Atalaya Mining Regulatory News (ATYM)

13 Feb 2006 15:16

Eastern Mediterranean Res. Pblc LD13 February 2006 Eastern Mediterranean Resources1, Lambousa StreetNicosia 1095, CyprusTel: +357 2244 2705Fax: +357 2242 1956Company Reg No : 152217 AIM: EMED 13 February 2006 Eastern Mediterranean Resources Public Limited ("EMED" or "the Company") Financial Results for the Period to 31 December 2005 Eastern Mediterranean Resources Public Limited ("EMED") announces auditedfinancial results for the period from 17 September 2004 to 31 December 2005.Copies of the annual report are being posted today to shareholders and is alsoavailable via EMED's website, www.emed-resources.com Highlights for 2005 Corporate • Formed a highly qualified and experienced exploration team, with an appropriate blend of local and international expertise; • Established headquarters in Cyprus, centrally located in the Company's area of interest; • Diversified its exploration portfolio into three zones within its area of interest; • Raised a net £1.8 million through a placing of ordinary shares on admission to AIM market of London Stock Exchange in May 2005; • Cash of £1 million as at 31 December 2005; and • Market capitalisation of £5 million as at 31 December 2005. Operational • Established quality exploration portfolios in three prospective regions (Cyprus/Middle East, Caucasus and Eastern Europe) within six months of listing on AIM in May 2005; • In Cyprus, initial drilling intercepted significant alteration with disseminated copper mineralisation at the North Alestos prospect, typical of the stockwork zone of a Cyprus-style copper deposit; • In the Caucasus, EMED acquired 80% of the Zopkhito and Lukhra prospects in Georgia, which contain resources close to 2 million ounces of gold; and • In Slovakia, there have been encouraging initial drilling results for gold and work has been completed to delineate further target areas for drilling at the Stiavnica-Hodrusa District. Post period-end events • Identified area highly anomalous in gold at Zlatniky in Slovakia . • Established through positive drilling results in Cyprus that copper deposits of more than 10 million tonnes are likely to be held within the strong alteration zone at North Alestos. Mr Anagnostaras-Adams, EMED's Managing Director, said: "EMED has made rapidprogress over its first year as a company and now has the momentum it needs toadvance the exciting opportunities within the exploration portfolio during 2006.We have been pleased with the numerous exploration opportunities in our regionof interest and are confident our strategy will succeed." -Ends- For further information please contact: Eastern Mediterranean Resources Nabarro Wells Parkgreen CommunicationsHarry Anagnostaras-Adams Nigel Atkinson / Justine Howarth / David Nabarro Ana Ribeiro+357 9945 7843 +44 (0) 20 7710 7400 +44 (0) 20 7493 3713www.emed-resources.comwww.emed.tv Managing Director's Statement and Financial Results follow Managing Director's Statement Eastern Mediterranean Resources Public Limited ("EMED") has made rapid progressduring 2005, the Company's first year of operation. Our aim is to add value to our projects and create wealth for our stakeholdersthrough the cost-effective acquisition or discovery and subsequent developmentof mineral resources. EMED's reconnaissance and prospecting activities are advancing throughoutEastern Europe, the Caucasus and the Middle East, pursuing specific belts ofmineralisation. The Group is operated and administered from Cyprus, being the centre of itsregion of interest. Cyprus is also advantageous for EMED because of itsEnglish-based legal system and beneficial taxation regime. The Company is developing a balanced portfolio of geographically diverseopportunities across a range of countries. The targeted belts host many pastcentres of mining and widespread areas of known mineralisation including anumber of styles of base metal and precious metal deposits, especiallyepithermal gold, porphyry copper-gold and volcanogenic hosted massive sulphides("VHMS") copper-gold. Strategy The key components of the Group's regional strategy are: • to focus on demonstrably well-endowed areas and apply modern scientific techniques; • to use relationships in the region to provide a high level of technical, political and other expertise; • to demonstrate a commitment to the region by being headquartered in Cyprus and establishing offices near the geographic centre of each prospect portfolio; and • to integrate the practical experience gained in one of the world's leading metal-producing countries, Australia, with local geological expertise in each country where the Group is active. Prospects are prioritised for consideration on the following basis: • a history of previous production or exploration; • the opportunity for the Group to apply the most up to date exploration techniques; and • the potential to recover at least 150,000 tonnes of copper or 1 million ounces of gold. The Company established quality exploration portfolios in three prospectiveregions within six months of listing on AIM. This rapid progress reflects theextent of EMED's research prior to listing on AIM and also reflects theeffectiveness of EMED's teams in the various countries in which the Company isnow conducting reconnaissance. EMED's diversified exploration portfolio affords the Company with valuableflexibility and mitigates against excessive sovereign risk on an aggregatebasis. Exploration Progress In Cyprus, EMED has delivered on the timetable and budget as detailed in itsAdmission Document to AIM. Exploration activities during 2005 culminated in theCompany's first drilling program discovering an extensive alteration zonetypical of stockwork mineralisation near a VHMS copper orebody. VHMS deposits are suited to detection by geophysical methods. EMED is the firstcompany to utilise modern geophysical techniques to systematically explore theTroodos Complex for concealed copper-gold deposits beneath relatively shallowcover rocks. The techniques being applied by our team in Cyprus are alsoapplicable to parts of the Middle East where EMED is evaluating opportunities. In the Caucasus, EMED has acquired advanced gold projects in Georgia, with theZophkito prospect alone containing resources totalling (Russian classification)close to 2 million ounces of gold. In Eastern Europe, EMED's exploration licences and applications are centred on acluster of volcanic centres in Slovakia and Hungary. Low-detection geochemicalmethods are being applied to these areas for the first time. The targetedmineralisation styles are high-grade epithermal gold, or bulk-mineableepithermal gold and porphyry gold/copper. Management EMED's approach is to combine international and local expertise and therebyestablish an effective organisation culture appropriate to the Group's area ofinterest. A highly qualified management team has been assembled. When EMEDacquires significant exploration interests in a country, then a Country Managerwith local operating experience is appointed. The core exploration team comprises five experienced exploration managers basedin Cyprus who support and work with colleagues and advisers, most of whom arebased in the respective countries. The team combines local experts withpractitioners experienced in discovery, development and mining from thewell-established natural resources sector in Australasia. Whilst the Group'sarea of interest has professionals with excellent geological expertise and hostsa significant mineral endowment, it generally lacks the modern mining expertisethat is abundant in Australasia. The Directors and the Group's senior management have extensive experience inexploration, development, financing and operation of natural resources projectsin Australasia and many other countries. Outlook for 2006 The Company has made significant progress in establishing its projects,strengthening its management and field teams and has rapidly overcome theexpected difficulties during startup. The Company's exciting portfolio of prospects on the books and the quality ofopportunities in the pipeline indicates that rapid progress will continue in theyear ahead. The strategic objectives for 2006 are to: • Establish large mineral resources in each of our 3 core