IFL.L Regulatory News (IFL)

31 Mar 2006 09:48

International Ferro Metals Limited31 March 2006 International Ferro Metals Limited Half-Year Financial Statements for the six months ended 31 December 2005 Directors' Report Your directors submit their report for the half-year ended 31 December 2005. DIRECTORS The names of the company's directors in office during the half-year and untilthe date of this report are as below. Directors were in office for this entireperiod unless otherwise stated. The following directors were Directors for the half year and up to the date ofthis report: - Anthony Grey- Stephen Turner- Ian Watson The following directors were appointed during the current half year - Xiaoping Yang (12 October 2005)- Terence Willsteed (12 October 2005)- Stephen Oke (16 November 2005)- Tian Xia (16 November 2005) REVIEW AND RESULTS OF OPERATIONS The IFM Group reported an unaudited loss of £18.4m (ZAR208.1m) for the sixmonths ended 31 December 2005, of which £15.9m (ZAR183.3m) is attributable tothe accounting treatment of the JISCO share subscription. This loss was inaccordance with budgeted expenditure for this period in which IFM commencedconstruction of its ferrochrome facility in South Africa. Highlights . Admission to AIM on 30 September 2005, raising £80 million (ZAR924m). Project Finance of £79 million (ZAR912m) secured. Guaranteed off take agreements for 64% of planned production. Construction of the processing plant and related infrastructure commenced On Admission to AIM the Company raised £80 million (ZAR924m) in new equity andsecured project finance of £79 million (ZAR912m). Together with equity of £19(ZAR221m) subscribed by JISCO this total finance of £178 million (ZAR2,057m) issufficient for IFM to construct and operate a ferrochrome production facilitycapable of producing 267,400 tpa of charge chrome, with chromite ore beingsourced from its own mine. IFM has two guaranteed off take agreements for sale of its ferrochromeproduction. JISCO, a Chinese Stainless Steel producer and a major shareholder ofIFM has guaranteed to purchase 120,000 tpa, and CoMetals, a New York listedmetals trading company has guaranteed to purchase 50,000 tpa. Construction commenced on 17 October 2005 with an estimated construction periodof 18 months. Post 31 December 2005 Since 31 December 2005 the Company has acquired all the issued share capital inPurity Metals Holdings Limited, the owner of an 80% interest in Sky ChromeMining (Proprietary) Limited, the owner of a chromite property having IndicatedMineral Resources of 28.4 million tonnes at 36.6% Cr2O3 and Inferred MineralResources of 29.6 million tonnes at 36.6% Cr2O3. This acquisition gives theCompany a total Indicated Mineral Resource of 53.35 million tonnes at37.09%Cr2O3 and Inferred Mineral Resource of 37.56 million tonnes at 36.84%Cr2O3. Full right of ownership will pass to IFM on final settlement of thepurchase consideration. The Company received approval for the acquisition fromthe South African Competition Commission in February 2006. Construction of the ferrochrome facility at Buffelsfontein is within its 5thmonth and is 28% complete. The project remains on target to begin production in2007, reaching a production level of 267,400 tpa by the end of that year. Fixedprice and fixed time construction contracts account for 87% of the Company'scapital expenditure, up from 68% at the time of Admission to AIM. ROUNDING The amounts contained in the half-year financial report have been rounded to thenearest ZAR1,000 (where rounding is applicable) under the option available tothe company under ASIC Class Order 98/0100. The company is an entity to whichthe Class Order applies. AUDITOR'S INDEPENDENCE DECLARATION We have obtained the following independence declaration from our auditors, Ernst& Young. Ernst & YoungErnst and Young Centre680 George StreetSydney NSW 2000Australia Auditor's Independence Declaration to the Directors of International FerroMetals Limited In relation to our review of the financial report of International Ferro MetalsLimited for the half-year ended 31 December 2005, to the best of my knowledgeand belief, there have been no contraventions of the auditor independencerequirements of the Corporations Act 2001 or any applicable code of professionalconduct. Michael Elliott Ernst & YoungPartnerSydney31 March 2006 Liability limited by the Accountants Scheme, approved under the ProfessionalStandards Act 1994 (NSW). Signed in accordance with a resolution of the directors. Stephen TurnerDirectorSydney, 31 March 2006 Condensed Income StatementFOR THE HALF-YEAR ENDED 31 DECEMBER 2005 CONSOLIDATED 2005 2004 Notes ZAR'000 ZAR'000 --------------------------------- ------ ------- ------- RevenueSales Revenue 635 -Cost of goods sold (123) - ------- -------Gross profit 512 - Other income/(expenses)Interest Income 12,305 46Accounting and audit fees (1,896) (328)Consulting