scoping Study on the project; • issuing a formal tender request for the Definitive Feasibility Study(DFS), and • making an initial payment of US$5.0 million to Gecamines. Under theterms of the Contract of Association, a further payment of US$10 million will bemade to Gecamines once the project is fully funded and a go-ahead decision ismade. As our Chairman, Bernard Vavala, stated when the Contract of Association wassigned the".. acquisition of the Kolwezi project ... fully vindicates the longterm strategy that management has pursued in the DRC, demonstrating that theadherence to ethical and transparent business practices is not an inhibitor togetting deals done in Central Africa." In order to develop Kolwezi in the most time and cost efficient manner,management decided to carry out the DFS, ESIA, metal marketing and projectfinancing in parallel. In August 2004, Adastra awarded the contract for the DFS to a joint venture ofMurray & Roberts and GRD Minproc. The choice was based on the joint venture'sengineering and construction expertise and the extensive experience of its twoconstituent organisations in working on major mining projects in Southern andCentral Africa. It is Adastra's intention to secure a lump sum turnkey contractfrom the joint venture for the development of the Kolwezi project with a fixedprice and appropriate contractor warranties. The DFS will pull together all the technical aspects of the project,incorporating the extensive work that has already been completed, including thedetailed resource definition and the metallurgical test work conducted during a12 month pilot plant programme. As a first stage in the development of the DFS, the joint venture examinedcapital and operating costs for several different levels of production. Thisinformation, in conjunction with analyses of both the cobalt market and theavailability of project finance, has enabled the KMT Board of Directors todetermine the appropriate annual production parameters for the project's firstphase of development. These have now been set at 30,000 tonnes of copper and5,500 tonnes of cobalt annually. We fully recognize, however, that at this levelof output, the Kolwezi resource will have an operating life in excess of 50years. Consequently, it is KMT's corporate objective to bring forward value toits shareholders by increasing production once the first phase has beensuccessfully commissioned and once financial and commercial conditions permit. The DFS, which is expected to be completed in mid 2005, will focus on theoptimisation of the selected metallurgical flow sheet, investigating the bestlogistical approach for construction, and estimating capital and operating coststo within +15% and -5%. Securing title to Kolwezi has also allowed your company to begin the importantwork of negotiating off take agreements for the cobalt and copper we plan toproduce at Kolwezi and securing project financing. To assist with this, Adastrahas retained Rothschild as financial advisor. Rothschild is one of the world'sleading financial advisors to the mining industry and has extensive relevantexperience in Central Africa, which should prove invaluable in structuringlimited recourse finance for the project and all the other complex contractualnegotiations. A key objective will be to put in place a financing structure thatmitigates the equity dilution of existing shareholders. In doing this we will be able to build on a financing base that we have alreadyestablished with two leading international organizations, the IndustrialDevelopment Corporation of South Africa (IDC) and the International FinanceCorporation (IFC), a member of the World Bank Group. The IDC recently announcedits decision to exercise in full its option to earn a 10% equity interest inKMT, subject to the receipt of Exchange Control permission from the SouthAfrican Reserve Bank. The IDC will pay for its shareholding in KMT by meetingall allowable expenditures on the project after the date of exercise until ithas earned its 10% interest. This expenditure is currently estimated atapproximately $5 million. Thereafter, the IDC will meet its share of equityexpenditures on the Project in proportion to its percentage ownership. The IDCwill also pay Adastra $0.6 million as its pro rata share of the $5 millioninitial payment to Gecamines. A further identical option continues to be held bythe IFC and it is our hope that this institution will also elect to exercise itsoption in the near future and in full. In such an event, Adastra's ownership ofKMT would be reduced to 62.5%, the IDC and the IFC would each hold 10%, whilstGecamines and the Government would continue to own 12.5% and 5% respectively.Both the IDC and the IFC are also important potential sources of project debtfinancing. In September 2004, Adastra signed a Memorandum of Understanding ("MoU") withn.v. Umicore s.a. (Umicore), which provides, inter alia, for the negotiation ofa long-term supply contract whereby Umicore will purchase cobalt produced atKolwezi. Umicore is an important producer of high value metal products andenjoys global leadership in the production of cobalt chemicals. Under the MoU,Umicore is also assisting KMT in the placement of Kolwezi's cobalt outputamongst Umicore's own chemical customers, as well as providing importanttechnical assistance to the establishment of a robust cobalt processing facilityat Kolwezi. Umicore continues to hold a 5% interest in Adastra. Kipushi Zinc/Copper Project In August 2004, we recommenced negotiations with Gecamines aimed at finalizing aframework agreement on Kipushi. These negotiations are ongoing with Gecaminesand Kumba and we are hopeful of reaching a conclusion in early 2005. Thestrengthening zinc price over the past 15 months has improved the potentialeconomics of the proposed project and, accordingly, Kumba and Adastra are keento commence the feasibility study. Cuango Diamond Project Unfortunately, Adastra has not enjoyed the same quality of relationship with itslocal partners in Angola as it has with its strategic partners in the DRC. InSeptember we announced that our wholly owned subsidiary IDAS Resources N.V. wascommencing legal proceedings in the United States against Empresa Nacional deDiamantes de Angola ("Endiama"), the state owned diamond company in Angola.IDAS and Endiama signed agreements in 2002 for diamond exploration andexploitation in the Luremo area of Angola. These agreements followed theofficial publication in October 2001 of the Council of Ministers' confirmationof two licences awarded to Endiama with licence rights to be exercised through ajoint venture of Endiama and IDAS. Despite agreed detailed commercial termsand fully drafted documentation, we have been frustrated in our attempts toprogress matters further and Endiama has made it clear that it has repudiatedits contractual obligations. Since our announcement in September, we have "stayed" filing suit, seeking to obtain through senior diplomatic representationsa resolution of this dispute without having to resort to litigation. This hasyet to produce any tangible results, which leaves IDAS with no choice but toseek legal redress. Shareholders In the past eighteen months there has been a fundamental change in the structureof ownership of your company. Prior to the equity offering in September 2003,Adastra was largely owned by individual investors. Now, the majority of theshares are held by investment institutions, predominantly European basedinstitutions. In January 2004, a private placement was made with Prudential M &G of 3.5 million shares. As a result of this placement and subsequent shareacquisitions, Prudential M & G currently owns some 14.9% of the company. Atmuch the same time, it was disclosed that Mr. Jean Raymond Boulle, through hisinvestment offiliates Gondwana (Investments) S.A. and America Diamond Corp. hasreduced his shareholding to 7.7%. Outlook for 2005 and Beyond Adastra intends to sustain the tremendous momentum created during 2004. The ESIAwill be completed by the end of May 2005 and the DFS in mid 2005. Throughout theyear we shall be advancing our commercial negotiations with off-takers