Herencia Resources Regulatory News (HER)

16 Nov 2006 08:41

Herencia Resources PLC16 November 2006 HERENCIA RESOURCES PLC STATEMENT OF RESULTS FOR THE PERIOD ENDED 30 JUNE 2006 DIRECTORS' REPORT The Directors present their Directors' report together with the audited accountsof the Company ("Herencia Resources plc") and the Group ("Herencia Resources Plcand its subsidiary undertakings") for the period from incorporation on 27January 2005 until 30 June 2006. 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 publiccompany limited by shares. The principal activity of the Group is mineral exploration. The Group operatesthrough its parent and subsidiary undertakings, details of which are set out innote 12 to these accounts. Review of the business and future prospects The Company was originally quoted on AIM in March 2005 as an investment company.On 22 November 2005, the Company was readmitted to AIM as a resources companyfollowing the completion of the acquisition of the entire issued share capitalof Tarapaca Resources (Bermuda) Limited ("Tarapaca") from Australian listedMineral Securities Limited ("MinSec") on 21 November 2005. The acquisitionsecured the ownership of a portfolio of silver-zinc-copper-gold explorationproperties in South America. The wholly owned subsidiary of Tarapaca, Iquique Resources (Chile) SA, enteredinto a joint venture agreement with Compania Minera Costa Rica and CompaniaMinera Santa Lucia Limitada in respect of the silver-copper Iquique Project on26 July 2005. This gave it the right to earn up to 70% of the Iquique Project bycontributing US$2 million towards the Iquique Project's exploration activities.The Group must contribute US$0.5 million within 18 months to earn a 50% interestin the project. To retain that interest and increase its interest to 70%, itmust spend a further US$1.5 million within 36 months. The wholly owned subsidiary of Tarapaca, Paguanta Resources (Chile) SA, alsoentered into a joint venture agreement with Compania Minera Costa Rica inrespect of the silver-zinc-copper-gold Paguanta Project on 29 June 2005. Thisgave it the right to earn up to 70% of the Paguanta Project by contributing US$2million towards the Paguanta Project's exploration activities. The Group mustcontribute US$0.5 million within 18 months to earn a 50% interest in theproject. To retain that interest and increase its interest to 70%, it must spenda further US$1.5 million within 36 months. The Iquique Project and the Paguanta Project (the "Projects") occupy an areawith known mineralised systems and the Directors believe they represent acompelling exploration opportunity. These Projects contain numerous ancientworkings, some of which date back to the Inca Empire and more recent Europeansettlement. Importantly, the Projects appear to have had no significant modernexploration. These Projects are prospective for open pit bulk tonnage resourcescomprising vein, stockwork, manto, skarn and porphyry stylesilver-zinc-copper-gold mineralization. Exploration in Chile commenced in November 2005 with a work program and drillingof the Iquique project area. The exploration and drilling activities currentlybeing undertaken are focussed on the Paguanta project. Further information onthe Projects and the Company can be found at www.herenciaresources.com. The Directors have reviewed the affairs and operations of the Group and believethem to be fair and reasonable in accordance with the current status of theGroup as a mineral exploration company. During the period the Group has expended£386,129 on exploration and development of the Iquique and Paguanta Projects.The results of the work undertaken to date warrant the continuation of theexploration of the Iquique and Paguanta Projects. The Group's primary business is mineral exploration and 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. On 5 October 2006, the Company entered into an Alliance Agreement with MinSec interms of which the Group will utilise its established office and technical teambased in Chile together with MinSec's technical and commercial team based inPerth. MinSec will provide Herencia with access to its experienced team ofgeological, mining and commercial personnel to assist Herencia in both theevaluation and potential future development of any new resource opportunities. Under the Alliance Agreement MinSec agrees to help identify and advise theCompany on potential mineral resource opportunities within South America. TheCompany will evaluate additional projects on a case by case basis and makefurther