Altona Energy Regulatory News (ANR)

14 November 2012

Altona Energy Plc

Final Results for the Year to 30 June 2012

Highlights:

·; Key approvals granted by the South Australian Government for the Arckaringa work programme

·; Conditional purchase of a 95% indirect beneficial interest in two advanced coal exploration licences located in the People's Republic of China

·; Agreement with Maison Global to collaborate in the business development of project opportunities in the area of coal and biomass gasification in China

Post year end:

·; Appointment of Parsons Brinckerhoff's Global Mining Business group as Project Management Contractor

Chris Lambert, Chairman of Altona Energy said: "The rationale for building a major strategic fuel and power source for South Australia at the Arckaringa Project remains compelling. Macro economic conditions remain challenging for everyone, but we have put in place a very solid foundation from which to progress this exciting project. We have put in place an agreement to acquire some very significant coal assets in China, which once acquired will not only give the Group much needed access to reliable working capital but also give us even better access to new contacts within China who will be helpful as Arckaringa progresses."

For further information, please visit www.altonaenergy.com or contact:

CHAIRMAN'S & MANAGING DIRECTOR'S STATEMENT

The year to 30 June 2012 was an eventful year for Altona Energy as we progressed our Arckaringa coal-to-liquids ("CTL") project in South Australia and leveraged our China connections to prepare to enter that market directly. We have completed a great deal of vital development and approval work on the 49% owned Arckaringa project, put in place an agreement to conditionally purchase two significant coal projects in China with the potential to give the Company crucial access to early cash flow, and; put in place an agreement with one of the PRC's leading international engineering design, procurement and construction groups to collaborate in the business development of project opportunities in the area of coal and biomass gasification in China.

Despite the very real progress made during the year, there are elements of our projects in Australia and China that are beyond our immediate control, and it is hard to deny that this has been a source of some frustration to the senior management team, and no doubt to shareholders too. Decisions from central and regional government, as well as in large state owned enterprises such as our 51% Arckaringa partners CNOOC-NEI, have been delayed or postponed pending the once in a decade leadership changes announced recently at the 18th Party Congress in Beijing. We expect a return to 'business as usual' now that the new leadership is in place.

Despite these delays, the Altona management team has worked hard to put in place all necessary work - in Australia and in China - to ensure that we are ready to move forward once approvals are received in the case of our application for a Mining Licence in China, and investment decisions taken to proceed to the next project phase at Arckaringa.

Financial Results

The financial loss of the Group for the 12 months ended 30 June 2012 of £1,861,000 (2011: £1,593,000) was in line with expectations and included the benefit during the period of a £50,000 tax credit (2011: £104,000) in respect of research and development costs available to the Group. On 20 February 2012 we placed 20,000,000 new Ordinary Shares at a price of 5 pence and on 8 March 2012 we placed a further 20,000,000 new Ordinary Shares at a price of 5 pence to raise a total of £2million to provide additional working capital.

As at 30 June 2012, the Group had cash of £1,252,000 (2011: £1,563,000). Under the terms of the JV, CNOOC-NEIA, will wholly fund the BFS for the Arckaringa Project up to the budget of A$40million, however the Group will require further funds to meet its operational commitments over the next twelve months, which the Directors are confident of procuring.

Arckaringa

The enormous potential in the CTL market is very well illustrated by the fact that the Arckaringa coal asset in South Australia alone could sustain fuel production of some 330,000 Barrels per Day (BPD), or in other words, the total amount of fuel imported by Australia in 2011, for 70 years.

In terms of progress at Arckaringa, we are pleased with much that we have achieved this year.

We have had key approvals granted by the South Australian Government for the Arckaringa work programme such as the Program for Environment Protection and Rehabilitation ("PEPR") and we have got the water permitting and work area clearance processes under way.

We have received all the necessary regulatory approvals for our test drilling programme from the South Australian authorities, namely the Department of Manufacturing Innovation Trade Resources and Energy (DMITRE) and the SA Arid Lands Natural Resources Management Board (SAALRM) and received a Work Area Clearance from the relevant Native Title Claimant Group (AMYAC).

We have held preliminary discussions with Drilling Contractors with the appropriate expertise to carry out the test drilling program, which includes:

·; Completing hydro-geological test wells to enable refinement of the existing hydro-geological model which underpins the ground water management plan

·; Completing in-fill coal and coal geotechnical boreholes to facilitate the open cut mine design

The Drilling Contractor selected for this test program will have all the necessary previous experience and equipment for drilling in the Permian Coal Measures in South Australia. It is anticipated that the drilling program will commence in the first quarter of 2013 and be completed by the end of the second quarter of 2013. The program will provide us with data to further refine our mine development plan and enable us to finalise our overall project execution strategy.

