AFRICAN COPPER PLC ("African Copper" or the "Company")
(TSX:ACU)(AIM:ACU)(BOTSWANA:AFRICAN COPPER) announces its preliminary results
for the year ended 31 December 2007 and its Pula 150 million (Pounds Sterling
11.4 million) unsecured debt financing.
Highlights
Corporate
- The Company recorded a net gain for fiscal 2007 of Pounds Sterling 117,409
(0.09p), compared with a net loss of Pounds Sterling 2,100,884 (2.20p) in fiscal
2006. Higher bank interest receivable and foreign exchange gains more than
offset higher corporate costs and Botswana administration costs contributing to
the net gain in fiscal 2007.
- Raised Pula 150 million (Pounds Sterling 11.4 million) - On 28 March 2008,
Messina Copper (Botswana) (Pty) Ltd ("Messina"), African Copper's 100% owned
subsidiary, received binding subscription agreements as part of a Pula 200
million Botswana Note Programme for Pula 150 million (Pounds Sterling 11.4
million) notes from local Botswana institutions (the "Botswana Bond"). The
Botswana Bond is denominated in Pula and is an unsecured fixed rate note that
bears interest at 14.0% per annum and has a bullet maturity in 7 years.
- Signed a concentrate sale and purchase agreement (the "Off-take Agreement")
with MRI Trading AG ("MRI") for 100% of all copper products shipped from the
Mowana Mine. The Off-take Agreement has a duration of 5 years and is renewable.
In conjunction with the Off-take Agreement, MRI subscribed for 7,284,000
ordinary shares of the Company for net proceeds of Pounds Sterling 5 million.
Mowana Project Development
- Signed a five-year contract with Moolman Mining Botswana (Pty) Ltd.
- Mining Activities - Mining commenced in July 2007 with the removal of
free-digging loose material from the open-pit area. By the end of 2007, the full
fleet of face-loading shovels had arrived on-site and these were commissioned in
January 2008. Even with the heavy rains experienced in January 2008
pre-stripping was maintained close to schedule and blasting in the pit and
stockpiling of ore had commenced by the end of January 2008. At the end of March
2008, the stockpiles at Mowana consisted of about 200,000 tonnes of material at
0.9% copper, including about 33,000 tonnes grading 1.8% copper on the high grade
stockpile.
- Strengthened the management and operating team - by the end of 2007, all
senior positions had been filled. The technical and operational team in Botswana
has grown from 22 as at the end of 2006 to over 50 at the end of 2007 and
currently numbers 77. Recruitment of junior level staff is on-going. The Company
expects to have approximately 175 employees when the Mowana Mine goes into
production in the second quarter of 2008.
- Capital Costs - have been kept within the revised budgets presented in
November 2007. The estimated 8% increase in capital over the 2006 budget
estimate was composed of intentional design changes to the crushing circuit
(4.5%) and to cost escalation that is being experienced throughout the industry.
- Construction Activities - As of the end of February 2008, construction of
surface facilities was about 90% complete.
- Start-up - Commissioning of the mechanical portions of the plant commenced in
late March 2008 and should culminate in the hot commissioning of the primary
crusher in May 2008. The Company expects to be shipping concentrate in June or
July of this year. Completion of construction activities on site is expected in
July 2008 with a hand-over from EPCM teams to operational teams. Commercial
production should be declared in the third quarter of 2008.
- Growing Production at Mowana - Metallurgical studies were also conducted to
optimise process design and recoveries, and explore the benefits of a Dense
Media Separation plant. At the conclusion of these studies, the Company released
its open-pit production profile in February 2008 (see press release 25 February
2008) for the first five years of mining at the Mowana mine. The resultant
production estimates show a five-fold increase in annual copper production from
5,500 tonnes in 2008 to 29,000 tonnes in 2012. Once the operation is treating
predominately sulphide ores cash costs are expected to be around US$1.49 per
pound.
- Expanded Reserves and Resource - the RSV Technical Report issued in November
2007 confirmed about 87.7 million tonnes of measured and indicated resources at
0.71% copper of which approximately 14.8 million tonnes had been converted into
proven and probable reserves at 1.1% copper.