for KMT'smetal production, with the engineering contractors for a lump sum turnkey pricefor construction of the production facilities, and with the financialinstitutions for limited recourse project finance. The confluence of all theseevents should hopefully permit financial close by the end of calendar 2005 andthe start of project construction in the early part of 2006. On this basis,initial production from Kolwezi is expected in late 2007. On behalf of the Board of Directors I would thank and congratulate the Adastraemployees for all their hard work in this year of achievement. This current yearwill be one of considerable challenge but ultimately it holds the prospect for asuccessful culmination for all the patience and commitment demonstrated byshareholders, directors and employees alike in previous years. Yours truly, Tim ReadDirector, President and Chief Executive Officer Contact Information Head OfficeAdastra Minerals Inc.St. George's House15 Hanover SquareLondon W1S 1HSTel: (44) 20 7355-3552Fax: (44) 20 7355-3554 Investor RelationsMartti KangasSenior Vice PresidentThe Equicom Group20 Toronto Street, Suite 530Toronto, OntarioM5C 2B8Tel: (416) 815-0700 x. 243Fax: (416) 815-0080www.equicomgroup.com Media and Public RelationsCathy MalinsAccount ManagerParkgreen Communications1st Floor, Ireland House,150 New Bond Street,London, W1S 2AQTel: (44) 20 7493-3713Fax: (44) 20 7491-3936 ADASTRA MINERALS INC. (Formerly America Mineral Fields Inc.) Consolidated Balance Sheets (Expressed in United States dollars) October 31, 2004 and 2003 2004 2003 Assets Current assets: Cash and cash equivalents $ 16,264,314 $ 19,267,489 Amounts receivable and prepaid expenses 403,220 288,897 16,667,534 19,556,386 Equipment (note 3) 84,609 25,709 Mineral properties (note 4) 12,129,625 2,483,404 Mineral property evaluation costs (note 5) 4,397,126 4,331,137 $ 33,278,894 $ 26,396,636 Liabilities and Shareholders' Equity Current liabilities Accounts payable and accrued liabilities $ 1,553,688 $ 927,166 Non-controlling interest 8,750 - Shareholders' equity: Share capital (note 6) 67,069,511 59,293,827 Contributed surplus (note 6(e)) 4,776,785 2,095,310 Deficit (40,129,840) (35,919,667) 31,716,456 25,469,470 $ 33,278,894 $ 26,396,636 ADASTRA MINERALS INC. (Formerly America Mineral Fields Inc.) Consolidated Statements of Operations and Deficit (Expressed in United States dollars) Years ended October 31, 2004, 2003 and 2002 2004 2003 2002 Administration costs: Amortization $ 14,538 $ 17,065 $ 31,550 Bank charges and interest 5,154 5,781 7,027 Investor relations 326,860 196,929 115,669 Office and administration 372,510 321,650 284,909 Professional fees 290,033 372,336 306,560 Regulatory authorities filing fees 134,339 15,600 12,010 Salaries and wages 910,012 887,739 814,114 Stock-based compensation (note 6(d)) 3,004,106 1,870,310 - Transfer agent 15,217 11,528 12,005 Travel and accommodation 22,582 33,530 106,681 5,095,351 3,732,468 1,690,525 Other: Interest income (364,569) (20,672) (27,380) Gain on sale of property, plant and - (375) (10,646) equipment Other income - (5,000) (20,000) Write-down of mineral properties (note - - 1,824,127 4(c)) Write-down of accounts receivable - - 5,799 Mineral property evaluation costs 906 4,021 45,151 Foreign exchange loss (gain) (521,515) (171,863) 25,498 (885,178) (193,889) 1,842,549 Loss for the year (4,210,173) (3,538,579) (3,533,074) Deficit, beginning of year (35,919,667) (32,381,088) (28,848,014) Deficit, end of year $ (40,129,840) $ (35,919,667) $ (32,381,088) Basic and diluted loss per share $ (0.06) $ (0.10) $ (0.11) Weighted average number of common shares outstanding 68,690,978 37,116,816 32,119,742 ADASTRA MINERALS INC. (Formerly America Mineral Fields Inc.) Consolidated Statements of Cash Flows (Expressed in United States dollars) Years ended October 31, 2004, 2003 and 2002 2004 2003 2002 Cash provided by (used in): Operations: Loss for the year $ (4,210,173) $ (3,538,579) $ (3,533,074) Items not involving cash: Amortization 14,538 17,065 31,550 Gain on disposal of equipment - (375) (10,646) Stock-based compensation 3,004,106 1,870,310 - Write-down of mineral properties - - 1,824,127 Write-down of accounts receivable - - 5,799 Changes in non-cash operating working capital: Decrease (increase) in amounts receivable (89,014) and prepaid expenses (114,323) 121,981 Increase (decrease) in accounts payable 609,886 and accrued liabilities 626,522 (340,011) (679,330) (1,130,707) (1,900,274) Investments: Purchase of equipment (78,659) (10,755) (6,730) Proceeds on sale of equipment - 375 12,176 Expenditures on mineral properties (9,415,523) (1,647,028) (1,637,721) Proceeds on sale of mineral properties - - 275,000 Expenditures on mineral property evaluation (65,486) (60,065) (108,109) costs, net (9,559,668) (1,717,473) (1,465,384) Financing: Issue of share capital for cash, net 7,227,073 20,050,449 - Investments by non-controlling 8,750 - - interests 7,235,823 20,050,449 - Increase (decrease) in cash (3,003,175) 17,202,269 (3,365,658) Cash, beginning of year 19,267,489 2,065,220 5,430,878 Cash, end of year $ 16,264,314 $ 19,267,489 $ 2,065,220 Cash is defined as cash and cash equivalents and joint venture cash and cash equivalents. Supplementary information: Interest received, net $ 364,569 $ 20,672 $ 27,380 Warrants and stock-based compensation issued for mineral property consulting (note 6(e)), being a non-cash financing 225,980 225,000 - and investing activity 11. Reconciliation to United States generally accepted accounting principles ("US GAAP"): These financial statements have been prepared in accordance with accounting principles generally accepted in Canada ("Canadian GAAP"). A reconciliation of material measurement differences under US GAAP or from practices prescribed by the Securities and Exchange Commission ("SEC") follows: (i) Assets: 2004 2003 Assets, under Canadian GAAP $ 33,278,894 $ 26,396,636 Adjustment for mineral properties and mineral property evaluation costs (16,526,751) (6,814,540) Assets, under US GAAP $ 16,752,143 $ 19,582,096 (ii) Share capital and contributed surplus: 2004 2003 Share capital and contributed surplus, under Canadian GAAP $ 71,846,296 $ 61,389,137 Adjustment for stock-based compensation (a) (3,702,234) (836,537) Adjustment for escrow shares (a) 1,593,989 1,593,989 Share capital and contributed surplus, under US GAAP $ 69,738,051 $ 62,146,589 (iii) Deficit: 2004 2003 Deficit, under Canadian GAAP $ (40,129,840) $ (35,919,667) Adjustment for stock-based compensation (a) 3,702,234 836,537 Adjustment for escrow shares (a) (1,593,989) (1,593,989) Adjustment for mineral properties and mineral (16,526,751) (6,814,540) property evaluation costs (c) Deficit, under US GAAP $ (54,548,346) $ (43,491,659) (iv) Loss and loss per share for the year: Years ended October 31, 2004 2003 2002 Loss for the year, under $ (4,210,173) $ (3,538,579) $ (3,533,074) Canadian GAAP Adjustment for stock-based compensation (a) 2,865,697 1,042,090 - Adjustment for mineral properties and mineral property (9,712,210) (1,945,637) 1,214,982 evaluation costs (c) Loss for the year, under US $ (11,056,686) $ (4,442,126) $ (2,318,092) GAAP Basic and diluted loss per share, $ (0.16) $ (0.12) $ (0.07) under US GAAP Weighted average number of common shares outstanding 68,690,978 37,116,816 32,119,742 (v) Cash used in operating activities: Years ended October 31, 2004 2003 2002 Cash used in operating activities, under Canadian $ (679,330) $ (1,130,707) $ (1,900,274) GAAP Mineral properties and mineral property evaluation costs (c) (9,481,009) (1,707,093) (1,470,830) Cash used in operating activities, under US GAAP $ (10,160,339) $ (2,837,800) $ (3,371,104) (vi) Cash used in investing activities: Years ended October 31, 2004 2003 2002 Cash used in investing activities, under Canadian GAAP $ (9,559,668) $ (1,717,473) $ (1,465,384) Mineral properties and mineral property evaluation costs (c) 1,707,093 1,470,830 9,481,009 Cash provided by (used in) investing activities, under US $ (78,659) $ (10,380) $ 5,446 GAAP This information is provided by RNS The company news service from the London Stock Exchange