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Sierra Rutile Limited

Audited financial results for the year ended 31 December 2015

London, UK, 31 March 2016: Sierra Rutile Limited ("Sierra Rutile", the "Company", or the "Group") is pleased to announce its results for the year ended 31 December 2015 and has today published its audited preliminary results on the Group's website at http://www.sierra-rutile.com/.

OPERATIONAL HIGHLIGHTS

· Major production milestone achieved with 126,021 tonnes of rutile

- 10% increase from prior year

- Representing highest annual production since operations restarted 

· Gangama dry mine project on track

- Within budget and on-schedule expected for commissioning June 2016

- Provide further dry mining production capacity in 2016

FINANCIAL HIGHLIGHTS

· Improved financing arrangements

- Standby Facility of $15 million

- Working Capital and Standby Facilities extended to May 2017

- Deferral of next repayment under Government loan to December 2016

STRATEGIC HIGHLIGHTS

· Revised development programme

- Focus on capital disciplined investment

- Flexible dry mining units to match customer demand

· Attractive growth projects with potential to produce over 200,000 tonnes by 2018

- 250tph bolt-on plant at Gangama being evaluated at capital cost of $12 million

- Similar bolt-on plant being evaluated for Lanti dry mine

- Sembehun pre-feasibility study completed

- further refinements being considered for added flexibility and reduced capital costs.

OUTLOOK

· Current trading in line with expectations

- Rutile production in Q1 2016 expected to be seasonally lower at around 26,000 tonnes

- Approximately 11% ahead of Q1 2015 and 33% lower than Q4 2015

· Market-led business model

- Production guidance between 120,000 and 135,000 tonnes

· Benefits from anticipated commissioning of Gangama dry mine

- Production cash cost between $540/t and $590/t

1 EBITDA is measured as earnings/(loss) before finance income/costs, tax, depreciation, amortisation, share based payments, impairment charges and provision for obsolete inventory.

2 Free Cash Flow is calculated as EBITDA less stay-in-business capital expenditure, tax payments and working capital movements.

3 Production cash cost defined as the direct costs of production divided by tonnes of rutile produced.

4 Net debt is defined as gross borrowings less cash and cash equivalents.

Commenting on 2015 performance, Sierra Rutile CEO, John Sisay said: "We are delighted to have achieved our targets across the business last year. Production was towards the upper end of guidance, costs were rigorously managed and the business was cash generative. These favourable conditions allowed us to invest in the Gangama dry mining project which remains within budget and on-schedule for commissioning in June 2016. The marketplace for the mineral sands sector in general remains subdued, but the premium value attributed to our products and the deep relationships which have been developed with our customers over many years have permitted us to maintain sales at broadly consistent prices.

Going into 2016 and beyond, our market-led business model will allow us to align production to customer demand. The anticipated completion of the first stage of expansion of the Gangama dry mine in June, followed by the potential bolt-on expansions to Gangama and the Lanti dry mine, give the Group the added flexibility to respond to any increase in demand in a capital efficient and flexible manner. We are confident that a broad based pick-up in rutile prices is on the horizon and the business is well placed to capitalize on any improvement. We remain focused on delivering upon our plans to develop a business with industry leading shareholder returns, with our robust balance sheet as the foundation."

For Further Information:

About Sierra Rutile Limited

Sierra Rutile produces titanium feedstock industrial minerals (primarily rutile, with some associated ilmenite), as well as smaller quantities of zircon. Sierra Rutile's mines, located in the south west of Sierra Leone, are based on 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 867 million tonnes (as at 30 September 2015).

Forward-Looking Information

This document may contain forward-looking statements. These forward-looking statements are made as of the date of this document and Sierra Rutile Limited (the "Company") does not intend, and does not assume any obligation, to update these forward-looking statements, whether as a result of new information, future events or otherwise, except as required under applicable securities legislation.

Forward-looking statements relate to future events or future performance and reflect Company management's expectations or beliefs regarding future events and future performance and include, but are not limited to, statements with respect to the estimation of mineral reserves and resources, the realization of mineral reserve estimates, the timing and amount of estimated future production, costs of production, capital expenditures, success of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims and limitations on insurance coverage. In certain cases, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved" or the negative of these terms or comparable terminology. By their very nature forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward looking statements. Such factors include, among others, risks related to actual results of current exploration activities; changes in project parameters as plans continue to be refined; future prices of mineral resources; possible variations in ore reserves, grade or recovery rates; accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing or in the completion of development or construction activities; as well as those factors detailed from time to time in the Company's interim and annual reports. These risks, uncertainties, assumptions and other factors could adversely affect the outcome and financial effects of the plans and events described herein.

Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking 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 2016. Proxy cards will be distributed to shareholders with the Notice of the AGM.

Chairman's Statement

It is with great pleasure that I write my inaugural independent Chairman's statement for Sierra Rutile. I have only been with the Company for a short period of time, but I have already been extremely impressed by what I have seen from an excellent management team operating a world-class asset. Indeed, the reason I was motivated to join Sierra Rutile was the rare opportunity to be involved with furthering the development of such a quality asset, with the goal of ensuring it achieves its latent potential. I am very confident we as a team will be successful in this endeavour by combining expertise, responsible governance, a world-class asset, and excellent partner and local community relationships. I am especially pleased by Sierra Rutile's continued commitment to good corporate governance, exemplified by the decision to appoint an independent Chairman.

I have joined Sierra Rutile at a time when the price of mineral sands, consistent with almost all commodities, is going through a period of cyclical weakness. Whilst rutile has outperformed many other commodities, the market continues to remain challenging and pricing disappointed during 2015, with a 3% fall on 2014, for an average realized price of $775/t. That said, rutile and other high-grade feedstocks were the bright spot for mineral sands due to underlying robust demand and the positive impact of the more buoyant titanium metal sector. We see this outperformance continuing during 2016 as the destocking cycle draws to an end.

Sierra Rutile is better positioned than many companies to withstand these lower commodity prices, since it is already a low-cost producer. A strong focus on cost control meant that production cash costs were lowered further during the year to $614/t. This was particularly pleasing given that Sierra Rutile does not benefit directly from the strong US dollar in the way many of its peers do, and therefore the cost reductions were a direct result of efficiency savings achieved by management. Sierra Rutile will continue to focus on cost control and we expect to continue to find ways to further optimize the operation and increase efficiency, even prior to the introduction of Gangama dry mining, which we anticipate will be our lowest cost production unit yet.

Sierra Rutile also benefits from a strong balance sheet when viewed in the context of its sector peers. This has allowed us to continue operating and expanding our production base rather than having to focus on the servicing of legacy debt positions. We aim to enhance and extend our relationships with capital providers across all spectrums to ensure we continue to enjoy a stable and well-balanced financial platform.

Since joining, I have been impressed by the Company's long-term growth plans in an ever-changing environment, and I endorse those plans whole-heartedly. Management's long term strategic outlook, and the systems and processes that have been put in place are impressive. From market-led production to capital efficiency, balance sheet differentiation and an innovative culture, Sierra Rutile is unique in the sector. Sierra Rutile has added both an experienced and capable Chief Operating Officer and Chief Financial Officer during the past year, both of whom supplement an already strong team. It is a team that has admirably delivered on the promises it has made to both the Board of Directors and its shareholders, and I have every confidence that they will continue to do so in the future.