fees (3,897) (946)Consumables (20) -Depreciation expense (155) (37)Entertainment (238) (165)Feasibility study costs (180) (237)Foreign exchange gain/(loss) 1,774 -Guarantee fee - (26)Insurance (288) (198)Legal Fees (4,175) (1,481)Loss on disposal of assets (47) -Management fees - (1,244)Professional fees (4,035) (226)Salaries and Wages (including directors fees) (9,553) (3,943)Travel and accommodation (2,095) (1,676)Interest expense (4,718) (5,268)Black Economic Empowerment costs (6,900) -Loss on issue of shares to Jisco 3 (183,252) -Other expenses (1,293) (572) ------- -------Loss before income tax (208,151) (16,300)Income tax expense - - ------- ------- Net profit / (loss) for the period (208,151) (16,300)Profit / (loss) attributable to minority interests - - ------- -------Net profit / (loss) attributable to members ofparent (208,151) (16,300) ======= ======= ZAR ZAREarnings / (loss) per share (cents per share)- basic for profit for the half-year (87.87) (48.12)- diluted for profit for the half-year (87.87) (48.12)- dividends paid per share 2 - - Condensed Balance SheetAS AT 31 DECEMBER 2005 Notes CONSOLIDATED As at As at 31 December 2005 30 June 2005 ZAR'000 ZAR'000 ------------------------- ------ ----------- ----- ---------ASSETSCurrent AssetsCash and cash equivalents 600,188 15,574Advance payment 83,485 -Trade and other receivables 45,649 8,672Prepayments 15,320 7,132 ----------- ---------Total Current Assets 744,642 31,378 ----------- --------- Non-current AssetsNon-current receivables 13,100 -Deposits 12,216 1,280Property, plant and equipment 378,174 407Other non current assets 3,728 24,692 ----------- ---------Total Non-current Assets 407,218 26,379 ----------- ---------TOTAL ASSETS 1,151,860 57,757 ----------- --------- LIABILITIESCurrent LiabilitiesTrade and other payables 50,695 7,247Provisions 1,241 438 ----------- ---------Total Current Liabilities 51,936 7,685 ----------- --------- Non-current LiabilitiesInterest Bearing Loans and Borrowings - 60,555Provisions 4,784 - ----------- ---------Total Non-current Liabilities 4,784 60,555 ----------- ---------TOTAL LIABILITIES 56,719 68,240 ----------- ---------NET ASSETS 1,095,141 (10,483) =========== ========= EQUITYShare Capital 3 1,340,492 48,212Minority interest 20,000 -Convertible note - 5,977Accumulated losses (273,233) (65,082)Share based payments reserve 7,882 410 ----------- ---------TOTAL EQUITY 1,095,141 (10,483) =========== ========= Condensed Cash Flow StatementFOR THE HALF-YEAR ENDED 31 DECEMBER 2005 CONSOLIDATED 2005 2004 ZAR'000 ZAR'000 ------------------------------- ------ -------- -------- Cash flows from operating activitiesReceipts from customers 635 -Payments and advances to suppliers and employees(inclusive of GST) (25,271) (7,761)Interest paid (2,686) (5,268) -------- --------Net cash flows from operating activities (27,322) (13,029) -------- -------- Cash flows from investing activitiesPayments for property, plant and equipment (415,064) (123)Payments for acquisition of investment (3,729) -Payments for development of bankable feasibility study - (2,807)Prepaid mine acquisition costs - (1,067)Interest received 12,305 46 -------- --------Net cash flows used in investing activities (406,488) (3,951) -------- -------- Cash flows from financing activitiesProceeds from issue of shares (net of issue costs) 1,055,978 8,726Proceeds from issue of convertible note - 20,000Prepaid admission costs - (944)Environmental deposit (11,700) -Payment of borrowing costs (11,881) -Repayment of shareholder loan (16,512) - -------- --------Net cash flows from financing activities 1,015,885 27,782 -------- -------- Net increase/(decrease) in cash and cash equivalents 582,075 10,803Cash and cash equivalents at beginning of period 15,574 1,337Effects of exchange rate changes on cash 2,538 - -------- --------Cash and cash equivalents at end of period 600,187 12,140 ======== ======== Condensed Statement of Changes in EquityFOR THE HALF-YEAR ENDED 31 DECEMBER 2005 Attributable to equity holders of the parent Minority Total equity --------------------------------------- Interest --------- ---------CONSOLIDATED Share Convertible Retained Share-Based Total Capital note Earning- Payments opening Reserve ZAR'000 ZAR'000 ZAR'000 ZAR'000 ZAR'000 ZAR'000 ZAR'000 ------------------------ --------- --------- --------- --------- --------- --------- --------- At 1 July 2004 9,775 - (24,231) 190 (14,266) - (14,266)Loss for theperiod - - (16,300) - (16,300) - (16,300) --------- --------- --------- --------- --------- --------- ---------Total income /expense forthe year 9,775 - (40,531) 190 (30,566) - (30,566) --------- --------- --------- --------- --------- --------- ---------Cost of sharebased payments - - - 40 40 - 40Issue ofshares (net ofcosts) 9,156 - - - 9,156 - 9,156Shareplacementcosts (430) - - - (430) - (430)At 31 December2004 18,501 - (40,531) 230 (21,800) - (21,800) ========= ========= ========= ========= ========= ========= ========= At 1 July 2005 48,212 5,977 (65,082) 410 (10,483) - (10,483)Shareplacementcosts (55,538) - - - (55,538) - (55,538) --------- --------- --------- --------- --------- --------- ---------Total incomeand expensefor the yearrecogniseddirectly inequity (55,538) - - - (55,538) - (55,538)Loss for theperiod - - (208,151) - (208,151) - (208,151) --------- --------- --------- --------- --------- --------- ---------Total income /expense forthe year (55,538) - (208,151) - (263,689) - (263,689)Cost of sharebased payments - - - 7,472 7,472 - 7,472Issue of shares 1,328,159 - - - 1,328,159 - 1,328,159Conversion ofGlobal Eagleconvertiblenote - - - - - 20,000 20,000Conversion ofRABconvertiblenote 19,659 (5,977) - - 13,682 - 13,682 --------- --------- --------- --------- --------- --------- ---------At 31 December2005 1,340,492 - (273,233) 7,882 1,075,141 20,000 1,095,141 ========= ========= ========= ========= ========= ========= ========= Notes to the Half-Year Financial StatementsFOR THE HALF-YEAR ENDED 31 DECEMBER 2005 1 BASIS OF PREPARATION OF THE HALF-YEAR FINANCIAL REPORT The half-year financial report does not include all notes of the type normallyincluded within the annual financial report and therefore cannot be expected toprovide as full an understanding of the financial performance, financialposition and financing and investing activities of the consolidated entity asthe full financial report. The half-year financial report should be read in conjunction with the annualFinancial Report of International Ferro Metals Limited as at 30 June 2005, whichwas prepared based on Australian Accounting Standards applicable before 1January 2005 ('AGAAP'). It is also recommended that the half-year financial report be consideredtogether with any public announcements made by International Ferro MetalsLimited and its controlled entities during the half-year ended 31 December 2005in accordance with the continuous disclosure obligations arising under theCorporations Act 2001. (a) Basis of accounting This half-year general purpose financial report has been prepared in accordancewith applicable Accounting Standards including AASB 134 "Interim FinancialReporting, other authoritative pronouncements of the Australian AccountingStandards Board and the Corporations Act 2001. This financial report has been prepared in accordance with the historical costconvention, except for certain assets, which, as noted, are at fair value. Forthe purpose of preparing the half-year financial report, the half-year has beentreated as a discrete reporting period. (b) Statement of compliance The half-year financial report complies with Australian Accounting Standards,which include Australian equivalents to International Financial ReportingStandards ('AIFRS'). Compliance with AIFRS ensures that the half-year financialreport, comprising the financial statements and notes thereto, complies withInternational Financial Reporting Standards ('IFRS'). This is the first half-year financial report prepared based on AIFRS andcomparatives for the half-year ended 31 December 2004 and full-year ended 30June 2005 have been restated accordingly except for AASB 132 "FinancialInstruments: Presentation" and AASB 139 "Financial Instruments: Recognition andMeasurement". The company has applied the excemption permitted by AASB 1"First-time Adoption of Australian Equivalients to International FinancialReporting Standards" from having to apply AASB 123 and AASB 139 to thecomparative period. A summary of the significant accounting policies of theGroup under AIFRS are disclosed in Note 1(c) below. Reconciliations of:- AIFRS equity as at 1 July 2004, 31 December 2004 and 30 June 2005; and- AIFRS profit for the half-year 31 December 2004 and full year 30 June 2005,to the balances reported in the 31 December 2004 half-year report and 30 June2005 full-year financial report prepared under AGAAP are detailed in Note 1(e)below. (c) Summary of significant accounting policies (i) Basis of consolidation The consolidated financial statements incorporate the assets and liabilities ofall entities controlled by International Ferro Metals Limited (IFM) at the endof the reporting period. The Company and its controlled entities together arereferred to as the Group. The effects of all transactions between entities inthe Group are eliminated in full. Outside equity interests in the results andequity of controlled entities are shown separately in the consolidated statementof financial performance and statement of financial position respectively. Where control of an entity is obtained during a financial year, its results areincluded in the consolidated statement of financial performance from the date onwhich control commences. Where control of an entity ceases during a financialyear its results are included for that part of