SRX.L Regulatory News (SRX)

Sierra Rutile Limited

Financial results for the year ended 31 December 2014

London, UK, 26 March 2015: Sierra Rutile Limited ("Sierra Rutile", the "Company", or the "Group") is pleased to announce its results for the year ended 31 December 2014 and has today published its Annual Report & Accounts on the Group's website at http://www.sierra-rutile.com/.

Operational Highlights:

· Robust full-year 2014 production of 114,163 tonnes of rutile, a decrease of 5% on 2013, largely resulting from Ebola-related challenges experienced during the year.

· Sustained focus on cost control resulted in a decrease in unit and operating cash costs.

· Completion and commissioning of mineral separation plant upgrade. A further final upgrade is to be completed in H1 2015.

· Continued progress on the Gangama Dry Mine project, including the completion of a feasibility study for a 500tph throughput option.

· Reconfiguration of the Sembehun projects as a dry mine.

· Agreement reached for the deferral of repayments on the loan from the Government of Sierra Leone until June 2016.

· Comprehensive Ebola-mitigation plan developed and implemented. There have been no cases of Ebola at Sierra Rutile's operations in 2014 or to date.

Financial Highlights:

· 17% increase in rutile sales volumes to 129,602 tonnes (2013: 111,018 tonnes).

· Revenue generation reduced to US$117.8 million (2013:US$ 123.4 million), reflecting a 21.6% fall in the average realised rutile price.

· Significant reduction in unit operating costs despite the effect of inflation in certain products and services due to Ebola and lower than planned production:

- 7% reduction in direct operating cash costs1 to US$546/tonne (2013: US$588/tonne).

- 5.4% reduction in operating cash costs3 to US$646/tonne (2013: US$683/tonne).

- 10.5% reduction in all-in cash costs4 to US$683/tonne (2013: US$763/tonne).

· EBITDA2of US$14.3 million (2013: US$35.0 million).

· Strong operational cash generation of US$8.6 million, allowing:

- US$19.8 million of capital investment; and

- US$6.1 million of debt repayments.

· Cash and cash equivalent of US$6.5 million and total current assets of US$76.8 million as at 31 December 2014.

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

"We are proud to have achieved this result for the year whilst in the midst of the ongoing Ebola virus outbreak in Sierra Leone. We have continued to focus on managing our cost base and are pleased to have maintained strong cost control when certain products and services in Sierra Leone experienced Ebola-linked inflation. This rigorous approach to cost control ensured that we generated significant operational cash flow and allowed for continued selective investment in our asset base.

Looking forward into 2015, we expect that Ebola-related challenges will continue to ease, allowing us to invest further in our business. Our management and staff have made huge efforts to minimise the effect of Ebola on our operations and to keep our employees safe and Ebola-free, and I would like to express my appreciation for their efforts in achieving the Q4 performance in these difficult circumstances".

1 Direct operating cash cost (includes direct operating costs but excludes depreciation) 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 (includes direct operating costs, general administrative costs and corporate costs but excludes depreciation) less by-product revenue divided by tonnes of rutile produced.

4 All-in operating cash cost (total operating cash cost plus stay-in-business capital cost, but excludes depreciation) less by-product revenue divided by tonnes of rutile produced.

For Further Information:

Chairman's statement

The last twelve months have proven a challenging period in the history of Sierra Rutile, with the year dominated, sadly, by the outbreak of the Ebola virus in Sierra Leone and neighbouring countries. Despite this backdrop and the challenges that it has brought, we take great pride in the way Sierra Rutile has performed and responded during the year and, once the virus has passed, we expect that the knowledge and experiences gained during 2014 will place Sierra Rutile in an even stronger position for the future.

Even prior to the outbreak of Ebola, challenging market conditions meant that Sierra Rutile's primary objective for the year was to remain cash generative at the operating level, thus ensuring comfortable servicing and repayment of Sierra Rutile's borrowings and allowing continued, selective, investment in Sierra Rutile's asset base.