zones:, Cyprus/ Middle East, Caucasus and Eastern Europe; • Continue to build the depth of our key long-term asset, our human resources; and • Expand the capital base to match the exploration portfolio as results and opportunities warrant. Finance Overview This is EMED's first annual report and should be read in conjunction with theCompany's AIM Admission Document. EMED was incorporated in Cyprus in September 2004 and listed on AIM in May 2005.This followed the successful initial public offering of 28,155,555 shares at 8pto raise £2.25 million gross or £1.8 million net. The capital base will be expanded in due course as warranted by the results ofexploration and prevailing financial market conditions. To mitigate againstexcessive financial risk on an aggregate basis, any of EMED's projects can bedropped by the Company at its discretion and without penalty. As at 31 December 2005, EMED had net working capital of £886,344. Sinceincorporation in September 2004, EMED has incurred exploration expenditure of£1,120,647 and net operating expenditure of £436,555. EMED has taken a conservative approach in its accounting policy towardsexploration expenditure - all such expenditures are written off on acquisitionor when incurred. This policy is a major factor in EMED recording a net loss for the period of£2,142,501 after minority interests. This loss is after having taken intoaccount a £585,299 write-off of goodwill relating to the acquisition of 95% ofEastern Mediterranean Minerals (Cyprus) Limited. Operations Review During 2005, EMED established itself in the following three regions within itsarea of interest: • Cyprus/Middle East. Exploration is currently focused on the Troodos ophiolite complex in Cyprus where the targeted mineralisation style is high-grade VHMS copper deposits under shallow cover rocks. • Caucasus. Advanced exploration areas and options over additional prospects form a cluster of gold prospects in and around Georgia. The main prospect is Zophkito with resources (Russian classification) of 2 million ounces of gold (80% EMED). The exploration focus is on gold in heavily mineralised locations where gold was not actively explored for during the Soviet era. • Eastern Europe. Exploration areas are centred on a cluster of volcanic centres in Slovakia and Hungary. Low-detection geochemical methods are being applied to these areas for the first time. The targeted mineralisation styles are high-grade epithermal gold, or bulk-mineable epithermal gold and porphyry copper-gold. Detailed announcements will be made with respect to each region as and whenrequired. Full announcement is available on the Company's website: www.emed-resources.com Harry Anagnostaras-Adams +357 9945 7843 Directors' Report The Board of Directors presents its report for Eastern Mediterranean ResourcesPublic Limited ("EMED") and its subsidiaries (the "Group") together with thefinancial statements of the Group for the period ended 31 December 2005. Incorporation and Principal Activity EMED was incorporated in Cyprus on 17 September 2004 as a private company withlimited liability under the Companies Law of Cyprus, Cap. 113 and was convertedto a public limited liability company on 26 January 2005. Its registered officeis at 1 Lambousa Street, Nicosia, Cyprus. The Company was listed on theAlternative Investment Market ("AIM") of the London Stock Exchange in May 2005.This followed the successful initial public offering of 28,155,555 shares at 8pto raise £2.25 million and seed capital raisings of £0.5 million in late 2004. The Company changed its name to, firstly, Mediterranean Minerals Public Limitedon 1 March 2005 and subsequently, to Eastern Mediterranean Resources PublicLimited on 11 March 2005. The principal activity of the Group is to explore for and develop naturalresources, with a focus on base and precious metals in the regions of Centraland Eastern Europe, Western Asia and the Middle East. Review of Operations This is EMED's first annual report. The Group's inaugural project was in Cyprus and was initiated through theacquisition of 95% of Eastern Mediterranean Minerals (Cyprus) Limited, asubsidiary of Oxiana Limited. This company originally held some 88 km2 ofgranted and applied-for prospecting permits in Cyprus. The Group subsequentlyexpanded the Cyprus holdings and completed initial drilling. During the year the Group also expanded its interests to include an 80% share inthe Zopkhito and Lukhra prospects in Georgia together with options over twoother Georgian gold prospects. The Group also acquired three selectedexploration licenses in Turkey, submitted applications and acquired a number ofexploration licenses in Slovakia, Bulgaria, Georgia and Greece. The group's future operational success depends, mainly, on the followingfactors: • The discovery of economically viable mineral deposits and the availability of subsequent funding to extract the resource; and • The availability of subsequent funding to extend the Company's exploration activities. Results As at 31 December 2005, EMED had net working capital of £886,344. Sinceincorporation in September 2004, EMED has incurred exploration expenditure of£1,120,647 and net operating expenditure of £436,555. EMED has taken a conservative approach in its accounting policy towardsexploration expenditure - all such expenditures are written off on acquisitionor when incurred. This policy is a major factor in EMED recording a net loss for the period of£2,142,501 after minority interests. This loss is after having taken intoaccount the write-off of goodwill as a result of the acquisition of thesubsidiary, Eastern Mediterranean Minerals (Cyprus) Limited, by EMED: - Goodwill on acquisition cost to EMED of historical exploration costs of Eastern Mediterranean Minerals (Cyprus) Limited £585,299 - Exploration Expenditure to 31 December 2005 £1,120,647 - Net Operating Expenditure for the period £436,555 - Loss for the period £2,142,501 The Group's results for the period are set out on page 19. Authorised share capital Under its Memorandum of Association, the Company fixed its share capital at1,000 ordinary shares of nominal value of CY£1 each. On 14 December 2004, the Company passed the following special resolutions: (a) That the authorised and issued share capital of the Company be expressed inSterling Pounds, so that the current authorised and issued share capital ofCY£1,000 which is divided into 1,000 shares of CY£1 each, will become GBP1,200divided into 1,200 shares of GBP1 each. (b) That the authorised share capital of the Company be increased from GBP1,200divided into 1,200 shares of GBP1 each, to GBP250,000 divided into 250,000shares of GBP1 each. (c) That the authorised share capital of the Company, of GBP250,000 divided into250,000 shares of GBP1 each, be subdivided into 100,000,000 shares of GBP0.0025each. Issued share capital Upon incorporation on 17 September 2004 the Company issued to the subscribers ofits Memorandum of Association 1,000 ordinary shares of CY£1 each at par. On 14 December 2004, the Company passed the following special resolutions: (a) That the issued share capital of the Company be expressed in SterlingPounds, so that the current issued share capital of CY£1,000 which is dividedinto 1,000 shares of CY£1 each, will become GBP1,200 divided into 1,200 sharesof GBP1 each. (b) That the issued share capital of the Company, of GBP1,200 divided into 1,200shares of GBP1 each, be subdivided into 480,000 shares of GBP0.0025 each. On 20 December 2004, the Company passed the following special resolution: That the issued share capital of the Company be increased from GBP1,200 toGBP11,200 divided to 4,480,000 shares of GBP0.0025 each by the issue of4,000,000 additional shares. On 25 January 2005, the Company passed the following special resolution: That the issued share capital of the Company be increased from GBP11,200 toGBP18,000 divided to 7,200,000 shares of GBP0.0025 each by the issue of2,720,000 additional shares. On 28 February 2005, the Company passed the following special resolution:- That the issued share capital of the Company be increased from GBP18,000 toGBP28,000 divided to 11,200,000 shares of GBP0.0025 each by the issue of4,000,000 additional shares at the price of GBP0.05. Upon the issue an amountof