28 Aug 2009 07:00
28 August 2009
Strategic Natural Resources PLC
("SNR" or "the Company")
Preliminary Results
for the year ended 28 February 2009
SNR (AIM: SNRP) announces its Preliminary Results for the year ended 29 February 2009.
Highlights
Earnings per share 2.74p, headline loss per share 0.62p (2008: 1.11p loss)
Mining right granted over 9,200 hectares
Blasting in preparation for commencement of mining and extraction of saleable coal
Commencement of mine development in order to access primary underground shaft by 2010
Application for prospecting rights over 119,000 ha of land adjacent to existing prospecting area submitted, increasing total area under Elitheni's control to 190,000 ha.
Confirmation of increase in Elitheni's in-situ coal resource to 97.2 Mt.
With 44.5 Mt of measured resource confirmed, Elitheni has negotiated a supply agreement with IPSA for its planned IPP development.
Comment from Richard Latham, Chairman
"As anticipated, Elitheni received its coal mining and extraction licence towards the end of the financial year under review. Having drilled only 1.3% of our licenced area and confirmed a measured resource capable of supplying more than just the first phase of the planned IPP, we are now moving to put in place sales to long term customers in order to underline the conversion of Elitheni from an exploration company to a producing mine-owner.
It is no small achievement that we have been able to move from obtaining a prospecting right to a mining right and turning first soil in 3 years (as opposed to the norm of 5 years), within the mineral regulations imposed on the South African mining industry. The key focus area for our next financial year will be to sweat the asset and realise revenue through steadily increasing production and sales.
We are not immune to the tightening of economic conditions from the end of 2008 until the present day and in particular the commencement of supply to our power generation base has been delayed in the context of Eskom having surplus power due to the turn down in the South African economy in conjunction with the global recession.
We are, however, excited about prospects for the coming year as SNR has been working hard to generate market penetration in terms of coal supply to local industry, which we believe can result in a cash positive situation for the operating company in 2010.
We will keep you as our valued shareholder abreast of these developments as they unfold and will remain committed to the realisation of a profitable return on your investment in SNR."
For further information contact:
| The Company | |
| Strategic Natural Resources plc | |
| Elizabeth Shaw, Finance Director | Tel: +44 20 7793 5616 |
| David J. Nel, Chief Operations Officer | Tel: +27 41 374 0842 |
| Nominated Adviser | |
| Allenby Capital Limited | |
| Rod Venables/James Reeve | Tel: +44 20 7510 8600 |
| Broker | |
| Religare Hichens, Harrison plc | |
| Nicholas Malins-Smith/James Wood | Tel: +44 20 7382 4450 |
STRATEGIC NATURAL RESOURCES PLC
Preliminary results
FOR THE YEAR ENDED 28 FEBRUARY 2009
Chairman's Statement
I have pleasure in presenting the Group's results for the year ended 28 February 2009. The Group continues to invest in drilling and mine development activities as evidenced by our expanding resource base.
As anticipated, the Group made a profit as a result of recognising the profit on the sale of a 26 per cent interest in Elitheni Coal (Pty) Limited ("Elitheni") to its broad-based black economic empowerment ("BBEE") partners, led by Vuwa Investments. The reported profit after tax and minority interests is £1.78m compared with a loss of £667k last year.
The one-off gain on the disposal of 26 per cent. of Elitheni, recognized by our subsidiary Acharnian Mining Limited, amounts in total to £4.27m, comprising sale price of £4.835m less book cost of £568k. Of the sale price, £636k has been received and the balance of £4.2m plus interest is owing under an interest bearing vendor loan note.
The loan note was due to be settled by 31 May 2009 but remains outstanding following a request from the purchaser to extend the terms of the loan note. Although no formal extension has been granted, with the result that the loan is now repayable on demand, the Board considers that it is in the best interests of shareholders to allow the purchaser more time to settle in order to enable the purchaser to secure his own funding. However, the Board has nevertheless decided to make a provision of 50% (£2.1m) against the loan note.
The net gain post the loan note provision recorded in these financial statements is therefore £2.2m and a further £2.1m will be recorded as profit when the loan note is paid.
Excluding this one-off gain and the interest receivable on the vendor loan note, the Group recorded a loss of £483k which comprises administrative expenses less net interest income. In addition, the Group invested £1.06m in drilling and exploration costs. These costs have been capitalised.
We therefore report earnings per share of 2.74p in contrast to a loss of 1.11p per share last year. The headline loss per share, which excludes the one-off gain, was 0.62p per share.
On 18 August 2008, the Company announced that it had performed the first blast at its Elitheni mine site to remove overburden from the outcropping coal seam. On 29 August 2008, the Company performed another controlled blast to fracture the coal exposed as a result of the first blast. This resulted in approximately 1,900 tonnes of saleable coal being exposed. The first extracted coal was crushed and graded in equipment commissioned in early September. This coal has been used for bulk sampling and beneficiation purposes and delivered to a number of trial customers. Since this first blast there have been several blasts through the year towards mine development. The goal has been to create a safe 'high wall' for access to a primary underground shaft and in addition build a stockpile in preparation for power and steam markets where the Group expects to see penetration in 2010. Approximately 30,000 tonnes of ore has been removed and 10,000 tonnes of coal exposed and ready for stockpiling.
On 10 September 2008, SNR announced that it had submitted a further new order prospecting rights application for 119,000 hectares ("ha") of private farm and state-owned land adjacent to Elitheni's current prospecting rights in the Eastern Cape coalfields. The new area has been dubbed 'Project Indlovu' which is the local Xhosa word for 'Elephant'.
On 14 October 2008, the Group announced that its consultant geologist, Golder Associates Africa Pty Limited has confirmed an in-situ coal resource for Elitheni of 97.2 million tonnes ("Mt"), an increase of 140 per cent since our last resource statement in May 2008. The resource of 97.2 Mt comprises 44.5 Mt of measured resource, 26.3 Mt of indicated resource and 26.4 Mt of inferred resource. Based on this, Elitheni's Mining Engineering Consultant, Rudi Gerber, conservatively estimates 52 Mt of extractable coal.
On 28 October 2008, the Group announced that Elitheni entered into a Coal Supply Agreement to supply approximately 1 Mt of coal per annum for a period of 25 years to Indwe Power (Pty) Ltd ("IPPL"), an indirect subsidiary of IPSA Group PLC, for consumption in a 250 MW electrical power plant to be established at the mine mouth of Elitheni's coal deposit at Indwe. In addition, Elitheni has been notified by IPPL that it is actively considering the establishment of further power stations in the East London area. In such event, both parties will negotiate a new framework agreement.