Average realised rutile prices fell 21.6% from 2013, making it essential for Sierra Rutile to maintain its disciplined approach to cost control. This was achieved, with a 5.4% reduction in total operating cash costs and 10.5% reduction in all-in cash costs, despite a 5% fall in production. Achieving our operating cash flow objective without the added challenges of Ebola, would have been a success in itself. To accomplish what we have, whilst dealing with the well-documented Ebola-related challenges was particularly pleasing and is a testament to Sierra Rutile's high-quality asset base and the skill of its management and employees.

By continuing to focus on cash generation, Sierra Rutile was able to invest a total of $19.8m into its assets during the year, despite both declining prices and Ebola. This included the completion, on budget, of the Mineral Separation Plant Upgrade, which increases processing flexibility and ensures that the plant is ready to receive additional feed from future production expansion projects. In addition, further refinement and optimisation of the Gangama Dry Mine project will extend Sierra Rutile's ability to leverage its existing processing capacity and infrastructure further into the future. This capex-efficient expansion will increase production and lower operating costs, positioning the Company to commence meaningful and sustainable distribution to shareholders.

Sierra Rutile also benefited from its strong balance sheet and supportive relationships with its lenders (the Government of Sierra Leone and Nedbank). The Company was able to comfortably service its borrowings throughout the year and made payments of $6.1m on its loan from the Government of Sierra Leone. Sierra Rutile also reached an agreement to defer repayments of the loan from the Government of Sierra Leone until June 2016, providing an innovative funding source for asset expansion, including the Gangama Dry Mine, without increasing the current level of borrowings. We are extremely appreciative of the Government of Sierra Leone's support for this deferment, which is illustrative of the positive business environment in Sierra Leone.

The overall health of our employees and the communities in which we operate has always been of paramount concern to Sierra Rutile. The recent outbreak of Ebola has only served to reinforce this commitment and we remain very pleased to report that no cases of Ebola were present at any of our operations. Our long-standing engagement with, and support of, the local community allowed us to react quickly to the Ebola-outbreak. We implemented hygiene and screening points, limited site access, conducted sensitisation programs for employees and the local communities, implemented training programs for nurses, drivers and porters focused on infection prevention and control, and put in place detailed action plans in the event of any cases of Ebola at our operations. Additionally, we created an isolation and quarantine unit at our existing health clinic for use by employees, families and the local community in the event of any cases. Finally, Sierra Rutile and its shareholders donated $487,000 to the Government of Sierra Leone and associated charities for Ebola prevention and control.

The above Ebola-related activities came on top of the numerous existing health, community and environment programs we have in place. These include the funding of the Sierra Rutile Clinic, which treated over 19,000 people in 2014, supporting two local educational centres, stocking local lakes with over 300,000 fish, funding the ongoing works of the Sierra Rutile Foundation, meeting our commitments to land rehabilitation and further expanding our agricultural business, which included the first crop of pineapples during 2014. Sierra Rutile benefits equally, however, from the support provided by the local communities, and we remain committed to ensuring this mutually-supportive relationship continues in future years.

Chairman's statement (continued)

All of the above achievements were made possible by the skills, hard work and commitment of our management and employees. For 2014, it was their commitment that was most impressive, when set against the backdrop of the prevalence of a highly contagious, dangerous disease, travel restrictions, reduced access in and out of the country and generally challenging working conditions. I would like to extend my appreciation to management and employees for this considerable effort. I would also like to thank Jan Castro and Martyn Buttenshaw, both of whom stepped down as directors during the year, for their contributions to Sierra Rutile while directors, and wish them both the best for the future.

For the coming year, Sierra Rutile will continue to focus on cash generation and cost management, and continue preparations for further expansion, firstly with the Gangama Dry Mine, when market and Ebola-conditions permit. With its world-class assets base, low-capex, unit cost-reducing expansion options, strong balance sheet and dedicated management and employees, Sierra Rutile remains extremely well positioned for the future, particularly as market conditions improve and the impacts of Ebola diminish. Despite the adversity of 2014, Sierra Rutile finishes 2014 a stronger business than it started the year.

Michael Barton

Non-Executive Chairman

Chief Executive's statement

The professionalism, expertise and commitment of all Sierra Rutile employees shone through in 2014, particularly amidst the challenging backdrop in both the mineral sands market and conditions in Sierra Leone. The dedication and professionalism demonstrated by our employees enabled the Company to maintain solid production levels, manage costs effectively, and make good progress with our projects, putting the Company on a sound footing for the future.