Sierra Rutile has entered into its 49th year of operations since the mine started in 1967, and therefore 2017 is of particular note since it will mark the Company's 50th year anniversary. I am excited to be joining the Company at this time as we embark upon an historical milestone. There are very few mining enterprises on the African continent that have been in operation for such a long time, and more importantly, likely to be in operation for decades to come for the benefit of all stakeholders. We are very proud of our position as a cornerstone of the Sierra Leonean economy, the support we have amongst the people and our positive impact on the local communities in which we operate.

In closing, I remain extremely positive on Sierra Rutile's near-term outlook and long-term future. The Company has already shown that it can operate effectively in this challenging commodity-price environment, whilst continuing to grow and progress. A strong, growth plan is in motion to further develop this world-class asset, and we have in place the team that can deliver. Sierra Rutile is not reliant on a recovery in commodity prices to aid its success and in this regard is firmly in control of its own destiny.

Robert Edwards

Non-Executive Chairman

Chief Executive's Statement

2015 was a year of opportunity and growth for Sierra Rutile. Against a subdued market backdrop, Sierra Rutile's employees and operations continued to prove their ability to increase production and lower costs. 2015 also marked a year of significant investment into the business. Gangama Dry Mine construction not only commenced, but remains on schedule and on budget for anticipated commissioning in the second quarter of 2016. These achievements were all accomplished as Sierra Rutile and Sierra Leone emerged with strong momentum from the Ebola outbreak, an exceptionally challenging period for our Company, the surrounding communities and country. As we enter 2016, Sierra Rutile emerges as a stronger, more resilient company, well-positioned to unlock shareholder value through lower-cost production, disciplined capital investment and a focus on being a market-led business. All this would not have been possible without the dedication and commitment of our employees and the strength of our surrounding communities.

The health and safety of our employees and our neighbouring communities continues to be Sierra Rutile's first priority. Over the year, we continued with our stringent health monitoring and support for health initiatives within our local communities and Sierra Rutile did not record any Ebola cases in and around its mining tenement. These activities were in addition to the numerous on-going health, community and environmental programmes that Sierra Rutile has worked tirelessly to grow, support and maintain. These include community donations of over $750,000, construction of a primary school, significant donations of equipment to local research and education centres and Sierra Rutile's medical facility treating over 1,700 people. On site, we continue to operate our operations to the highest health and safety standards, and have reduced our lost time injury frequency rate since 2014.

Full-year rutile production for 2015 came in at the upper range of our production guidance, with 126,021 tonnes produced, which would have increased to 127,571 tonnes if rutile in progress had been fully processed at the year end. This excellent achievement represented a 10% increase in rutile production from the prior year and was the highest annual production since operations restarted. Sierra Rutile also continued its relentless focus on improving unit cost performance. Cost saving initiatives, leveraging the challenging marketplace for suppliers to the mining sector and lower fuel prices, all helped Sierra Rutile achieve a 5% reduction in unit production cash cost, notwithstanding the declining grade at the dredge which required additional ore volumes to be processed.

Over the year, TiO2 product sales remained robust. Sierra Rutile continued to benefit from its long standing, multi-year relationships with leading pigment producers globally. This strong customer support in spite of challenging market conditions continues to underscore the value customers attribute to Sierra Rutile's premium quality rutile. We continue to focus on collaborating with our key customers and building deeper commercial relationships. In a market where our TiO2 producer peers continue to idle capacity and delay new projects, we have built further confidence with our customers as we continue to make counter-cyclical investments and strengthen our production pipeline. Our multi-mine operation is able to flex production to match customer demand.

Following some weakening in commodities markets in the later part of the year, realised prices for the full year of 2015 were achieved at just 3% below average realised prices for 2014. We expect prices to remain at these levels in the first half of 2016 before a pick-up in the second half of the year. Compared to other metals, stronger supply and demand fundamentals have allowed natural rutile prices to remain relatively stable. In the short-term, we expect pigment consumption, our key end-market, to continue to grow modestly. In the medium-term, additional applications of TiO2 -feedstock in the titanium metal market have the potential to provide meaningful support to pricing. On the supply side, we expect supply constrains to become stronger as TiO2 producer peers continue to draw back on production capacity. Sierra Rutile's flexible growth profile allows us to be well-positioned to meet strengthening market conditions.

2015 was a robust year for Sierra Rutile financially. Despite subdued marketing conditions, and lower year-over-year revenues, Sierra Rutile was able to grow EBITDA by 9% over 2014, driven by a reduction in costs. There was also a significant increase in Free Cash Flow during 2015 which more than doubled compared to 2014. This improvement points to our achievements in cost containment, working capital management, and ability to convert earnings into cash. It remains our focus to continue these initiatives into 2016 with a view to prioritising further cost savings and cash generation.

I would like to credit the commitment and expertise of our management and employees on commencing Gangama Dry Mine construction this year. Gangama Dry Mine was one of the first major investments in Sierra Leone following the Ebola crisis. I am pleased to report that Gangama Dry Mine remains on schedule and on budget for forecast first production in the second quarter of 2016.

Gangama Dry Mine in many ways underscores the strategic direction of Sierra Rutile. The Gangama Dry Mine construction decision was based on dry mining's capital efficiency, production flexibility, and its ability to deliver high-quality, low-risk and low cost-production. Our growth plans bridges these themes from the project level to the Company level. We have set forth a plan that prioritises disciplined, market-led production growth. By staging our expansion projects into smaller, 250tph bolt-on units, Sierra Rutile will maintain production flexibility to respond quickly to market changes. All of our bolt-on units will use our practiced dry mining methods at our existing resource base at the Gangama and Lanti deposits, keeping with our promise to continue delivering high-quality, low-risk and low-cost product.

I am also excited to announce the progress of the Sembehun Dry Mine project. Sembehun Dry Mine will broaden our operation and bring our dry mining expertise to the Sembehun group of deposits, a large unexploited resource base. The project was brought to the pre-feasibility level over the past year and is planned to bring staged, long-term production to our development pipeline.

Chief Executive's Statement (continued)

As of today, demand for high-grade natural rutile from our existing customer base continues to remain firm with over 90% of targeted sales volumes already contracted for 2016. Sierra Rutile's guidance for 2016 reiterates our commitment to high quality, low-cost production. We expect to produce between 120,000 and 135,000 tonnes of rutile at a production cash cost of between $540/t and $590/t. We will continue to focus on margin over volume and remain disciplined in our approach.

I strongly believe Sierra Rutile's employees and operations enter 2016 with strong momentum gained from the successes of 2015, and we will continue to capitalise on our Company's strong production base, pipeline for growth and strategic market positioning.

John Bonoh Sisay

Chief Executive Officer and Executive Director

Operations review

Description of operations

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

Mining is currently undertaken at three sources: Lanti dredge, Lanti dry mine and Mogbwemo tailings. All the mines have their own associated concentrator plants where the feed is passed over progressive stages of spiral gravity separators which separate heavy minerals from silica sand and clay tailings.

Lanti dredge mine

The Lanti dredge mine employs a 1,000 tph bucket ladder dredge to mine the Lanti deposit, which in turn feeds a floating treatment plant producing a heavy mineral concentrate ("HMC") for further processing. Before mining begins, the area ahead of the dredge path must be prepared by clearing the vegetation and removing topsoil. The topsoil is either applied directly to an area then being rehabilitated, or stockpiled for use in later rehabilitation.

Lanti dry mine

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

Mogbwemo tailings

The Group commenced the small-scale reprocessing of old tailings from the previously mined Mogbwemo deposit in 2015. The unconsolidated old tailings are mined and concentrated by a third party contractor using small suction dredges that supply a heavy mineral concentrate to the Group.

