Strategic Minerals Regulatory News (SML)

Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

28 September 2018

Strategic Minerals Plc

("Strategic Minerals", the "Group" or the "Company")

Interim Results - Half Year to 30 June 2018

 

US $2.4m Value Added Through Acquisition of Leigh Creek Copper Mine

Strategic Minerals Plc (AIM: SML; USOTC: SMCDY), the diversified mineral development and production company, is pleased to announce its unaudited interim results for the half year ended 30 June 2018.

Financial Highlights:

 

· After tax profit of $2,406,000 (H1 2017 $158,000)

· Corporate activity, through the acquisition of Leigh Creek Copper Mine ("LCCM"), adds significant value as noted by the Company booking an after tax profit of $2.4m (AUD $3.1m) on its purchase. The price at which the Company was able to purchase LCCM, while a fair price for its vendors, reflected the limited financial resources the vendors had available to progress the project to an operational level. The profit booked, reflects the independently estimated added value the Company has already brought to the project through its ability to supply such capital.

· Pre-tax profit of $1,246,000 (H1 2017: $690,000) from the Company's Cobre operation, prior to intercompany management charges, continues to underpin corporate cash flow.

· Directors exercised 15m vested options and acquired further stock in the Company.

· Issue to Directors of 128m options over three tranches vesting at 5.5p, 7.5p and 10.0p.

· Investment in Cornwall Resources Limited ("CRL") of $107,317, the owner of the Redmoor tin-tungsten project, maintaining the Company's 50% interest in CRL.

· Issue of 38,700,900 SML shares, in April 2018, issued at the month of March 2018 Volume Weighted Average Price ("VWAP") of 1.9067 pence per share as part payment for the acquisition of LCCM.

· Unrestricted cash and cash equivalents at 30 June 2018 were $1,988,000 (31 Dec 2017: $3,706,000). The reduction in cash balances reflects the acquisition of LCCM, payment of US tax liabilities and investment into CRL.

 

Corporate Highlights:

· Completion of the acquisition of Leigh Creek Copper Mine ("LCCM") in the North Flinders Ranges in South Australia through its wholly owned subsidiary Ebony Iron Pty Ltd. The Company also organised a team to undertake the recommissioning of the mine and expects LCCM to be in production in 2019. This is of huge strategic importance to the Company as the commencement of operations will see the creation of a second cash flow stream. Additionally, access to the project and its cash flows is 100% controlled by the Company.

· The Board was expanded to four members with the addition of Mr Jeffrey Harrison. His extensive practical mining engineering skills are expected to prove invaluable as the Company progresses its LCCM and Redmoor projects.

· Access to the Cobre magnetite stockpile was rolled over in line with the relationship the Company has with the mine owner, and the Company expects this to continue in the future.

· Sales contract re-negotiation with major Cobre client. The Company negotiated with one of Cobre's major clients which, due to internal issues, had been unable to take the material required under their contract. The Company and the client agreed to amend the existing contract such that the client could make a series of quarterly payments, placing the Company in approximately the same cash position as if the contract had been fully met.

· Resource update for the Redmoor project. A resource update noting an almost doubling of the high grade Inferred Mineral Resource at Redmoor was published by Cornwall Resources Limited ("CRL") and identified the need for further drilling to expand the resource base and improve the project's economic viability.

· Investment in CRL and the provision of an underwriting agreement for our joint venture partner's equity. The Company considered that momentum needed to be maintained at Redmoor and that a commitment and commencement of a drilling programme for 2018 was critical to the development of the project. At the time, SML's joint venture partner, New Age Exploration Limited ("NAE") did not have the financial capacity to commit to the programme but was preparing for an equity raise. The Company took the view that it was imperative for the momentum of the project that drilling commence and, accordingly, underwrote NAE's portion of the programme, whilst providing NAE the longest possible time in which to make their equity payment. Subsequently, NAE completed an equity raise and the underwriting was cancelled.

· The Company hosted a Shareholders' Meeting following its AGM. This provided shareholders the opportunity to interact with the full Board in an informal environment. 

Commenting, John Peters, Managing Director of Strategic Minerals, said: 

"The first half of 2018 has been a pivotal period for the Company, most notably with the completion of the watershed acquisition of Leigh Creek Copper Mine. We believe the acquisition of this asset and the expected commencement of its operations in 2019 provide a strategically significant shift in the risk profile of the Company. The addition of a second revenue stream, particularly one derived from a wholly owned asset, ensures the sustainability and access to cash flows that form the base on which the Company expects to create long term growth for its projects and provide value to its shareholders.

 

"We are also delighted to welcome Jeff Harrison to our Board. His arrival has significantly expanded the Company's skill base as it enters an extremely exciting period in the development of Leigh Creek, Redmoor and Hanns Camp."

 

For further information, please contact:

 

Strategic Minerals plc	+61 (0) 414 727 965
John Peters
Managing Director
www.strategicminerals.net
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Notes to Editors

 

Strategic Minerals Plc is an AIM-quoted, operating minerals company actively developing projects prospective for battery materials. It has an operation in the United States of America and development projects in the UK and Australia. The Company is focused on utilising its operating cash flows, along with capital raisings, to develop high quality projects aimed at supplying the metals and minerals being sought in the burgeoning electric vehicle/battery market.

In September 2011, Strategic Minerals acquired the Cobre magnetite tailings dam project in New Mexico, USA, a cash-generating asset, which it brought into production in 2012 and which continues to provide a revenue stream for the Company. This operating revenue stream is utilised to cover company overheads and invest in development projects orientated to supplying the burgeoning electric vehicle/battery market.