acquisitions, if these are perceived to have the potential to add value. GROUP INCOME STATEMENT FOR THE PERIOD ENDED 30 JUNE 2006 Group Notes 2006 £Revenue -Cost of sales -Gross profit -Administration expenses (512,267)Operating loss 4 (512,267)Finance revenue 6 20,449Loss before taxation (491,818)Taxation 7 -Loss for the period (491,818) Earnings per ordinary share - basic and diluted (0.36)p The above are the results for the period from the date of incorporation on 27January 2005 to 30 June 2006. All of the above amounts are in respect of continuing operations. There are no recognised gains and losses other than those passing through theincome statement. GROUP BALANCE SHEET AS AT 30 JUNE 2006 Group Notes 2006 £ASSETS Non current assetsIntangible assets 11 886,129Property, plant and equipment 31,772Investments 12 - 917,901 Current assetsTrade and other receivables 8 43,241Cash and cash equivalents 9 160,293 203,534 Total assets 1,121,435 EQUITY AND LIABILITIES EQUITYCapital and Reserves attributable to Equity holdersCalled up share capital 13 200,000Share premium account 14 1,276,925Reserve for own shares 14 82,000Translation reserve 14 10,893Retained losses 14 (491,818)Total equity 1,078,000 Current liabilitiesTrade and other payables 10 43,435Total liabilities 43,435 Total equity and liabilities 1,121,435 GROUP CASH FLOW STATEMENT FOR THE PERIOD ENDED 30 JUNE 2006 Group Notes 2006 £Net cash outflow from operating activities 15 (498,651) Cash flows from investing activitiesInterest received 6 20,449Purchase of property, plant and equipment (34,301)Cash acquired with subsidiary undertakings 500,000Net funds used for investing in exploration 11 (386,129)Net cash inflow from investing activities 100,019 Cash flows from financing activitiesProceeds from issue of shares 13 550,000Issue costs (73,075)Proceeds from shares issued after the balance sheet date 14 82,000Net cash inflow from financing activities 558,925 Net increase in cash and cash equivalents 160,293 Cash and cash equivalents at the beginning of the period - Cash and cash equivalents at the end of the period 9 160,293 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 30 JUNE 2006 1. Accounting policies A summary of the principal accounting policies, all of which have been appliedconsistently throughout the period, is set out below. 1.1. Basis of preparation The financial statements have been prepared using the historical costconvention. In addition, the financial statements have been prepared inaccordance with the International Financial Reporting Standards ("IFRS")including IFRS 6, Exploration for and Evaluation of Mineral Resources, asadopted by the European Union ("EU") and in accordance with the provisions ofthe Companies Act 1985. The group's financial statements for the period ended 30 June 2006 wereauthorised for issue by the board of Directors on 7 November 2006 and thebalance sheets were signed on the Board's behalf by Michael Bohm. The Group financial statements are presented in UK pound sterling. In accordance with the provisions of the Section 230 of the Companies Act 1985,the Parent Company has not presented a profit and loss account. A loss for theperiod ended 30 June 2006 of £274,703 has been included in the profit and lossaccount. 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 Group. The cost of an acquisition is measured as the fairvalue of the assets given, equity instruments issued and liabilities incurred orassumed at the date of exchange, plus costs directly attributable to theacquisition. 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 arising on acquisitions is capitalised andsubject to impairment review, both annually and when there are indications thatthe carrying value may not be recoverable. 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 assets and liabilities of the foreign subsidiary undertakings are translatedinto Sterling at the rates of exchange ruling at the year end and their resultsare translated at the average exchange rate for the period. Exchange differencesresulting from the retranslation of net investments in subsidiary undertakingsare 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 interim financial information. Deferred tax isdetermined using tax rates (and laws) that have been enacted or substantiallyenacted by the balance sheet date and expected to apply when the relateddeferred tax is realised or the 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. 