Mineral separation plant ("MSP")

All the Group's mining units feed one central mineral separation plant, located at the Group's central operational hub. The mineral separation plant separates the heavy mineral concentrate into several distinct rutile products, an ilmenite by-product and periodically a zircon concentrate and other mineral concentrates. The Group completed an upgrade on the plant in 2015 with the addition of new spirals to give both greater throughput and flexibility in processing different types of tailings material.

Infrastructure

The Group's mines and processing operations are self-sufficient. Power is generated on-site through a marine fuel oil ("MFO") power plant which receives deliveries of fuel via barge or road. The Group 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.

Operations review (continued)

Review of performance

* Tailings include the contract mining at the Mogbwemo deposit and secondary reprocessing of over-sized material at the mineral separation plant

** Part of the HMC produced was fed directly into the tails retreatment plant, resulting in the difference between HMC produced and HMC fed into the MSP for 2015

Mining

A total of 8.0Mt (2014: 7.6Mt) of ore with a weighted average ore grade of 1.60% (2014: 1.69%) was mined across the mines as well as 1.3Mt (2014: 0.3Mt) of tailings. The ore and tailings were processed through the adjoining concentrators at each location resulting in 524.2kt (2014: 344.1kt) of HMC being produced.

The Lanti dredge contributed 155.1kt of HMC (2014: 173.9kt). This reduction was due to a slight decrease in ore mined, coupled with declining grades as the deposit in the Lanti south area is nearing depletion. A planned maintenance shutdown in the first quarter of the year also contributed to reduced HMC production in that period, although this maintenance resulted in improvements to plant utilisation and availability during the rest of the year. A further reduction in grade, partially offset by improved plant utilisation, will result in reduced HMC being produced in 2016 versus 2015.

Ore mined at the Lanti dry mine increased by 21% in 2015, resulting in a 29% increase in HMC produced. This significant improvement was mainly as a result of the successful implementation of an upgraded maintenance programme. This programme removed a number of problematic equipment concerns and bottlenecks. The Lanti dry mine also benefited from a transition to higher grade areas towards the end of the year which supported the overall increase in the HMC produced for 2015. The improvements in plant utilisation which are expected in 2016 will be more than offset by a gradual return to the long term grade of the deposit and is likely to result in reduced HMC being produced in 2016 as compared to 2015.

Extraction of historic tailings by a third party contractor and secondary processing of over-sized material contributed 230.1kt of HMC. The extraction of historic tailings involves a number of small suction dredges of different capacities. Ramp-up of mining of these historic tailings continued throughout 2015 with the successful addition of further production units. Production from historic tailings is likely to reduce in 2016 due to an expected lower recoverable rutile grade, despite the additional units that have been commissioned in the second half of 2015.

Operations review (continued)

Processing

The mineral separation plant processed a total of 472.6kt (2014: 344.1kt) of HMC. Full year rutile production was 126,021 tonnes of rutile and 37,633 tonnes of ilmenite, representing a 10% increase and 5% increase on 2014, respectively. A minor dryer failure in the mineral separation plant in December 2015 caused a temporary processing interruption and resulted in 1,550 tonnes of rutile being held partially processed at year end. The material will be processed in the first half 2016 and will result in additional finished product. Adjusting for this work in progress, full year production would have been 127,571 tonnes of rutile.

Recoveries at the MSP were 79.6% compared to 83.5% in 2014. The overall recovery was impacted by utilising a wet section of the mineral separation plant, the tailings retreatment plant ("TRP"), in order to process some tailings materials. The TRP is not planned to be utilised to the same extent during 2016, as there is currently sufficient capacity within the dry mill to achieve the planned production requirements. An improvement in the overall recovery in the plant is therefore expected in 2016.

Significant efforts were made in 2015 to raise recoveries and further work is under way to improve recoveries in 2016. In addition, product quality is of paramount importance to the Group to ensure customer specifications are met to justify the premium pricing of the Group's products. The Group has increased its focus in this area by employing a Quality Assurance Manager to work alongside its production and technical teams to drive improved product quality.

Guidance for production in 2016

As noted above, lower grades are anticipated in 2016 for the Lanti dredge and Lanti dry mine in line with the long term mine plan, although these are expected to be offset by improved operational performance following the implementation of a number of debottlenecking initiatives during 2015. Furthermore, the Gangama dry mine is expected to be commissioned towards the end of the first half of 2016 resulting in an overall increase in the average mined grade for 2016 and in production being weighted towards the second half of 2016. 

Overall, rutile production for 2016 is expected to be between 120,000 and 135,000 tonnes.

Stay-in business capital expenditure

Sustaining capital expenditure totaled $4.6 million in 2015, which was $0.7 million higher than 2014. A number of projects were implemented to improve the efficiency of the operations. These projects included the improvement work at the mineral separation plant to increase recoveries, which should result in a higher recovery rate at the plant in 2016.

Other capital expenditure included the overhaul of one generator at the power plant for security of power supply. The dredge also benefited from planned maintenance in the first quarter of the year targeting critical areas of the bucket band, the scrubbers and pedestals, which resulted in improved availability and throughput for the remainder of the year.

Projects

The Group continues to prioritise organic growth, with a focus on low risk, capital efficient dry mining projects with quick execution times. The ability to operate multiple low-capital dry mining projects across its resource base will provide the Group with added operational flexibility as it transitions to adopting a market-led business model. As demonstrated by the Lanti dry mine, the Group is able to commission additional dry mining units for a limited capital cost, and has the ability to quickly scale-up production to respond to market demand.

The two key expansionary projects which are being developed are the Gangama dry mine and Sembehun dry mine.

Gangama dry mine

Construction of the Gangama dry mine commenced in April 2015 with first production expected towards the end of the first half of 2016, adding approximately 45kt per annum of rutile production. A number of significant project milestones at the Gangama dry mine were achieved by the year end, including completion of concentrator plant fabrication and terrace bulk earthworks. In addition, project procurement remains on schedule, and civil construction is progressing well, with steel erecting also commencing by the year end.

The approved capital cost of the project is $44 million and to date, the project remains on budget with $24 million having been spent on the project by the year end. The project is funded 40% by the Senior Loan facility and 60% by internally generated cash. As at 31 December 2015, a total of $9.2 million had been drawn from the Senior Loan facility to fund the project.

The next stage in the development of the Gangama dry mine is the completion of a technical and economic study to confirm the viability of a bolt-on expansion to the existing plant, thereby taking total capacity to 750tph. A similar bolt-on plant is being evaluated for Lanti dry mine.

Operations review (continued)

Projects (continued)

Sembehun dry mine

The Group continues to progress the Sembehun dry mine project, with the completion of a pre-feasibility study which reconfirmed the validity of Sembehun as a dry mining project. Sembehun represents the next step change in production for the Group after the Gangama dry mine, contributing up to 74kt of rutile per annum over a mine life of 19 years. The pre-feasibility study considered the construction of a single 1000tph static plant, as well as two separate 500tph static plants.

The next stage in the development of the Sembehun project is the completion of a feasibility study which is expected to further optimise the Sembehun dry mine.

Mineral resources estimate

The Group's mining concession is one of the largest natural rutile deposits known in the world. In September 2015, the Group obtained an upgraded JORC-compliant mineral resource for the deposit, which estimated that the total measured, indicated and inferred resources were over 866Mt with a grade of 0.9% rutile, 0.2% ilmenite, and 0.08% zircon, containing 8,163kt of rutile, 1,118kt of ilmenite, and 355kt of zircon.

