African Eagle Resources Regulatory News (AFE)

6 May 2008 12:00

African Eagle Resources PLC06 May 2008 AFRICAN EAGLE RESOURCES plc PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2007 News Report6 May 2008 African Eagle Resources plc ("African Eagle" or "the Company", ticker AIM: AFE,AltX: AEA) today announces its preliminary results for the year ended 31December 2007. The Company's annual consolidated financial statements have, forthe first time, been prepared in accordance with International FinancialReporting Standards ("IFRS") AS adopted by the European Union. The informationin this preliminary announcement has been extracted from the audited financialstatements for the year ended 31 December 2007 and as such, does not contain allof the information required to be disclosed in the financial statements preparedin accordance with IFRS. The Company will publish its full Annual Report andFinancial Statements to shareholders in May. Chairman's Statement Dear shareholder It has been a most significant year for African Eagle on a number of fronts andone which I believe will be recognised in years to come as having been alandmark one for the Company. We have continued our development as adiversified, experienced exploration and emerging mining company, with acompetitive base in stable and highly prospective countries in eastern andsouthern Africa. Highlights of the year included: The completion of the pre-feasibility study on the Mkushi Copper Project whichindicated an initial resource of 10.7Mt at 1.11% copper. At this stage theproject looks highly viable and we are looking forward to the conclusion of theDefinitive Feasibility Study later in 2008 which I hope and expect will increaseboth the size and the grade of the resource. The listing of the Company on the Alternative Exchange of the JSE Limited (JSE)(AltX), in August 2007, which coincided with the placement of stock to the valueof ZAR88M (£6.3M) in South Africa and £1.1M in the UK. This highly successfulsecondary listing was the largest fund-raising by a resources company to date onthe AltX and we were the first resources company to list on this market withoutany assets in South Africa. Around 22% of African Eagle's issued shares are nowheld on its South African register and we believe that about 30% of our sharesare now managed from South Africa. The funds from the placing have securedAfrican Eagle's near-term future and place us in position to progress keyunencumbered projects further than we might have otherwise. The funding of our Ndola exploration by Phelps Dodge (now part of FreeportMcMoRan) through subscriptions for two tranches of shares. Phelps Dodge nowholds around 5% of African Eagle. The introduction of Randgold Resources into the Miyabi project in May and theircommencement of an exploration programme to improve the geological model and toincrease the resource estimate of 500,000 plus ounces we have delineated there.The award of the Mokambo Copper Project licence in September and thecommencement in December of our drilling programme to demonstrate the potentialthat exists in the eastern limb of the Mufulira syncline. In March this year we announced that TWP Finance, a subsidiary of JSE-listedSouth African consulting engineering company, TWP Holdings, an EPCM (EngineeringProcurement Construction Management) company, had acquired a strategic stake inAfrican Eagle, which TWP expect to increase from the current 5% level. TWP hasskills, capabilities and assets which complement our own and we see TWP, as ourrelationship with them grows, as a preferred partner, through projectdevelopment partnerships or via the provision of services by TWP Consulting. Asthis relationship develops we will also seek new joint initiatives. Our listing on the JSE was indeed well timed and beneficial to the Company.While new shareholders may not yet have seen the benefit of this, our shareprice having fallen since August in line with our peers', I am positive that inthe longer-term they will reap the benefits afforded by the injection of capitalthat will give us the ability to weather the current storm in the globalmarkets. Moreover, our substantial cash position will ensure that we arewell-placed to take advantage of acquisition and joint venture opportunitiesthat are likely to arise in a cash-strapped exploration sector over the nextyear or so. We have always encouraged investors to take a longer-term view as we develop anddeliver projects, as we believe that the market will ultimately recognize thevalue of the Company. We consider, however, that our share price performance hasnot reflected either the commodity price rally or the significant progress wehave made in augmenting and developing our portfolio during the year. In respectof the former, while the major gold and copper companies have benefited to somedegree from the gold price rise, this has not flowed through to explorationcompanies as yet, in an apparent disconnect between the value above and thevalue below the ground. There appears, too, to be a widespread lack ofunderstanding of exploration companies and their importance in