GBP190,000 was credited to the Company's share premium reserve. On 18 March 2005, the Company passed the following special resolution:- That the issued share capital of the Company be increased from GBP28,000 toGBP56,000 divided to 22,400,000 shares of GBP0.0025 each by the issue of 800,000shares at par and 10,400,000 shares at GBP0.05. Upon the issue an amount ofGBP494,000 was credited to the Company's share premium reserve. On admission of the Company to AIM on 9 May 2005, 28,155,555 shares were issuedat the price of GBP0.08. Upon the issue an amount of GBP2,182,055 was creditedto the Company's share premium reserve. On admission of the Company to AIM on 9 May 2005, 5,000,000 shares were issuedto Oxiana Europe Ltd at the price of GBP0.08 as part of the consideration dueunder the agreement to acquire Eastern Mediterranean Minerals (Cyprus) Limited.Upon the issue an amount of GBP387,500 was credited to the Company's sharepremium reserve. On 1st August 2005, it was resolved that 1,000,000 shares of GBP 0.0025 beissued at the price of GBP 0.10. Upon the issue an amount of GBP 97,500 wascredited to the Company's share premium reserve. Board of Directors The members of the Board of Directors of the Company as at 31 December 2005 andat the date of this report are listed below. In accordance with the Company'sArticles of Association all directors presently members of the Board continue inoffice. The Board comprises four Directors. Gordon Toll, BE Mining (Hons) MS Business Non-Executive Chairman, Australian Citizen based in the United Kingdom, Age 58 Mr. Toll has worked as a mining engineer and mining company executive for 36years including significant periods with BHP Billiton Ltd, ARCO Coal Inc. andRio Tinto Plc. Most recently he spent 9 years with Ivanhoe Mines Inc. as DeputyChairman and retired from this position in December 2004. He is Chairman of Compass Resources NL, Fortescue Metals Group Ltd, LinQResources Fund Ltd and a non-executive director of Avocet Mining Ltd. Mr Tollhas an Honours Degree in Mining Engineering from the University of Queenslandand Masters Degree of Science in Business from the Graduate School of Business,Columbia University, New York. Aristidis (Harry) Anagnostaras-Adams, B. Comm , MBA Managing Director, Australian Citizen based in Cyprus, Age 50 Mr Anagnostaras-Adams was born in Egypt as a Greek Citizen and adoptedAustralian citizenship where he was raised and became known as Harry Adams. Hehas served as Deputy Chairman of the Australian Gold Council, is a Fellow of theAustralian Institute of Management and of the Australian Institute of CompanyDirectors. In January 2005 he moved to Europe to lead EMED. His experience inthe past 25 years has been as Managing Director of Gympie Gold Ltd, ExecutiveDirector of investment company Pilatus Capital Ltd, General Manager of resourcesinvestment group Clayton Robard Limited Group and Senior Investment Manager ofCiticorp Capital Investors Australia Ltd. and as a non-executive Director ofmany other companies. Mr Anagnostaras-Adams has a Bachelor of Commerce (in Systems and Finance) fromthe University of New South Wales. He qualified as a Chartered Accountant whileworking with Price Waterhouse Coopers and has a Master of BusinessAdministration from the Australian Graduate School of Management. Ronald (Ronnie) Beevor, BA (Hons) Non-Executive Director, British and Australian Citizen based in Australia, Age58 Mr Beevor is a former investment banker and was Head of Investment Banking at NMRothschild & Sons (Australia) Limited. He has had an extensive involvement withthe natural resources industry, both in Australia and internationally. He is a non-executive director of Bendigo Mining Limited, Oxiana Limited andQMAG Limited and Chairman of Northern Gold NL. Mr Beevor has an Honours Degreein Philosophy, Politics and Economics from Oxford University and qualified as achartered accountant in London in 1972. Andreas Panayiotou, M.Sc., Ph.D Non-Executive Director, Cypriot Citizen based in Cyprus, Age 66 Dr Panayiotou, a geologist, is former Minister of the Interior in the Republicof Cyprus and before that Head of the Natural Resources Sector of the Ministryof Agriculture, Natural Resources and Environment. He has published more than 30 papers in scientific books and journals aboutgeology, mineral and water resources and served as Chairman of many committees,companies and other organisation. He is also a non-executive director ofHellenic Technical Enterprises Ltd and is Chairman of the Hellenic Bank PublicCo. Ltd and Executive Chairman of Vassiliko Cement Works Public Co. Ltd. Dr Panayiotou has a Degree (First Class Honours) in Natural Science andGeography from the University of Athens, Greece, a Master of Science in MiningGeology - Mineral Exploration - Economic Geology from the Imperial College ofScience and Technology, London and a Ph. D from the University of New Brunswick,Canada. Directors Interests The interests of the Directors and their immediate families (all of which arebeneficial unless otherwise stated) and of persons connected with them in theExisting Ordinary Shares as at the date of this document are as follows: Name Number of Existing % of Issued Share Ordinary Shares '000 Capital Harry Anagnostaras-Adams 4,800 8.5%Ronnie Beevor 3,959 7.0%Andreas Panayiotou nilGordon Toll 2,150 3.8% The Directors to whom options over Ordinary Shares have been granted and thenumber of Ordinary Shares subject to such Options are as follows: Name Number of Grant Date Exercise Price Expiration Date Ordinary Shares under option '000 Gordon Toll 1,250 9 May 2005 8p 9 May 2011Harry Anagnostaras-Adams 5,000 9 May 2005 8p 9 May 2011Ronnie Beevor 1,250 9 May 2005 8p 9 May 2011Andreas Panayiotou 625 9 May 2005 8p 9 May 2011 The options expire six years after grant date and are exercisable at theexercise price in whole or in part no more than one third after one year fromthe grant date, two thirds after two years from the grant date and the balanceafter three years from the grant date. Corporate Governance The Directors are aware of the Combined Code 2003 applicable to listedcompanies. The Directors note that as an AIM company there is no requirement toadopt the Combined Code. The Directors intend to comply with its mainprovisions as far as is practicable having regard to the size of the Group. Theboard remains accountable to the Company's shareholders for good corporategovernance. The Board of Directors The Company supports the concept of an effective Board leading and controllingthe Company. The Board is responsible for approving Company policy and strategy.It meets at least every three months and is supplied with appropriate and timelyinformation and the Directors are free to seek any further information theyconsider necessary. All Directors have access to advice from the CompanySecretary and independent professionals at the Company's expense. Training isavailable for new Directors and other Directors as necessary. A number of theGroup's key strategic and operational decisions are reserved exclusively for thedecision of the Board. The Board consists of one executive director who holds a key operationalposition in the Company (the Managing Director) and three non-executiveDirectors, who bring a breadth of experience and knowledge, all of whom areindependent of management and any business or other relationship which couldinterfere with the exercise of their independent judgment. The Board regularlyreviews key business risks including the financial risks facing the Group in theoperation of its business. The Company has adopted a model code for Directors' dealings which isappropriate for an AIM listed company. The Directors intend to comply with Rules21 and 31 of the AIM Rules relating to Directors' dealings and will take allreasonable steps to ensure compliance by the Group's applicable employees aswell. Board Committees An Audit Committee, comprising two non-executive Directors, has been establishedby the Company. The Audit Committee is chaired by Mr Ronald Hugh Beevor andmeets at least twice each year. The Audit Committee is responsible for ensuringthat appropriate financial reporting procedures are properly maintained andreported on and for meeting with the Group's auditors and reviewing