Full year production was lower than anticipated at 114,163 tonnes of rutile and 35,839 tonnes of ilmenite, a reduction of 5.1% and an increase of 10.8% respectively. This was, in part, driven by mining operations being in lower grade areas during 2014 and, in part, driven by certain operational challenges caused by the outbreak of the Ebola virus. Whilst the direct impact on production from Ebola was limited to just 4 days of shutdown during the year, the indirect impact was greater and felt most acutely in extended maintenance shutdowns, caused by the slow provision of irregular parts and materials, as well as a prolonged commissioning of the mineral separation plant upgrade. Optimising spare and material inventory levels whilst not tying up too much working capital has been an ongoing challenge during the year, however the improved understanding we have gained from this process will, I believe, have positive benefits in the years to come. It was also very pleasing to see the year end on a high, with a very strong Q4 production performance.

Despite a difficult market environment, sales volumes remained strong during 2014, with Sierra Rutile selling a record 129,602 tonnes of rutile and reducing inventory held to more normal levels. Demand for natural rutile was strong but also highly price-sensitive as the overall TiO2 feedstock was in surplus from an abundance of lower-grade feedstocks. This resulted in a cap on the premium customers were willing to pay for natural rutile over lower-grade products and dragged the market downwards overall, with average realised prices 21.6% lower for 2014 than 2013. Consequently, despite strong sales volumes, turnover fell 5% for the year.

Successful cost control continued to be a major highlight for Sierra Rutile, justifying our early focus in this area as the market began to deteriorate in early 2013. Despite the reduced production and Ebola-linked inflation of certain costs, all-in cash cost fell meaningfully during the year (10.5%) which was an exceptional result given the reduction in production.

The long-term strategy of leveraging Sierra Rutile's installed processing capacity and infrastructure remains compelling, as the impact on unit cost is considerable, given the high proportion of fixed costs in our operations. On an absolute basis, cost of sales increased, as an additional 16,463 tonnes of rutile were released from inventory for sale, and combined with an increase in non-cash depreciation, meant that Sierra Rutile recorded a loss for the year. While this is disappointing, it does not overshadow the very impressive result that Sierra Rutile continued to generate cash at the operational level, ensuring the overall health of the Company and allowing us to continue improving operations through selective investment in our assets.

With respect to investment, the completion of the minerals separation plant upgrade was a major milestone for Sierra Rutile as it increases our processing flexibility and capacity to process future production expansions. The final stage of upgrade to the mineral separation plant, the installation of a number of new spirals, will be completed in early 2015. Following this, and despite its already long service, the mineral separation plant will be a thoroughly modern plant that will meet the Company's processing requirements for the foreseeable future.

Following the success of the Lanti Dry Mine project the Company has completed the transition of its expansion strategy to one based around dry mining units, which provide the advantages of both lower capital intensity and shorter construction times, allowing for more flexible production in order to respond to market conditions more effectively. The Sembehun project was reconfigured as a dry mining operation and the Gangama Dry Mine plans were further refined. We now look forward to embarking upon the Gangama Dry Mine construction when broader market conditions support this expansion.

Sierra Rutile's relationship with our stakeholders in Sierra Leone has always been essential to us and during this year, through collectively dealing with the challenges of Ebola, our relationships have grown stronger than ever. I would like to thank the local communities in which we operate and the Government of Sierra Leone in particular for their support during the year.

In closing, I will return to our people, who I would like to thank again for their efforts in 2014. It was not an easy year on many fronts, yet their commitment and effort was exemplary and I am confident that our future is very bright as we move out of this challenging period.

John Bonoh Sisay

Chief Executive Officer and Executive Director

Business review

Group Overview

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

Sierra Rutile's assets, located in southwest Sierra Leone, is centered upon 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 895 million tonnes (as at 30 September 2014).

The Group is also engaged in agricultural activities through its wholly owned subsidiary African Lion Agriculture ("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 Sierra Rutile's workforce is paramount. The Group 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 production sites 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 Sierra Rutile's resource.

