30 Jun 2006 18:06
Copper Resources Corporation30 June 2006 Copper Resources Corporation Financial statements 31 December 2005 Financial statements for the year ended 31 December 2005 Contents Page Page Officers and professional advisors 3 Chairman's statement 4 Directors' report 10 Statement of directors' responsibilities 13 Independent auditors' report 15 Consolidated income statement 17 Consolidated balance sheet 18 Balance sheet 19 Consolidated statement of changes in equity 21 Company statement of changes in equity 21 Consolidated cash flow statement 22 Company cash flow statement 23 Notes to the financial statements 24 Officers and professional advisers Directors Sir Sam Jonah - Non-Executive Chairman (appointed 23 May 2005) Mitchell Alland - Executive Vice-Chairman Christopher Terrence Jordinson - Chief Executive Officer George Arthur Forrest - Non-Executive Director (appointed 5 December 2005) George Andrew Forrest - Non-Executive Director (appointed 5 December 2005) Michel Anastassiou - Non-Executive Director (appointed 5 December 2005) Roger Marshall - Non-Executive Director (appointed 5 December 2005 Elia Crespo - Non-executive Director/Chief Financial Officer (resigned 30 November 2005) James D Frank - Non-Executive Director (resigned 30 November 2005) Rebecca Taylor - Non-Executive Director (resigned 30 November 2005) Secretary Elia Maria Crespo - Chief Financial Officer (resigned 31 January 2006) George Gaetan Bru - Chief Financial Officer (appointed 1 February 2006) Registered office Craigmuir Chambers, P.O. Box 71, Road Town, Tortola, British Virgin Island Registered number 626550 Principal bankers Royal Bank of Canada - 200 Bay Street, Main Floor, Toronto, Ontario, Canada M5J 2J5 Solicitors Pinsent Masons - Dashwood House, 69 Old Broad Street, London EC2M 1NR Auditors Chantrey Vellacott DFK LLP - Russell Square House, 10-12 Russell Square, London WC 1B 5LF Nominated advisor Nabarro Wells & Co Limited - Saddlers House, Gutter Lane, London EC2V 6HS Registrar Computershare Investor Services (Channel Islands) Limited - Ordnance House, 31 Pier Road, St Helier, Jersey JE4 8PW, Channel Islands Chairman's statement for the year ended 31 December 2005 Copper Resources Corporation (AIM: CRC), the minerals exploration and miningcompany, today released its 2005 annual report for the year ending 31 December2005. A copy of the report and accounts will be available on the Company'swebsite and posted to shareholders shortly. Financial highlights • Cash of US$11.6 million, as at the at 31 December 2005 Business highlights through 31 December 2005 • Admission to the AIM Market of the London Stock Exchange plc on 21st April 2005. • Acquisition of Haib Copper Project in the politically stable country of Namibia to complement CRC's existing substantial interest in the Hinoba copper project in the Philippines. • An increase in total copper resource to 3.2 billion pounds (7.2 billion pounds after acquisition of Congolese company (see below). • Appointment of Sir Samuel Jonah as non-executive Chairman. • Granted Mineral Production Sharing Agreement ("MPSA") on the Hinoba Project which allows commencement of operations in the Philippines • Acquisition of 75% interest in Miniere de Musoshi et Kinsenda sarl, which will enable the Company to become a producer in the near term from high-grade 5.3% Kinsenda deposit along Zambian border in Katanga Province, Democratic Republic of Congo. Samuel Jonah, Chairman, commented, "2006 promises to be an eventful year for CRC with significant developments on anumber of fronts, including: • Advancing the Hinoba copper project toward completion of a bankable feasibility study, after having been granted the MPSA in August 2005; • Evaluating the optimal metallurgical process recovery route for the Haib copper project in Namibia to render a determination of its long-term economic viability; and • Implementing the Kinsenda Restart Project that will commence production in late 2007 and make CRC a substantial producer in the DRC with annual production stated at 54,000 tpa of copper in a rich, 45-50% concentrate. For further information: Mitchell Alland Executive Vice Chairman - CRC +44 (0)787 569 5563Keith Smith Nabarro Wells & Co. +44 (0)20 7710 7405Bill Staple / Cailey Westhouse Securities +44 (0)20 7601 6100BarkerToby Hall / Jade gth media relations +44 (0)20 7153 8039/8035Mamarbachi Chairman's statement for the year ended 31 December 2005 Dear Shareholders, 2005 was an eventful and pivotal year as we transformed Copper ResourcesCorporation ("CRC" or the "Company") from a single-property private company withthe prospect of production in three years to a public company listed on the AIMmarket of the London Stock Exchange with interests in three properties and plansto become a producer in as little as 18 months. At the same time, we increasedCRC's resource base more than 31/2 times: from 2 billion pounds to 7.2 billionpounds of copper. In the successful IPO in April the Company raised £4 million which, coupled withthe previous pre-IPO financing of US$11 million, provided the financial strengthto: • accelerate its Bankable Feasibility Study ("BFS") on the Philippines-based Hinoba copper project, which has a resources base of 2 billion pounds of copper; • acquire an additional copper project in Namibia in May which increased CRC's copper resource base by 1.2 billion pounds; and • acquire in November a 75% interest in Miniere de Musoshi et Kinsenda ("MMK") in Katanga Province of Congo whose assets include world class copper deposits and infrastructure. The MMK acquisition enables CRC to become a producer imminently from the high-grade 5.3% Kinsenda deposit, and adds 4 billion pounds to the Company's copper resource base. LONDON AIM ADMISSION AND FINANCING Favourable market conditions and the requirement for additional capital led tothe decision in early 2005 to list CRC's shares on the AIM market of the LondonStock Exchange. This marked a major milestone for the Company, which, after theacquisition of the Hinoba Copper Project, operated for three years as a privatecompany funded by a small group of private investors. CRC's shares were admitted to trading on AIM on 21 April 2005. The AIM listinghas expanded the Company's institutional shareholder base and raised its profilein the mining industry. HINOBA COPPER PROJECT (PHILIPPINES) CRC effectively has a 92.5 per cent economic interest in the Hinoba-an PorphyryCopper Project ("Hinoba-an"), subject to a 3 per cent net benefits royaltypayable to the original claim owners. The project is located on the island ofNegros in the Philippines, approximately 700 km south of Manila. The Company's interest in the project is held under an Integrated Mining andOperating Agreement with Colet Mining and Development Corporation ("Colet"),which holds mining leases over 90 hectares and approximately 2,900 hectares ofmineral claims (collectively, the "Colet Claims"). The Colet Claims cover twoknown porphyry copper deposits, the Don Jose deposit and the A1 deposit, whichcomprise the Hinoba-an property. Over the years, a significant amount of exploration and metallurgical test workhas been performed on the Hinoba-an property, with its previous owners havingspent almost C$15 million. The Hinoba-an property has been subject to 48,000metres of diamond drilling and 11,000 metres of reverse circulation drilling,totalling 59,000 metres of drilling. A scoping study undertaken in 1998 envisioned a 15-year mine life based on ageological resource of 254 million tonnes at 0.46% Cu at a 0.30% Cu cut-off. Thestudy showed that the deposits could be profitably mined by open pit method withthe ore processed in a conventional flotation milling operation to produceapproximately 2 billion pounds of recoverable copper and other by-products.Annual production was estimated at 56,000 tonnes of recoverable copper with anaverage cash cost (including smelting, refining and by-product credits) ofUS$0.48/lb of copper. Chairman's statement for the year ended 31 December 2005 CRC is conducting additional infill core drilling on the property, which will becompleted by mid-2006, and a BFS by the end of 2006. Upon completion of the BFS,and assuming favourable economics, CRC plans to develop a 15 million tonnes perannum open pit copper mine on the Hinoba-an property. The development of theproject will be dependent on obtaining future financing. In August 2005, the MPSA was granted and registered to Colet by the Secretary ofEnvironment and Mines of the Philippines. This was a significant milestone, asCRC proceeds with its BFS, which includes an infill drilling program andmetallurgical test work. HAIB COPPER PROJECT (NAMIBIA) In May 2005, the Company acquired an option on the Haib Project a substantiallow grade sulphide copper porphyry deposit, located in southern Namibia 8 kmfrom the Orange River and the South African border. The property is held by DeepSouth Mining Company (Pty) Ltd. under Exclusive Prospecting License (EPL) 3140.The licence area is 74,563 hectares and incorporates all of the mineralisationwithin the Haib deposit and a substantial area around the deposit. The EPLrenewal date is 21 April 2007. Renewal of the licence is assured under theMinerals Act of 1992 providing all conditions of the EPL have been satisfied anda reasonable work program is submitted in support of the renewal application. Under the terms of the Option Agreement, CRC can earn a 60% interest in the HaibProject by incurring initial expenditures of US$1.2 million and through theissuance of 120,000 CRC shares. With further expenditures of US$1.0 million andthe issuance of a further 150,000 CRC shares, CRC can earn up to a 90% interestin the Haib Project. With 52,000 meters of drilling, the Haib Project is a well-defined deposit thatwas placed on care and maintenance in the late 1990s owing to low copper prices. Previous work has been carried out by Falconbridge (Pty) Ltd. (1963-1964),King Resources of South Africa (1968-1969), Rio Tinto Zinc Corporation(1972-1975), Rand Merchant Bank Ltd. (1992-1993), and most recently by GreatFitzroy Mines NL (GFM) of Australia (1995-1998). The most recent feasibilitystudy work, undertaken in 1995-1997, focused on producing cathode copperutilizing a roast-leach-electro-winning process plant. In 1996, Behre Dolbearestimated the Haib Project resource at 244 million tonnes, grading 0.37% Cu,using a cut-off grade of 0.3% Cu. This equates to 2 billion pounds of containedcopper (net 1.2 billion pounds Cu to CRC based on 60% ownership). Namibia is a politically stable country in which mining is the major contributorto GDP. The Namibian Government has indicated its strong support to advance theHaib Project to a point where a production decision can be made. The extensive drilling and metallurgical database available for the Haib Projectis already almost at the standard necessary for a bankable feasibility study.The acquisition of the Haib Project represents a low cost entry opportunity forCRC into a second major copper project. CRC intends to use the extensivegeological and metallurgical database available on the Haib Project to evaluatethe optimal process recovery method for project development, for which purposeit has engaged METS, a Perth-based mining engineering consultant, whose studywill be completed by June 2006. ACQUISITION OF 75% INTEREST IN MMK On 29 November 2005 CRC completed its acquisition of a 75% interest in MMK whichholds three concessions in the south of the Katanga Province in the DRC, locatednear the Zambian border. They are: Kinsenda, Lubembe and Musoshi. Chairman's statement for the year ended 31 December 2005 The Kinsenda and Musoshi properties were mined in 1972-1983 by a Japanese miningconsortium and by Canadian management on behalf of the Zairian government from1983 - 1987 and subsequently by Gecamines, a Congolese state mining company; andare now owned by MMK, which is held 20% by SODIMICO, a Government company, 75%by CRC, and 5% by the Forrest Group, the largest private business in Katanga andone of the largest in the country, with extensive diversified operationsincluding mining, engineering, construction and cement. Having operatedsuccessfully in Congo since 1922, the Forrest Group has extensive operationaland management experience in the country that will support and facilitate CRC'seffort in successfully developing the properties. As part of the MMKtransaction, the Forest Group became the largest shareholder of CRC, with aholding of 40% gained by acquiring 18 million new shares issued by CRC. The MMK concession area has extensive infrastructure including roads, water,staff accommodation and power. The power infrastructure includes a 220/110Kvaline to both Kinsenda and Musoshi. There are also substations at Kinsenda andMusoshi with generators for back up if required. At Musoshi there is an 8,000tpd ore dressing plant which will need to be refurbished prior to commencingoperations. The accelerated programme planned by CRC involves starting production atKinsenda within 9 months after the de-watering of the mine, which started inFebruary 2006 and should take 9 months. Initial indications are that it willcost in the order of US$5 million to complete the de-watering of the mine andUS$36 million to refurbish and regenerate the underground mine and Musoshiconcentrator. FinOre Mining Consultants ("FinOre") of Perth, Australia have completed a newResource Estimate for Kinsenda that upgrades previous estimates MMK to "measuredand inferred", as follows: Category Tonnes of Ore Cu% Cu Metal Measured 13,080,000 4.8% 632,000Indicated 4.060,000 5.8% 234,500Measured and Indicated 17,140,000 5.1% 866,500 The new FinOre mineral estimate is an important improvement in the Kinsendaresource picture, firstly, because earlier MMK estimates could only beclassified at the lower "inferred" category. The new estimate has 3% more copperthan the 841,205 tonnes of the MMK estimate. Secondly, and as important, FinOre has identified a potential exploration targetat Kinsenda, immediately to the south and southwest of the known resource, wheredrilling has intersected mineralization. FinOre considers that this major blockcould contain between 10-15 million tonnes of ore at a range of grades of 3-7%copper, which warrants more exploration that MMK will undertake to prove up thisresource. The newly identified block could contain from 0.3m tonnes to 1.0mtonnes of copper metal, which has the potential for doubling the currentresource. EXPANSION OF THE BOARD In May, the Board was pleased to welcome Samuel Jonah as non-executive Chairman.Samuel Jonah is non-executive president of AngloGold Ashanti Limited, a NYSElisted company, which is one of the world's largest gold producers with a marketcapitalization of more than US$11 billion. Previously, he was chief executiveofficer of Ashanti Goldfields Company Limited since 1986, and oversaw its growthand listing as the first Sub-Saharan African company on the NYSE. He becamepresident of AngloGold Ashanti in May 2004, when Ashanti was acquired byAngloGold Limited. He is a member of numerous advisory committees includingPresident Thabo Mbeki's International Investment Advisory Council of SouthAfrica, President Kufuor's Ghana Investors' Advisory Council, and the UnitedNations Secretary General's Global Compact Advisory Council. His skills,knowledge and contacts complement the Board's existing operational and financialexpertise. As part of the MMK transaction, the CRC board was expanded from six to eightdirectors, with James Frank, Elia Crespo and Rebecca Taylor resigning, and thefollowing new directors being elected: Chairman's statement for the year ended 31 December 2005 George Arthur Forrest - Non Executive Vice-Chairman For more than 20 years, George Arthur Forrest has been Chairman and CEO of theForrest Group of companies. The Forrest Group is a fully private group withcompanies located across Africa, Middle East and Europe. The companies areactive across a broad range of sectors including Civil Works, Engineering,Cement, Trading, Mining, Refining. In the Democratic Republic of Congo, theForrest Group currently employs a workforce of 6,500. In 2004, the mining/refining activities of the group and its joint ventures produced in 7500 tons ofcobalt contained, 17000 tons of copper contained and 15000 tons of zinc. GeorgeArthur Forrest is an Honorary Consul for France since 1999; Conseiller auCommerce Exterieur for Belgium since 1999; and is First Vice President of theFederation des Entreprises du Congo. He currently holds the following decorations and orders: Grand Officier del'Ordre National du Leopard (RDC); Commandeur de l'Ordre National du MeriteItalien (Italy); Commandeur de l'Ordre de Saint Marc de l'Eglise Orthodoxed'Alexandrie (Greece); Officier de l'Ordre de Leopold II (Belgium); Chevalier del'Ordre National de la Legion d'Honneur (France); Chevalier de l'Ordre Nationaldu Merite (France); Medaille d'Or du Merite Sportif (RDC); Medaille de Vermeil(Commandeur) de la Courtoisie Francaise (France); Medaille d'Honneur (Argent) dela Societe d'Encouragement au Progres (France); Medaille du Merite Civique,Bronze, Argent, Or et Or avec Palme (RDC); Officier de l'Ordre National du Zaire(Zaire) George Andrew Forrest - Non-Executive Director George Andrew Forrest joined the Forrest Group 7 years ago. During the last fiveyears he has held a number of directorships across the Forrest Group: George Andrew Forrest holds a B COM from the University of South Africa(Bachelor of Commerce) and a postgraduate diploma in management (WITS BusinessSchool) from the University of Witwatersrand - South Africa. Michel Anastassiou - Non-Executive Director Michel Anastassiou was employed by the Congolese state company Generale desCarrieres et des Mines from 1973 to 1993 where he held various positions thelast one being Chief Financial Officer. He joined the Forrest Group in 1993.During the last five years he has held a number of directorship across theForrest Group. Michel Anastassiou is currently the Managing Director of GeorgeForrest International Afrique sprl ("GFIA") Michel Anastassiou holds a B COM from the University of Lubumbashi (economics). Roger Marshall, OBE - Non-Executive Director Mr Marshall has more than 40 years experience in the mining industry. He iscurrently Deputy Chairman of Macarthur Coal Limited, and Deputy Chairman ofCITIC Australia Trading Limited. He was an Executive Director of the Operatingboard of BP Australia, and of MIM Holdings Limited (1984-1992) overseeing itsextensive coal operations and served as Chairman of Energy Brix AustraliaCorporation (1993-1996). He has been responsible for the development andproduction of a number of mines. He is a former Chairman of both the Australian Coal Association and theQueensland Coal Association (1987-1988) and served on the Committee of the WorldCoal Institute, London (1983-1993) and was also an Australian representative tothe International Energy Agency. He was appointed an Officer of the Order ofthe British Empire in 1989 for services to the Australian coal industry. Mr.Marshall is an Honorary Life Fellow of the Australasian Institute of Management. Chairman's statement for the year ended 31 December 2005 STRATEGY AND OUTLOOK 2006 promises to be an eventful year for CRC with significant developments on anumber of fronts, including: • advancing the Hinoba copper project to completion of a Bankable Feasibility Study; • evaluating the optimal metallurgical process recovery route for the Haib copper project to determine its long-term economic viability; • restarting the Kinsenda Mine and reconditioning the existing Musoshi plant and infrastructure, which the Directors expect to commence production in the near term, producing up to 54,000t of copper per annum. By focusing on the development of CRC's assets in the Congo, Philippines andNamibia, CRC hopes to enhance shareholder value. We would like to express our