theirreports on the accounts and the Group's internal controls. The Company has in addition established a Remuneration Committee, comprising twonon-executive Directors. The Remuneration Committee is chaired by Mr GordonLeonard Toll. The Remuneration Committee is responsible for reviewing theperformance of the executives, setting their remuneration, determining thepayment of bonuses, considering the grant of options under any share optionscheme and, in particular, the price per share and the application ofperformance standards which may apply to any such grant. The Company has also established a Physical Risks Committee, comprising twonon-executive Directors. The Physical Risks Committee is chaired by Dr AndreasPanayiotou and is responsible for reviewing the compliance with regulatory andindustry standards for environmental performance and occupational health andsafety of personnel and the communities affected by the Company. Board performance In future the Board intends to conduct a formal process to evaluate itseffectiveness and that of the Board committees and individual Directors. EachDirector's performance will be appraised by the Chairman reflecting input fromthe other Directors: the senior non executive director will appraise theChairman's performance on the same basis. This evaluation process will takeplace annually and aims to cover board dynamics, board capability, boardprocess, board structure, corporate governance, strategic clarity and alignmentand the performance of individual Directors. Future Developments The strategic objectives for 2006 are to: • Establish large mineral resources in the Group's three core zones: Cyprus/Middle East, Caucasus and Eastern Europe; • Continue to build the depth of our key long-term asset, our human resources; and • Expand the capital base to match the exploration portfolio as results and opportunities determine. In Cyprus, exploration during 2006 is anticipated to include, among otherinitiatives, further ground geophysics and detailed geological mapping andfollow-up drilling at North Alestos. The Group will continue its push into theCaucausus and will be selecting the best target areas for further evaluation. InEastern Europe the Group will select the best target areas for furtherexploration and drill as soon as targets are sufficiently defined. Directors' responsibilities for the financial statements Cyprus company law requires the Directors to prepare financial statements foreach financial year which give a true and fair view of the state of affairs ofthe Company and of the Group and of the profit or loss of the Group for thatperiod. In preparing those financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • make judgments and estimates that are reasonable and prudent; and • state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements. The Directors are responsible for maintaining proper accounting records, forsafeguarding the assets of the Group and for taking reasonable steps for theprevention and detection of fraud and other irregularities. Legislation in theCyprus governing the preparation and dissemination of the financial statementsmay differ from legislation in other jurisdictions. Subsequent Events No events have arisen since the end of the financial year that havesignificantly affected the operations of the Group. Auditors The auditors, MOORE STEPHENS STYLIANOU & CO, have expressed their willingness tocontinue in office and a resolution giving authority to the Board of Directorsto fix their remuneration will be proposed at the Annual General Meeting. By Order of the Board Inter Jura CY (Services) Limited,SecretaryNicosia, Cyprus, 6 February 2006 Auditors' Report Iris Tower Office 602,58 Arch Makarios Avenue,P.O. Box 246561302 Nicosia, Cyprus AUDITORS' REPORT TO THE MEMBERS OF EASTERN MEDITERRANEAN RESOURCES PUBLICLIMITED Report on the financial statements 1. We have audited the consolidated financial statements of EASTERNMEDITERRANEAN RESOURCES PUBLIC LIMITED (the Company) and its subsidiaries (theGroup) on pages 19 to 37, which comprise the consolidated balance sheet as at 31December 2005 and the consolidated statement of operations, consolidatedstatement of changes in equity and consolidated cash flow statement for theperiod then ended, and the related notes. These financial statements are theresponsibility of the company's Board of Directors. Our responsibility is toexpress an opinion on these financial statements based on our audit. This reportis made solely to the Company's members, as a body, in accordance with Section156 of the Companies Law, Cap. 113. Our audit work has been undertaken so thatwe might state to the Company's members those matters we are required to stateto them in an auditor's report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe Company and the Company's members as a body, for our audit work, for thisreport, or for the opinions we have formed. 2. We conducted our audit in accordance with International Standards onAuditing. Those Standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements. An audit also includesassessing the accounting principles used and significant estimates made by theBoard of Directors as well as evaluating the overall presentation of thefinancial statements. We believe that our audit provides a reasonable basis forour opinion. 3. In our opinion the financial statements give a true and fair view of thefinancial position of the Group as at 31 December 2005 and of its financialperformance and its cash flows for the period ended 31 December 2005 inaccordance with International Financial Reporting Standards and the requirementsof the Cyprus Companies Law, Cap. 113. 4. Without qualifying our opinion we draw attention to the fact that thefinancial statements have been prepared on a going concern basis. This basis maynot be appropriate because its validity depends principally on the discovery ofeconomically viable mineral deposits and the availability of subsequent fundingto extract the resource or alternatively the availability of funding to extendthe Company's exploration activities. The financial information does not includeany adjustment that would arise from a failure to complete either option.Details of the circumstances relating to this fundamental uncertainty aredescribed in the accounting policies. Our opinion is not qualified in thisrespect. Report on other legal requirements 5. Pursuant to the requirements of the Companies Law, Cap. 113, we report thefollowing: • We have obtained all the information and explanations we considered necessary for the purposes of our audit. • In our opinion, proper books of account have been kept by the Company. • The Company's financial statements are in agreement with the books of account. • In our opinion and to the best of our information and according to the explanations given to us, the financial statements give the information required by the Companies Law, Cap. 113, in the manner so required. • In our opinion, the information given in the report of the Board of Directors on pages 13 to 17 is consistent with the financial statements. MOORE STEPHENS STYLIANOU & CONicosia, Cyprus, 6 February 2006 CERTIFIED PUBLIC ACCOUNTANTS - CY Consolidated Statement of Operations Period ended 31 December 2005 17/09/04- 31/12/05 Note GBP'000 RevenueExploration costs (1,120)Gross loss (1,120)Administration expenses (513)Amortisation of goodwill (585)Operating loss 4 (2,218)Finance income 6 23Finance costs 7 (13)Loss before tax (2,208)Tax 8 (1)Net loss for the period (2,209)Attributable to: Equity holders of the parent (2,143)Minority interest (67)Net loss for the period (2,209) Loss per share (pence) 9 (3.91) Consolidated Balance Sheet 31 December 2005 The Group The Company 2005 2005 Note GBP'000 GBP'000ASSETSNon-current assetsProperty, plant and equipment 10 41 38Investments in subsidiaries 12 - 648 41 686Current assetsTrade and other receivables 13 46 1,187Cash at bank and in hand 14 971 911 1,017 2,098Total assets 1,058 2,784 EQUITY AND LIABILITIESCapital and reservesShare capital 15 141 141Share premium 15 2,886 2,886Share options reserve 18 108 108Accumulated losses (2,142) (479)Total equity attributable to equity holders of the parent 993 2,656Minority interest (65) -Total equity 928 