Finally, we were delighted to be able to recently announce the appointment of Parsons Brinckerhoff's Global Mining Business group to act as our Project Management Contractor to oversee the Arckaringa Mine development and the design and build activities for the project. Their first task will be to assist Altona with the selection of the drilling contractor.

Coal to Liquids in Australia

Australia has clear ambitions to become the leading supplier of LNG in the world, with some AUS$170bn of investment already committed and another AUS$100bn for further LNG investment planned. Indeed, Australian LNG projects under construction now represent more than 70 per cent of all LNG plants under construction globally.

However, a Business Council of Australia report recently noted that resources projects in Australia are 40 per cent more expensive than in the USA, and that the Australian labour-force on such projects is 60 per cent less productive than its US counterparts. And these worrying statistics are only likely to get worse in the medium term, with substantial reductions in US shipping time and costs to Asia when the Panama Canal widening is completed in 2014 which would allow lower cost USA LNG to become commercially available in Australia's prime market.

There may be an alternative solution however: the CTL industry. Coal is cheap to produce, is more predictable than LNG in terms of quality and reserves, and Australia has plenty of it, being the largest exporter in the world.

Coal has always been considered as a polluting source of energy, but now coal gasification is gaining far more friends in the environmental world internationally, for the production of chemicals, electricity and synfuels (coal-based synfuels contain no carcegenes, aromatics or sulphur and minimum particulates). Gasified coal can be converted into Diesel, Naptha, Jetfuel, Methanol, Gasoline, Fertilisers, Petrochemicals and electricity. The by-products are CO2, water and sulphur dioxide (SO2), which can be processed into commercial products. The only effluent is an inert vitrified ash, which is used in construction and for road fill.

It is clear that Australia can establish CTL as a key component in its long term clean energy strategy to provide a reliable and stable source of chemicals, energy and fuels; firstly to meet its own energy needs, and secondly to export to its Asian neighbours. Altona's Arckaringa project continues to be extremely well positioned to be a key part of the CTL story in Australia.

China

The board is fully cognisant that adding a cash generating project to our asset portfolio would help Altona meet its working capital obligations and therefore underpin Altona and our Arckaringa project's future. As a result earlier in the year senior management set about exploring a number of opportunities open to us.

In March, we announced the conditional purchase of a 95% indirect beneficial interest in two advanced coal exploration licences located in the People's Republic of China (PRC). The formal signing process took place at a ceremony held in the presence of high level PRC regional government and industry representatives, where we received very positive support for our development plans.

Since March, the mining licence application, in respect of the first licence, has been submitted to the Chinese authorities. The submission is currently on hold pending completion of the 18th Party Congress, at which point we expect the mining licence application process to continue. In conjunction with this process, the vendor and the board have identified and held preliminary discussions with a number of mine contracting firms. When the conditions for the acquisition are met and the mining licence has been granted, Altona will seek to appoint a contractor to operate the mine, giving us the potential to move this new, significant coal asset rapidly into production.  

Once acquired and fully operational it is expected that the Chinese project will provide a steady source of revenue, profits and cashflow that with time will mitigate the need to raise funds from shareholders and arrest further dilution of existing shareholders. It will also provide us with a stronger platform for Altona's participation in the Arckaringa Project, particularly to cover working capital needs during the Bankable Feasibility Study ("BFS"). This acquisition would also give us the ability to strengthen our shareholder base and by holding income-producing coal assets in China, of the nature and size covered by the Acquisition, enables us to consider, in due course, a dual listing on the Hong Kong Stock Exchange, and the Company has engaged a Hong Kong based corporate advisor to help us evaluate this option.

In April, we were also able to announce an agreement with Maison Global to collaborate in the business development of project opportunities in the area of coal and biomass gasification in China for the production of transportation fuels, energy products and power. Maison Global is one of the PRC's leading international engineering design, procurement and construction groups, with extensive experience in the PRC in coal and biomass gasification projects for the production of transportation fuels and power. Maison Global was founded in 1999 and was one of the first western engineering and construction companies, managed according to international practices, to be established in the PRC.

The combination of Altona's capabilities and its relationships with leading clean energy technology providers is now complemented by a leading Design-Build Contractor in China with successful experience in clean energy projects. The agreement with Maison Global should provide exciting opportunities to collaborate on clean coal project opportunities in China, one of the world's largest markets for clean coal energy.

