Herencia Resources Regulatory News (HER)

25 Mar 2008 18:03

Herencia Resources PLC25 March 2008 Herencia RESOURCES plc ("Herencia" or the "COmpany") Final Results for the Eighteen Months Ended 31 December 2007 The Directors present their Directors' report together with the audited accountsof the Group (Herencia Resources Plc and its subsidiary undertakings) and theCompany (Herencia) for the 18 months ended 31 December 2007. With effect from 29 March 2007, the Company changed its accounting referencedate from 30 June to 31 December. The last audited statutory financialstatements of the Group covered the period from the Company's date ofincorporation (27 January 2005) to 30 June 2006. These audited statutoryfinancial statements of the Group cover the eighteen month period ended 31December 2007. CHAIRMAN'S STATEMENT I am pleased to report on the Company's activities in Chile. During the period the Company made significant progress on many fronts: • The company raised £4.7 million to undertake exploration and drilling programs at the Paguanta project in Chile. • A major RC drill program was successfully completed in August 2007 with a total of 5,889m drilled. Of the 50 holes drilled in the Paguanta program, 40 of them intersected mineralisation confirming the high grade zinc, silver and lead assay results achieved in the previous diamond drill program. • Subsequently, a maiden Inferred Mineral Resource was announced in October 2007. The Inferred Mineral Resources totalled 2.5Mt grading 4.1% Zn, 1.3% Pb and 77g/t Ag at a 2%Zn cut-off. • The Company achieved all its earn-in milestones at the Paguanta Project and a Chilean company, Compania Minera Paguanta SA, was formed (70% Herencia) to hold the Paguanta Project assets. • On-ground geological activity commenced in the La Serena region where the Company has a number of advanced porphyry-copper targets. The Company is now well funded to progress its activities in Chile, with a focuson Paguanta, during 2008. Mineral Securities Limited, our major shareholder,continued to fully support our fundraisings and it is also most encouraging thatour local Chilean joint venture partner has now commenced contributing towardexpenditure to maintain their 30% ownership level at Paguanta. Looking to the future, a major diamond and reverse circulation drilling programis to be undertaken at Paguanta during 2008, together with a preliminarymetallurgical testwork program on the zinc-lead-silver ore. These programs area pre-cursor to potentially moving to a Bankable Feasibility Study phase by theend of 2008. Hon. John Moore AOChairman DIRECTORS REPORT Principal activity The Company is registered in England and Wales, having been incorporated on 27January 2005 under the Companies Act with registered number 5345029 as a publiclimited company. The principal activity of the Group is mineral exploration and it owns aportfolio of silver-zinc-lead-copper-gold exploration properties in Chile, SouthAmerica. The Group operates through its parent and subsidiary undertakings,details of which are set out in note 15 to these accounts. Results and dividends The loss for the Group for the eighteen months ended 31 December 2007,attributable to the equity holders of the Company, was £1,202,166 (seventeenmonths ended 30 June 2006: £491,818). The Directors do not propose to recommend any distribution by way of a dividendfor the period ended 31 December 2007. Review of the business and future prospects Herencia Resources Plc holds interests in several prospective projects/properties in Northern Chile. The most advanced of these being the Paguantaproject where Herencia has a 70% interest. The Paguanta zinc-silver-lead Project, located on the northern end of theChilean Porphyry Copper Belt, is approximately 150km east of the port ofIquique. During the period significant progress was made to advance the project: • An eleven hole diamond drill program was completed in December 2006(1,174m) confirming the existence of a significant, multi-veined mineralisedzone. Eight out of ten holes drilled into the target intersect mineralisation,with four of these holes returning highest individual grades (over 1m) of 15.75%Zn, 447pm Ag and 5.58% Pb. • A major RC drill program was successfully completed in late August2007 with 50 holes completed for a total of 5,889m drilled. Of the 50 holesdrilled in the program 40 of them intersected mineralisation confirming the highgrade zinc, silver and lead assay results achieved in the previous diamond drillprogram. • A maiden Inferred Mineral Resource was announced in October 2007.The Inferred Mineral Resources totalled 2.5Mt grading 4.1% Zn, 1.3% Pb and 77g/tAg at a 2%Zn cut-off. The mineral resource estimate complied withrecommendations in the Australian Code for Reporting of Mineral Resources andOre Reserves (2004) by the Joint Ore Reserves Committee ( JORC) of the AusIMM. • A Chilean company, Compania Minera Paguanta SA, was formed (70% Herencia) to hold the Paguanta Project assets. During the period, funds have been raised as follows: • In July 2006, Herencia completed a private placement to sophisticated investors to raise £571,000 from the issue of 38,066,667 ordinary shares at aprice of 1.5p per share. • In October 2006, Herencia completed a private placement tosophisticated investors to raise £900,000 from the issue of 90,000,000 ordinaryshares at a price of 1.0p per share. • In March 2007, Herencia completed a private placement to sophisticatedinvestors to raise £700,000 from the issue of 56,000,000 ordinary shares at aprice of 1.25p per share. • In November 2007, Herencia completed a private placement tosophisticated investors to raise £2,600,000 from the issue of 173,333,333ordinary shares at a price of 1.5p per share. Some of the funds raised during the period were used to undertake work on theChile projects (mentioned above), to pursue new project developmentopportunities in Chile, and to provide working capital. The remaining funds will be utilised predominantly on the Paguanta project wherethe Company is planning a substantial drilling campaign, due to commence inApril 2008, with a view to expanding the resource base. Concurrent with thiswill be a preliminary metallurgical sampling program as a precursor to a scopingstudy to be undertaken in the 2nd and 3rd quarters 