2,656Current liabilitiesTrade and other payables 16 130 128 130 128Total equity and liabilities 1,058 2,784 On 6 February 2006, the Board of Directors of EASTERN MEDITERRANEAN RESOURCESPUBLIC LIMITED authorised these financial statements for issue. Aristidis (Harry) Anagnostaras-Adams.........................................................Director Consolidated Statement of Changes In Equity Period ended 31 December 2005 Share capital Share Share Accumulated Total premium losses options reserve Note GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Net loss for the period - - - (2,209) (2,209)Minority interest - - - 67 67Issue of share capital 15 141 3,351 - - 3,492Listing and issue costs - (465) - - (465)Recognition of share-basedpayments 18 - - 108 - 108At 31 December 2005 141 2,886 108 (2,142) 993 Consolidated Cash Flow Statement Period ended 31 December 2005 17/09/04- 31/12/05 Note GBP'000CASH FLOWS FROM OPERATING ACTIVITIESLoss before tax (2,209)Adjustments for:Depreciation of property, plant and equipment 10 8Amortisation of goodwill 11 585Share-based benefits 18 108Acquisition of data with settlement in shares 100Interest income 6 (10)Operating loss before working capital changes (1,418)Changes in working capital:Trade and other receivables (24)Trade and other payables 118Cash flows used in operations (1,324)Tax paid (1)Net cash used in operating activities (1,325) CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property, plant and equipment 10 (46)Acquisition of subsidiaries 17 5Interest received 10Net cash used in investing activities (31) CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issue of share capital 2,792Listing and issue costs (465)Net cash from financing activities 2,327 Net increase in cash and cash equivalents 971Cash and cash equivalents: At beginning of the period 14 - At end of the period 14 971 Notes to the Consolidated Financial Statements Period ended 31 December 2005 1. Incorporation and principal activities Country of incorporation Eastern Mediterranean Minerals Resources Public Limited (the "Company") wasincorporated in Cyprus on 17 September 2004 as a private company with limitedliability under the Companies Law, Cap. 113 and was converted to a publiclimited liability company at 26 January 2005. Its registered office is at , 1Lambousa Street, Nicosia, Cyprus. The Company was listed on the AlternativeInvestment Market ("AIM") of the London Stock Exchange in May 2005. The Company changed its name to, firstly, Mediterranean Minerals Public Limitedon 1 March 2005 and subsequently, to Eastern Mediterranean Resources PublicLimited on 11 March 2005. Principal activities The principal activity of the Company and its subsidiaries ("the Group") is toexplore for and develop natural resources, with a focus on base and preciousmetals in the regions of Central and Eastern Europe, Western Asia and the MiddleEast. 2. Accounting policies The principal accounting policies adopted in the preparation of these financialstatements are set out below. These policies have been consistently appliedthroughout the period presented in these financial statements unless otherwisestated. Basis of preparation The consolidated financial statements have been prepared in accordance withInternational Financial Reporting Standards (IFRS) and the provisions of theCompanies Law of Cyprus, Cap. 113. The financial statements have been preparedunder the historical cost convention. The preparation of financial statements in conformity with IFRS requires the useof certain critical accounting estimates and requires management to exercise itsjudgment in the process of applying the Group's accounting policies. It alsorequires the use of assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Although these estimates are based on management'sbest knowledge of current events and actions, actual results ultimately maydiffer from those estimates. 2. Accounting policies (continued) Consolidation The Group consolidated financial statements comprise the financial statements ofthe parent company Eastern Mediterranean Resources Public Limited and thefinancial statements of the following subsidiaries:- Companies names Date of acquisition Country of Effective /incorporation incorporation proportion of shares held Eastern Mediterranean Minerals (Cyprus) Ltd 28 Feb 2005 Cyprus 95%Eastern Mediterranean Resources (Caucasus) Ltd 11 Nov 2005 Georgia 100%Georgian Mineral Development Company Ltd 27 Dec 2005 Georgia 80%Mediterranean Minerals (Bulgaria) EOOD 11 March 2005 Bulgaria 100%Eastern Mediterranean Resources A.E (Greece) 21 June 2005 Greece 100%Eastern Mediterranean Resources (Slovakia) S.R.O. 10 July 2005 Slovakia 100%Tredington Ventures Ltd 28 Feb 2005 Cyprus 95%Winchcombe Ventures Ltd 28 Feb 2005 Cyprus 95%Dogu Akdeniz Mineralli Ltd 7 July 2005 Turkey 100% The consolidated financial statements incorporate the financial statements ofthe Company and entities controlled by the Company (its subsidiaries) made up to31 December each year. Control is achieved where the Company has the power togovern the financial and operating policies of an investee entity so as toobtain benefits from its activities. On acquisition, the assets and liabilities and contingent liabilities of asubsidiary are measured at their fair values at the date of acquisition. Anyexcess of the cost of acquisition over the fair values of the identifiable netassets acquired is recognised as goodwill. Any deficiency of the cost ofacquisition below the fair values of the identifiable net assets acquired (i.e.discount on acquisition) is credited to profit and loss in the period ofacquisition. The interest of minority shareholders is stated at the minority'sproportion of the fair values of the assets and liabilities recognised.Subsequently, any losses applicable to the minority interest in excess of theminority interest are allocated against the interests of the parent. The results of subsidiaries acquired or disposed of during the year are includedin the consolidated income statement from the effective date of acquisition orup to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe Group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. Finance costs Interest expense and other borrowing costs are charged to the income statementas incurred. 2. Accounting policies (continued) Foreign currency translation Measurement currency The financial statements are prepared in sterling pounds (the measurement currency), which is the currency that best reflects the economic substance of the underlying events and circumstances relevant to the Group. Foreign currency translation Foreign currency transactions are translated into the measurement currency using the exchange rates prevailing at the date of the transactions. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Foreign operations On consolidation, the assets and liabilities of the consolidated entity's overseas operations are translated at exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly. Exchange differences arising, if any, are recognised in the foreign currency translation reserve, and recognised in profit or loss on disposal of the foreign operation. Tax Current tax liabilities and assets for the current and prior periods aremeasured at the amount expected to be paid to or recovered from the taxationauthorities using the tax rates and laws that have been enacted or substantivelyenacted by the balance sheet date. Deferred tax is provided in full, using the liability method, on temporarydifferences arising between the tax bases of assets and liabilities and theircarrying amounts in the financial statements. Currently enacted tax rates areused in the determination of deferred tax. Deferred tax assets are recognised to the extent that it is probable that futuretaxable profit will be available against which the temporary differences can beutilised. Going concern The Directors have formed a judgment at the time of approving the financialstatements that there is a reasonable expectation that the company has adequateresources to continue in operational existence for the foreseeable future. The financial information has been prepared on the going concern basis, thevalidity of which depends principally on the discovery of economically viablemineral deposits and the availability of subsequent funding to extract theresource or alternatively the availability of funding to extend the Company'sexploration activities. The financial information does not include anyadjustment that would arise from a failure to complete either option. Acquisitions of assets All assets acquired, including property, plant and equipment other than goodwilland intangibles, are initially recorded at their cost of acquisition at the dateof acquisition, being the fair value of the consideration provided plusincidental costs directly attributable to the acquisition. When equityinstruments are issued as consideration, their market price at the date ofacquisition is used as fair value, except where the notional price at which theycould be placed in the market is a better indication of fair value. Transactioncosts arising on the issue of equity instruments are recognised directly inequity subject to the extent of proceeds received, otherwise expensed. 