SRX.L Regulatory News (SRX)

Sierra Rutile Limited

Financial results for the year ended 31 December 2013

London, UK, 28 March 2014: Sierra Rutile Limited ("Sierra Rutile", the "Company", or the "Group") is pleased to announce its results for the year ended 31 December 2013 and has today published its Annual Report & Accounts on the Group's website at http://www.sierra-rutile.com/.

Operational Highlights:

· 27% increase in rutile production to 120,349 tonnes.

· Strong results delivered from company-wide focus on operating cost reduction and improved operating efficiency as illustrated by a 23% reduction in rutile production cash costs1.

· Completion of preparation and development work in order to execute the Gangama Dry Mining project at a reduced capital cost of US$81 million, a decrease of over 21% from original estimates.

· 70,000 tonnes rutile supply agreement signed with a leading pigment producer.

· Memorandum of understanding signed with Smol Pawa Sierra Leone Ltd. to become a cornerstone purchaser for its Moyamba hydro project which will support future power cost savings.

· Agriculture project advanced to include planting of over 150 hectares of oil palm trees, 37 hectares of rubber trees, 3 hectares of cacao trees and 13 hectares of pineapples.

Financial Highlights:

· Revenue generation of US$123.4 million.

· EBITDA2of US$35.0 million.

· Significant reduction in operating costs despite reduced impact from by-product sales:

- 23% reduction in rutile cash production costs1 to US$588/tonne (2012: US$768/tonne).

- 22% reduction in operating cash costs3 to US$683/tonne (2012: US$881/tonne).

- 27% reduction in all-in cash costs4 to US$763/tonne (2012: US$1,047/tonne).

· Profit for the year of US$9.9 million, making Sierra Rutile the best performer, by margin, in its peer group5.

· Cash and cash equivalent of US$22.6 million and total current assets of US$89.9 million as at 31 December 2013.

Commenting on the results, Sierra Rutile CEO John Sisay said:

"Despite challenging market conditions in 2013, the Company has continued to illustrate its ability to generate value for shareholders through production growth, cost efficiency and strategic positioning as the market begins to strengthen. Going forward, we will continue to execute our strategy of developing low-capex projects and achieving continuous efficiency improvements. In line with this strategy, I am pleased to report that the Gangama Dry Mining project is now fully-prepared for implementation pending the right market conditions."

1  Rutile cash cost of production less by-product revenue divided by tonnes of rutile produced. 

2 Earnings before interest, tax, depreciation and amortisation, excluding exceptional items and non-cash stock option expense.

3 Total operating cash cost less by-product revenue divided by tonnes of rutile produced.

4 Total operating cash cost plus stay-in-business capital cost less by-product revenue divided by tonnes of rutile produced.

5 Peer group refers to listed titanium feedstock producers Iluka Resources Limited and Kenmare Resources plc and profit margin refers to profit after tax divided by revenue.

For Further Information:

Chairman's statement

Last year I defined our business strategy as one of long-term value creation through low-capex growth projects and efficiency improvements. This year's financial results confirm the legitimacy of this approach, and against the challenging backdrop of 2013's weaker market for mineral sands, Sierra Rutile has again achieved much of which to be proud. 

During 2013, Sierra Rutile saw significant production growth. This growth was achieved through the successful commissioning of the Lanti Dry Mining Project, along with the continued production contribution from the Lanti Dredge. For the year, rutile production increased by 27% to 120,349 tonnes. I am extremely proud to say that we were able to deliver these operational results without incurring any lost time injuries.

Our organisation-wide focus on enhanced cost efficiency throughout 2013 also delivered strong results, reducing operating rutile cash production cost per tonne by 23% year over year. Operating cost reduction and enhanced operating efficiency continue to be a key focus as we look to the future.

Although our financial performance was significantly affected by lower market pricing, 2013 revenue of US$123.4 million is encouraging and indicates that our strategic approach will positively position the Company as the market recovers. Most importantly, our ability to generate profits in a difficult market environment speaks to the strength of our assets and team.

The addition of Yves Ilunga and Derek Folmer to the positions of Chief Financial Officer and Chief Marketing Officer, respectively, further strengthened the senior management team. Mr. Ilunga has a strong record of financially enhancing mining operations and driving performance upgrades through the implementation of process improvement. Mr. Folmer has a strong track record of developing and implementing global marketing strategies and substantial experience and knowledge of key markets in North America, Europe and Asia, particularly in China. He will help us maximise the value of the full range of products produced from our world-class assets.

Recognising the importance of our workforce to our success, through our recently initiated Localisation Plan we are investing in continuing to develop a skilled workforce of Sierra Leonean nationals. This both fulfils our commitment to the Local Content Policy and Mines and Minerals Act 2009, and strategically manages the Company for succession needs, talent management and skills shortages.

Overall, the Company has delivered a strong operational performance in 2013 and, on behalf of the Board, I would like to thank all of our employees for their efforts, determination and achievements throughout the year. I would also like to thank the mining communities in our area of operations. Their support plays an important part in the Group's success and we are committed to being valued partners, responsible corporate citizens and good neighbours in the community in which we work.

During the year we undertook a number of initiatives and partnerships aimed at improving the lives and employment opportunities of the people living in the communities around our operation. In 2013, we continued to support the Sierra Rutile Foundation, an independently run non-profit body that was set up to be responsible for the implementation of development programmes in the mining community. This year the foundation has funded, amongst other things, the installation of solar street lighting in two communities adjacent to the mine site. We continue to support the Jackson and Devon Anderson Technical and Vocational College. It has, since its opening in 2010, provided training for over 600 students in skills such as civil, electrical, and mechanical engineering. In the important area of women's economic empowerment, the eighth pillar of the Government of Sierra Leone's Third Generation Poverty Reduction Strategy Paper (2013-2018), we have initiated a pilot Livelihood Restoration programme designed to strengthen women's entrepreneurship and business development skills, as well as extending their access to micro-credit through a group savings scheme.

With regard to the preservation of the environment and the rehabilitation of disturbed land, I am pleased to report we were able to restore another 143 hectares of historical mined out areas. We also operate an aquaculture programme, which is aimed at developing the lakes created by mining operations into significant and sustainable economic opportunities for neighbouring communities. Since 2011, we have introduced over 600,000 fish into these lakes, with over 234,000 tilapia and catfish being introduced in 2013 alone.

In 2012, we established African Lion Agriculture ("ALA"), a wholly owned subsidiary of Sierra Rutile, to develop agricultural opportunities within our mining concessions. To date, ALA has planted over 203 hectares with a mixture of oil palm, rubber, cocoa and pineapple trees. ALA's objective is to plant 5,900 additional hectares over the next 3 years, with the potential to create as many as 1,600 jobs for local communities.

Chairman's statement (continued)

For the coming year, we will continue our focus on efficiency improvements. Additionally, we are excited by the continued production growth that will be achieved through our next world-class dry mining project, the Gangama Dry Mining project. Preparation work has continued and the project has been optimized to be delivered at a highly efficient capital cost of $81 million. Pending market conditions, we are fully prepared to execute this project and have complete confidence that our team will be able to successfully deliver the project, as it did with the Lanti Dry Mining project.

In conclusion, the contribution made by our workforce, the local communities in which we operate, as well as the Government and people of Sierra Leone towards laying the foundations for the delivery of long-term value for all our stakeholders cannot be overestimated. We greatly appreciate their on-going support.

Jan Castro

Non-Executive Chairman

Chief Executive's statement

Culture is the starting point for the long-term stability, success and strength of any organisation and Sierra Rutile's culture has proved to be at the core of its performance in 2013. This, allied with a focus on productivity, has seen the company deliver creditable results and accomplish its goals, despite the challenges imposed by a softer mineral sands market.

Lanti Dry Mining is now operating at nameplate capacity, illustrating our ability to execute and operate a development project in a timely and cost-effective manner. Combined with a programme of optimisation and improvements in both mining operations and processing, Lanti Dry Mining has enabled us to efficiently increase production in 2013. Full-year 2013 rutile production of 120,349 tonnes was a record setting 27% increase on 2012. A 70,000 tonne rutile supply agreement with a major pigment producer successfully secured sales of a substantial portion of this production. Full-year 2013 ilmenite production of 32,349 tonnes is also noteworthy, as it represents a 47% increase over 2012.

Throughout 2013 we have made exceptional improvements in reducing operating costs through an organisation-wide drive to improve productivity through efficiency and cost discipline. This has resulted in a 23% reduction in operating rutile cash production cost per tonne, the benefits of which will become even more evident as the market strengthens. 