2008, before potentiallyadvancing to a BFS (Bankable Feasibility Study) by period end. The Companyalso plans to advance the La Serena copper prospect in north-central Chile whilecontinuing with business development activities in South America. The Group's primary business is mineral exploration which is subject to risksincluding discovery of economic mineral resources, delays in work programmeplans and schedules, changes in market conditions affecting the resourcesindustry or commodity price levels, the outcome of commercial negotiations andtechnical or operating factors, political, environmental and regulatory controlsand approvals, and availability and retention of suitable employees andconsultants. Any one or more of these risk factors could have a materiallyadverse impact on the value of the Company. Due to the early stage of the development of the Group, it is not meaningful toconsider a review of the key financial performance indicators in respect of theperiod. Audit Committee The Audit Committee meets twice each year to discuss the half yearly and annualresults. For the annual results the independent auditors, UHY Hacker Young LLP,are invited to discuss the results and their assessment of internal controls.The Chairman of the Audit committee is John Russell and the other participatingmember of the committee is The Hon. John Moore AO. The Company has adopted an Audit Committee Charter which addresses the mandateof the Committee, the composition, independence, expertise of the members,frequency of meetings, roles and responsibilities, external audit function,internal controls, financial reporting, annual and interim financial statements,release of financial information, non-audit services, delegation of authority,reporting responsibilities, resources and authority of the Committee, andcompliance with laws and regulations. Remuneration Committee The Company does not, at present, have a Remuneration Committee. Going concern After making appropriate enquiries and examining those areas which could giverise to financial exposure the Directors are satisfied that no material orsignificant exposures exist and that the Group has adequate resources tocontinue its operations for the foreseeable future. For this reason, theDirectors continue to adopt the going concern basis in preparing the Group'sfinancial statements. Information to shareholders - Web site The Company has its own web site (www.herenciaresources.com) for the purposes ofimproving information flow to shareholders as well as to potential investors. Group structure and changes in share capital Details of movements in share capital during the period are set out in note 17to these accounts. Directors The following Directors held office during the period: Michael Bohm (Executive)The Hon. John Moore AO. (Non-Executive Chairman)John Russell (Non-Executive)Ross Warner (Non-Executive) Appointed 27 January 2005 - Resigned 13 September 2006William Adamson (Non-Executive) Appointed 18 May 2007 Directors' interests The beneficial and non-beneficial interests in the Company's shares of theDirectors and their families were as follows: Name 31 December 2007 30 June 2006 Number of ordinary Number of ordinary shares of £0.001 shares of £0.001 Michael Bohm 1,3 (note below) (note below)The Hon. John Moore AO. 1,2 (note below) (note below)John Russell(1) (note below) (note below)William Adamson - - 1 279,400,000 shares are held by Mineral Securities Limited as at 31 December2007 (30 June 2006: 116,666,667). Michael Bohm and John Russell are shareholdersof Mineral Securities Limited, and The Hon. John Moore AO. is a director andshareholder of Mineral Securities Limited. 2 666,667 shares are held by Ralsten Pty Ltd as of 31 December 2007 (30 June2006: 666,667). The Hon. John Moore AO. is a director and shareholder of thatcompany. 3 3,033,333 shares are held by Michael Bohm's wife, Charmaine Lobo. The beneficial and non-beneficial interests in the Company's options of theDirectors and their families at 31 December 2007 were as follows (the details ofthese options are set out in note 18 to the financial statements): Name 31 December 2007 30 June 2006 Number of options over Number of options over ordinary shares of £0.001 ordinary shares of £0.001 Michael Bohm 5,400,000 -The Hon. John Moore AO. 5,000,000 -John Russell 5,000,000 -William Adamson 2,000,000 - Report on directors' remuneration and service contracts The service contracts of all the existing Directors are subject to a one monthtermination period Pensions The Group does not operate a pension scheme for Directors or employees. Directors' Remuneration Remuneration of Directors for the period was as follows: 31 December 2007 Fees/basic Employers Share based 2007 salary NI payments Total £ £ £ £ExecutiveMichael Bohm 22,500 - 22,022 44,522 Non-Executive The Hon. John Moore AO. 22,500 - 25,210 47,710John Russell 22,500 2,004 25,210 49,714Ross Warner 2,059 - - 2,059William Adamson 8,750 - 10,084 18,834 78,309 2,004 82,526 162,839 30 June 2006 Fees/basic Employers Share based 2006 salary NI payments Total £ £ £ £ExecutiveAnthony Barton 17,000 - - 17,000 Non-Executive Ross Warner 22,000 2,340 - 24,340Keith Liddell 7,000 - - 7,000 46,000 2,340 - 48,340 Substantial shareholders The Company has been notified, in accordance with Sections 198 to 202 of theCompanies Act 1985, of the under noted interests in its ordinary shares as at 7March 2008: Number of % of Share Ordinary shares Capital Mineral Securities Limited 279,400,000 46.0Fitel Nominees Limited 101,312,665 16.7Pershing Keen Nominees Limited 87,909,999 14.5 Supplier payment policy The Company's policy is that payments to suppliers are made in accordance withthose terms and conditions agreed between the Company and its suppliers,providing that all trading terms and conditions have been complied with. Political and charitable contributions There were no political or charitable contributions made by the Company duringthe period ended 31 December 2007. Subsequent events No matter or circumstances have arisen since the end of the reporting date andthe date of this report which significantly affect the results of the operationsof the Company. Environment Policy Statement The Company is an Operator of exploration projects. It closely monitorsactivities to ensure, to the best of its