- Underground Development - In 2007 a pre-feasibility study was commissioned to
investigate the viability of an underground mine. DMS studies completed during
2007 showed that it would be possible to use bulk mining methods underground to
extract mineralization and that this material could be upgraded prior to the
introduction into the ball mill and flotation circuits. A complete mine layout
was developed in late 2007 which encompassed multi-level development over the
entire 2 kilometre strike extent of the known mineralization at Mowana to a
depth of 850 metres.
- Exploration at Matsitama Belt - the Company published a resource estimate for
the Thakadu mineralization of 4.7 million tonnes of 1.72% copper and 3,558
tonnes of silver grading 16 grams/tonne. In addition, African Copper has
identified four high priority areas for further exploration in 2008 - The Gaokae
nickel-PGM anomaly, Nakalakwana Hill copper-gold targets, Phute copper anomaly
and the 75-kilometre Lepashe Snake copper anomaly. Results in 2007 were hindered
by excessively long turnaround times for sample analysis.
The Chairman of African Copper, Roy Corrans said, "The Board is delighted with
the support that we have received from Botswana based shareholders and investors
throughout 2007 and into early 2008. The response and the financial support
shown by Botswana institutions and the Botswana Stock Exchange have been
unequalled. The Board remains confident that the Company development objectives
are achievable in 2008 and believes that the share price will respond positively
as we meet our corporate goals throughout the balance of 2008."
Full details of the foregoing are contained in the Company's Management's
Discussion and Analysis ("MD&A") for the year ended 31 December 2007 attached
hereto. The Audited Financial Statements for the year ended 31 December 2007 and
the Company's Annual Information Form is available at www.africancopper.com or
under the Company's profile on SEDAR at www.sedar.com.
A conference call will be held on April 1, 2008 at 8 a.m. EST or 1 pm London
time. To join us by telephone, please dial 416-695-9753 five minutes prior to
the start time. Toll free numbers are available for North American callers at
1-888-789-0150 and UK callers at (00)-800-4222-8835. In addition, it is
possible to listen to the teleconference and view the slide presentation from
our website http://www.africancopper.com in the Investors/Conference Calls.
FORWARD-LOOKING STATEMENTS
This press release contains "forward-looking information". Forward-looking
information includes, but is not limited to, statements concerning mineral
resource estimates, information with respect to the future price of copper, bank
interest receivables, the exploration budget for Matsitama, results of mining
operations, mining extraction and recovery rates at the Mowana Mine Project,
estimates of production of copper at the Mowana Mine Project, including the
anticipated production profile for the first five years of mining, the potential
for future expansion of the Mowana Mine Project, estimations of the life of the
Mowana Mine Project, the expected levels of ore on the stockpiles at the Mowana
Mine Project, expected timing of the commissioning of the process plant, the
expected success of exploration activities under the open pit at the Mowana Mine
Project and in the Matsitama Belt, use of Mineral Resources underground at the
Mowana Mine Project to supplement open-pit feed, the merit of an underground
mine at the Mowana Mine Project, Botswana's energy self-sufficiency, the
potential of the Thakadu deposits, government regulation of mining operations
and exploration, availability of working capital facility and project finance
for the underground project at the Mowana Mine Project, expected number of
employees and staff at the time of commercial production, expectations
concerning the timing of concentrate, the timing of the completion of
construction at the Mowana Mine project and hand-over from EPCM teams to
operational teams, plans concerning the evaluation of mineral resource potential
to the south of the open pit at the Mowana Mine Project, the use of derivative
positions and the impact of exchange rates and other statements which are not
historical facts.
In certain cases, forward-looking information 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 state
that certain actions, events or results "may", "could", "would", "should",
"might" or "will be taken", "occur" or "be achieved" and include the negative
variation of such phrases.
With respect to forward-looking information contained in this press release, the
Company has made assumptions regarding, among other things, the Company's
ability to generate sufficient cash flow from operations and access existing
credit facilities and capital markets to meet its future obligations, the
regulatory framework in Botswana with respect to, among other things, permits,
licenses, authorizations, royalties, taxes and environmental matters, and the
Company's ability to obtain qualified staff and equipment in a timely and
cost-efficient manner to meet the Company's demand.