Three other achievements in 2013 deserve particular mention. The first, a re-costing exercise for the Gangama Dry Mining feasibility study, resulted in a 21% decrease in the capital cost, to US$81 million. While we are confident of the merits of the Gangama Project, it remains our view that current market recovery needs to be well-embedded before construction can commence.

The second is the memorandum of understanding we entered into with Smol Pawa Sierra Leone Ltd with the objective of being a cornerstone purchaser in respect to its Moyamba hydro power project. For Sierra Rutile, the opportunity to purchase reliable, low-cost power will significantly reduce our overall power cost and cost exposure to oil price fluctuations. Power supplied from the hydropower facility will also reduce Sierra Rutile's operating risk by diversifying our power sources.

Thirdly, we are all very proud that in 2013 we marked a full production year with zero lost time injuries, out of a workforce of over 1,500 staff. Ensuring that our employees end each shift unharmed remains at the core of Sierra Rutile's values. Our ability to increase production by 27% without compromising the health and safety of our workforce is testament to the commitment and energy invested in this area.

Although still in its infancy, ALA, our agribusiness, has made considerable progress throughout 2013. To date, it has planted over 203 hectares with oil palm, rubber, cocoa and pineapple. ALA has the objective to plant 5,900 additional hectares over the next three years, with the potential to create a total of 1,600 jobs for people in the surrounding communities.

Critical to our continued success is the development of our people, the management of career paths and succession planning. To this end, substantial resources have been directed this year at enhancing organisational performance through the development of our Sierra Leonean employees, with a particular emphasis on talent management through our recently implemented Localisation Plan. We call this process The Sierra Rutile Way; it articulates the attitudes, ethics, behaviours and the overall commitment to excellence that we expect all our employees to embody.

Our focus on operational excellence, value optimisation and cost discipline is driven by our commitment to make a real difference to the people of Sierra Leone. Within the communities in our area of operations, this has resulted in a steady and visible improvement in social services, infrastructure and sustainability. Our local communities are one of our most important stakeholders and it is critical that a better Sierra Rutile results in better lives for those in these communities. Their support is, and continues to be, imperative to our success and I thank them for it.

I would also like to thank our employees for their dedicated efforts and the way they have embraced The Sierra Rutile Way. Thank you also to our other key stakeholders, namely our investors, the Government and people of Sierra Leone, whose on-going support has positioned us well to continue to realise Sierra Rutile's full potential.

John Bonoh Sisay

Chief Executive Officer

Business review

Group Overview

Sierra Rutile is a leading mineral sands and agricultural company, operating world-class assets in Sierra Leone. The Company operates the Sierra Rutile mine, which produces rutile, a high-quality feedstock for the global titanium dioxide pigment industry, together with ilmenite ore, a lower grade titanium dioxide ore. On a selective basis, the Company also produces and sells quantities of zircon and other concentrates that contains a variety of minerals.

Sierra Rutile's mine, located in southwest Sierra Leone, is one of the largest natural rutile deposits in the world, with a JORC-compliant Mineral Resource for measured, indicated and inferred resources for the Sierra Rutile mine of over 900 million tonnes (as at 30 September 2013).

The Group is also engaged in agricultural activities through its wholly owned subsidiary ALA, with the main focus of producing oil palm, cacao, rubber and pineapples.

Mission, Vision and Values

Mission:

We aim to deliver long-term shareholder value through the sustainable and efficient operation of Sierra Rutile's world-class assets.

Vision:

To create a national champion for Sierra Leone, recognised as a global leader in the mineral sands industry, by:

· developing the significant value contained in the Group's mineral deposits;

· improving operational performance through the application of best practices;

· working in partnership with local communities and the Government of Sierra Leone ("GOSL") to ensure the Group maintains and builds upon its social license to operate;

· increasing the Group's portfolio through the addition of other minerals' assets within Sierra Leone or other potential mineral sands operations worldwide; and

· providing Good Agricultural Practices (GAP) and a good working environment for our workers and the community in which we work.

Values:

Health and Safety: the health and safety of our workforce is paramount. Our approach to health and safety is based on the principle of accident avoidance for our employees, and we aim to implement a policy that is consistent with the best global standards.

Community: Sierra Rutile is committed to being a positive force not only in the communities around the minesite but Sierra Leone as a whole. The Group pursues a number of initiatives and partnerships, including the Sierra Rutile Foundation, which are designed to improve the lives and opportunities of the people of Sierra Leone.

Environment: the Group aims to minimise the environmental impact of its mining operations and is committed to the rehabilitation of land affected by current and historical mining activity.

Operations: the Group seeks to maximise production and operational efficiency at the Sierra Rutile mine. The expansion and optimisation of production will allow the Group to deliver long-term profitability and capitalise on the unique potential of the Sierra Rutile resource.

Business review (continued)

Mining Operations

Sierra Rutile Mine

The Sierra Rutile mine is located in the south west of Sierra Leone near the Imperri Hills, 30 km from the Atlantic Ocean, on low lying coastal plains about 135 km southeast of the capital, Freetown. Sierra Rutile holds mining leases over a land area of 560 sq. km in which nineteen separate rutile deposits have been identified.

The mine is self-sufficient and generates its own power through its marine fuel oil ("MFO") power plant, operates its own port, maintains local road infrastructure, has its own clinic and generally provides and maintains its own infrastructure and ancillary services.

The mine currently employs a bucket ladder dredge and conventional mineral processing methods to produce rutile and an ilmenite by-product. Further by-products are periodically produced, including a zircon concentrate and other mineral concentrates. During 2013, the Group successfully commissioned the new Lanti Dry Mining, which is currently operating at name plate capacity and produces concentrate using conventional dry earthmoving techniques. This concentrate is processed in existing mineral processing facilities to produce rutile and ilmenite by-product.

The completion of the Lanti Dry Mining project ramp-up and a step-up in the Lanti Dredge production have resulted in a significant increase in the production of heavy mineral concentrate from these production units. This has flowed through to the mineral separation plant, where the average daily rutile production has increased substantially. 

During the year, the Group continued with its resource expansion programme to extend the mine life of its operations. Drilling was completed across a number of areas of the deposit, including tailings to identify potential extensions to the existing mineral resource. During the year the Group carried out exploration work on the Semabu, Jagbwema and Gbangbaia deposits. Sierra Rutile will continue with the second year of this phased exploration programme and mineral resource evaluation across all three exploration licence areas during 2014.

Mineral Resources Estimate

The mining concession is one of the largest natural rutile deposits known in the world. In September 2013, the Group obtained an upgraded JORC-compliant Mineral Resource for the Sierra Rutile mine, which estimated that the total measured, indicated and inferred resources were over 900 million tonnes.

2013:

Mineral Resources are reported in accordance with the JORC Code 2012.

2012:

Mineral Resources are reported in accordance with the JORC Code 2004.

Business review (continued)

Mining Operations (continued)

Key Project Pipeline

Lanti Dredge, Floating Treatment Plant, Mineral Separation Plant and associated infrastructure

In April 2013, a planned three-week shutdown to overhaul certain critical components of the existing Lanti Dredge was undertaken. In some cases, this was the first time that a number of these components had been overhauled since the dredge was commissioned in 1979 and it is expected that these overhauls will extend the residual operating life of the dredge. This work was completed on time and with no lost-time injuries. Since the shut-down, there has been a significant increase in the mining rate of the dredge.

These enhancements and substantial improvements in process recoveries have contributed to increased production, culminating in record annual production of 120,349 tonnes of rutile in 2013.

Lanti Dry Mining

The heavy mineral concentrator for the Lanti Dry Mining project underwent its final performance testing and was commissioned successfully in April 2013, having achieved an average feed rate of 522 tonnes per hour ("tph") over a 168-hour period, exceeding the design specification of 500 tph. Production from this newly commissioned plant has also contributed to increased production, culminating in record annual production of 120,349 tonnes of rutile in 2013.

Gbeni Mining method

During 2013, the Group reviewed the mining method and mine plan for the Gbeni deposit and concluded that the deposit should be mined using dry mining techniques utilising the existing Lanti Dry Mining concentrator plant, rather than by dredge as originally envisaged.

This new mining approach will mean that the current Lanti Dredge will not be moved to the Gbeni deposit, resulting in substantial near-term capital costs savings of US$23 million. This decision will also significantly reduce the required ongoing maintenance capital of the Lanti Dredge which is now planned to be retired early in 2019, after almost 40 years' service. By utilising the Lanti Dry Mining concentrator plant for the Gbeni deposit, the change in mining method will mean that the requirement and cost of moving the Lanti Dry Mining concentrator plant to another deposit is now delayed by 10 years, to 2027.