Drilling and sampling work continued in 2015 in the Gbeni, Gangama and Mogbwemo areas for grade control purposes. Further development drilling, aimed at improving geological confidence and improved understanding of the nature and type of mineralisation, was undertaken in the Kamatipa deposit within Sembehun where a total of 2,352 meters were drilled. This drilling was primarily within the areas to be mined from 2019 to increase the knowledge and confidence in the reserves in this part of the deposit.

These mineral resources are reported in accordance with the JORC Code 2012 and the Competent Person has verified all geoscientific assumptions. The reported mineral resource by definition has reasonable prospects for extraction and will be converted to an ore reserve by the application of appropriate mining, economic and other factors.

September 2015:

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

The measured rutile resource decreased by 19.7kt with the depletion of tailings during 2015. The indicated rutile resource decreased by 211.2kt due to mining depletion and amending the reported cut-off grade from 0.0% to 0.25% rutile to account for increased dry-mining activities. The inferred resources decreased slightly due to the cut-off change referred to previously.

September 2014:

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

Operations review (continued)

Agriculture businesses

In June 2015, the Group entered into an agreement with Carmanor Limited ("Carmanor"), an emerging-market focused agricultural company, whereby Carmanor will partner with Sierra Rutile to grow its agriculture subsidiary, African Lion Agriculture ("ALA"). Carmanor will fully-fund the expansion of Sierra Rutile's existing palm oil, rubber and cacao plantations to a scale of over 2,500 hectares as well as construct and operate an oil palm mini-mill. Upon successful development of this business plan, within a pre-defined timeline, Carmanor will earn an interest of 75% of ALA.

Upon entering into this agreement with Carmanor, the Group's interest in ALA was reduced to 49%. Carmanor met the objectives for 2015 as set out in the business plan, including planting out over 900 hectares of oil palm, installing a 0.35tph mill and refilling the nursery for planting a further 1,000 hectares in 2016, and as a consequence, the Group's interest was reduced to 65% with effect from 1 March 2016.

The Group retained 100% ownership of its pineapples plantation. The nearby third party cannery operation ran into financial difficulties during the year, and as a result, the Group lost the major off-taker for its pineapples. The Group is considering options to partner with interested third parties with experience in the pineapple business to develop the Group's pineapple plantation. In light of the available options and likelihood of future returns for the Group, the investment in the pineapples plantation has been fully impaired at the year end.

Finance review

Basis of preparation

The Group's financial information has been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The Group's significant accounting policies, significant accounting judgements and critical accounting estimates are disclosed in the notes to these financial statements. The Group did not make any material changes to its accounting policies in the year ended 31 December 2015. The Group presents its financial statements in US dollars.

Income statement

An abridged analysis of the income statement for the year ended 31 December is shown below.

Revenue

The Group's revenues from the sales of rutile, ilmenite, zircon and tailings were $105.8 million in 2015, 10% lower than the $117.8 million reported in 2014. The principal reasons for the decrease in revenues between the years were lower sales volumes of rutile and marginally lower prices.

The majority of the Group's sales related to rutile, split between sales of Standard Grade Rutile ("SGR") and Industrial Grade Rutile ("IGR"). Total sales volume of rutile for 2015 was 117,654 tonnes, which compares to the total sales volume of rutile in 2014 of 129,602 tonnes. Sales volumes were lower in 2015 reflecting the Group's transition to a market-led business model whereby the Group focuses on maximising the profitability of sales.

The average realised price for rutile on an ex-Sierra Leone basis (i.e. Free Along Side or "FAS") was $775/t, a 3.0% reduction compared to 2014. This marginal reduction was driven by lower prices in the second half of the year due to a tightening of market conditions as pigment manufacturers continued to destock.

Revenue in the income statement is stated including the freight costs for those sales conducted on a 'Cost, Insurance and Freight' ("CIF") basis, mostly relating to sales of IGR, with some sales of by-products. CIF costs of these sales amounted to $2.6 million versus $4.0 million in 2014.

Ilmenite revenues were 23% down on 2014. Volumes remained flat as compared to 2014, with the decrease all related to a 23% lower realised price compared to 2014. The lower realised sales price reflects the surplus in supply of even Sierra Rutile's high quality chloride ilmenite.

Zircon rich concentrate contributed $0.8 million to total revenue in 2015, as compared to $0.5 million in 2014. Revenue of this product is largely impacted by the availability of this concentrate during the production process.

The Group also sold tailings, generating revenues of $6.1 million, compared to revenues of $3.0 million in 2014. Tailings revenues were driven by higher sales volumes as well as a higher price per tonne due to upgrading of the tailings in the second half of the year.

Finance review (continued)

EBITDA

This measures earnings before finance income/costs, taxation, depreciation, amortisation and share based payments ("EBITDA") and provides an indication of the Group's ability to generate cash from its underlying operations. This performance measure also removes provisions for obsolete inventory and impairment charges that do not impact the underlying trading performance of the Group. The Group recorded EBITDA of $16.1 million in 2015, compared to $14.8 million in the prior year.

Production costs

Production costs include income of $5.1 million (2014: charge of $14.2 million) relating to the inventory adjustment for finished goods, and production cash costs of $77.3 million (2014: $73.5 million).

Production cash costs primarily relate to the costs of mining, secondary processing, and support and infrastructure services located at the mine site. Support and infrastructure services include functions such as technical, engineering, port operations, security, insurance, camp management, community affairs and finance. Major categories of expenditure within production costs include labour, fuel, consumables and payments to external contractors. Overall, production cash costs increased by $3.8 million due to the mining of higher ore volumes and the cost of contract mining the historic tailings, both planned initiatives to offset the declining grade at the dredge.

Key elements include:

· Mining costs - these costs relate to the cost of mining the ore, subsequent processing at the adjoining concentrator plants and the costs of transporting HMC to the mineral separation plant. Mining costs increased to $39.5 million (2014: $34.5 million) mainly due to higher costs incurred by the Lanti dry mine relating to the mining of increased ore volumes and longer haulage distances between mining operations and the concentrator. These factors led to increases in fuel and consumable costs. In addition, $8.7 million was payable to the third party contractor who commenced the mining of the historic Mogbwemo tailings. The contract mining costs are based on tonnes of HMC produced with upward and downward adjustments for quality.

· Secondary processing costs - this expenditure relates to the costs incurred by the mineral separation plant to produce the final product. These costs increased to $13.8 million (2014: $12.1 million) due to the higher volumes of HMC processed. The mineral separation plant treated 472,647 tonnes of HMC in 2015, a 37% increase compared to 2014. In addition, the use of the Tailings Retreatment Plant ("TRP") to process some heavy tailings material meant more costs were incurred in this part of the mineral separation plant.

· Support costs - these costs include expenditure on functions that support the core mining and processing activities. These costs have decreased by 10% from 2014 due to savings on fuel costs and robust cost control across the business.

Selling costs

Selling costs are mainly comprised of royalties paid to the Government based on the terms of the mining agreement. Royalties incurred were $4.1 million (2014: $0.5 million). Until December 2014, royalties were charged at 0.5% of revenues. The royalty rate increased to 4.0% in January 2015 due to the expiry of the Rutile Amendment Act after ten years which reduced tax rates during this period. Other costs included in selling costs are port authority and maritime authority charges, charged at 0.1% of export revenues, as well as freight and storage costs for IGR material which is sold to customers from a warehouse in Amsterdam.

