Bellzone Mining Regulatory News (BZM)

Bellzone Mining plc

("Bellzone" or "the Company")

Results for the year ended 31 December 2017

Bellzone Mining plc ("Bellzone" or "the Company") (AIM:BZM) announces the audited results of the Company for the year ended 31 December 2017. The Company's Financial Statements will be available shortly on the Company's website at www.bellzone.com.

Results

· Loss for the year from continuing operations of $5.7 million (2016: $8.0 million)

· Total assets of $20.3 million (2016: $21.7 million)

· Net cash of $2.7 million (2016: $3.1 million) and Secured Loans of $20.0 million (2015: $17.6 million)

CHAIRMAN'S STATEMENT

After a promising re-set in the previous year, 2017 began by testing our collective resilience and resolve. Our plan to press ahead and finalise the ferronickel feasibility study in 2017, a substantial portion of which was completed and announced in August 2016, was put in abeyance as a result of the lack of clarity with respect to our continuing legal rights and obligations under our 2010 Mining Convention.

As a result, our employees suffered immensely in terms of extended technical leave and deferred remuneration. At the same time, we were very fortunate to enjoy strong support from the communities in Faranah and Konta, as well as from the authorities, counterparties and service providers throughout the year. Our shareholder base too remained firm as Bellzone's underlying value was recognised more widely and our market value increased; and our major shareholder and sole long-term lender postponed the repayment of all of its loans to the Company to 31 December 2018, and further extended repayment to 31 December 2019 post year end. On behalf of the Board, I thank everyone involved for putting the long-term value of the Company first.

Notwithstanding the bumpy journey, I am pleased to report that 2017 in the end turned out to be an important watershed in Bellzone's long history in Guinea to date. The signing of the Addendum to the 2010 Mining Convention in November enabled the Company to immediately begin normalising operations and plan for the recommencement of work on the ferronickel feasibility study.

We were also able to bring on board our new broker SVS Securities, who helped us to take advantage of favourable market conditions to successfully place £1.6 million worth of new shares. This meant that we were simultaneously able to expand our financing options beyond sole dependence on our major shareholder, attract new investors and enhance overall trading liquidity.

On the macroeconomic front, Bellzone also benefited from Guinea's success in negotiating meaningful multilateral institutional financing and attracting significant investment commitments from China, in particular in the bauxite/alumina sector, as well as a US$20 billion long-term infrastructure loan agreement. These positive developments have provided an ongoing boost to the country's economic prospects and, more importantly, a critical path towards a massive transformation of the resources/mining sector as a whole.

Where it has hitherto been difficult to imagine how vital infrastructure including power, road, rail and port projects will materialise within a reasonable timeframe, concrete and realistic plans can now be made with committed funds to spur country-wide progress. As our Kalia mine is so strategically located along the route to the Simandou iron ore deposit and other large prospects in Guinea's deep interior, we will no doubt be involved sooner rather than later in at least some of these potential plans.

More broadly, the world economy and China especially are widely expected to experience medium-term benign conditions and commodity prices seem to have firmed somewhat in tandem with this expectation. Base metals and nickel specifically are starting to build in lower inventory and higher demand scenarios, which makes for very good timing for a potential ferronickel project such as ours. As we have already done most of the work required and have made past investments in basic infrastructure, Bellzone stands ready to move swiftly should iron ore economics improve within a short timeframe.

In 2018, we look forward to substantially justifying the faith of all our stakeholders, as we execute on our clear plan to deliver final results with respect to the potential ferronickel project by the end of 2018. Given the manageable size of the project, the fact that power and infrastructure requirements, potential environmental impacts and transportation issues are envisaged to be at the bare minimum and that there is a growing demand for ferronickel, we believe we have good grounds for optimism at this stage, subject to continued financial support to develop our envisaged plans.

As there will be more regular news-flow with the advent of each feasibility study milestone, we intend to engage more extensively and promptly with our shareholders, potential new investors, and the research community. The Board believes more can be done to unlock shareholder value, which for too long has been clouded by future uncertainty and the lack of a published concrete action plan. Bellzone has now entered a new phase of development which should more clearly highlight the financial value of our world-class deposit and our strategic location. Thank you for your support.

Michael Farrow

Chairman

OPERATIONS AND FINANCIAL REVIEW

Review of Business in the Year

Operations were significantly minimised from the second quarter of 2017 due to the extended delay prior to the signing of the Addendum to the 2010 Mining Convention and only started to be normalised in December 2017. As a result, operating expenses were reduced by 35 per cent. below 2016 operating expenses of US$7.1 million (excluding non-cash accrued loan interest) to US$4.6 million.