I announced in my interim report that the mining rights application submitted in November 2007 in respect of Elitheni coal was due to be awarded and I am pleased to report that this licence was granted in January 2009, giving Elitheni an exclusive right to commence coal extraction over an area of some 9,200 ha (92km2) of land in its Phase 1 and 2 areas at Indwe.
Production of coal has therefore now commenced, albeit on a relatively small scale, supplying the local domestic market with heating coal and the brick manufacturing industry in the region. The Group's executive management team in South Africa, led by Barry and David Nel, have identified further potential markets for Elitheni coal namely the coal export market, coal degasification and the industrial boiler market.
Following the end of our financial year, an additional 3.44m new shares were admitted to trading on the London Stock Exchange on 12 March 2009 following a share placing, raising £309k before costs as additional working capital for the Group.
On 16 July 2009, it was announced that the Company was in talks with Absolute Holdings (Pty.) Limited ("Absolute"), a South African and JSE listed company which may or may not lead to an offer being made for Absolute. As a prelude to those discussions, in June 2009 the Group raised ZAR 4.5m (£320k) of convertible loan finance from Ulitorque Pty. Limited, a company associated with Absolute. Furthermore, whilst discussions continue with Absolute, you have been informed of the acquisition of 9.99 per cent of the Company's issued share capital by Atlantic Coal PLC and this company's interest in the Group may or may not lead to an offer being made for the Company. You will be advised of any future developments in regard to these companies as and if they arise.
The delay in receiving the sums due under the Vuwa loan note has meant that the Board has begun to explore alternative sources of funding. Although the Group remains debt free, as with any junior mining company, continued development of the Group's assets requires additional funding pending ramping up of coal sales. Given the lack of liquidity in the debt markets, and the uncertainty with respect to the timing of receipt of sums due under the loan note, I draw your attention to the fact that the independent auditors have included an emphasis of matter paragraph in their unqualified audit opinion.
In spite of the difficult times in the banking sector worldwide, we believe that the Group can continue developing the mining activities of Elitheni, alongside its BBEE partners. With the under-resourced power and industrial processed steam sector in South Africa as our main target market for coal sales, we believe that Elitheni is well-placed to continue its development as planned. It is also notable that to date no other commercial coal mining operations of any scale have been developed in the Eastern Cape leaving Elitheni as the sole supplier of coal for the power and industrial processed steam industry serving the southern half of South Africa.
R. H. R. Latham
Chairman
Date: 26 August 2009
STRATEGIC NATURAL RESOURCES PLC
SUMMARISED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2009
| Notes | Year to 28.02.09 £'000 | Year to 29.02.08 £'000 | |
| Administrative expenses | 5 | (664) | (730) |
| Profit on sale of investment | 7 | 4,317 | - |
| Impairment of loan notes | 7 | (2,100) | - |
| Finance income | 8 | 157 | 71 |
| Finance expense | 9 | (11) | (8) |
| Profit / (loss) before tax | 1,699 | (667) | |
| Tax expense | 10 | - | - |
| Profit / (loss) for the year | 1,699 | (667) | |
| Profit / (loss) attributable to: | |||
| Equity shareholders | 1,781 | (667) | |
| Minority interests | 3.4 | (82) | - |
| 1,699 | (667) | ||
| Earnings / (loss) per share | 11 | 2.74p | -1.11p |
| (basic and diluted) |
The accompanying accounting policies and notes form an integral part of these financial statements
STRATEGIC NATURAL RESOURCES PLC
SUMMARISED CONSOLIDATED BALANCE SHEET AS AT 28 FEBRUARY 2009
| Notes | 28.02.09 £'000 | 29.02.08 £'000 | |
| Assets | |||
| Non-current assets | |||
| Property, plant and equipment | 13 | 152 | 121 |
| Intangible assets | 14 | 3,026 | 1,964 |
| 3,178 | 2,085 | ||
| Current assets | |||
| Trade and other receivables | 16 | 65 | 77 |
| Loan note | 17 | 2,209 | - |
| Cash and cash equivalents | 18 | 369 | 1,417 |
| 2,643 | 1,494 | ||
| Total assets | 5,821 | 3,579 | |
| Equity and liabilities | |||
| Equity attributable to shareholders | |||
| of the parent | |||
| Share capital | 19 | 650 | 650 |
| Share premium | 3,337 | 3,337 | |
| Translation reserve | 34 | 40 | |
| Profit and loss reserve | 1,067 | (714) | |
| 5,088 | 3,313 | ||
| Minority interest | 3.4 | 452 | - |
| Total equity | 5,540 | 3,313 | |
| Non-current liabilities | |||
| Other payables | 20 | 55 | 48 |
| Provisions | 20 | 67 | - |
| 122 | 48 | ||
| Current liabilities | |||
| Trade and other payables | 20 | 159 | 218 |
| Total liabilities | 281 | 266 | |
| Total equity and liabilities | 5,821 | 3,579 |
These financial statements were approved by the Board on 26 August 2009.