the year during which controlexisted. The financial statements of subsidiaries are prepared for the same reportingperiod as the parent company, using consistent accounting policies. (ii) Revenue recognition Revenue consists primarily of interest revenue that is bought to account on anaccrual basis using the effective interest rate method, which is the rate thatexactly discounts estimated future cash receipts through the expected life ofthe financial asset to the net carrying amount of the financial asset. Revenuefrom the sale of Chromite is recognised where significant risks and rewards ofthe ore has transferred to the customer. Risks and rewards are considered passedto the customer upon delivery to the customer. (iii) Receivables All trade debtors are recognised at the amounts receivable, as they are due forsettlement no more than 30 days from the date of recognition. Collectibility oftrade debtors is reviewed on an ongoing basis and a provision for non recoveryis made accordingly. Debts which are known to be uncollectible are written off. (iv) Trade and other creditors These amounts represent liabilities for goods and services provided to theentity prior to the end of the financial year and which are unpaid. The amountsare unsecured and are usually paid within 30 days. (v) Cash and cash equivalents Cash and short-term deposits in the balance sheet comprise cash at bank and inhand and short-term deposits with an original maturity of three months or less. For the purposes of the Cash Flow Statement, cash and cash equivalents consistof cash and cash equivalents as defined above, net of outstanding bankoverdrafts. (vi) Property, plant and equipment Cost and Valuation Items of property, plant and equipment are carried at cost less accumulateddepreciation and any impairment in value. Depreciation Depreciation is provided on a straight-line basis over the estimated useful lifeof the asset, other than mine properties and equipment, which are depreciated ona unit of production basis to an estimated residual value. Major depreciation periods are 5 to 15 years for non-mining plant and equipmentor the lease term for leasehold improvements. Impairment The carrying values of plant and equipment are reviewed for impairment whenevents or changes in circumstances indicate the carrying value may not berecoverable. For an asset that does not generate largely independent cash inflows, therecoverable amount is determined for the cash-generating unit to which the assetbelongs. If any such indication exists and where the carrying values exceed theestimated recoverable amounts, the assets or cash-generating units are writtendown to their recoverable amount. The recoverable amount of plant and equipment is the greater of fair value lesscosts to sell and value in use, the estimated future cash flows are discountedto their present using a pre-tax discount rate that reflects current marketassessments of the time value of money and the risks specific to the asset. (vii) Income tax Current tax assets and liabilities for the current and prior periods aremeasured at the amount expected to be recovered from or paid to the taxationauthorities. The tax rates and tax laws used to compute the amount are thosethat are enacted or substantively enacted by the balance sheet date. Deferred income tax is provided on all temporary differences at the balancesheet date between the tax bases of assets and liabilities and their carryingamounts for financial reporting purposes. Deferred income tax assets and liabilities are recognised for all taxabletemporary differences: • except where the deferred income tax liability arises from the initialrecognition of an asset or liability in a transaction that is not a businesscombination and, at the time of the transaction, affects neither the accountingprofit nor taxable profit or loss; and • in respect of taxable temporary differences associated with investments insubsidiaries, associates and interests in joint ventures, except where thetiming of the reversal of the temporary differences can be controlled and it isprobable that the temporary differences will not reverse in the foreseeablefuture. The carrying amount of deferred income tax assets is reviewed at each balancesheet date and reduced to the extent that it is no longer probable thatsufficient taxable profit will be available to allow all or part of the deferredincome tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at each balance sheetdate and are recognised to the extent that it has become probable that futuretaxable profit will allow the deferred income tax to be recovered. Deferred income tax assets and liabilities are measured at the tax rates thatare expected to apply to the year when the asset is realised or the liability issettled, based on tax rates (and tax laws) that have been enacted orsubstantively enacted at the balance sheet date. Income