2. Accounting policies (continued) Property, plant and equipment Property, plant and equipment are stated at historical cost less depreciation. Depreciation is calculated on the straight-line method to write off the cost ofeach asset to their residual values over their estimated useful life. The annualdepreciation rates used are as follows: Motor vehicles 20% Furniture, fixtures and office equipment 10% The assets residual values and useful lives are reviewed, and adjusted ifappropriate, at each balance sheet date. Where the carrying amount of an asset is greater than its estimated recoverableamount, it is written down immediately to its recoverable amount. Expenditure for repairs and maintenance of property, plant and equipment ischarged to the income statement of the year in which they were incurred. Thecost of major renovations and other subsequent expenditure are included in thecarrying amount of the asset when it is probable that future economic benefitsin excess of the originally assessed standard of performance of the existingasset will flow to the Group. Major renovations are depreciated over theremaining useful life of the related asset. Gains and losses on disposal of property, plant and equipment are determined bycomparing proceeds with carrying amount and are included in profit fromoperations. Goodwill Goodwill arising on consolidation represents the excess of the cost ofacquisition over the Group's interest in the fair value of the identifiableassets and liabilities of a subsidiary, associate or jointly controlled entityat the date of acquisition. Goodwill is initially recognised as an asset at costand is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of theGroup's cash-generating units expected to benefit from the synergies of thecombination. Cash-generating units to which goodwill has been allocated aretested for impairment annually, or more frequently when there is an indicationthat the unit may be impaired. If the recoverable amount of the cash-generating unit is less thanthe carrying amount of the unit, the impairment loss is allocated first toreduce the carrying amount of any goodwill allocated to the unit and then to theother assets of the unit pro-rata on the basis of the carrying amount of eachasset in the unit. An impairment loss recognised for goodwill is not reversed ina subsequent period. On disposal of a subsidiary or a jointly controlled entity, the attributableamount of goodwill is included in the determination of the profit or loss ondisposal. At each balance sheet date the Group assesses whether there is an indication ofimpairment. If such an indication exists, an analysis is performed to assesswhether the carrying amount of goodwill is fully recoverable. A write down ismade if the carrying amount exceeds the recoverable amount. Subsidiary companies Investments in subsidiary companies are stated at cost less provision forpermanent diminution in value, which is recognised as an expense in the periodin which the diminution is identified. 2. Accounting policies (continued) Impairment of long-lived assets Property, plant and equipment and other non-current assets are reviewed forimpairment losses whenever events or changes in circumstances indicate that thecarrying amount may not be recoverable. An impairment loss is recognised forthe amount by which the carrying amount of the asset exceeds its recoverableamount. The recoverable amount is the higher of an asset's net selling price andvalue in use. For the purposes of assessing impairment, assets are grouped atthe lowest levels for which there are separately identifiable cash flows. Share capital Ordinary shares are classified as equity. Exploration costs Initially the Group adopted a policy of capitalizing development costs and thecosts of exploration tenements, application for exploration tenements andaccumulated technical data and knowledge from previous exploration activity,where it was anticipated that these costs would be recovered. In October 2005,the Group adopted a conservative approach to exploration expenditure and writesthese expenditure off to profit and loss as and when incurred. Share-based compensation benefits IFRS 2 Share-based Payment requires the recognition of equity-settled share-based payments at fair value at the date of grant and the recognition ofliabilities for cash-settled share-based payments at the current fair value ateach balance sheet date. For 2005, the impact of share-based payments is a net charge to income ofGBP108,170 (share-based payment expense of GBP108,170). At 31 December 2005, theequity reserve recognised for share-based payments amounted to GBP108,170. Use and revision of accounting estimates The preparation of the financial report requires the making of estimations andassumptions that affect the recognised amounts of assets, liabilities, revenuesand expenses and the disclosure of contingent liabilities. The estimates andassociated assumptions are based on historical experience and various otherfactors that are believed to be reasonable under the circumstances, the resultsof which form the basis of making the judgements about carrying values of assetsand liabilities that are not readily apparent from other sources. Actual resultsmay differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis.Revisions to accounting estimates are recognised in the period in which theestimate is revised if the revision affects only that period, or in the periodof the revision and future periods if the revision affects both current andfuture periods. 2. Accounting policies (continued) Cash and cash equivalents For the purposes of the cash flow statement, cash and cash equivalents comprisecash at bank and in hand. 3. Financial risk management Financial risk factors The Group is exposed to interest rate risk, liquidity risk and currency riskarising from the financial instruments it holds. The risk management policiesemployed by the Group to manage these risks are discussed below: Interest rate risk Interest rate risk is the risk that the value of financial instruments willfluctuate due to changes in market interest rates. The Group is exposed tointerest rate risk in relation to its bank deposits. The Group's managementmonitors the interest rate fluctuations on a continuous basis and actsaccordingly. Liquidity risk Liquidity risk is the risk that arises when the maturity of assets andliabilities does not match. An unmatched position potentially enhancesprofitability, but can also increase the risk of losses. The Group hasprocedures with the object of minimising such losses such as maintainingsufficient cash and other highly liquid current assets and by having availablean adequate amount of committed credit facilities. Currency risk Currency risk is the risk that the value of financial instruments will fluctuatedue to changes in foreign exchange rates. Currency risk arises when futurecommercial transactions and recognised assets and liabilities are denominated ina currency that is not the Group's measurement currency. The Group is exposed toforeign exchange risk arising from various currency exposures primarily withrespect to the US Dollar and the Euro. The Group's management monitors theexchange rate fluctuations on a continuous basis and acts