knowledge, there is no potential forany breach of environment's regulations. There have been no convictions inrelation to breaches of the local Chilean regulations recorded against the Groupduring the reporting period. Statement of directors' responsibilities In considering these financial statements the Directors took account of theCompany Law requirements, whereby any financial statements are prepared inaccordance with applicable laws and accepted accounting standards in the UnitedKingdom and which give a true and fair view of the state of affairs of the Groupand its profit or loss for the period. In preparing these financial statements,the Directors therefore followed the Company Law requirements of preparingfinancial statements whereby they are required to: a) select suitable accounting policies and then apply them consistently; b) make judgements and estimates that are responsible and prudent; c) prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business; d) state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; e) provide additional disclosures when compliance with the specific requirements in International Financial Reporting Standards ("IFRS") is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's financial position and financial performance. The Directors confirm that the financial statements comply with the aboverequirements. The Directors are responsible for keeping proper accounting records whichdisclose with reasonable accuracy at any time the financial position of theGroup. The Directors are also responsible for safeguarding the assets of theGroup and hence for taking steps for the prevention and detection of fraud andother irregularities. Statement of disclosure to auditors So far as the Directors at the time of approval of the report are aware: 1. there is no relevant audit information of which the Company's auditors are unaware; and 2. the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information. Auditors On 30 April 2007 the company's auditors, UHY Hacker Young, transferred theirbusiness to a limited liability partnership, UHY Hacker Young LLP ("the LLP"),and the office of auditor has passed to the LLP. In accordance with Section 385of the Companies Act 1985, a resolution proposing that UHY Hacker Young LLP bere-appointed as auditors of the Company and that the Directors be authorised tofix their remuneration will be put to the next Annual General Meeting. For more information please contact: Mike Bohm, Herencia Resources plc - David Youngman/Katy Mitchell, WH Ireland Limited - +44 (0) 161 832 2174 GROUP INCOME STATEMENTFOR THE PERIOD ENDED 31 DECEMBER 2007 Eighteen months Seventeen months ended ended 31 December 30 June Notes 2007 2006 £ £Revenue - - Cost of sales - - Gross profit - - Administration expenses (1,253,660) (512,267) Operating loss 6 (1,253,660) (512,267) Finance revenue 6 52,493 20,449 Loss before taxation (1,201,167) (491,818) Taxation 8 - - Loss for the period (1,201,167) (491,818) Attributable to:Equity holders of the Company (1,202,166) (491,818)Minority interest 999 - (1,201,167) (491,818) Loss per ordinary share - basic and diluted 4 (0.33)p (0.36)p GROUP AND COMPANY BALANCE SHEETSAS AT 31 DECEMBER 2007 Group Group Company Company 31 December 30 June 31 December 30 June Notes 2007 2006 2007 2006 £ £ £ £ASSETSNon current assetsIntangible assets 13 2,521,693 886,129 - -Property, plant and equipment 14 56,725 31,772 - -Investments 15 - - 1,250,000 1,000,000 2,578,418 917,901 1,250,000 1,000,000 Current assetsCash and cash equivalents 9 2,864,055 160,293 2,279,382 154,041Trade and other receivables 10 199,359 43,241 2,202,639 161,761Other 11 8,418 - 8,418 - 3,071,832 203,534 4,490,439 315,802 Total assets 5,650,250 1,121,435 5,740,439 1,315,802 LIABILITIESCurrent liabilitiesTrade and other payables 12 66,122 43,435 46,461 31,580Total liabilities 66,122 43,435 46,461 31,580 Net Assets 5,584,128 1,078,000 5,693,978 1,284,222 EQUITYCalled up share capital 607,400 200,000 607,400 200,000Share premium account 6,006,645 1,276,925 6,006,645 1,276,925Reserve for own shares - 82,000 - 82,000Share based payments reserve 96,985 - 96,985 -Translation reserve (11,826) 10,893 - -Accumulated losses (1,693,984) (491,818) (1,017,052) (274,703) Capital and reserves 5,005,220 1,078,000 5,693,978 1,284,222attributable to equity holders Minority interests in equity 16 578,908 - - -Total equity and reserves 5,584,128 1,078,000 5,693,978 1,284,222 GROUP AND COMPANY CASH FLOW STATEMENTSFOR THE PERIOD ENDED 31 DECEMBER 2007 Group Group Company Company Notes 2007 2006 2007 2006 £ £ £ £Net cash outflow from operating activities 19 (634,589) (498,651) (2,482,272) (425,333) Cash flows from investing activitiesInterest received 52,493 20,449 52,493 20,449Purchase of property, plant and equipment (39,478) (34,301) - -Cash acquired with subsidiary undertakings 15 149,635 500,000 - -Net funds used for investing in exploration 13 (1,379,419) (386,129) - - Net cash (utilised by)/generated frominvesting activities (1,216,769) 100,019 52,493 20,449 Cash flows from financing activitiesProceeds from issue of shares 17 4,689,000 550,000 4,689,000 550,000Issue costs (133,880) (73,075) (133,880) (73,075)Proceeds from shares issued after the balance - 82,000 - 82,000sheet date Net cash generated from financing activities 4,555,120 558,925 4,555,120 558,925 Net increase in cash and cash equivalents 2,703,762 160,293 2,125,341 154,041 Cash and cash equivalents at 1 July 2007(2006 - 27 January 2005) 160,293 - 154,041 - Cash and cash equivalents at the end of theperiod 9 2,864,055 160,293 2,279,382 154,041 The above cashflow statement is for the eighteen month period ended 31 December2007 (2006: for the period from the date of incorporation on 27 January 2005 to30 June 2006) GROUP STATEMENT OF CHANGES in EQUITYFOR THE PERIOD ENDED 31 DECEMBER 2007 Share Share Reserve for Translation Share based Accumulated Total Minority Total capital premium own shares reserve payments losses interest Equity reserve £ £ £ £ £ £ £ £ £Balance at 27 January - - - - - - - - -2005 Issue of shares 200,000 1,350,000 - - - - 1,550,000 - 1,550,000 Issue costs - (73,075) - - - - (73,075) - (73,075) Shares issued after - - 82,000 - - 82,000 - 82,00030 June 2006 Exchange differences - - - 10,893 - 10,893 10,893 on translation of