taxes relating to items recognised directly in equity are recognised inequity and not in profit or loss. Deferred tax assets and deferred tax liabilities are offset only if a legallyenforceable right exists to set off current tax assets against current taxliabilities and the deferred tax assets and liabilities relate to the sametaxable entity and the same taxation authority. (viii) Goods and services tax Revenues, expenses and assets are recognised net of the amount of goods andservices tax (GST), except: • where the amount of GST incurred is not recoverable from the taxationauthority, it is recognised as part of the cost of acquisition of an asset or aspart of an item of expense; or • for receivables and payables which are recognised inclusive of GST. The net amount of GST recoverable from, or payable to, the taxation authority isincluded as part of receivables or payables. (ix) Interest Bearing Loans and Borrowings All loans and borrowings are initially recognised at cost, being the fair valueof the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loans and borrowings aresubsequently measured at amortised cost using the effective interest method.Amortised cost is calculated by taking into account any issue costs, and anydiscount or premium on settlement. Gains and losses are recognised in the income statement when the liabilities arederecognised and as well as through the amortisation process. (x) Borrowing Costs Borrowing costs are recognised as an expense when incurred. (xi) Foreign currency translation Translation of foreign currency transactions The functional currency of International Ferro Metals Limited and itssubsidiaries is the South African Rand ("ZAR") as this is the currency in whichgroup primarily generates and expends cash. Given that shareholders are largelydomiciled in Australia, the United Kingdom and the United States, the directorshave chosen the ZAR, being the group's functional currency, as being the mostappropriate currency in which to present the financial statements. Transactions in foreign currencies are initially recorded in the functionalcurrency at the exchange rates ruling at the date of the transaction. Monetaryassets and liabilities denominated in foreign currencies are retranslated at therate of exchange ruling at the balance sheet date. All differences in the consolidated financial report are taken to the incomestatement with the exception of differences on foreign currency borrowings thatprovide a hedge against a net investment in a foreign entity. These are takendirectly to equity until the disposal of the net investment, at which time theyare recognised in the income statement. Non-monetary items that are measured in terms of historical cost in a foreigncurrency are translated using the exchange rate as at the date of the initialtransaction. Non-monetary items measured at fair value in a foreign currency are translatedusing the exchange rates at the date when the fair value was determined. (xii) Feasibility expenditure Costs incurred relating to the feasibility study are expensed as incurred untilthe period in which management considers that a bankable feasibility study iscomplete and the Company decides to continue with the Project. Following thistime costs directly related to the feasibility study are deferred as anon-current asset and will be amortised over the life of the mine on a units ofproduction basis. (xiii) Mine acquisition costs Deferred mine acquisition costs relate to the prepaid purchase consideration forthe Buffelsfontein mine, including incidental costs directly associated with thepurchase. These costs are deferred until ownership of the Project is completed.At this point the balance is transferred to Property, Plant and Equipment andamortised on a unit of production basis over the life of the mine. (xiv) Convertible notes The component of convertible notes that exhibit characteristics of a liabilityis recognised as a liability on the balance sheet. On the issue of theconvertible notes, the liability component is determined using a market rate foran equivalent non-convertible note and this amount is carried as a non-currentliability until converted into shares, extinguished or redeemed. The increase inthe liability due to the passage of time is recognised as a finance cost. Issue costs allocated to the debt portion are included in the book value of theliability and included in the effective interest method when measuring amortisedcost (refer note (ix) above). (xv) Provisions Provisions are recognised when the Group has a present obligation (legal orconstructive) as a result of a past event, it is probable that an outflow ofresources embodying economic benefits will be required to settle the obligationand a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are discountedusing a current pre-tax rate that reflects the risks specific to the liability. When