Kefi Gold Regulatory News (KEFI)

 7 June 2016

KEFI Minerals plc

("KEFI" or the "Company")

FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2015

KEFI Minerals (AIM: KEFI), the gold exploration and development company with projects in the Kingdom of Saudi Arabia and the Federal Democratic Republic of Ethiopia, announces its final results for the year ended 31 December 2015.

2015 HIGHLIGHTS

· Tulu Kapi gold project ("the Project"), Ethiopia:

Progress with Project

o Received Mining Licence, which is valid for a period of 20 years and fully permits the development and operation of the Tulu Kapi gold project

o Completed Definitive Feasibility Study ("DFS") and proceeded to further refine to bankable standards with preferred project contractors

Progress with the mine

o Increased forecast gold production to 980,000ozover 10 years with an average of 115,000oz per steady-state year at All-in Sustaining Costs of US$746/oz

o Projected net operating cash flow has increased to US$58m per annum at US$1,250/oz

o Updated resource reporting: Indicated Resource of 18.8 Mt at 2.67 g/t Au for 1.62Moz Au (JORC 2012) and Probable Ore Reserves of 15.4 Mt at 2.12 g/t Au for 1.05Moz Au (estimated using JORC Code guidelines)

Progress with the operations and financing

o Selected preferred contractors for mining and process plant and, post period, preferred senior secured lenders

o The combination of project design, contractual arrangements and finance planning has reduced the net funding requirement to c. US$130m

o The current focus is on mandating the senior secured lenders for US$95m of project debt and a cost-overrun facility

o Government of Ethiopia confirmed, in May 2016, equity investment of US$20m and the residual requirement for mezzanine and/or equity finance of US$15m will be optimised in Q3-16

· Gold & Minerals Ltd Joint Venture ("G&M"), Saudi Arabia:

Jibal Qutman

o Increased JORC Mineral Resource to 28.4 Mt at 0.80 g/t Au for 733,045oz Au

o Received favourable metallurgical heap leach test work results

o Produced positive Preliminary Economic Assessment

o Studies to date have provided the information required for a Mining Licence Application which is currently being discussed with the Saudi regulators

Harry Anagnostaras-Adams, Executive Chairman of KEFI Minerals, said:

"2015 was a game changer for KEFI Minerals as it made substantial progress towards becoming a gold producer and continued to make discoveries in one of the world's great under-developed minerals provinces - the Arabian-Nubian Shield.

"In Ethiopia, we completed the DFS, received the Mining Licence and received unprecedented support from the Government of Ethiopia as it marked its approval of the Tulu Kapi project by committing a US$20m equity stake. In Jibal Qutman, we increased the Mineral Resource and produced a positive Preliminary Economic Assessment. As a result, the Board is confident of our strategy and asset base. We have the appropriate mix of technical and financial expertise to prudently progress our projects into profitable gold mines with the aim of maximising and returning value to shareholders via share price appreciation and, ultimately, dividends."

Further information can be viewed on KEFI's website at www.kefi-minerals.com

NOTES TO EDITOR

KEFI Minerals plc

KEFI is the operator of two advanced gold development projects within the highly prospective Arabian-Nubian Shield, with an attributable 1.93Moz (95% of Tulu Kapi's 1.72Moz and 40% of Jibal Qutman's 0.73Moz) gold Mineral Resources (JORC 2012) plus significant resource growth potential. KEFI targets that production at these projects generates cash flows for further exploration and expansion as warranted, recoupment of development costs and, when appropriate, dividends to shareholders.

KEFI Minerals in Ethiopia

The Tulu Kapi gold project in Western Ethiopia is being rapidly progressed towards development, with the Mining Licence granted in April 2015.

KEFI's Definitive Feasibility Study was then completed and the Company is now refining contractual terms for project construction and operation. Latest estimates for annual gold production are c. 100,000oz pa for a 10-year period and All-in Sustaining Costs (including operating, sustaining capital and closure) of approximately US$724/oz to US$752/oz at a gold price range of US$1,000/oz to US$1,400/oz. Tulu Kapi's Ore Reserve estimate totals 15.4Mt at 2.12g/t gold, containing 1.05Moz. The eight core production years of the open pit are estimated to yield an average of 115,000oz pa.