the developmentand production processes that culminate in the generation of the cash flow sofavoured by the market. We recognise that there is a need for us to delivernear-term cash flow and that is something that we are addressing. Our policy of partnerships remains important to the Company and will continue todeliver significant intrinsic value. By engaging with companies which arewell-placed in terms of skills and experience, financial support and localknowledge, we exert significant leverage to our larger projects, bringing themto fruition on an accelerated time scale. We will continue to developpartnerships with such as those already signed with Freeport McMoRan, CGA Miningand Randgold Resources. I alluded earlier to the Board's recent review of our broad strategy, which cameto the conclusion that there is also significant value to be attained throughthe development, in-house, of high quality, near-to-production projects from ourportfolio. This is particularly so given the skills within our own company andthe fortunate position that we are in, with our partners funding the explorationand development of the larger projects. Thus, we are currently looking closelyat bringing one of our unencumbered projects into production on our own. Whilstit is still early days and no firm decision has been taken, the Mokambo, Rupaand Igurubi projects may have the ability to deliver substantial returns. Theirvalue is also currently overlooked by the market in our resource base. Combined with our own operations, we can also look forward to taking asignificant step towards production at Mkushi in November/December 2008 at theconclusion of the bankable feasibility study, with production expected by thesecond quarter of 2010. We have no reason to believe that the project is notviable and, in anticipation of this, are looking to order or confirm keylong-lead items to ensure a rapid ramp up once the go-ahead decision has beentaken. Two of African Eagle's big advantages are, firstly, the established andexperienced team that we have on the ground in the countries in which we operateand, secondly, the fact that the countries in which we are based - Zambia,Tanzania and Mozambique - generally have good infrastructure and relativelymining-friendly investment regimes. One of the benefits from the former is thenumber of opportunities which are brought to us because our teams havelong-standing relationships in, and knowledge of, the area. We place a great deal of emphasis on the professional development of ourlocally-recruited people, not only to mitigate the global shortage of mining andexploration skills, but also because we have a real interest in the developmentof the countries in which we operate. That said, we are well-resourced with bothgeological and technical skills and are fortunate that many of our employeeshave developed a great loyalty to the group over a long period of time. Much has been made in some quarters about the recent increase of royalties andintroduction of windfall taxes in Zambia. In respect of the former, we arefirmly of the view that the countries and communities that are host to ouroperations need to benefit from the mineral wealth of their countries. Theroyalties that are being imposed in Zambia are not out of line with progressivemining economies elsewhere in the world. In respect of windfall taxes, this issomething that still needs to pan out. While our operations are currently confined to Zambia, Tanzania and Mozambique,we have always said that we are interested in new projects in some other SADCcountries, particularly if we can acquire on-the-ground skills at the same time.We are also conscious of the desirability of increasing our marketcapitalisation to a level that will get us onto the radar screen ofinstitutional investors whose market capitalisation criteria for investeecompanies means that they will not consider us now. Our involvement with TWP, asit grows, may well be the catalyst for just such an expansion of our operatingand corporate foci. Looking to the year ahead, our shareholders should continue to see significantdevelopments from African Eagle. Key among these are likely to be: • Finalisation of the bankable feasibility study at Mkushi and the expectedgo-ahead for this project.• Development of a resource statement for Mokambo.• Positive drilling results from Igurubi, Ndola and Rupa.• Investigation of a possible listing on the Zambian Stock Exchange, which wouldfacilitate the entrance of local investors and partners into the Company andperhaps provide the opportunity to work more closely with local partners.• Progressing African Eagle managed copper and gold projects.