discounting is used, the increase in the provision due to the passage oftime is recognised as a borrowing cost. The estimated costs of rehabilitating a mine are generally included in thecapital cost of the mine. Changes in estimates of the liability are dealt withon a prospective basis. (xvi) Share-based payment transactions The Group provides benefits to employees (including directors) of the Group andother service providers or strategic equity partners in the form of share-basedpayment transactions, whereby employees render services in exchange for sharesor rights over shares ('equity-settled transactions'). The cost of these equity-settled transactions with employees is measured byreference to the fair value at the date at which they are granted. The fairvalue is determined using a black scholes method. In valuing equity-settled transactions, no account is taken of any performanceconditions, other than conditions linked to the price of the shares ofInternational Ferro Metals Limited ('market conditions'). The cost of equity-settled transactions is recognised, together with acorresponding increase in equity, over the period in which the performanceconditions are fulfilled, ending on the date on which the relevant employeesbecome fully entitled to the award ('vesting date'). The cumulative expense recognised for equity-settled transactions at eachreporting date until vesting date reflects (i) the extent to which the vestingperiod has expired and (ii) the number of awards that, in the opinion of thedirectors of the Group, will ultimately vest. This opinion is formed based onthe best available information at balance date. No adjustment is made for thelikelihood of market performance conditions being met as the effect of theseconditions is included in the determination of fair value at grant date. No expense is recognised for awards that do not ultimately vest, except forawards where vesting is conditional upon a market condition. Where the terms of an equity-settled award are modified, as a minimum an expenseis recognised as if the terms had not been modified. In addition, an expense isrecognised for any increase in the value of the transaction as a result of themodification, as measured at the date of modification. Where an equity-settled award is cancelled, it is treated as if it had vested onthe date of cancellation, and any expense not yet recognised for the award isrecognised immediately. However, if a new award is substituted for the cancelledaward, and designated as a replacement award on the date that it is granted, thecancelled and new award are treated as if they were a modification of theoriginal award, as described in the previous paragraph. Where shares are issued at a discount to fair value either by reference to thecurrent market price or by virtue of the Group providing financing for the sharepurchase on favourable terms, the value of the discount is considered a sharebased payment. The value of the discount is capitalised as an intangible assetwhen the recognition criteria set out in xcii) below, otherwise the value of thediscount is expensed. The dilutive effect, if any, of outstanding options is reflected as additionalshare dilution in the computation of earnings per share. (xvii) Intangible assets Intangible assets are recognised at cost where future economic benefits areembodied in a contractual right or a right that is specific. Following initialrecognition, the cost model is applied to the class of intangible assets. The useful lives of these intangible assets are assessed to be either finite orindefinite. Where amortisation is charged on assets with finite lives, this expense is takento the income statement through the 'administrative expenses' line item. Intangible assets, excluding development costs, created within the business arenot capitalised and expenditure is charged against profits in the period inwhich the expenditure is incurred. (xviii) Exploration and evaluation costs Costs arising from exploration and evaluation activities are carried forwardprovided such costs are expected to be recouped through successful development,or by sale, or where exploration and evaluation activities have not at balancedate reached a stage to allow a reasonable assessment regarding the existence ofeconomically recoverable reserves. At the commencement of mine construction exploration and evaluation costs aretransferred to property, plant and equipment. (xix) Comparatives Where necessary, comparatives have been reclassified and repositioned forconsistency with current year disclosures. (xx) AASB 1 Transitional exemptions The Group has made its election in relation to the transitional exemptionsallowed by AASB 1 'First-time Adoption of Australian Equivalents toInternational Financial Reporting Standards' as follows: Share-based payment transactions AASB 2 'Share-Based Payments' is applied only