| R Latham Director | E Shaw Director |
The accompanying accounting policies and notes form an integral part of these financial statements
STRATEGIC NATURAL RESOURCES PLC
SUMMARISED COMPANY BALANCE SHEET AS AT 28 FEBRUARY 2009
| Notes | 28.02.09 £'000 | 29.02.08 £'000 | |
| Assets | |||
| Non-current assets | |||
| Investments | 15 | 405 | 405 |
| 405 | 405 | ||
| Current assets | |||
| Trade and other receivables | 16 | 2,985 | 2,228 |
| Cash and cash equivalents | 18 | 257 | 1,141 |
| 3,242 | 3,369 | ||
| Total assets | 3,647 | 3,774 | |
| Equity and liabilities | |||
| Equity attributable to shareholders of the parent | |||
| Share capital | 19 | 650 | 650 |
| Share premium | 3,337 | 3,337 | |
| Profit and loss reserve | (434) | (276) | |
| Total equity | 3,553 | 3,711 | |
| Current liabilities | |||
| Trade and other payables | 20 | 94 | 63 |
| Total liabilities | 94 | 63 | |
| Total equity and liabilities | 3,647 | 3,774 |
| R Latham Director | E Shaw Director |
The accompanying accounting policies and notes form an integral part of these financial statements
STRATEGIC NATURAL RESOURCES PLC
SUMMARISED CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2009
| Notes | Year to | Year to | |
| 28.02.09 | 29.02.08 | ||
| £'000 | £'000 | ||
| Net cash outflow from operating activities | 21 | (599) | (574) |
| Cash flows from investing activities | |||
| Interest received | 48 | 71 | |
| Drilling and exploration costs | 14 | (1,062) | (763) |
| Purchase of minority interest | - | (359) | |
| Cash received from sale of minority interest | 7 | 636 | - |
| Property, plant and equipment (net of disposals) | 13 | (62) | (84) |
| Net cash outflow from investing activities | (440) | (1,135) | |
| Net cash outflow before financing activities | (1,039) | (1,709) | |
| Cash flows from financing | |||
| activities | |||
| Proceeds from issue of shares (net of costs) | - | 3,487 | |
| Repayment of loans | - | (522) | |
| Proceeds from finance leases | 20 | 43 | |
| Interest paid | (11) | (8) | |
| Repayment of finance leases | (18) | (14) | |
| Net cash (outflow) / inflow from financing activities | (9) | 2,986 | |
| (Decrease) /increase in cash and cash equivalents | (1,048) | 1,277 | |
| Reconciliation and analysis of change in cash | |||
| (Decrease) / increase in cash during the year | (1,048) | 1,277 | |
| Cash and cash equivalents | 1,417 | 140 | |
| at start of year | |||
| Cash and cash equivalents at end of year | 369 | 1,417 |
The accompanying accounting policies and notes form an integral part of these financial statements
STRATEGIC NATURAL RESOURCES PLC
SUMMARISED COMPANY CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2009
| Notes | Year to 28.02.09 £'000 | Year to 29.02.08 £'000 | |
| Net cash outflow from operating activities | 21 | (321) | (330) |
| Cash flows from investing activities | |||
| Interest received | 25 | 68 | |
| Loans to subsidiary | 16b | (588) | (2,183) |
| Net cash outflow from investing activities | (563) | (2,115) | |
| Net cash outflow before financing activities | (884) | (2,445) | |
| Cash flows from financing activities | |||
| Interest paid | - | 1 | |
| Proceeds from issue of shares | - | 3,487 | |
| (net of costs) | |||
| Net cash inflow from financing activities | - | 3,488 | |
| (Decrease) /increase in cash and cash equivalents | (884) | 1,043 | |
| Reconciliation and analysis of change in cash | |||
| (Decrease) / increase in cash during the year | (884) | 1,043 | |
| Cash and cash equivalents at start of year | 1,141 | 98 | |
| Cash and cash equivalents at end of year | 257 | 1,141 |
The accompanying accounting policies and notes form an integral part of these financial statements
STRATEGIC NATURAL RESOURCES PLC
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 28 FEBRUARY 2009
| Attributable to equity holders on the Company | Minority interest | Total equity | |||||
| Share capital | Share premium | Translation reserve | Profit and loss reserve | Total | |||
| £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | ||
| Balance at 1.03.07 | 500 | - | - | (47) | 453 | - | 453 |
| Loss for the year | - | - | - | (667) | (667) | - | (667) |
| to 29.02.08 | |||||||
| Translation adjustment | - | - | 40 | - | 40 | - | 40 |
| Total recognised income and expense in the year | - | - | 40 | (667) | (627) | - | (627) |
| Allotment of shares 7.03.07 | 38 | 698 | - | - | 736 | - | 736 |
| Allotment of shares 18.05.07 | 12 | 216 | - | - | 228 | - | 228 |
| Allotment of shares 7.08.07 | 100 | 2,464 | - | - | 2,564 | - | 2,564 |
| Additional costs re allotment of shares on 7.08.07 | - | (41) | - | - | (41) | - | (41) |
| Balance at 29.02.08 | 650 | 3,337 | 40 | -714 | 3,313 | - | 3,313 |
| Balance at 1.03.08 | 650 | 3,337 | 40 | -714 | 3,313 | - | 3,313 |
| Profit /(loss) for the year to 28.02.09 | - | - | - | 1,781 | 1,781 | -82 | 1,699 |
|
| |||||||
| Translation adjustment | - | - | (6) | - | (6) | 16 | 10 |
| Total recognised income and expense in the year | - | - | (6) | 1,781 | 1,775 | (66) | 1,709 |
| Sale of minority interest | - | - | - | - | - | 518 | 518 |
| Balance at 28.02.09 | 650 | 3,337 | 34 | 1,067 | 5,088 | 452 | 5,540 |
SUMMARISED COMPANY STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 28 FEBRUARY 2009
| Share Capital | Share premium | Profit and loss reserve | Total equity | |
| £'000 | £'000 | £'000 | £'000 | |
| Balance at 1.03.07 | 500 | - | (28) | 472 |
| Loss for the year | - | - | (248) | (248) |
| to 29.02.08 | ||||
| Allotment of shares 7.03.07 | 38 | 698 | - | 736 |
| Allotment of shares 18.05.07 | 12 | 216 | - | 228 |
| Allotment of shares 7.08.07 | 100 | 2,464 | - | 2,564 |
| Additional costs re allotment of shares 7.08.07 | - | (41) | - | (41) |
|
| ||||
| Balance at 29.02.08 | 650 | 3,337 | (276) | 3,711 |
| Balance at 1.03.08 | 650 | 3,337 | (276) | 3,711 |
| Loss for the year to 28.02.09 | - | - | (158) | (158) |
|
| ||||
| Balance at 28.02.09 | 650 | 3,337 | (434) | 3,553 |
STRATEGIC NATURAL RESOURCES PLC
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 28 FEBRUARY 2009
1 Nature of operations
The principal activity of Strategic Natural Resources PLC and its subsidiary entities ('the Group') is the acquisition and development of natural resource assets. During the year under review, all of the Group's activities were located in South Africa.
2 General information
Strategic Natural Resources PLC is the Group's ultimate parent company. It is incorporated and domiciled in England and Wales.
These financial statements for the year ended 28 February 2009 were approved by the Board of directors on 26 August 2009.
3 Summary of accounting policies
3.1 Basis of preparation
The Company and the consolidated financial statements have been prepared in accordance with applicable and International Financial Reporting Standards ("IFRSs") as adopted by the European Union (EU).