Although the Company believes that its expectations reflected in forward-looking
information are reasonable, such forward-looking information involves known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company or the Company's projects in
Botswana, or any of them, to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking
information. Such factors include, risks related to failure to convert estimated
mineral resources to reserves, conclusions of economic evaluations, changes in
project parameters as plans continue to be refined, future prices of copper,
unexpected increases in capital or operating costs, possible variations in
mineral resources, grade or recovery rates, failure of equipment or processes to
operate as anticipated, accidents, labour disputes and other risks of the mining
industry, delays in obtaining governmental consents, permits, licences and
registrations or financing or in the completion of development or construction
activities, political risks arising from operating in Africa, uncertainties
relating to the availability and costs and availability of financing needed in
the future, changes in equity markets, inflation, changes in exchange rates,
fluctuations in commodity prices and uninsured risks, as well as those factors
discussed under "Risks" in the MD&A.
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 information, 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 information will prove to be
accurate, as actual results and future events could differ materially from those
anticipated in such information. Accordingly, readers should not place undue
reliance on forward-looking information. The forward-looking information
contained herein, unless stated otherwise, is made as of the date of this press
release and the Company makes no responsibility to update them or to revise them
to reflect new events or circumstances, except as required by law.
The mineral resource and mineral reserve figures referred to in this press
release are estimates and no assurances can be given that the indicated levels
of minerals will be produced. Such estimates are expressions of judgment based
on knowledge, mining experience, analysis of drilling results and industry
practices. Valid estimates made at a given time may significantly change when
new information becomes available. While the Company believes that the resource
and reserve estimates referred to in this press release are well established, by
their nature resource and reserve estimates are imprecise and depend, to a
certain extent, upon statistical inferences which may ultimately prove
unreliable. If such estimates are inaccurate or are reduced in the future, this
could have a material adverse impact on the Company. Due to the uncertainty that
may be attached to inferred mineral resources, it cannot be assumed that all or
any part of an inferred mineral resource will be upgraded to an indicated or
measured mineral resource as a result of continued exploration.
Chairman's Statement
Dear Shareholders,
The 2007 fiscal year marked the transformation of our Company from a junior
explorer to a near-term producer of copper. Very few companies make this quantum
leap in viability in the mineral exploration industry. This achievement is a
tribute to the dedication and hard work of the talented employees at African
Copper who continue to work tirelessly to achieve the aggressive goals that were
set for them at the end of 2006.
African Copper was incorporated in early 2004 and admitted for trading on AIM in
mid-November of that year. We're very proud of what we have achieved in three
short years. In 2004, the Mowana mineralization totalled about 6 million tonnes
of indicated mineralization. By the end of 2007, the Company had confirmed about
87 million tonnes of measured and indicated resources at 0.71% copper of which
approximately 14 million tonnes had been converted into proven and probable
reserves at 1.1% copper. In addition, African Copper had completed sufficient
engineering to determine the best processing route for the mineralization,
raised sufficient capital to enable construction to commence production, entered
into EPCM contracts, obtained all required permits, commenced mining at the
operations, signed a five-year offtake agreement and successfully recruited all
senior Section Managers for the eventual mine. I believe that these achievements
are unique in the industry.
While the open pit mineralization is the immediate source of revenue for the
Company, the Board remains excited about the possibility of an underground mine
at Mowana. Engineering studies for this important expansion are well advanced
and I look forward to sharing the results of these studies with our shareholders
in the second quarter of 2008. The extraction of deeper mineralization provides
longevity for the operations beyond the 7 years represented by the open pit, and
should place Mowana firmly on the path to becoming one of Botswana's new mines.
The Board is delighted with the support that we have received from Botswana
based shareholders and investors throughout 2007 and into early 2008. The
response and the financial support shown by Botswana institutions and the
Botswana Stock Exchange have been unequalled. The Board remains confident that
the Company development objectives are achievable in 2008 and believes that the
share price will respond positively as we meet our corporate goals throughout
the balance of 2008.
As African Copper moves into production the Board will continue to grow
shareholder value and to sensibly leverage the resources that shareholders have
entrusted to us. The Company will be aggressive in pursuing both exploration and
acquisition opportunities while remaining cognizant of market conditions and
shareholder interests. As a shareholder, you can be assured that the Board will
protect your interests, will push management to achieve ever greater goals, will
require the Company to develop projects in a sensible and environmentally
sustainable manner, and will ensure the engagement of communities and
stakeholders at all stages.