In January 2016, the portfolio was expanded with the acquisition of shares in Central Australian Rare Earths Pty Ltd, which holds tenements in Western Australia that are prospective for cobalt, gold, nickel sulphides and rare earth elements. The Company has since acquired all shares in Central Australian Rare Earths Pty Ltd. In September 2018, the Company entered contracts for the sale of certain CARE tenements that have been identified as gold targets.

In May 2016, the Company entered into an agreement with New Age Exploration Limited and, in February 2017, acquired 50% of the Redmoor tin-tungsten project in Cornwall, UK. The bulk of the funds from the Company's investment were utilised to complete a drilling programme that year. The drilling programme resulted in a significant upgrade of the resource. Phase 1 of the 2018 drill programme is underway and augurs well for additional drilling to be undertaken.

In March 2018, the Company completed the acquisition of the Leigh Creek Copper Mine situated in the copper rich belt of South Australia and is currently working to bring this into operation in 2019.

 

Chairman's Statement

Financial results

The results for the first half of 2018 are pleasing as they reflect the value added by the Board and Management from the judicious acquisition of Leigh Creek Copper Mine. This augurs well for the Company being able to report a full year 2018 result that will exceed its record performance in 2017. After tax profit for H1 2018 of $2,406,000 not only compares well with the previous period (H1 2017 $158,000) but also compares well with the full year performance in 2017 of $1,586,000.

 

Unrestricted cash on hand as at 30 June 2018 was $1,988,000 and is expected, when combined with cash flows being generated at the Cobre operations, to assist in funding development of the Leigh Creek operations whilst allowing for minimal dilution to current shareholders.

 

Operating profit of $1,246,000 from our Cobre magnetite stockpile, prior to intercompany management fees, marked an 80% increase in profitability versus the first half of 2017 ($690,000). This increase in profits was achieved despite our major client not being able to take their minimum purchase levels during the half year.

 

Corporate overheads of $838,000 have almost doubled (H1 17 $435,000) and are reflective of the substantial growth the Company has undertaken, however the Board's commitment to maintain lean corporate overheads remains in place to ensure the Company's growth is consistent with its activities.

 

Addition of New Director

In February, the Board appointed a fourth Director, Jeffery Harrison. The growth of the Company was considered sufficient to justify the addition of another Director. The Board identified Jeff as a suitable candidate given his strong background in mining engineering, his knowledge of Cornish mining and his Australian mining experience.

 

Strategy Focus

The Board has continued to focus on the appropriate strategy for the Company and, as a multi-resource miner, considers this helps to differentiate the Company from many of its peers.

 

The Company continues to maintain a three-pronged approach to investing in diversified material projects, concentrating on:

 

1. Coal and Bulk Materials - potential projects in this sector that are tied to current contracts and further offtake arrangements at attractive prices.

 

2. Advanced Materials - considering project opportunities in materials where it expects demand to increase over the coming years (such as rare earth elements and graphite).

 

3. Metals - identifying projects exposed to metals that it expects to have price improvements over the next three to five years (such as cobalt, nickel, copper and tin-tungsten).

 

This strategy is combined with the Company's desire to balance cash requirements through a mix of cash, near cash, brownfields and greenfields projects designed to utilise cash generated from operations for the greatest long term benefit of shareholders.

 

Accordingly, the Company invests surplus cash flow from Cobre into the recommencement of operations at Leigh Creek Copper Mine and drilling programmes for its two major exploration projects - CARE (nickel and cobalt focused) and Redmoor (tin/tungsten focused).

 

 

Cobre Operations

 

The Company has worked closely with the management at Cobre in handling negotiations with a key client. The client needed, due to their own circumstances, to vary their contract and a temporary compromise has been implemented that provides Cobre approximately the same cash position it would have been in should the contract have been honoured as originally written.

This substantial cash flow continues to underwrite operations and minimise calls on shareholders for capital.

 

Leigh Creek Copper Mine

 

The first half of 2018 has seen the Company complete the acquisition of the Leigh Creek Copper Mine.

 

The Project is based in the northern Flinders Ranges of South Australia and is accessible from the township of Leigh Creek. It has three approved mining leases that cover a number of copper oxide deposits, including Lorna Doone, Lynda, Mountain of Light (Rosmann East and Paltridge South) and the Mount Coffin deposit. An estimated JORC 2012 compliant Resource of 3.61mt @ 0.69% copper for 24,900 of copper metal forms the base of the project. Additional, non JORC compliant ore sources of 1.8Mt @ 0.68% copper have also been identified within existing mining leases.

 

It was the Board and Management's belief that this represented exceptional value at the negotiated purchase price of AUD $3m and this has subsequently been confirmed by independent assessment which has placed the assets purchased at AUD $6.1m. This resulted in a gain of US $2.4m being recognised in the half year due to this bargain acquisition.

 

Post acquisition, the Company has moved quickly to set up a highly skilled team tasked to recommence mine operations in 2019. Existing contracts in place ensure that 100% of the production will be sold at 85% of LME prices.

 

This potential sizeable cash flow from Leigh Creek Copper Mine has a very strategic impact on the risk profile of the Company. The ability to have two revenue streams insulates the Company from risks that may impact on the Company and positions us for further growth.

 

The Board is confident that developments at Leigh Creek Copper Mine will help to drive company valuation through 2019.

 

Redmoor tin-tungsten project

 

In March 2018, a resource update indicating a 4.5Mt high-grade Inferred Mineral Resource was released. This represented an almost 100% increase over the high-grade Inferred Mineral Resource reported in 2015. The resource was defined in high-grade zones within the Sheeted Vein Systems and drilling had identified a further 4 - 6Mt high grade exploration target within the Sheeted Vein System.

 

In March 2017, the Company, through its 50% investment in Cornwall Resources Limited ("CRL") began a drilling programme at the Redmoor project located in the world class Cornwall tin-tungsten-copper mineralised district.