3.2 Going concern
As set out in notes 7 and 17, the loan note issued by the Company's subsidiary, Acharnian Mining Limited, which was due to be settled by 31 May 2009, remains unsettled. Accordingly, the directors have decided to raise additional finance and since the year-end, £309k before expenses has been raised by the issue of new equity and ZAR 4.5m (£320k) has been raised by the issue of a convertible loan note.
As with most junior mining companies, further funding will be required to fully develop the Group's assets and the directors have concluded that the uncertainties regarding raising additional equity and / or loan finance and the date when the overdue loan note will be settled represents a material uncertainty that casts some doubt about the Company and the Group's ability to continue as a going concern for the foreseeable future.
Nevertheless, after preparing cash flow forecasts making enquiries and considering the uncertainties, referred to above, the directors have a reasonable expectation that the Company and the Group does and will continue to have adequate resources to continue in operational existence for the foreseeable future and for this reason, the directors continue to adopt the going concern basis in preparing these financial statements.
3.3 Accounting standards
The following new standards, amendments to standards or interpretations have been issued but are not effective for the financial year beginning on 1st March 2008 and have not been early adopted.
The directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the accounts of the Group.
3.4 Basis of consolidation
These financial statements consolidate those of the Company and its subsidiary undertakings drawn up to 28 February 2009.
Subsidiaries are entities over which the Group has the power to control the financial and operating policies so as to obtain benefits from its activities. The Group obtains and exercises control through voting rights.
Unrealised gains on transactions between the Group and subsidiary entities are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Amounts reported in the financial statements of subsidiary entities have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group.
Acquisitions of subsidiaries are dealt with by the purchase method. The purchase method involves the recognition at fair value of all identifiable assets and liabilities, including contingent liabilities of the acquired company, at the acquisition date, regardless of whether or not they were recorded in the financial statements of the entity prior to acquisition. On initial recognition, the assets and liabilities of the acquired entity are included in the consolidated balance sheet at their fair values, which are also used as the basis for subsequent measurement in accordance with the Group accounting policies. Investments in subsidiaries and joint ventures are stated at cost in the balance sheet of the Company.
The minority interest in the balance sheet represents the book value of the 26% interest that the minority owns in the Group's operating subsidiary, Elitheni Coal (Pty.) Ltd. The disposal of the 26% interest has been accounted for under the parent entity method. A disposal of minority interest is treated as giving rise to a gain or loss recognised through the income statement.
3.5 Foreign currency translation
The financial information is presented in pounds sterling, which is also the functional currency of the parent company.
In the separate financial statements of the consolidated entities, foreign currency transactions are translated into the functional currency of the individual entity using the exchange rates prevailing at the dates of the transactions (spot exchange rate). Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of remaining balances at year-end exchange rates are recognised in the income statement in administrative expenses.
In the consolidated financial statements, all separate financial statements of subsidiary entities, originally presented in a currency different from the Group's presentation currency, have been converted into sterling. Assets and liabilities have been translated into sterling at the closing rate at the balance sheet date. Income and expenses have been converted into sterling at the average rates over the reporting period. Any differences arising from this procedure have been charged / (credited) to the Translation Reserve.
3.6 Income and expense recognition
Revenue is recognised upon the performance of services and delivery of goods or transfer of risk to the customer. No revenues were recorded during the current year.
Operating expenses are recognised in the Income Statement upon utilisation of the service or at the date of their origin. All other income and expenses are reported on an accruals basis.
3.7 Borrowing costs
All borrowing costs are expensed as incurred except where the costs are directly attributable to specific construction projects, in which case the interest cost is capitalised as part of those assets.
3.8 Plant and equipment
Plant and equipment is stated at cost, net of accumulated depreciation and any provision for impairment. No depreciation is charged during the period of construction.
Depreciation is calculated to write down the cost or valuation less estimated residual value of all plant and equipment by equal annual instalments over their estimated useful economic lives. The periods generally applicable are:
Plant and equipment 3 to 15 years
Fixtures and fittings 3 years
Motor vehicles 5 years
Material residual values are updated as required, but at least annually, whether or not the asset is revalued. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.
3.9 Intangible assets (comprising development and exploration work)
An intangible asset is recognised when it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and that the cost of the asset can be measured reliably. Intangible assets are recognised at cost, their carrying value is cost less accumulated depreciation and any impairment losses.
Drilling, exploration and mine development costs are capitalised as intangible fixed assets to the extent that there is a reasonable degree of certainty that there will be a future income stream from the project which has a positive net present value over the expected life of the project. The costs will be amortised over the life of the mine when production commences.
3.10 Impairment of plant and equipment and intangible assets
At each balance sheet date, the Group reviews the carrying amount of its plant and equipment and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in the Income Statement, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the Income Statement, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
3.11 Taxation
Current income tax assets and liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting period that are unpaid at the balance sheet date. They are calculated according to the tax rates and tax laws applicable to the fiscal periods to which they relate, based on the taxable profit for the period. All changes to current tax assets or liabilities are recognised as a component of tax expense in the Income Statement.
Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying amounts of assets and liabilities in the consolidated financial statements with their respective tax bases. However, in accordance with the rules set out in IAS 12, no deferred taxes are recognised in respect of non-tax deductible goodwill. In addition, tax losses available to be carried forward as well as other income tax credits to the Group are assessed for recognition as deferred tax assets.
Deferred tax liabilities are provided for in full with no discounting. Deferred tax assets are recognised to the extent that it is probable that the underlying deductible temporary differences will be able to be offset against future taxable income. Current and deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided that they are enacted or substantially enacted at the balance sheet date.
Changes in deferred tax assets and liabilities are recognised as a component of tax expense in the Income Statement, except where they relate to items that are charged or credited directly to equity in which case the related deferred tax is also charged or credited directly to equity.
3.12 Financial assets
The Group's financial assets include cash and cash equivalents, trade and other receivables and loan notes.
Cash and cash equivalents include cash at bank and in hand as well as short term highly liquid investments such as money market instruments and bank deposits.
Receivables and loan notes are non-derivative financial assets with fixed or determinable payment dates that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. Receivables are measured initially at fair value and subsequently re-measured at amortised cost using the effective interest method, less provision for impairment. Any impairment is recognised in the Income Statement.