Bellzone's operating costs which exclude amortisation, depreciation and gain/loss on disposal of fixed assets fell from US$5.9 million in 2016 to US$5.1 million in 2017. Most of this reduction was due to bigger sacrifices in salaries and technical leave and stringent management of travel and legal costs. Including the additional interest due on the two fully drawn-down loans and the third partially drawn-down loan, the annual loss reduced to US$5.7 million, a reduction of 29 per cent compared to the previous year's loss of US$8.0 million and no new significant impairments to the statement of financial position or significant provisions have been necessary.

Working capital needs were met by a combination of cash savings from 2016, the final drawdown of US$0.5 million from the first loan facility of US$6.5 million provided by our major shareholder Hudson Global Group Limited ("Hudson") and announced in December 2015 and the first drawdown of US$0.8 million from the second Hudson loan facility of US$4.0 million announced in December 2016.

Bellzone's higher market value and positive market conditions allowed the Company to raise £1.6 million (approximately US$2.0 million) with minimal dilution through an equity placement in November 2017, which resulted in Hudson's voting rights being decreased slightly from 62.4% to 58.2%. The proceeds will be used to meet the majority of planned operating expenses in 2018. This marked an important turning point in the Company's ability to expand its financing options beyond sole reliance on Hudson. At the same time, a major part of the third loan facility from Hudson remains un-drawn with the availability of the facility extended post year end until 31 December 2019 and the loan repayment dates for all three existing loans extended post year end until 31 December 2019. The Board remains committed to fully exploring all potential financing possibilities in dialogue with Hudson to achieve optimal benefits for all shareholders.

Outlook and Strategy

The main operating objective for 2018 will be to complete the technical work related to the ferronickel project in line with Bellzone's new commitments pursuant to the newly-signed Addendum to the Mining Convention. If the results are positive, the focus will then be on obtaining the required financing to start construction without delay. This was the same objective as in 2017, but the extended delay in signing the Addendum did not allow any work to commence in that year. Now that clarity has been established, visible milestones can be targeted until the feasibility study is completed within 2018.

In hindsight, the delay has meant we are better able to capitalise on more positive macroeconomic conditions in Guinea as well as more stable iron ore and nickel price outlooks. Re-starting operations in conjunction with the feasibility study will provide useful work for more of our local employees and allow us to re-lay the groundwork for longer-term production so we are ready to move ahead quickly at the right time.

As a large proportion of useful in-country assets have been fully depreciated and under care and maintenance for several years, we intend to undertake a comprehensive asset management programme to monetise where possible non-critical assets through either sale or rental to take advantage of the upturn in local mining activity. This should enable the Company to generate additional cash and reduce our external financing needs. In turn this will allow management to better explore a full range of financing options to find accretive solutions for both our near-term working capital needs and our medium-term debt-servicing requirements.

Accounting Policies

There have been no changes to the accounting policies adopted by the Group in 2017.

BDO LLP replaced Ernst & Young LLP as the Company's auditors for the FY2017 audit.

Presentation of Financial Statements

The financial statements are presented in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS") and are presented in US Dollars ("$") with all values being rounded to the nearest thousand ($000) unless otherwise stated.

Dividends

As the Group is in a project-development stage and generates no revenue from mining operations, no dividends have been declared (2016: nil).

Treasury and Cash Flow Management

As at 24 May 2018, funds on hand and available amounted to US$1.06 million excluding $3.20 million available to draw down under the second Hudson loan.

The Board has a Treasury Committee consisting of the Chairman and the Chief Financial Officer. The structuring of the Company's treasury reduces exposure to currency fluctuations by holding the bulk of the funds in the currency used for budgeted expenditure. The expenditure in Guinean Francs is the only currency which is not managed through this mechanism and is converted on a monthly basis for actual funding requirements.

Julian Cheong

Executive Director

This announcement and the financial information and accompanying notes to the financial statements do not constitute audited financial statements but are derived from audited financial statements. A copy of the Company's full audited results for the year ended 31 December 2017 is contained in its audited financial statements, which will be posted to shareholders and made available on the Company's website at www.bellzone.com and should be read in conjunction with the above.

The information contained within this announcement is deemed by the Company to constitute inside information under the Market Abuse Regulation (EU) No. 596/2014.

