SRX.L Regulatory News (SRX)

9 May 2006 07:01

Titanium Resources Group Ltd09 May 2006 Preliminary results for the period ended 31 December 2005 0700 (London) 9 May, 2006: Titanium Resources Group Ltd ("the Group" or "TRG")announces its preliminary results for the 12 1/2 month period ended 31 December2005. Summary o Successful IPO in August and further capital raising in October 2005o Qualified for the second and last tranche of €24.75 million EU loano Senior management team expanded to underpin future growth plano Market outlook robusto Sales of US$337,000 principally from stock pile reductiono Attributable losses for the period of US$ 13.7 million reflects lack of production in 2005, as expectedo Cash reserves at year end of US$79.7 milliono Subsequent to the year end both the Sierra Rutile mine and SML Bauxite mine were brought back into production, on time and on budget Commenting on the year, Walter Kansteiner, Non-Executive Chairman said: "Favourable market conditions, and the requirement for external capital, led tothe decision in 2005 to list TRG's shares on the London AIM market. This markeda major milestone for the Group after its many years as a private company. Withthe funds raised from the IPO, and a subsequent private placement, the Group waswell positioned to complete restart of both the Sierra Rutile mine and the SMLBauxite mine and the expansion projects. "As we begin regular shipments from our operations, we note that salesagreements for all of the Group's pigment grade rutile are in place while demandfor welding grade rutile is strong. In the year ahead we expect demand fortitanium dioxide to increase and interest from buyers to remain strong." For further information: TRGWalter Kansteiner, Non-executive ChairmanTel: +44 (0) 207 321 0000 Aura FinancialMichael Oke/Andy MillsTel: +44 (0) 207 321 0000 CHAIRMAN'S STATEMENT 2005 was a pivotal year for TRG, with the successful completion of the Group'stransformation into a significant, publicly listed, producer of industrialminerals with head room for future growth. The Group's listing on the AIMMarket of the London Stock Exchange in August 2005 and the associated fundraising provided TRG with the financial strength to complete the restart andbegin the expansion of the Group's mines in Sierra Leone, West Africa. The financial results for the period are in line with the Board's expectationsat the time of the IPO. Sales of US$337,000 derive from stock pile reductionprincipally. The Attributable losses for the period of US$ 13.7 million reflectthe lack of production during the period from either of the Company's mines in2005, as expected. The Company's Annual Report will be posted to shareholders on 29 May and copieswill be available for collection from the offices of Aura Financial, London,SW1Y 6HD. AIM admission and financing Favourable market conditions, and the requirement for external capital, led tothe decision in 2005 to list TRG's shares on the London AIM market. This markeda major milestone for the Group after its many years as a private company. TRG successfully raised US$74 million (£41 million) through an institutionalplacing of 87 million shares at 47 pence per share. TRG's shares were admittedto AIM for trading on 25 August. The IPO has dramatically increased the Group'sfinancial resources, expanded its shareholder base and raised its profile in theindustrial minerals industry. With the funds raised from the IPO, and asubsequent private placement of US$17.5 million (£10 million) with Londoninstitutions in October 2005, the Group is well positioned to complete itsongoing expansion projects. Group strategy Following the successful restart of the rutile and bauxite mines, the Groupintends to undertake exploration on both of its properties to upgrade existingresources to reserves and identify new reserves while also evaluating potentialopportunities for acquisition of further mineral properties in Africa. As partof the Group's growth strategy it acquired the Rotifunk mineral sands deposit inJanuary 2006 for further exploration and evaluation. In the near term, the Group will be engaged in detailed engineering andgeological work in an effort to expand rutile production through thereprocessing of tailings or dry mining of outlying ore bodies that do not fallwithin the current dredge path. The Group is also examining opportunities toincrease bauxite production from 1.2 to 1.8 million tonnes per annum fromexisting reserves at the mine. The Board We announced on 2 May the appointment of Len Comerford as Chief Executive, Dr.Alex MacDonald as Chief Operating Officer and Sahr Wonday as Deputy ChiefOperating Officer. I would like to take this opportunity to thank Max McGarviefor his hard work and commitment to the Group. Max McGarvie remains on theBoard as a Non Executive Director and Special Advisor to the CEO. The Group willcontinue to benefit from Max's extensive knowledge of mineral sands productionand mining in West Africa. REVIEW OF OPERATIONS Full details of the Group's operations were published in the prospectus whichaccompanied the Placing and Admission of the Group to the AIM market of theLondon Stock Exchange in August 2005. In the remaining four months of the 2005financial year since listing and the subsequent trading period of the currentyear significant progress has been made across the operations in Sierra Leone. Rutile In early 2005, TRG commenced refurbishment of Dredge