foreign operations Net loss for the - - - - - (491,818) (491,818) - (491,818)period Balance at 200,000 1,276,925 82,000 10,893 - (491,818) 1,078,000 - 1,078,000 30 June 2006 Balance at 200,000 1,276,925 82,000 10,893 - (491,818) 1,078,000 - 1,078,0001 July 2006 Issue of shares 325,400 4,863,600 - - - - 5,189,000 - 5,189,000 Issue costs - (133,880) - - - - (133,880) - (133,880) Issue of options - - - - 96,985 - 96,985 - 96,985 Transfer from 82,000 - (82,000) - - - - - -reserve Exchange - - - (22,719) - - (22,719) (3) (22,722)differences onretranslation offoreign operations Net (loss)/ - - - - - (1,202,166)(1,202,166) 999 (1,201,167)profit forthe period Minority's - - - - - - - 577,912 577,912interest inshare capital ofsubsidiary Balance at 607,400 6,006,645 - (11,826) 96,985 (1,693,984) 5,005,220 578,908 5,584,12831 December2007 COMPANY STATEMENT OF CHANGES in EQUITYFOR THE PERIOD ENDED 31 DECEMBER 2007 Share capital Share Reserve Translation Share Based Accumulated Total premium for own reserve Payments losses shares Reserve £ £ £ £ £ £ £Balance at 27 January 2005 - - - - - - - Issue of shares 200,000 1,350,000 - - - - 1,550,000Issue costs - (73,075) - - - - (73,075)Shares issued after 30 June 2006 - - 82,000 - - - 82,000Exchange differences ontranslation of foreignoperations - - - - - - -Net loss for the period - - - - - (274,703) (274,703) Balance at 30 June 2006 200,000 1,276,925 82,000 - - (274,703) 1,284,222 -Balance at 1 July 2006 200,000 1,276,925 82,000 - (274,703) 1,284,222Issue of shares 325,400 4,863,600 - - - - 5,189,000Issue costs - (133,880) - - - - (133,880)Issue of options - - - - 96,985 - 96,985Transfer from reserve 82,000 - (82,000) - - - -Exchange differences onretranslation of foreignoperations - - - - - - -Net loss for the period - - - - - (742,349) (742,349) Balance at 31 December 2007 607,400 6,006,645 - - 96,985 (1,017,052) 5,693,978 NOTES TO THE FINANCIAL STATEMENTSFOR THE PERIOD ENDED 31 DECEMBER 2007 1. Accounting policiesThe principal accounting policies, all of which have been appliedconsistently to all the periods are set out below. 1.1. Basis of preparation The financial statements have been prepared using the historical cost conventionand are presented in UK pound sterling. In addition, the financial statementshave been prepared in accordance with the International Financial ReportingStandards ("IFRS") including IFRS 6, Exploration for and Evaluation of MineralResources, as adopted by the European Union ("EU") and in accordance with theprovisions of the Companies Act 1985. The Company recently changed its accounting reference date from 30 June to 31December. The last audited statutory financial statements of the Group coveredthe period from the Company's date of incorporation of 27 January 2005 to 30June 2006. These audited statutory financial statements of the Group cover theeighteen month period ended 31 December 2007. The comparative figures in the income statement, the balance sheet, thestatement of changes in equity and the cash flow relate to the period covered inthe last audited statutory financial statements for the period ended 30 June2006. In accordance with the provision of Section 230 of the Companies Act 1985, theParent Company has not presented an Income Statement. The loss for the periodended 31 December 2007 of £742,349 (30 June 2006: 274,703) has been included inthe income statement. 1.2. Basis of consolidation Subsidiaries are fully consolidated from the date on which control istransferred to the Group. They are de-consolidated from the date that controlceases. The purchase method of accounting is used to account for the acquisitionof subsidiaries by the Company. The cost of an acquisition is measured as thefair value of the assets given, equity instruments issued and liabilitiesincurred or assumed at the date of exchange, plus costs directly attributable tothe acquisition. Identifiable assets acquired and liabilities and contingentliabilities assumed in a business combination are measured initially at theirfair values at the acquisition date. The excess of the cost of acquisition overthe fair value of the Group's share of the identifiable net assets acquired isrecorded as goodwill. Goodwill is capitalised as an intangible asset and inaccordance with IFRS3 'Business Combinations' it is not amortised but tested forimpairment when there are any indications that its carrying value is notrecoverable. As such, goodwill is stated at cost less any provision forimpairment in value. If a subsidiary undertaking is subsequently sold, goodwillarising on acquisition is taken into account in determining the profit and losson sale. Inter-company transactions, balances and unrealised gains on transactionsbetween group companies are eliminated. All the companies over which the Company has control, apply, where appropriate,the same accounting policies as the Company. 1.3. Foreign currency translation Transactions in foreign currencies are translated into sterling at the rate ofexchange ruling at the date of the transaction. Monetary assets and liabilitiesdenominated in foreign currencies are translated at the rate of exchange rulingat the balance sheet date. The resulting exchange gain or loss is dealt with inthe profit and loss account. The individual financial statements of each group company are presented in thecurrency of the primary economic environment in which it operates (itsfunctional currency). For the purpose of the consolidated financial statementthe assets and liabilities of the foreign subsidiary undertakings are translatedinto Sterling at the rates of exchange ruling at the period end and theirresults are translated at the average exchange rate for the period. Exchangedifferences resulting from the retranslation of net investments in subsidiaryundertakings are treated as movements of reserves. 1.4. Cash and cash equivalents The company considers all highly liquid investments, with a maturity of 90 daysor less to be cash equivalents, carried at the lower of cost or market value. 