 

Scoping level mineral processing and underground mining studies were undertaken by Fairport Engineering Ltd (UK). To maintain this momentum a further drilling programme was commenced, and the Company provided its 50% contribution for drilling costs. Further, the Company underwrote the 50% contribution of its joint venture partner, New Age Exploration Limited ("NAE"). This ensured the timely commencement of drilling and certainty of funding, whilst providing New Age Exploration the longest time practical for it to raise its funding. After June, NAE was able to raise the required funding and the Company's underwriting commitment was cancelled.

 

Prior to undertaking the drill programme, an extensive community relations programme was undertaken and remains ongoing; the local community and Council are working closely with CRL in a highly collaborative manner.

 

CARE

 

During the first half of 2018, a 65 hole 3,863m air core drilling programme was completed at the Hanns Camp and Mt Weld Projects, This consisted of 25 holes totalling 1,290m being drilled at the Hanns Camp South Targets. Cumulate facies ultramafic lithologies were recognised in one area potentially identifying another komatiite lava channel-facies position prospective for nickel sulphide mineralisation.

Additionally, 40 holes totalling 2,573m were drilled testing a series of gold, nickel and rare earth elements targets in the Mt Weld group of tenements.

The Company engaged Dr Martin Gole, an internationally recognised nickel expert, to assess the significance of the drill results and the prospectivity for potential nickel sulphide mineralisation.

 

Issues of Capital

 

During the half year, Directors in the Company exercised 15,000,000 vested options and a further 38,700,900 shares were issued as part payment for the acquisition of Leigh Creek Copper Mine.

In February, in line with approvals received from shareholders in general meeting, Directors were issued 128,000,000 new options across three tranches which vest upon the share price staying above 5.5p, 7.5p and 10.0p for five consecutive days.

Safety

The Company continues to maintain a high level of safety performance with SML and its subsidiaries having no reportable environmental or personnel incidents recorded in the period. With the addition of Jeff Harrison as a Director, the Board took the opportunity to establish a separate Safety Sub-Committee chaired by Jeff, with Alan Broome AM as the other member.

 

I would like to take this opportunity to thank my fellow Directors, our management and staff in New Mexico, Cornwall, South and Western Australia, along with our advisers, for their support and hard work on your behalf during the period. Additionally, I would like to thank our clients, contractors, suppliers and partners for their on-going support.

 

 

 

Alan Broome AM

Non-Executive Chairman

28 September 2018

 

 

 

 

 

 

STRATEGIC MINERALS PLC

 

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE PERIOD ENDED 30 JUNE 2018

 

	6 months to	6 months to	Year to
	30 June	30 June	31 December
	2018	2017	2017
	(Unaudited)	(Unaudited)	(Audited)
	$'000	$'000	$'000
Continuing operations
Revenue	2,120	1,440	5,642
Cost of sales	(391)	(272)	(914)
	_________	_________	_________
Gross profit	1,729	1,168	4,728
Other income	2,464	-	-
Administrative expenses	(1,386)	(860)	(2,308)
Depreciation	(36)	(48)	(48)
Share based payment	(92)	(91)	(41)
Share of net losses of associates and joint ventures	1	(49)	(63)
Foreign exchange gain/(loss)	7	(20)	(34)
Gain on revaluation of investments of associates	-	58	-
Profit/(loss) from operations	2,687	158	2,234
	_________	_________	_________
Profit/(loss) before taxation	2,687	158	2,234
Income tax (expense)/credit	(281)	-	(648)
	_________	_________	_________
Profit/(loss) for the period	2,406	158	1,586
Other comprehensive income
Exchange gains/(losses) arising on translation of foreign operations	(93)	77	206
	_________	_________	_________
Total comprehensive income/(loss)	2,313	235	1,792
	_________	_________	_________
Profit/(loss) for the period attributable to:
Owners of the parent	2,313	235	1,792
	_________	_________	_________
Total comprehensive income/(loss) attributable to:
Owners of the parent	2,313	235	1,792
	_________	_________	_________
Profit/(loss) per share attributable to the ordinary equity holders of the parent:	cents	Cents	cents
Continuing activities - Basic	0.19	0.01	0.13
-- Diluted	0.17	0.01	0.12

 

 

` STRATEGIC MINERALS PLC

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT 30 JUNE 2018

 

	30 June	30 June	31 December
	2018	2017	2017
	(Unaudited)	(Unaudited)	(Audited)
	$'000	$'000	$'000
Assets
Non-current assets
Deferred Exploration and evaluation costs	6,174	812	1,242
Property, plant and equipment	295	130	257
Investments in joint ventures- equity accounted	1,755	1,316	1,611
Restricted cash	100	100	100
Trade and other receivables	111	-	-
Intangible asset goodwill	-	295	-
	_________	_________	_________
	8,435	2,653	3,210
Current assets
Inventories	3	20	7
Trade and other receivables	1,204	471	1,081
Cash and cash equivalents	1,988	1,259	3,706
Prepayments	81	25	-
	_________	_________	_________
	3,276	1,775	4,794
	_________	_________	_________
Total Assets	11,711	4,428	8,004
	_________	_________	_________
Equity and liabilities
Share capital	2,087	1,908	2,009
Share premium reserve	47,118	44,564	45,935
Merger reserve	20,240	20,240	20,240
Foreign exchange reserve	(302)	(338)	(209)
Share options reserve	(29)	229	137
Other reserves	(23,023)	(23,023)	(23,023)
Accumulated loss	(35,515)	(39,818)	(38,180)
	_________	_________	_________
Total Equity	10,576	3,762	6,909
	_________	_________	_________
Liabilities
Current liabilities
Loans and borrowings	-	60	-
Trade and other payables	356	286	447
Rehabilitation premium	111	-	-
Deferred revenue	594	320	-
Deferred Consideration	74	-	-
Income Tax Payable	-	-	648
	_________	_________	_________
	1,135	666	1,095
	_________	_________	_________
Total Liabilities	1,135	666	1,095
	_________	_________	_________
Total Equity and Liabilities	11,711	4,377	8,004
	_________	_________	_________

