Last checked at 11 Mar 2009 07:00
GCM Resources plc
(AIM:GCM)
11th March 2009
Interim Results for the Six Months ended 31 December 2008
GCM Resources plc ("GCM") is primarily focused on, and remains committed to, the Phulbari Coal Project, the development of which is awaiting approval from the Government of Bangladesh. GCM also seeks opportunities to invest in other energy related projects around the world.
Key Developments
Elections, which were held in Bangladesh on 29 December 2008, returned a government with an overwhelming majority and which publicly recognises the importance of energy security to the future development of Bangladesh. GCM continues to work with the Government of Bangladesh to move the Phulbari Coal Project forward.
GCM acquired a 4% interest in Polo Resources Limited and increased its equity interest in Aura Energy Limited from 13% to 18.5%.
In line with equity markets, and in particular junior mining and exploration companies, the market price of GCM's listed equity investments fell significantly. However, overall the current market valuation of GCM's investments exceeds the cash invested. GCM held £3,543,000 in cash and £11,706,000 in listed equity investments as at 31 December 2008.
Results
The Group made a loss of £5,249,000 after tax for the six months to 31 December 2008 (December 2007: profit of £1,472,000). An impairment charge of £5,182,000 has been incurred, predominantly in relation to impairment of the Group's listed equity investments. The profit for the 2007 comparative period includes £2,486,000 book profit on the deemed disposal of GCM's investment in CCEC Ltd on its takeover by Regent Pacific Group Limited.
Exploration and evaluation expenditure relating to the Phulbari Coal Project was £1,539,000 for the six months to 31 December 2008 (December 2007: £940,000).
The full unaudited interim financial report is presented on the following pages.
For further information contact:
GCM Resources plc: Pelham Public Relations:
Steve Bywater Charles Vivian
Chief Executive Ph: +44 (0)207 743 6672
Ph: +44 (0)207 290 1630 Email: charles.vivian@pelhampr.com
Graham Taggart Klara Kaczmarek
Finance Director Ph: +44 (0)203 159 4395
Ph: +44 (0)207 290 1630 Email: klara.kaczmarek@pelhampr.com
JPMorgan Cazenove
Nominated Adviser
Michael Wentworth-Stanley
Mark Hankinson
+44 (0) 20 7588 2828
For further information: www.gcmplc.com
GCM Resources plc
Unaudited Interim Report
Six months to 31 December 2008
Key Developments since 30 June 2008:
Elections which were held on 29 December 2008 returned a government with an overwhelming majority and which publicly recognises the importance of energy security to the future development of Bangladesh. GCM continues to work with the Government of Bangladesh to move the Phulbari Coal Project forward
GCM acquired a 4% interest in Polo Resources Limited and increased its equity interest in Aura Energy Limited from 13% to 18.5%
In line with equity markets, and in particular junior mining and exploration companies, the market price of GCM's listed equity investments fell significantly. However, overall the current market valuation of GCM's investments exceeds the cash invested. GCM held £3.5 million in cash and £11.7 million in listed equity investments as at 31 December 2008
Chief Executive's Statement
The Phulbari Coal Project
GCM remains committed to the Phulbari Coal Project ("Project") in Bangladesh, the development of which is awaiting approval from the Government of Bangladesh.
Parliamentary elections held in Bangladesh on 29 December 2008 brought to an end a two year period during which Bangladesh was governed by successive Caretaker Governments under a state of emergency.
These elections returned a government with an overwhelming majority which publicly recognises the importance of energy security to the future development of Bangladesh. The Group continues to work with the Government of Bangladesh to move the Project forward.
Investments
In line with equity markets, and in particular junior mining and exploration companies, the market valuation of GCM's investments has declined over the last six months. However, overall the current market value of the investments remains greater than the cash invested.
Coal of Africa Limited and Polo Resources Limited have recently announced first production from projects in South Africa and Mongolia, respectively, while continuing to explore and evaluate their other projects.
Regent Pacific Group Limited and Aura Energy Limited continue to advance their coal and uranium projects, respectively.
As well as being prospective, GCM's investments generally have significant cash balances.
Results
The Group made a loss of £5,249,000 after tax for the six months to 31 December 2008 (December 2007: profit of £1,472,000). An impairment charge of £5,182,000 has been incurred, predominantly in relation to impairment of the Group's listed equity investments. The profit for the 2007 comparative period includes £2,486,000 book profit on the deemed disposal of GCM's investment in CCEC Ltd on its takeover by Regent Pacific Group Limited.