to equity instruments grantedafter 7 November 2002 that had not vested on or before 1 January 2005. Exemption from the requirement to restate comparative information for AASB 132and AASB 139 The Group has not elected to adopt this exemption and has applied AASB 132'Financial Instruments: Presentation and Disclosure' and AASB 139 'FinancialInstruments: Recognition and Measurement' to its comparative information. (d) Impact of adoption of AIFRS The impacts of adopting AIFRS on the total equity and profit after tax asreported under Australian Accounting Standards applicable before 1 January 2005('AGAAP') are illustrated below. (i) Reconciliation of total equity as presented under AGAAP to that under AIFRS CONSOLIDATED 30-Jun-05 31-Dec-04 01-Jul-04 ZAR'000 ZAR'000 ZAR'000 ---------- ---------- ---------- Total equity under AGAAP (10,483) (20,482) (14,266) Adjustments to equity:Recognition of share-based payment reserve (A) 410 230 190Recognition of share-based payment expense (A) (410) (230) (190) ---------- ---------- ----------Total equity under AIFRS (10,483) (20,482) (14,266) ========== ========== ========== (A) Share based payment costs are charged to the income statement under AASB 2 "Share-based Payments", with a corresponding entryto equity, but not under previous AGAAP. This has caused a decrease in profit for the year. (ii) Reconciliation of profit after tax under AGAAP to that under AIFRS CONSOLIDATED Year ended Half-Year ended 30-Jun-05 31-Dec-04 ZAR'000 ZAR'000 --------- ---------- Loss after tax as previously reported (36,527) (16,260) Recognition of share-based payment expense (A) (220) (40) --------- ---------- Profit after tax under AIFRS (36,747) (16,300) ========= ========== (iii) Explanation of material adjustments to the cash flow statements There are no material differences between the cash flow statements presented under AIFRS and those presented under AGAAP. 2 DIVIDENDS PAID AND PROPOSED No dividends have been paid or proposed with respect to the half years 31 December 2005 and 31 December 2004. CONSOLIDATED Dec-05 Jun-05 ZAR'000 ZAR'000 --------- -------- 3 ISSUED CAPITAL Ordinary shares Issued and fully paid 1,340,492 48,212 ========= ======== Thousands ZAR'000 --------- -------- Movements in ordinary shares on issue At 1 July 2005 63,483,618 48,212 Issue of shares pursuant to the company's AIM 228,571,429 924,247 listing Issue of shares to Jisco 107,085,000 403,912 Issue of shares on conversion of the RAB 10,767,665 19,659 convertible note Issue of shares to Resource Capital Fund 375,911 - Share issue costs - (55,538) --------- -------- At 31 December 2005 410,283,623 1,340,492 ========= ======== (a) The company issued shares to Jiuquan Iron and Steel Group Company Limited("Jisco") on the basis set out in the Admission document dated 26 September2005. Under these terms, Jisco were issued 107,085,000 shares in the company,representing 26.1% of the issued capital following the IPO, for a considerationof US$34 million (ZAR403,912,000). Based on the exchange rate existing at thedate of the IPO, this represents a discount to the fair value of the shares ofZAR183,252,000. The value of this discount represents the intangible value thatJisco provided in promoting the company and ensuring a successful IPO. As thisintangible value does not meet the recognition criteria as an intangible asset,it has been expensed during the period. The proforma balance sheet provided in the company's AIM Admission Document wasprepared on the basis that a component of the discounted share price offered toJisco was in return for the execution of the offtake agreement. In preparing the31 December 2005 half year financial statements the Directors consider thatthere is no determinable value in the offtake agreement because standard, armslength commissions are payable under it. 4 SEGMENT REPORTING The Group operates predominantly in one business segment and in the onegeographical area, that being the development of an integrated chromite andprocessing facility in South Africa. 5 EVENTS AFTER THE BALANCE SHEET DATE Since 31 December 2005 the Company has acquired all the issued share capital inPurity Metals Holdings Limited for US$9 million, the owner of an 80% interest inSky Chrome Mining (Proprietary) Limited, the owner of a chromite property havingIndicated Mineral Resources of 28.4 million tonnes at 36.6% Cr2O3 and InferredMineral Resources of 29.6 million tonnes at 36.6% Cr2O3. This acquisition givesthe Company a total Indicated Mineral Resource of 53.35 million tonnes at 37.09%Cr2O3 and Inferred Mineral Resource of 37.56 million tonnes at 36.84% Cr2O3.Full right of ownership will pass to IFM on final settlement of the purchaseconsideration. The Company received approval for the acquisition from the SouthAfrican Competition Commission in February 2006. On 25 January 2006, IFMSA capitalised the company for an amount