General and administrative costs (excluding share based payments)

General and administrative costs include the costs of running the Freetown office as well as costs incurred for corporate activities, mainly relating to the Group's listing and board related expenditure. These costs have reduced to $9.3 million (2014: $9.9 million), a 6% decrease as a number of cost savings initiatives bear fruit, including a reduction in the use of consultants and a decrease in agricultural expenses following the sale of part of the agricultural business.

Finance review (continued)

Cash cost performance

Cost control continued to be a key focus for 2015 as the Group continues to target producing in the lowest quartile on the global cost curve. In a challenging marketplace for suppliers to the mining sector, the Group took advantage of improved pricing and payment terms for goods and services. Lower fuel prices and the devaluation of certain non-US dollar currencies in which goods and services are priced also had a beneficial impact. In addition, with the majority of costs being fixed in nature, higher production volumes also lowered unit costs.

As noted in the Operations Review, mined grades at the dredge were moderately lower in 2015 versus 2014, an effect which was mitigated by contract mining of historical tailings and mining of increased volumes for the Lanti dry mine, both factors which resulted in upward pressure on unit costs compared to 2014.

In addition, a number of planned maintenance activities were completed in 2015, and the increased costs of certain supplies and services as a result of the impact of Ebola on supply chains also led to upward pressure on maintenance costs. 

Taking the above factors into account, overall production cash costs were $77.3 million as compared to $73.5 million in 2014. With the higher production volumes in 2015 versus 2014, the unit production cash cost reduced to $614/t in 2015 compared to $643/t in 2014, representing a 5% decrease.

Stay-in-business capital expenditure was consistent with 2014 given the continuing tight market conditions. There was also a reduction in general and administrative expenses in 2015 versus 2014 due to tight control over central and corporate costs. Mitigating these factors, there was upward pressure in selling costs, driven by an increase in royalty rates from 0.5% in 2014 to 4.0% in 2015 as the Group reverted to the fiscal provisions of the Sierra Rutile Agreement (Ratification) Act 2002 after a ten year reprieve during which lower tax rates were applicable for the Group.

Despite the increase in costs above being partially offset by a 18% improvement in by-product revenues to $12.0 million, the 9% decline in sales volumes resulted in the all-in cash cost on a per tonne basis increasing to $720/t from $608/t.

The unit cash costs across the current and prior years is as follows:

With implementation of further cost saving initiatives, production cash cost is expected to be between $540/t and $590/t.

Operating loss before impairment charges

The operating loss for 2015 was $9.9 million, compared to $7.1 million in 2014. As well as the reported EBITDA for the year, operating loss also includes a depreciation charge of $20.9 million, versus $21.1 million in 2014. Operating loss also includes a $4.2 million provision against slow moving and obsolete items of consumables inventory.

Finance review (continued)

Impairment charges

Impairment charges are presented separately, due to their nature or the expected infrequency of the events giving rise to them. The breakdown of impairment charges excluded from EBITDA is set out below:

Further detail on each of the impairment charge is provided below:

Impairment of pineapple business

The third party cannery operation to which most of the Group's pineapple produce was sold ran into financial difficulties during the year, and as a result, the Group lost the major off-taker for its pineapples. The Group is considering options to partner with interested third parties with experience in the pineapple business to develop the Group's pineapple plantation. In light of the available options and likelihood of future returns for the Group, its investment in the pineapples plantation amounting to $0.4 million has been fully impaired at the year end.

Impairment of property, plant and equipment

During 2014, two damaged barges worth $0.5 million were written off from property, plant and equipment as it was decided that they could no longer be used in the business.

Net finance income/(costs)

Net finance income/(costs) include finance costs incurred on borrowings, net foreign exchange gains/losses, interest on the employee benefits obligation, costs of derivative financial instruments as well as the unwinding of the discount on provisions.

Net finance income/(costs) was an income of $0.8 million in 2015 as compared to a cost of $1.3 million in 2014. The turnaround was principally due to currency movements, namely the devaluation of the Euro against the US Dollar and the resulting beneficial impact on the Euro-denominated loan from the Government, and the exchange gains on the Leone when converting US dollar cash balances.

Interest charges on the loan due to the Government and on the Working Capital Facility amounted to $1.7 million (2014: $2.1 million) and $1.1 million (2014: $0.7 million), respectively.

Financing fees include arrangement fees, political risk insurance for the debt facilities secured on the Group's assets in Sierra Leone and other debt raising related costs. These amounted to $0.5 million (2014: $1.3 million).

Interest charges and other finance costs relating to the Senior Loan Facility which has been arranged for the construction of the Gangama dry mine project amounted to $2.1 million (2014: $nil ). These costs were capitalised to the cost of the project in accordance with IAS 23 "Borrowing Costs".

Taxation

The taxation of the Group's operations in Sierra Leone are aligned to the Sierra Rutile Agreement (Ratification) Act 2002, under which tax is 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 is 30%.

The breakdown of the taxes is set out below:

Unrecognised tax losses

At the beginning of the year, the Group had unused tax losses of $397.7 million available for offset against future profits. Due to accelerated capital allowances on investments made by the Group, tax losses increased to $401.1 million. No deferred tax asset has been recognised for these losses as there is insufficient certainty on the existence of taxable profits against which tax losses can be utilised given the Group's planned capital expenditure programme which should result in further accelerated capital allowances being generated.

Finance review (continued)

Loss for the year

The loss for the year attributable to shareholders amounted to $13.2 million, compared to $9.5 in the prior year. The loss for the year was due to an operating loss of $10.3 million, after taking into account impairment charges of $0.4 million related to the write off of the Group's pineapple business, provision for obsolete inventory of $4.2 million and tax charges of $3.7 million offset by net finance income of $0.8 million.

Basic and diluted earnings per share 

Basic and diluted earnings per share was a loss of 2.5 US cents per share, compared to a loss of 1.8 US cents per share in the prior year principally arising from the increased loss realised during the year. In addition, there was an increase in the weighted average number of shares in issue compared to 2014 due to share issuances in the prior year arising from the exercise of share options.

Cash flows

A summary of cash flows is shown below:

Working capital

The working capital movements resulted in a $6.7 million inflow in 2015 (2014: outflow of $3.6 million). The principal movements are explained below:

· Inventory: rutile finished goods increased by 6,640 tonnes or the equivalent of $5.1 million due to the timing of sales whereby production volumes were higher than sales volumes during the year. This increase is expected to reverse in 2016 when sales volumes are expected to rise. Consumables increased by $3.6 million, before provisions against slow moving and obsolete items, due to a planned initiative to increase the level of critical spares to support increased production volumes.

· Trade and other receivables: decreased by $11.1 million due to the timing of cash receipts and lower sales volumes. Improved days sales outstanding with certain customers have resulted in the accelerated receipt of cash remittances during the year.

· Trade and other payables: increased by $3.9 million during the year, primarily driven by an improvement in payment terms with key suppliers in light of the challenging marketplace for suppliers to the mining sector

· Provisions: payments against provisions amounted to $0.4 million, representing primarily payments made towards the Group's retirement benefit scheme.

Finance review (continued)

Income taxes paid

Income tax payments of $1.0 million were higher than the $0.6 million paid in 2014. As noted above, with effect from January 2015, the taxation of the Group's operations in Sierra Leone are subject to the Sierra Rutile Agreement (Ratification) Act 2002, under which tax is charged at an amount not less than 3.5% (2014: 0.5%) of turnover and not more than the standard Sierra Leone corporate income tax rate. Payments on accounts are made to the Government on a quarterly basis, with a true-up in May of the following year.