All aspects of the Tulu Kapi (open pit) gold project have been reported in compliance with the JORC Code (2012) and subjected to reviews by appropriate independent experts. These plans now also reflect the agreed construction and operating terms with project contractors, and have been independently reviewed by experts appointed for the project finance syndicate.

A Preliminary Economic Assessment has been published that indicates the economic attractiveness of mining the underground deposit adjacent to the Tulu Kapi open pit, after the start-up of the open pit and after positive cash flows have begun to repay project debts.

At a gold price of US$1,250/oz, the projected cash flows indicate a cash build-up in the first three production years of US$173 million, which would be sufficient to repay all project debts, fund the development of the underground mine and commence paying dividends to shareholders.

KEFI Minerals in the Kingdom of Saudi Arabia

In 2009, KEFI formed G&M in Saudi Arabia with local Saudi partner, Abdul Rahman Saad Al-Rashid & Sons Company Limited ("ARTAR"), to explore for gold and associated metals in the Arabian-Nubian Shield. KEFI has a 40% interest in G&M and is the operating partner. To date, G&M has conducted preliminary regional reconnaissance and has had five exploration licences ("ELs") granted, including Jibal Qutman and the more recently granted Hawiah EL that contains over 6km strike length of outcropping gossans developed on altered and mineralised rocks with all the hallmarks of a copper-gold-zinc VHMS deposit.

At Jibal Qutman, G&M's flagship project, Mineral Resources are estimated to total 28.4Mt at 0.80g/t gold for 733,045 contained ounces. The shallow oxide portion of this resource is being evaluated as a low capital expenditure heap-leach mine development.

ARTAR, on behalf of G&M, holds 23 EL applications that cover an area of approximately 1,303km2. ELs are renewable for up to three years and bestow the exclusive right to explore and to obtain a 30-year exploitation (mining) lease within the area.

The Kingdom of Saudi Arabia has instituted policies to encourage minerals exploration and development, and KEFI Minerals supports this priority by serving as the technical partner within G&M. ARTAR also serves this government policy as the major partner in G&M, which is one of the early movers in the modern resurgence of the Kingdom's minerals sector.

OPERATIONAL REVIEW

Democratic Republic of Ethiopia

Tulu Kapi gold project, Western Ethiopia

In 2015, the Tulu Kapi project in Ethiopia went through a complete transformation. The Company achieved some significant milestones including the signing of the Mining Agreement between the Ethiopian Government and KEFI in April 2015, granting the Company a 20-year Mining Licence covering an area of 7km2, with full permits for the development and operation of the Tulu Kapi gold project as well as a 5% Government free-carried interest.

Later in the year, the Ethiopian Government further cemented its support for Tulu Kapi by announcing its intention to invest US$20m and increase its stake from 5% to 25-30%, which was confirmed in May of this year.

In June 2015, KEFI announced the completion of the 2015 Definitive Feasibility Study and funding plan for financier review, on schedule and on specification. Based on a conventional open-pit mining operation and a 12 Mtpa carbon-in-leach ("CIL") processing plant, with gold recoveries averaging 91.5%.

During the year, KEFI continued to explore ways to reduce capital expenditure, increase head grade of gold bearing ore and improve estimated project returns. Progress over the past year includes:

· An updated Probable Ore Reserve which included a high-grade portion of 12.0 million tonnes at 2.52g/t Au containing 980,000Moz

· Independent technical experts reviewing the DFS on behalf of potential financiers

· Mining contractor and processing plant construction contractor selected

· Refinement of the 2015 DFS costs and mine plant

Post period, the Company reaffirmed that the capital estimate for Tulu Kapi has been significantly reduced from c. US$145m to c. US$130m due to further refinements to project contracting arrangements and the project plans. The firming of the gold price coupled with the Company's ability to maintain tight cost controls has transformed an uneconomic project into one that is robust and financially viable, even if the gold price drops to US$850/oz.

Overall, the project remains on track for commencing construction by Q4-16 and to start production towards the end of 2017. Initial open pit gold production is projected at 115,000oz per annum. Tulu Kapi's Ore Reserves of 1.0Moz and Mineral Resources of 1.7Moz have significant upside potential.