 

STRATEGIC MINERALS PLC

 

CONSOLIDATED STATEMENT OF CASH FLOW

FOR THE PERIOD ENDED 30 JUNE 18

 

	6 months to	6 months to	Year to
	30 June	30 June	31 December
	2018	2017	2017
	(Unaudited)	(Unaudited)	(Audited)
	$'000	$'000	$'000
Cash flows from operating activities
Profit/(loss) after tax	2,406	158	1,586
Adjustments for:
Bargain Purchase	(2,464)	-	-
Depreciation of property, plant and equipment	36	48	74
Share of net / (profit) losses from associates	(1)	49	63
Non Cash Director Remuneration	213	-	-
Share Based payment expense	92	91	209
(Increase) / decrease in inventory	4	(7)	6
(Increase) / decrease in trade and other receivables	(193)	445	(138)
Increase / (decrease) in trade and other payables	(91)	398	440
Increase / (decrease) in prepayments	(69)	(19)	(6)
Increase/ (decrease) in deferred revenue	594	91	209
Increase /decrease in income tax payable	(648)	-	648
Revaluation of investment in associates	-	(58)	-
	_________	_________	_________
Net cash flows from operating activities	(121)	1,196	2,882
	_________	_________	_________
Investing activities
Increase in deferred exploration and evaluation	(1,443)	-	(186)
Acquisition of property, plant and equipment	-	(37)	(190)
Investment in associates and joint operations	(107)	(1,068)	(1,328)
Loans to third parties	(26)	-	(40)
	_________	_________	_________
Net cash used in investing activities	(1,576)	(1,105)	(1,744)
	_________	_________	_________
Financing activities
Net proceeds from issue of equity share capital	-	60	1,399
Net proceeds/(repayment) of borrowings	-	-	-
	_________	_________	_________
Net cash from financing activities	-	60	1,399
	_________	_________	_________
Net increase / (decrease) in cash and cash equivalents	(1,697)	151	2,537
Cash and cash equivalents at beginning of period	3,706	1,105	1,105
Exchange gains / (losses) on cash and cash equivalents	(21)	3	64
	_________	_________	_________
Cash and cash equivalents at end of period	1,988	1,259	3,706
	_________	_________	_________

 

 

STRATEGIC MINERALS PLC

 

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED 30 JUNE 2018

 

	Share capital	Share premium reserve	Merger reserve	Share options reserve	Other reserves	Foreign exchange reserve	Retained earnings	Total equity
	$'000	$'000	$'000	$'000	$'000	$'000	$'000	$'000
	________	________	________	________	________	________	________	________
Balance at 1 January 2017 - audited	1,873	43,865	20,240	138	(23,023)	(415)	(39,976)	2,702
	________	________	________	________	________	________	________	________
Gain/(Loss) for the period	-	-	-	-	-	-	1,586	1,586
Foreign exchange translation	-	-	-	-	-	206	-	206
	________	________	________	________	________	________	________	________
Total comprehensive income for the year	-	-	-	-	-	206	1,586	1,792
Shares issued in the year	136	2,113	-	-	-	-	-	2,249
Expenses of share issue		(43)	-	-	-	-	-	(43)
Transfer	-	-	-	(210)	-	-	210	-
Share based payments	-	-	-	209	-	-	-	209
	________	________	________	________	________	________	________	________
Balance at 31 December 2017- audited	2,009	45,935	20,240	137	(23,023)	(209)	(38,180)	6,909
	________	________	________	________	________	________	________	________
Profit for the period	-	-	-	-	-	-	2,407	2,407
Foreign exchange translation	-	-	-	-	-	(93)	-	(93)
	________	________	________	________	________	________	________	________
Total comprehensive income for the half year	-	-	-	-	-	(93)	2,407	2,314
Shares issued in the year	78	1,183	-	-	-	-	-	1,261
Expenses of share issue	-	-	-	-	-	-	-	-
Transfer	-	-	-	(258)	-	-	258	-
Share based payments	-	-	-	92	-	-	-	92
	________	________	________	________	________	________	________	________
Balance at 30 June 2018 - Unaudited	2,087	47,118	20,240	(29)	(23,023)	(302)	(35,515)	10,576
	________	________	________	________	________	________	________	________

 

 

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

 

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

 

STRATEGIC MINERALS PLC

 

NOTES FORMING PART OF THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2018

 

1. General information

Strategic Minerals Plc ("the Company") is a public company incorporated in England and Wales. The consolidated interim financial statements of the Company for the six months ended 30 June 2018 comprise the Company and its subsidiaries (together referred to as the "Group").

 

2. Accounting policies

Basis of preparation

 

These consolidated financial statements have been prepared using policies based on International Financial Reporting Standards (IFRS and IFRIC interpretations) issued by the International Accounting Standards Board ("IASB") as adopted for use in the EU. IAS 34 is not required to be adopted by the Company and has not been applied in the preparation of this interim information. The consolidated financial statements do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2017 Annual Report. The financial information for the half years ended 30 June 2018 and 30 June 2017 does not constitute statutory accounts within the meaning of Section 434(3) of the Companies Act 2006 and is unaudited.

 

The annual financial statements of Strategic Minerals Plc are prepared in accordance with IFRSs as adopted by the European Union. The comparative financial information for the year ended 31 December 2017 included within this report does not constitute the full statutory accounts for that period. The statutory Annual Report and Financial Statements for 2017 have been filed with the Registrar of Companies. The Independent Auditors' Report on that Annual Report and Financial Statement for 2017 was unqualified, and included an emphasis on matter paragraph regarding the Group's ability to continue as a going concern and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.