accordingly. Fair value estimation The fair values of the Group's financial assets and liabilities approximatetheir carrying amounts at the balance sheet date. 17/09/04 -4. Operating loss 31/12/05 GBP'000Operating loss is stated after charging the following items: Amortisation of goodwill (Note 11) 585 Depreciation of property, plant and equipment (Note 10) 8 Auditors' remuneration 13 5. Business and geographical segments Business segments The Group has only one distinct business segment, being that of mineralexploration. Geographical segments The Group's exploration activities are located in Cyprus, Georgia, Bulgaria,Greece, Slovakia, and Turkey, and its administration and management is based inCyprus. Cyprus Georgia Bulgaria Greece Slovakia Turkey Total GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 Operating loss (1,558) (166) (113) (25) (247) (43) (2,152)Financial income 23 23Financial costs (13) (13)Net loss for the period (1,548) (166) (113) (25) (247) (43) (2,142) Total assets 61 3 41 8 4 5 122Total liabilities (130) (130)Depreciation of fixed 22 22assets 6. Finance income 17/09/04- 31/12/05 GBP'000 Interest income 10Net foreign exchange transaction gains 13 23 7. Finance costs 17/09/04- 31/12/05 GBP'000 Sundry finance expenses 13 13 8. Tax 17/09/04- 31/12/05 GBP'000Current tax:Defence contribution - current period 1Total charge for the period 1 The tax on the Group's results before tax differs from the theoretical amountthat would arise using the applicable tax rates as follows: 17/09/04- 31/12/05 GBP'000 (Loss) before tax (2,209) (221) Tax calculated at the applicable tax ratesTax effect of expenses not deductible for tax purposes 60Tax effect of tax loss for the period (161)Defence contribution current period 1Tax charge 1 The corporation tax rate is 10%. Under certain conditions interest may be subject to defence contribution at therate of 10%. In such cases 50% of the same interest will be exempt fromcorporation tax, thus having an effective tax rate burden of approximately 15%.In certain cases, dividends received from abroad may be subject to defencecontribution at the rate of 15%. Due to tax losses sustained in the period, no tax liability arises on the Group.Under current legislation, tax losses may be carried forward and be set offagainst taxable income of the following years. As at 31 December 2005, thebalance of tax losses which is available for offset against future taxableprofits amounts to GBP1,475,692. 9. Loss per share The calculation of the basic and diluted earnings per share attributable to theordinary equity holders of the parent is based on the following data: 17/09/04- 31/12/05 GBP'000 Net loss attributable to equity shareholders (2,209) Number of ordinary shares for the purposes of basic earnings per share 56,556Effect of dilutive potential ordinary shares: Share options 12,790Number of ordinary shares for the purposes of diluted earnings per share 69,346 Basic losses per share (pence) (3.91)Diluted losses per share (pence) N/A 10. Property, plant and equipment Furniture, fixtures and office equipment Plant and Motor Total machinery vehicles 2005The Group GBP'000 GBP'000 GBP'000 GBP'000CostAdditions - 22 24 46Acquired on acquisition of subsidiary 1 9 7 17At 31 December 2005 1 31 31 63DepreciationCharge for the period - 5 3 8On acquisition of subsidiary 1 8 5 14At 31 December 2005 1 13 8 22Net book amountAt 31 December 2005 - 18 23 41 Furniture, fixtures and office equipment Motor Total vehicles 2005The Company GBP'000 GBP'000 GBP'000CostAdditions 22 24 46At 31 December 2005 22 24 46DepreciationCharge for the period 5 3 8At 31 December 2005 5 3 8Net book amountAt 31 December 2005 17 21 38 The above fixed assets are all located in Cyprus. 11. Intangible assets Total Goodwill 17/09/04- 31/12/05 GBP'000 GBP'000CostOn 17 September - -Additions 585 585At 31 December 585 585DepreciationOn 17 September - -Amortisation for the period (Note 4) 585 585At 31 December 585 585Closing net book amount - - 12. Investment in subsidiaries 2005 GBP'000Opening net book amount -Additions 648Closing net book amount 648 Companies names Date of acquisition/ Country of Effective incorporation proportion of incorporation shares held Eastern Mediterranean Minerals (Cyprus) Ltd 28 Feb 2005 Cyprus 95%Eastern Mediterranean Resources (Caucasus) Ltd 11 Nov 2005 Georgia 100%Georgian Mineral Development Company Ltd 27 Dec 2005 Georgia 80%Mediterranean Minerals (Bulgaria) EOOD 11 March 2005 Bulgaria 100%Eastern Mediterranean Resources A.E (Greece) 21 June 2005 Greece 100%Eastern Mediterranean Resources (Slovakia) S.R.O. 10 July 2005 Slovakia 100%Tredington Ventures Ltd 28 February 2005 Cyprus 95%Winchcombe Ventures Ltd 28 February 2005 Cyprus 95%Dogu Akdeniz Mineralli Ltd 7 July 2005 Turkey 100% 13. Trade and other receivables 2005The Group GBP'000 Deposits and prepayments 5VAT 41Current portion 46 2005The Company GBP'000 Receivables from own subsidiaries (Note 17) 1,160Deposits and prepayments 5VAT 22Current portion 1,187 14. Cash and cash equivalents 2005 GBP'000The GroupCash at bank and in hand 971The CompanyCash at bank and in hand 911 15. Share capital 2005 2005 2005 2005 Number of shares Share Share premium Total Capital '000 GBP'000 GBP'000 GBP'000AuthorisedOrdinary shares of GBP0,0025 each 100,000 250 - 250 Issued and fully paidIssued at par 8,000 20 - 20Issued at GBP0.050 10,400 26 494 520Purchase of 95% interest in EMM (Cyprus) Ltd Issued at GBP0.050 4,000 10 190 200 Issued at GBP0.080 5,000 13 387 400Placing to AIM 28,156 70 2,182 2,252Write off cost of share issue and admission to - - (465) (465)AIMIssued at GBP0.10 1,000 2 98 100At 31 December 2005 56,556 141 2,886 3,027 Authorised capital Under its Memorandum the Company fixed its share capital at 1,000 ordinaryshares of nominal value of CY£1 each. On 14 December 2004, the Company passed the following special resolutions: (a) That the authorized and issued share capital of the Company be expressed inSterling Pounds, so that the current authorized and issued share capital ofCY£1,000 which is divided into 1,000 shares of CY£1 each, will become GBP1,200divided into 1,200 shares of GBP1 each. (b) That the authorised share capital of the Company be increased from GBP1,200divided into 1,200 shares of GBP1 each, to GBP250,000 divided into 250,000shares of GBP1 each. (c) That the authorised share capital of the Company, of GBP250,000 divided into250,000 shares of GBP1 each, be subdivided into 100,000,000 shares of GBP0.0025each. Issued capital Upon incorporation on 17 September 2004 the Company issued to the subscribers ofits Memorandum of Association 1,000 ordinary shares of CY£1 each at par. On 14 December 2004, the Company passed the following special resolutions: (a) That the issued share capital of the Company be expressed in SterlingPounds, so that the current issued share capital of CY£1,000 which is dividedinto 1,000 shares of CY£1 each, will become GBP1,200 divided into 1,200 sharesof GBP1 each. (b) That the issued share capital of the Company, of GBP1,200 divided into 1,200shares of GBP1 each, be subdivided into 480,000 shares of GBP0.0025 each. On 20 December 2004, the Company passed the following special resolution: That the issued share capital of the Company be increased from GBP1,200 toGBP11,200 divided to 4,480,000 shares of GBP0.0025 each by the issue of4,000,000 additional shares. On 25 January 2005, the Company passed the following special resolution: That the issued share capital of the Company be increased from GBP11,200 toGBP18,000 divided to 7,200.000 shares of GBP0.0025 each by the issue of2,720,000 additional shares. On 28 February 2005 the Company passed the following special resolution: That the issued share capital of the Company be increased from GBP18,000 toGBP28,000 divided to 11,200.000 shares of GBP0.0025 each by the issue of4,000,000 additional shares at the price of GBP0.05. Upon the issue an amountof GBP190,000 was credited to the Company's share premium reserve. On 18 March 2005 the Company passed the following special resolution: That the issued share capital of the Company be increased from GBP28,000 toGBP56,000 divided to 22,400,000 shares of GBP0.0025 each by the issue of 800,000shares at par and 10,400,000 shares at GBP0.05. Upon the