• Expansion of our current country, commodity and operational expertise comfortzones. In conclusion, I would like to thank shareholders, new and old, for theirsupport during the year, our partners for their diligent execution ofexploration and development work on our key joint ventures, and our employeesfor their ongoing contribution and loyalty to the Company. John ParkChairmanAfrican Eagle Resources plc Consolidated Income Statement For the year ended 31 December 2007 Year to 31 Year to 31 December December 2007 2006 Note £ £ Depreciation expense (83,023) (68,895)Employee benefits expense (622,395) (501,011)Impairment of deferred exploration expenditure (131,668) (215,201)Other expenses (534,542) (351,708) Operating loss (1,371,628) (1,136,815) Finance costs:Bank interest receivable 216,623 101,266Foreign exchange gain/(loss) 28,137 (263,378) Loss before tax (1,126,868) (1,298,927) Income tax expense - - Loss for the year (1,126,868) (1,298,927) Loss per share:Basic loss per share from total and continuing 1 (0.7p) (1.0p)operationsDiluted loss per share from total and continuing 1 (0.7p) (1.0p)operationsHeadline loss per share from total and 1 (0.6p) (0.8p)continuing operationsDiluted headline loss per share from total and 1 (0.6p) (0.8p)continuing operations Consolidated Balance Sheet At 31 December 2007 Year to 31 Year to 31 December December 2007 2006 Note £ £ ASSETS Non-current assetsProperty, plant and equipment 156,337 153,495Goodwill 2 103,188 106,188Available for sale investments 6,462 10,117Investment in Associates 3 1,809,901 -Deferred exploration costs 2 8,441,854 7,172,869 Total non-current assets 10,517,742 7,442,669 Current assetsOther receivables 383,339 240,466Cash and cash equivalents 7,051,744 2,516,712 Total current assets 7,435,083 2,757,178 Total assets 17,952,825 10,199,847 LIABILITIES Current liabilitiesOther payables (392,628) (180,820) Total liabilities (392,628) (180,820) Net assets 17,560,197 10,019,027 EQUITY Equity attributable to equity holders of parentShare capital 2,123,402 1,478,249Share premium account 19,311,622 11,803,913Merger reserve 705,723 705,723Available for sale revaluation reserve (9,199) (7,929)Foreign currency reserve (1,189,274) (1,471,535)Retained losses (3,382,077) (2,489,394) Total equity 17,560,197 10,019,027 Consolidated Cash Flow StatementFor the year ended 31 December 2007 Year to 31 Year to 31 December December 2007 2006 Note £ £ Cash flows from operating activitiesLoss after taxation (1,126,868) (1,298,927)Adjustments for:Depreciation 83,023 68,895Exchange loss (25) -Profit on disposal of property, plant and (516) (1,615)equipmentInterest received (216,623) (101,266)Impairment of deferred exploration expenditure 131,668 215,201Share based payments 234,185 199,584MCJV - Group share of the loss 4,118 -Impairment of investments for resale 2,335 -Impairment of goodwill 3,000 -Increase in other receivables (135,999) (92,970)Increase in other payables 32,068 12,801 Net cash used in operating activities (989,634) (998,297) Cash flows from investing activitiesPayments to acquire property, plant and equipment (78,280) (20,977)Payments for deferred exploration expenditure (2,775,401) (1,834,550)Proceeds from sale of property, plant and 516 1,615equipmentInterest received 216,623 101,266 Net cash used in investing activities (2,636,542) (1,752,646) Cash flows from financing activitiesProceeds from issue of share capital 8,152,862 4,198,644 Net cash used from financing activities 8,152,862 4,198,644 Net increase in cash and cash equivalents 4,526,686 1,447,701Cash and cash equivalents at beginning of period 2,516,712 1,097,881Exchange gain/(loss) 8,346 (28,870) Cash and cash equivalents at end of period 7,051,744 2,516,712 Notes to the Consolidated Financial StatementsFor the year ended 31 December 2007 1 LOSS PER SHARE Basic Loss Per Share The calculation of basic loss per share is based on the loss for the perioddivided by the weighted average number of shares in issue during the year. Incalculating the diluted loss per share potential ordinary shares such as shareoptions and warrants have not been included as they would have the effect ofdecreasing the loss per share. Decreasing the loss per share would beantidilutive. Loss Per Share 2007 2006 £ £Loss for the period (1,126,868) (1,298,927) Weighted average number of shares in 172,383,883 135,728,466issueBasic & diluted loss per share (0.7p) (1.0p) Headline Loss per share Headline loss per share has been calculated in accordance with the Institute ofInvestment Management and Research's ("IIMR") Statement of Investment PracticeNo. 1 entitled 'The Definition of Headline Earnings' and The South AfricanInstitute of Chartered Accountants Circular 8/2007 entitled 'Headline Earnings'.The calculation of headline loss per share is based on the headline loss for theperiod of £1,028,443 (2006: £1,149,417) divided by the weighted average numberof shares in issue during the year. No diluted headline loss per share has beencalculated as it would be antidilutive by reducing the headline loss per share. Headline Loss 2007 2006 £ £ £ £ Gross Net Gross NetLoss for the period (1,126,868) (1,298,927)Adjusted for: (361) (1,131)Less profit on sale of fixed (516) (1615)assetsPlus impairment of exploration 131668 92,168 215,201 150,641assetsPlus Group share of associate 4,118 2,883 -lossPlus impairment of Goodwill 3,000 2,100 -Plus impairment of available 2,335 1,635 -for sale financial assetsHeadline loss for the period (1,028,443) (1,149,417) Weighted average number of 172,383,883 135,728,466shares in issueBasic & diluted headline loss (0.6p) (0.8p)per shareNet is after the deduction oftax at the UK prevailing rateof 30%. 