D1 and associatedinfrastructure at the Sierra Rutile mine. The refurbishment project wassuccessfully completed in March 2006 with the start of commercial scaleproduction. Dredge D1 will produce approximately 100,000 tonnes per annum ofnatural rutile, representing approximately 14.5% of world rutile production.Construction work on Dredge D2 commenced in May 2006 and when completed in thethird quarter of 2007 will double Sierra Rutile's annual production to 200,000tonnes per annum, representing approximately 23.5% of world rutile production.The first shipment of rutile will be made by the end of May 2006. Bauxite In January 2006, refurbishment of the SML Bauxite mine was completed andcommercial scale production commenced at the rate of 1.2 million tonnes perannum of bauxite. The restart of operations was completed on schedule and onbudget. The first shipment of 38,500 tonnes of bauxite was made in February2006. TRG's bauxite production for the initial three years is being soldforward under long term off-take contracts with Alcoa World Alumina LLC andGlencore AG. The is operated by P.W. Mining International Limited ("PW") underthe terms of an agreement whereby PW is responsible for the mining andprocessing of the ore and maintenance of the infrastructure facilities. Outlook As we begin regular shipments from our operations, we note that sales agreementsfor all of the Group's pigment grade rutile are in place while demand forwelding grade rutile is strong. In the year ahead we expect demand for titaniumdioxide to increase in line with forecast global GDP growth of approximately 3%and interest from buyers to remain strong. The high quality, low cost nature of our rutile operations will enable us tocompete effectively despite the growth in feedstock production as customersincreasingly demand higher grade titanium dioxide feedstocks. All the Group's bauxite production is covered by long term off take agreementswith two major aluminium producers and we continue to evaluate ways to increasethe Group's bauxite production to take advantage of the continuing strongdemand. The Group remains committed to playing an active role in the long term,sustainable development of Sierra Leone and I believe that the example we haveset will encourage others to invest in what is an increasingly stable, secureand prosperous nation. Financial Statements CONSOLIDATED BALANCE SHEET - DECEMBER 31, 2005 Notes 2005ASSETS USD'000Non-current assetsProperty, plant and equipment 5 61,279Intangible assets 6 12,985Non-current receivables 8 1,367Deferred tax assets 9 (a) 50,304 125,935 Current assetsInventories 10 7,155Trade and other receivables 11 8,777Cash and cash equivalents 25( c) 79,682 95,614 Total assets 221,549 EQUITY AND LIABILITIESCapital and reservesShare capital 12 194,951Revenue deficit (13,577)Equity holders' interest 181,374 LIABILITIESNon-current liabilitiesBorrowings 13 28,390Provisions for liabilities and charges 14 2,150 30,540 Current liabilitiesTrade and other payables 15 9,625Current tax liabilities 16 (d) 10 9,635 Total liabilities 40,175 Total equity and liabilities 221,549 CONSOLIDATED INCOME STATEMENTFOR THE PERIOD DECEMBER 14, 2004 TO DECEMBER 31, 2005 Notes 2005Continuing operations USD'000 Sales 2 (o) 337 Cost of sales 18 (98) Gross profit 239 Other income 20 1,721 Operating expense 18 (80) Administrative and marketing expenses 18 (14,828) Other expenses 18 (4,124) Operating loss (17,072) Finance costs 21 (489) Loss before taxation 17 (17,561) Income tax expense 16 (a) 3,984 Loss for the period from continuingoperations (13,577) Loss attributable to equity holders of the group/company (13,577) Loss per share (USD) - basic 23 (a) (0.16) CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE PERIOD DECEMBER 14, 2004 TO DECEMBER 31, 2005 Share Revenue capital deficit Total USD'000 USD'000 USD'000 At May 16, 2005 - - - Issue of share capital 194,951 - 194,951 Loss for the period - (13,577) (13,577) At December 31, 2005 194,951 (13,577) 181,374 CONSOLIDATED CASH FLOW STATEMENTFOR THE PERIOD DECEMBER 14, 2004 TO DECEMBER 31, 2005 Notes 2005 USD'000Operating activitiesCash absorbed in operations 25(a) (26,974)Interest received 1,277 Net cash used in operating activities (25,697) Investing activitiesAcquisition of subsidiaries net of cashacquired 24 32,553Purchase of property, plant and equipment (23,604)Loans and advance granted (640) Net cash used in investing activities 8,309 Financing activitiesIssue of ordinary shares 91,493Proceeds from long term borrowings 5,577Net cash from financing activities 97,070 Net increase in cash and cash equivalents 79,682 Movement in cash and cash equivalentsAt December 14, 2004, -Increase 79,682 At December 31, 2005 25(c) 79,682 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE PERIOD DECEMBER 14, 2004 TO DECEMBER 31, 2005 1. GENERAL INFORMATION Titanium Resources Group Ltd is a limited liability company incorporated and domiciled in the British Virgin Islands. The address of its registered office is at P.O.Box 173, Kingston Chambers, Road Town, British Virgin Islands. 2. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these financial statements are set out below: (a) Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements are prepared under the historical cost convention. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 4. (b) Investment in subsidiaries Consolidated financial statements The consolidated financial statements incorporate the financial statements of the company and enterprises controlled by the company (its subsidiaries) made up to December 31, each year. Control is achieved where the company has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated profit and loss account from the date of their acquisition or up to the date of their disposal. The consolidated financial statements have been prepared in accordance with the purchase method. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement in the year of acquisition. The results of subsidiaries which are not consolidated are brought into the financial statements to the extent of dividends received. All significant intercompany transactions, balances and unrealised gains on transactions are eliminated. Unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those adopted by the Group (c) Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads. Cost also includes environmental decommissioning costs that are recognised as a liability. 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, exploration, evaluation, mine development expenditure and deferred project expenditure In respect of deposit, minerals, exploration, evaluation, and deferred project, expenditure is charged to the profit and loss account 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 net 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. Expenditure relating to other expenses consists primarily of costs which provides benefit to the development of the Mine in general and is not specifically identifiable to a particular project. Mining leases The Group's mining leases are of sufficient duration (or convey a legal right to renew for sufficient duration) to enable all reserves on the leased properties to be mined in accordance with current production schedules. (d) 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 all fixed assets at rates calculated to write off the cost, less estimated residual value, of each asset evenly over its expected useful life as follows: Building - 4% Infrastructure - 4% Plant, machinery & equipment - 5% to 20% Vehicles - 3 to 5 years Mineral rights - Based on the estimated life of reserves Exploration, evaluation and mine development - Based on the estimated life on proven and expenditure, and expenditure on mineral rights probable reserves Changes in estimates are accounted for over the estimated remaining economic life of the remaining commercial reserves of each project as applicable. (e) Intangible assets (i) Goodwill Goodwill represents the excess of cost of acquisition over the Group's interest in the fair value of the net identifiable assets of the acquired subsidiaries at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Any net excess of the Group's interest in the net fair value of acquiree's net identifiable assets over cost is recognised in the income statement. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the gains and losses on disposal. Goodwill is allocated to cash-generating units for the purpose of impairment testing. (ii) Computer software 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 estimated to be 5 years. (f) Impairment of assets Asset that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). (g) Foreign currencies (i) Functional and presentation currency Items included in the financial statements are measured using United States Dollars, the currency of the primary economic environment in which the entity operates ("functional currency"). The consolidated financial statements are presented in United States Dollars, which is the group's functional and presentation currency. (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 monetary assets and liabilities denominated in foreign currencies are recognised in the income statement except when deferred in equity as qualifying cashflow hedges and qualifying net investment hedges. 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. (h) Financial instruments Financial assets and financial liabilities are recognised on the group's balance sheet when the group has become a party to the contractual provisions of the instrument. The group's accounting policies in respect of the main financial instruments are set out below. (i) Long term receivables Long term receivables with fixed maturity terms are measured at amortised cost using the effective interest rate method, less provision for impairment. The carrying amount of the asset is reduced by the difference between the asset's carrying amount and the present value of estimated cash flows discounted using the effective interest rate. The amount of loss is recognised in the income statement. Long term receivables without fixed maturity terms are measured at cost. If there is objective evidence that an impairment loss has been incurred, the amount of impairment loss is measured as the difference between the carrying amount of the asset and the present value (PV) of estimated cash flows discounted at the current market rate of return of similar financial assets. (ii) 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 income statement. (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 income statement over the period of the borrowings using the effective interest method. Preference shares, which are mandatorily redeemable on a specific date, are classified as liabilities. The dividends on these preference shares are recognised in the income statement as interest expense. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least twelve months after balance sheet date. (i) Inventories Inventories are stated at the lower of cost or net realisable value where cost is defined as follows: Titanium bearing minerals - Production cost and attributable overheads Concentrates - Production cost Washed bauxite - Production cost and attributable overheads Stockpiles - Production cost Materials - Average cost Fuel and sundry expenses - Purchase cost Goods-in-transit - Invoice cost excluding freight Net realisable value is the estimate of the selling price in the ordinary course of business, less the costs of completion and selling expenses. (j) Deferred income taxes Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred income tax is determined using tax rates that have been enacted by the balance sheet date and are expected to apply in the period when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which deductible temporary differences can be utilised. (k) Agricultural Development Fund The Group commits the higher of 0.1% (one tenth of one percent) of gross sales revenue in US dollars for each year (for rutile and ilmenite, it is based on gross sales free alongside ship at the Sierra Leone Port of Shipment) or USD75,000 and this shall be used exclusively for the development of agriculture in the areas affected by operations under the mining lease or in areas adjacent thereto within the same chiefdom. The annual amounts are paid over to the separate fund set up and controlled by the GOSL, Chiefdom representatives, and the Company's representatives. (l) 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. (m) Retirement benefit obligations Short-term employee benefits The cost of all short-term employee benefits is recognised 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 Sierra Leone based companies, the companies make 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. The employees also contribute 5% of their basic salary to the Trust. Share options scheme The Group operates a share option scheme. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted. At each balance sheet date, the entity revises its estimates of the number of options that are expected to become exercisable. It recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period. (n) Provision for rehabilitation 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 not 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. (o) Revenue recognition Revenue comprises the fair value for the sale of goods and services, net of value-added tax, rebates and discounts and after eliminating sales within the Group. Sales of goods are recognised when goods are delivered and title has passed. Sales of services are recognised in the accounting year in which the services are rendered (by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of total services to be provided). Other revenues earned by the Group are recognised on the following bases: • Interest income - on a time-proportion basis using the effective interest method. When a receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at original effective interest rate, and continues unwinding the discount as interest income. Interest income on impaired loans is recognised either as cash is collected or on a cost-recovery basis as conditions warrant. • Dividend income - when the shareholder's right to receive payment is established. (p) Provisions Provisions are recognised when: the Group has a present legal or constructive obligation as a result of past events; 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 the 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. 3. FINANCIAL RISK FACTORS 3.1 Financial risks factors The Group's activities expose it to a variety of financial risks: (a) market risk (including currency risk, fair value interest risk and price risk); (b) credit risk; (c ) liquidity risk; and (d) cash flow interest-rate risk. The Group's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group's financial performance. A description of the significant risk factors is given below together with the risk management policies applicable. (a) Market risk Currency risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to Euro and Sterling. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. The Group places its excess of liquidity in stable currencies as a means to hedge its exposure to foreign currency risks. (b) Credit risk The Group's credit risk is primarily attributable to its trade receivables. The amounts presented in the balance sheet are net of allowances for doubtful receivables, estimated by the Group's management based on prior experience and the current economic environment. The Group has no significant credit risk for the time being, as the operating subsidiaries are not fully operational. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history. (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. The Group aims at maintaining flexibility in funding by keeping committed credit lines available. (d) Cash flow and fair value interest rate risk As the Group has significant interest-bearing assets, its income and operating cash flows are substantially dependent of changes in market interest rates. The Group's interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest-rate risk. Borrowings issued at fixed rates expose the Group to fair value interest-rate risk. Group policy is to maintain all its borrowings in fixed rate instruments. At year end, all borrowings were at fixed rates. 