On behalf of the Board, I would like to thank the shareholders and employees of
African Copper for their support and loyalty in 2007. I would also like to thank
my fellow Directors for their active participation and contributions to the
Company in its transition year. I expect that 2008 will be an exciting year for
the Company, and for our shareholders.
ROY CORRANS, Chairman
30 March 2008
African Copper Plc
Consolidated income statement
----------------------------------------------------------------------------
Year ended 31 December
2007 2006
Pounds Sterling Pounds Sterling
'000 '000
----------------------------------------------------------------------------
Administrative expenses (2,738) (1,581)
Loss on derivative financial instruments (406) -
Exchange gain/(loss) 276 (2,103)
----------------------------------------------------------------------------
Operating loss (2,868) (3,684)
Finance income
Bank interest receivable 2,985 1,646
----------------------------------------------------------------------------
Profit/(loss) before tax 117 (2,038)
Tax - (62)
----------------------------------------------------------------------------
Profit/(loss) after tax 117 (2,100)
----------------------------------------------------------------------------
Basic earnings/(loss) per ordinary share 0.09p (2.20)p
Diluted earnings/(loss) per ordinary share 0.09p (2.20)p
African Copper Plc
Balance Sheets
--------------------------------------------------------------------------
Group Company
As at 31 December As at 31 December
2007 2006 2007 2006
Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling
'000 '000 '000 '000
--------------------------------------------------------------------------
ASSETS
Property, plant and equipment 48,248 13,964 1,171 1,043
Deferred exploration costs 4,322 2,007 84 -
Other financial assets 4,167 - - -
Long term receivables - - 6,826 16,986
Investments in subsidiaries - - 57,209 9,496
--------------------------------------------------------------------------
Total non-current assets 56,737 15,971 65,290 27,525
--------------------------------------------------------------------------
Other receivables and prepayments 1,903 648 100 438
Derivative financial assets 1,841 - 1,841 -
Cash and cash equivalents 22,428 53,254 18,840 51,157
--------------------------------------------------------------------------
Total current assets 26,172 53,902 20,781 51,595
--------------------------------------------------------------------------
Total assets 82,909 69,873 86,071 79,120
--------------------------------------------------------------------------
--------------------------------------------------------------------------
EQUITY
Issued share capital 1,396 1,305 1,396 1,305
Share premium 76,947 69,844 76,947 69,844
Merger reserve - - 8,607 8,607
Acquisition reserve 4,485 4,485 - -
Foreign currency translation reserve (1,207) (1,979) - -
Hedging reserves (812) - (812) -
Retained losses (4,843) (5,687) (329) (829)
--------------------------------------------------------------------------
Total equity 75,966 67,968 85,809 78,927
--------------------------------------------------------------------------
LIABILITIES
Asset retirement obligation 464 - - -
--------------------------------------------------------------------------
Total non-current liabilities 464 - - -
--------------------------------------------------------------------------
--------------------------------------------------------------------------
Trade and other payables 6,479 1,905 262 193
--------------------------------------------------------------------------
Total current liabilities 6,479 1,905 262 193
--------------------------------------------------------------------------
Total equity and liabilities 82,909 69,873 86,071 79,120
--------------------------------------------------------------------------
--------------------------------------------------------------------------
African Copper Plc
Group consolidated statement of changes in shareholders' equity
----------------------------------------------------------------------------
Foreign
Currency
Acqui- Trans-
Share Share sition lation Hedging Retained Total
Capital Premium Reserve Reserve Reserve Loss Equity
Pounds Pounds Pounds Pounds Pounds Pounds Pounds
Sterling Sterling Sterling Sterling Sterling Sterling Sterling
'000 '000 '000 '000 '000 '000 '000
----------------------------------------------------------------------------
Balance at 1
January 2006 520 16,158 4,485 (315) - (4,579) 16,269
Foreign
exchange
adjustments - - - (1,664) - - (1,664)
----------------------------------------------------------------------------
Total
recognized
income and
expense
recognized
directly
in equity - - - (1,664) - - (1,664)
----------------------------------------------------------------------------
Loss for
the year - - - - - (2,100) (2,100)
----------------------------------------------------------------------------
Total
recognised
loss for
the year - - - (1,664) - (2,100) (3,764)
New share
capital
subscribed 785 58,702 - - - - 59,487
Share issue
costs - (5,016) - - - - (5,016)
Credit
arising
on share
options - - - - - 992 992