The Group is also subject to UK tax on its subsidiaries registered there at a rate of 20.0% of taxable profits.

Capital expenditure

Stay-in-business capital expenditure totaled $4.6 million in 2015, which was $0.7 million higher than the prior year.

A number of projects were implemented to improve the efficiency of the operations. These projects included the improvement work at the mineral separation plant to raise recoveries. Other capital expenditure included the overhaul of one generator at the power plant for security of power supply. The dredge also benefited from planned maintenance in the first quarter of the year.

Free Cash Flow

Free Cash Flow is a measure of the cash generated by operating activities before investment in expansionary projects. This KPI is a useful measure of the success in converting underlying earnings to cash.

Free Cash Flow in 2015 was an inflow of $17.3 million which compared to an inflow of $6.7 million in the prior period. EBITDA increased from the prior year, but the main contributor to the improvement in Free Cash Flow was active management over working capital, resulting in a $10.6 million improvement in Free Cash Flow.

Expansionary and other capital expenditure

Expansionary capital expenditure totaled $26.1 million in 2015, which was $13.3 million higher than the prior year. The most significant area of expenditure related to the Gangama dry mine project of $22.2 million, excluding capitalised interest and other finance costs.

Interest paid

Interest paid during the year was $2.8 million versus $2.0 million in 2014. The increase is due to interest paid on the Senior Loan Facility, first drawn in April 2015, which is being used to fund 40% of capital expenditure on the Gangama dry mining project.

Interest and other finance costs paid comprises $1.5 million (2014: $0.8 million) in respect of the Working Capital Facility and $1.3 million (2014: $nil) in relation to the Senior Loan Facility. As noted above, interest payable on the Senior Loan Facility has been capitalised to the cost of the Gangama dry mine project in accordance with IAS 23 "Borrowing costs".

In January 2015 the Group obtained an eighteen month deferral on payment of interest and principal on the loan payable to the Government. Interest costs of $1.7 million accrued during 2015 have been capitalised to the principal value of the loan.  

Balance sheet

The Group's capital employed position at 31 December 2015 is shown below:

Summary of movements

The capital employed (as defined by the Group) comprises equity attributable to shareholders and interest-bearing loans and borrowings. Capital employed decreased by $4.0 million, predominantly due to the retained loss for the year of $13.2 million offset by $9.2 million drawn down under the Senior Loan Facility to fund the Gangama dry mine project.

Property, plant and equipment

Capital expenditure incurred on property, plant and equipment increased compared to the prior year as the Group commenced construction of the Gangama dry mine project in April 2015. As at 31 December 2015, the Group had incurred $24.0 million on this project.

The Group also completed an upgrade of the mineral separation plant which should see improvements in the recovery rate at the plant. As a result, assets under construction to the value of $26.9 million were transferred to the relevant categories of property, plant and equipment, and depreciation commenced.

Finance review (continued)

Rehabilitation and decommissioning provisions

During mining operations, land is disturbed as tailings, ponds and borrow pits are created. The Group has an obligation under the applicable legislation and its mining concession to rehabilitate these areas.

The costs of reclamation and rehabilitation are assessed on a regular basis and estimated costs are provided over the life of the mine. Previously, no provision was made for the decommissioning of the Group's fixed assets as it was believed that the community would occupy the Group's facilities upon closure. Whilst this assessment remains valid, upon receipt of professional advice, a decommissioning provision of $0.7 million has been recognised at the year end to reflect the dismantling costs of certain plant and equipment, including environmental remediation work to ensure their safe use by the community.

The total rehabilitation and decommissioning provision at the year-end was $3.0 million, an increase of $0.8 million compared to the prior year. The year end provision comprises $2.3 million for ongoing rehabilitation work and $0.7 million for decommissioning at closure.

Net debt

Net debt comprises cash and cash equivalents and interest-bearing loans and borrowings. A summary of the net debt position is shown below:

The Group had cash and cash equivalents of $5.0 million (2014: $6.6 million) at the year end. Gross borrowings increased to $51.5 million as a result of the $9.2 million drawdown under the Senior Loan Facility to fund the Gangama dry mine project.

Details of the Group's borrowings by each facility is summarised below:

Government Loan

In December 2014, the Group obtained a temporary deferral, with final approval being granted in January 2015, for an eighteen month deferral of repayments of principal and payment of interest in respect of the loan payable to the Government. During the deferral period, interest continues to accrue and is capitalised into the principal loan balance. On 18 March 2016, a further six month deferral was agreed with the Government such that the next repayment due under this loan commences in December 2016.

The balance outstanding as at 31 December 2015 was $22.1 million (2014: $22.9 million). No principal or interest payments were made in 2015. Movements between the years reflect capitalised interest and devaluation of the Euro against the US dollar as the loan is denominated in Euros. The loan carries a fixed interest rate of 8.0%.

$20 million Working Capital Facility ("WCF")

The WCF was originally arranged in August 2013 to provide working capital for the business. The loan carries an interest rate of LIBOR plus 5.0% and was due to expire in August 2016. On 15 March 2016, an extension to May 2017 was successfully negotiated. As at 31 December 2015 and 2014, this loan was drawn down in full. The loan is secured against the assets of the Group.

$30 million Senior Loan Facility ("SLF")

Following approval of the construction of the Gangama dry mine project, the Group entered into the SLF in April 2015. Use of the loan is restricted to the Gangama dry mine project, with 40% of the project being funded by the SLF and the remaining 60% being funded by internally generated cash flows. Repayment of the loan commences in November 2016 with amortisation thereafter being over four years. The loan carries an interest rate of LIBOR plus 5.25% and is secured against the assets of the Group. As at 31 December 2015, $9.2 million had been drawn down under the SLF.

$15 million Standby Facility ("Standby Facility")

The Group secured a Standby Facility of up to $15 million which is cash collateralised by its majority shareholder, Pala Investments. Until 15 March 2016, the Standby Facility could only be utilised to fund the Gangama dry mine project to the extent internally generated funds were not sufficient to fund the 60% of the project which is not funded by the SLF, but after this date, the facility could be utilised for general corporate purposes. This facility is available until May 2017, carries an interest rate of LIBOR plus 2%, and has no associated arrangement or commitment fees. This facility was undrawn as at 31 December 2015.

Finance review (continued)

Financial outlook

Production cash costs are projected to decrease in 2016 as further cost savings initiatives are implemented. The Group is encouraged by the growing demand for titanium pigment and metal, and believe that this should result in a repositioning of the rutile price and growth in operating margins in the near future.

By moving to a market-led business model and with improved profit margins, Free Cash Flow should improve, thereby allowing further investment in the Group's growth projects. These investments will only proceed if they are value accretive. In addition, the Group is evaluating all options in reviewing its capital structure in order to improve access to liquidity and facilitate returns to shareholders.

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), including AIM Rules for the Companies.

In preparing these financial statements, International Accounting Standard 'IAS 1' Presentation of Financial Statements requires that Directors:

· select suitable accounting policies and apply them consistently;

· make judgements and estimates that are reasonable and prudent;

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

· state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group will continue in business.

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.

Responsibility statement

The Directors confirm that to the best of their knowledge:

· the financial statements, prepared in accordance with IFRSs 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 undertakings included in the consolidation taken as a whole; and

· the operations and finance review, which are incorporated into the Directors' Report, includes a fair review of the development and performance of the business and the position of the Group and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that it faces.