appreciation to the management and our shareholdersfor their continued support. Sincerely Samuel Jonah KBE Mitchell AllandChairman Executive Vice Chairman 30 June 2006 Directors' Report for the year ended 31 December 2005 Review of the business Copper Resources Corporation ("the Company") was incorporated on November 25,2004, in the British Virgin Islands under the International Business CompaniesAct 2000. On January 11, 2005, the Company entered into an agreement to acquirethe entire issued share capital of Hinoba Holdings by way of a share for shareexchange. Further, on January 28, 2005, the Company became the registeredholder of the entire issued share capital of Copper Spur that was previouslyheld by Hinoba Holdings. Following the acquisition of Hinoba Holdings, the Company has, through asubsidiary, acquired the rights to the Hinoba-an Porphyry Copper Project onNegros Island in the Republic of the Philippines. Further, on 28 January 2005, the Company became the registered holder of theentire issued share capital of Copper Spur Mining Corporation ("Copper Spur")that was previously held by Hinoba Holdings. On 25 May, 2005, CRC entered into an option and operating agreement with Deep-South Mining Pty Ltd, Africa-can Marine Minerals Corporation and AfricanMillennium Corporation on the Haib Porphry Copper Project in Namibia. On 30 November 2005 CRC also acquired 75% of Miniere de Musoshi et Kinsenda, inthe DRC (Democratic Republic of Congo) which will enable the Company to become aproducer in the near term. More details are given in the Chairman's Statement on pages 4 to 9. The principal activity of the Company is as a holding company for the Group, topursue exploration and development of minerals. Results and Dividends The results of the Group for the year ended 31 December 2005 are set out in theaccounts. The directors do not recommend a dividend for the year ended 31 December 2005(2004: Nil) Directors & their Interests The director's interests in the shares of the Company were as stated below: Common Shares Number of ordinary shares At 31 December 2005 At 1 January 2005 Sir Samuel Esson Jonah 200,000 - Mitchell Alland 100,000 - Christopher Jordinson 257,333 227,333 Elia Crespo - - James D Frank 100,000 100,000 Rebecca Taylor - - Directors' Report for the year ended 31 December 2005 Options Directors hold the following options to subscribe for ordinary shares: Exercise price Date of grant Date of expiry Number of shares Sir Samuel Esson Jonah 59 pence 24/05/2005 23/05/2010 150,000Mitchell Alland 100 pence 04/04/2005 04/04/2010 50,000Mitchell Alland 42 pence 28/09/2005 28/09/2010 100,000Christopher Jordinson 25 cents 19/01/2005 19/01/2010 75,000Christopher Jordinson 100 cents 14/02/2005 13/02/2010 150,000Christopher Jordinson 100 pence 04/04/2005 04/04/2010 100,000Elia Crespo 100 pence 04/04/2005 04/04/2010 50,000James D Frank 100 cents 13/02/2005 13/02/2010 100,000James D Frank 25 cents 1901/2005 19/01/2010 100,000Rebecca Taylor 100 pence 04/04/2005 04/04/2010 20,000George Arthur Forrest 75 pence 30/11/2005 31/12/2010 125,000George Andrew Forrest 75 pence 30/11/2005 31/12/2010 125,000Michel Anastassiou 75 pence 30/11/2005 31/12/2010 125,000Roger Marshall 75 pence 30/11/2005 31/12/2010 100,000 Substantial Shareholding The Forrest Group holds 40% of the shares of CRC, following the acquisition ofCRC's 75% shareholding in MMK. The shares are held under different names and/orcompanies within the Forrest Group. The following shareholders hold in excess of 3% equity in CRC: Shareholder Number of Shares % L'enterprise Generale Malta Forrest sprl 21,597,121 35.64%Morstan Nominees Limited 9,636,778 15.9%Chase Nominees Limited 6,781,250 11.19%Credit Suisse Client Nominees (UK) Limited 2,600,000 4.29%George Forrest International Afrique sprl 1,871,770 3.09% Political and Charitable donations There was neither political nor charitable donations by CRC for 2005. Policy on Suppliers Payment It is the Group's policy to agree the terms of payment at the start of businesswith each supplier, ensure that the suppliers are aware of the terms of thepayment, and pay in accordance with contractual and other legal obligations. Directors' Report for the year ended 31 December 2005 CORPORATE GOVERNANCE Annual General Meeting The Annual General Meeting of the Company will be held on the 28th August 2006. A Form of Proxy and a reply-paid envelope are enclosed with this document. Business at the Annual General Meeting In accordance with Article 105 the Business to be carried out at the Annual General Meeting will be: 1. Approve Annual Financial Statements for 31st December 2005. 2. Re-election of Directors who are required to be re-elected. 3. Reappointment of the auditors - Chantrey Vellacott DFK LLP Internal Control The directors are responsible for the Group's system of financial and otherinternal controls. The directors prepare financial statements for each financialyear which give a true and fair view of the state of affairs of the Company andof the Group and of the profit or loss of the Group for that period. Inpreparing those financial statements, the directors: • Select suitable accounting policies and then apply them consistently; • Make judgments and estimates that are reasonable and prudent; • State whether appropriate accounting standards have been applied; • Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group will continue in business. The Directors are responsible for keeping proper accounting records whichdisclose with reasonable accuracy at any time the financial position of thecompany and the group, Audit Committee The Audit Committee comprises of 1 executive director and 3 non-executivedirectors. The Audit Committee meetings take place 2 times a year. The mainfunctions of the Committee are to review and recommend the release of the halfyear and full year Financial statements of the Company to the full Board of CRC.The Audit Committee is comprised of the following members: Sir Samuel Esson Jonah - Non-Executive ChairmanGeorge Andrew Forrest - Non-Executive DirectorRoger Marshall - Non-Executive DirectorChristopher Jordinson - Executive Director/Chief Executive Officer Directors' Report for the year ended 31 December 2005 Executive Committee The Executive Committee comprises of 2 executive directors and 1 non-executivedirector. The Executive Committee meetings take place as required and thedecisions are then distributed to the full board for ratification. The mainfunctions of the committee are to make executive day to day operating decisionswithout having to convene a meeting of the entire board. The members of theExecutive Committee are: Mitchell Alland - Executive Vice-ChairmanMichel Anastassiou - Non-Executive DirectorChristopher Jordinson - Executive Director/Chief Executive Officer Bonus Payments No bonus payments were paid to the directors or executive office holders. Going Concern The directors consider that the Group has adequate resources to continue inoperational existence for the foreseeable future and accordingly have adoptedthe going concern basis in the preparation of the accounts. Income Statement The income statement of the company is not presented as part of these accounts. Interest received in relation to cash deposits and term investments amounted to US$0.298 million. Statement of directors' responsibilities The directors prepare financial statements for each financial year which give atrue and fair view of the state of affairs of the Company and the Group as atthe end of the financial year and the profit or loss of the Group for the year.In preparing those financial statements, the directors: • Select suitable accounting policies and then apply them consistently; • Make judgements and estimates that are reasonable and prudent; • State whether applicable accounting standards have been followed; and • Prepare the financial statements on a going concern basis unless it is inappropriate to presume that the group will continue in business. The directors are responsible for keeping proper accounting records whichdisclose with reasonable accuracy at any time the financial position of theCompany, and the Group, and to enable them to ensure that the financialstatements comply with IFRS. They are also responsible for safeguarding theassets of the Group and for taking reasonable steps for the prevention anddetection of fraud and other irregularities. Directors' Report for the year ended 31 December 2005 Auditors A resolution for the reappointment of Chantrey Vellacott DFK LLP as auditors ofthe Company is to be proposed at the forthcoming Annual General Meeting. Director 30 June 2006 Independent auditors' report to the shareholders of Copper Resources Corporation We have audited the group and parent company financial statements of CopperResource Corporation for the year ended 31 December 2005, which comprise of theconsolidated income statement, consolidated and company balance sheets,consolidated and company statement of changes in equity, consolidated andcompany cash flow statements and the related notes. These financial statementshave been prepared under the historical cost convention and the accountingpolicies set out therein. This report is made solely to the company's members, as a body. Our audit workhas been undertaken so that we might state to the company's members thosematters we are required to state to them in an auditors' report and for no otherpurpose. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the company and the company's members as abody, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As described in the statement of directors' responsibilities the company'sdirectors are responsible for the preparation of financial statements inaccordance with applicable law and International Financial Reporting Standardsas adopted by the European Union. Our responsibility is to audit the financial statements in accordance withrelevant legal and regulatory requirements and International Standards onAuditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a trueand fair view and have been properly prepared in accordance with Article 4 ofthe IAS Regulation. We also report to you if, in our opinion, the directors'report is not consistent with the financial statements, if the group has notkept proper accounting records, if we have not received all the information andexplanations we require for our audit, or if information specified by lawregarding directors' remuneration and other transactions are not disclosed. We read other information contained in the financial statements and considerwhether it is consistent with the audited financial statements. This otherinformation comprises only the Directors' report and the Chairmans statement. Weconsider the implications for our report if we become aware of any apparentmisstatements or material inconsistencies with the financial statements. Ourresponsibilities do not extend to any other information. Basis of audit opinion We conducted our audit in accordance with International Standards on Auditing(UK and Ireland) issued by the Auditing Practices Board. An audit includesexamination, on a test basis, of evidence relevant to the amounts anddisclosures in the financial statements. It also includes an assessment of thesignificant estimates and judgments made by the directors in the preparation ofthe financial statements, and of whether the accounting policies are appropriateto the group's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information andexplanations which we considered necessary in order to provide us withsufficient evidence to give reasonable assurance that the financial statementsare free from material misstatement, whether caused by fraud or otherirregularity or error. In forming our opinion we also evaluated the overalladequacy of the presentation of information in the financial statements. Independent auditors' report to the shareholders of Copper Resources Corporation Opinion In our opinion • the financial statements give a true and fair view, in accordance with International Financial Reporting Standards as adopted by the European Union, of the state of the group's and the parent company's affairs as at 31 December 2005 and of the group's profit for the year then ended; and • the financial statements have been properly prepared in accordance with Article 4 of the IAS Regulation. • the information given in the directors' report is consistent with the financial statements. CHANTREY VELLACOTT DFK LLPChartered AccountantsRegistered AuditorsLondon 30 June 2006 Consolidated income statement for the year ended 31 December 2005 Notes 2005 2004 $'000 $'000 Revenue - - Gross profit - - Interest receivable and similar income 6 298 2Unrealised foreign exchange gain/(loss) 78 (1)Administrative expenses (1,449) (744)Share option expenses (1,559) (74)Other write offs (435) - Loss on ordinary activities before taxation 3 (3,067) (817)Income tax expense 7 - -Minority interest 1 - Loss for the financial year (3,066) (817) Loss per share Basic 8 (13.6c) ($817,000) Diluted 8 (12.5c) ($817,000) All results derive from continuing activities Consolidated balance sheet as at 31 December 2005 Notes 2005 2004 $'000 $'000 Assets Non-current assetsProperty, plant and equipment 9 5,526 2Development, exploration and evaluation costs 10 26,478 212Investment in associate 11 - 78Investment in other company 12 200 - 32,204 292Current assetsInventories 15 5,422 -Trade and other receivables 17 2,300 9Other current assets 16 - 448Cash and cash equivalents 18 11,565 1,348 19,287 1,805 Total assets 51,491 2,097 Consolidated balance sheet as at 31 December 2005 Notes 2005 2004 $'000 $'000Equity and liabilitiesShareholder's equityShare capital 23 30,365 10Contributed surplus 2,817 2,817Other reserves 1,576 107Retained earnings (3,973) (907)Total equity 30,785 2,027 Minority interests 4,304 - Net funds available to shareholders' 35,089 - Non-current liabilitiesDeferred tax liabilities 21 13 -Deferred purchase consideration 20 475 -Borrowings 22 354 -Total non-current liabilities 842 - Current liabilitiesTrade and other payables 19 5,097 70Deferred purchase consideration 20 150 -Borrowings 22 10,313 - Total current liabilities 15,560 70 Total liabilities 16,402 70 Total equity and liabilities 51,491 2,097 Approved by the board of directors on 30 June 2006 Signed on behalf of the board of directors: Company balance sheet as at 31 December 2005 Notes 2005 2004 $'000 $'000 AssetsNon-current assetsProperty, plant and equipment 9 3 -Investment in subsidiaries 13 14,434 -Investment in other company 12 200 - 14,637 -Current assetsLoans to related undertakings 14 6,008 -Trade and other receivables 17 16 -Cash and cash equivalents 18 8,857 - 14,881 - Total assets 29,518 - Equity and liabilitiesShareholders' equityShare capital 23 30,365 -Other reserves 1,559 -Retained earnings (3,267) - 28,657 - Non-current liabilitiesDeferred purchase consideration 20 475 - Total non-current liabilities 475 - Current liabilitiesLoans to related membership 14 218 -Trade and other payables 19 18 -Deferred purchase consideration 20 150 - Total current liabilities 386 - Total liabilities 861 - Total equity and liabilities 29,518 - Approved by the board of directors on Signed on behalf of the board of directors: Director Consolidated statement of changes in equity for the year ended 31 December 2005 Share Contributed Other Retained Total capital surplus reserves earnings $'000 $'000 $'000 $'000 $'000 Balance at 31 December 2003 5 815 - (90) 730 Loss for the year - - - (817) (817) Additional contributions of Capital 5 2,002 107 - 2,115 Balance at 31 December 2004 10 2,817 107 (907) 2,027 Loss for the year - - - (3,066) (3,066) Additional contributions of Capital 30,355 - - - 30,355 Share based transactions - - 1,559 - 1,559 Foreign exchange gain/(loss) - - (90) - (90) Balance at 31 December 2005 30,365 2,817 1,576 (3,973) 33,785 Company statement of changes in equity for the year ended31 December 2005 Share Contributed Other Retained Total Capital Surplus reserves earnings $'000 $'000 $'000 $'000 $'000 Balance at 31 December 2004 10 - - - 10 Loss for the year - - - (3,267) (3,267) Additional contributions of 30,355 - - - 30,355Capital Share based transactions - - 1,559 - 1,559 Balance at 31 December 2005 30,365 - - (3,267) 28,657 Included in capital reserves as at 31 December 2005 are amounts attributable toshare based transactions of $1,559,000 (2004: nil). Consolidated cash flow statement for the year ended 31 December 2005 2005 2004 $'000 $'000 $'000 $'000 Cash flows from operating activitiesLoss from operations (3,364) (817)Adjustments for:Amortisation of intangible assets - 1Share based transactions 1,559 452Depreciation on property, plant and equipment 13 -Foreign exchange loss - 5 Operating cash flows before movement in working capital - (1,792) (359) Change in trade receivables (1,814) (8)Change in trade payables 5,218 31 Net cash (used in)/generated from operations (3,404) 23 Corporation tax paid - - Net cash used in operating activities (5,196) - (336) Cash flows from investing activitiesInterest received 298 -Acquisition of subsidiaries (12,914) (6)Cash acquired in acquisition of subsidiary companies 2,454 1Investment in exploration costs (4,763) (4)Investment in associates 200 (60)Purchase of property, plant and equipment (217) (1) Net cash used in investment activities (14,942) (70) Cash flows from financing activitiesShare capital issued (net of costs) 30,355 -Contributions by shareholder - 1,592 Net cash from financing activities 30,355 1,592 Net increase in cash and cash equivalents 10,217 1,186Cash and cash equivalents at beginning of period 1,348 162 Cash and cash equivalents at end of period 11,565 1,348 Company cash flow statement for the year ended 31 December 2005 2005 2004 $'000 $'000 $'000 $'000 Cash flows from operating activitiesLoss from operations (3,267) - Operating cash flows before movement in working capital Increase in receivables (5,806) -Increase in payables 18 -Cash used in operations (5,788) - Corporation tax paid - - Net cash used in operating activities (9,055) - Cash flows from investing activitiesAcquisition of subsidiary (15,22) -Acquisition of associate (200) -Acquisition of property, plant and equipment (3) - Net cash used in investment activities (15,426) - Financing activitiesShare capital issued (net of costs) 33,338 - Net cash from financing activities 33,338 - Net increase in cash and cash equivalents 8,857 - Cash and cash equivalents at beginning of period - - Cash and cash equivalents at end of period 8,857 - Notes to the financial statementsFor the year ended 31 December 2005 1. Presentation of financial statements The nature of the group's operations and its principal activities are set out inthe Directors' Report on pages 10 to 14. The financial statements have been prepared in accordance with InternationalFinancial Reporting and Accounting Standards adopted by the European Union andtherefore comply with Article 4 of the EU IAS Regulation. At the date of authorisation of these financial statements, there were Standardsand Interpretations that were in issue but are not yet effective and have notbeen applied in these financial statements. The directors anticipate that theadoption of these Standards and Interpretations in future periods will have nomaterial impact on the financial statement of the group or company, except foradditional disclosures when the relevant Standards come into effect. 