3.2 Fair value estimation The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments. 4. 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. 4.1 Critical accounting estimates and assumptions 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(e)(i). These calculations require the use of estimates (note 6). 5. PROPERTY, PLANT AND EQUIPMENT Infrastructure Plant, Marine fleet Mine development machinery and equipment USD'000 USD'000 USD'000 USD'000 (a) COST At December 14, 2004 - - - - Acquisition through business combination 14,057 105,944 - 27,660 Addition 159 1,059 324 103 Write off - (105) - - At December 31, 2005 14,216 106,898 324 27,763 DEPRECIATION At December 14, 2004 - - - - Acquisition through business combination 13,589 96,984 - 24,565 Charge for the period 79 1,362 159 Write off - (105) - - At December 31, 2005 13,668 98,241 - 24,724 NET BOOK VALUES At December 31, 2005 548 8,657 324 3,039 5. PROPERTY, PLANT AND EQUIPMENT CONT'D Capital work Other Rehabilitation Total in progress expenses USD'000 USD'000 USD'000 USD'000 COST At December 14, 2004 - - - - Acquisition through business combination 26,920 3,912 - 178,493 Addition 6,772 - 15,187 23,604 Write off - (3,912) - (4,017) At December 31, 2005 33,692 - 15,187 198,080 DEPRECIATION At December 14, 2004 - - - - Acquisition through business combination 168 - - 135,306 Charge for the period - - - 1,600 Write off - - - (105) At December 31, 2005 168 - - 136,801 NET BOOK VALUES At December 31, 2005 33,524 - 15,187 61,279 (b) During the period under review, expenses relating to fulfilling the requirements of the Overseas Private Investment Corporation which were initially capitalised were written off as the loan facility was not utilised. ( c) Expenditure capitalised in respect of the refurbishment of the mines amounted to USD 15m. As at 31 December 2005, the refurbishment was still ongoing, therefore the cost was not depreciated. Similarly, depreciation has not been charged where the assets are presently not in the condition necessary to operate in the manner intended by management. (d) Borrowings costs of USD 1.314m (including its related exchange difference) arising on the refurbishment of the mines were capitalised during the period and are included in 'Additions'. A capitalisation rate of 8% was used, representing the borrowing cost of the loan used to finance the refurbishment activity. (e) Depreciation charge of USD 1,600,000 has been charged in other operating expenses. 6. INTANGIBLE ASSETS Computer software Goodwill costs Total USD'000 USD'000 USD'000(a) COST At December 14, 2004 - - - Addition during the period 12,876 115 12,991 At December 31, 2005 12,876 115 12,991 AMORTISATION At December 14, 2004 - - - Charge for the period - 6 6 At December 31, 2005 - 6 6 NET BOOK VALUE At December 31, 2005 12,876 109 12,985 (b) Amortisation charge of USD 6,000 has been charged in other operating expenses. (c) Impairment tests for goodwill: goodwill is allocated to the group's cash-generating units identified according to country of operation and business activity. 7. INVESTMENTS IN SUBSIDIARY COMPANIES (a) The list of the Company's significant subsidiaries is as follows: Name Class of Proportion of Country of Main business shares ownership incorporation held interest 2005 Year end Direct Indirect Global Aluminium Limited Ordinary 31/12/05 100% - BVI Intermediate holding company Bauxite Marketing Ltd Ordinary 31/12/05 - 100% BVI Marketing of Bauxite Sierra Mineral Holdings 1 Ordinary 31/12/05 - 100% BVI Extraction of Limited Bauxite Titanium Fields Resources Ordinary 31/12/05 100% - BVI Intermediate Ltd holding company SRL Acquisition No.1 Limited 1 A share 31/12/05 - 100% BVI Intermediate holding company SRL Acquisition No.3 Limited Ordinary 31/12/05 - 100% BVI Intermediate holding company The Natural Rutile Company Ordinary 31/12/05 - 100% BVI Marketing of Limited Rutile Sierra Rutile Holdings Ordinary 31/12/05 - 100% BVI Intermediate Limited holding company Sierra Rutile Limited Ordinary 31/12/05 - 100% Sierra Leone Extraction, concentration and sale of Rutile and Ilmenite sands. (b) With the exception of Sierra Rutile Limited, all the subsidiaries are incorporated in the British Virgin Islands (BVI) where there is no legal requirement for the preparation and filing of audited accounts. Titanium Resources Group Ltd is quoted on the AIM market of the London Stock Exchange which requires the publication of annual audited financial statements. 8. NON-CURRENT RECEIVABLES 2005 USD'000 Loan to the Government of Sierra Leone (see note (a) below) 727 Other non-current receivables 640 1,367 (a) This represents an amount loaned to Government of Sierra Leone (GOSL) to settle existing obligations to the International Finance Corporation. The loan is unsecured and payment was due at the end of 1995. 9. DEFERRED INCOME TAX Deferred income tax is calculated on all temporary differences under the liability method at 30% / 37.5%. (a) There is a legally enforceable right to offset current tax assets against current tax liabilities and deferred income tax assets and liabilities when the deferred income taxes relate to the same fiscal authority. The following amounts are shown in the balance sheet: 2005 USD'000 Deferred tax assets 50,541 Deferred tax liabilities (237) 50,304 At balance sheet date, the group had unused tax losses of USD 158,214,000 available for offset against future profits. A deferred tax asset has been recognised in respect of the losses of USD 158,214,000. (b) The movement on the deferred income tax account is as follows: 2005 USD'000 At December 14, 2004 - Acquisition through business combination 46,315 Income statement credit (note 16(a)) 3,989 At December 31, 2005 50,304 (c) The movement in deferred tax assets and liabilities during the period, without taking into consideration the offsetting of balances within the same fiscal authority, is as follows: (i) Deferred tax liabilities: Accelerated tax depreciation USD'000 At December 14, 2004 - Acquisition of subsidiary (99) Charged to Income statement (138) At December 31, 2005 (237) (ii) Deferred tax assets: Tax losses USD'000 At December 14, 2004 - Credited to Income statement 4,127 Acquisition of subsidiary 46,414 At December 31, 2005 50,541 50,304 10. INVENTORIES 2005 USD'000 (a) Washed Bauxite (see note (b) below) 20 Consumables (at cost) 7,499 Less: provision for write down (364) 7,155 (b) The cost of inventories recognised as expense and included in cost of sales amounted to USD 62,000. 11. TRADE AND OTHER RECEIVABLES 2005 USD'000 Advances and prepayments 8,647 Receivable from related parties 16 Other receivables 114 8,777 The carrying amount of trade and other receivables approximates their fair value. 12. SHARE CAPITAL(a) Number of Ordinary shares shares 2005 2005 USD'000 At December 14, 2004 - - Issued in exchange for 100% holding in Global Aluminium Limited and Titanium Fields Resources Ltd 100,000,000 100,000 Proceeds from other new issues 107,201,553 91,493 Share option scheme: - Employee - Value of service provided 2,989,985 2,634 - Professional services 936,007 824 At December 31, 2005 211,127,545 194,951 (i) The total authorised number of ordinary share is 500,000,000 shares with no par value. All issued shares are fully paid. (ii) On incorporation, on December 14, 2004, 50,000 ordinary shares were issued at USD 1 each to the subscriber to the memorandum of association of the company. On May 16, 2005, 1,000,000 ordinary shares were issued at USD 1 each as part of total consideration to gain 100% holding in Global Aluminium Limited and Titanium Fields Resources Ltd. On July 14, 2005, another 99,000,000 ordinary shares of USD 1 each were issued as final part of total consideration to gain the 100% holding. On August 25, 2005, 87,151,553 ordinary shares were issued at 47 p each and were fully paid, on admission on the AIM market of the London Stock Exchange, for a total consideration of USD 73,762,983. Another 20,000,000 ordinary shares were issued at 50 p each and were fully paid, on second placing equivalent to USD 17,680,000. (b) Share options - Employees Share options are granted to directors and to selected employees. The exercise price of the granted option is equal to 47 p each, being the market price of the shares on the date of placement on the AIM market of the London Stock Exchange. One third of the option vests immediately, one third will vest on the first anniversary of the date of grant, that is on 25 August 2006 and the remaining third will vest on the second anniversary of the date of grant. The option will lapse and may not in any event be exercised later than the day before the fifth anniversary of the date of grant. Exercise of the option is not subject to performance-related conditions. ( c) Share options - Professional services In consideration of services given to the company by Nabarro Wells & Co Ltd, (NWCF LLP), the company granted to NWCF LLP an option to subscribe for 936,007 common shares of no par value at a subscription price of 47 p each. 13. BORROWINGS 2005 USD'000(a) Non-current : Government of Sierra Leone loan 28,220 Loans from related company 170 Total borrowings 28,390 (i) The rates of interest on the loans vary between 8% to 15%. (ii) Government of Sierra Leone borrowing is subject to interest of 8% per annum and is repayable on 15 June and 15 December in each year commencing on the first payment date which is the earlier of 84 months after date of first disbursement or June 15, 2012. The interest is calculated on the basis of a 360 day year consisting twelve - thirty day months. The Group does not have any undertaking, nor is it contractually bound to create, any lien on or with respect to any of its rights or revenues. The interest is classified as non current as according to section 3.03 of the Loan Agreement between Sierra Rutile Limited and the Government of Sierra Leone, the first interest payment shall not be made by the company until the earliest of the interest payment date occurring thirty - six months after the date of first disbursement, or June 15, 2008. All interest accruing on the principal balance outstanding from time to time on the loan until the first interest payment is due shall be added to the principal balance of the loan and shall accrue interest on the same terms. (b) The exposure of the Group's borrowings to interest-rate changes and the contractual repricing dates are as follows: 6 months 6 -12 1 - 5 Over or less months years 5 years Total At December 31, 2005 Total borrowings - - 170 28,220 28,390 (c) The maturity of non-current borrowings is as follows: 2005 USD'000 After one year and before two years 170 After two years and before five years - After five years 28,220 28,390 (d) Non-current borrowings can be analysed as follows: 2005 USD'000 - After one year and before five years Loans from related company 170 - After two years and before five years - - After five years Government of Sierra Leone loan 28,220 (e) The effective interest rates at the balance sheet date were as follows: 2005 Euro USD % % Government of Sierra Leone loan 8 - Loans from related company - 15 (f) The carrying amounts of the group's borrowings are denominated in the following currencies: 2005 USD'000 Euro 28,220 US Dollar 170 28,390 (g) The carrying amounts of non-current borrowings are not materially different from their fair value. 14. PROVISION FOR LIABILITIES AND CHARGES 2005 USD'000 At December 14, 2004 - Addition through business combination 2,150 At December 31, 2005 2,150 Rehabilitation The area to be rehabilitated remains the same since no mining activity was carried out since the closure of the mines. 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. 15. TRADE AND OTHER PAYABLES 2005 USD'000 Trade payables 3,615 Amounts due to related parties 1,512 Other payables and accrued expenses 4,498 9,625 The carrying amounts of trade and other payables approximate their fair value. 16. INCOME TAX EXPENSE 2005 USD'000 (a) Current tax on the adjusted profit for the period at 0% - 30% - Deferred income tax (Note 9) 3,989 Minimum turnover tax (5) Credit to Income statement 3,984 (b) The tax on the group's loss before tax differs from the theoretical amount that would arise using the basic tax rate of the company as follows: 2005 USD'000 Loss before tax (17,561) Tax calculated at 0% - Effect of different tax rates in different countries (4,301) Investment allowance (8) Income not subject to tax (95) Expenses not deductible for tax purposes 510 Others (94) Minimum turnover tax 5 Tax credit (3,984) (c) Under the provisions of the Sierra Rutile Agreement (Ratification) Act, 2002, tax is charged at an amount not less than 3.5%, of the turnover or more than 37.5%, of the profits of the business in any financial year. A subsequent agreement was reached in June 2003 with the GOSL to reduce the rate to 0.5% of the turnover of the business through the year 2014 and revert to the 3.5% rate in the year 2015. The group, through its subsidiaries Sierra Rutile Limited and Sierra Mineral Holdings 1 Limited, is entitled to unutilised tax losses brought forward and capital allowances in respect of fixed asset acquisitions. These amounts have yet to be agreed with the Commissioner of Income Tax of Sierra Leone. (d) Current tax liabilities 2005 USD'000 At December 14, 2004 - Addition through business combination 5 Charged to the Income statement (see note 16(a) above) 5 At December 31, 2005 10 17. LOSS BEFORE TAXATION 2005 USD'000 Loss before taxation is arrived at after: Charging: Depreciation on property, plant and equipment (note 5) - owned assets 1,600 Amortisation of intangible assets (note 6) 6 Employee benefit expense (note 19) 3,831 18. EXPENSES BY NATURE 2005 USD'000 Depreciation (note 5) 1,600 Amortisation (note 6) 6 Employee benefit expense (note 19) 3,831 Changes in inventories of finished goods and work in progress 62 Transportation 9 Other expenses 13,623 Total cost of sales, selling and marketing and administrative expenses 19,131 19. EMPLOYEE BENEFIT EXPENSE 2005 USD'000 Wages and salaries, including termination benefits 926 Social security costs 271 Share options granted to directors and employees 2,634 3,831 20. OTHER INCOME 2005 USD'000 Interest income 1,721 21. FINANCE COSTS 2005 USD'000 Interest expense: - Government of Sierra Leone loan (1,314) - Other loans not repayable by instalments (78) Total borrowing costs (1,392) Less: amounts included in the cost of qualifying assets 1,314 Net foreign exchange transaction losses (note 22) (411) (489) 22. NET FOREIGN EXCHANGE LOSSES 2005 USD'000 The exchange differences charged to the income statement are included as follows: Finance costs (note 21) (411) (411) 23. LOSS PER SHARE 2005 USD (a) From continuing operations Basic loss per share Loss attributable to equity holders of the company from continuing operations (thousand) (13,577) Weighted average number of ordinary shares in issue 82,397,742 Basic loss per share from continuing operations (0.16) (b) As stated in note 12(b), 5,979,970 share options granted to directors and selected employees will vest after year end and will potentially affect the earnings per share (EPS). Because there is a reduction in loss per share resulting from the assumption that the share options are exercised, the latter are anti dilutive and are ignored in the computation of diluted EPS. As there are no other instruments that may have a potential dilutive effect, no diluted EPS is disclosed. 24. BUSINESS COMBINATIONS (a) Acquisition On May 16, 2005 the Company acquired 100% of the share capital of Global Aluminium Ltd and Titanium Fields Resources Ltd, companies engaged in investment holding. The acquired businesses contributed revenues of USD 337,000 and net profit of USD 9,242,000 to the Group for the period from May 16, 2005 to December 31, 2005. If the acquisition had occurred on January 1, 2005, Group revenue would have been USD 579,000, and loss for the period would have been USD 16,021,000. Details of net assets acquired and goodwill are as follows: USD'000 Purchase consideration: - Fair value of shares issued 71,444 Total purchase consideration 71,444 Fair value of net assets acquired (58,568) Goodwill (Note 6) 12,876 The goodwill is attributable to prospects of high profitability of the acquired businesses significant synergies expected to arise after the Company's acquisition of subsidiaries. The book value of the assets and liabilities are assumed to be not materially different from their fair values. (b) The assets and liabilities arising from the acquisition are as follows: Fair value USD'000 Fair value of net assets acquired ** 58,568 Add: Goodwill 12,876 71,444 Less: Purchase consideration settled by shares issued (71,444) Cash and cash equivalents in subsidiaries acquired (32,553) Net cash inflow on acquisition USD'000 (32,553) ** The components of the net assets acquired (assets and liabilities) are not disclosed as it is impraticable to do so. 25. NOTES TO THE CASH FLOW STATEMENT 2005(a) Cash used in operations USD'000 Loss for the period (17,561) Adjustments for: Depreciation on Property, Plant and Equipment 1,600 Amortisation of Intangible assets 6 Share option scheme - Employee 2,634 Share option scheme - Professional service 824 Interest income (1,721) Interest expense 78 Exchange gains on borrowings (2,210) (16,350) Changes in working capital (excluding the effects of acquisition of subsidiaries) -inventories (96) -trade and other receivables (13,476) -trade and other payables 2,948 Cash absorbed in operations (26,974) (b) Non cash transactions The principal non cash transaction is the issue of shares as consideration for the acquisition of subsidiaries listed in note 7. In order to gain 100% holding in Global Aluminium Limited (GAL) and Titanium Fields Resources Ltd (TFR), the company issued shares equivalent to USD 71,444,000 to the former owner of GAL and TFR. This transaction did not involve any movement of cash. (c) Cash and cash equivalents 2005 USD'000 Cash in hand and at bank 17,286 Short term bank deposits 62,396 Cash and cash equivalents 79,682 26. CAPITAL COMMITMENTS 2005 USD'000 Property, plant and equipment acquisition contracted for at the balance sheet date but not yet incurred: 12,619 (a) Sierra Rutile Limited had capital commitments in respect of Dredge 1 Project amounting to USD 8.3m. It also entered into an agreement with OCI Engineering Limited to purchase the Mambang Dredge in Malaysia for an agreed amount of USD 3,750,000, out of which USD100,000 has already been paid. (b) At year ended December 31, 2005, Sierra Mineral Holdings 1 Limited had capital commitments which amount to USD 668,753. This relates to the balance outstanding (milestone payment) on the Engineering, Procurement, Construction and Commissioning Agreement signed with P.W Mining International Limited for the rehabilitation of the mines. 27. RELATED PARTY TRANSACTIONS (a) Trading transactions Interest Loans or Amount owed Amount owed Total advances to to related by related /(from) parties parties USD'000 USD'000 USD'000 USD'000 USD'000 Directors - 306 - - 306 Enterprises in which individual shareholders with significant influence have substantial/ significant interest: - Mineral Holdings 1 Limited - (170) (845) - (1,015) - Gondwana (Investments) SA - - - 16 16 Subsidiaries - Titanium Fields Resources Ltd 200 200 - Sierra Rutile Holdings Limited 101 101 - Sierra Mineral Holdings 1 Limited 243 243 - SRL Acquisition No.1 Limited 200 200 744 136 (845) 16 51 (b) Loans and advances are unsecured. No provisions have been made for doubtful debts in respect of Amounts owed by related parties. (c) Directors' transactions(i) The Group has granted advances to Directors for which the balance outstanding at December 31, 2005 was USD 306,000 and is included in receivables. 2005 (ii) Key management personnel compensation USD'000 Directors' fee 365 Salaries and short-term employee benefits 2,366 Post employment benefits 174 Other long term benefits 85 Termination benefits 3 Share options - based payment 1,168 4,161 28. AGREEMENT WITH THE GOVERNMENT OF THE REPUBLIC OF SIERRA LEONE. According to the First Amendment Agreement dated February 4, 2004, entered by and between the Government of the Republic of Sierra Leone and Sierra Rutile Limited, the Government assigned to SRL A 3 all its right, title and interest in, to, and under the future PAYE taxes due from Sierra Rutile Limited to the Government in an amount not exceeding USD 37 m. In consideration for the foregoing assignment, SRL A 3 agreed to transfer up to a 30% equity interest in Sierra Rutile Holdings Ltd to the Government, within 60 days of the end of the calendar year commencing on the ''Refurbishment Start Date'' (i.e April 1, 2005), equal in value to the PAYE amounts accrued during such calendar year. As at December 31, 2005, the shares were not yet transferred and PAYE accrued at that date in Sierra Rutile Limited amounted to USD 497,000. 29. EVENTS AFTER BALANCE SHEET DATE Subsequent to the balance sheet date the group has commissioned the Dredge 1 Project and commercial production is expected to start in the first quarter of 2006. Work has started on Dredge 2 Project. 30. REPORTING CURRENCY The financial statements are presented in thousands of United States Dollar (USD) 31. MAJOR SHAREHOLDERS Substantial individual shareholders and corporate investors own up to 65.8% of the company's shares. The remaining 34.2% of the shares is widely held. ENDS This information is provided by RNS The company news service from the London Stock Exchange