Outlook

The rationale for building a major strategic fuel and power source for South Australia at the Arckaringa Project remains compelling.

Macro economic conditions remain challenging for everyone, but we have put in place a very solid foundation from which to progress this exciting project. We have in place an agreement to acquire some very significant coal assets in China, which once acquired will not only give the Group much needed access to reliable working capital but also give us even better access to new contacts within China who will be helpful as Arckaringa progresses.

It is true that things have progressed slower than we - and no doubt shareholders - would like. Chinese leadership changes have slowed down our applications with the Chinese system of local government, and some of the actions and decisions from our strategic partner CNOOC-NEI have also been affected by this factor. Whilst adopting a methodical and cautious approach to date, CNOOC NEI remains a great partner for Altona in this project, both in terms of its financial strength and operating knowledge and experience. Ultimately, the reward for Altona shareholders from our partnership with a very large multinational company will be a substantial share of a high quality, long life, world class project.

With all this in mind we would like to thank all those involved in the Company for their hard work as well as you, our shareholders, for your support and patience. We look forward to updating you all on our progress as we move forward.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 30 June 2012

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2012

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 30 June 2012

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the year ended 30 June 2012

The following described the nature and purpose of each reserve within owners' equity:

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

BASIS OF PREPARATION

The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. Both the parent company financial statements and the Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards IFRSs and IFRIC interpretations, issued by the International Accounting Standards Board (IASB) as endorsed for use in the EU ('IFRSs') and those parts of the Companies Act 2006 that are applicable to companies that prepare their financial statements under IFRS.

The financial information for the years ended 30 June 2012 and 30 June 2011 does not constitute statutory accounts as defined by section 435 of the Companies Act 2006 but is extracted from the audited accounts for those years. The 30 June 2011 accounts have been delivered to the Registrar of Companies. The 30 June 2012 accounts will be delivered to Companies House within the statutory filing deadline. The auditor's report on those financial statements was unqualified but did include a reference to the uncertainties surrounding going concern, to which the auditors drew attention by way of emphasis and did not contain a statement under s498 (2) - (3) of Companies Act 2006.

2. REVENUE AND SEGMENTAL INFORMATION

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision‑maker. The chief operating decision‑maker, who is responsible for allocating resources and assessing performance of the operating segment and that make strategic decisions, has been identified as the Board of Directors.

The Group had no operating revenue during the period.

During the year ended 30 June 2012 the Group operated in one segment being the evaluation of the Arckaringa coal and CTL project in South Australia. The Parent Company serves as an administrative head office and is based in the United Kingdom. During the year ended 30 June 2012 the Group's operations spanned three countries, Australia, China and the United Kingdom. Included within the results of the administrative and corporate operations are the results of the Chinese branch. The activity of the Chinese branch does not breach the 10% level required to be separately analysed.

The prior year share based payment charge is included within the UK segment result.

Segment assets and liabilities

Other segment information

3. LOSS PER SHARE

The loss for the period attributed to shareholders is £1,861,000 (2011: Loss £1,593,000).

This is divided by the weighted average number of Ordinary shares outstanding calculated to be 445.2million (2011: 419.4million) to give a basic loss per share of 0.42pence (2011: basic loss per share of 0.38pence).

As inclusion of the potential ordinary shares would result in a decrease in the loss per share they are considered to be anti-dilutive and, as such, the effect of the dilution has not been applied in the calculation. 

4. INTANGIBLE ASSETS

Exploration and evaluation relates to the development of an integrated coal-to-liquid plant and co-generation power facility, supported by an open-cut coal mine at its Arckaringa Project in South Australia. 

5. RELATED PARTY TRANSACTIONS

The Key Management personnel are considered to be the Directors. Details of their remuneration are included in Note 6 to the financial statements.

In the prior year the Group issued Mr Zheng with 2,500,000 fully paid ordinary shares and paid him £100,000 under the success fee agreement entered into between Mr Zheng and the Company. These payments were in respect of milestone achievements which were established in March 2010 when the Company agreed success fees with Mr Zheng, which were contingent in respect of the achievement of the JV and its subsequent progress. Upon satisfaction of the completion of conditions precedent to the JV, Mr Zheng was entitled to receive £100,000 and be issued with 2,500,000 fully paid ordinary shares in the Company, during 2011 the conditions precedent in respect of these two conditions were met and the payments were made. Furthermore in 2010 Mr Zheng was issued with 6,500,000 options, exercisable at 0.1p, of which 3,000,000 vest upon completion of Stage 1 of the BFS and 3,500,000 vest upon completion of Stage 2 of the BFS. Mr Zheng will receive a further £100,000 upon completion of Stage 1 of the BFS and a further £200,000 upon completion of Stage 2 of the BFS. 