2. Significant accounting policies Basis of accounting The preparation of financial statements in conformity with IFRS requires the useof estimates and assumptions that affect the reported amounts of assets andliabilities at the date of the financial statements and the reported amounts ofrevenues and expenses during the reporting period. Although these estimates arebased on management's best knowledge of the amount, even or actions, actualresults ultimately may differ from those estimates The financial statements have been prepared on the historical cost basis. Theprincipal accounting policies adopted are set out below. The Company's own operations and cash flows reflect the actual results of theCompany from the date of incorporation, 1 January 2005, to 31 December 2005. Basis of consolidation The consolidated financial statements incorporate the financial statements ofthe Company and enterprises controlled by the Company (its subsidiaries) made upto 31 December each year. Control is achieved where the Company has the power togovern the financial and operating policies of a subsidiary. On acquisition and when control is achieved, the assets and liabilities andcontingent liabilities of a subsidiary are measured at their fair values at thedate of acquisition or at the date control is achieved. Any excess of the costof acquisition over the fair values of the identifiable net assets acquired isrecognized as goodwill. Minority interests in the net assets of consolidated subsidiaries are identifiedseparately from the group's equity therein. Minority interests consist of theamount of those interests at the date of the original business combination andthe minority's share of changes in equity since the date of the combination.Losses applicable to the minority in excess of the minority's interest in thesubsidiary's equity are allocated against the interests of the group except tothe extent that the minority has a binding obligation and is able to makeadditional investment to cover the losses. Notes to the financial statementsFor the year ended 31 December 2005 Basis of consolidation (continued) The results of subsidiaries acquired or disposed of during the period areincluded in the consolidated income statement from the effective date ofacquisition or up to the effective date of disposal, as appropriate. All intercompany transactions and balances between group enterprises areeliminated on consolidation. The acquisition of subsidiaries is accounted for using the purchase method. Thecost of the acquisition is measured at the aggregate of the fair values, at theacquisition date, of assets given, liabilities incurred or assumed, and equityinstruments issued by the group, plus any costs directly attributable to theacquisition. The acquiree's identifiable assets, liabilities and contingentliabilities are recognised at their fair value at the acquisition date, exceptfor non-current assets that are held for resale, which are recognised andmeasured at fair value less costs to sell. Goodwill arising on acquisition is recognised as an asset andinitially measured at cost, being the excess of cost over the group's interestin the net fair value of the identifiable assets, liabilities and contingentliabilities recognised of a subsidiary, associate or jointly controlled entityat the date of acquisition. Goodwill is recognised as an asset and is tested forimpairment annually, or on such occasions that events or changes incircumstances indicate that its value might be impaired. On disposal of a subsidiary, the attributable amount of unamortised goodwill,which has not been subject to impairment, is included in the determination ofthe profit or loss on disposal. If the group's interest in the net fair value of a subsidiary's or jointventure's assets, liabilities and contingent liabilities exceeds cost of thebusiness combination, the excess after any adjustment for fair value ("negativegoodwill") is recognised in the income statement immediately. Investment in associates An associate is an entity over which the group is in a position to exercisesignificant influence, but not control or jointly control, through participationin the financial and operating policy decisions of the investee. Significantinfluence is the power to participate in the financial and operating policydecisions of the investee but not control or joint control over these policies. The results and assets and liabilities of associated are incorporated in thesefinancial statements using the equity method of accounting except whenclassified as held for sale. Investments in associates are carried in thebalance sheet at cost as adjusted by post-acquisition changes in the group'sshare of net assets of the associate, less any impairment in the value ofindividual investments. Losses of the associate in excess of the group'sinterest in those associates are not recognised. Any excess of the cost of acquisition over the group's share of the fair valuesof the identifiable net assets of the associate at the date of acquisition isrecognised as goodwill. Where the company transacts with an associate of the group, profits and lossesare eliminated to the extent of the group's interest in the relevant associate.Losses may provide evidence of an impairment of the asset transferred in whichcase appropriate provision is made for impairment. Notes to the financial statementsFor the year ended 31 December 2005 Revenue recognition Interest income is accrued on a time basis, by reference to the principaloutstanding and the interest rate applicable. Leasing Leases are classified as finance leases whenever the terms of the lease transfersubstantially all the risks and rewards of ownership to the lessee. All otherleases are classified as operating leases. Assets held under finance leases are recognised as assets of the group at theirfair value or, if lower, at the present value of the minimum lease payments,each determined at the inception of the lease. The corresponding liability tothe lessor is included in the balance sheet as finance lease obligation. Leasepayments are apportioned between finance charges and reduction of the leaseobligation so as to achieve a constant rate of interest on the remaining balanceof the liability. Finance charges are charged directly against income, unlessthey are directly attributable to qualifying assets, in which case they arecapitalised in accordance with the group's general policy on borrowing costs. Rentals payable under operating leases are charged to income on a straight-linebasis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operatinglease are also spread on a straight-line basis over the lease term. Borrowing costs All borrowing costs are recognised in the income statement in the period towhich they are incurred. Taxation The tax charge represents the sum of current and deferred tax. Current tax payable is based on taxable profits for the year.Taxable profits differ from net profits as reported in the income statementbecause it excludes items that are taxable or deductible in other years anditems that are not taxable or deductible. The group's liability for current taxis calculated using tax rates that have been enacted or substantively enacted atthe balance sheets date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the liability method. Deferred taxliabilities are recognised for all temporary differences and deferred tax assetsare recognised to the extent that it is probable that taxable profits will beavailable against which temporary differences can be utilised. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability or the asset is realised. Notes to the financial statementsFor the year ended 31 December 2005 Foreign Currency Translations Fair value adjustments arising on the acquisition of a foreign entity aretreated as assets and liabilities of the foreign entity and translated at theclose rate. Transactions in currencies other than US Dollars are recorded at the rates ofexchange prevailing on the dates of the transactions or translated at theaverage exchange rates for the period. Exchange differences resulting from thesettlement of transactions denominated in foreign currency are included in thestatement of income using the exchange rate ruling on that date. Transactions occurring in a subsidiary of Hinoba Holdings, were denominatedprimarily in Philippine Pesos. Management is of the opinion that theseoperations were integrated foreign operations for purposes of foreign currencytranslation and, accordingly, the accounts have been translated into U.S.dollars. Transactions occurring in a subsidiary of MMK, were denominated primarily inCongolese Francs. Management is of the opinion that these operations wereintegrated foreign operations for purposes of foreign currency translation and,accordingly, the accounts have been translated into U.S. dollars. The consolidated financial information is presented in US Dollars, which isconsidered by management to be the most appropriate presentation currency forits consolidated financial information. All assets and liabilities are translated at the closing rate existing at thebalance sheet date. Income and expense items are translated at an average ratefor the period. Equity items other than the net profit or loss for the periodthat is included in the balance of accumulated profit or loss are translated atthe closing rate existing at the balance sheet date. All translationsdifferences are recognised in a component US Equity. Impairment At each balance sheet date, the group reviews the carrying amount of itstangible and intangible assets to determine whether there is any indication thatthose assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine theextent of the impairment loss (if any). Where it is not possible to estimatethe recoverable amount of an individual asset, the group estimates therecoverable amount of the cash-generating unit to which the asset belongs. If the recoverable amount of an asset is estimated to be less than its carryingamount, the impairment loss is recognised as an expense, unless the relevantasset is land or buildings at a revalued amount, in which case the impairmentloss is treated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amountof the asset is increased to the revised estimate of its recoverable amount, butso that the increased carrying amount does not exceed the carrying amount thatwould have been determined