issue an amount ofGBP494,000 was credited to the Company's share premium reserve. On admission of the Company to AIM on 9 May 2005, 28,155,555 shares were issuedat the price of GBP0.08. Upon the issue an amount of GBP2,182,055 was creditedto the Company's share premium reserve. On admission of the Company to AIM on 9 May 2005, 5,000,000 shares were issuedto Oxiana Europe Ltd at the price of GBP0.08 as part of the consideration dueunder the agreement to acquire EMM. Upon the issue an amount of GBP387,500 wascredited to the Company's share premium reserve. On 1st August 2005 it was resolved that 1,000,000 shares of GBP 0.0025 be issuedat the price of GBP 0.10. Upon the issue an amount of GBP 97,500 was creditedto the Company's share premium reserve. Share Options At year end the Company had 12,790,000 options over the share capital of thecompany as follows: Grant date Exercise date Expiry date Exercise Number of Options Options Options Number of on or after price options at granted lapsed exercised options at beginning end of year of period '000 '000 9 May 2005 9 May 2006 9 May 2011 8p - 4,030 - - 4,030 9 May 2005 9 May 2007 9 May 2011 8p - 4,030 - - 4,030 9 May 2005 9 May 2008 9 May 2011 8p - 4,030 - - 4,03011 August 2005 11 August 2006 11 August 2012 10p - 234 - - 23411 August 2005 11 August 2007 11 August 2012 10p - 233 - - 23311 August 2005 11 August 2008 11 August 2012 10p - 233 - - 233 - 12,790 - - 12,790 16. Trade and other payables 2005The Group GBP'000 Trade payables 128Accruals 2 130 2005The Company GBP'000 Trade payables 128 128 17. Acquisition of subsidiary On 28 February 2005, the Company acquired 95% of the issued share capital ofEastern Mediterranean Minerals (Cyprus) Ltd incorporated in Cyprus. Theprincipal activity of the acquired company is the exploration for mineraldeposits, evaluation thereof and marketing the resources. The consideration forthe acquisition was 9,000,000 shares with a value of £600,000. Details of net assets acquired and goodwill are as follows: GBP'000ase considerationShares in the capital of the purchaser 600 Total Purchase consideration 600Fair Value of assets acquired (15)Goodwill on acquisition 585 The fair value of the assets and liabilities arising from the acquisition are asfollows: GBP'000Bank and cash balances 5Equipment 3Intangible assets -Other receivables 20Related company balances (11)Other payables (1)Total fair values 16 Fair value of assets acquired (95%) 15Goodwill 585Purchase price 600Cash taken over (5)Consideration in shares (600)Net cash on acquisition (5) In the financial statements issued for admission purposes the fair value ofintangible assets was estimated at GBP 616,104. Subsequent, due to the change ofaccounting policy, of writing-off exploration costs, the fair value of theintangible assets acquired was reassessed to Nil. This indicated an impairmentof goodwill and therefore, goodwill was subsequently written-off. 18. Share-based payments Equity-settled share option scheme The Company has a share option scheme for employees and other parties of theGroup. The options expire six years after grant date and are exercisable at theexercise price in whole or in part no more than one third after one year fromthe grant date, two thirds after two years from the grant date and the balanceafter three years from the grant date. The option agreements contain provisions adjusting the exercise price in certaincircumstances including the allotment of fully paid Ordinary Shares by way of acapitalisation of the Company's reserves, a sub-division or consolidation of theOrdinary Shares, a reduction of share capital and offers or invitations (whetherby way of rights issue or otherwise) to the holders of Ordinary Shares. Details of the share options outstanding during the year (note 14) are asfollows: 17/09/04- 17/09/04- 31/12/05 31/12/05 Number of share Weighted average options exercise price '000 GBP Granted during the period 12,790 0.08Outstanding at end of the period 12,790 0.08 The options outstanding at the end of the period have a weighted averageremaining contractual life of 5.37 years. In 2005, options were granted on 9 May2005 and 11 August 2005. The estimated fair value of the options granted onthose dates is 2.50p and 3.18p respectively. These fair values were calculated using the Black-Scholes option pricing model.The inputs into the model were as follows: Options granted on 9 May 2005: Weighted average share price 8.75 pWeighted average exercise price 8.00 pExpected volatility 15%Expected life 6 yearsRisk free rate 4.4%Expected dividend yield NilDiscount factor 20% Options granted on 11 August 2005: Weighted average share price 8.88 pWeighted average exercise price 8.00 pExpected volatility 20%Expected life 6 yearsRisk free rate 4.4%Expected dividend yield NilDiscount factor 20% Expected volatility was determined by calculating the historical volatility ofthe Company's share price over the period post AIM admission trading. 19. Related party transactions The following transactions were carried out with related parties: 19.1 Compensation of key management personnel The total remuneration of the Directors and other key management personnel wasas follows: 17/09/04 - 31/12/05 GBP'000 Directors' fees 119Share-based benefits to directors 68Other key management personnel fees 263Share-based benefits to other key management personnel 34 484 The directors and key management personnel have been granted on 9 May and 12August 2005 ordinary share options that expire six years after grant date andare exercisable at the exercise price in whole or in part no more than one thirdafter one year from the grant date, two thirds after two years from the grantdate and the balance after three years from the grant date. No options have beenexercised during the period from grant date to 31 December 2005. 19.2 Purchase of geological survey data 17/09/04- 31/12/05 GBP'000 Data acquisition 100 100 The company purchased data from a company related to a director of a subsidiarycompany. The transaction was made on commercial terms and conditions and it wassettled in shares. 20. Contingent liabilities As part of the acquisition cost of a 95% in Eastern Mediterranean Minerals(Cyprus) Limited, an additional contingent consideration of GBP600,000 will bepaid by the Company one month after the date on which Eastern MediterraneanMinerals (Cyprus) Limited first receives revenue of GBP1,000,000 from or inrespect of specific exploration tenements. 21. Capital Commitment The Company has entered into an agreement whereby it has acquired 80% ownershipand management control of the Zopkhito Project and the Lukhra Prospect locatedin Georgia. The Company's right to retain this interest requires the expenditureof US$1.0 million. The Company has the right of withdrawal at any time but thiscould result in the loss of the licence should it have spent less than $US1.0million. 22. Post balance sheet events There were no material post balance sheet events, which have a bearing on theunderstanding of the financial statements. Corporate Directory Directors Gordon Leonard Toll (Non-Executive Chairman) Aristidis (Harry) Anagnostaras-Adams (Managing Director) Ronald (Ronnie) Hugh Beevor (Non-Executive Director) Dr Andreas Panayiotou (Non-Executive Director) Company Secretary and Inter Jura CY (Services) LimitedRegistered Office 1, Lambousa Street 1095 Nicosia Cyprus Auditors Moore Stephens Stylianou & Co Certified Public Accountants - Cy 58 Arch. Makarios III Avenue Iris Tower, 6th Floor, Office 602 1075 Nicosia, Cyprus Nominated Adviser Nabarro Wells & Co. Limited Saddlers House Gutter Lane London EC2V 6HS United Kingdom Brokers Hichens, Harrison & Co plc Bell Court House 11 Blomfield Street London EC2M 1LB United Kingdom Lewis Charles Securities Ltd 4 - 7 Chiswell Street London EC1Y 4UP United Kingdom Solicitors to the Company As to Cypriot Law Dr. K Chrysostomides & Co 1, Lambousa Street 1095 Nicosia PO Box 22119 1517 Nicosia, Cyprus As to English Law Field Fisher Waterhouse 35 Vine Street London EC3N 2AA United Kingdom Bankers Bank of Cyprus Limited International Business Unit 28, Michalakopoulou Street Ayioi Omoloyitaes 1599 Nicosia, Cyprus This information is provided by RNS The company news service from the London Stock Exchange