Business review (continued)

Mineral Sands Operations

Mineral Resources Estimate

Sierra Rutile's mining concession is one of the largest natural rutile deposits known in the world. In September 2014, the Group obtained an upgraded JORC-compliant Mineral Resource for the deposit, which estimated that the total measured, indicated and inferred resources were over 895 million tonnes.

2014:

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

2013:

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

Mining Operations

Sierra Rutile's mines are 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, three of which are currently being mined.

Lanti Dredge Mine

The Lanti Dredge Mine currently employs a bucket ladder dredge, mining the Lanti deposit that feeds a floating treatment plant producing a heavy mineral concentrate for further processing.

Lanti Dry Mine

The Lanti Dry Mine currently utilises conventional open pit earth-moving equipment to mine certain areas of the Lanti and all of the Gbeni deposit that cannot be mined using the dredge. The mining fleet feeds a concentrator, currently located adjacent to the Lanti and Gbeni deposit, which produces a heavy mineral concentrate for further processing.

Mogwemo Tailings Mine

In 2015, Sierra Rutile will commence the small-scale reprocessing of old tailings from the previously mined Mogwemo deposit. The unconsolidated old tailings are mined and concentrated by a contractor using small suction dredges that supply a heavy mineral concentrate to Sierra Rutile.

Business review (continued)

Mineral Sands Operations (continued)

Gangama Dry Mine

Sierra Rutile continued to advance options for the Gangama Dry Mine project, completing a feasibility study on a scalable 500tph throughput option as an alternative to the 1,000tph throughput option previously announced on 31 October 2012. Highlights of the 500tph project include lower total capital expenditures and a longer mine life. The project would be expected to produce 46,000 tonnes of rutile per year.

The Gangama Dry Mine project, whether developed as a 500tph, 1,000tph or two stage (2x500tph) mine has been greatly de-risked given the experience gained in commissioning and sustainably operating the Lanti Dry Mine.

Lessons learned through the construction of the Lanti Dry Mine have been applied to the design of Gangama, and include the following alterations:

· Direct tip feed system - eliminating the need for front-end loaders

· Two-stage scrubbing - increasing recoveries through the spiral circuit

· Increased design flexibility to cope with ore variability - providing greater operational flexibility and increased recoveries

· Integrated waste handling facilities - reducing re-handle. 

Sierra Rutile is now considering the findings of the 500tph feasibility study as it finalises future mine plans and continues to monitor market conditions and the impact of Ebola to assess the appropriate time to develop the Gangama Dry Mine project in one of its variants.

The ability to realise multiple low-capital dry mining projects across its large resource base provides Sierra Rutile with excellent operational flexibility. As demonstrated by the Lanti Dry Mine, Sierra Rutile is able to quickly bring on-line additional dry mining units for a limited capital cost, and has the ability to quickly scale-up production in order to respond to market demand.

Sembehun Mine

The Company has also worked to progress the Sembehun Mine project, following completion of a scoping study conducted by external consultants. During 2014 the Sembehun project was reconfigured as a dry mining operation, in keeping with the more flexible, lower capital expenditure strategy of dry mining expansion. Sembehun represents the next step change in production for Sierra Rutile after the Gangama Dry Mine.

Mineral Processing

All Sierra Rutile's mining units feed one central mineral separation plant, located at the Company's central operational hub. The mineral separation plant separates the heavy mineral concentrate into several distinct rutile products, and ilmenite by-product and periodically a zircon concentrate and other mineral concentrates. The mineral separation plant upgrade was successfully commissioned during the year. The upgrade will increase the process recoveries and reduce unit costs as a result of improved power and fuel economies. A final step in the mineral separation plant upgrade will occur during H1 2015; being the addition of new spirals to give both greater throughput and flexibility in processing different types of tailings material.

Infrastructure

Sierra Rutile's mines and processing operations are self-sufficient. Power is generated on-site through a marine fuel oil ("MFO") power plant and Sierra Rutile, operates its own port, maintains local road infrastructure, has its own health clinic and residential camps, and generally provides and maintains its own infrastructure and ancillary services.

Agricultural Operations

The Group continued with its agribusiness project, 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 case for this project 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.

Business review (continued)

Agricultural Operations (continued)

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 the Company operates.