2. Earnings per share Basic earnings per share of (0.36)p for the Group is calculated by dividing theloss for the period by the weighted average number of ordinary shares in issueof 137,964,775. The Company has no share warrants or options in issue. 3. Segmental information The primary segmental reporting is determined to be geographical segmentaccording to the location of the asset. The Directors do not believe that thereis a secondary segment that could be reported. There are two reporting segments. Geographical segment Australia Chile Total £ £ £ Administration expenses (295,152) (217,115) (512,267)Finance revenue 20,449 - 20,449Loss before taxation (274,703) (217,115) (491,818) Intangible 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 At the end of the financial period, the Group had not commenced commercialproduction from its exploration sites and therefore had no turnover in theperiod. Group 2006 £4. Operating loss This is stated after charging:Auditors' remuneration- Audit 8,000Foreign exchange gain (5,123) Group 2006 £5. Directors' emoluments Wages and salaries 46,000Social security costs 2,340 48,340There are no employees other than the Directors. 6. Finance revenue Bank interest 20,449 7. Taxation Current tax charge - Deferred taxDeferred tax current period charge - - Factors affecting the tax charge for the periodLoss on ordinary activities before taxation (491,818) Loss on ordinary activities before taxationmultiplied by standard rate of corporationtax of 30.00% (147,545) Effects of:Non deductible expenses 29,947Tax losses 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. 8. Trade and other receivables Other receivables 43,241Amount due from subsidiary undertakings -Prepayments and accrued income - 43,2419. Cash and cash equivalents Cash at bank and in hand 160,29310. Trade and other payables Accruals and deferred income 43,435 11. Intangible assets Goodwill Exploration and Total development costsCostAdditions 500,000 386,129 886,129At 30 June 2006 500,000 386,129 886,129ImpairmentImpairment during the period - - - Carrying amountAs at 30 June 2006 500,000 386,129 886,129 The exploration and development costs relate to expenditure incurred at the Iquique and Paguanta projectslocated in Chile, South America. The goodwill of £500,000 arose on acquisition of Tarapaca Resources (Bermuda) Limited, a company incorporatedin Bermuda (note 12). In accordance with the accounting policy, the Directors have assessed the value of goodwill and theexploration and development costs carried in the accounts as intangible fixed assets. In the opinion of theDirectors, no impairment provision is considered necessary. 12. Fixed asset investments 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 100 The principal activity of Iquique Resources (Chile) SA and Paguanta Resources (Chile) SA was mineralexploration whereas Tarapaca Resources (Bermuda) Limited and Tarapaca Holdings (BVI) Ltd are holdingcompanies. 12. Fixed asset investments (continued) As at the date of acquisition, the Tarapaca Group of Companies had net assets of £500,000 comprising cashat bank and joint venture agreements through its wholly owned Chilean subsidiaries to earn up to a 70%interest in the Iquique and Paguanta projects in Chile. Details of net assets acquired and goodwill are as follows. £Purchase considerationIssue of shares 1,000,000Total purchase consideration 1,000,000 Fair value of net assets acquired (comprising cash only) (500,000)Goodwill 500,000 The fair value of assets and liabilities arising from the acquisition are as follows: Cash at bank 500,000Net assets acquired 500,000 On 21 November 2005, the Company acquired the entire issued capital of Tarapaca Resources (Bermuda)Limited, a company incorporated in Bermuda from Mineral Securities Limited. In accordance with the terms ofthe acquisition agreement on 21 November 2005, the Company issued 100,000,000 ordinary shares of £0.01 eachfor the purchase of the company following raising of an equity capital of £500,000 by that company. Thesubsidiaries of Tarapaca Resources (Bermuda) Limited have interests in two separate blocks of tenements(total area of 94 square kilometers) over the Iquique Mineral Field and one block (total area of 39 squarekilometers) at Paguanta Mineral Field. As the fair values of these tenements cannot be measured reliably,the intangible assets purchased have been subsumed within the amount of the purchase considerationattributed to goodwill. There are a further 50,000,000 shares at £0.01 per share (contingent consideration) that may be allotted toMineral Securities Limited subject to certain performance criteria. A reasonable estimate of the fairvalue of the amount of contingent consideration expected to be payable in the future cannot be made at theperiod end. Group 2006 £13. Called up share capital Authorised:10,000,000,000 ordinary shares of £0.001 each 10,000,000 Allotted, issued and fully paid:200,000,000 ordinary shares of £0.001 each 200,000 The following shares in the Company were issued during the period: • 2 shares were issued at par on 27 January 2005 (the incorporation date).