Trade receivables and loan notes are provided against when objective evidence is received that the Group will not be able to collect all amounts due to it in accordance with the original terms. The amount of the write-down is determined as the difference between the asset's carrying amount and the present value of estimated cash flows.
3.13 Financial liabilities
The Group's financial liabilities include current and non-current trade and other payables.
Financial liabilities are obligations to pay cash or other financial instruments and are recognised when the Group becomes a party to the contractual provisions of the instrument. Financial liabilities categorised as at fair value through profit or loss are recorded initially at fair value, at the current time the Group have not entered into any held for trading financial instruments and so do not have any instruments at fair value through profit or loss. All transaction costs are recognised immediately in the Income Statement. All other financial liabilities are recorded initially at fair value, net of direct issue costs.
Financial liabilities are recorded at amortised cost using the effective interest method, with interest related charges recognised as an expense in finance expense in the Income Statement. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to the Income Statement on an accruals basis using the effective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
A financial liability is derecognised only when the obligation is extinguished, that is when the obligation is discharged, cancelled or expires.
3.14 Restoration, rehabilitation and environmental costs
An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the development or ongoing production of a mining property. Such costs arising from the decommissioning of plant and other site preparation work, discounted to their net present value, are provided for and capitalised at the start of each project, as soon as the obligation to incur such costs arises. These costs are charged against profits over the life of the operation, through the amortisation of the asset and the unwinding of the discount on the provision. Costs for restoration of subsequent site damage which is created on an ongoing basis during production are provided for at their net present values and charged against profits as extraction progresses.
Changes in the measurement of a liability relating to the decommissioning of plant and other site preparation work that result from changes in the estimated timing or amount of the cash flow, or a change in the discount rate, are added to, or deducted from, the cost of the related asset in the current period. If the increase in the liability exceeds the carrying amount of the asset, the excess is recognised immediately in the Income Statement.
If the asset value is increased and there is an indication that the revised carrying value is not recoverable, an impairment test is performed in accordance with the accounting policy above.
3.15 Social and labour plan costs
An obligation to incur social and labour costs to uplift the community arises in terms of a Social and Labour Works Programme submitted to the Department of Minerals and Energy, committing to the upliftment in areas like, human resources development programmes, local economical developments, formation of trusts to drive community projects, small, medium and micro enterprise development and community development.
Such costs arising from the uplifting of the community, discounted to their present value, are provided for and capitalised at the date of the granting of the mining right and as soon as the constructive obligation to incur such costs arises.
These costs are charged against profits over the first five years of the mining right, through the amortisation of the asset and the unwinding of the discount on the provision.
Changes in the measurement of a liability relating to the social and labour plan that results from changes in the estimated timing or amount of the cash flow, or a change in the discount rate, are added to, or deducted from, the cost of the related asset in the current period. If the increase in the liability exceeds the carrying amount of the asset, the excess is recognised immediately in the Income Statement.
If the asset value is increased and there is an indication that the revised carrying value is not recoverable, an impairment test is performed in accordance with the accounting policy above.
3.16 Equity
Equity comprises the following:
"Share capital" represents the nominal value of equity shares.
"Share premium" represents the excess over nominal value of the fair value of consideration received for equity shares, net of expenses of the share issue.
"Translation reserve" represents the differences arising from translation of investments in overseas subsidiaries.
"Profit and loss reserve" represents cumulative retained profits / (losses).
"Minority interest" represents the minority's interest in the net assets of the entity in which the minority has a shareholding.
3.17 Share based payments
Consideration received in respect of the sale of equity instruments to the minority interest was compared with the fair value of those of those equity instruments in accordance with IFRS 2 "Share Based Payments" and IFRIC 8 "Scope of IFRS 2". Any differences arising between the consideration and fair value would be recognised as a share based payment charge.
3.18 Pensions
During the period under review, the Group did not operate or contribute to any pension schemes (2008 - nil).
3.19 Key assumptions and estimates
The Group makes estimates and assumptions concerning the future. The resulting estimates will, by definition, seldom equal the related actual results. The Board has considered the critical accounting estimates and assumptions used in the financial statements and concluded that the main area of significant risk which may cause material adjustment to the carrying value of assets and liabilities within the next financial year is in respect of the assumptions used to value plant, machinery and drilling and exploration costs. These assets and assumptions are periodically examined by the directors to determine to whether or not impairment indicators exist.
Another important assumption relates to the repayment of the loan notes and the interest arising thereon, details of which are set out in note 17. The directors anticipate that the loan note plus interest owing will be paid in full but a 50% provision has nevertheless been made recognising the credit risks associated with these instruments.
A further important area requiring estimates and assumptions is deferred tax. At 28 February 2009, no recognition has been made of the potential deferred tax asset arising from the Group's trading losses to date in view of the uncertainty regarding both the timing of the reversing of the asset and the tax rate which will apply when the reversing occurs.