had no impairment loss been recognised for the asset. A reversal of an impairment loss is recognised as income immediately, unlessthe relevant asset is carried at a revalued amount, in which case the reversalof the impairment loss treated as a revaluation increase. Impairment lossesrelating to goodwill are not reversed. Notes to the financial statementsFor the year ended 31 December 2005 Property, plant and equipment Property, fixtures and equipment are stated at cost less accumulateddepreciation and any impairment losses. Depreciation is charged so as to writethe cost less residual value over estimated useful lives, using thestraight-line method commencing in the month following the purchase, on thefollowing basis: - freehold property 25 years- heavy equipment 4 - 10 years- plant and equipment 4 - 10 years The useful lives and residual values of assets are reviewed annually. Assets held under finance leases are depreciated over their expected usefullives on the same basis as owned assets or, where shorter, over the term of thelease. The gain or loss arising on the disposal of an asset including disposal costs isrecognised in the income statement. Mineral Exploration Costs Expenditures for mineral exploration work prior to and subsequent to drillingare deferred as incurred. These shall be written off it the results of theexploration work are unsuccessful. If the results are successful, the deferredexpenditures and the subsequent development cost will be capitalized andamortized from the start of commercial operations. Inventories Inventories are stated at the lower of cost and net realisable value. Netrealisable value represents the estimated revenue less all estimated costs ofcompletion and necessary selling costs. Financial instruments The carrying value of accounts receivable and accounts payable and accruedliabilities approximates fair value due to the relatively short term maturity ofthese instruments. Fair value represents the amount that would be exchanged inan arm's length transaction between willing parties and is best evidenced by aquoted market price. Fair value information about related party advances is notreadily obtainable. Financial assets and financial liabilities are recognised in the group's andcompany's balance sheets when the group or company has become a party to thecontractual provisions of the instrument. The Company follows the Black-Scholes option pricing model. Under this model,share-based payments are measured at the fair market at the date of grant. Thefair value determined at the grant date is expensed to when options vest.Options vest immediately. Notes to the financial statementsFor the year ended 31 December 2005 Trade receivables Trade receivables are stated at their nominal value less allowances forirrecoverability. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and othershort-term deposits and liquid investments that are readily convertible to aknown amount of cash and are subject to an insignificant risk of changes invalue. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceedsreceived, net of direct issue costs. Finance charges, including premiums payableon settlement or redemption and direct issue costs, are accounted for on anaccruals basis in the income statement using the effective interest rate method Financial liabilities and equity Financial liabilities and equity instruments are classified according to thesubstance of the contractual arrangements entered into. An equity instrument isany contract that creates a residual interest in the assets of the group. Equity instruments issued by the company are recorded at the proceeds received,net of direct issue costs. Provisions Provisions are recognised when the group has a present obligation as a result ofa past event from which it is likely that an outflow of economic benefits willoccur which can be reasonably quantified. Notes to the financial statements For the year ended 31 December 2005 3. Loss on ordinary activities 2005 2004 $'000 $'000Loss on ordinary activities has been arrived at after charging: Auditors remuneration - audit 100 -Auditors remuneration - non-audit - -Depreciation of property, plant and equipment- owned assets 13 -Staff costs (note 5) 293 -Director's remuneration (note 6) 410 0 Auditors' remuneration for the audit of the company amounts to $30 (2004: $-) 4. Staff costs The costs of employing staff were: 2005 2004 $'000 $'000 Wages and salaries 292 -Social security costs 1 - 293 - No. No. The average number of employees during the period was - - 5. Directors' remuneration Remuneration paid to directors during the period was as follows: 2005 2004 $'000 $'000 Salaries 410 - The remuneration of directors and key executives is decided by the remunerationcommittee having regard to comparable market statistics. The directors consider the key management personnel of the Company to consistentirely of the directors and therefore, no additional disclosure has been made Notes to the financial statements For the year ended 31 December 2005 5. Directors' remuneration (continued) The emoluments (including pension contributions) of the highest paid directorwere as follows: 2005 2004 $'000 $'000 Salaries 155 - 6. Interest receivable and similar income 2005 2004 $'000 $'000 Interest on bank deposits 298 2 7. Income tax expense The British Virgin Islands under the IBC imposes no corporate taxes or capitalgains. However, the Company as a group may be liable for taxes in thejurisdictions where it is developing mining properties. The tax rates in the Philippines and the Congo are 40% and 32.5% respectively.There are currently tax losses amounting to $0.19 million in the Philippines and$2.6 million in the Congo. No reconciliation has been produced as there is no taxable revenue in thecurrent year. 8. Loss per share The calculations of the basic and diluted loss per share are basedon the following data: 2005 2004 $'000 $'000 Loss for the purpose of basic loss per share 3,066 817 Number of shares Weighted average number of ordinary shares in issue during the year 22,615,528 1 Number of shares Weighted average number of fully diluted shares in issue during the year 24,498,534 - Notes to the financial statementsFor the year ended 31 December 2005 9. Property, plant and equipment Group Freehold Heavy equipment Plant and Total properties equipment $'000 $'000 $'000 $'000 CostAt 1 January 2005 - - 2 2Additions 477 5,140 313 5,930Disposals - (5) (3) (8) At 31 December 2005 477 5,135 312 5,924 Depreciation:At 1 January 2005 - - - -Charge for the year 11 348 39 398 At 31 December 2005 11 348 39 398 Net book value:At 31 December 2005 466 4,787 273 5,526 At 31 December 2004 - - - 2 The carrying amount of the group's fixtures and equipment includes an amountof $nil (2004: $nil) in respect of assets held under finance leases Company Plant and Total equipment $'000 $'000 At 1 January 2005 - -Additions 3 3 Net book value:At 31 December 2005 3 3 At 31 December 2004 - - Notes to the financial statementsFor the year ended 31 December 2005 10. Development, Exploration and Evaluation costs Group 2005 2004Cost $'000 $'000 At 1 January 2005 212 - Additions 26,266 212 At 31 December 2005 26,478 212 At 31 December 2004 - - This relates to capitalised costs of exploration and development costs at theHinoba-an Project, Haib Project and Congolese Projects. 11. Investment in associated undertaking Group 2005 2004 $'000 $'000 CostAt 1 January 2005 78 -Additions - 78Disposals (78) - At 31 December 2005 - 78 This investment in associated undertaking related to Selenga Mining Corporationand the acquisition of the interest in Selenga by Hinoba Holdings Limited. Thisamount has been paid and was included in the contingent consideration. Notes to the financial statementsFor the year ended 31 December 2005 12. Investment in other company Company 2005 2004 $'000 $'000 CostAt 1 January 2005 - -Additions 200 - At 31 December 2005 200 - This relates to the investment in Afri-Can Marine Minerals Corporation, which isa listed entity on the Toronto Stock Exchange. Notes to the financial statements For the year ended 31 December 2005 13. Investments in subsidiary undertakings Company 2005 2004 $'000 $'000CostAt 1 January 2005 - -Acquisitions 14,434 - At 31 December 2005 14,434 - All subsidiary companies are included in the consolidated accounts of CopperResources Corporation. At December 31, 2005, the Company had the following subsidiaries: Name of company Place of incorporation Ownership interest Principal activity Hinoba Holdings Australia 100% Secretarial &(Australia) Pty Administration OfficesLimited African Millennium British Virgin Islands 100% Mining explorationCorporation Hinoba Holdings Ltd. Commonwealth of the Bahamas 100% Holding company of Hinoba Holdings (Philippines), Inc. Hinoba Holdings Philippines 100% Holding company of(Philippines), Inc. Hinoba-an & Sipalay Holdings Hinoba-an & Sipalay Philippines 40% Holding company ofHoldings Selenga Mining Corporation Selenga Mining Philippines 92.5% Mining explorationCorporation Miniere de Musoshi et Democratic Republic of Congo 75% Mining explorationKinsenda sarl Notes to the financial statements For the year ended 31 December 2005 13. Investments in subsidiary undertakings (continued) Reverse Acquisition Copper Resources ("CRC") issued 10,756,600 common shares to the shareholders ofHinoba Holdings ("HHL"), representing 99.99% of all the issued and outstandingshares of the Company and issued 975,000 options on a one to one basis to HHL'soptionees to acquire 100% interest in HHL. For accounting purposes, this transactions is considered as a reverseacquisition of CRC by HHL. The net assets of CRC at the date of acquisition consisted of share capital of$1 and a deficit of $4,872 relating to administrative expenses which have beencharged to the consolidated income statement. Selenga Mining Corporation The 40% investment in Selenga Mining Corporation ("SMC ") was recorded on anequity basis during 