Exploration and evaluation expenditure relating to the Phulbari Coal Project was £1,539,000 for the six months to 31 December 2008 (December 2007: £940,000).
GCM held £3.5 million in cash and £11.7 million in listed equity investments as at 31 December 2008.
In summary
GCM remains focused on maximising the value of our assets. In particular, the Group will continue to work with the newly elected Government of Bangladesh and other stakeholders to move the Phulbari Coal Project forward.
Steve Bywater
Chief Executive
The Phulbari Coal Project - Contribution to Sustainable Development
Context
Power availability is critical to the economic development of Bangladesh. Two thirds of the 150 million people who live in Bangladesh do not have access to electricity and those that do suffer from frequent power cuts due to load shedding. Power generation is currently heavily reliant on depleting reserves of gas and the situation is likely to become more acute as demand increases. Agricultural production has been hampered as a reliable supply of gas has not been available for fertiliser factories nor has reliable power been available for farmers' irrigation pumps. Existing industries are suffering and the lack of a reliable source of energy is an impediment to attracting new ones. In order to maintain economic growth levels of 5-6% and continue to make progress against the Millennium Development Goals, this energy crisis needs to be resolved.
Benefits
The Phulbari Coal Project ("Project") would make a significant contribution to the country's energy security by providing a reliable supply of good quality coal to new coal-fired power stations. In addition, independent studies forecast that over its 30+ year life, the Project has the potential to increase annual Gross Domestic Product of Bangladesh by up to 1% per annum and create approximately 17,000 direct and indirect jobs. At a local level, the Project will deliver improvements in power, water and sanitation supplies to local inhabitants and increased agricultural productivity through improved water availability and farming techniques.
Impacts
The physical impact of the Project to-date has been limited to the drilling and capping of 108 bore holes for which landowners were appropriately compensated. All of GCM's other activities, involving analysis, evaluation and preparation of social and environmental base line studies have had no lasting effect on the environment.
By their nature, active mining operations can have a significant effect on the communities and environment in which they take place and managing these impacts is of critical importance to the long term success of any mining project. The potential impacts of the Project have been extensively studied and subjected to external review. Among others, these include the resettlement over a 10 year period of approximately 40,000 people, including 2,300 indigenous people, and a water management programme to enable mining operations to take place.
GCM has made clear its commitments in relation to these specific impacts:
Those who will be 'physically displaced' (resettled) will have their living conditions improved while those who will be 'economically displaced' will have their livelihoods restored and, in many cases, also improved.
The mine and associated infrastructure will use approximately 5,200 hectares of land over its lifetime, but will only use around a third of this area at any one time. Before being required for mining, land can continue to be cultivated and as mining progresses southwards, the excavated pit will be backfilled and rehabilitated back into productive use.
Extensive studies have been conducted on water management. While dewatering will take place in the actual mining area, the Project will inject water into the aquifer around the perimeter of the mine footprint, and through irrigation systems, ensure reliable access to water for residents, businesses and farmers.
Agricultural studies and field trials have been conducted with the Department of Agriculture Extension and local farmers. The studies showed an increase in agricultural productivity due to the introduction of improved farming practices, crop varieties and year round availability of water for irrigation.
Summary
The Phulbari Coal Project will play a key role in increasing power availability and help ensure that the people of Bangladesh realise their human right to development. GCM is committed to meeting international social and environmental performance standards and to working with development agencies and other stakeholders to ensure that the Project contributes to a regional development strategy for the northwest and western transport corridor of Bangladesh. All GCM's commitments, in common with activities to date, will continue to be subject to independent monitoring.
Interim Consolidated Income Statement
| 6 months ended 31 December 2008 | 6 months ended 31 December 2007 | Year ended 30 June 2008 | ||
| Notes | unaudited | unaudited | audited | |
| £000 | £000 | £000 | ||
| Operating expenses | ||||
| Exploration costs | 184 | 43 | 139 | |
| Other operating expenses | 874 | 810 | 1,806 | |
| Operating loss | (1,058) | (853) | (1,945) | |
| Profit on disposal of investment | - | 2,486 | 2,486 | |
| Impairment of assets | 3 | (5,182) | - | - |
| Finance revenue | 178 | 438 | 742 | |
| Profit (loss) before tax | (6,062) | 2,071 | 1,283 | |
| Taxation | 4 | 813 | (599) | (419) |
| Profit (loss) for the period | (5,249) | 1,472 | 864 | |
| Basic (loss)/earnings per share (pence) | (10.3)p | 3.0p | 1.8p | |
| Diluted (loss)/earnings per share (pence) | (10.3)p | 2.8p | 1.6p |
Interim Consolidated Statement of Changes in Equity
| Share capital | Share premium account | Other reserves | Accumulated losses | Total | |
| £000 | £000 | £000 | £000 | £000 | |
| Balance at 1 July 2007 | 4,881 | 42,731 | 4,073 | (1,901) | 49,784 |
| Change in fair value of available-for-sale financial assets | - | - | 31,587 | - | 31,587 |
| Tax on items taken directly to equity | - | - | (8,148) | - | (8,148) |
| Transfer to income statement on disposal | - | - | (2,486) | - | (2,486) |
| Share based payments | - | - | 122 | - | 122 |
| Profit for the financial year | - | - | - | 864 | 864 |
| Equity share warrants exercised | 220 | 1,433 | - | - | 1,653 |
| Balance at 30 June 2008 | 5,101 | 44,164 | 25,148 | (1,037) | 73,376 |
| Change in fair value of available-for-sale financial assets | - | - | (35,449) | - | (35,449) |
| Available-for-sale financial assets impaired | - | - | 4,231 | - | 4,231 |
| Tax on items taken directly to equity | - | - | 8,741 | - | 8,741 |
| Share based payments | - | - | 39 | - | 39 |
| Loss for the financial period | - | - | - | (5,249) | (5,249) |
| Balance at 31 December 2008 (unaudited) | 5,101 | 44,164 | 2,710 | (6,286) | 45,689 |
| Balance at 1 July 2007 | 4,881 | 42,731 | 4,073 | (1,901) | 49,784 |
| Change in fair value of available-for-sale financial assets | - | - | 9,536 | - | 9,536 |
| Tax on items taken directly to equity | - | - | (1,974) | - | (1,974) |
| Transfer to income statement on disposal | - | - | (2,486) | - | (2,486) |
| Share based payments | - | - | 61 | - | 61 |
| Profit for the financial period | - | - | - | 1,472 | 1,472 |
| Balance at 31 December 2007 (unaudited) | 4,881 | 42,731 | 9,210 | (429) | 56,393 |
Interim Consolidated Balance Sheet
| 31 December 2008 | 31 December 2007 | 30 June 2008 | ||
| Notes | unaudited | unaudited | audited | |
| £000 | £000 | £000 | ||
| Current assets | ||||
| Cash and cash equivalents | 3,543 | 13,602 | 10,047 | |
| Receivables | 708 | 353 | 775 | |
| Total current assets | 4,251 | 13,955 | 10,823 | |
| Non-current assets | ||||
| Property, plant and equipment | 215 | 281 | 241 | |
| Intangible assets | 5 | 25,249 | 22,156 | 23,710 |
| Financial assets | 6 | 16,399 | 23,873 | 48,799 |
| Total non-current assets | 41,863 | 46,310 | 72,750 | |
| Total assets | 46,114 | 60,265 | 83,573 | |
| Current liabilities | ||||
| Payables | 425 | 312 | 643 | |
| Total current liabilities | 425 | 312 | 643 | |
| Non-current liabilities | ||||
| Deferred tax liabilities | 4 | - | 3,560 | 9,554 |
| Total non-current liabilities | - | 3,560 | 9,554 | |
| Total liabilities | 425 | 3,872 | 10,197 | |
| Net assets | 45,689 | 56,393 | 73,376 | |
| Equity | ||||
| Share capital | 5,101 | 4,881 | 5,101 | |
| Share premium account | 44,164 | 42,731 | 44,164 | |
| Other reserves | 7 | 2,710 | 9,210 | 25,148 |
| Accumulated losses | (6,286) | (429) | (1,037) | |
| Total equity | 45,689 | 56,393 | 73,376 |
Steve Bywater
Chief Executive
Interim Consolidated Cash Flow Statement
| 6 months ended 31 December 2008 | 6 months ended 31 December 2007 | Year ended 30 June 2008 | ||
| unaudited | unaudited | audited | ||
| £000 | £000 | £000 | ||
| Cash flows from operating activities | ||||
| Profit (loss) before tax | (6,062) | 2,071 | 1,283 | |
| Adjusted for: | ||||
| Depreciation of non-current assets | 8 | 7 | 15 | |
| Impairment of assets | 5,182 | - | - | |
| Profit on disposal of investment | - | (2,486) | (2,486) | |
| Finance revenue | (178) | (438) | (742) | |
| (1,050) | (846) | (1,930) | ||
| Movements in working capital: | ||||
| Decrease (increase) in operating receivables | (448) | 20 | (77) | |
| Increase (decrease) in operating payables | (190) | 46 | 211 | |
| Cash used in operations | (1,688) | (861) | (1,796) | |
| Interest received | 209 | 434 | 770 | |
| Net cash used in operating activities | (1,479) | (427) | (1,026) | |
| Cash flows from investing activities | ||||
| Payments for property, plant and equipment | (12) | (13) | (19) | |
| Payments for intangible assets | (1,499) | (832) | (2,172) | |
| Payments for investments | (3,514) | (2,058) | (5,321) | |
| Net cash used in investing activities | (5,025) | (2,903) | (7,512) | |
| Cash flows from financing activities | ||||
| Issue of ordinary share capital | - | - | 1,653 | |
| Net cash generated by financing activities | - | - | 1,653 | |
| Total decrease in cash and cash equivalents | (6,504) | (3,330) | (6,885) | |
| Cash and cash equivalents at the start of the period | 10,047 | 16,932 | 16,932 | |
| Cash and cash equivalents at the end of the period | 3,543 | 13,602 | 10,047 | |
Notes to the Interim Condensed Consolidated Financial Statements
1. Accounting policies
GCM Resources plc ("GCM"), domiciled in England and Wales, was incorporated as a Public Limited Company on 26 September 2003 and admitted to the Alternative Investment Market ("AIM") of the London Stock Exchange on 19 April 2004.
The unaudited interim report was authorised for issue by the Directors on 10 March 2009, and the Interim Consolidated Balance Sheet was signed on the Board's behalf by Steve Bywater.
Basis of preparation
The Group prepared its annual consolidated financial statements under International Financial Reporting Standards ("IFRS") as adopted by the EU, for the year ended 30 June 2008. The interim condensed consolidated financial statements for the six months ended 31 December 2008 have been prepared using the same accounting policies and methods of computation as applied in the financial statements for the year ended 30 June 2008.
The interim condensed consolidated financial statements for the six months ended 31 December 2008 have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union.
The financial information contained herein does not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006 and is unaudited. The figures for the year ended 30 June 2008 have been extracted from the statutory accounts for that year. Those accounts have been delivered to the Registrar of Companies and contained an unqualified auditors' report which included an emphasis of matter reference concerning the uncertainty over the recoverability of the intangible mining assets and did not include a statement under section 237 (2) or 237 (3) of the United Kingdom Companies Act 1985.
The Group's auditors, Ernst & Young LLP, have reviewed the interim financial information for the six months ended 31 December 2008 and their report is set out on page 15.
Political and economic risks
The principal asset is in Bangladesh and accordingly subject to the political, judicial, fiscal, social and economic risks associated with operating in that country.
The Group's principal project relates to thermal coal and semi-soft coking coal, which are subject to international and regional supply and demand factors, and consequently future performance will be subject to variations in the prices for these products.
GCM, through its subsidiaries, is party to a Contract with the Government of Bangladesh which gives it the right to explore, develop and mine in respect of the licence areas. As provided by the Contract, the Group holds a mining lease and exploration licences in the Phulbari area covering the prospective mine site. The mining lease has a 30 year term from 2004 and may be renewed for further periods of 10 years each, at GCM's option.
In accordance with the terms of the Contract, GCM submitted a combined Feasibility Study and Scheme of Development report on 2 October 2005 to the Government of Bangladesh. Approval from the Government of Bangladesh is necessary to proceed with development of the mine. The Contract requires approval to be granted within three months of the submission of Scheme of Development. However, GCM continues to await approval.
The Group has received no notification from the Government of Bangladesh of any changes to the terms of the Contract.
GCM has received legal opinion that the Contract is enforceable under Bangladesh and International law, and will consequently continue to endeavour to receive approval for development.
If for whatever reason the Scheme of Development is not ultimately approved, the Group would be required to impair all of its intangible mining assets.
The Directors are confident that the Phulbari Coal Project will ultimately receive approval. Accordingly, the Directors consider that it is appropriate not to record any impairment in respect of the intangible mining assets.
Going concern
GCM relies on its current resources to fund its operating activities, and has no debt or other financial obligations. As at 31 December 2008, GCM held £15.2 million in cash and listed equity investments combined.
Based on an assessment of projected cash flows and future forecasts, the Directors satisfied themselves that the Group has adequate financial resources to continue in operational existence for the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis.
2. Segment analysis
The Group operates in one principal business segment being coal exploration and evaluation. The Group operates within one principal geographical segment, being Bangladesh. The Bangladesh operations are supported by management and administrative functions in United Kingdom and Australia.
There was no segment revenue during the financial year. The result for the period relates to one principal business segment and one principal geographical segment.