1.5. Deferred taxation Deferred tax is provided in full, using the liability method, on temporarydifferences arising between the tax bases of assets and liabilities and theircarrying amounts in the balance sheet. Deferred tax is determined using taxrates (and laws) that have been enacted or substantially enacted by the balancesheet date and expected to apply when the related deferred tax is realised orthe deferred liability is settled. Deferred tax assets are recognised to the extent that it is probable that thefuture taxable profit will be available against which the temporary differencescan be utilised. 1.6. Exploration and development costs All costs associated with mineral exploration and investments are capitalised ona project by project basis, pending determination of the feasibility of theproject. Costs incurred include appropriate technical and administrativeexpenses but not general corporate overheads. If an exploration project issuccessful, the related expenditures will be transferred to mining assets andamortised over the estimated life of the commercial ore reserves on a unit ofproduction basis. Where a licence is relinquished or project abandoned, therelated costs are written off. Where the Group maintains an interest in aproject, but the value of the project is considered to be impaired, a provisionis made against the relevant capitalised costs. The recoverability of all exploration and development costs is dependent uponthe discovery of economically recoverable reserves, the ability of the Group toobtain necessary financing to complete the development of the reserves andfuture profitable production or proceeds from the disposition thereof. Amounts recorded for these assets represent costs and are not intended toreflect present or future values. 1.7. Impairment of exploration and development costs The carrying value of unevaluated areas is assessed on at least an annual basisor when there has been an indication that impairment in value may have occurred.The impairment of unevaluated prospects is assessed based on the Directors'intention with regard to future exploration and development of individualsignificant areas and the ability to obtain funds to finance such explorationand development. 1.8 Share based payments The Company made share-based payments to certain directors and employees by wayof issue of share options. The fair value of these payments is calculated by theCompany using the Black Scholes option pricing model. The expense is recognisedon a straight line basis over the period from the date of award to the date ofvesting, based on the Company's best estimate of shares that will eventuallyvest. 2. Critical accounting estimates and judgements The directors evaluate estimates and judgements incorporated into the financialstatements based on historical knowledge and best available current information.Estimates assume a reasonable expectation of future events and are based oncurrent trends and economic data, obtained both externally and within the group. Impairment of intangible assetsDetermining whether intangible assets are impaired requires an estimation ofwhether there are any indications that its carrying value is not recoverable. 3. Accounting standards, interpretations and amendments to published standards not yet effective Certain new standards, amendments and interpretations to existing standards havebeen published that are mandatory for the Group's accounting periods beginningon or after 1 August 2007 or later periods, but which the Group has not optedfor early adoption. The new standards which are expected to be relevant to theGroup's operations are as follows: IFRS 7 Financial Instruments: Disclosures (effective from 1 August 2007) andamendment to IAS 1 Presentation of Financial Statements - Capital Disclosures(effective from 1 August 2007) IFRS 7 introduces new disclosures of qualitative and quantitative informationabout exposure to risks arising from financial instruments including specifiedminimum disclosures about credit risk, liquidity risk and market risk, includingsensitivity analysis to market risk. The amendment to IAS 1 introducesdisclosures about the level of an entity's capital and how it manages capital.Management is currently assessing the impact of IFRS 7 and the amendment to IAS1 on the Group's financial statements. IFRS 8 Operating segments (effective from 1 August 2009) This IFRS specifies how an entity should report information about its operatingsegments in its financial statements. Generally, financial information isrequired to be reported on the same basis as is used internally for evaluatingoperating segment performance and deciding how to allocate resources tooperating segments. Management is currently assessing the impact of IFRS 8 onthe Group's financial statements. Amendment to IAS 1 Presentation of financial statements (effective from 1 August2009) This amendment requires information in financial statements to be aggregated onthe basis of shared characteristics and introduces a statement of comprehensiveincome. Preparers will have the option of presenting items of income and expenseand components of other comprehensive income either in a single statement ofcomprehensive income with subtotals, or in two separate statements (a separateincome statement followed by a statement of comprehensive income). Management iscurrently assessing the impact of this amendment on the Group's financialstatements. IFRIC 10 'Interim financial reporting and impairment' IFRIC 10 'Interim financial reporting and impairment' states that any impairmentlosses on goodwill and certain financial assets recognised in an interimfinancial statement may not be reversed in subsequent interim or annualfinancial statements. IFRIC 11 Group and Treasury Share Transactions (effective from 1 August 2007) IFRIC 11 provides guidance on the application of IFRS 2 Share-based payments totransactions which are settled by the purchase of own shares, and transactionsin which employees of a subsidiary receive rights to shares of a parent company.Management does not expect adoption of this interpretation to have a significantimpact on the Group's financial statements. 4. Loss per share The basic loss per ordinary share of (0.33)p (2006; (0.36)p) for the Group hasbeen calculated by dividing the loss for the period of £1,202,166 (2006:£491,818) by the weighted average number of ordinary shares in issue of364,437,522 (2006: 137,964,775). The diluted loss per share has been calculated using a weighted average numberof shares in issue and to be issued of 364,437,522 (2006: 137,964,775). Thediluted loss per share has been kept the same as the conversion of share optionsdecreases the basic loss per share, thus being anti-dilutive. 