 

 

After making enquiries, the directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the half-yearly consolidated financial statements.

 

The same accounting policies, presentation and methods of computation are followed in these condensed consolidated financial statements as were applied in the Group's latest annual audited financial statements except for policies stated below.

 

Joint arrangements

 

Under IFRS 11 Joint Arrangements, investments in joint arrangements are classified as either joint operations or joint ventures. The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement. Strategic Minerals Limited has one joint operation at 30 June 2018.

 

Joint operations

A joint operation is a joint arrangement whereby the parties have joint control of the arrangement have rights to the assets and obligations for the liabilities, relating to the arrangement. Strategic Minerals Plc recognises its direct right to the assets, liabilities, revenues and expenses of the joint operations and its share of any jointly held or incurred assets, liabilities, revenues and expenses.

 

Joint Ventures

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have the rights to the net assets of the joint arrangement. Interests in joint ventures are accounted for using the equity method, after initially being recognised at cost in the consolidated statement of financial position.

 

Business Combinations

Business Combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is obtained, whereby the fair value of identifiable assets acquired and liabilities (including contingent liabilities assumed) is recognised.

 

STRATEGIC MINERALS PLC

 

NOTES FORMING PART OF THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2018

 

 

Accounting policies (continued)

 

Where an acquirer has been unable to complete the initial accounting for a business combination by the end of the reporting period in which the combination occurred - provisional accounting shall be used during a 12 month measurement period.

 

During this measurement period, the acquirer retrospectively adjusts the provisional amounts recognised at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognised as of that date. The measurement period ends as soon as the acquirer receives the information it was seeking about facts and circumstances that existed as of the acquisition date or learns that more information is not obtainable.

 

The measurement period does not exceed one year from the acquisition date. After the measurement period ends, an acquirer can make adjustments to correct errors in accordance with IAS 8 Accounting Policies, Changes in Accounting Policies, Changes in Accounting Estimates and Errors.

 

All transaction costs incurred in relation to business combinations, other than those associated with the issue of a financial instrument are recognised as expenses in profit and loss when incurred

 

The acquisition of a business may result in the recognition of goodwill or gain from a bargain purchase.

 

 

New, revised or amending accounting standards and interpretations

 

IASB has issued a number of IFRS and IFRIC amendments or interpretations since the last annual report was published. It is not expected that any of these will have a material impact on the Group.

 

IFRS 9 Financial Instruments

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement in its entirety. This standard is effective for periods beginning on or after 1 January 2018 with retrospective application.

IFRS 9 introduces significant changes to the classification and measurement requirements for financial instruments. As at 31 June 2018 the Group has not experienced credit losses in relation to the Cobre operations. Management will continue to assess the overall credit risk of the debtor portfolio when calculating the ongoing bad debt provision.

All intercompany receivables on the Company statement of financial position are repayable on demand. In line with the requirements of IFRS 9 the directors and management have assessed the underlying liquid assets of each counterparty at the year end and has assessed the credit risk to be low at this stage. The directors and management will continue to monitor the credit risk attached to the sales contracts (Group and Company) and the credit risk of intercompany receivables and adopt an appropriate provision policy under the requirements of IFRS 9.

 

3. 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) Joint arrangement and joint operation

 

The Company holds a 50% interest in Cornwall Resources Limited ("CRL") which owns the Redmoor Tin-Tungsten project in the United Kingdom with the other shareholder being New Age Exploration Limited ("NAE"). Under the shareholders agreement with NAE, CRL is operated as a 50:50 joint venture with each party being entitled to appoint one Director. Based on this, the Group considers that they have joint control over the arrangement. Under IFRS 11, this joint arrangement is classified as a joint venture and has been included in the consolidated financial statements using the equity method.

 

 

Estimates and assumptions

 

(a) Asset acquisition versus business combination

 

In April 2018, the company acquired a 100% interest in Leigh Creek Copper Mine Pty Ltd ("LCCM") which owns exploration tenements in the South Australia. The LCCM acquisition meets the definition of a Business Combination in accordance with IFRS 3 and has been treated as such.

 

(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.

 

(c) Share based payments, warrants and options

 

The fair value of warrants and options recognised in the income statement is measured by use of either a Black Scholes Valuation Model or probabilistic model. The model calculates the fair value of an option that vests if the Company's stock price exceeds the vesting hurdle. The model 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 recent past experience.

 

STRATEGIC MINERALS PLC

 

NOTES FORMING PART OF THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2018

 

 

4.	Segment information

 

The Group has four main segments:

· Head Office - This segment holds all the United Kingdom (UK) administrative costs for central operations, finances the Group's operations.

· SMG - This segment is involved in the sale of magnetite to the US domestic market through the Company's wholly owned subsidiary Southern Minerals Group LLC (SMG).

· UK - This segment holds the Company's investment in the UK being the Redmoor Tin/Tungsten project in Cornwall which is held by Cornwall Resources Limited and which is 50% owned by the Company.

· Australia - This segment holds the tenements in Australia through the Company's wholly owned subsidiaries, Central Australia Rare Earths Pty Ltd and Leigh Creek Copper Mine Pty Ltd.

 

Factors that management used to identify the Group's reportable segments

 

The Group's reportable segments are strategic business units that carry out different functions and operations and operate in different jurisdictions.

 

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the management team including the Chairman and Directors.

 

Measurement of operating segment profit or loss, assets and liabilities

 

The Group evaluates segmental performance on the basis of profit or loss from operations calculated in accordance with EU Adopted IFRS but excluding non-cash losses, such as the amortisation of intangible assets, and the effects of share-based payments.