By order of the Board

John Bonoh Sisay Stephen Gill

30 March 2016 30 March 2016

Statement of Condensed Consolidated Comprehensive Loss

Notes to the condensed consolidated financial statements

Year ended 31 December 2015

1. General information

Sierra Rutile Limited (the "Company") is a public limited company listed on the Alternative Investment Market ("AIM") of the London Stock Exchange. The Company is 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. The Group comprises Sierra Rutile Limited (the "Company"), and its consolidated subsidiaries.

The Group's principal activity is exploring, producing and marketing natural rutile and related by-products from its assets in Sierra Leone.

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.

2.1 Basis of preparation

(i) Non statutory accounts

The financial information for the year ended 31 December 2015 does not constitute statutory accounts. Statutory accounts for the year ended 31 December 2014 have been approved and distributed and those for 2015 will be delivered ahead of the Company's Annual General Meeting convened for July 2016. The auditors have reported on these accounts; their reports were unqualified and did not include a reference to any matters to which the auditors drew attention by way of emphasis of matter.

Whilst the preliminary announcement (the Condensed financial statements) has been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use by the European Union, and with the requirements of the United Kingdom Listing Authority (UKLA) Listing Rules, these Condensed financial statements do not contain sufficient information to comply with IFRS. The Group will publish full financial statements that comply with IFRS in April 2016

(ii) Basis of accounting

The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments which have been measured at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for the assets.

The consolidated financial statements are presented in US dollars ($) and all financial information has been rounded to the nearest thousand dollars ($'000) except where otherwise indicated.

(iii) 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 12 and 19. At 31 December 2015, the Group had cash and cash equivalents of $5.0 million and total borrowings of $51.5 million. Details on the Group's borrowings are set out in note 9 to the financial statements.

The Group has prepared a cash flow forecast based on its best estimate of the key variables including sales volumes, prices, operating costs and capital expenditure through to June 2017 that shows that the Group will be able to operate within the level of its current facilities and comply with its financial covenants for the foreseeable future.

The Directors acknowledge that the Group faces ongoing risks, the most significant of which is exposure to rutile prices. The Group has already contracted the majority of its sales volumes in 2016, mostly with agreed pricing, and in respect of the uncontracted sales the most recent equity analyst forecasts indicates a steady increase in rutile prices over the coming year that would allow the Group to continue to meet its funding obligations during the forecast period. If there was a fall in prices below the levels forecast for the going concern period, the Directors believe that they have a number of options available to them, such as deferring capital expenditure, actively managing working capital, and accessing the Standby Facility which is available for general corporate purposes, which would allow the Group to meet its cash flow requirements through this period. In addition the Group is also evaluating a number of options to strengthen its capital structure, improve access to liquidity and enhance returns to shareholders.

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

Notes to the condensed consolidated financial statements

Year ended 31 December 2015

2. Significant accounting policies (continued)

2.1 Basis of preparation (continued)

(iv) Basis of consolidation

 The consolidated financial statements comprise the financial statements of the Company and all its subsidiaries. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. Control is presumed to exist where the Company owns more than one half of the voting rights, and also 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 financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company, using consistent accounting policies. 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.

All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated on consolidation.

2.2 Critical accounting judgement and key sources of estimation uncertainty

In the course of preparing these financial statements, the Directors make necessary judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Judgements are based on the Directors' best knowledge of the relevant facts and circumstances having regard to prior experience, but actual results may differ from the amounts included in the financial statements. Estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions applied are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods, if the revision affects both current and future periods.

2.2.1 Critical accounting judgements

The following are the critical judgements, apart from those involving estimations (which are dealt with separately below), which the Directors believe are likely to have the most significant effect on the amounts recognised in the consolidated financial statements.

 (i) Impairment review of goodwill

The Group tests annually, in accordance with IAS 36 "Impairment of Assets", whether goodwill has suffered any impairment, in accordance with the accounting policy.

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. These assessments require the use of estimates and assumptions such as long-term commodity prices (considering current and historical prices, with reference to analyst forecasts and related factors), discount rates, operating costs, future capital requirements, closure and rehabilitation costs, exploration potential, reserves and operating performance (which includes production and sales volumes). These estimates are subject to risk and uncertainty. Therefore, there is a possibility that changes in circumstances will impact these projections, which impact the recoverable amount of goodwill.

Notes to the condensed consolidated financial statements

Year ended 31 December 2015

2. Significant accounting policies (continued)

2.2 Critical accounting judgement and key sources of estimation uncertainty (continued)

2.2.1 Critical accounting judgements (continued)

(ii) Impairment review of tangible assets and investments in joint venture

The Directors review the carrying value of the Group's assets to determine whether there are any indicators of impairment such that the carrying values of the assets may not be recoverable. The assessment of whether an indicator of impairment has arisen requires considerable judgement, taking account of future operational and financial plans, commodity prices, sales demand and the competitive environment. Where such indicators exist, the carrying value of the assets of a cash generating unit is compared with the recoverable amount of those assets, that is, the higher of net realisable value and value in use, which is determined on the basis of discounted future cash flows.

As noted above, in arriving at a valuation calculation, the Directors also apply their judgement in estimating the probability, timing and value of underlying cash flows and in selecting appropriate discount rates and useful economic lives.

(iii) Recognition of deferred income tax assets

Judgement is required in determining whether deferred income tax assets are recognised on the balance sheet. Deferred income tax assets, including those arising from unutilised tax losses, require the Directors to assess the likelihood that the Group will generate sufficient taxable earnings in future periods, in order to utilise recognised deferred income tax assets. Assumptions about the generation of future taxable profits depend on the Directors' estimates of future cash flows. These estimates of future taxable income are based on forecast cash flows from operations (which are impacted by production and sales volumes, commodity prices, reserves, operating costs, closure and rehabilitation costs, capital expenditure, dividends and other capital management transactions) and judgement about the application of existing tax laws. To the extent that the future cash flows and taxable income differ significantly from estimates, the Directors judgement regarding the position adopted at the reporting date relating to the recognition of deferred tax asset could be impacted. In addition, future changes in tax laws in the jurisdictions in which the Group operates could limit the ability of the Group to obtain tax deductions in future periods.

 (iv) Accounting for investment in a joint arrangement

The Group has a joint arrangement which is structured through a separate legal entity in which the Group held a 49% investment at the reporting date. This structure and the terms of the contractual arrangement indicate that the Group has rights to the net assets of the arrangement.

Judgement is required to determine when the Group has joint control, which requires an assessment of the relevant activities and when the decisions in relation to those activities require unanimous consent. The Group has determined that the relevant activities for its joint arrangements relate to the operating and capital decisions of the arrangement, such as: the approval the capital expenditure programme for each year, and appointing, remunerating and terminating the key management personnel of, or service providers to, the joint arrangement. The considerations made in determining joint control are similar to those necessary to determine control over subsidiaries. After undertaking this assessment, there was nothing to suggest that the Group had rights to the assets and obligations for the liabilities. The final conclusion was that the arrangement was a joint venture and that its results are consolidated in the Group using the equity accounting method.

2.2.2 Key sources of estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Group based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Group. Such changes are reflected in the assumptions when they occur.

Notes to the condensed consolidated financial statements

Year ended 31 December 2015

2. Significant accounting policies (continued)

2.2 Critical accounting judgement and key sources of estimation uncertainty (continued)

2.2.2 Key sources of estimation uncertainty (continued)

(i) Determination of ore resources and useful lives of property, plant and equipment

Ore resource estimates relate to the amount of rutile and ilmenite ore that can be economically extracted from the Group's mine. In order to estimate resources, assumptions are required about a range of geological, technical and economic factors, including quantities, grades, production techniques, recovery rates, production costs, transport costs, market demand, commodity prices and exchange rates.