Enquiries:

http://www.bellzone.com/

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

At 31 December 2017

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2017

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2017

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2017

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2017

1. REPORTING ENTITY

The consolidated financial statements of Bellzone Mining plc ("the Company") for the year ended 31 December 2017 were authorised for issue in accordance with a resolution of the board of directors on 24 May 2018.

Bellzone Mining plc is a public company listed on the AIM Market of the London Stock Exchange and incorporated and registered in Jersey, Channel Islands. The Company's registered office is located at Standard Bank House, 47-49 La Motte Street, St Helier, Jersey, JE2 4SZ. The consolidated financial statements of the Company as at and for the year ended 31 December 2017 comprise the Company and its subsidiaries (together referred to as the "Group").

The nature of the principal activities of the Group is described in the Directors' Report. The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied unless otherwise stated.

2. BASIS OF PREPARATION

a. Statement of compliance

The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted for use in the European Union ("IFRS") and in accordance with the Companies (Jersey) Law 1991. The financial information for the year ended 31 December 2017 set out in this announcement does not constitute the Company's statutory accounts. These financial statements included in the announcement have been extracted from the Group annual financial statements for the year ended 31 December 2017. The financial statements have been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards adopted for use in the European Union. However, this announcement does not itself contain sufficient information to comply with IFRS.

The auditor has issued its opinion on the Group's financial statements for the year ended 31 December 2017 which is unmodified and is available for inspection at the Company's registered address and will be posted to the Company's website.

b. Adoption of new standards

The Group has adopted new and revised standards and interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB and adopted by the European Union that are relevant to its operations and effective for accounting periods beginning on or after 1 January 2017. Although these new standards and amendments apply for the first time in 2017, they do not have a material impact on the consolidated financial statements of the Group, apart from some additional disclosure requirements.

There were also a number of new and revised IFRSs that have been issued but are not yet effective and have therefore not been applied by the Group for the year. The Group has not early-adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

* Not yet adopted by the EU

IFRS 15 is intended to introduce a single framework for revenue recognition and clarify principles of revenue recognition. The Group is not revenue generating thus there is no impact of IFRS 15 as there are no revenue contracts in place at this time.

IFRS 16 introduces a single lease accounting model, in which leases are capitalised as assets with an associated lease liability with the exception of certain low value leases and leases with a term under 12 months. Management are currently assessing the impact of this standard as whilst there are no current material operating leases in the Group it is likely to be relevant to future operations under certain mining service contracts and similar arrangements that fall within the scope of the standard once mining commences. In addition, the Group also acted as a lessor post year end by leasing certain of the Group's assets to generate income for the Group. IFRS 16 is substantially unchanged in most respects from IAS 17 for lessor accounting. The leases are expected to continue to be held and accounted for as operating leases.

IFRS 9 "Financial instruments" addresses the classification and measurement of financial assets and financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income (OCI) and fair value through profit or loss. The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI. There is now a new expected credit loss model that replaces the incurred loss impairment model used in IAS 39. As the Group has no material financial assets other than cash, there will be no changes to classification and measurement and while the Group will apply the new expected credit loss impairment model, no material impact on initial adoption is expected Management will continue to assess the standard's impact.

The adoption of the other standards, as noted in the table above, is not expected to have an impact on the Group's financial statements.

c. Basis of measurement

The financial statements have been prepared on the historical cost basis except where indicated otherwise in the notes to the financial statements.

d. Functional and presentation currency

The functional currency of the Company and all of its subsidiaries is the United States Dollar ("US Dollar"). All amounts are expressed in US Dollars and all values are rounded to the nearest thousand ($000) unless otherwise stated.

e. Critical accounting estimates and judgements

The preparation of the consolidated financial statements in conformity with IFRS as adopted for use in the European Union requires management to make judgements, estimates and form assumptions that affect the reported amounts of assets, liabilities, expenses and the disclosure of contingent liabilities at the date of the financial statements. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future and the resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the financial results or the financial position reported in future periods are disclosed below.

Mineral properties in the exploration and evaluation phase and exploration expenditure:

Judgement is applied by management in determining when a project has reached a stage at which economically recoverable reserves exist and that development may be sanctioned. The Company has determined that the most appropriate accounting policy for the Kalia asset is to expense all exploration activity (other than the initial licence acquisition costs, which are capitalised as detailed in Note 5) as incurred. The signing of the Addendum to the Mining Convention in November 2017 allowed the Company to normalise its operations and begin work to complete the ferronickel project feasibility study (the first phase of which was completed in August 2016).

Management is also are required to make certain judgements and assumptions as to events and circumstances that may occur in the future, in particular the ongoing validity of the mining licence, whether extraction operations are economically viable where reserves have been discovered and whether indications of impairment under IFRS 6 exist. Any such judgements and estimates may change over time as new information becomes available. As at the year end the Directors were of the opinion that there were no indicators of impairment under IFRS 6.

Provisions for legal claims:

The Group reviews outstanding legal cases following developments in the legal proceedings and at each reporting date, in order to assess the need for provisions and disclosures in its financial statements. Among the factors considered in making decisions on provisions are the nature of litigation, claim or assessment, the legal process and potential level of damages in the jurisdiction in which the litigation, claim or assessment has been brought, the progress of the case (including the progress after the date of the financial statements but before those statements are issued), the opinions or views of legal advisers, experience on similar cases and any decision of the Group's management as to how it will respond to the litigation, claim or assessment.

f. Going concern

The nature of the Group's current activities does not provide the Group with production or trading revenues, although some income may be realised as a result of ongoing asset management.

The signing of the Addendum to the Mining Convention in November 2017 allowed the Company to properly recommence its operations and begin work to complete the ferronickel project feasibility study (the first phase of which was completed in August 2016).

Funds raised of £1.6m through an equity placing in November 2017, together with existing cash, are expected to be sufficient to meet the majority of the Company's working capital requirements in 2018. As noted in the Strategic Report, in order to maximise the potential of the Group's assets, Management have commenced a programme to sell or lease non-critical assets in order to generate short-term cashflows. During 2017, this initiative has resulted in positive cash inflows to the Group of $252,000. Management remain highly confident that such cash flows will continue for the foreseeable future but note that additional funds will be required to make up any shortfall, which may arise as a result of actual expenditures arising from the feasibility study work exceeding budget expectations.

Whilst the Group's cashflow forecasts indicate that additional funds are required in December 2018 there is sufficient remaining undrawn facility within the second Hudson loan available should alternative forms of finance not be forthcoming to the Group. While the Company intends to fully explore all available financing options to meet its obligations as and when they fall due for a period of 12 months from the date of this report, the realisation of these options will be dependent on favourable macroeconomic and market conditions as well as continued progress on the ferronickel feasibility study.

If these options do not materialise, the Company will continue to be reliant on continued funding from its majority shareholder, Hudson Global Group Limited ("Hudson"), primarily via additional draw-downs on the third loan facility of US$4.0 million announced in December 2016, of which US$3.2 million currently remains un-drawn. It is expected that a partial draw-down of this loan facility may be required for the Company to meet its obligations, including any additional feasibility study costs, for a period of 12 months from the date of this report.

Bellzone and Hudson agreed on 23 March 2018 to extend the draw-down availability period of the second Hudson loan from 31 December 2018 to 31 December 2019. Additionally, China Sonangol, which has also provided funding to the Group and Hudson have also agreed to further extend the repayment date of all three loan agreements for principal and accrued interest from 31 December 2018 to 31 December 2019.

Management note that additional funding will be required in the longer term in order to advance the project to a bankable feasibility stage. Furthermore, to commence development, significant funding would be required from external parties which is not committed at the date of this annual report.

The Group continues to evaluate its strategy and its ability to secure funding that would enable it both to continue operations for the short term and in the long term to develop the Kalia licence area. In the event of Hudson withdrawing support, the Directors' view is that additional funding may be sourced from one or more of the following:

• placement of further securities;

• the sale of existing fixed assets; and/or

• funding in exchange for an interest in the Group's projects or future production from the projects.

Whilst the above funding sources are considered available to the Group, there are currently no advanced plans to execute any of these funding strategies, other than sales of surplus mining equipment in Guinea. However, the Directors monitor market developments on a continuous basis to seek favourable opportunities.

Taking the above factors into account, the Directors believe it is reasonable to expect that the Group will obtain sufficient funding from one or more of the aforementioned sources and have continued to adopt the going concern basis of accounting in preparing the Consolidated Financial Statements.

3. SEGMENT INFORMATION

The Group determines and presents operating segments based on the information that is internally provided to the Group's chief operating decision maker. The chief operating decision maker has been identified as the Board of Directors. The Board currently considers the project level (previously the internal reporting was done on a consolidated level) and has identified three reportable segments:

i. Kalia segment represents the exploration activities undertaken at the Kalia Mine;

ii. Sadeka segment represents exploration activities for nickel and copper in south-east Guinea; and

iii. Technical & Support Services represents funding, shared services, treasury and technical support delivered from Jersey, Singapore and the Conakry office in Guinea.