 

Segment assets exclude tax assets and assets used primarily for corporate purposes. Segment liabilities exclude tax liabilities. Loans and borrowings are allocated to the segments in which the borrowings are held. Details are provided in the reconciliation from segment assets and liabilities to the Group's statement of financial position.

 

 

 

STRATEGIC MINERALS PLC

 

NOTES FORMING PART OF THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2018

 

4.	Segment information (continued)

 

	6 Months to 30 June 2018 (Unaudited)	Head Office	SMG	Australia	UK	Inter Segment Elimination	Total
		$'000	$'000	$'000	$'000	$'000	$'000
	Revenue	2	2,118	-	-	-	2,120
	Cost of sales	-	(391)	-	-	-	(391)
		_______	______	_______	_______	_______	_______
	Gross Profit	2	1,727	-	-	-	1,729
	Bargain Purchase			2,464	-	-	2,464
	Depreciation	-	(36)	-	-	-	(36)
	Overhead expenses	(838)	(445)	(103)	-	-	(1,386)
	Management fee	200	(200)	-	-
	Share based expense	(92)	-	-	-	-	(92)
	Write back of provisions	(379)			-	379	-
	Equity accounting profit	1	-		-		1
	Foreign Exchange	8	-	-	-	(1)	7
		_______	_______	_______	_______	_______	_______
		(1,098)	1,046	2,361	-	378	2,687
	Segment profit/(loss) from operations	(1,098)	1,046	2,361	-	378	2,687
		________	________	________	________	________	________
	Segment profit/(loss) before taxation	(1,098)	1,046	2,361	-	-	2,687
		________	________	________	________	________	________

 

	6 Months to 30 June 2017 (Unaudited)	Head Office	SMG	Australia	UK	Inter Segment Elimination	Total
		$'000	$'000	$'000	$'000	$'000	$'000
	Revenue	200	1,435	-	-	(195)	1,440
	Cost of sales	-	(272)	-	-	-	(272)
		________	________	________	________	________	________
	Gross Profit	200	1,163	-	-	(195)	1,168
	Depreciation	-	(48)	-	-	-	(48)
	Overhead expenses	(433)	(425)	(2)	-	-	(860)
	Management fee	-	(200)	-	-	200	-
	Share based expense	(91)	-	-	-	-	(91)
	Equity accounting loss	-	-	-	(49)	-	(49)
	Foreign Exchange	(15)	-	-	-	(5)	(20)
	Gain on revaluation of investment in associate			58			58
		________	________	________	________	________	________
		(539)	(673)	56	(49)	195	(1,010)
	Segment profit/(loss) from operations	(339)	490	56	(49)	-	158
		________	________	________	________	________	________
	Segment profit/(loss) before taxation	(339)	490	56	(49)	-	158
		________	________	________	________	________	________

 

 

STRATEGIC MINERALS PLC

 

NOTES FORMING PART OF THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2018

 

 

4.	Segment information (continued)

 

	Year to 31 December 2017(Audited)	Head Office	SMG	Australia	Inter Segment Elimination	Total
		$'000	$'000	$'000	$'000	$'000
	Revenue	5	5,637	-	-	5,642
	Cost of sales	-	(914)	-	-	(914)
		________	________	________	________	________
	Gross profit	5	4,723	-	-	4,728
	Depreciation	-	(74)	-	-	(74)
	Overhead expenses	(1,086)	(1,016)	(11)	-	(2,113)
	Management fee	391	(400)	-	9	-
	Impairment of intangible asset	-	-	-	-	-
	Write back provisions	776	-	-	(776)	-
	Share-based payments charge	(209)	-	-	-	(209)
	Share of net loss from associates	(63)	-	-	-	(63)
	Foreign exchange	73	-	-	(108)	(35)
		________	________	________	________	________
		(118)	(1,490)	(11)	(875)	(2,494)
	Segment profit / (loss) from operations	113	3,233	(11)	(875)	2,234
	Finance expense	-	-	-	-	-
		________	________	________	________	________
	Segment profit / (loss) before taxation	113	3,233	(11)	(875)	2,234
		________	________	________	________	________

 

 

STRATEGIC MINERALS PLC

 

NOTES FORMING PART OF THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2018

 

 

4.	Segment information (continued)

 

	As at 30 June 2018 (Unaudited)	Head Office	SMG	UK	Australia	Total
		$'000	$'000	$'000	$'000	$'000
	Additions to non-current assets (excluding deferred tax)	107	-	-	1,469	1,576
		________	________	________	________	________
	Reportable segment assets (excluding deferred tax)	3,098	2053	-	6,560	11,711
	Reportable segment liabilities	189	680	-	266	1,135
		________	________	________	________	________
	Total Group Liabilities					1,135
						________
	As at 30 June 2017 (Unaudited)	Head Office	SMG	UK	Australia	Total
		$'000	$'000	$'000	$'000	$'000
	Additions to non-current assets (excluding deferred tax)	-	37	1,068	-	1,105
		________	________	________	________	________
	Reportable segment assets (excluding deferred tax)	302	1,650	1,316	1,160	4,428
	Reportable segment liabilities	35	562	-	69	666
		________	________	________	________	________
	Total Group Liabilities					666
						________
	As at 31 December 2017(Audited)	Head Office	SMG	UK	Australia	Total
		$'000	$'000	$'000	$'000	$'000
	Additions to non-current assets (excluding deferred tax)	1,328	190	-	186	1,704
		________	________	________	________	________
	Reportable segment assets (excluding deferred tax)	3.339	3,065	-	1,600	8,004
		________	________	________	________	________
	Reportable segment liabilities	199	870		26	1,095
		________	________	________	________	________
	Total Group liabilities					1,095
						________

 