Our investment strategy is aligned with the current global markets that have seen higher cacao bean prices. 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.

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 2014, the Group had cash on hand of US$6.5 million.

The Group also had trade receivables of US$17.6 million (2013: US$2.5 million). At the year end, the Group was carrying an inventory of 20,095 tonnes of rutile (2013: 36,558 tonnes) and 10,657 tonnes of ilmenite (2013: 12,489 tonnes) which have a balance sheet value of US$14.8 million (2013: US$30.1 million). During the year the Group invested US$16.7 million in property, plant and equipment with US$3.9 million being spent on existing operations and US$12.8 million on expansion projects.

Borrowings

During 2014, the Group paid US$6.1 million in principal and interest on the unsecured loan from the Government of Sierra Leone ("GOSL"). In December 2014, the Group obtained a temporary deferment, with final approval being granted in January 2015, for the deferral of repayments for the loan from the GOSL. Repayments will resume from June 2016. The balance outstanding as at 31 December 2014 is US$23 million.

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"). This facility was renewed for a further two years on 22 July 2014. The Nedbank Loan carries an interest rate of LIBOR plus 4% in the first year (through to 22 July 2014) moving to 5% thereafter 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. As at 31 December 2014, this loan was drawn down in full.

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 loan is subject to satisfaction of a limited number of outstanding conditions customary for a financing of this type. Sierra Rutile agreed to extend the availability period of the senior term loan facility with Nedbank, and has up until 31 December 2015 to reach financial close after which the funds will be available for drawdown for 18 months.

Turnover

Rutile, ilmenite and zircon and other concentrates sales of US$117.8 million in 2014 were 5% lower than the US$123.4 million achieved in 2013. In 2014, the Group sold 129,602 tonnes of rutile generating revenue of US$106 million (2013: 111,018 tonnes for US$116 million), 37,671 tonnes of ilmenite generating revenue of US$6.7 million (2013: 24,170 tonnes for US$6.1 million) and 36,530 tonnes of zircon and other concentrates generating revenue of $4.9 million (2013: 13,597 tonnes for $1.3 million).The major contribution to the decrease in sales in 2014 over 2013 was the significantly weaker pricing obtained with an average realised price for rutile in 2014 of US$818/tonne (2013: US$1,044/tonne), partially offset by the 17% increase in volume of product sold.

Cost of Sales

Direct operating cash costs decreased 7% to US$546 per tonne (2013: US$588 per tonne) as a result of continued focus on the cost efficiency drive implemented in 2013.

On an absolute basis, cost of sales were higher at US$111.3 million for the year from US$93.1 million in 2013 due to the greater volume of rutile sold, impacted by:

· increased change in inventories of finished goods of US$ 14.2 million (2013: income of US$5.3 million) due to greater volume of rutile sold; and

· an increase in depreciation charge to US$21.0 million (2013: US$17.6 million) mainly due to additional depreciation on Lanti Dry Mine assets.

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

Administrative and Marketing Expenses

Administrative expenses decreased by US$0.7 million from US$14.6 million in 2013 to US$13.9 million in 2014 due to continued focus on cost control.

Finance review (continued)

Exceptional Items

During the year, two damaged barges worth US$ 0.5 million were written off from property, plant and equipment as the Board had decided that they would no longer be used.

In 2013, capitalised costs of US$0.4 million in relation to certain feasibility studies were written off from intangible assets as the Board had decided that they would no longer be used.

Finance Costs

Net finance costs decreased from US$5.1 million in 2013 to US$1.2 million in 2014. The decrease was principally due to the depreciation 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 gain of US$3.2 million in 2014 (2013: loss of US$1.3 million).

Corporate Social Responsibility

Environmental, Health and Safety ("EHS")

The Group continued to meet its safety targets set by the Board in 2014. The Lost Time Injury Frequency Rate ("LTIFR") for 2014 was 0.20 compared to the set target of 0.23. Sadly the Group recorded one fatality in 2014 that occurred at one of its contractors. Following this loss, a comprehensive audit of the procedures employed by the contractor was carried out by the EHS and Engineering Departments, and necessary corrective measures taken to monitor adherence to Sierra Rutile's safety guidelines.  