4 Segment analysis
The Group is currently in the process of drilling for coal to develop sustainable coal supplies for markets in South Africa. The following table shows the primary segment analysis, by geographic sector, of the Group's results, assets and liabilities and expenditure of plant and equipment and intangible assets:
| Year to 28.02.09 | South Africa £'000 | UK £'000 | Inter-group Elimination £'000 | Total £'000 |
| Administrative expenses | (420) | (244) | - | (664) |
| Profit on sale of minority interest | - | 2,217 | - | 2,217 |
| Interest income | 22 | 195 | (60) | 157 |
| Interest expense | (71) | - | 60 | (11) |
| (Loss) / profit before taxation | (469) | 2,168 | - | 1,699 |
| Taxation | - | - | - | - |
| Profit / (loss) after taxation | (469) | 2,168 | - | 1,699 |
| Total assets | 3,301 | 3,904 | (1,384) | 5,821 |
| Total liabilities | 1,571 | 94 | (1,384) | 281 |
| Capital expenditure and expenditure on intangible asset: | ||||
| Plant and equipment | 72 | - | - | 72 |
| Intangible assets | 1,062 | - | - | 1,062 |
| Year to 29.02.08 | South Africa £'000 | UK £'000 | Inter-group Elimination £'000 | Total £'000 |
| Administrative expenses | (415) | (315) | - | (730) |
| Interest income | 3 | 68 | - | 71 |
| Interest expense | (7) | (1) | - | (8) |
| Loss before taxation | (419) | (248) | - | (667) |
| Taxation | - | - | - | - |
| Loss after taxation | (419) | (248) | - | (667) |
| Total assets | 2,393 | 3,774 | (2,588) | 3,579 |
| Total liabilities | 2,791 | 63 | (2,588) | 266 |
| Capital expenditure and expenditure on intangible asset: | ||||
| Plant and equipment | 84 | - | - | 84 |
| Intangible assets | 1,122 | - | - | 1,122 |
5 Administrative expenses
| Year to 28.02.09 £'000 | Year to 29.02.08 £'000 | |
| Included within administrative expenses are the following expenses: | ||
| Payroll and social security | 338 | 309 |
| Legal and professional | 130 | 135 |
| Share issue costs | - | 65 |
| Office costs and general overheads | 253 | 118 |
| Foreign exchange (gains) / losses | (99) | 85 |
| Fees paid to the auditors: | ||
| in respect of the parent company audit | 32 | 18 |
| in respect of subsidiary company audits | 10 | - |
| Total | 664 | 730 |
6 Employment costs
| Year to 28.02.09 £'000 | Year to 29.02.08 £'000 | |
| a) Total remuneration | ||
| Aggregate remuneration of all employees and directors | 305 | 297 |
| Social security costs | 33 | 12 |
| 338 | 309 | |
| b) Number of employees | ||
| Average number of employees in the Group including directors | 18 | 16 |
| c) Directors' remuneration | ||
| R Latham | 19 | 20 |
| J Metcalfe | 29 | 30 |
| B Nel | 83 | 89 |
| D Nel | 61 | 64 |
| E Shaw | 24 | 25 |
| P Earl | 14 | 15 |
| R MacDonnell | 14 | 13 |
| Total | 244 | 256 |
No other emoluments or pension contributions were paid to or on behalf of directors (2008 - nil).
7 Profit on sale of investment
The profit on sale of investments arises from the sale of 26% of Elitheni Coal (Pty.) Ltd. On 26 June 2008, the Company's wholly owned subsidiary, Acharnian Mining Ltd, exchanged contracts for the sale of 26% of its interest in Elitheni Coal (Pty.) Limited for a total consideration of £4.835m of which ZAR 10m (£636,000) has been received. The balance of £4.2m was originally payable in two tranches, £3.3m by 12 December 2008 and £0.9m by 31 May 2009. The repayment date of the tranche due by 12 December 2008 was subsequently extended to 31 May 2009. All of the £4.2m is now repayable on demand. The deferred consideration is secured against the shares acquired and attracts interest at 2.25% over LIBOR (see note 17).
The purchasers of the 26% have advised the Company that as a result of the contraction in the capital debt markets they have not yet obtained finance for the £4.2m balance owing. Following representations made by the purchasers, the directors anticipate that the £4.2m balance owing, plus the interest accrued at the balance sheet date of £218k will be paid in full but have none-the-less decided to make a provision of 50% (£2.2m) against the amounts owing.
The profit recognised in the year is therefore £2.2m against an expected profit, when the loan notes have been paid in full, of £4.4m.
No share based payment charge under IFRS 2 arises on this transaction since the fair value of the consideration received is considered to be the same as the fair value of the equity sold.
The sale agreement refers to the possibility that the purchasers of the 26% interest in Elitheni may, at some time in the future and subject to the agreement of the Company, convert their interest in Elitheni into ordinary shares in the Company. No terms for a conversion have been agreed as at the date of these financial statements and accordingly no fair value is deemed to exist in respect of conversion rights which may be agreed in the future.
8 Finance income
| Year to 28.02.09 £'000 | Year to 29.02.08 £'000 | |
| Interest received on bank deposits | 48 | 71 |
| Loan interest receivable (net of provision - see 7 above) | 109 | - |
| Total | 157 | 71 |
The loan interest is due from the minority shareholders in respect of the deferred consideration (see note 7). The interest rate on the loan is based on six month and twelve month LIBOR plus 2.25%.
9 Finance expense
| Year to 28.02.09 £'000 | Year to 29.02.08 £'000 | |
| Interest paid on finance leases | 11 | 8 |
10 Tax expense
No taxation is due to be paid in respect of the results for the periods covered by these financial statements. The directors anticipate that the gain arising on the sale of the investment will qualify for relief under the substantial shareholding provisions and accordingly no tax will become payable on the gain. Losses carried forward which may be available for offset against income in future periods are estimated at £406k in the UK and ZAR 18m / £1.3m in South Africa. No deferred tax asset has been recognised in respect of these losses owing to uncertainty over the timing of when the losses will be utilised. If a deferred tax asset was recognised, the carrying value of the asset is estimated at £465k (2008 - £142k).
11 Earnings / (loss) per share
The basic and diluted earnings / (loss) per share has been calculated by dividing the result for the respective year attributable to shareholders by the weighted average number of shares in issue during the relevant year.
| Year to 28.02.09 £'000 | Year to 29.02.08 £'000 | |
| Profit / (loss) attributable to equity shareholders of the Company | £1,781 | (£667) |
| Average number of shares in issue | 65,000 | 60,287 |
| Basic and diluted EPS | 2.74p | -1.11p |
| Headline EPS | -0.62p | -1.11p |
Headline EPS excludes the profit of £2.2m recognised on the sale of a 26% interest in Elitheni Coal (Pty.) Limited (see note 7).
12 Parent company's result for the period
As permitted by Section 230 of the Companies Act 1985, the parent company's income statement is not shown separately in the financial statements. The loss for the period was £158k (29 February 2008 - loss £248k).
13 Plant and equipment
| Plant And Machinery £'000 | Fixtures And Fittings £'000 | Motor Vehicles £'000 | Total £'000 | |
| a) Year ended 29.02.08 | ||||
| Opening net book amount at 1.03.07 | 2 | 12 | 40 | 54 |
| Additions | 32 | 13 | 39 | 84 |
| Depreciation | (1) | (4) | (9) | (14) |
| Exchange adjustments | (1) | - | (2) | (3) |
| Closing net book amount at 29.02.08 | 32 | 21 | 68 | 121 |
| b) Year ended 28.02.09 | ||||
| Opening net book amount at 1.03.08 | 32 | 21 | 68 | 121 |
| Additions | 34 | 13 | 25 | 72 |
| Disposals | - | - | (10) | (10) |
| Depreciation | (10) | (8) | (18) | (36) |
| Exchange adjustments | 2 | 1 | 2 | 5 |
| Closing net book amount at 28.02.09 | 58 | 27 | 67 | 152 |
The motor vehicles have been financed by hire purchase.