2004. Hinoba Holdings (Philippines), Inc. ("HHPI"), asubsidiary of HHL, paid $60,000 on January 13, 2004 and a further $15,000 onJanuary 15, 2005 when it exercised the assignable option dated January 13, 2004allowing it the option to acquire the remaining 59.6% of the shares outstandingin SMC for a purchase price of $150,000. HHPI assigned its interest in SMC toits subsidiary, Hinoba-an & Sipalay Holdings Inc ("HSHI"), on January 15, 2005.As a result of the above assignment HSHI owns 92.5% of SMC. This transaction has been accounted for by the purchase method with the resultsof operations included in these financial statements from the date ofacquisition. Details of the acquisition are as follows: Notes to the financial statementsFor the year ended 31 December 2005 13. Investments in subsidiary undertakings (continued) Selenga Mining Corporation Net assets acquired - at fair valueAdvances from Colet Mining $18,566Mineral exploration costs 622,682 Accounts payable and accrued liabilities (7,371)Payable to HHPI (452,246)Minority Interest (13,622) $168,009 Consideration given - at fair valueCash $93,009Deferred consideration 75,000 $168,009 African Millennium Corporation On May 25, 2005, CRC acquired 100 common shares of AMC, representing 100% of theoutstanding shares. This transaction has been accounted for by the purchasemethod with the results of operations included in these financial statementsfrom the date of acquisition. Details of the acquisition are as follows: Net assets acquired - at fair value Cash $100 Exploration option rights 915,550 $915,650Consideration given - at fair value Cash 250,000 Common shares in the Company 40,650 Deferred consideration 625,000 $915,650 $250,000 of the deferred consideration is contingent upon the successfulcompletion of the bankable feasibility study of the project and $375,000 iscontingent upon the commencement of commercial production at the Haib project. CRC through its acquisition of AMC holds option rights to certain mineralproperties located in southern Namibia close to the South African border,referred to as the Haib Copper Project. ("Haib Project"). On May 25, 2005, theCompany entered into agreement with Afri-can Marine Minerals Corporation ("AFA")and Deep-South Mining Company (Pty) Limited ("Deep-South") to explore anddevelop the Haib Project. Under the terms of the agreement, the Company has paid$162,00 to AFA, subscribed for US$200,000 in AFA's shares and issued 60,000common shares of the Company to Deep-South and has a further commitment to fundUS$1,200,00 in expenditures on the project within 40 months. The company shallbe entitled to a 60% interest in a new company which will be formed to hold theHaib Project at the time the Company has fulfilled its funding obligations. Notes to the financial statementsFor the year ended 31 December 2005 13. Investments in subsidiary undertakings (continued) Hinoba Holdings (Australia) Pty Ltd. On April 28, 2005, HHPI, a subsidiary of HHL incorporated a wholly ownedsubsidiary, Hinoba Holdings (Australia) Pty Ltd. The results of operations havebeen included in the financial statements from the date of incorporation. AsHHPI was the founding shareholders there was no acquisition of net assets. Miniere de Musoshi et Kinsenda sarl Copper Resources Corporation entered into a Memorandum of Understanding toacquire 75% of Miniere Musoshi Kinsenda (MMK) which holds three deposits in thesouth of Katanga Province of the Democratic Republic of Congo (DRC). In exchange for the 75% shareholding in MMK, CRC issued 18,717,734 new shares. Net assets acquired - at fair value $'000 Cash $2,454Exploration option rights 22,462Property, plant and equipment 5,357Inventories 5,204Trade receivables 2,121Borrowings (15,667)Trade Creditors (4,712)Net liabilities 17,219 75% the assets 12,914 Consideration given - at fair valueCommon shares in the Company 11,834 Acquisition costs 1,080 $12,914 Notes to the financial statementsFor the year ended 31 December 2005 14. Loans to related undertakings Company 2005 2004 $'000 $'000 Within one year: At 1 January 2005 - -Net Funds provided 6,008 - At 31 December 2005 6,008 - Loans from subsidiariesAt 1 January 2005 - -Funds advanced 218 - At 31 December 2005 218 - The directors consider that the fair values of the loans outstanding are notconsidered to be materially different from their book values. The loans are interest free with no fixed-terms of repayment. The loans are for the working capital required for each entity to perform itsday to day activities. 15. Inventories Group 2005 2004 $'000 $'000 Raw Materials 2,645 -Wrappings 10 -Work in progress 1,173 -Finished products 1,369 -Stocks in transit 225 - 5,422 - Notes to the financial statementsFor the year ended 31 December 2005 16. Other Current assets Group 2005 2004 $'000 $'000 CostAt 31 January 2005 448 -Additions 2 -Disposals (450) - At 31 December 2005 - 448 Other current assets relate to the Copper Spur property where CRC relinquishedits rights thereto and wrote off the expenditure incurred. 17. Trade and other receivables Group Company 2005 2004 2005 2004 $'000 $'000 $'000 $'000 Trade receivables 2,286 - 16 -Other taxes 14 9 - - 2,300 9 16 - The average credit period taken on sales of services was 90 days (2004: 0 days).The amounts presented in the financial statements are net of allowances fordoubtful receivables, estimated by the group's management based on priorexperience and their assessment of the current economic environment. The directors consider that the carrying amount of trade and other receivablesapproximates to their fair value. Credit risk The group and company have no significant concentration of credit risk, withexposure spread over a large number of counterparties. Notes to the financial statementsFor the year ended 31 December 2005 18. Cash and cash equivalents Group Company 2005 2004 2005 2004 $'000 $'000 $'000 $'000 Useable cash 11,565 1,348 8,857 1Cash secured against borrowings - - - - 11,565 1,348 8,857 1 Bank balances and cash comprise cash held by the group and company andshort-term bank deposits with an original maturity of three months or less. Thecarrying value of these assets approximates their fair value. The credit risk on liquid funds is limited because the counterparties are bankswith high credit ratings assigned by international credit-rating agencies. 19. Trade and other payables Group Company 2005 2004 2005 2004 $'000 $'000 $'000 $'000 Trade payables 4,842 70 18 -Accruals and deferred income 241 - - - 5,097 70 18 - 20. Deferred purchase consideration Group Company 2005 2004 2005 2004 $'000 $'000 $'000 $'000 Deferred consideration 625 - 625 - Description of deferred consideration maturity profile Group Company 2005 2004 2005 2004 $'000 $'000 $'000 $'000 Within one year 150 - 150 -One - two years 150 - 150 -Two - five years 325 - 325 - 625 - 625 - Notes to the financial statementsFor the year ended 31 December 2005 21. Provision for deferred tax - Group Accelerated tax Total depreciation $'000 $'000 31 December 2004 - - Charge/(credit) to income - - Acquisition to subsidiary 13 13 31 December 2005 13 13 Certain deferred tax assets and liabilities have been offset. The following isan analysis of the deferred tax balances (after offset) for financial reportingpurposes: 2005 2004 $'000 $'000 Deferred tax liabilities 13 -Deferred tax assets 13 - Net position at 31 December 2005 13 - 22. Borrowings 2005 2004 $'000 $'000 EGMF - current 10,313 -EGMF - non-current 354 - Net position at 31 December 2005 10,667 - EGMF, an associated company of a current Shareholder and previous majorityShareholder of MMK provided the Company with several amounts of financingthrough the company's Belgolaise account. The Loan is interest free. Notes to the financial statementsFor the year ended 31 December 2005 23. Share capital 2005 2005 2004 2004 $'000 Number of $'000 Number of Shares shares Authorised:Ordinary shares of no par value - 500,000,000 - 500,000,000 Called up, allotted and fully paid:Balance - 1 January 2005 - 1 - - Issued - 25 November 2004 - - 10 1Total - 31 December 2004 - - 10 -Shares Issued at Reverse takeover 1,911 10,756,600 - -Founder Shares 13 1,300,000 - -Exercise of stock options 216 600,000 - -Private Placement 10,516 11,100,000 - -Initial Public Offering 7,516 4,000,000 - -Initial Public Offering costs (1,948) - - -Common shares to acquire AMC 41 60,000 - -Common shares issued for Haib Project earn 41 60,000 - -inCommon shares for MMK acquisition 11,834 18,717,734 - -Common shares for MMK fees 126 200,000 - - Balance at 31 December 2005 30,365 46,794,335 10 1 Shares Issued since Incorporation: Date Number of Ordinary Shares Issue Price On 25 November 2004 1 100 centsOn 20 December 2004 1,300,000 1 centOn 11 January 2005 10,756,600 17.76 centsOn 11 January 2005 600,000 25 centsOn 4 February 2005 11,100,000 100 centsOn 21 April 2005 4,000,000 100 penceOn 25 May 2005 120,000 37 penceOn 30 November 2005 18,717,734 36.5 penceOn 30 November 2005 200,000 36.5 penceAs at 31 December 2005 46,794,335 (a) Under reverse take over accounting, the share capital is presented as ifthe consolidated financial statements are a continuation of the legalsubsidiary, HHL. Therefore, the opening balance of $10,000 represents the bookvalue of the share capital of HHL on 1 January 2005. The number of shares inissue, however, reflect that of the legal parent company. (b) On April 1, 2005, the Company issued 1,300,000 common shares to foundersat a price of $0.01 each for cash and 600,000 common shares pursuant to theexercise of share options at an exercise price of $0.25 each for cashconsideration of $150,000. Notes to the financial statementsFor the year ended 31 December 2005 23. Share capital (continued) (c) Pursuant to a private placement carried out by the Company, the Companyissued 11,100,000 common shares at a price of $1.00 on April 1, 2005 for cashwith financing costs of $583,919. (d) Following the Company's admission to AIM, the