Gangama Dry Mining

In 2013, the Group completed a value-optimisation and re-costing exercise for the Gangama Dry Mining feasibility study, which resulted in more than a 17% decrease in the capital cost, to a total of US$85 million from the US$103 million anticipated in the pre-feasibility study. Subsequent refinement has reduced this cost further to US$81 million, a 21% reduction from the original estimate. Of this amount, 77% is at fixed prices.

In addition to costs, as part of the feasibility study, the mine plan for the Gangama deposit was also optimised, including the incorporation of the current processing recoveries into the plan. This optimisation resulted in a greater than 11% increase in the average forecast rutile production over the life of the deposit to 93,100 tonnes per annum from 83,400 tonnes per annum which was outlined in the pre-feasibility study. Forecast peak production in the first year of operation is expected to be over 100,000 tonnes of rutile. It remains our view that the current market recovery needs to be well-embedded before construction can commence.

Sembehun Dredge

In October 2012 the Group also announced the Sembehun Dredge Mining project, following completion of a scoping study conducted by external consultants. The Sembehun Dredge represents the next step change in production for Sierra Rutile.

Low-Cost Hydro-Power Project

During the year, Sierra Rutile entered into a memorandum of understanding with Smol Pawa Sierra Leone Ltd. ("Smol Pawa") to become a cornerstone purchaser for its Moyamba hydro project.

The Moyamba hydro project is an 11-14 MW run-of-river hydroelectric project located at the Singimi Falls on the Gbangba River, within 20km of Sierra Rutile's existing operations. The project will be developed as a public-private partnership with the Government of Sierra Leone and will serve the communities of Moyamba, Njala University and Sierra Rutile. A feasibility study is currently being completed for the project by Smol Pawa,and financing, permitting and construction are expected to be completed within 36-48 months. This will allow Sierra Rutile to purchase reliable, low-cost power that will significantly reduce cost exposure to oil price fluctuations.

Business review (continued)

Agricultural Operations

The Group continued with its expansion strategy into agribusiness, building a future multiple revenue stream business focused primarily on oil palm, cacao, rubber and pineapple. With over 55,000 hectares of land in our mining concessions, and given the region's ample rainfall, fertile soil, and location near the equator, there is a compelling business case for an agribusiness that also provides substantial employment opportunities for the surrounding population.

Our corporate social responsibilities will be centred around Global GAP, (Good Agricultural Practices), which are internationally recognised guidelines to help us follow worker safety procedures, along with providing an adequate working environment for our workers and the community in which we work. Some of the key benefits we have noted during the year included:

· employment opportunities for communities within the local area;

· leasing of land from the community and thereby creating revenues for the community; and

· installation of solar lights in each of the communities in which we operate.

Our investment strategy is aligned with the current global markets that have seen higher cacao bean prices. During the year, we have focused on project site selection, land preparation and initial planting exercise.

In total the Group plans to complete planting crops of approximately 4,000 hectares of oil palm, 1,500 hectares of rubber, 500 hectares of cacao and up to 100 hectares of pineapple.

Oil Palm

Planting started in the second half of the year and we managed to plant a total of 150 hectares of oil palm during 2013, with plans to plant a further 850 hectares in 2014. Pre-nursery and nursery for the 2014 planting season is already in place with planting expected in May 2014.

The production from the oil palms planted in 2013 is expected to come on-stream starting in 2017 when those palms will yield sufficient fruit to begin harvest. This will mark a significant milestone for the Group.

Cacao

A total of 3 hectares of cacao trees were planted in 2013 with plans to plant a further 30 hectares in 2014. Pre-nursery and nursery for the 2014 planting season is already in place.

Rubber

A total of 37 hectares of rubber trees were planted in 2013 with plans to plant a further 450 hectares in 2015. Pre-nursery and nursery for the 2014 planting season is already in place.

Pineapple

13 hectares of land were planted with pineapple in the third quarter of 2013. Initial harvesting from these pineapples is expected in the fourth quarter of 2014, and a two year supply contract is under negotiation with a major fruit juice producer within Sierra Leone who will be able to purchase all the produce.

Business review (continued)

Key Performance Indicators ("KPIs")

*Gearing, is calculated as the ratio of debt to debt plus equity.

** The asset turnover ratio, which measures the efficiency of a company's use of its assets in generating sales revenue and is calculated as the ratio of revenue to total assets.

*** Earnings before interest, tax, depreciation and amortisation excluding exceptional items and non-cash stock option expenses.

Finance review

Cash and liquidity

As at 31 December 2013, the Group had cash on hand of US$22.6 million.

The Group also had trade receivables of US$2.5 million (2012: US$34.3 million). At the year end, the Group was carrying an inventory of 36,558 tonnes of rutile (2012: 26,807 tonnes) and 12,489 tonnes of ilmenite, which have a balance sheet value of US$30.1 million (2012: US$25.2 million). During the year the Group invested US$37.4 million in property, plant and equipment with US$11.8 million being spent on existing operations and US$25.6 million on expansion projects.

Borrowings

On 19 August 2013, the Group entered and subsequently satisfied all conditions precedent for a one-year US$20 million working capital facility ("Nedbank Loan"). The Nedbank Loan carries an interest rate of LIBOR plus 4% and is secured against assets of the Group. The Nedbank Loan contains certain financial covenants related to financial performance and position which are sensitive to key assumptions including commodity price and production. Renewal of the Nedbank Loan requires bank approval.

On 13 December 2013, the Group entered into an agreement for the provision of a US$30 million senior loan facility ("Nedbank Senior Loan"). The Nedbank Senior Loan has a tenor of four years from financial close, carries an interest rate of LIBOR plus 5.25%, and is secured against the assets of the Group. Use of the Nedbank Senior Loan is restricted to capital expansion projects. Closing and drawdown of this Nedbank Senior Loan is subject to satisfaction of a limited number of outstanding conditions customary for a financing of this type. Sierra Rutile has up until the 31 December 2014 to reach financial close and a further 18 months to draw down the funds.

The Group repaid US$2.9 million principal on the GOSL loan in 2013. The next repayment of principal on the loan from the GOSL of US$4.9 million is due in June 2014. Prior to this date only interest on the loan is payable. The final installment on the loan will be repaid in December 2016.

Turnover

Rutile, ilmenite and zircon and other concentrates sales of US$123.4 million in 2013 were 31% lower than the US$179.1 million achieved in 2012. In 2013, the Group sold 111,018 tonnes of rutile generating revenue of US$116 million (2012: 80,894 tonnes for US$165.1 million), 24,170 tonnes of ilmenite generating revenue of US$6.1 million (2012: 19,643 tonnes for US$6.6 million) and 3,232 tonnes of zircon and other concentrates generating revenue of $1.3 million (2012: 28,232 tonnes for $7.4 million). The major contribution to the decrease in sales in 2013 over 2012 was the significantly weaker pricing obtained with an average realised price for rutile in 2013 of US$1,044/tonne (2012: US$2,041/tonne), partially offset by the 37% increase in volume of product sold.

Cost of Sales

Rutile cash cost of production decreased 23% to US$588 per tonne (2012: US$768 per tonne) as a result of increased production and the cost efficiency drive implemented in 2013.

On an absolute basis, cost of sales were higher at US$93.1 million for the year from US$78.3 million in 2012 due to the ramp up of operations and the greater volume of rutile sold, impacted by:

· increased production and shipping costs of US$60.9 million (2012: US$49.6 million) required to support increased production; and

· an increase in depreciation charge to US$17.6 million (2012: US$15.9 million) mainly due to additional depreciation on Dry Mining assets.

The Group remains committed to controlling costs and continue to focus on many cost efficiency programs.

Administrative and Marketing Expenses

Administrative expenses increased by US$1.1 million from US$13.5 million in 2012 to US$14.6 million in 2013 principally due to addition of the agricultural arm.

Exceptional Items

The Group recorded an exceptional loss of US$0.4 million (2012: gain of US$0.2 million). The 2013 amounts relate to impairment of certain feasibility study costs.

Finance review (continued)

Finance Costs

Net finance costs increased from US$3.4 million in 2012 to US$5.1 million in 2013. The increase was principally due to the additional interest paid on the Nedbank Loan and the appreciation of the Euro against the US Dollar and the impact this had on the Euro-denominated loan from the GOSL, which contributed to the net foreign exchange loss of US$1.3 million in 2013 (2012: loss of US$0.6 million).

Corporate Social Responsibility

Environmental, Health and Safety ("EHS")

The Group continued to see significant safety improvements in 2013 that resulted in a Lost Time Injury Frequency Rate ("LTIFR") of zero in its Mining Operations. The addition of ALA brought new safety challenges to the Group, and the Group recorded one fatality in its Agricultural Operations as a result of the unconventional use of an agrochemical substance. Following this loss, a comprehensive audit of the ALA operations has been carried out that now gives a good insight in the key safety risks of the operations. This audit resulted in the Group employing an EHS officer for ALA as well as carry out training for all chemical handlers and other operators. 

We remain committed to continually improving our performance in this vital area. The Group completed a comprehensive first aid training programme covering all locations and shifts, conducting a formal baseline health and safety risk assessment and developing a formal system of health and safety standards, training, auditing and management accountability.

Occupational Health

The Sierra Rutile Clinic, which supports all ongoing initiatives, treated approximately 1,800 people a month in 2013, the majority of whom are our employees and their families. We also run additional weekly clinics in local communities to provide basic and emergency public healthcare.

During the year the clinic treated over 5,800 employees and members of the local communities for malaria and typhoid.

Sierra Rutile continued its successful partnership with NGOs, the Mine Workers Union and the National AIDS Secretariat of Sierra Leone ("NAS") to address the prevention of HIV/AIDS. In 2012, the Group sponsored a study to assess the impact of its HIV/AIDS program; the study was undertaken by NAS with support from the International Labour Organization, ILO/AIDS (Geneva) and the Opec Fund for International Development ("OFID"). The main objective of the study was to obtain estimates of HIV prevalence and key behavioral indicators relating to HIV transmission and prevention methods. As part of the recommendations of the 2012 HIV/AIDS prevalence study, the Group invested additional resources to expand the scope of its HIV/AIDS programs beyond the confines of its workplace to target the community including provision of voluntary HIV/AIDS testing and treatment services.

With a view to expanding the scope and improving the quality of health services delivery, we commissioned the services of a technical external laboratory consultant who completed a competency assessment of the Sierra Rutile Clinic's laboratory. Subsequently, the recommendations of the assessment were implemented that included the purchase of several essential items of medical equipment. The Clinic is now equipped to handle a wider range of health tests and treatment of medical conditions.

Community

Sierra Rutile is committed to being a positive force in the communities around the mine site as well as in Sierra Leone as a whole. The Group pursues a number of initiatives and partnerships, including the Sierra Rutile Foundation, which are designed to improve the lives and employment opportunities of the people of Sierra Leone.

Training and recruiting the next generation of skilled employees is an important part of Sierra Rutile's long-term business strategy. Growing competition for skilled labour in Sierra Leone, the ageing nature of the Group's workforce and the desire to improve the lives of the local populace mean it is increasingly important to support education initiatives in the areas around the mine.

During 2013, the Group continued to support the Jackson and Devon Anderson Technical and Vocational College. The College teaches relevant technical and engineering skills to young people in the communities around the mine site. The College currently offers diploma level courses in civil, electrical, mechanical and automobile engineering and teaching certificate level courses in business studies and information technology. It is hoped that the Institute will significantly improve the long-term employment prospects for the people living around the Sierra Rutile mine and promote increased recruitment of local Sierra Leoneans and further lower its reliance on expatriate workers. Fifteen of the Institute's top-performing graduates enrolled in a new traineeship program at Sierra Rutile that provides these apprentices with practical training experience in the Group's workshops.

Corporate Social Responsibility (continued)

Access to clean water is one of the most important factors in ensuring the health and well-being of the communities around the mine site, and the Group is rehabilitating old wells and constructing new ones in order to provide a long-term solution for local villagers' water needs.

Sierra Rutile Foundation

The Group contributed US$150,000 to the Sierra Rutile Foundation in 2013 (2012: US$150,000), which was set up in 2006 to finance sustainable community development initiatives in the areas surrounding the Group's operations. The Foundation is managed by an independent board of trustees.

In 2013, the Foundation installed a total of twenty one solar street lights in the two closest communities within the Sierra Rutile mine site of Mogbwemo and Moriba Town.

Sierra Rutile launched the Livelihood Restoration Program, which is designed to promote economic empowerment in the mining area. Through the Foundation, two local community development service providers were commissioned to implement these projects. CODOHSAPA, a reputable savings and micro-credit organisation, implemented a project to enhance women's socioeconomic capacity through financial savings and livelihood support, while the Young Women's Christian Association (YWCA) implemented another project which aimed to promote the socio-economic empowerment of twenty local community women through bread making and agricultural skills training for employability and self-reliance respectively.

The Group also paid a total of $179,000 to the Agricultural Development Fund which is an annual statutory contribution the Group makes to fund agro-economic development projects in all five mining chiefdoms where the the Group operates.

Other ongoing projects implemented by the Group during the year included:

· rehabilitating and maintaining some of the key community road networks within the mining concession;

· daily provision of clean water supply to the areas sourrounding the mining communities;

· construction of a 6-class room primary school in Nyandehun, Imperri Chiefdom;

· rehabilitating a mosque at Matagelema, Lower Banta Chiefdom;

· conducting in-service training for secondary school teachers in the mining area on core subject areas;

· constructing 4-compartment ventilated improved pit latrines in 2 markets and 4 schools;

· constructing of borehole wells with hand pumps in several communities around the mining areas; and

· continuing the implementation of the dust suppression program by road watering.

Environment

The Group aims to minimise the environmental impact of its mining operations and is committed to the rehabilitation of land affected by current and historical mining activity. The mining processes used at Sierra Rutile have a relatively limited impact on the environment and no large-scale mining pits are created.

Our land rehabilitation aims to restore the agricultural potential of the areas that were previously mined in an effort to provide long term agribusiness opportunities for the local communities. The various types of trees that were planted in previous years on former mine works, as part of both the Darwin Initiative and the Group's own projects, have all been successful, and the Group will continue to observe their growth rates to determine the best strategy going forward for land rehabilitation.

In 2011, the Group commissioned a third party to conduct a full survey of historically disturbed land. Following this analysis a plan was developed and is being implemented to rehabilitate all legacy disturbed areas over the next six years.

The Group achieved and exceeded its land rehabilitation target by successfully rehabilitating a total of 142.84 ha of disturbed sand tails in its mined-out Pejebu-North deposit comprising filling of sand tailings and borrow pits, through the planting of various types of trees. It is intended that the trees will, in due course, provide the basis for local communities to develop agribusiness opportunities. The land rehabilitation project collaborates with the School of Forestry and Horticulture of Njala University for technical assistance, and also draws labour directly from local communities to the rehabilitation sites. The Group's land rehabilitation project not only target sustainable ecosystem restoration of mined-out areas, but also provides other sustainable development opportunities for the mining communities through job creation.

Corporate Social Responsibility (continued)

With the completion of the rehabilitation of Bamba Belebu fish holding pond in 2013, the Group also successfully exceeded its 2013 fish stocking target of over 180,000 by stocking a total of over 234,000 tilapia, cat fish and eleven different native fish species into the lakes created by historical mining activity. The introduction of the native fish species is our strategy to promote heterogeneity to restore the aquatic ecosystem of the mined-out lakes.

Principal Risks

Principal Risks

The table below sets out the major strategic and operational risks which the Group faces and their potential impact on our future performance, and our strategy for managing them.

Principal Risks (continued)

Principal Risks (continued)

Principal Risks (continued)

Principal Risks (continued)

Principal Risks (continued)

Principal Risks (continued)

Principal Risks (continued)

Principal Risks (continued)

Directors

Directors

Jan Castro Non-Executive Chairman

Mr. Castro is the founder and Chief Executive Officer of Pala Investments, a substantial shareholder and an investment company dedicated to investing in, and creating value across, the mining sector. Prior to founding Pala in July 2006, Mr. Castro was Senior Vice President of Investments and Corporate Affairs for Mechel OAO, a NYSE-listed company, where his primary responsibilities covered mergers and acquisitions, non-core asset disposals, and investor and public relations. Before joining Mechel, Mr. Castro worked at Latham & Watkins LLP, where he specialized in securities and M&A transactions.

Mr. Castro currently serves a director of Alacer Gold (TSX: ASR, ASX: AQG), and is Chairman of the Boards of Nevada Copper (TSX: NCU) and Asian Mineral Resources (TSX-V: ASN).

John Bonoh Sisay Chief Executive

Mr. Sisay has accumulated considerable experience within the African mining sector having worked in over ten African countries. Mr. Sisay started his career as a graduate trainee at the Central Selling Organization (CSO) of De Beers Consolidated Mines, Ltd. After working at De Beers, Mr. Sisay joined America Minerals Fields, now part of First Quantum, working on new acquisitions for the company, particularly in the Democratic Republic of Congo.

Additionally, he has served as President of the Sierra Leone Chamber of Mines and as a Non-Executive Director for Diamond Fields International and Vimetco S.L. Mr. Sisay joined Sierra Rutile in 2001. 

He periodically serves as an advisor to the Government of Sierra Leone on mining-related issues.

Michael Brown Non-Executive Director

Mr. Brown is currently a Senior Vice President of Pala Investments, a substantial shareholder and an investment company dedicated to investing in, and creating value across, the mining sector. He formerly served as the Chief Operating Officer of De Beers Consolidated Mines Ltd ("DBCM"), and Director of De Beers Group Services and De Beers Marine Limited. Mr. Brown worked at De Beers from 1990, holding a number of senior positions, including Head of Strategic Business Development at DBCM, General Manager of the Finsch Mine and Mine Manager at NAMDEB. He is a registered Professional Engineer (Pr. Eng) with the South African Council of Professional Engineers and a member of the South African Institute of Mining and Metallurgy.

Mr. Brown currently serves as a director of Asian Mineral Resources (TSX-V: ASN) and Nevada Copper (TSX: NCU).

Charles Entrekin Non-Executive Director

Mr. Entrekin has over 35 years of experience in the mining and metals sector, acting both as an executive officer and as a consultant. He is currently Chairman of Melior Resources, Inc., and acts as an international consultant for numerous metal producers and financial houses. Previous executive positions include President and Chief Operating Officer of Titanium Metals Corporation, a NYSE listed producer of primary titanium and its alloys, as well as President and Chief Executive Officer of Timminco Ltd., a TSX-listed magnesium, silicon and aluminum company.

Through his career Mr. Entrekin has led and implemented many successful restructurings and turnarounds of mining and metals companies internationally.

Alex B. Kamara Non-Executive Director

Mr. Kamara has considerable experience in the mining industry and in mechanical and electrical engineering. He was Head of Engineering at Sierra Rutile from 1982 to 1995, and head of the management team at the Sierra Leone National Power Authority from 2000 to 2002. Mr. Kamara is a Sierra Leonean national and has been awarded the Order of Commander of the Rokel by the Government of Sierra Leone, a high civilian award in recognition of his contribution to engineering in Sierra Leone.

He is currently a director of Cemmats Group, a Sierra Leonean company which has a number of contracts with Sierra Rutile.

Directors (continued)

Richard Lister Non-Executive Director

Mr. Lister has over 40 years of experience in the industrial minerals and mining sectors. Currently acting as a consultant to various mining companies, Mr. Lister was previously President and CEO, as well as Vice-Chairman, of Zemex Corporation, a significant North American industrial minerals company. He also served as Vice-Chairman of Dundee Bancorp, a major Canadian wealth management company, and Chairman, President and CEO of Campbell Resources, a Canadian resource company with base metal, industrial mineral, coal, and oil and gas assets in Canada, the U.S. and Mexico. 

Martyn Buttenshaw Non-Executive Director

Mr. Buttenshaw is a senior manager at Pala Investments, a substantial shareholder and an investment company dedicated to investing in, and creating value across, the mining sector. Over the last three years, he has been working closely with the management of Sierra Rutile on its growth projects, marketing strategy and strategic plans. Prior to joining Pala, Mr. Buttenshaw was a business development manager with Anglo American in its ferrous metals business unit, and a senior mining engineer at Rio Tinto in its technical services and industrial minerals group. He holds an MBA from London Business School and an MEng (First Class) in Mining Engineering from the Royal School of Mines, Imperial College London.

Directors' Report

The Directors submit their report and the audited financial statements of the Group for the year ended

31 December 2013.

Results and dividend

The results of the Group are shown on page 34. The Directors have not declared a dividend during the year (2012: $nil).

Principal activities

The Group's principal activity is exploring for, producing and marketing industrial minerals, primarily rutile, in Sierra Leone. The Group owns the Sierra Rutile mine in Sierra Leone. The Group is also engaged in agricultural activities through its wholly owned subsidiary, with main focus of producing oil palm, cacao, rubber and pineapple.

Business review

A detailed business review can be found on pages 6 to 10.

Post-balance sheet events

These are disclosed in Note 28.

Charitable contributions

During the year the Group made charitable donations of $150,000 (2012: US$ 150,000), principally to local communities in which the Group operates.

Health, Safety, Environment and Communities

The Group has agreed to take on the same performance obligations as members of the International Council on Mining & Metals and seeks continual improvement in non-financial performance so as to enhance shareholder value.

Employee Policies and Involvement

Our operations aim to record zero accidents causing harm to any individual through the following standards:

· we provide adequate control of health and safety risks and regular monitoring to assess the appropriateness of these risks over time;

· we provide appropriate training, equipment and maintenance to prevent accidents;

· we consult with employees at all levels to ensure that their instruction, supervision and levels of competency are appropriate to their position;

· we review and report on health and safety at our operations as part of internal management practice and external communications; and

· the Sierra Rutile mine site has a fully staffed and equipped clinic which is funded by the Group and provides free healthcare for employees, their dependants and the local population.

Directors' Report (continued)

Directors and their interests

The names of the Directors who held office during the year and after the year end are listed below.

Mr. Jan Castro (appointed 30 September 2010 and became Non-Executive Chairman 21 February 2011)

Mr. John Bonoh Sisay (appointed 10 March 2008 and became CEO on 3 February 2009)

Mr. Alex Kamara (appointed 10 March 2008)

Mr. Michael Barton (resigned 09 July 2013)

Mr. Michael Brown (appointed 14 October 2010)

Mr. Charles Entrekin (appointed 10 December 2010)

Mr. Richard Lister (appointed 20 March 2012)

Mr. Martyn Buttenshaw (appointed 09 July 2013)

The Directors who held shares as at 31 December 2013 and 31 December 2012 are:

Former Director

Directors' liability insurance and indemnity

The Group maintains liability insurance for the benefit of its Directors and officers which were made during the year and remain in force at the date of this report.

Supplier payment policy

The Group's policy is to settle the terms of payment with suppliers when agreeing the terms of each transaction, and to ensure that suppliers are made aware of the terms of payment and to abide by the terms of payment.

Capital Structure

Details of the issued share capital, together with details of the movements in the Group's issued share capital during the year are shown in note 22. The Group has one class of ordinary share which carry no right to fixed income. Each share carries the right to one vote at general meetings of the Group. There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The Directors are not aware of any agreements between holders of the Group's shares that may result in restrictions on the transfer of securities or on voting rights.

Details of employee share schemes are set out in note 22. No person has any special rights of control over the Group's share capital and all issued shares are fully paid. With regard to the appointment and replacement of Directors, the Group is governed by its Articles of Association, and related legislation. The Articles themselves may be amended by special resolution of the shareholders. The powers of Directors are described in the Main Board Terms of Reference, copies of which are available on request and the Corporate Governance Statement on page 25.

There are also a number of other agreements that take effect, alter or terminate upon a change of control of the Group such as commercial contracts, bank loan agreements, property lease arrangements and employees' share plans. None of these are considered to be significant in terms of their likely impact on the business of the Group as a whole. Furthermore, the Directors are not aware of any agreements between the Group and its Directors or employees that provide for compensation for loss of office or employment that occurs because of a takeover bid.

Directors' Report (continued)

Substantial Shareholders

So far as the Directors are aware, the following shareholders had an interest in 3% or more of the voting capital of the Group as at 31 December 2013:

Going Concern

The financial position of the Group, its cash flows, liquidity position and borrowing facilities are set out in the Finance Review on page 11. At 31 December 2013, the Group had cash and cash equivalents of $22.6 million (excluding overdrafts) and total borrowings of $49.1 million. Details on the Group's borrowings are set out in Note 19 to the financial statements.

The Board has considered the Group's cash flow forecasts for the period to the end of March 2015. The Board is satisfied that the Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group will be able to operate with the level of its current facilities for the foreseeable future. In the event of certain adverse pricing scenarios, management has within its control the option of deferring uncommitted capital expenditure to maintain the Group's funding position.

Accordingly, the Board continues to adopt the going concern basis in preparing the financial statements.

Annual General Meeting

The date and location for the AGM of the Group will be announced shortly but it is expected to be held before the end of July 2014.

Proxy Voting

Proxy cards will be distributed to shareholders with the Notice of the AGM.

Auditor

Each of the persons who is a Director at the date of the approval of this Annual Report confirms that:

· so far as the Director is aware, there is no relevant audit information of which the Group's auditor is unaware; and

· the Director has taken all the steps that he/she ought to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Group's auditor is aware of that information.

Deloitte have expressed their willingness to continue in office as auditor and a resolution for the appointment of the auditor of the Group is to be proposed at the forthcoming AGM.

Approval

This report was approved by the Board of Directors of the Group and signed on its behalf by:

John Bonoh Sisay

Chief Executive Officer

27 March 2014

Corporate Governance

Sierra Rutile shares are listed on "AIM" (the Alternative Investment Market of the London Stock Exchange) and the Group is subject to and takes all appropriate steps to comply with the AIM Rules. The Board recognises the importance and value for the Group and its shareholders of good corporate governance. In this regard, the Directors intend, where practicable for a Group of Sierra Rutile's size and nature, to comply with the UK Corporate Governance Code.

The Group has departed from certain aspects of the guidelines set out in the UK Corporate Governance Code and the Corporate Governance Guidelines for AIM companies published by the QCA including that the Non-Executive Directors have been granted options, and the options are not subject to performance criteria. In the opinion of the Directors, these options are not considered to be material enough to either the Group or each Non-Executive Director concerned to impair the independence of the Group's Non-Executive Directors.

Board overview

The Board is responsible for establishing the Group's strategy and has ultimate responsibility for the management, direction and performance of the Group and its businesses. Authority for the execution of the approved strategies and objectives, and daily running of the business, is delegated to the Executive Directors and Senior Management of the Group. The Board regularly monitors financial and operational progress and risks of the Group.

Board composition

At the date of this report, the Group had seven directors, comprising one Executive Director and six Non-Executive Directors of which three are considered independent.

Re-election of Directors

Directors offer themselves up for re-election annually.

Relations with Shareholders

This annual report contains information about the activities of the Group. The Group communicates with shareholders and other interested parties through its website, direct information distributed to shareholders, and releases to the AIM.

At the AGM, shareholders elect the Directors and have the opportunity to express their views, ask questions about Group business and vote on items of business for resolution by shareholders.

Corporate Governance (continued)

Committees of the Board (continued)

By order of the Board

John Nagulendran

Company Secretary

27 March 2014

Directors' remuneration report

Introduction

This report has been approved by the Board.

Role of the remuneration committee

The remuneration committee determines the terms and conditions of service, including the remuneration and grant of options to Directors (both Executive and Non-Executive) and others under the Share Option Scheme and any other future share option schemes and arrangements adopted by the Group. The remuneration committee meets at least once a year.

Components of remuneration

There are three main elements of the remuneration package of the Executive Director and senior management.

· Basic salary;

· Performance-related bonuses; and

· Share-based awards.

Directors' contracts

The Executive Director has an indefinite term contract. It is the Group's policy that the period of notice required for Executive Directors does not exceed 12 months.

Non-Executive Directors' fees

The fees for Non-Executive Directors are designed to ensure that the Group attracts and retains high calibre individuals. They are reviewed on an annual basis and account is taken of the level of fees paid by other companies of a similar size and complexity. Non-Executive Directors do not participate in any annual bonus plan or pension arrangements. The Group repays reasonable expenses that Non-Executive Directors incur in carrying out their duties as Directors.

Directors' remuneration report (continued)

Directors' Remuneration

Directors' remuneration for the years ended 31 December 2013 and 31 December 2012 is as follows:

1No pension contributions have been made in the year

2Michael Barton resigned on 9 July 2013

3François Colette resigned on 26 June 2012

Directors' remuneration report (continued)

Share Options

Directors and those who have served as directors during the year, hold the following options to subscribe for common shares as at 31 December 2013:

1Mr Buttenshaw was granted 500,000 of the share options before he became a director.

2 The Board approved an amendment of the terms of the share options to extend the expiry date of 7,493,750 share options granted to senior management and directors that were due to expire on 3 March 2014. These options will now expire on 31 July 2014, to allow Option Holders the opportunity to exercise their share options in accordance with the intent of the Remuneration Committee when the options were originally granted on 3 March 2011.

Directors' remuneration report (continued)

Directors' Share Ownership Policy

The average share price for the year ended was 59.50 p (2012: 64.59 p).

In April 2013, the Board adopted a share ownership policy for Directors, whereby non-executive directors are expected to build up and hold at least two million shares in the Group (four million for the Chief Executive Officer and Chairman). Directors are expected to retain shares acquired pursuant to share incentive awards, but may sell sufficient shares as necessary to pay the exercise price, taxation and out of pocket expenses associated with the exercise of share incentive awards. There is no target date to achieve the share ownership and such number of shares.

On behalf of the Board

Martyn Buttenshaw

Chairman of Remuneration Committee

27 March 2014

Statement of Directors' Responsibilities

The directors are responsible for preparing the Annual Report and the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union.

In preparing these financial statements, International Accounting Standard 1 requires that directors:

· properly select and apply accounting policies;

· present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

· provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

· make an assessment of the Group's ability to continue as a going concern.

The directors are responsible for:

· keeping adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the financial position of the Group;

· safeguarding the assets of the Group;

· such internal control as they determine necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error; and

· taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial information included on the Group's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Responsibility statement

We confirm that to the best of our knowledge:

· the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position, and profit or loss of the Group; and

· the management report, which is incorporated into the Directors' Report, includes a fair review of the development and performance of the business and the position of the Group together with a description of the principal risks and uncertainties that it faces.

By order of the Board

John Bonoh Sisay Martyn Buttenshaw

27 March 2014 27 March 2014

Independent auditor's report to the members of Sierra Rutile Limited and its subsidiaries

We have audited the financial statements of Sierra Rutile Limited and its subsidiaries for the year ended 31 December 2013 which comprise the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the consolidated statement of cash flows, the consolidated statement of changes in equity and the related notes 1 to 28. The financial reporting framework that has been applied in their preparation is International Financial Reporting Standards (IFRSs) as adopted by the European Union.

This report is made solely to the Group's members, as a body, in accordance with AIM Rule 19. Our audit work has been undertaken so that we might state to the Group's members those matters we are required to state to them in an independent auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Group and the Group's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditor

As explained more fully in the Statement of Directors' Responsibilities, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the Group financial statements:

· give a true and fair view of the state of the Group's affairs as at 31 December 2013 and of its profit for the year then ended; and

· have been properly prepared in accordance with International Financial Reporting Standards as adopted by the European Union.

Deloitte LLP

Chartered Accountants

London, United Kingdom

27 March 2014

The financial statements of Sierra Rutile Limited and its subsidiaries were approved by the Board of Directors on 27 March 2014.

Signed on behalf of the Board of Directors

John Bonoh Sisay Martyn Buttenshaw

27 March 2014 27 March 2014

Notes to the consolidated financial statements

Year ended 31 December 2013

1. General information

Sierra Rutile Limited ("Sierra Rutile") is a public limited liability company incorporated and domiciled in the British Virgin Islands. The address of its registered office is at P.O. Box 4301, Trinity Chambers, Road Town, Tortola, British Virgin Islands. 

These financial statements will be submitted for consideration and approval at the forthcoming AGM of shareholders of the Company.

2. Significant accounting policies

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

(a) Basis of preparation

The financial statements of Sierra Rutile have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"). The financial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for the assets. The principal accounting policies adopted are set out below.

(b) Going concern

The Board has considered the Group's cash flow forecasts for the period to the end of March 2015. The Board is satisfied that the Group's forecasts and projections, taking account of reasonably possible changes in trading performance show that the Group will be able to operate with the level of its current facilities for the foreseeable future. In the event of certain adverse pricing scenarios, management has within its control the option of deferring uncommitted capital expenditure to maintain the Group's funding position.

Accordingly, the Board continues to adopt the going concern basis in preparing the financial statements (see page 24 of the Directors' Report).

(c) New and revised International Financial Reporting Standards

Standards affecting the financial statements

In the current year, the following new and revised Standards and Interpretations have been adopted and have affected the amounts reported in these financial statements.

The Group has applied for the first time, IAS 41 'Agriculture' which sets out the accounting for agricultural activity, through the transformation of biological assets into agricultural produce. The standard generally requires biological assets to be measured at fair value less costs to sell. The impact of this adoption has been the recognition of biological assets in the statement of financial position. Other than the above mentioned changes, the application of the standard did not result in any impact on profit or loss, comprehensive income and total comprehensive income.

Standards not affecting the reported results or the financial position

A number of amendments to accounting standards and new interpretations issued by the International Accounting Standards Board (IASB), were applicable from 1 January 2013. They have not had a material impact on the accounting policies, methods of computation or presentation by the Group.

New IFRS accounting standards and interpretations not yet adopted

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not been applied in these financial statements were in issue but not yet effective (and in some cases had not been adopted by the European Union):

IFRS 7 (amended) 'Financial Instruments: Disclosures' -Transfers of Financial Assets (effective 1 January 2015).

IFRS 9 'Financial Instruments-Classification and Measurement' (effective for periods beginning on or after 1 January 2015).

IFRS 10 'Consolidated Financial Statements' (effective for periods beginning on or after 1 January 2014).

IFRS 11 'Joint Arrangements' (effective for periods beginning on or after 1 January 2014).

IFRS 12 'Disclosure of Interest in Other Entities' (effective for periods beginning on or after 1 January 2014).

IFRS 13(amended) 'Fair Value Measurement' (effective for periods beginning on or after 1 July 2014).

IAS 27 'Separate Financial Statements' (effective for periods beginning on or after 1 January 2014).

Notes to the consolidated financial statements

Year ended 31 December 2013

2. Significant accounting policies (continued)

(c) New and revised International Financial Reporting Standards (continued)

New IFRS accounting standards and interpretations not yet adopted(continued)

IAS 28 'Investments in Associates and Joint Ventures ' (effective for periods beginning on or after 1 January 2014).

IAS 36, 'Impairment of Assets',-Recoverable Amount Disclosures for Non-Financial Assets (effective for periods beginning on or after 1 January 2014).

The Directors anticipate that the adoption of these standards and Interpretations in future periods will have no material impact on the financial statements of the Group.

 (d) Basis of consolidation

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

(e) Business combinations and goodwill arising thereon

The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interests in the acquiree either at fair value or at the non-controlling interests' proportionate share of the acquiree's net assets. Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests' share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

The excess of the consideration transferred, the amount of any non-controlling interests in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the statement of comprehensive income. 

Inter-Group transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Transactions with non-controlling interests

The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

(f) Property, plant and equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads and costs directly attributable to bringing the assets to a working condition for its intended use. Cost also includes the cost of restoring the site on which the assets are located. These costs are recognised as a liability.

Notes to the consolidated financial statements

Year ended 31 December 2013

2. Significant accounting policies (continued)

(f) Property, plant and equipment (continued)

Depreciation is provided on a straight-line basis over the estimated useful lives of the assets.

Where an item of property, plant and equipment comprises major components with different useful lives, the components are accounted for as separate items of property, plant and equipment.

Subsequent expenditure relating to an item of property, plant or equipment is capitalised when it is probable that the future economic benefits from the use of the asset will increase by more than the expenditure incurred. All other subsequent expenditure is recognised as an expense in the period in which it is incurred.

Deposit and dam development, exploration, evaluation, mine development expenditure and deferred project expenditure

In respect of deposit and dam development, minerals, exploration, evaluation and deferred project, expenditure is charged to the statement of comprehensive income as incurred except where:

· it is expected that the expenditure will be recouped by future exploitation or sale; or

· substantial exploration and evaluation activities have identified a mineral resource but these activities have not reached a stage which permits a reasonable assessment of the existence of commercially recoverable reserves in which case the expenditure is capitalised.

Expenditure relating to both deposit and dam development and mine development are accumulated separately for each identifiable area of interest. Such expenditure comprises related direct costs and an appropriate portion of related overhead expenditure. 

Expenditure is carried forward when incurred in areas where economic mineralisation is indicated, but activities have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves, and active and significant operations in relation to the area are continuing. Each such project is regularly reviewed. If the project is abandoned or it is considered unlikely that the project will proceed to development, accumulated costs to that point are written off immediately.

Each area of interest is limited to a size related to a known or probable mineral resource capable of supporting a mining operation. Projects are advanced to development status when it is expected that accumulated and future expenditure can be recouped through project development or sale.

Amortisation and depreciation

Amortisation of deferred project expenditure is based on the estimated useful life of the asset to which the expenditure relates. Depreciation is provided on a straight-line basis at rates calculated to write off the cost of fixed assets to their residual value over their estimated useful lives as follows:

Infrastructure - twenty to forty years

Plant, machinery and equipment - three to twenty years

Mineral rights - based on the estimated life of reserves

Mineral sand prospect and mine development - based on the estimated life on proven and probable reserves

Changes in estimates are accounted for over the estimated remaining economic life of the remaining commercial reserves of each project as applicable.

Notes to the consolidated financial statements

Year ended 31 December 2013

2. Significant accounting policies (continued)

 (g) Biological Assets

Biological assets comprise oil palm, rubber, pineapple and cacao trees from initial preparation of land and planting of seedlings through to maturity and the entire productive life of the trees.

All costs comprising mainly land clearing, land terracing and drainage, planting, weeding and fertilising involved during the immature period until the trees are ready for commercial harvesting at approximately 0 - 3 years for oil palm, cacao and pineapple and 0-7 years for rubber, are capitalised. Plantation development costs comprise all rehabilitated plantation development costs such as direct materials, labour and an appropriate proportion of fixed overheads.

Oil palm, rubber, pineapple and cacao trees are measured at fair value with any change in fair value recognised in the income statement. Biological assets which are planted closer to year-end and that are not yet mature at the accounting date, are valued at fair value which approximates cost as there is little or no biological transformation at the accounting date.

Capitalised development costs will be subject to accelerated depreciation if the existing planted area has been earmarked for replanting with a different crop, after writing down the carrying amount to its recoverable amount.

Replanting expenses are charged to profit or loss in the year in which they are incurred.

Where an indication of impairment exists, the carrying amount of the biological asset is assessed and written down immediately to its recoverable amount.

(h) Mining development cost

Mine development cost includes costs relating to the acquisition and development of mineral properties and are capitalised until such time as commercial levels of production are reached or the mineral properties are abandoned. Mine development costs are depreciated from the time that Sierra Rutile enters commercial production. Proceeds received from the sale of rutile and ilmenite sand prior to the commercial production date is offset against the capitalised mine development costs.

Commercial production is defined as the stage at which the mine assets are available for use. This entails that the Group maintains a consistent level of production from the mining operations. This is determined by reference to various factors including forecast production levels and the generation of positive cash flows on a monthly and reasonably sustainable basis.

(i) Intangible assets

Acquired computer software licences are capitalised on the basis of costs incurred to acquire and bring to use the specific software and are amortised over their estimated useful lives of five years.

Notes to the consolidated financial statements

Year ended 31 December 2013

2. Significant accounting policies (continued)

(j) Impairment of tangible and intangible assets

At the end of each reporting period, the Group reviews the carrying amounts of its tangible 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 the asset does not generate cash flows that are independent from other assets, 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 for which the estimates of future cash flows have not been adjusted.

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 as an expense immediately in the consolidated statement of comprehensive income.

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 (or cash generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the consolidated statement of comprehensive income.

Goodwill arising on business combinations is allocated to the Group of cash generating units ("CGUs") that are expected to benefit from the synergies of the combination and represents the lowest level at which goodwill is monitored by the Group's Board of Directors for internal management purposes. The recoverable amount of the CGUs or group of CGUs to which goodwill has been allocated is tested for impairment annually on a consistent date during each financial year, or when events or changes in circumstances indicate that it may be impaired. Any impairment is recognised immediately in the statement of comprehensive income. Impairments of goodwill are not subsequently reversed.

 (k) Foreign currencies

(i) Functional and presentation currency

Items included in the financial statements of each of the Group's entities are measured using United States Dollars, the currency of the primary economic environment in which the entities operates ("functional currency"). The consolidated financial statements are presented in United States Dollars, which is the Group's presentational currency. All financial information presented in United States Dollars has been rounded up to the nearest thousand.

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income.

At the balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing at that date.

Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.

Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date the fair value was determined. 

Year ended 31 December 2013

2. Significant accounting policies (continued)

(l) Financial instruments

 (i) Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of provision is recognised in the statement of comprehensive income.

 (ii) Trade payables

Trade payables are stated at fair value and subsequently measured at amortised cost using the effective interest method.

(iii) Borrowings

Borrowings are recognised initially at fair value being their issue proceeds net of transaction costs incurred.

Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the statement of comprehensive income over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period.

(iv) Cash and cash equivalents

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

(v) Share capital

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

(m) Inventories

Inventories comprise stock piles of rutile, ilmenite, zircon and other concentrates and consumables including fertilizers and pesticides. Rutile and consumables are measured at the lower of cost and net realisable value. In line with IAS 2 'Inventories' ilmenite and zircon and other concentrate by-products are measured at net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and selling expenses. The cost of consumable inventories is based on the weighted average method and comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. The cost of rutile is measured as all production costs and other attributable production overheads adjusted for the by-product sales of ilmenite and zircon and other concentrates based on normal operating capacity and other costs incurred in bringing the inventories to their present location and condition. Obsolete, redundant and slow moving consumable stocks are identified on a regular basis and are written down to their estimated net realisable values.

Inventories are stated at the lower of cost or net realisable value except for ilmenite and zircon and other concentrates which are stated at net realisable value, where cost is defined as follows:

Rutile - Production cost and attributable overheads

Concentrates - Production cost

Stockpiles - Production cost

Materials and fuel - Weighted average cost

Sundry expenses - Purchase cost

Goods-in-transit - Invoice cost excluding freight

Notes to the consolidated financial statements

Year ended 31 December 2013

2. Significant accounting policies (continued)

(n) Taxation

The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of any deferred tax asset is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised based on tax laws and rates that have been enacted at the balance sheet date. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

 (o) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are capitalised until such time as the assets are substantially ready for their intended use or sale. Other borrowing costs are expensed in profit or loss in the period in which they are incurred.

(p) Retirement benefit obligations

Short-term employee benefits

The cost of all short-term employee benefits is recognised in the statement of comprehensive income during the period in which the employees render the related service.

Long-term employee benefits

The Group does not operate any retirement benefit plan for its employees. For employees of the Sierra Leone based subsidiary, the Group makes a contribution of 10% of the employees' basic salary to the National Social Security and Insurance Trust for payment of pension to staff on retirement. These employees also contribute 5% of their basic salary to the Trust. 

The Sierra Leone based subsidiary also provides for end-of-term benefits based on the provisions contained in the Collective Bargaining Agreements; these benefits are paid to employees falling under this category when they leave the Group. The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation in relation to this agreement.

Notes to the consolidated financial statements

Year ended 31 December 2013

2. Significant accounting policies (continued)

(q) Share options scheme

The Group issues equity-settled share-based payments to certain employees and directors. Equity-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of shares that will eventually vest and adjusted for the effect of non market-based vesting conditions. The fair value is determined at grant date by use of a Black Scholes model and taking account of market based vesting conditions.

(r) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events and it is probable that an outflow of resources, that can be reliably estimated, will be required to settle the obligation.

Provisions for restructuring costs are recognised when the Group has a detailed formal plan for restructuring which has been notified to affected parties and comprise lease termination penalties and employee termination payments. Provisions are not recognised for future operating losses.

Provision for restoration and rehabilitation

In accordance with the Group's environmental policy and applicable legal requirements, a provision for site restoration and rehabilitation in respect of disturbed and contaminated land, and the related expense, is recognised when the land is contaminated or disturbed. Changes in estimates of the site restoration and rehabilitation provision are recognised as an expense in the consolidated income statement.

Costs of reclamation and rehabilitation are assessed on a regular basis and estimated costs are provided over the life of the mine. The expenditure and provisions include costs of labour, materials, and equipment required to rehabilitate disturbed areas, cost of reclamation, plant and infrastructure closure and subsequent environmental monitoring. The estimates are discounted and are based on current costs, legislature and community requirements and technology. Expenditure relating to ongoing rehabilitation and restoration programmes is charged against the provisions made.

(s) Revenue recognition

Revenue from the sale of rutile, zircon and other concentrates and ilmenite is measured at the fair value of the consideration received or receivable, which is usually the invoice value of rutile, zircon and other concentrates and ilmenite and excludes sales and value added taxes. 

A sale is recognised when the significant risks and rewards of ownership have passed, and when revenue can be measured reliably. This is generally when title and any insurance risk have passed to the customer, and the goods have been delivered to a contractually agreed location.

(t) Exceptional items

Exceptional items are events or transactions which, by virtue of their size or nature, have been disclosed in order to improve a reader's understanding of the financial statements.

 (u) Nursery costs

Nursery costs comprise costs of oil palm, cacao and rubber seedlings and the associated development costs incurred (for example fertilising and weeding) in preparing the nursery. Nursery costs relating to new planting are transferred to oil palm, cacao and rubber plantations upon reaching a certain level of maturity, which is between 10 to 12 months for oil palm and 5 to 6 months for rubber and cacao, while other types are charged to profit or loss.

(v) Presentation currency

The financial statements are presented in thousands of United States Dollars ("US$").

Notes to the consolidated financial statements

Year ended 31 December 2013

3. Critical Accounting estimates and judgements

Estimates and judgements are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. 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.

 (a) Estimated impairment of goodwill

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2. These calculations require the use of estimates (note 11).

Directors necessarily apply their judgement in estimating the probability, timing and value of underlying cash flows and in selecting appropriate discount rates and useful economic lives to be applied within the valuation calculation. Such estimates and forecasts include commodity prices, foreign exchange rates, capital expenditure, future commissioning dates, production targets, operating costs and timelines of the granting of licences and permits.

(b) Asset lives and residual values

Plant and equipment are depreciated over their useful lives taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on a number of factors. In reassessing asset lives, factors such as technological innovation, product life cycles and maintenance programmes are taken into account. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values. Consideration is also given to the extent of current profits and losses on the disposal of similar assets.

(c) Valuation of share-based payments

In order to value options granted, the Group has made judgements as to the volatility of its ordinary shares, the probable life of the options granted and the time to exercise of those options. During the year-ended 31 December 2013, the Group has used the Black-Scholes methodology for valuing share-based payments.

(d) Restoration, rehabilitation and environmental costs

Costs for restoration of site damage, rehabilitation and environmental costs are estimated using the work of external consultants or internal experts. Management uses its judgement and experience to provide for these estimated costs over the life of the mine.

(e) Contingent liabilities

On an ongoing basis the Group is party to various legal disputes, the outcomes of which cannot be assessed with a high degree of certainty. A liability is recognised where, based on the Group's legal views and advice, it is considered probable that an outflow of resources will be required to settle a present obligation that can be measured reliably.

(f) Biological assets

Immature plantation and other biological assets which are planted closer to year-end and that are not yet mature at the accounting date, have been valued at fair value which approximates cost as there is little or no biological transformation at the accounting date.

Notes to the consolidated financial statements

Year ended 31 December 2013

4. Segment information

IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Operating Decision Maker of the Group to allocate resources to the segments to assess their performance.

The strategy of the Group is to produce, refine and sell rutile. Information reported to the Board is on an integrated basis, which is how decisions over resource allocation are made. The Group itself has only one mining product being rutile, with ilmenite, zircon and other concentrates and other revenue streams being considered by-products of the integrated rutile production process.

As such, the Group considers there to be one segment being the production, refining and sale of rutile. Since the beginning of 2013, the Group has begun to grow certain agricultural products (see note 14), but at 31 December 2013 this is not considered a separate reportable segment.

Segment revenue

Revenue represents the invoiced amount in respect of sales of rutile, ilmenite and zircon and other concentrates extracted during the period excluding sales discount and consists of the following:

Geographical information

Segment revenue is derived from sales to external customers domiciled in various geographical regions. Details of segment revenue by location of customers are as follows:

No customers are currently located in Sierra Leone.

For the year ended December 2013 revenues of US$31,295,000, US$ 27,375,000, US$19,739,000, and US$13,775,000 were generated from four customers (2012: Revenues of US$65,209,000, US$30,863,000, and US$23,144,000 were derived from three customers) all of whom accounted for more than 10% of the Group's total annual sales.

Seasonality information

Whilst certain of the activities at the Group's operations are subject to the effects of seasonality, the effect on the results of the Group are minimal.

Segment assets

All of the Group's assets are in Sierra Leone except certain inventory balances held in a warehouse in Europe.

Notes to the consolidated financial statements

Year ended 31 December 2013

5. Expenses by nature

6. Employee benefit expense

In accordance with IAS 24 'Related Party Disclosures (Amended)', the compensation for key management is disclosed within note 25.

Notes to the consolidated financial statements

Year ended 31 December 2013

7. Exceptional items

The Group recorded an exceptional loss of US$0.4 million (2012: gain of US$0.2 million). The 2013 amounts are in relation to certain feasibility studies that were written off as the Board had decided that they would no longer be used.

The 2012 amounts relate to a release of a US$0.5 million tax provision provided for in the prior year offset by a US$0.3 million loss related to a barge damaged during the year.

8. Net finance costs

Notes to the consolidated financial statements

Year ended 31 December 2013

9. Income taxes

Under the provisions of an agreement reached with GOSL in June 2003, the Group's operations in Sierra Leone are not subject to standard Sierra Leone corporate income tax until 1 January 2015. Instead, up to that time, the operations are subject to a minimum tax charged at 0.5% of the turnover of the business.

From 1 January 2015, the taxation of the Group's operations in Sierra Leone will revert to the provisions of the Sierra Rutile Agreement (Ratification) Act 2002, under which tax will be charged at an amount not less than 3.5% of turnover and not more than the standard Sierra Leone corporate income tax rate (up to a maximum rate of 37.5%) on taxable profits. The standard corporate income tax rate in Sierra Leone enacted at the balance sheet date was 30%.

Based on the above, the income tax expense can be reconciled to the Group's profit before tax as follows:

(b) Current tax (assets)/ liabilities

Notes to the consolidated financial statements

Year ended 31 December 2013

10. Basic and diluted earnings per share

Notes to the consolidated financial statements

Year ended 31 December 2013

11. Intangible assets