4. PROPERTY, PLANT AND EQUIPMENT

5. MINERAL PROPERTIES IN THE EXPLORATION AND EVALUATION PHASE

The above asset values relate to the mineral properties in the exploration and evaluation phase and are based on the cost of acquiring 100% of Bellzone Holdings SA which previously held the Kalia and Faranah exploration permits and now holds the Kalia Mining Licence.

In addition to the costs of acquiring the exploration permits through the acquisition of the subsidiaries, the statutory fees paid on the issue of the Mining Concessions (Permits) for the Kalia areas were included.

6. EVENTS OCCURRING AFTER THE REPORTING PERIOD

Bellzone entered into a US$6.5 million loan agreement with Hudson Global Group Limited "Hudson" and, on 23 December 2016, Bellzone had entered into a second loan agreement for a loan amount of US$4.0 million, interest bearing at LIBOR + 5% to be accrued monthly and repayable together with the principal sum on 31 March 2018. Bellzone made the final draw down of funds under the first of these loans in the amount of US$0.5 million on 29 March 2017 and subsequently the first draw down under the new loan in the amount if US$0.8 million on 6 June 2017. Bellzone announced on 23 March 2018 that the repayment dates and interest accrual periods for all three loans as well as the availability period of the second Hudson loan were agreed to be extended to 31 December 2019.

On 26 January 2018, the Company announced share awards to be made to certain employees which are due to be satisfied by the transfer of existing issued ordinary shares held by the Company in treasury in the total amount of 17,289,600 shares. Of this amount, 8,644,800 shares were transferred to the relevant employees on the first vesting date of 23 April 2018 and the remaining 8,644,800 shares are expected to be transferred to the relevant employees on the second vesting date of 23 July 2018. Of the total of 17,289,600 shares, 8,401,320 have been awarded to Julian Cheong, a director, of which 4,200,660 vested on 23 April 2018, Of the remaining 8,888,280 shares awarded, 6,950,520 were awarded to key management personnel of which 3,475,260 shares vested on 23 April 2018.

7. CASHFLOW FROM OPERATING ACTIVITIES 

8. RELATED PARTY TRANSACTIONS

The Group has loan facilities with Hudson, the majority shareholder in Bellzone Mining plc and CSIS, a sister subsidiary of Hudson in the China Sonangol International Limited group.

The USD 10.2 million loan facility between CSIS and Bellzone Mining plc dated 18 August 2014 is interest bearing at LIBOR + 5%. Interest on the loan facility is accrued using the effective interest rate of 4.9%. On 17 December 2015, an amendment to the loan agreement dated 18 August 2015 was signed that has increased the loan facility from CSIS to USD 10.2 million with the principal amount to be repaid on 31 March 2018 and interest repayable on a yearly basis starting from 31 December 2016. On 8 December 2016, CSIS agreed in writing to (i) defer the accrued interest to 31 March 2018; and (ii) consider the legal fees amounting to EUR45,431 (USD55,510) relating to the first loan, that was paid on behalf Bellzone, to form part of the loan amount. On 18 July 2017, CSIS agreed to extend the repayment date and the period of interest accrual to 31 December 2018 and on 14 March 2018, CSIS agreed to extend the repayment date and period of interest accrual to 31 December 2019.

The USD 6.5 million loan facility between Hudson, the majority shareholder and Bellzone Mining plc dated 21 December 2015 is interest bearing at LIBOR + 5%. Interest on the loan facility is accrued using the effective interest rate of 4.9%. During March 2017, the Company made a final drawdown under the facility amounting to USD 0.5 million, with the facility becoming fully drawn down at that time. On 18 August 2017, Hudson agreed to extend the repayment date and the period of interest accrual to 31 December 2018 and on 22 March 2018, Hudson agreed to extend the repayment date and period of interest accrual to 31 December 2019.

The USD 4.0 million loan facility between Hudson and Bellzone Mining plc dated 06 June 2017 is interest bearing at LIBOR + 5%. Interest on the loan facility is accrued using the effective interest rate of 4.9%. During the year, the Company made a single drawdown of USD 0.8 million on the facility. On 18 August 2017, Hudson agreed to extend the availability period, the repayment date and the period of interest accrual to 31 December 2018 and on 22 March 2018, Hudson agreed to extend the repayment date and period of interest accrual to 31 December 2019.