STRATEGIC MINERALS PLC

 

NOTES FORMING PART OF THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2018

 

 

5.	Operating loss

 

Administration costs by nature

		6 months to	6 months to	Year to
		30 June	30 June	31 December
		2018	2017	2017
		(Unaudited)	(Unaudited)	(Audited)
		$'000	$'000	$'000
	Operating gain/loss is stated after charging/(crediting):
	Directors' fees and emoluments	414	181	497
	Depreciation	36	48	74
	Equipment rental	130	134	300
	Equipment maintenance	34	-	70
	Equity accounting share of loss/(profit)	(1)	49	63
	Auditors' remuneration	8	-	34
	Salaries, wages and other staff related costs	276	116	557
	Insurance	11	26	-
	Legal, professional and consultancy fees	329	147	341
	Travelling and related costs	69	71	121
	Foreign exchange	(7)	20	35
	Share based payments	92	91	209
	Other expenses	126	185	193

 

6	Exploration and Evaluation Expenditure

 

In the six months ending 30 June 2018 the Company purchased Leigh Creek Copper Mine Pty Ltd which resulted in the addition of deferred exploration and evaluation costs at acquisition which were recognised at fair value.

 

							Exploration/
							evaluation
							costs
	Cost						$'000
	At 1 January 2017						-
	Additions on acquisition of associates						1,056
	At 30 June 2017 ( unaudited)						1,056
	Additions in the year						186
	At 31 December 2017 ( audited)						1,242
	Additions to 30 June 2018*						4,932
	At 30 June 2018 ( unaudited)     *Additions for the period are for both CARE and LCCM.						6,174

 

STRATEGIC MINERALS PLC

 

NOTES FORMING PART OF THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2018

 

 

7	Investments in associates and joint ventures

 

				Investments
				(Unaudited)
	Cost			$'000
	At 1 January 2018			1,611
	Acquisition of joint venture interests			*107
	Share of equity profit in joint ventures			1
	Foreign exchange difference			36
				________
	At 30 June 2018			1,755
				________

* During the period the Company paid $107,000 in cash to acquire an additional 779,265 shares in Cornwall Resources Limited ("CRL) (CRL was previously New Age Exploration Limited) which holds the Redmoor tin/tungsten project in Cornwall. Company's interest in CRL remains at 50%.

 

 

			30 June 2018	31 December 2017
			(Unaudited)	( Audited)
	Investment in joint venture - Cornwall Resources Limited		1,755	1,611
	Total Investments		1,755	1,611
			________	________

 

STRATEGIC MINERALS PLC

 

NOTES FORMING PART OF THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2018

8	Business Combination

 

In April 2018, the company acquired a 100% interest in Leigh Creek Copper Mine Pty Ltd ("LCCM") which owns exploration tenements in the South Australia. The purchase adds copper exposure to company's portfolio of strategic projects. The company believes that demand and supply factors for copper over the next five years will lead to price increases going forward, which in turn will add substantial shareholder value.

The fair values of the identifiable assets acquired and liabilities assumed are provisional.

 

For the three months ended 30 June 2018, LCCM incurred costs of $81,857. If the acquisition had occurred on 1 January 2018, management estimates that LCCM costs incurred would have been $517,000 and consolidated profit (loss) for the year would not have changed as costs associated with LCCM are capitalised to Deferred Exploration and Evaluation Expenditure.

 

In determining these amounts management has assumed that the fair value adjustments, determined provisionally, that arose on the date of acquisition would have been the same if acquisition had occurred on 1 January 2018.

 

 

 

a) Consideration transferred

 

Cash	1,175,543
Equity Instruments (38,700,900 ordinary shares)(i)	1,046,385
Loan Conversion	38,755
Deferred Equity instruments (2,866,730 ordinary shares) (ii)	74,030 ________
Total Consideration	2,334,713 ________

i. The fair value of the ordinary shares issued was based on the share price of GBP 0.01907. 

Of the 38,700,900 shares being issued, voluntary escrow arrangements ensure that one third is escrowed for three months after issue and another one third is escrowed for six months after issue. At 30 June 2018, 12,900,300 shares were not subject to any lock-in arrangements.

 

ii. The group has agreed to issue additional ordinary shares on 5 March 2019, subject to no warranty claims. Share price for the additional consideration is GBP 0.01907.

 

 

b) Acquisition - related costs

The group incurred acquisition related costs of $84,791 on legal fees and due diligence. The costs have been included in 'administrative expenses'.

 

 

 

c) Identifiable assets acquired and liabilities at provisional fair value.

Non-current trade and other receivables	117,270
Mining Information/ tenement	4,702,527
Property Plant and Equipment	78,180
Other Receivables	2,638
Environmental Liability	(117,270) ________
Total identifiable net assets acquired	4,783,345

________

 

 

 

 

 

 

 

STRATEGIC MINERALS PLC

 

NOTES FORMING PART OF THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2018

 

 

Business Combination (cont'd)

 

d) Gain from bargain purchase.

 

Gain from bargain purchase arising from the acquisition has been measured as follows:

Consideration transferred	(2,334,713)
Fair value of identifiable net assets	4,783,345
Foreign Exchange	15,508 ________
Gain from a bargain purchase	2,464,140

________

Gain from bargain purchase has been included in "Other Income" in the profit and loss.

 

 

9

Dividends

 

No dividend is proposed for the period.

 

 

10	Earnings per share

 

Earnings per ordinary share have been calculated using the weighted average number of shares in issue during the relevant financial year as provided below.