Kingdom of Saudi Arabia

Jibal Qutman project, Saudi Arabia

Jibal Outman is the Company's second most advanced project. Assuming the potential for development loans for up to 75% of capex requirements, it may be possible for KEFI to fund its share of the equity portion (40%) with under US$3m in equity or other forms of finance.

In May 2015, KEFI provided the market with an updated Mineral Resource estimate for Jibal Outman of 28.4 Mt at 0.80g/t gold, containing 733,045oz. A Preliminary Economic Assessment, completed in the same month, highlighted:

· 1.5 Mtpa heap leach operation;

· Gold production 139,000oz over an initial mine life of 4.5 years;

· Oxide open-pit optimisation studies show a potential mineable resource of 6.6 Mt at 0.95 g/t gold, for 201,600 contained ounces;

· Waste:ore ratio of 2.2:1.0;

· Average gold recovery of 73%;

· Cash operating cost of US$597/oz; and

· Capital expenditure of US$30m.

Hawiah project, Saudi Arabia

KEFI is the operator and 40% owner of Gold & Minerals LLC Limited, which wholly owns the Hawiah project. The initial focus at Hawiah is on gold enrichment in surface gossans and large VHMS copper-gold-zinc sulphide target at depth, associated with a 6km long, north-south exposure of a highly silicified and variably gossanous horizon.

In April 2015, KEFI carried out a self-potential (SP) geophysical survey over the southern half of the 6km-long gold mineralised system exposed at the surface. The results suggest the possibility of a large metal-bearing body at depth (between 125 metres and 300 metres and on strike (800 metre strike length).

Accordingly, two large SP anomalies in the southern part of the Hawiah site have been identified:

i) An intense anomaly (up to 400mV peak to peak) for a longitudinal extent of 800m and for which preliminary inverse modelling indicates a substantial (>300m) vertical continuity with a steep westerly dip. This anomaly is located directly below the gold bearing gossans. The intensity of the SP anomaly is consistent with the presence of a massive sulphide source or with a high and contiguous concentration of disseminated sulphides at depth.

ii) A separate north-south trending anomaly, named Eastern Corridor, located 600m to the East. The anomaly on the eastern corridor has the same amplitude ("maxima" around 250-300 mV) and wavelength of the main anomaly, but is less continuous and dips steeply to the east.

Once the SP survey is completed, the final interpretation will allow the optimal positioning and planning of further geophysical surveys, either Induced Polarisation (IP) or Advance Tellurics, to directly define drill targets. The IP survey is designed to test for electrical conductors (i.e. massive sulphides) and will provide vertical depths to the target, and will be tested by reverse circulation and diamond drilling.

Drilling of large copper-gold-zinc targets will commence after local community engagement has confirmed that G&M has secured long-term access to Hawiah and other prospective ground in the region on agreed terms. It is imperative that early engagement with local stakeholders takes place to ensure KEFI's licence to operate is robust both on the Hawiah Exploration Licence ("EL") and for other Exploration Licence Applications ("ELAs) in the prospective Wadi Bidah Mineral District.

OUTLOOK

The momentum achieved in 2015 carried through to the new year and KEFI continues to make substantial advances with the Tulu Kapi project. Projected cash flows are robust, with the first three years of open pit production targeted to repay all debts, and fund growth in the highly prospective Arabian-Nubian Shield. The Company continues to enjoy financial and strategic support from its key shareholders. The Board is confident of its strategy and asset base. The Company has the appropriate mix of technical and financial expertise to prudently progress its projects into profitable gold mines with the aim of maximising and returning value to shareholders via share price appreciation and, ultimately, dividends.

Consolidated statement of comprehensive income

(All amounts in GBP thousands unless otherwise stated)

Year ended 31 December

The Company has taken advantage of the exemption conferred by section 408 of Companies Act 2006 from presenting its own statement of comprehensive income. Loss after taxation amounting to £2.4 million (2014: £3.2 million) has been included in the financial statements of the parent company.

The following notes are an integral part of these consolidated financial statements.

Statements of financial position

(All amounts in GBP thousands unless otherwise stated)

31 December

The following notes are an integral part of these consolidated financial statements.