The Group estimates its ore resources based on information compiled by competent persons as defined in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves of December 2012 (the JORC code).

In assessing the life of the mine for accounting purposes, resource estimates are only taken into account where there is a high degree of confidence of economic extraction. Since the economic assumptions used to estimate resources change from period to period, and as additional geological data is generated during the course of operations, estimates of resources may change from period to period.

Changes in reported resources may affect the Group's financial results and financial position in a number of ways, including the following:

· asset carrying values may be affected due to changes in estimated future cash flows;

· depreciation, depletion and amortisation charged in the income statement may change where such charges are determined by the unit of production basis, or where the useful economic lives of assets change; and

· closure and restoration provisions may change where changes in estimated reserves affect expectations about the timing or cost of these activities.

There are numerous uncertainties inherent in estimating ore resources, and assumptions that are valid at the time of estimation may change significantly when new information becomes available. Changes in the forecast prices of commodities, exchange rates, production costs or recovery rates may change the economic status of resources and may, ultimately, result in resources being revised.

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.

(ii) Restoration and rehabilitation provision

Costs for restoration of site damage and rehabilitation are estimated using the work of external consultants as well as internal experts. Significant estimates and assumptions are made in determining the provision for mine rehabilitation as there are numerous factors that will affect the ultimate amount payable over the life of the mine. Costs of reclamation and rehabilitation are assessed on a regular basis and estimated costs are provided over the life of the mine. The estimates include costs of labour, materials, and equipment required to rehabilitate disturbed areas.

Rehabilitation and restoration costs are provided at the present value of the expenditures expected to settle the obligation, using estimated cash flows based on current prices over the assumed life of the mine. The provision at the reporting date represents the Directors' best estimate of the present value of the future rehabilitation costs required.

Notes to the condensed consolidated financial statements

Year ended 31 December 2015

2. Significant accounting policies (continued)

2.2 Critical accounting judgement and key sources of estimation uncertainty (continued)

2.2.2 Key sources of estimation uncertainty (continued)

(iii) Mine closure provision

The mine closure provision represents the Directors' best estimate of the Group's liability for close-down, dismantling and restoration of the mining and processing sites, but excluding reclamation of areas disturbed by mining activities, which is covered under the mine rehabilitation provision. The costs are estimated on the basis of a formal closure plan involving the use of external consultants. Significant estimates and assumptions are made in determining the provision for mine closure as there are numerous factors that will affect the ultimate amount payable over the life of the mine. The estimates include costs of labour, materials, equipment required to dismantle the equipment and subsequent environmental monitoring.

Closure costs are provided at the present value of the expenditures expected to settle the obligation, using estimated cash flows based on current prices over the assumed life of the mine. The provision at the reporting date represents the Directors' best estimate of the present value of the future closure costs required.

(iv) Consumables inventory provision

Consumables items form a substantial part of the overall inventory balance in the Group's financial statements. These are tools and spares used throughout the Group's operations. During the year a detailed review of slow or non-moving consumables was undertaken, with the assistance of external reviewers as well as internal experienced employees to identify such items and provide against them.

This exercise resulted in an additional provision being recognised for slow moving or obsolete consumable items which the Directors no longer believe are likely to be used in the normal course of business. Such an exercise involved the use of estimates, including future usage of consumables, technological innovation, product life cycles and long-term mine plans.

Notes to the condensed consolidated financial statements

Year ended 31 December 2015

3. 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 natural 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 primary mining product being rutile, with ilmenite, zircon and other concentrates 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.

Segment revenue

Revenue represents the invoiced amount in respect of sales of rutile, ilmenite and zircon and other concentrates sold during the period including freight costs for those sales conducted on a Cost, Insurance and Freight' ("CIF") basis. By separately analysing freight costs for those sales conducted on a CIF basis, revenue by product in the table below is therefore stated on an equivalent 'Free Along-Side' ("FAS") basis.

Revenue 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 31 December 2015 revenues of $32.7 million, $29.0 million and $15.3 million were generated from three customers (2014: Revenues of $41.7 million, $32.9 million and $26.4 million were derived from three customers) all of whom accounted for more than 10% of the Group's total annual sales.

Segment assets

All of the Group's assets are in Sierra Leone except certain inventory balances valued at $3.7 million (31 December 2014: $4.0 million) held in a warehouse in Europe.

All the Group's assets belong to one segment, that being the production, refining and sale of rutile.

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 condensed consolidated financial statements

Year ended 31 December 2015

4. Non-gaap performance indicators

The Directors monitor the financial performance and financial position of the Group based on a number of key performance indicators including EBITDA, production cash cost, All-in cash cost and net debt.

(a) EBITDA

The Group presents EBITDA because it believes that EBITDA is a useful measure of the profitability of the Group and is a proxy for cash earnings from current trading performance. The Group calculates EBITDA as earnings/(loss) before finance income/costs, tax, depreciation, amortisation, share based payments, impairment charges and provision for obsolete inventory.

(b) Production cash cost and all-in cash cost

Production cash cost is defined as the direct costs of production divided by tonnes of rutile produced. The direct costs of production include mining, processing, support and infrastructure services at the mine site which are utilised in order to produce finished rutile in readiness for shipment to the customer.

All-in cash cost is defined as operating costs (direct production, selling, general and administrative costs), stay-in-business capital expenditure less by-product revenue divided by tonnes of rutile sold.

Notes to the condensed consolidated financial statements

Year ended 31 December 2015

4. Non-gaap performance indicators (continued)

(c) Net debt

Net debt as defined by the Group is calculated as total borrowings less cash and cash equivalents.

Notes to the condensed consolidated financial statements

Year ended 31 December 2015

5. Finance income and finance costs

Exchange gains primarily arise on the revaluation of the Euro denominated loan payable to the Government of Sierra Leone (refer to note 9), the cash balances held in local currency and upon revaluation of other foreign currency denominated balances.

In 2015, the Group accessed the Senior Loan Facility (see note 9) for the first time to assist in funding the construction of the Gangama dry mine project. Consequently, the $2.1 million (2014: $nil) of borrowing and finance costs arising have been capitalised to the cost of the Gangama Dry Mine project.

Financing costs include arrangement fees, political risk insurance for facilities secured on the Group's assets in Sierra Leone, legal fees incurred in relation to finance raising activities and bank charges.

Notes to the condensed consolidated financial statements

Year ended 31 December 2015

6. Income taxes

The taxation of the Group's operations in Sierra Leone reverted back to the provisions of the Sierra Rutile Agreement (Ratification) Act 2002, ("Sierra Rutile Act") as at 1 January 2015, under which tax is 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. Prior to this date, the business was subject to a minimum tax charged at 0.5% of turnover.

The standard corporate income tax rate in Sierra Leone enacted at the balance sheet date was 30%.

A reconciliation between tax expense and the Group's loss before tax for the years ended 31 December 2015 and 31 December 2014 is as follows:

(b) Current tax (assets)/ liabilities

Notes to the condensed consolidated financial statements

Year ended 31 December 2015

6. Income taxes (continued)

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

(c) Deferred income tax

The following are the major deferred tax assets and liabilities recognised by the Group and movements thereon during the current and prior reporting period.

On the basis that there is a legally enforceable right in Sierra Leone to offset an entity's current tax assets and liabilities and that the deferred tax assets and liabilities relate to income taxes levied by the same tax authority on the same entity, the deferred tax assets and liabilities are offset as follows: