Strategic Minerals Regulatory News (SML)

Strategic Minerals plc

("Strategic Minerals" or the "Company")

Final Results for the year ended 31 December 2013

Strategic Minerals plc (AIM: SML; USOTC: SMCDY) today announces its annual results for the year ended 31 December, 2013.

Chairman's Report and Strategic Review

Strategic Minerals is focused on generating shareholder value by profitably operating its existing mining operations and broadening its portfolio of cash generating projects.

The Company's strategy is to:

· Expand domestic sales at the Company's existing Cobre magnetite project in New Mexico and create long-term relationships that allow the operation to generate positive cash returns in all magnetite price scenarios.

· Build a portfolio of cash generating high quality operations and near term mining projects in jurisdictions where returns are commensurate with risk.

· Diversify the Company's revenue stream into other commodities such as tin, silver and gold.

· Operate all assets with a focus on safety and respect for environment and the communities in which we operate.

· Evaluate near term cash generating opportunities to ensure that returns are commensurate with the inherent risks and appropriate risk mitigation measures are considered. The opportunities currently under consideration are not limited to iron ore and include tin, silver and gold. The Company is also focused on realising the embedded value of its Australian exploration assets, whilst ensuring funds allocated to exploration activities are in line with the overall cash position of the Company

Financial Performance

The Company has amended its reporting currency to US dollars as the Company's revenues, expenses, assets and liabilities are predominately in US currency.

The Company made a loss before tax for the financial year of $28.9M (2012: $7.9M). The loss was mainly attributable to non-cash related charges for the year of $26.8M (2012: $1.6M). The total after tax loss for the year is $23.9M (2012: $6.9M). The non-cash charge of $26.8M was due to a number of factors including $9.6M as a result of normal depreciation and amortisation charges associated with the Cobre operation. In addition, $14.4M was as a result of an impairment charge to the book value of the intangible asset associated with the Cobre operation. A further non-cash charge was incurred as a result of a $2.3M impairment to the carrying value of the rail infrastructure.

On the acquisition of the Cobre asset in 2011, the Company recognised an intangible asset of $25.8M and this asset has been amortised on a per tonne basis of product since sales commenced in 2012. The non-cash intangible asset impairment of $14.4M is due to the export of material not being profitable at the current lower prevailing iron ore prices and the current focus on domestic sales only. Hence, as at 31 December 2013 the carrying value of this intangible asset is $1.5M which reflects the remaining magnetite reserves which are reasonably expected to be monetised during the renegotiated minimum term of the contract with Freeport-McMoRan Sales Company Inc. ("Freeport") as advised to shareholders on 4 March 2014.

The impairment of the rail infrastructure is as a direct result of the Company's decision in Q1 2014 to focus on sales to the domestic market, hence, the Company has fully impaired the remaining carrying value of the railway infrastructure. Domestic sales are not reliant on the railway, as all product is removed from the site utilising truck haulage. The Company will continue to review the possibility of re-starting sales to the export market but this will be dependent on improved iron ore prices and potential changes to the agreement with Freeport.

Administration costs decreased during the financial year to $3.5M (2012: $5.3M). This 34% reduction of $1.8M arose from a combination of reducing overheads and a significant amount of non-recurring expenditure compared to 2012. The most significant cost savings came from legal, professional and consultancy fees which fell to $0.8M (2012: $2.9M).

The Company's financing charges for the year to 31 December 2013 fell to $0.7M (2012: $1.1M). The financing charges relate mainly to the $4.9M short term financing facilities which was repaid in full from the $6.6M in net funds raised in February 2013. As at 31 December 2013 the Company had no outstanding loan liabilities.

The Company's taxation credit arises from two sources: the release of a deferred tax liability related to the intangible asset of the Cobre asset; and a write down in the carrying value of a deferred tax asset established in 2012. No tax liability existed at 31 December 2013 and the Company has substantial tax losses carried forward.