The Group also holds investments in companies with projects in China, Mongolia, Africa, Australia, Indonesia and Sweden.
3. Impairment of assets
Impairment of financial assets
In line with equity markets, and in particular junior mining and exploration companies, the values of GCM's listed equity investments have fallen over the last six months.
The Group impairs a listed equity investment when its fair value has declined significantly below its book cost or remained below book cost for a prolonged period. In assessing whether the decline is significant the Group considers the volatility of the investment's market share price. In assessing whether a decline is prolonged, the Group takes into account the length of time over which the decline has occurred, as well as the nature of the decline.
An impairment charge of £4,231,000 has been recorded for the six months ended 31 December 2008 (2007: nil). Fair values for listed equity investments were determined using the closing bid price as at 31 December 2008.
Overall, the market value of the Group's listed investments exceeds the cash invested.
Abortive transaction costs
Transaction costs of £951,000 have been charged to the income statement, writing off costs related to a corporate transaction that did not proceed.
4. Taxation
The tax credit of £813,000 in the income statement for the year ended 31 December 2008, relates to the tax effect of the loss for the same period, net of deferred tax assets not recognised.
The movement in deferred tax liabilities from £9,554,000 at 1 July 2008 to nil at 31 December 2008 was due to the tax effect of the decrease in fair value of investments for the same period.
5. Intangible assets
Intangible assets increased by £1,539,000 during the six months to 31 December 2008 (December 2007: £940,000). The increase is due to exploration and evaluation expenditure relating to the Phulbari Coal Project, and is capitalised in accordance with the Group's accounting policies.
6. Financial assets
| 31 December 2008 | 31 December 2007 | 30 June 2008 | ||
| £000 | £000 | £000 | ||
| Available-for-sale investments | ||||
| Listed equity investments | 11,706 | 21,244 | 44,106 | |
| Unlisted equity investments | 4,693 | 2,629 | 4,693 | |
| 16,399 | 23,873 | 48,799 |
The fair value of listed equity investments is calculated using the closing bid price as at 31 December 2008. Unlisted equity investments have been recorded at cost.
In line with equity markets, and in particular junior mining and exploration companies, the values of GCM's listed equity investments have fallen over the last six months. The reduction in the fair value of listed equity investments is £35,449,000, of which £31,218,000 has been attributed to equity, and £4,231,000 has been recorded in relation to an impairment charge. Refer to note 3 for further information on the impairment charge.
Overall, the market value of the Group's listed investments exceeds the cash invested.
Purchases
During the period to September 2008, the Group acquired a further 2,353,000 shares in Aura Energy Limited, for £248,000. GCM now holds 18.5% of Aura Energy Limited.
The Group purchased 74,800,000 shares in Polo Resources Limited in September and October 2008, for £2,801,000. GCM now holds 4% of Polo Resources Limited.
7. Other reserves
The £22,438,000 reduction in other reserves is predominantly due to the fall in value of GCM's listed equity investments, net of tax. Refer to note 3 for further information on the impairment of financial assets.
Independent Review Report
To GCM Resources plc
Introduction
We have been engaged by the Company to review the interim condensed consolidated set of financial statements in the interim report for the six months ended 31 December 2008 which comprises the interim consolidated income statement, interim consolidated balance sheet, interim consolidated statement of changes in equity, interim consolidated cash flow statement and the related explanatory notes 1 to 7. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
This report is made solely to the Company in accordance with guidance contained in ISRE 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The interim report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the interim report in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.
As disclosed in note 1, the annual financial statements of the company are prepared in accordance with IFRSs as adopted by the European Union. The interim condensed consolidated set of financial statements included in this interim report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting," as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Company a conclusion on the Interim condensed consolidated set of financial statements in the interim report based on our review.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of Interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Emphasis of Matter- Recoverability of Mining Assets
While not qualifying our conclusion, we draw attention to note 1 in the financial statements concerning the material uncertainty over the recoverability of the intangible exploration assets. GCM has been awaiting approval for the development of the mine at Phulbari since submission of the Scheme of Development on 2 October 2005. Despite elections in December 2008, the timing of approval remains uncertain. If for whatever reason the scheme of development is not ultimately approved, the intangible assets included in the balance sheet at £25,249,000 would be fully impaired.
The ultimate outcome of these matters cannot be presently determined and no impairment has been recorded in respect of the intangible exploration assets as at 31 December 2008.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the interim condensed consolidated set of financial statements in the interim report for the six months ended 31 December 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union.
Ernst & Young LLPLondon
Date