14 Intangible assets
| £'000 | |
| a) Year ended 29 February 2008 | |
| At 1 March 2007 | 845 |
| Fair value of intangible asset acquired on purchase of 10% minority interest in Elitheni | 359 |
| Drilling and exploration costs incurred during year | 760 |
| At 29 February 2008 | 1,964 |
| b) Year ended 28 February 2009 | |
| At 1 March 2008 | 1,964 |
| Drilling and exploration costs incurred during year | 1,062 |
| At 28 February 2009 | 3,026 |
The fair value of the intangible asset as at 1 March 2007 represents the directors' estimate of the fair value of the coal mining licence and the development and exploration work which had been undertaken at the site in South Africa when the 90% interest in Elitheni was acquired. The movement in the year to 29 February 2008 represents the cost of acquiring the remaining 10% of Elitheni in October 2007, plus drilling and exploration costs incurred since the date of acquisition of the initial 90% interest. The movement in the year to 28 February 2009 represents expenditure during the current year.
When the mine is in full economic production, these costs associated with bringing the mine into production will be amortised over the expected useful life of the mine. No amortisation has been charged in the current year since the production from the mine has been negligible.
15 Investments
| 28.02.09 £'000 | 29.02.08 £'000 | |
| At cost | 405 | 405 |
On 13 December 2006, the Company acquired 100% of the issued share capital of Acharnian Mining Ltd, a company incorporated in the British Virgin Islands, company number 1056886. Acharnian Mining Ltd owns 74% (2008 - 100%) of the issued share capital of Elitheni Coal (Pty.) Ltd, a company incorporated in South Africa, company number 2001/002173/07.
16 Trade and other receivables
| 28.02.09 £'000 | 29.02.08 £'000 | |
| a) Group | ||
| Trade receivables | 6 | - |
| Other receivables and prepayments | 45 | 55 |
| VAT recoverable | 14 | 22 |
| Total | 65 | 77 |
| b) Company | ||
| Other receivables and prepayments | 46 | 43 |
| Amount due from subsidiary | 2,931 | 2,183 |
| VAT recoverable | 8 | 2 |
| Total | 2,985 | 2,228 |
All trade and other receivables are short-term. The carrying value of all trade and other receivables is considered a reasonable approximation of fair value.
The amount due from subsidiary is repayable on demand and bears interest at LIBOR plus 1.5%.
17 Loan note
The loan note represents the instrument under which the deferred consideration arising on the sale of the Group's 26% interest in Elitheni Coal (Pty.) Ltd is secured. The loan note comprises two loan notes:
a) Payable by 31 May 2009 (initially payable by 12 December 2008) - £3.3m. Interest is payable at 6 month LIBOR plus 2.25%. This loan note is secured on 21% of the share capital of Elitheni.
b) Payable by 31 May 2009 - £0.9m. Interest is payable at 12 month LIBOR plus 2.25%. This loan note is secured on 5% of the share capital of Elitheni.
The balance owing at 28 February 2009 in respect of accrued interest amounts to £219k.
As set out in note 7, the directors have made a 50% provision against the amount owing on the loan notes and the accrued interest.
| £'000 | |
| Total owing under loan notes | 4,199 |
| Add: accrued interest | 219 |
| Less: 50% provision | (2,209) |
| Balance, net of provision | 2,209 |
18 Cash and cash equivalents
Cash and cash equivalents in the Group and the Company comprise cash and short term bank deposits held in interest bearing accounts, accessible at between 1 and 30 days notice.
19 Share capital
The share capital of the Company consists of fully paid ordinary shares with a par value of 1p. All shares are equally eligible to receive dividends and the repayment of capital and represent one vote at the shareholders' meeting of the Company.
| 28.02.09 | 29.02.08 | |
| Shares issued and fully paid: | ||
| Beginning of the year | 65,000,000 | 50,000,000 |
| Shares issued during the year | - | 15,000,000 |
| At end of the year | 65,000,000 | 65,000,000 |
| Total shares authorised | 500,000,000 | 500,000,000 |
Since the year end, the Company has raised £309k before expenses through a placing of 3,438,333 ordinary 1p shares at £0.09 each.
20 Trade, other payables and provisions
| 28.02.09 £'000 | 29.02.08 £'000 | |
| a) Group | ||
| i) Non-current | ||
| Hire purchase | 55 | 48 |
| ii) Non-current | ||
| Provisions | ||
| Social and labour commitments1 | 63 | - |
| Environmental rehabilitation2 | 4 | - |
| 67 | - | |
| iii) Current | ||
| Trade payables | 68 | 161 |
| Accruals | 61 | 34 |
| Payroll taxes | 3 | 5 |
| Hire purchase | 27 | 18 |
| 159 | 218 | |
| b) Company | ||
| Current | ||
| Trade payables | 30 | 29 |
| Accruals | 61 | 29 |
| Payroll taxes | 3 | 5 |
| 94 | 63 |
1The social and labour commitments provision recognises the obligation to incur social and labour costs in South Africa to uplift the community arising out of a Social and Labour Works Programme submitted to the Department of Minerals and Energy in South Africa. The uplifting covers areas such as human resources development programmes, local environmental developments, formation of trusts to drive community projects, small, medium and micro enterprise development and community development.
2The environmental rehabilitation provision represents an obligation to incur restoration, rehabilitation and environmental costs in South Africa when environmental disturbance is caused by the development and mining activities. A provision is recognised for the present value of such future costs. Provision is also made for the future costs relating to the decommissioning of the plant or other restoration work. It is anticipated that the cost of restoration and decommissioning will be incurred over the life of the mine. The provision is based on the estimated net costs to rehabilitate the mine on the assumption that third parties will attend to the rehabilitation of the mine, including Vat and a 10% contingency.