Sierra Rutile remain committed to continually improving its 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 outbreak of the Ebola virus in 2014 in Sierra Leone was a significant occurrence for Sierra Rutile. Implementing and maintaining procedures to protect, as far as possible, Sierra Rutile's employees and the communities in which Sierra Rutile operates became of paramount importance to the Group. During 2014 and to date, there have been no reported or suspected cases of Ebola at Sierra Rutile's operations, yet Sierra Rutile continues to closely monitor the incidents of Ebola in the country and maintains certain precautionary measures at its operations to minimise the risks to its employees, contractors and visitors.  

At the Sierra Rutile Clinic an isolation unit was created for the observation of suspected Ebola cases and for the quarantine of employees who may have been suspected of being exposed to Ebola virus. Nurses, drivers and porters were employed and trained in Ebola infection prevention and control. Health education talks and sensitisation in Ebola prevention at both the workplace and the communities in which Sierra Rutile operates was conducted.

To support ongoing local and national efforts to combat the disease, Sierra Rutile and its shareholders donated a total of USD$487,000 to the local Bonthe and Moyamba District Councils, the Government of Sierra Leone's Ebola Orphan Fund and to the Government of Sierra Leone.

Aside from the Ebola-defense measures, the Sierra Rutile Clinic treated approximately 1,600 people a month in 2014, the majority of whom are employees and employee's families. The Clinic also ran additional weekly clinics in local communities to provide basic and emergency public healthcare. During the year the clinic treated over 5,300 employees and members of the local communities for malaria and typhoid.

With a view to expanding the scope and improving the quality of health services delivery, the Group extended the clinic to house a new laboratory with equipment. The Clinic is now equipped to handle a wider range of health tests and treatments.

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.

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 2014, the Group continued to support the Jackson and Devon Anderson Technical and Vocational Institute and Ruby Rose Educational Centre. The Institute provides relevant technical and engineering courses for young people in the communities around the mine site and currently offers diploma and certificate level courses in civil, electrical, mechanical and automobile engineering, business studies and information technology. It is hoped that the

Corporate Social Responsibility (continued)

Community (continued)

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.

The Group also provided financial support to Ruby Rose Educational Centre that provides library facilities and adult education in the proximate mining communities.

Sierra Rutile Foundation

The Group contributed US$150,000 to the Sierra Rutile Foundation in 2014 (2013: 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.

Sierra Rutile continued the extension of the Livelihood Restoration Program in three chiefdoms. CODOHSAPA, a reputable savings and micro-credit organisation continued the implementation of the project to enhance women's socioeconomic capacity through financial savings and livelihood support.

The Group also paid a total of $123,000 (2013:179,000) 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 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 surrounding the mining communities;

· donation of building materials to different institutions within our operational areas;

· construction of a 6-classroom primary school in Bamba Village, Lower Banta Chiefdom;

· fabrication of furniture for the newly constructed primary school at Nyandehun, Imperri chiefdom;

· construction of a two bedroom house, toilet and kitchen at Yangatoke for a relocated family from Sembehun;

· 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.

Sierra Rutile's 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.

The Group achieved its land rehabilitation target by successfully rehabilitating a total of 142 ha of disturbed sand tails in its mined-out Pejebu-North deposit comprising filling of sand tailings and barrow 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.

The Group also successfully exceeded its 2014 fish stocking target of 250,000 by stocking into the lakes a total of 331,567 fish comprising tilapia, catfish and nine different native fish species. The introduction of the native fish species is Sierra Rutile's 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 Sierra Rutile faces and their potential impact on the Group's future performance, and its strategy for managing them.

Principal Risks (continued)

Principal Risks (continued)

Principal Risks (continued)

Principal Risks (continued)

Principal Risks (continued)

Directors

Michael Barton Non-Executive Chairman

Mr. Barton is Chief Executive Officer of Pala Investments, a substantial shareholder in Sierra Rutile. Mr. Barton has been at Pala, an investment company dedicated to investing in, and creating value across the mining sector, since its formation and has been involved in the majority of Pala's transactions and investments. Prior to joining Pala, Michael was at Hatch Corporate Finance, an advisory company specializing in the metals and mining industry. During this time, Michael worked on a broad range of transactions, advising a full spectrum of clients, from the mining majors to emerging-market steel producers to junior mining ventures. Michael began his career with Deloitte, where he was involved with numerous clients, transactions and projects in the mining sector. Michael has BSc. in Geography (First Class) from the University of Leicester, is a qualified chartered accountant (ACA) and a member of the Securities and Investment Institute.