5. Segmental information During the period, the Group was organised into its main business segment asmineral exploration. The primary segmental reporting is determined to be geographical segmentaccording to the location of the asset. There are two reporting geographicalsegments. Geographical segment Australia Chile Total 31 December 2007 £ £ £Administration expenses (511,753) (716,901) (1,228,654)Finance revenue 52,493 - 52,493Foreign exchange (loss)/gain (33,088) 8,082 (25,006)Loss before taxation (492,348) (708,819) (1,201,167) As at 31 December 2007Intangible assets - 2,521,693 2,521,693Property, plant and equipment - 56,725 56,725Trade and other receivables 13,212 194,565 207,777Cash and cash equivalents 2,279,382 584,673 2,864,055Trade and other payables (46,461) (19,661) (66,122)Net assets 2,246,133 3,337,995 5,584,128 30 June 2006Administration expenses (295,152) (217,115) (512,267)Finance revenue 20,449 - 20,449Loss before taxation (274,703) (217,115) (491,818) As at 30 June 2006Intangible assets - 886,129 886,129Property, plant and equipment - 31,772 31,772Trade and other receivables - 43,241 43,241Cash and cash equivalents 154,041 6,252 160,293Trade and other payables (31,580) (11,855) (43,435)Net assets 122,461 955,539 1,078,000 The above results are for the eighteen month period ended 31 December 2007(2006: for the period from the date of incorporation on 27 January 2005 to 30June 2006) At the end of the financial period, the Group had not commenced commercialproduction from its exploration sites and therefore had no turnover in theperiod. 6. Reconciliation of loss Group Group 2007 2006 £ £IncomeInterest income 52,493 20,449Other income - -Total income 52,493 20,449 Expenses by natureAuditors' remuneration- audit (20,632) (8,500)- other services - -Depreciation of tangible assets (14,525) (2,529)Travel (83,407) (68,152)Listing fees (10,005) (23,033)Consultants (102,457) (82,211)Legal costs (35,269) (73,765)Company secretarial (21,793) (12,796)Directors' fees (80,312) (48,340)Personnel costs (56,981) (49,255)Office costs (12,947) (22,195)Public relations (2,937) (18,593)Foreign exchange loss/gain (25,006) (61,265)Share based payments expense (96,985) -Impairment of goodwill (125,000) -Impairment of exploration & development costs (547,133) -Other costs (18,271) (41,633)Total expenses (1,253,660) (512,267)Loss for period (1,201,167) (491,818) The audit costs includes £17,500 (2006: £8,500), payable to the parent company auditors. 7. Directors' emoluments Group Group 2007 2006 £ £ Wages and salaries 78,309 46,000Social security costs 2,004 2,340Share based payments 82,526 - 162,839 48,340 8. Taxation Group Group 2007 2006 £ £ Current tax charge - - Deferred taxDeferred tax current period charge - - - - Factors affecting the tax charge for the periodLoss on ordinary activities before taxation (1,201,167) (491,818) Loss on ordinary activities before taxationmultiplied by standard rate of corporationtax of 30% (2006: 30%) (360,350) (147,545) Effects of:Non deductible expenses 234,728 29,947Tax losses 125,622 117,598 Current tax charge - - Factors that may affect future tax charges At the balance sheet date, the Group has unused tax losses available for offsetagainst suitable future profits. A deferred tax asset has not been recognised inrespect of such losses due to uncertainty of future profit streams. The group had tax losses of £496,946 at 31 December 2007 (2006: £391,994). 9. Cash and cash equivalents Group Group Company Company 2007 2006 2007 2006 £ £ £ £ Cash at bank and in hand 2,864,055 160,293 2,279,382 154,041 10. Trade and other receivables Group Group Company Company 2007 2006 2007 2006 £ £ £ £ Other receivables 199,359 43,241 4,793 --Amounts due from subsidiary undertakings - - 2,197,846 161,761 199,359 43,241 2,202,639 161,761 11. Other current assets Group Group Company Company 2007 2006 2007 2006 £ £ £ £ Prepayments 8,418 - 8,418 - 12. Trade and other payables Group Group Company Company 2007 2006 2007 2006 £ £ £ £ Other creditors and accruals 66,122 43,435 46,461 31,580 66,122 43,435 46,461 31,580 13. Intangible assets Goodwill Exploration and Total development costsCostAs at 1 July 2006 500,000 386,129 886,129Additions 500,000 1,807,697 2,307,697At 31 December 2007 1,000,000 2,193,826 3,193,826 ImpairmentAs at 1 July 2006 - - -Impairment during the period (125,000) (547,133) (672,133)As at 31 December 2007 (125,000) (547,133) (672,133) Carrying amountAs at 31 December 2007 875,000 1,646,693 2,521,693As at 30 June 2006 500,000 386,129 886,129 The exploration and development costs relate to expenditure incurred at theIquique and Paguanta projects located in Chile, South America. During the period ended 30 June 2006, the Company acquired the entire issuedshare capital of Tarapaca Resources (Bermuda) Limited ("Tarapaca") from MineralSecurities Limited. The initial purchase consideration gave rise to goodwill of£500,000. The subsidiaries of Tarapaca have interest in two separate blocks oftenements over the Iquique Mineral Fields and one block at Paguanta MineralField. As the fair value of these tenements could not be measured reliably atthe date of acquisition, the intangible assets purchased had been subsumedwithin the amount of purchase consideration attributed to that goodwill. However, there was a further consideration of £500,000, comprising 50,000,000shares at £0.01p each, to be issued in respect of this acquisition. This wascontingent upon the Group's investing at least US$2,000,000 in the projectsowned by Tarapaca and its subsidiaries within thirty six months of the date ofthe acquisition. At 30 June 2006, the Directors believed that it was unlikelythat the performance criterion would be met and therefore, they could not make areasonable estimate of the fair value of the contingent consideration at thatdate. On satisfaction of this performance criterion during the period, thecontingent consideration was met, which gave rise to a further goodwill of£500,000 arising from this acquisition. For the same reasons as referred toabove, the intangible assets purchased at the date of the acquisition also hadbeen subsumed within the amount of this contingent consideration attributed tothis goodwill. In accordance with the accounting policy, the Directors have assessed the valueof goodwill and the exploration and development costs carried in the accounts asintangible fixed assets. An impairment provision of £547,133 on exploration anddevelopment costs and that of £125,000 on goodwill has been made in respect ofthe Iquique Mineral Fields as the Directors have decided to withdraw from theIquique project to focus on the Group's 70% owned Paguanta project. 