Operational Performance

The Cobre Magnetite tailings operation in New Mexico continued successful delivery of product to domestic and export customers and generated total revenues of $37.2M (2012: $5.9M) in the year to 31 December 2013. The majority of revenues were as a result of 423,000 dry metric tonnes ("DMT") (2012: 48,000 DMT) of magnetite product exported during the financial year from seven shipments which left the Port of Guaymas in Mexico.

The operation continued to service domestic magnetite customers but, due to the focus on export sales during the year, domestic sales decreased by 5,000 short wet tonnes ("SWT"). A variety of customers were supplied directly from the mine with total sales for the year of 15,000 SWT (2012: 20,000 SWT). Due to declining iron ore prices and hence lower margins on exports, the Company has renewed its focus on increasing domestic sales.

The overall gross margin for the operations of $2.0M (2012 - $1.4M) was impacted by a reduction in the realised price on export sales, which dropped from ~$90/DMT to ~$85/DMT. In addition, the cost of production increased from ~$77/DMT to $82/DMT due to iron ore price linked costs (which are fixed before final sales price is determined) and increases in rail costs.

In Q1 2014 the Company announced a new agreement with Freeport extending its rights at Cobre. The new agreement allows the Company to truck 11,000 short wet tonnes ("SWT") of magnetite per month, reflecting the renewed focus on the domestic market. In the 4 months to April 2014 the Company had sold 68% of the domestic tonnage achieved in 2013, the vast majority of which is to existing customers leaving plenty of scope to improve sales from the operation.

Safety

The substantial growth in the quantities of magnetite sold from Cobre was attained while operating the mine safely and with excellent stewardship. The site was incident free and incurred no environmental, regulatory, or operational violations during 2013. This incident free status is a continuation from 2012 and is a result of the high standards implemented at the operation by management personnel.

Australian Operations

The Company's Iron Glen and Jotanooka exploration properties in Australia hold significant potential for delivering value for the Company. Exploration programs have been formulated for these projects, however, expenditure needs to be managed in line with the Company's total cash position.

Iron Glen

The Iron Glen tenements are located approximately 40km from the deep water port of Townsville, Queensland, and are close to existing road and rail infrastructure. The Iron Glen project is within an established mining region and areas within the 2,100 hectare project area have been the subject of extensive magnetic and geochemical analysis.

To understand the potential extent of magnetite resources within these tenements and therefore their potential value it is essential that the Company test the extent of magnetic anomalies previously identified. In that regard a modest early stage exploration programme is planned, subject to available cash. The goal is to detail any buried magnetic features within the main magnetic anomaly including the area to the west where the presence of at surface magnetite was seen in June 2013 following a site visit by our retained advisers, Terra Search.

The Company's aim is to define and potentially develop an economically viable magnetite operation. There is also the possibility of realising additional value through the known base and precious metal anomalies that have been identified.

Jotanooka

The Jotanooka tenement is located in Western Australia, which is approximately 300 kilometres from a deep water port and which has existing modern rail infrastructure nearby. The project is neighboured by Sinosteel Midwest Corporation's Koolanooka project, which delivered 4Mt of direct shipment haematite ore to the Chinese steel markets over a three year mine life before closing in 2013. Prior evaluations of Jotanooka suggest that the project may house a significant iron ore discovery in the form of an extension of the SinoSteel deposit.

Consequently, a carefully defined and highly targeted exploration programme has been recommended by the Company's independent geologists to test the existence of this extension.

Outlook and Prospects

During the latter part of 2013 and early 2014 the Company has been focused on reviewing its operating costs, seeking to remove volatility in its gross margin, improving gross margins and managing the financial impact of the significant fall in iron ore price which occurred in Q1 2014.

Iron Ore Price Exposures

The Company completed a capital raise announced in April 2014 of $1,650,000 (£1,000,000), before costs, for additional working capital and enabled the Company to close out the iron ore price exposure under the contract with Glencore AG on the sales of iron ore from Cobre. In addition, 45,000,000 ordinary shares in the Company were issued to Glencore as part of the satisfaction of this debt. With the focus now on domestic sales at Cobre the Company does not currently have any open positions susceptible to the iron ore price.

Board Restructure

Recent developments have seen a restructure of the Board with Mr Julien McInally and Mr Lyle Hobbs taking on executive directorships with the Company and Mr Patrick Griffiths has now moved to a non-executive director role. The Company is currently seeking to appoint another non-executive director with suitable mining experience as soon as practical. The newly constituted board are looking forward to developing the business further and delivering shareholder value. The Company thanks the former board members for their efforts during a challenging period.

Corporate overheads

The Board has undertaken a corporate review resulting in the streamlining of its corporate overheads. The Company is targeting an overall corporate overhead of less than $1.2M on an annualised basis going forward excluding costs associated with reviewing new opportunities and other exceptional items.

New Mexico Operations

The last magnetite export shipment from the Cobre operation occurred in February 2014. The focus for the Cobre operation will be to continue to build on domestic sales, and operate with a consistent focus on safety and environmental stewardship.

The Company is investigating a business case for processing of the Cobre magnetite material to create a higher margin business. The Company will review this opportunity which will be dependent on the market price of an upgraded product, the ability of the Company to extend its contracts with Freeport, logistical requirements and the ability of the Cobre material to be easily upgraded.

Australian Operations

The Company will seek to undertake exploration on its Australian tenements subject to available funds and to ensure the value of these tenements is maintained. However, in the near term the focus remains one of bringing in other near term cash generating assets into the Company.

Summary

Strategic Minerals plc is well situated for growth in 2014 as compared to many of its peers in the exploration and minerals sector. The Company has:

· a cash-flow generating business in a low risk jurisdiction which is not dependent on prevailing iron ore prices,

· a strong cash position with cash and cash equivalents of $1,435,000 as of 30 April 2014,

· no debt and no material obligations beyond its trading commitments, and

· a re-invigorated board with substantial mining expertise.

The Board is focused on delivering value to its shareholders and is currently progressing the following priorities:

· pursue domestic sales of magnetite iron ore from the Company's Cobre Project in New Mexico, United States,

· increase the Company's portfolio of projects with additional near term, low capital cost opportunities in both iron ore and other strategic minerals including tin, silver and gold, and

· continue to reduce overheads to meet our corporate overhead targets.

The combination of strong shareholder support, self-sustaining operations, and a suite of mining assets under review bodes well for the Company to thrive in 2014 and beyond.

Julien McInally

Executive Chairman

29 May 2014

Annual Report and Notice of Annual General Meeting

The annual report will be posted to shareholders next week, along with a notice of the Annual General Meeting of Strategic Minerals plc ("AGM"), which will be held at the offices of BDO UK at 55 Baker Street, London, W1U 7EU at 11 a.m. on 27 June 2014. Copies of the annual report and notice of AGM will be available on the Company's website later next week.

One resolution that will be put to shareholders at the AGM concerns a serious loss of capital. Following production of the Company's audited financial statements for the financial period ended 31 December 2013, the net assets have fallen to US$4,073,000, which is less than half of US$40,731,000, being the value of the Company's called up share capital as at the date of this letter. Under the provisions of Section 656 of the Act such a position constitutes a serious loss of capital, which requires shareholders to be informed and a general meeting of the Company to be convened in order that shareholders may have an opportunity to consider the future direction of the Company. The Directors' therefore intend to consider this issue and discuss it with shareholders at the AGM, However, given that the company is currently in a positive cash flow position and has sufficient funds to meet its immediate needs the Directors are proposing that no further action needs to be taken at this time. The Company is not intending to raise additional capital until it has secured additional projects but the Company believes it needs the flexibility to raise additional funds should the need arise. Resolution 8 of the AGM, if passed, will provide the flexibility required to issue additional equity should it be required.

For further information, please contact:

STRATEGIC MINERALS PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Loss per share attributable to the ordinary equity holders of the parent:

The accompanying accounting policies and notes form an integral part of these financial statements

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2013

These financial statements were approved and authorised for issue by the Board of Directors on 29 May 2014 and were signed on its behalf by:

Julien McInally

Director

The accompanying accounting policies and notes form an integral part of these financial statements

STRATEGIC MINERALS PLC

COMPANY STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2013

These financial statements were approved and authorised for issue by the Board of Directors on 29 May 2014 and were signed on its behalf by:

Julien McInally

Director

The accompanying accounting policies and notes form an integral part of these financial statements

STRATEGIC MINERALS PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2013

The accompanying accounting policies and notes form an integral part of these financial statements

STRATEGIC MINERALS PLC

COMPANY STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 31 DECEMBER 2013

The accompanying accounting policies and notes form an integral part of these financial statements

STRATEGIC MINERALS PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2013

All comprehensive income is attributable to the owners of the parent Company.

The accompanying accounting policies and notes form an integral part of these financial statements

STRATEGIC MINERALS PLC

COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2013

All comprehensive income is attributable to the owners of the parent Company.

The accompanying accounting policies and notes form an integral part of these financial statements.

STRATEGIC MINERALS PLC

CONSOLIDATED AND COMPANY STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2013

Share capital is the amount subscribed for shares at nominal value.

Share premium reserve represents the excess of the amount subscribed for share capital over the nominal value of these shares net of share issue expenses.

Merger reserve arises from the 100% acquisition of Ebony Iron Pty Limited on 2 September 2011 whereby the excess of the fair value of the issued ordinary share capital issued over the nominal value of these shares is transferred to this reserve, in accordance with section 612 of the Companies Act 2006.

Share option reserve relates to increases in equity for services received in equity-settled share based payment transactions and on the grant of share options.

Other reserves consist of an adjustment arising from the Group reorganisation in 2011 being the formation of a new holding Company for Iron Glen Holdings Limited by way of a share for share issue, and is the difference between consideration given and net assets of the Company at the date of acquisition.

Foreign exchange reserve occurs on consolidation of the translation of the subsidiaries balance sheets at the closing rate of exchange and their income statements at the average rate.

Retained earnings represent the cumulative loss of the Group attributable to equity shareholders.

NOTES FORMING PART OF THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2013

1. Significant accounting policies

Basis of preparation

In preparing these financial statements the presentational currency has been changed to US dollars, whereas in prior years the presentational currency was Pounds Sterling. As the entire group's revenues and majority of its costs, assets and liabilities are denominated in US dollars it is considered appropriate to report in this currency.

The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated.

These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively IFRSs) issued by the International Accounting Standards Board (IASB) as adopted by the European Union ("adopted IFRSs").

The preparation of financial statements in compliance with adopted IFRS requires the use of certain critical accounting estimates. It also requires Group management to exercise judgment in applying the Group's accounting policies. The areas where significant judgments and estimates have been made in preparing the financial statements and their effect are disclosed in note 2.

Going concern basis

These financial statements have been prepared on the assumption that the Group is a going concern.

When assessing the foreseeable future, the Directors have looked at the Group's working capital requirements for the period to 30 June 2015 being the period for which projections have been prepared and the minimum period the Directors are required to consider. At 31 December 2013 the Group had cash balances of $1,183,000 of which $500,000 were restricted cash, net current assets of $1,023,000 and no borrowings. On 10 April 2014 the Company announced it had raised approximately $1,650,000 before expenses (approximately £1,000,000 at exchange of 1.65) through the subscription of 125,000,000 new ordinary shares. In addition 45,000,000 shares were issued to settle an obligation owed by the Company and included within Trade Payables at 31 December 2013. As at 30 April 2014 the Group had cash and cash equivalents of $1,435,000.

After making enquiries, the Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

New and amended standards adopted by the Company

The Group has adopted the following standards, amendments to standards and interpretations which are effective for the first time this year. The impact is shown below:

Standards, interpretations and amendments to published standards that are effective

At the date of authorisation of these consolidated financial statements, the IASB and IFRS Interpretations Committee have issued standards, interpretations and amendments which are applicable to the Group. Whilst these standards and interpretations are not effective for, and have not been applied in the preparation of, these consolidated financial statements, the following may have an impact going forward (standards not expected to have any impact on the Group are not included):

Basis of consolidation

Where the Company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the Company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between Group companies are therefore eliminated in full.

The consolidated financial statements incorporate the results of business combinations using the purchase method. In the statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date control ceases.

Impairment of non-financial assets (excluding inventories)

Impairment tests of intangible assets with indefinite useful economic lives are undertaken annually at the financial year end. Other non-financial assets are subject to impairment tests whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down accordingly.

Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on the smallest Group of assets to which it belongs for which there are separately identifiable cash flows: its cash generating units ('CGUs').

Impairment charges are included in the statement of comprehensive income, except to the extent they reverse gains previously recognised in other comprehensive income.

Externally acquired intangible assets

Externally acquired intangible assets are initially recognised at cost and subsequently amortised over their useful economic lives.

Intangible assets are recognised on business combinations if they are separable from the acquired entity or give rise to other contractual or legal rights. The amounts ascribed to such intangibles are arrived at by using appropriate valuation techniques (see section related to critical estimates and judgements below).

The significant intangibles recognised by the Group, their useful economic lives and the methods used to determine the cost of intangibles acquired in a business combination are as follows:

Exploration and evaluation assets

The Group has continued to apply the 'successful efforts' method of accounting for Exploration and Evaluation ("E&E") costs, having regard to the requirements of IFRS 6 'Exploration for the Evaluation of Mineral Resources'.

The successful efforts method means that only the costs which relate directly to the discovery and development of specific mineral reserves are capitalised. Such costs may include costs of license acquisition, technical services and studies; exploration drilling and testing but do not include costs incurred prior to having obtained the legal rights to explore the area. Under successful efforts accounting, exploration expenditure which is general in nature is charged directly to the statement of comprehensive income and that which relates to unsuccessful exploration operations, though initially capitalised pending determination, is subsequently written off. Only costs which relate directly to the discovery and development of specific commercial mineral reserves will remain capitalised and to be depreciated over the lives of these reserves. Exploration and evaluation costs are capitalised within intangible assets. Costs incurred prior to obtaining legal rights to explore are expensed immediately to the statement of comprehensive income.

All lease and licence acquisition costs, geological and geophysical costs and other direct costs of exploration, evaluation and development are capitalised as intangible or property, plant and equipment according to their nature. Intangible assets comprise costs relating to the exploration and evaluation of properties which the Directors consider to be unevaluated until reserves are appraised as commercial, at which time they are transferred to tangible assets as 'Developed mineral assets' following an impairment review and depreciated accordingly. Where properties are appraised to have no commercial value, the associated costs are treated as an impairment loss in the period in which the determination is made.

Costs are amortised on a Tenement by Tenement unit of production method based on commercial proven and probable reserves.

Contractual relationship

The contractual relationship recognised as a result of the acquisition of Ebony Iron Pty Limited has been valued using estimated discounted cash flow and is being amortised over the term of the contract at a rate to match the sale of magnetite.

Property, plant and equipment

Items of property, plant and equipment are initially recognised at cost. As well as the purchase price, cost includes directly attributable costs.

Depreciation is provided on all items of property, plant and equipment so as to write off their carrying value over their expected useful economic lives. It is provided at the following rates:

Office equipment - 3 years straight line

Leasehold improvements - 10 years straight line

Rail infrastructure - on a per ton basis for inventory transported by rail in the year

The carrying value of tangible fixed assets is assessed annually and any impairment is charged to the statement of comprehensive income.

Investments

Investments are stated at cost less provision for any impairment in value.

Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired.

Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held on call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the statement of financial position.

Revenue

Revenue from the sale of magnetite is recognised when the Group has transferred the significant risks and rewards of ownership to the buyer and it is probable that the Group will receive the previously agreed upon payment. These criteria are considered to be met when the goods are delivered to the buyer, being the point of shipment for export sales and the point of leaving the mine gate for domestic sales to the US market.

Inventories

Inventories are initially recognised at cost, and subsequently at the lower of cost and net realisable value. Cost comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.

Taxation

Income tax

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the same income statement 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. The Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the statement of financial position date.

Deferred tax

Deferred tax assets and liabilities are recognised where the carrying amount of an asset or liability in the consolidated statement of financial position differs from its tax base, except for differences arising on:

· the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting or taxable profit; and

· investments in subsidiaries and jointly controlled entities where the Group is able to control the timing of the reversal of the difference and it is probable that the difference will not reverse in the foreseeable future.

Recognition of deferred tax assets is restricted to those instances where it is probable that taxable profit will be available against which the difference can be utilised.

The amount of the asset or liability is determined using tax rates that have been enacted or substantively enacted by the reporting date and are expected to apply when the deferred tax liabilities/(assets) are settled/(recovered).

Deferred tax assets and liabilities are offset when the Group has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority on either:

· the same taxable Group Company; or

· different Group entities which intend either to settle current tax assets and liabilities on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.

Fair values

The carrying amounts of the financial assets and liabilities such as cash and cash equivalents, receivables and payables of the Group at the statement of financial position date approximated their fair values, due to the relatively short term nature of these financial instruments.

Share-based compensation

The fair value of the employee and suppliers services received in exchange for the grant of options and warrants is recognised as an expense. The total amount to be expensed over the vesting year is determined by reference to the fair value of the options and warrants granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options and warrants that are expected to vest. At each statement of financial position date, the entity revises its estimates of the number of options and warrants that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the statement of comprehensive income, with a corresponding adjustment to equity.

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options and warrants are exercised.

The fair value of share-based payments recognised in the statement of comprehensive income is measured by use of the Black Scholes model, which takes into account conditions attached to the vesting and exercise of the equity instruments. The expected life used in the model is adjusted; based on management's best estimate, for the effects of non-transferability, and exercise restrictions. The share price volatility percentage factor used in the calculation is based on management's best estimate of future share price behaviour and is selected based on past experience.

Equity instruments

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from proceeds.

Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation. Provisions are measured at the Directors' best estimate of the expenditure required to settle the obligation at the statement of financial position date, and are discounted to present value where the effect is material.

Financial instruments

Non-derivative financial instruments comprise investments in equity, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables.

Non-derivative financial instruments are recognised initially at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transactions costs.

A financial instrument is recognised when the Group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Group's contractual rights to the cash flows from the financial assets expire or if the Group transfers the financial assets to another party without retaining control or substantially all risks and rewards of the asset. Regular purchases and sales of financial assets are accounted for at trade date, i.e. the date that the Group commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Group's obligations specified in the contract expire or are discharged or cancelled.

Financial assets

The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was acquired. The Group has not classified any of its financial assets as held to maturity.

Fair value through profit or loss

This category comprises only in-the-money derivatives. They are carried in the statement of financial position at fair value with changes in fair value recognised in the consolidated statement of comprehensive income in the finance income or expense line.

Loans and receivables

These assets are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise principally through the provision of goods and services to customers (e.g. trade receivables), but also incorporate other types of contractual monetary asset. They are initially recognised at fair value plus transaction costs that are directly attributable to tier acquisition or issue, and are subsequently carried at amortised cost using the effective interest rate method, less provision for impairment.

Available-for-sale

Non-derivative financial asset not included in the above categories are classified as available-for-sale and are carried at fair value.

Financial liabilities

The Group classifies its financial liabilities into one of two categories; depending on the purpose for which the liability was acquired.

Fair value through profit or loss

This category comprises only out-of-the-money derivatives. They are carried in the consolidated statement of financial position at fair value with changes in fair value recognised in the consolidated statement of comprehensive income.

Other financial liabilities

Other financial liabilities include bank borrowings, liability components of convertible loan notes and trade payables and other short-term monetary liabilities which are initially recognised at fair value and subsequently carried at amortised cost using the effective interest method.

Foreign currencies

Transactions entered into by Group entities in a currency other than the currency of the primary economic environment in which they operate (their "functional currency") are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the reporting date. Exchange differences arising on the retranslation of unsettled monetary assets and liabilities are recognised immediately in profit or loss, except for foreign currency borrowings qualifying as a hedge of a net investment in a foreign operation, in which case exchange differences are recognised in other comprehensive income and accumulated in the foreign exchange reserve along with the exchange differences arising on the retranslation of the foreign operation.

Exchange gains and losses arising on the retranslation of monetary available for sale financial assets are treated as a separate component of the change in fair value and recognised in profit or loss. Exchange gains and losses on non-monetary available for sale financial assets form part of the overall gain or loss recognised in respect of that financial instrument.

On consolidation, the results of overseas operations are translated into US Dollars at rates approximating to those ruling when the transactions took place. All assets and liabilities of overseas operations, including goodwill arising on the acquisition of those operations, are translated at the rate ruling at the reporting date. Exchange differences arising on translating the opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income and accumulated in the foreign exchange reserve.

On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are transferred to the consolidated statement of comprehensive income as part of the gain or loss on disposal.

Management of capital

The Group's policy is to ensure that it will always have sufficient cash to allow it to meet its liabilities when they become due. The principal liabilities of the Group arise in respect of the costs of financing working capital as inventory is built up prior to sale.

The Board receives periodic cash flow projections as well as information on cash balances. The Board will not commit to material expenditure prior to being satisfied that sufficient funding is available to the Group to finance the planned programmes.

2. Critical accounting estimates and judgements

The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Judgements

(a) Revenue recognition

The eventual price invoiced for export sales is determined based on a formula linked to the Platts IODEX 62% Fe CFR China in months following the month of sale and quality analysis post loading. For 2013 the amount recorded as revenue is the final agreed invoice value so no judgement has been applied in recording revenue for the year.

Estimates and assumptions

(b) Carrying value of intangible assets

In assessing the continuing carrying value of the exploration and evaluation costs carried the Company has made an estimation of the value of the underlying tenements and exploration licenses held for which further details are given in Note 11.

In assessing the continuing carrying value of the other intangible asset, being the contractual relationship acquired on the acquisition of Ebony Iron Pty Limited, the key estimate and assumption made in the valuation model adopted has been the expected level of product which the Company will be able to sell.

(c) Share based payments

The fair value of share based payments recognised in the statement of comprehensive income is measured by use of the Black Scholes model, which takes into account conditions attached to the vesting and exercise of the equity instruments. The expected life used in the model is adjusted based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The share price volatility percentage factor used in the calculation is based on management's best estimate of future share price behaviour based on past experience.

The Group is exposed the following financial risks:

· Credit risk

· Foreign exchange risk

· Other market price risk

· Liquidity risk

In common with all other businesses, the Group is exposed to risks that arise from its use of financial instruments. This note describes the Group's objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements.

There have been no substantive changes in the Group's exposure to financial instrument risks, its objectives, policies and processes for managing those risks or the methods used to measure them from last year unless otherwise stated in this note.

Principal financial instruments

The principal financial instruments used by the Group, from which financial instrument risk arises, are:

· Trade and other receivables

· Cash and cash equivalents

· Trade and other payables

A summary of the financial instruments held by category is provided below:

Financial assets