2 INTANGIBLES The Group 2007 Goodwill on Purchased Deferred Total Consolidation goodwill Exploration costs £ £ £ £ Cost:At 1 January 2007 103,188 3,000 7,172,869 7,279,057Foreign currency exchange differences - - 260,330 260,330Additions - - 2,954,342 2,954,342Transfer to investment in associates (1,814,019) (1,814,019)Impairment costs - (3,000) (131,668) (134,668) At 31 December 2007 103,188 - 8,441,854 8,545,042 The Group 2006 Goodwill on Purchased Deferred Total Consolidation goodwill Exploration costs £ £ £ £ Cost:At 1 January 2006 103,188 3,000 7,169,287 7,275,475Foreign currency exchange differences - - (1,414,516) (1,414,516)Additions - - 1,633,299 1,633,299Transfers - - - -Impairment costs - - (215,201) (215,201) At 31 December 2006 103,188 3,000 7,172,869 7,279,057 Goodwill is reviewed annually for impairment or when changes in circumstancesindicate that the carrying amount of an asset may not be recoverable. Goodwillon consolidation relates to the acquisition of Katanga Resources Ltd in 2002.The goodwill is linked to the recovery of the deferred exploration costs on theKatanga mineral licences. The directors have reviewed the Katanga deferredexploration costs by licence in conjunction with the goodwill on consolidationand believe the goodwill to be fairly valued. Following the incorporation of Mkushi Copper Joint Ventures Ltd the Mkushiexploration licences were transferred to the joint venture company. The Mkushiintangible asset was transferred to investments under non-current assets in theconsolidated balance sheet. 3 SUBSIDARY & ASSOCIATE UNDERTAKINGS During the year Mkushi Copper Joint Ventures Ltd (MCJV) was created in Zambia.This company was established with CGA Mining as part of the Joint Ventureagreement on the Mkushi copper project. Katanga Resources Ltd a fully ownedsubsidiary of the Group holds 49% of the ordinary shares and Seringa Mining Ltda fully owned subsidiary of CGA Mining owns 51% of the ordinary shares. MCJV hasbeen treated as an associate company for purposes of the Group consolidation asthe Group has a significant influence over the financial and operating policydecisions but not control or joint control over those policies. The functional currency for MCJV is US dollars. MCJV have expensed the costsassociated with the Mkushi copper project in the income statement in accordancewith its policy on exploration and evaluation expenditure. The loss reported byMCJV has been restated to reflect the Group policy for treating deferredexploration. The Group share of the adjusted loss is £4,118 which has beenincluded in the Consolidated Income Statement under other expenses with a contraentry to investment in associates. The MCJV year end is the 30 June 2008 but ithas also prepared financial statements for the period ending 31 December 2007 inline with the Group's year end date. The Group's share of the summarised financial information of MCJV is detailedbelow: 2007 £ Total non-current assets 2,354,968Total current assets 35,065Total current liabilities -Total non-current liabilities (2,394,151) Group share of associate net assets (4,118) Group share of associate Loss for the (4,118)year The fair value of the investment in MCJV at the balance sheet date is £1,809,901as detailed below. The Group did not have any contingent liabilities in MCJV. Investment in Associates £ Cost:At 1 January 2007 -Transfer from deferred exploration costs 1,814,019MCJV - Group share of loss (4,118) Carrying amount at 31 December 2007 1,809,901 4. PREPARATION OF NON-STATUTORY ACCOUNTS The financial information set out in this preliminary announcement does notconstitute the Group's statutory accounts for the years ended 31 December 2007or 2006 as defined in section 240 of the Companies Act 1985. The financial information for the year ended 31 December 2006 is derived fromthe statutory accounts for that year which have been delivered to the Registrarof Companies, as subsequently restated under IFRS. The auditors reported onthose accounts; their report was unqualified and did not contain a statementunder s.237(2) or (3) Companies Act 1985. The consolidated balance sheet at 31 December 2007, the consolidated incomestatement, consolidated cash flow statement and associated notes for the yearthen ended have been extracted from the Group's 2007 statutory financialstatements upon which the auditors' opinion is unqualified. 5. PRELIMINARY STATEMENT Copies of the Annual Report will be sent to shareholders in May and will beavailable from the Company at 2nd Floor, 6-7 Queen Street, London, EC4N 1SP. Thefull financial statements will be made available on the Company's websitewww.africaneagle.co.ukat the same time they are mailed to shareholders. For further information, see the Company's web site www.africaneagle.co.uk orcontact one of the following: African EagleBevan Metcalf+44 20 7248 6059 Seymour PierceNicola Marrin+44 20 7107 8000 This information is provided by RNS The company news service from the London Stock Exchange