14. Property, plant and equipment Group Group Company Company 2007 2006 2007 2006 £ £ £ £ Plant and equipmentAt cost 73,779 34,301 - -Accumulated depreciation (17,054) (2,529) - -Total property and equipment 56,725 31,772 - - Movements in carrying amountsMovement in the carrying amounts for eachclass of plant and equipment between thebeginning and end of the financial period:Balance at the beginning of the period 31,772 -Additions at cost 39,478 34,301Disposals - -Depreciation expense (14,525) (2,529)Carrying amount at the end of the period 56,725 31,772 15. Fixed asset investments The Company's investment in subsidiary undertakings at 31 December 2007 were as follows: Company £ At 1 July 2006 1,000,000Addition during the period 500,000Less provision for impairment (250,000) At 31 December 2007 1,250,000 The Company's subsidiary undertakings as at 31 December 2007 were as follows: Company name Country of registration or Class Shares incorporation held % DirectTarapaca Resources (Bermuda) Limited Bermuda Ordinary 100IndirectTarapaca Holdings (BVI) Ltd British Virgin Islands Ordinary 100Iquique Resources (Chile) SA Chile Ordinary 100Paguanta Resources (Chile) SA Chile Ordinary 100Herencia Resources (Chile) SA Chile Ordinary 100Compania Minera Paguanta SA Chile Ordinary 70 15. Fixed asset investments (continued) During the period, Compania Minera Paguanta SA was formed and Paguanta Resources(Chile) SA transferred all of its 70% interest in the Paguanta project (being ajoint operation with Compania Minera Costa Rica ("Compania") owning 30% of thatjoint operation with Compania for a 70% equity in that company. At the sametime, the minority shareholder injected £579,913 (comprising mining concessionsof £428,278 and a cash sum of £149,632 - see note 16) to acquire the remaining30% interest in that company. The principal activity of Iquique Resources (Chile) SA, Paguanta Resources(Chile) SA, Herencia Resources Chile SA and Compania Minera Paguanta SA wasmineral exploration whereas Tarapaca Resources (Bermuda) Limited and TarapacaHoldings (BVI) Ltd are holding companies. 16. Minority interest Group Group 2007 2006 £ £ Called up share capital 577,913Accumulated profits 999 -Translation reserve (3) 578,909 - 17. Called up share capital Group Group Company Company 2007 2006 2007 2006 £ £ £ £ Authorised:10,000,000,000 ordinary shares of £0.001 each 10,000,000 10,000,000 10,000,000 10,000,000 Allotted, issued and fully paid:607,399,999 ordinary shares (2006: 200,000,000 ordinary shares) 626,433 200,000 626,433 200,000 The following shares in the Company were issued during the period: • On 10 July 2006, the Company completed a private placement raising acapital sum of £571,000 from the issue of 38,066,667 ordinary shares at a priceof 1.5p per share (of the £571,000 cash raised, £82,000 was received prior to 1July 2007). • On 30 October 2006, the Company also raised a capital sum of £900,000from the issue of 90,000,000 ordinary shares at a price of 1p per share. • On 15 March 2007, the Company raised a capital sum of £700,000 from theissue of 56,000,000 ordinary shares at a price of 1.25p per share. • On 27 September 2007 the Company issued 47,000,000 ordinary shares at 1p pershare to Mineral Securities Limited ("Min Sec") following the satisfaction ofcertain performance criteria. The company also issued 3,000000 ordinary sharesat 1p per share to advisers to MinSec. The performance criteria were theinvestment by the Group of at least US$2,000,000 in the Paguanta and/or IquiqueProjects within 36 months of the date of the Acquisition Agreement. • On 1 November 2007, the Company raised a capital sum of £2,600,000 from theissue of 173,333,333 ordinary shares at a price of 1.5p per share. The movements in the share capital are summarised below: Number of £ shares As at 1 July 2006 200,000,000 200,000Issued on 10 July 2006 38,066,666 38,067Issued on 30 October 2006 90,000,000 90,000Issued on 15 March 2007 56,000,000 56,000Issued on 27 September 2007 50,000,000 50,000Issued on 1 November 2007 173,333,333 173,333At 31 December 2007 607,399,999 607,400 The share premiums arising as a result of above transactions were as follows: £ As at 1 July 2006 1,276,925Issued on 10 July 2006 532,933Issued on 30 October 2006 810,000Issued on 15 March 2007 644,000Issued on 27 September 2007 450,000Issued on 1 November 2007 2,426,667Issue costs (133,880)As at 31 December 2007 6,006,645 18. Share options and share based payments The number of options granted during the period were as follows: Date of grant Number of Option Exercisable between options price 2 April 2007 1,600,000 1.5p Any time until 31 August 20102 April 2007 1,600,000 3.0p Between 19 June 2007 to 31 August 20102 April 2007 1,600,000 4.0p Between 19 June 2008 to 31 August 201030 November 2007 12,000,000 1.5p Between 30 November 2007 to 29 November 201030 November 2007 2,250,000 1.5p Between 30 November 2008 to 29 November 201030 November 2007 2,250,000 1.5p Between 30 November 2009 to 29 November 2010 21,300,000 Of the above options, the options granted to the directors were as follows: Date of grant Number of Option Exercisable between options price Michael Bohm2 April 2007 800,000 1.5p Any time until 31 August 20102 April 2007 800,000 3.0p Between 19 June 2007 to 31 August 20102 April 2007 800,000 4.0p Between 19 June 2008 to 31 August 201030 November 2007 1,500,000 1.5p Between 30 November 2008 to 29 November 201030 November 2007 1,500,000 1.5p Between 30 November 2009 to 29 November 2010 5,400,000 The Hon. John Moore AO.30 November 2007 5,000,000 1.5 Between 30 November 2008 to 29 November 2010 John Russell30 November 2007 5,000,000 1.5p Between 30 November 2007 to 29 November 2010 William Adamson30 November 2007 2,000,000 1.5p Between 30 November 2007 to 29 November 2010 The options