During the period, the Company paid £225,000 (2011: £250,000) to CJL Consultants Limited, a company related to Christopher Lambert, for Director Fees. 

During the period, the Group paid £30,000 (2011: £27,000) in respect of Directors fees to Sutherland People Pty limited, a company related to the Group by Phil Sutherland, a common Director, a further amount of £19,243 (2011: £10,000) in respect of consulting services provided to the subsidiary company Arckaringa Energy Pty Limited (2011: £Nil). At 30 June 2012, there was £Nil owing/owed (2011: £Nil).

6. CONTINGENT CAPITAL COMMITMENTS

On 27 June 2012 Altona entered into an agreement to acquire a 95% beneficial interest in two mining licences ("ML1 and ML2") in Xinjiang Autonomous Region of the People's Republic of China. The acquisition is subject to certain conditions being met, which are the conversion of the Exploration Licences ("EL") into a mining licence ("ML"), the transfer of the ML to Altona's designated local subsidiary and, in respect of the option and cash consideration, the attainment of certain net operating profit targets.

The consideration is split into two separate parts, which distinguishes between each EL. Following the conversion of EL1 from an exploration licence into a mining licence ("ML1") the agreement requires that ML1 will be transferred to the Altona Group. 

In respect of EL2 Altona has the option to acquire EL2 and if Altona elects to exercise this option then following the conversion of EL2 from an exploration licence into a mining licence ("ML2") then ML2 will also be transferred to the Altona Group. It is expected that Altona will elect to exercise its option to acquire EL2, should the mining licence be granted.

The entire consideration for each EL is payable under the SPA is contingent on the completion of specific milestones, including the transfer of the ML, into the Altona Group and the consideration can be summarised as follows:

The contingent share consideration

The share consideration is a total of 50,000,000 shares for each of EL1 and EL2 and the settlement of the share consideration is conditional upon the following:

·; conversion of the relevant Exploration Licence to a Mining Licence;

·; transfer of the Mining Licences to the Altona's designated local subsidiary;

Contingent cash consideration

The cash element of the consideration is £3,825,000 for each of EL1 and EL 2 and the settlement of the cash consideration is conditional upon the following:

·; conversion of the relevant Exploration Licence to a Mining Licence;

·; transfer of the Mining Licences to Altona's designated local subsidiary;

·; for each mining licence the attainment of certain Net Operating Profit in each of the first 3 years of operation.

The cash consideration will only be payable out of the net operating profits of each relevant ML utilising operating cash flows received by Altona and subject to the aforementioned conditions and is payable in three instalments over three years, as follows:

·; £1,275,000, on the First Payment Date (15 December 2013);

·; £1,275,000, on the Second Payment Date (15 December 2014); and

·; £1,275,000, on the Third Payment Date (15 December 2015).

The share options

Under the agreement Altona agreed to grant the Seller options to subscribe for 20,000,000 ordinary shares of the company for each of EL1 and EL 2. The 20,000,000 options are structured to vest and become exercisable under the same milestone structure applicable to the cash consideration. The 20,000,000 options are divided into three parcels at respective subscription prices of 10, 15 and 20 pence per share, as below:

The options will only vest and become exercisable once the following conditions have been met in respect of each of the EL's:

·; the conversion of the relevant EL to an ML;

·; transfer of the Mining Licences to the Altona's designated local subsidiary;

·; for each mining licence the attainment of certain Net Operating Profit in each of the first 3 years of operation.

As at 30 June 2012 the Share options in respect of EL1 had been granted on 28 June 2012.

In the event that the Seller fails to procure conversion of EL1 to an ML by 15 December 2012 then the Seller must pay Altona a remedy of £200,000 within 10 business days after receiving a written notice from Altona and either party may terminate the Share Purchase Agreement, the Bonds and the Options.

As at 30 June 2012 the Group had the option to purchase either one or two coal licences in China. The ability to exercise the option rests on matters outside the control of the Company and consequently the Directors have not accounted for any of the potential consideration or obligations under the option agreement within the financial statements. The option consideration in respect of the EL1 options has been given a £Nil valuation because they are considered to be worthless until such time as the company exercises its option to acquire EL1.

7. POST REPORTING DATE EVENTS

There are no post reporting date events to disclose.

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