• 49,999,998 shares were issued at par on 8 February 2005• 50,000,000 shares were issued at £0.01 each on 24 February 2005• 100,000,000 shares were issued at £0.01 on 21 November 2005 The movements in the share capital are summarised below: Number of shares Issue for cash - founder members 50,000,000Issue for cash - placement 50,000,000Shares issued on acquisition of Tarapaca Resources (Bermuda) Limited 100,000,000At 30 June 2006 200,000,000 Shares issued after 30 June 2006 are set out in note 17. The share premiums arising as a result of above transactions were as follows: 2006 £ Issue of shares for cash - placement 450,000Issue of shares in acquisition of Tarapaca Resources (Bermuda) Limited 900,000 1,350,000 14. Shareholders' funds and changes in shareholders' equity Group Share Share Reserve for Translation Retained capital premium own shares reserve earnings £ £ £ £ £ Issue of shares 200,000 1,350,000 - - -Issue costs - (73,075) - - -Shares issued after 30 June 2006 (note - - 82,000 - -17)Exchange differences on retranslation - - - 10,893 -of foreign operationsNet loss for the period - - - - (491,818)Balance at 30 June 2006 200,000 1,276,925 82,000 10,893 (491,818) Group 2006 £15. Net cash outflow from operating activities Operating loss (512,267)Increase in trade and other receivables (43,241)Increase in trade and other payables 43,435Depreciation of property, plant and equipment 2,529Exchange differences on retranslation of foreign operations 10,893Net cash outflow from operating activities (498,651) 16. Control No one party is identified as controlling the Company. 17. Subsequent events On 10 July 2006, the Company completed a private placement capital raising£571,000 from the issue of 38,066,667 ordinary shares at a price of 1.5p pershare of which £82,000 was received before 30 June 2006 and included in reservefor own shares. On 30 October 2006, the Company completed a capital raising toraise £900,000 from the issue of 90,000,000 ordinary shares at a price of 1p pershare. 18. Related party transactions During the period, a payment of £12,500 was made to Australian Heritage GroupPty Ltd, a company in which the former director Anthony Barton is a director andin which he holds a beneficial interest, in consideration for management andconsultancy services provided to the Company in connection with a placing ofOrdinary Shares and the admission of the issued share capital of the Company totrading on AIM. During the period, the Company acquired the entire issued share capital ofTarapaca from Mineral securities Limited ("Minsec"). Tarapaca is the holdingcompany of the group set out in note 12 to the accounts. The consideration paidand payable by the Company comprised initial consideration shares of 100,000,000ordinary shares and deferred consideration shares of 50,000,000 ordinary shares. The conditions for the allotment of the deferred consideration shares are setout in the substantial shareholders' paragraph in the Directors report. MichaelBohm is a senior executive and a shareholder of Minsec. In addition, John Mooreand the former director of the Company Keith Liddell are also directors andshareholders of Minsec. John Bottomley, the secretary of the Company is an employee of Sprecher GrierHalberstam LLP, a firm of solicitors. This partnership was paid a sum of £12,796in respect of legal and secretarial services to the Company. These related party transactions are based on independent third party commercialrates. The Directors who have interests in these transactions do not participatein the decision making process relating to these transactions. 19. 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. 20. Annual Report The Annual Report is available from the Company website atwww.herenciaresources.com. For further information, please contact: Michael Bohm Herencia Resources Plc +61 8 9221 7466David Youngman WH Ireland Limited +44 161 832 2174 This information is provided by RNS The company news service from the London Stock Exchange