Mr. Barton is currently a Director of Nevada Copper (TSX: NCU).

John Bonoh Sisay Chief Executive Officer and Executive Director

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 Organisation (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 Managing Director, Technical and Operations of Pala Investments. Mr. Brown formerly served as the Chief Operating Officer and a Director of De Beers Consolidated Mines Ltd ("DBCM"), the South African mining operation of the De Beers Group. 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 Diamond Corporation (Pty) Limited. Mr. Brown has managed a number of significant projects at De Beers including the restructuring of DBCM in 2009 in response to the global financial crisis, the construction and early delivery of the R1.3 billion Voorspoed mine and the design and implementation of a new business model for DBCM. Mr. Brown has over 25 years' experience working across the African mining sector, having graduated from the University of the Witwatersrand with a B.Sc. in Mining Engineering. Mr. Brown 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 on the board 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 aluminium company.

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

Directors (continued)

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 Commander of the Order 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.

Richard Lister Senior Independent 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. 

Stephen Gill Non-Executive Director

Mr. Gill is a Vice President at Pala Investments, a substantial shareholder and an investment company dedicated to investing in, and creating value across the mining sector. He has been involved in many of Pala's largest investments and has substantial experience working with mining companies on strategic development, mergers and acquisitions, and operational improvements. Prior to joining Pala, Mr. Gill was a senior consultant with AMEC advising on transactions in the natural resources sector. He holds an MBA from IE Business School, an MSc. in Marine Science from the University of North Carolina and a BSc. in Marine Biology from the University of Wales.

Mr. Gill is currently a director of Asian Mineral Resources (TSX-V: ASN).

Directors' Report

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

31 December 2014.

Results and dividend

The results of the Group are shown on page 34. The Directors have not declared a dividend during the year (2013: $nil).

Principal activities

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

Business review

A detailed business review can be found on pages 6 to 9.

Events after the reporting period

These are disclosed in note 28.

Charitable contributions

During the year the Group made charitable donations of US$150,000 (2013: US$150,000), principally to local communities in which the Group operates and a further US$487,000 was donated by Sierra Rutile and its shareholders to support ongoing local and national efforts to combat the Ebola disease.

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

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

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

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

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

· review and report on health and safety at Sierra Rutile's 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 dependentnts 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. Michael Barton (appointed Chairman of Board on 1 July 2014)

Mr. Jan Castro (resigned 1 July 2014)

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

Mr. Alex Kamara (appointed 10 March 2008)

Mr. Michael Brown (appointed 14 October 2010)

Mr. Charles Entrekin (appointed 10 December 2010)

Mr. Richard Lister (appointed 20 March 2012)

Mr. Stephen Gill (appointed 18 November 2014)

Mr. Martyn Buttenshaw (resigned 18 November 2014)

The Directors who held shares as at 31 December 2014 and 31 December 2013 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 2014:

Going Concern

The financial position of the Group, its cash flows, liquidity position and borrowing facilities are set out in the Finance Review on pages 10 and 11. At 31 December 2014, the Group had cash and cash equivalents of $6.5 million and total borrowings of $43 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 2016, including the requirement to ensure there is sufficient committed funding in advance of the Gangama Dry Mine project being approved. 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 2015.

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 and Executive Director

26 March 2015

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

26 March 2015

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 2014 and 31 December 2013 is as follows:

1No pension contributions have been made in the year

2Jan Castro resigned on 1 July 2014

3Martyn Buttenshaw resigned on 18 November 2014

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 2014:

Former Directors

Directors' remuneration report (continued)

Directors' Share Ownership Policy

The average share price for the year ended was 45.40 p (2013: 59.50 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

Richard Lister

Chairman of Remuneration Committee

26 March 2015

Statement of Directors' Responsibilities

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

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 Stephen Gill

26 March 2015 26 March 2015

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 2014 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 2014 and of its loss 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

26 March 2015

Statement of Comprehensive (Loss)/Income

The financial statements of Sierra Rutile Limited and its subsidiaries were approved by the Board of Directors on 26 March 2015.