Company issued 4,000,000shares at a price of 1 British pound (US$1.9039) on April 21, 2005 for cash. (e) On May 25, 2005, in consideration for the acquisition of AfricanMillennium Corporation, the Company issued 60,000 shares to the vendors and60,000 shares to a joint venture partner for an earn-in interest in the Haibproject. The market price of these shares at the time of issue was 37 Britishpence (US$0.68) per share. (f) On November 30, 2005 the Company issued 18,717,734 common shares at 36.5pence to the vendors in consideration for the acquisition of a 75% shareholdingin MMK. (g) On November 30, 2005 the Company issued 200,000 common shares to Sir SamJonah at 36.5 pence in consideration for his services in connection with the MMKacquisition. (h) Option Plan The Company has established a share option scheme whereby the Directorsmay from time to time at their discretion grant to the Directors, employees andconsultants of the Group Options to subscribe Common Shares. Under the plan, theexercise price of each option shall be the average of the middle marketquotation for the thirty dealing days preceding the grant and the number ofoptions may be granted is limited to 10 per cent of the total Common sharesissued. An Option is exercisable on the date it is granted and expires on thefifth anniversary of the grant date. The details of the changes in the number of stock options outstanding asat 31 December 2005 are shown in note 31. The fair value of stock options granted during the period ended June 30,2005 has been estimated at the date of grant using the Black-Scholes optionpricing model with the following weighted average assumptions: risk freeinterest rate of 3.45%, expected dividend yield of nil, expected volatility of50%, expected option life of 4.17 years. Notes to the financial statementsFor the year ended 31 December 2005 24. Related party transactions a) Transactions between group companies are eliminated on consolidationand are not disclosed in this note. b) General and administrative expenses include $410,308 of fees paid orpayable to directors, officers and entities related to directors and officers ofthe Company in respect of the year ended December 31, 2005. During the year ended December 31, 2005, in the normal course of business,150,000 notional shares were given to the director, or a company controlled bythe director, as consideration for advisory services. The value assigned tothese notional shares was $37,500. These transactions are measured at theexchange amount, which is the amount of consideration established and agreed toby the related parties. Included in Related Party Transactions were the issue of Shares and Options toDirectors of Copper Resources Corporation, Sir Samuel Jonah and Mr MitchellAlland. These are noted in Directors Remuneration as set out above. 25. Contingencies A Financial or Technical Assistance Agreement ("FTAA") was filed jointly by HHPIand SMC in July 1995. Actual ground exploration work started in October 1996.In December 1996, all FTAA activities were stopped due to the uncertainty of thePhilippine's government policies affecting FTAAs where the constitutionality ofThe New Mining Law was being questioned before the Supreme Court. Also, thegovernment enacted Republic Act (RA) No. 8371, otherwise known as the IndigenousPeople Rights Act of 1997, which if implemented, would negate the traditionalprovision that all natural resources belong to the State and would adverselyaffect the local mining industry. The constitutionality of RA No. 8371 was alsoquestioned before the Supreme Court whose decision rendered in January 2001resulted in a deadlock. On February 1, 2005, the Supreme Court upheld itsdecision on December 1, 2004 declaring the Philippines Mining Act (RA No. 7942)of 1995 as constitutional. At February 28, 2005, all registered motions ofreconsideration in relation to RA No. 8371 have been dismissed by the SupremeCourt of the Philippines. Notes to the financial statementsFor the year ended 31 December 2005 26. Royalty commitments On December 17, 2004, SMC entered into an Integrated Mining and OperatingAgreement with Colet in order to rationalize and govern their relationship withrespect to the mineral properties and consolidate the terms of the operatingagreement dated December 7, 1991 and the Royalty Reduction Agreement datedDecember 8, 2003. Under the terms of the Integrated Mining and Operating Agreement SMC iscommitted to pay a 3% net benefit royalty to Colet in return for the possession,occupancy, use and enjoyment, for purposes of exploring, developing, equipping,mining and operating for production of the mineral properties in the Project.Further, SMC is committed to pay Colet an additional $48,000 upon the transferof the MPSA to SMC, as referred to in Note 10. SMC is also committed to payColet $105,000 upon completion of the Bankable Feasibility Study. If theBankable Feasibility Study is not completed by December 17, 2006, SMC shall payColet $52,500 upon demand, with the remaining $52,500 to be paid upon completionof the Bankable Feasibility Study. Within six months of commencing commercialoperations, SMC has the option to reduce the 3% net benefits royalty to 2%. Inconsideration for reducing the royalty, SMC must pay to Colet $2,000,000. Atthe election of SMC, an amount up to $600,000 of the $2,000,000 payment can besatisfied by the issuance of common shares of the Listed Company. These 2% netbenefits royalties may be bought out by SMC for $6,000,000 to be satisfied withcash of $4,000,000 and $2,000,000 by the issuance of common shares of the ListedCompany. In the event that SMC buys out the remaining 2% net benefits royaltiesof Colet, then Colet shall be liable to repay SMC $1,000,000 out of the$2,000,000 advance paid in consideration of reducing the net benefits royaltiesto 2%. Colet is also entitled to 7.5 % of the outstanding par value capital stock ofSMC. SMC is to advance to Colet the funds needed to pay for theirsubscriptions. This advance will reduce the future net benefit royalties owingto Colet. 27. Non-cash transactions The Company's non-cash transactions are described in Note 6. 28. Ultimate parent company Copper Resources Corporation is the Ultimate Parent Company. Copper ResourcesCorporation is registered in the Bahamas. Registered office Craigmuir Chambers, P.O.Box 71, Road Town, Tortola, British Virgin Island Registered number 626550 Notes to the financial statementsFor the year ended 31 December 2005 29. Subsequent events The Company completed a US$7.7M Private Placement for the proceeds to be usedfor the restart of the Kinsenda redevelopment, in Katanga Province of theDemocratic Republic of The Congo. The Company placed 8 million new units withinvestors at US$0.97 cents per share. In addition, the Forrest Group elected toextinguish US$5.28M of the Loan and CRC will issue 5,499,857 new shares to theForrest Group whose shareholding will remain at 40%. RMB Resources Limited have been appointed to arrange a Loan Facility of US$32MMiniere de Kinsenda et Musoshi sarl. The 75% owned Congolese (DRC) subsidiary.Proceeds of the loan will be used to restart the Kinsenda copper mine and CRCdoes not anticipate that nay furhter equity financing will be required for theKinsenda restart project. 30. Share Options During the year ended 31 December 2005, the group had the following shareoptions in issue: Options exercisable at 100 pence, expiring 21 October 2006 2005 Beginning of year -Granted during year 400,000End of year 400,000 Options exercisable at 100 pence, expiring 21 April 2008 2005 Beginning of year -Granted during year 208,175End of year 208,175 Options exercisable at 59 pence, expiring 23 May 2010 2005 Beginning of year -Granted during year 150,000End of year 150,000 Options exercisable at 100 pence, expiring 4 April 2010 2005 Beginning of year -Granted during year 220,000End of year 220,000 Notes to the financial statementsFor the year ended 31 December 2005 30. Share options (continued) During the year ended 31 December 2005, the group had the following shareoptions in issue: Options exercisable at 42 pence, expiring 28 September 2010 2005 Beginning of year -Granted during year 100,000End of year 100,000 Options exercisable at 25 cents, expiring 19 January 2010 2005 Beginning of year -Granted during year 175,000End of year 175,000 Options exercisable at 100 cents, expiring 13 February 2010 2005 Beginning of year -Granted during year 250,000End of year 250,000 Options exercisable at 75 pence, expiring 31 December 2010 2005 Beginning of year -Granted during year 475,000End of year 475,000 The options shown above were granted to officers, directors and employees. Notes to the financial statementsFor the year ended 31 December 2005 31. Segmental Analysis Americas UK Australia South East Asia Africa Total US US US US US US $000 $000 $000 $000 $000 $000 2005Segment loss: (3,280) 2 351 566 (4) (3,067)Loss on ordinary activities (3,280) 2 351 566 (4) (3,067)before taxationOperating loss of Copper (3,267)Resources Corporationincluded in the above Segment assets 10,079 60 91 7,272 21,651 39,173 Segment liabilities 505 - 55 320 5,209 6,089 Acquisition of property, 48 - 59 96 5,720 5,720plant and equipment,intangibles and othernon-current segment assets Depreciation and amortisation - - - 6 7 -expense 2004 Segment loss: 733 - - 84 - 817Loss on ordinary activitiesbefore taxation 733 - - 84 - 817Operating loss of CopperResources Corporationsincluded in the above - - - - - - Total US$000 2004Segment loss: 907Loss on ordinary activities before taxation 907Operating loss of Copper Resources Corporation included in the above 907 Segment assets 2,097 Segment liabilities 70 Acquisition of property, plant and equipment, intangibles and other non-current segment assets 1,688 Depreciation and amortisation expense - This information is provided by RNS The company news service from the London Stock Exchange
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