of ZAR1,045,657,421 through a combination of equity (approximately ZAR 351 billion)and debentures (approximately ZAR 695 billion). Simultaneously, IFML made aninvestment of ZAR 695 billion in preference shares in a UK financialinstitution. This is secured by a put against a AA rated banking entity. IFMSAhas raised debt using the preference shares as collateral. Directors' Declaration In accordance with a resolution of the directors of International Ferro MetalsLimited, I state that: 1. In the opinion of the directors: (a) the financial statements and notes of the consolidated entity: (i) give a true and fair view of the financial position as at 31 December 2005and the performance for the half-year ended on that date of the consolidatedentity; and (ii) comply with Accounting Standard AASB 134 "Interim Financial Reporting" andthe Corporations Regulations 2001; and (b) there are reasonable grounds to believe that the company will be able to payits debts as and when they become due and payable. 2. This declaration has been made after receiving the declarations required tobe made to the directors in accordance with sections 295A of the CorporationsAct 2001 for the financial period ending 31 December 2005. On behalf of the Board Stephen TurnerDirectorSydney, 31 March 2006 Ernst & YoungErnst and Young Centre680 George StreetSydney NSW 2000Australia INDEPENDENT REVIEW REPORT To the members of International Ferro Metals Limited Scope The financial report and directors' responsibility The financial report comprises the balance sheet, income statement, cash flowstatement, statement of changes in equity and accompanying notes to thefinancial statements for the consolidated entity comprising both InternationalFerro Metals Limited (the company) and the entities it controlled during thehalf-year, and the directors' declaration for the company, for the half-yearended 31 December 2005. The directors of the company are responsible for preparing a financial reportthat gives a true and fair view of the financial position and performance of theconsolidated entity, and that complies with Accounting Standard AASB 134"Interim Financial Reporting", in accordance with the Corporations Act 2001.This includes responsibility for the maintenance of adequate accounting recordsand internal controls that are designed to prevent and detect fraud and error,and for the accounting policies and accounting estimates inherent in thefinancial report. Review approach We conducted an independent review of the financial report in order to make astatement about it to the members of the company, and in order for the companyto lodge the financial report with the Australian Stock Exchange and theAustralian Securities and Investments Commission. Our review was conducted in accordance with Australian Auditing Standardsapplicable to review engagements, in order to state whether, on the basis of theprocedures described, anything has come to our attention that would indicatethat the financial report is not presented fairly in accordance with theCorporations Act 2001, Accounting Standard AASB 134 "Interim FinancialReporting" and other mandatory financial reporting requirements in Australia, soas to present a view which is consistent with our understanding of theconsolidated entity's financial position, and of its performance as representedby the results of its operations and cash flows. A review is limited primarily to inquiries of company personnel and analyticalprocedures applied to the financial data. These procedures do not provide allthe evidence that would be required in an audit, thus the level of assurance isless than given in an audit. We have not performed an audit and, accordingly, wedo not express an audit opinion. Independence We are independent of the company, and have met the independence requirements ofAustralian professional ethical pronouncements and the Corporations Act 2001. Wehave given to the directors of the company a written Auditor's IndependenceDeclaration, a copy of which is included in the Directors' Report. Statement Based on our review, which is not an audit, we have not become aware of anymatter that makes us believe that the financial report of the consolidatedentity, comprising International Ferro Metals Limited and the entities itcontrolled during the half-year is not in accordance with: (a) the Corporations Act 2001, including: (i) giving a true and fair view of the financial position of the consolidatedentity at 31 December 2005 and of its performance for the half-year ended onthat date; and (ii) complying with Accounting Standard AASB 134 "Interim Financial Reporting"and the Corporations Regulations 2001; and (b) other mandatory financial reporting requirements in Australia. Ernst & Young Michael ElliottPartnerSydneyDate: 31 March 2006 This information is provided by RNS The company news service from the London Stock Exchange