issued to Michael Bohm on 30 November 2007 are held for the benefitof Mineral Securities Limited ("Min Sec") pursuant to the agreement between theCompany and Min Sec for the provision of M Bohm's services. The Group recognised a charge of £96,985 (2006: £Nil) in the income statement inrespect of the share-based payment plans. These are based on the requirements of International Financial ReportingStandard 2 "Share-based payment". For this purpose, the weighted averageestimated fair value for the share options granted was calculated using aBlack-Scholes option pricing model in respect of options issued to theemployees. The volatility measured at the standard deviation of expected pricereturn is based on statistical analysis of the historical share pricevolatility, as it is assumed that this is indicative of future trends, and thishas been calculated at 40%. The risk free rate has been taken as 5.74%. Theweighted average fair value is 1p and the weighted average life of options istaken as 3 years. 19. Net cash outflow from operating Group Group Company Company activities 2007 2006 2007 2006 £ £ £ £ Operating loss (1,253,660) (512,267) (794,841) (295,152)Increase in trade and other receivables (164,537) (43,241) (2,049,296) (161,761)Increase in trade and other payables 22,687 43,435 14,880 31,580Depreciation of property, plant and equipment 14,525 2,529 - -Impairment of intangible assets 672,133 - - -Impairment of investments - - 250,000 - Exchange differences on retranslation offoreign operations (22,722) 10,893 - -Share based payments expense 96,985 - 96,985 -Net cash outflow from operating activities (634,586) (498,651) (2,482,272) (425,333) 20. Control No one party is identified as controlling the Company. 21. Subsequent events No matter or circumstances have arisen since the end of the reporting date andthe date of this report which significantly affect the results of the operations of the Company. 22. Related party transactions As set out in Note 13 to the financial statements, the Company, during theperiod, issued 50,000,000 shares to Mineral Securities Limited to meet thecontingent consideration on the acquisition of Tarapaca Resources (Bermuda)Limited. During the period, the Company also entered into an Alliance Agreement withMinSec. Under the alliance, Herencia will utilise its established office andtechnical team based in Chile together with MinSec's technical and commercialteam based in Perth. MinSec will provide Herencia Resources plc with access toits experienced team of geological, mining and commercial personnel to assistHerencia in both the evaluation and potential future development of any newresource opportunities. During the period, the Company paid a sum of £36,795 (2006: nil) to MinSec forthe provision of technical services by Michael Bohm and Ken Rogers, the ChiefGeologist for MinSec. During the period, the Company issued 3,000,000 options to Michael Bohm for thebenefit of MinSec pursuant to the agreement entered into between Herencia andMineral Securities Limited on the provision of Michael Bohm's services. During the period, the Company paid a sum of £22,500 (2006: nil) to MinSec inrespect of Director Fees for Michael Bohm. John Bottomley, the secretary of the Company is an employee of Sprecher GrierHalberstam LLP, a firm of solicitors. During the period this partnership waspaid a sum of £21,844 (2006: £12,796) in respect of legal and secretarialservices to the Company. These related party transactions are based on independent third party commercialrates. The Directors who have interests in these transactions did notparticipate in the decision making process relating to these transactions 23. Contingent liabilities and capital commitments The Group had no contracted capital commitments at 31 December 2007. The Grouphad no contingent liabilities at 31 December 2007. 24. Decommissioning expenditure The Directors have considered the environmental issues and the need for anynecessary provision for the cost of rectifying any environmental damage, asmight be required under local legislation. In their view, no provision isnecessary for any future costs of decommissioning or any environmental damage. 25. Financial instruments Interest Rate risk At 31 December 2007 the Group had Chilean Peso cash at bank of a sterlingequivalent of £584,673, Australian Dollar cash at bank of £8,713 and US Dollarcash at bank of £256,609. The Company's exposure to interest rate risk, which isthe risk that a financial instrument's value will fluctuate as a result ofchanges in market interest rates on classes of financial assets and financialliabilities, was as follows: Floating Non-Interest Floating Non-Interest interest rate Bearing interest rate Bearing 31 Dec 2007 31 Dec 2007 30 June 2006 30 June 2006 £ £ £ £ Financial assets: Cash at bank 2,864,055 - 160,293 - The effective weighted average interest rate was 4.46%. Financial liabilities: At 31 December 2007, the Group had no debt. Net Fair Value The net fair value of financial assets and financial liabilities approximates totheir carrying amount as disclosed in the balance sheet and in the relatednotes. Currency Risk The functional currency for the Group's operating activities is the Britishpound and for drilling activities the Chilean Peso. The Group's objective inmanaging currency exposures arising from its net investment overseas is tomaintain a low level of borrowings. The Group has not hedged against currencydepreciation but continues to keep the matter under review. Financial risk management The Directors recognise that this is an area in which they may need to developspecific policies should the Group become exposed to further financial risks asthe business develops. 26. Annual Report and Accounts It is expected that the Annual Report and Accounts will be dispatched toshareholders on or before 17 April 2008. A copy of the Annual Report andAccounts will be available from the date of dispatch on the Company's website -www.herenciaresources.com 27. Annual General Meeting The Company has not confirmed the date of its Annual General Meeting. A furtherannouncement will be made in due course when the details of the Annual GeneralMeeting have been determined and the notice of AGM has been dispatched toshareholders. 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