21 Reconciliation of profit / (loss) before tax to cash generated from operations
| Year to 28.02.09 £'000 | Year to 29.02.08 £'000 | |
| a) Group | ||
| Result for the year | 1,699 | -667 |
| Depreciation | 36 | 14 |
| Changes in working capital | 29 | 142 |
| Finance income | -157 | -71 |
| Finance expense | 11 | 8 |
| Profit on sale of investment | -2,217 | - |
| Net cash outflow from operating activities | -599 | -574 |
| a) Company | ||
| Result for the year | -158 | -248 |
| Changes in working capital | 22 | -15 |
| Finance income | -185 | -68 |
| Finance expense | - | 1 |
| Net cash outflow from operating activities | -321 | -330 |
22 Capital commitments
The Group, through its interest in its subsidiary company, Elitheni Coal (Pty.) Ltd is engaged in developing the mining licence owned by Elitheni Coal (Pty.) Ltd. At the balance sheet date and at the date of the approval of these financial statements, there were no outstanding commitments to make further investment in the development of the mine although the directors intend to continue investing funds to maximise the future income from the Group's mining assets.
23 Related party transactions
During the year, the Company paid £63k (2008 - £49k) to Independent Power Corporation PLC, a company of which P Earl and E Shaw are directors and shareholders, under a "Shared Services Agreement" for the provision of office and other administrative services.
24 Financial instruments, risk management and sensitivity analysis
The Group is exposed to a variety of financial risks which result from both its operating and investing risks. The Group's risk management is coordinated to secure the Group's short to medium term cash flows by minimising the exposure to financial markets. The Group does not actively engage in the trading of financial assets for speculative purposes nor does it write options. The most significant risks to which the Group is exposed are described below:
a) Foreign currency risk
The Group is exposed to translation and transaction foreign exchange risk. Foreign exchange differences on retranslation of these assets and liabilities are taken to the income statement of the Group. The Group's principal trading operations are based in South Africa and as a result the Group has exposure to currency exchange rate fluctuations in the Rand relative to Sterling.
b) Interest rate risk
Group funds are invested in short term deposit accounts, with a maturity of less than three months, with the objective of maintaining a balance between accessibility of funds and competitive rates of return.
c) Liquidity risk
The Group seeks to manage financial risk by ensuring sufficient liquidity is available to meet foreseeable needs and to invest cash assets safely and profitably.
d) Credit risk
Generally, the maximum credit risk exposure of financial assets is the carrying amount of the financial assets as shown on the face of the balance sheet (or in the detailed analysis provided in the notes to the financial statements). Credit risk, therefore, is only disclosed in circumstances where the maximum potential loss differs significantly from the financial asset's carrying amount. The Group's trade and other receivables are actively monitored to avoid significant concentrations of credit risk.
The financial assets and liabilities of the Group and the Company are classified as follows:
| 28 February 2009 | Group | Company | |||
| Loans and receivables | Amortised cost | Loans and receivables | Amortised cost | ||
| £'000 | £'000 | £'000 | £'000 | ||
| Trade and other Receivables | 6 | - | 2,931 | - | |
| Loan notes | 2,209 | - | - | - | |
| Cash and cash equivalents | 369 | - | 257 | - | |
| Trade and other payables (including hire purchase) | - | (68) | - | (30) | |
| Totals | 2,584 | (68) | 3,188 | (30) | |
| 29 February 2008 | Group | Company | |||
| Loans and receivables | Amortised cost | Loans and receivables | Amortised cost | ||
| £'000 | £'000 | £'000 | £'000 | ||
| Trade and other Receivables | - | - | 2,183 | - | |
| Loan notes | - | - | - | - | |
| Cash and cash equivalents | 1,417 | - | 1,141 | - | |
| Trade and other payables (including hire purchase) | - | (161) | - | (29) | |
| Totals | 1,417 | (161) | 3,324 | (29) | |
In the opinion of the directors, there is no significant difference between the fair values of the Group's and the Company's financial assets and liabilities and their carrying values.
Sensitivity analysis
When the Group's mining activities enter full production, the Group's results will be affected by a number of factors including the global market price of coal of a similar quality, international transport costs, labour and production costs. At this stage of the Group's development, the results of the Group are unaffected by such factors and it is therefore not meaningful to provide sensitivity analysis to such factors.
The Group's principal asset is located in South Africa and therefore the balance sheet sterling carrying value of the Group's principal asset is affected by changes in the value of the ZAR relative to sterling.
The rates of exchange used at the balance sheet dates and the average rates used for the translation of the activities in South Africa are as follows:
| 28.2.09 | 29.2.08 | ||
| Closing rate | ZAR to £ | 14.2384 | 14.8681 |
| Average rate | ZAR to £ | 15.1850 | 14.1892 |
If the exchange rate of the ZAR at the balance sheet date had been 10% stronger or weaker relative to sterling, with all other variables held constant, shareholder funds would have been £222k (2008 - £220k) higher or lower than as stated.
If the average exchange rate of the ZAR during the year had been 10% stronger or weaker relative to sterling, with all other variables held constant, the profit for the year would have been £46k (2008 - loss £42k) higher or lower than as stated.
25 Post balance sheet date events
On 12th March 2009, the Company allotted 3,483,333 ordinary 1p shares for through a placing at 9p per share raising £309k before expenses.
On 17th June 2009 Elitheni Coal entered into a loan agreement with Ulitorque (Pty.) Limited, a private company registered in South Africa, the loan principal being ZAR4.5m (£320k). The loan agreement provides the lender with the opportunity to convert the outstanding balance due under the agreement into a 10 per cent equity interest in Elitheni 9 months after drawdown, or into new shares of the Company equal to such outstanding loan amount, depending on the outcome of merger discussion between Absolute Holdings Pty. and the Company. Notice of these preliminary discussions was announced on 16th July, 2009. Under the loan agreement interest accrues and is compounded monthly on the basis of JIBAR plus a margin of 3.5 per cent.
26 Publication of non statutory accounts
The summary accounts set out above do not constitute statutory accounts as defined by Section 434 of the UK Companies Act 2006. The summarised consolidated balance sheet at 28 February 2009 and the summarised consolidated income statement, consolidated statement of changes in equity and the summarised consolidated cash flow statement for the year then ended have been extracted from the Group's 2009 statutory financial statements upon which the auditors' opinion is modified on the basis of an emphasis of matter opinion in respect of going concern. The results for the year ended 28 February 2008 have been extracted from the statutory accounts for that period, which contain an unqualified auditors' report.
The annual report and accounts for 2009 together with the notice of the Annual General Meeting to be held on 23 September 2009 are being sent by post to all registered shareholders. Additional copies of the annual report and accounts are available from the Company's London office, Fifth Floor, Prince Consort House, 27-29 Albert Embankment, London SE1 7TJ.