Signed on behalf of the Board of Directors

John Bonoh Sisay Stephen Gill

26 March 2015 26 March 2015

Notes to the consolidated financial statements

Year ended 31 December 2014

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 2016. The Board is satisfied that the Group's forecasts and projections, taking account of reasonably possible changes in trading performances show that the Group will be able to operate with the level of its current facilities and comply with its financial covenants 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 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 2014. They have not had a material impact on the accounting policies, methods of computation or presentation by the Group except for the adoption of amendment to IAS 41 Agriculture.

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 11 (amendments) - "Accounting for Acquisitions of Interests in Joint Operations" (effective date 1 January 2016).

IFRS 15 (amendments) - "Revenue from Contracts with Customers" (effective date 1 January 2017).

IAS 16 and 38 (amendments)- "Clarification of Acceptable Methods of Depreciation and Amortisation"

(effective date 1 January 2016).

IAS 27 (amended)- "Equity Method in Separate Financial Statements" (effective date 1 January 2016).

IFRS 10 and IAS 28 (amendments)- "Sale or Contribution of Assets between an Investor and its Associate or Joint Venture" (effective date 1 January 2016).

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.

Notes to the consolidated financial statements

Year ended 31 December 2014

2. Significant accounting policies (continued)

(d) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved when the Company:

- has the power over the entity;

- is exposed, or has rights, to variable return from its involvement with the entity; and

- has the ability to use its power to affect its returns.

The Company reassesses whether or not it controls an entity if facts and circumstances indicates that there are changes to one or more of the three elements of control listed above. The Company considers the existence and effect of potential voting rights that are currently exercisable or convertible when assessing whether the Company controls another entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Company. 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 2014

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, 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 2014

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 produce is measured at fair value with any change in fair value recognised in the income statement. The bearing plant of each type of produce is recognised at cost and depreciated over its useful economic life.

Under IAS 41 bearer plants are defines as an asset which:

· is used in the production or supply of agricultural produce;

· is expected to bear produce for more than one period; and

· has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales.

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 2014

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. 

Notes to the consolidated financial statements

Year ended 31 December 2014

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 2014

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 (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 2014

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) Presentation currency

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

Notes to the consolidated financial statements

Year ended 31 December 2014

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 2014, 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 2014

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 2014 this is not considered a separate reportable segment as the scale of the activities are not yet significant.

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 2014 revenues of US$41,685,000, U$32,921,000 and US$ 26,372,000 were generated from three customers (2013: Revenues of US$31,295,000, US$ 27,375,000, US$19,739,000, and US$13,775,000 were derived from four 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.

Notes to the consolidated financial statements

Year ended 31 December 2014

4. Segment information (continued)

Segment assets

All of the Group's assets are in Sierra Leone except certain inventory balances valued at US$4.0 million (31 December 2013: US$14.0 million) held in a warehouse in Europe.

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 2014

7. Exceptional items

During the year two damaged barges worth US$ 0.5 million were written off from property, plant and equipment as the Board had decided that they would no longer be used. 

In 2013, capitalised costs of US$0.4 million in relation to certain feasibility studies were written off from intangible assets as the Board had decided that they would no longer be used.

8. Net finance costs

Notes to the consolidated financial statements

Year ended 31 December 2014

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 2014

9. Income taxes (continued)

(b) Current tax (assets)/ liabilities (continued)

* UK corporation tax liability of $17,000 was reflected within trade and other payables as at 31 December 2013.

10. Basic and diluted (loss)/earnings per share

The outstanding share options at 31 December 2014 represent anti-dilutive potential ordinary shares, therefore basic and diluted earnings per share are the same for the current year.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumption of conversion of all potentially dilutive ordinary shares. Potential ordinary shares shall be treated as dilutive only when, their conversion to ordinary shares would decrease earnings per share or increase loss per share.

Notes to the consolidated financial statements

Year ended 31 December 2014

11. Intangible assets