Consolidated statement of changes in equity

(All amounts in GBP thousands unless otherwise stated)

Year ended 31 December 2015

The following describes the nature and purpose of each reserve within owner's equity:

Reserve Description and purpose

Share capital amount subscribed for share capital at nominal value

Deferred shares on 16 June 2015, under the restructuring of share capital, ordinary shares of 1p each in the capital of the Company were sub-divided into one new ordinary share of 0.1p and one deferred share of 0.9p

Share premium amount subscribed for share capital in excess of nominal value, net of issue costs

Share options reserve reserve for share options granted but not exercised or lapsed

Foreign exchange reserve cumulative foreign exchange net gains and losses recognized on consolidation

Accumulated losses cumulative net gains and losses recognized in the statement of comprehensive income, excluding foreign exchange gains within other comprehensive income

Non-controlling interest (NCI) the portion of equity ownership in a subsidiary not attributable to the parent company

The following notes are an integral part of these consolidated financial statements.

Company statement of changes in equity

(All amounts in GBP thousands unless otherwise stated)

Year ended 31 December 2015

The following describes the nature and purpose of each reserve within owner's equity:

Reserve Description and purpose

Share capital amount subscribed for share capital at nominal value

Deferred shares on 16 June 2015, under the restructuring of share capital, ordinary shares of 1p each in the capital of the Company were sub-divided into one new ordinary share of 0.1p and one deferred share of 0.9p

Share premium amount subscribed for share capital in excess of nominal value, net of issue costs

Share options reserve reserve for share options granted but not exercised or lapsed

Accumulated losses cumulative net gains and losses recognized in the statement of comprehensive income

The following notes are an integral part of these consolidated financial statements.

Consolidated statement of cash flows

(All amounts in GBP thousands unless otherwise stated) 

Year ended 31 December 2015

The following notes are an integral part of these consolidated financial statements.

Non-cash transactions

On 5 September 2014, the Company issued 50,000,000 shares at £0.01 at a price of £0.015 per share as part of the consideration to acquire the 25% minority in its subsidiary KEFI Minerals (Ethiopia) Limited.

Company statement of cash flows

(All amounts in GBP thousands unless otherwise stated)

Year ended 31 December 2015

The following notes are an integral part of these consolidated financial statements.

Non-cash transactions

See Consolidated Statement of Cash Flows.Notes to the consolidated financial statements

(All amounts in GBP thousands unless otherwise stated)

Year ended 31 December 2015

1. Incorporation and principal activities

Country of incorporation

KEFI Minerals PLC (the "Company") was incorporated in United Kingdom as a public limited company on 24 October 2006. Its registered office is at 27/28, Eastcastle Street, London W1W 8DH.

Principal activities

The principal activities of the Group for the year were:

· To explore for mineral deposits of precious and base metals and other minerals that appear capable of commercial exploitation, including topographical, geological, geochemical and geophysical studies and exploratory drilling.

· To evaluate mineral deposits determining the technical feasibility and commercial viability of development, including the determination of the volume and grade of the deposit, examination of extraction methods, infrastructure requirements and market and finance studies.

· To develop mineral deposits and market the metals produced.

2. Accounting policies

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied throughout the period presented in these financial statements unless otherwise stated.

Basis of preparation and consolidation

The Company and the consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. They comprise the accounts of KEFI Minerals PLC and all its subsidiaries made up to 31 December 2015. The Company and the consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial instruments.

Going concern

The Directors have formed a judgment at the time of approving the financial statements that there is a reasonable expectation that the Company and Group will be able to secure adequate resources to continue in operational existence for the foreseeable future.

The financial information has been prepared on the going concern basis, the validity of which depends principally on securing funding to develop the Tulu Kapi mine project as an economically viable mineral deposit, and the availability of subsequent funding to extract the resource, or alternatively the availability of funding to extend the Company's and Group's exploration activities.

These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Company and Group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Company and Group were unable to continue as a going concern.

Functional and presentational currency

Items included in the Group's financial statements are measured using the currency of the primary economic environment in which the entity operates ("the functional currency") which for the Company is British Pounds (GBP). The financial statements are presented in British Pounds (GBP).

Foreign currency translation

(1) Foreign currency translation

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transactions. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss in the statement of comprehensive income.

(2) Foreign operations

On consolidation, the assets and liabilities of the consolidated entity's foreign operations are translated at exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly in which case they are recorded at the actual rate. Exchange differences arising, if any, are recognized in the foreign currency translation reserve and as a component of other comprehensive income, and recognized in profit or loss on disposal of the foreign operation.

Revenue recognition

The Group had no sales or revenue during the year ended 31 December 2015 (2014: £Nil).

Notes to the consolidated financial statements (continued)

Year ended 31 December 2015

2. Accounting policies (continued)

Property plant and equipment

Property plant and equipment are stated at their cost of acquisition at the date of acquisition, being the fair value of the consideration provided plus incidental costs directly attributable to the acquisition less depreciation.

Depreciation is calculated using the straight-line method to write off the cost of each asset to their residual values over their estimated useful life. The annual depreciation rates used are as follows:

Acquisitions and goodwill

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Any costs directly attributable to the business combination are written off to the statement of comprehensive income. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognized at their fair values at the acquisition date. Where the Group acquires a subsidiary for less than the fair value of its assets and liabilities, this results in negative goodwill which is recognized in profit and loss.

Purchased goodwill is capitalized and classified as an asset on the statement of financial position. Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized.

Goodwill is reviewed for impairment on an annual basis. When the directors consider the initial value of the acquisition to be negligible, the goodwill is written off to the statement of comprehensive income immediately. Trading results of acquired subsidiary undertakings are included from the date of acquisition.

Goodwill is deemed to be impaired when the present value of the future cash flows expected to be derived is lower than the carrying value. Any impairment is charged to the statement of comprehensive income immediately.

Interest in jointly controlled entities

Joint venture arrangements that involve the establishment of a separate entity in which each venturer has joint control are referred to as jointly controlled entities. The results and assets and liabilities of jointly controlled entities are included in these financial statements for the period using the equity method of accounting.

Finance costs

Interest expense and other borrowing costs are charged to the statement of comprehensive income as incurred.

Tax

The tax payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Tax is payable in the relevant jurisdiction at the rates described in note 9.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognized for all taxable differences and deferred tax assets are recognized to the extent that taxable profits will be available against which deductible temporary differences can be utilized. The amount of deferred tax is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates that have been enacted or substantively enacted at the reporting date.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off deferred tax assets against deferred tax liabilities and when the deferred taxes relate to the same fiscal authority.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2015

2. Accounting policies (continued)

Investments

Investments in subsidiary companies are stated at cost less provision for impairment in value, which is recognized as an expense in the period in which the impairment is identified, in the Company accounts. These investments are consolidated in the Group accounts.

Exploration costs

The Group has adopted the provisions of IFRS 6 "Exploration for and Evaluation of Mineral Resources".

Exploration, evaluation and development expenditure, including acquisition costs of licences, in respect of each identifiable area of interest is expensed to the statement of comprehensive income as incurred, until the point at which development of a mineral deposit is considered economically viable.

Once the Board decides on the development of a project, development expenditure will be capitalized as incurred and amortized over the estimated useful life of the area according to the rate of depletion of the economically recoverable reserves or over the estimated useful life of the mine, if shorter.

The directors consider that the stage of development of its Licence areas in Saudi Arabia has not yet met its criteria for capitalization. Capitalized development costs for the Group's project in Ethiopia have been recognized on acquisition, and will continue to be capitalised since this date, in accordance with IFRS 6.

A regular review will be undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Accumulated capitalized costs in relation to an abandoned area of interest will be written off in full against profit in the year in which the decision to abandon the area is made. Capitalized development expenditure will be amortized from the date at which production commences on a unit of production basis over the lifetime of the ore reserves for the area to which the costs relate.

Share‑based compensation benefits

IFRS 2 "Share‑based Payment" requires the recognition of equity‑settled share‑based payments at fair value at the date of grant and the recognition of liabilities for cash‑settled share‑based payments at the current fair value at each statement of financial position date. The total amount expensed is recognized over the vesting period, which is the period over which performance conditions are to be satisfied.

The fair value is measured using the Black Scholes pricing model. The inputs used in the model are based on management's best estimate, including consideration of the effects of non-transferability, exercise restrictions and behavioural considerations.

Financial instruments

Financial assets at amortized cost

Loans and receivables are recognized when the Group becomes party to the contractual provisions of the financial instrument. Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and receivables'. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Financial assets at fair value through profit or loss

Subsequent to initial recognition, when a financial asset is designated as such on initial recognition, it is classified as held at fair value through profit or loss. Assets other than held for trading are designated at fair value through profit and loss when the Group manages the holdings and makes purchase and sale decisions based on fair value assessments and documented risk management and investment strategies. Attributable transaction costs and changes in fair value are recognized in profit or loss.

Financial liabilities - equity

Financial liabilities are recognized when the Group becomes party to the loan. Financial liabilities represent trade payables and are initially measured at fair value and subsequently at amortized cost.

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognized at the proceeds received, net of direct issue costs.

The Group derecognizes financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2015

3. Financial risk management

Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise cash at bank and in hand with an original maturity date of less than three months.

Financial risk factors

The Group is exposed to market risk (interest rate risk and currency risk), liquidity risk and capital risk management arising from the financial instruments it holds. The risk management policies employed by the Group to manage these risks are discussed below:

Market risk - Interest rate risk

Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The Group's income and operating cash flows are substantially independent of changes in market interest rates as the Group has no significant interest-bearing assets. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group's management monitors the interest rate fluctuations on a continuous basis and acts accordingly.

At the reporting date the interest rate profile of interest-bearing financial instruments was:

Sensitivity analysis

An increase of 100 basis points in interest rates at 31 December 2015 would have increased equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. Given current interest rate levels, a decrease of 25 basis points has been considered, with the impact on profit and equity shown below.

Currency risk

Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions and recognized assets and liabilities are denominated in a currency that is not the functional currency of the entity.

The Group is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the Euro, Turkish Lira, US Dollar, Ethiopia ETB and Saudi Arabian Riyal. Since 1986 the Saudi Arabian Riyal is pegged to the US Dollar, it is fixed at USD/SAR 3.75. The Group's management monitors the exchange rate fluctuations on a continuous basis and acts accordingly.

The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows: The Saudi Arabian Riyal exposure is included in the USD amounts.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2015

3. Financial risk management (continued) 

Sensitivity analysis

A 10% strengthening of the British Pound against the following currencies at 31 December 2015 would have increased/(decreased) equity and profit or loss by the amounts shown in the table below. This analysis assumes that all other variables, in particular interest rates, remain constant. For a 10% weakening of the British Pound against the relevant currency, there would be an equal and opposite impact on the loss and equity.

Liquidity risk

Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The Group has procedures with the object of minimising such losses such as maintaining sufficient cash and other highly liquid current assets and by having available an adequate amount of committed credit facilities.

The Group's contractual cash flows for its financial liabilities are all due within 3 months or less. In January 2014 agreement was made with the Ethiopian tax authorities to pay the VAT over a period of three years (principal and interest).

Capital risk management

The Group manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to shareholders through the optimization of the debt and equity balance. This is done through the close monitoring of cash flows.

The capital structure of the Group consists of cash and cash equivalents of £ 562,000 (2014: £640,000) and equity attributable to equity holders of the parent, comprising issued capital and deferred shares of £15,059,000 (2014: £12,352,000), reserves of £13,529,000, (2014: £9,195,000) and accumulated losses of £17,645,000 (2014: £14,389,000). The Group does not use derivative financial instruments and has no long term debt facilities.

Fair value estimation

The fair values of the Group's financial assets and liabilities approximate their carrying amounts at the reporting date.

Available for sale financial assets are classified as Level 1 within the fair value hierarchy, except for Ethiopian Government bonds, which are classified as Level 2. Level 1 items are derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 items are derived from inputs other than quoted prices included within Level 1 that are observable for the assets either directly or indirectly.

Other financial assets and liabilities are short term and their carrying value is considered to approximate to their fair value.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2015

4. Use and revision of accounting estimates and judgements

The preparation of the financial report requires the making of estimations and assumptions that affect the recognized amounts of assets, liabilities, revenues and expenses and the disclosure of contingent liabilities. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Significant judgements include:

Going concern

The going concern presumption depends principally on securing funding to develop the Tulu Kapi mine project as an economically viable mineral deposit, and the availability of subsequent funding to extract the resource, or alternatively the availability of funding to extend the Company's and Group's exploration activities.

Significant estimates include:

Fair value of acquisitions

The 'acquisition method', which generally requires assets acquired and liabilities assumed to be measured at their fair values at the acquisition date. Fair value estimates are required. In calculating the fair value estimates of net identifiable net assets on acquisition significant judgements and estimates are required.

Share based payments

In calculating the fair value at the grant date, the Black Scholes model requires us to estimate the inputs to this model, in particular in respect of volatility. This assessment is based on historical share price movements assuming these will continue into the future.

Impairment review of asset carrying values

Events or changes in circumstances can give rise to significant impairment charges or reversals of impairment in a particular year. Where the recoverable amounts of Group cash generating units are assessed by analyses of discounted cash flows, the resulting valuations are particularly sensitive to changes in estimates of long term commodity prices, exchange rates, operating costs, the grouping of assets within cash-generating units and discount rates.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2015

5. Operating segments

The Group has only one distinct operating segment, being that of mineral exploration. The Group's exploration activities are located in the Kingdom of Saudi Arabia (through the jointly controlled entity), Ethiopia and its administration and management is based in Cyprus.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2015

6. Expenses by nature

The Group's stages of operations in Saudi Arabia as at the year-end and as at the date of approval of these financial statements have not yet met the criteria for capitalization of exploration costs. Direct development costs have been capitalized for the operations in Ethiopia.

Directors' remuneration is disclosed in note 21.1

The Company is resident in Cyprus for tax purposes.

A deferred tax asset of £1,336,989 (2014: £1,056,460) has not been accounted for due to the uncertainty over future recoverability.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2015

9. Tax (continued)

Cyprus

The corporation tax rate is 12.5%. Under certain conditions interest income may be subject to defence contribution at the rate of 15%. In such cases this interest will be exempt from corporation tax. In certain cases, dividends received from abroad may be subject to defence contribution at the rate of 20% for the tax year 2013 and 17% for 2014 and thereafter. Due to tax losses sustained in the year, no tax liability arises on the Company. Under current legislation, tax losses may be carried forward and be set off against taxable income of the five succeeding years. As at 31 December 2015, the balance of tax losses which is available for offset against future taxable profits amounts to £ 7,795,644 (2014: £ 7,203,371).

Bulgaria

Mediterranean Minerals (Bulgaria) EOOD, the 100% subsidiary of the Company, is resident in Bulgaria for tax purposes. The corporation tax rate is 10%. Due to tax losses sustained in the period, no tax liability arises on the Mediterranean Minerals (Bulgaria) EOOD. Under current legislation, tax losses may be carried forward and be set off against taxable income of the following five years. As at 31 December 2015, the balance of tax losses which is available for offset against future taxable profits amounts to £34,035 (2014: £171,146). The reduction in tax losses from the prior year is due to losses passing the five year threshold for their utilization.

Turkey

Doğu Akdeniz Mineralleri Sanayi ve Ticaret Limited Şirket (Doğu Akdeniz Mineralleri), the 100% subsidiary of Mediterranean Minerals (Bulgaria) EOOD, and ultimately 100% subsidiary of the Company, is resident in Turkey for tax purposes. The corporation tax rate is 20%. Under local tax legislation, exploration costs are can only be set off against income from mining operations. Tax losses may be carried forward and be set off against taxable income of the five succeeding years. As at 31 December 2015, the balance of exploration costs that is available for offset against future income from mining operations amount to £ 948,764 (2014: £908,198).

Ethiopia

KEFI Minerals Ethiopia Limited is subject to other direct and indirect taxes in Ethiopia through its foreign operations. The mining industry in Ethiopia is relatively undeveloped. As a result, tax regulations relating to mining enterprises are evolving. There are transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made.

During 2013, the House of People's Representatives passed an amendment to the Mining Income Tax Proclamation, reducing income tax from 35% to 25% and had received an initial draft of proposed amendments to the Mining Proclamation, which includes a reduction in royalty on gold production from 8% to 7%.

10. Loss per share

The calculation of the basic and fully diluted loss per share attributable to the ordinary equity holders of the parent is based on the following data:

The effect of share options and warrants on losses per share is anti-dilutive.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2015

11. Property, plant and equipment

The above property, plant and equipment is located in Turkey and Ethiopia.

The Company has no significant property, plant and equipment.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2015

12. Intangible assets