 

		6 months to	6 months to	Year to
		30 June	30 June	31 December
		2018	2017	2017
		(Unaudited)	(Unaudited)	(Audited)
	Weighted average number of shares-Basic	1,275,230,925	1,227,015,247	1,250,589030
	Earnings/(Loss) for the period	$2,406,000	$158,000	$1,586,000
	Earnings/(Loss) per share in the period-Basic	0.19 cents	0.01 cents	0.13 cents
	Earnings/(Loss) per share in the period-diluted	0.17 cents	0.01 cents	0.12 cents

 

STRATEGIC MINERALS PLC

 

NOTES FORMING PART OF THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 JUNE 2018

 

 

11.	Share capital and premium
		2018	2018	2017	2017
		No	$'000	No	$'000
	Allotted, called up and fully paid
	Ordinary shares	1,376,193,127	49,205	1,245,825,560	46,472
		__________	__________	__________	__________

 

In January 2018, the Company issued 15,000,000 ordinary shares due to options being exercised at an exercise price of 1 pence.

 

In April 2018, the Company issued 38,790,000 ordinary shares at a price of GBP 0.19 to shareholders in Leigh Creek Copper Mine Pty Ltd, pursuant to its agreement to acquire the balance of Leigh Creek Copper Mine Pty Ltd

 

Share options and warrants

 

The number of options and warrants as at 30 June 2018 and a reconciliation of the movements during the half year are as follows:

 

 

Date of Grant	Granted as at 31 December 2017	Issued	Lapsed or cancelled/ exercised	Granted as at 30 June 2018	Exercise price	Date of vesting	Date of expiry
10.04.15	2,000,000	-	2,000,000	-	1.0p	19.04.17	30.06.18
10.04.15	12,000,000	-	-	12,000,000	1.0p	19.05.17	30.06.19
06.01.17	13,000,000	-	13,000,000	-	1.0p	19.04.17	30.06.18
06.01.17	13,000,000	-	-	13,000,000	1.0p	19.05.17	30.06.19
15.02.18*	-	72,000,000	-	72,000,000	2.75p	30.06.19	30.06.20
15.02.18***	-	38,500,000	-	38,500,000	3.75p	30.06.20	30.06.21
15.02.18***	-	17,500,000	-	17,500,000	5.00p	30.06.21	30.06.22
	40,000,000	128,000,000	15,000,00	153,000,000

 

* Tranche 1 options were issued to directors and management during the half year. They expire on the 30.06.20 and had a market based vesting condition which is satisfied once a 5.5 pence volume weighted average price ("VWAP") per ordinary share is achieved over five consecutive trading days on AIM.

 

** The Tranche 2 options were issued to directors and management during the half year. They expire on 30.06.21 and had a market based vesting condition which is satisfied once a 7.5 pence VWAP per ordinary share is achieved over five consecutive trading days on AIM.

 

*** The Tranche 3 options were issued to directors and management during the half year. They expire on 30.06.22 and had a market based vesting condition which is satisfied once a 10.0 pence VWAP per ordinary share is achieved over five consecutive trading days on AIM.

 

The estimated fair value of options issued during the half year are calculated by applying a Black Scholes or probabilistic option pricing model after taking into account market based vesting conditions. The assumptions used in the calculation were as follows:

 

 

 

 

 

 

 

 

		Tranche 1	Tranche 2	Tranche 3
	Share price at date of grant	2.0p	2.0p	2.0p
	Exercise price	2.75p	3.75p	5.0p
	Market vesting condition	5.50p	7.50p	10.00p
	Expected volatility	60%	60%	60%
	Expected dividend	Nil	Nil	Nil
	Contractual life	2.37 years	3.37 years	4.37 years
	Risk free rate	0.79%	0.79%	0.79%
	Estimated fair value of each option	0.39p	0.40p	0.41p

 

 

 

11	Post balance date events

On 8 August 2018, Mr Peter Wale was appointed as Executive Director. Mr Wale had previously held the position of Non- Executive Director.

 

On 9 August 2018, Mr John Peters the Managing Director exercised options over 3,000,000 shares which were due to expire on 30 June 2019. Mr Peters provided £30,000 which represented an exercise price of

£0-01 per share.

 

On 9 August 2018, Mr Peter Wale, exercised options over 2,000,000 shares which were due to expire on 30 June 2019. Mr Wale provided £20,000 which represented an exercise price of £0-01 per share.

 

On 9 August 2018, Mr Alan Broome, exercised options over 1,500,000 shares which were due to expire on 30 June 2019. Mr Broome provided £15,000 which represented an exercise price of £0-01 per share.

 

On 9 August 2018, the board approved to grant options to two directors, Jeffery Harrison and Peter Wale, and to key personnel across the Company's four major areas of operation. These have been allocated in three option tranches:

· Tranche 1 - 35,200,000 options, Vesting Price £0.0550, Exercise Price £0.0275, Maturity 30/06/20

· Tranche 2 - 10,750,000 options, Vesting Price £0.0750, Exercise Price £0.0375, Maturity 30/06/21

· Tranche 3 - 4,750,000 options, Vesting Price £0.1000, Exercise Price £0.0500, Maturity 30/06/22

 

On 3rd September 2018, the Company announced the sale of tenement E38/2829, E38/2442, E38/2587 and E38/2856 to Great Southern Mining Limited ("GSM").The tenements are owned by the groups' 100% owned subsidiary Central Australian Rare Earths Pty Ltd ("CARE").

Total consideration for the sale is AUD 145,000 to be paid by way of AUD 100,000 in cash and issuance to CARE of 1,000,000 shares in GSM at an issue price of AUD 0.045. A non-refundable deposit of AUD 50,000 was deposited on exchange of contracts and the cash balance and the shares will be provided on transfer of title. 500,000 GSM shares will be subject to a voluntary escrow until 30 December 2018, with the balance voluntarily escrowed until 30 June 2019.

 

 

Copies of this interim report will be made available on the Company's website, www.strategicminerals.net.