----------------------------------------------------------------------------
Balance
at 31
December
2006 1,305 69,844 4,485 (1,979) - (5,687) 67,968
----------------------------------------------------------------------------
Foreign
exchange
adjustments - - - 772 - - 772
Fair value
loss on
cash flow
hedge
instruments - - - - (812) (812)
----------------------------------------------------------------------------
Total
recognized
income and
expense
recognized
directly
in equity - - - 772 (812) - (40)
----------------------------------------------------------------------------
Gain for
the year - - - - - 117 117
----------------------------------------------------------------------------
Total
recognised
gain/(loss)
for the
year - - - 772 (812) 117 76
New share
capital
subscribed 91 7,509 - - - - 7,600
Share issue
costs - (406) - - - - (406)
Credit arising
on share
options - - - - - 727 727
----------------------------------------------------------------------------
Balance at 31
December 2007 1,396 76,947 4,485 (1,207) (812) (4,843) 75,966
----------------------------------------------------------------------------
----------------------------------------------------------------------------
African Copper Plc
Group consolidated cash flow statement
----------------------------------------------------------------------------
Year ended 31 December
2007 2006
Pounds Sterling Pounds Sterling
'000 '000
----------------------------------------------------------------------------
Cash flows from operating activities
Administration expenses (2,738) (1,581)
Tax - (62)
----------------------------------------------------------------------------
Operating loss from continuing
operations (2,738) (1,643)
Increase in receivables (1,255) (421)
Increase/(decrease) in payables 69 (5)
Share based payment expense 519 562
Tax - 62
----------------------------------------------------------------------------
Cash used in operating activities (3,405) (1,445)
Interest received 2,986 1,646
----------------------------------------------------------------------------
Net cash (outflow)/inflow from operating
activities (419) 201
----------------------------------------------------------------------------
Cash flows from investing activities
Payments to acquire property, plant and
equipment (28,335) (3,805)
Payments of deferred exploration
expenditures (2,315) (6,186)
Purchase of cash flow hedging
instruments (3,060) -
Cash placed on restricted deposit (4,167) -
----------------------------------------------------------------------------
Net cash outflow from investing
activities (37,877) (9,991)
----------------------------------------------------------------------------
Cash flows from financing activities
Issue of equity share capital, net of
issue costs 7,030 52,948
Issue of equity upon exercise of
warrants - 1,378
Issue of equity upon exercise of options 164 145
----------------------------------------------------------------------------
Net cash inflow from financing
activities 7,194 54,471
----------------------------------------------------------------------------
Net (decrease)/increase in cash and cash
equivalents (31,102) 44,681
Cash and cash equivalents at beginning
of the year 53,254 10,676
Exchange gain/(loss) 276 (2,103)
----------------------------------------------------------------------------
Cash and cash equivalents at end of the
year 22,428 53,254
----------------------------------------------------------------------------
----------------------------------------------------------------------------
1. Nature of operations, going concern and adequacy of project finance
African Copper Plc ("African Copper" or the "Company") is a public limited
company incorporated and domiciled in England and is listed on the AIM market of
the London Stock Exchange, the Toronto Stock Exchange and the Botswana Stock
Exchange. African Copper is a holding company of a mineral exploration and
development group of companies (the "Group"). The Group is involved in the
exploration and development of copper deposits in Botswana and is currently
developing its first copper mine at the Mowana Mine") and is conducting an
exploration programme at the Matsitama Project. The Mowana Mine is located in
the northeastern portion of Botswana and the Matsitama Project is contiguous to
the southern boundary of the Mowana Mine.
On 28 March 2008, Messina Copper (Botswana) (Pty) Ltd ("Messina"), African
Copper's 100% owned subsidiary, received binding subscription agreements as part
of a BWP200 million Botswana Note Programme for BWP150.0 million (Pounds
Sterling 11.4 million) notes from local Botswana institutions (the "Botswana
Bond"). The Botswana Bond is denominated in Pula and is an unsecured fixed rate
note that bears interest at 14.0% per annum and has a bullet maturity in 7
years. The company has also raised approximately Pounds Sterling 5million in
additional equity since the year end. In addition, to provide the Company with
additional operational flexibility management is in advanced discussions with
several financial institutions regarding the establishment of a revolving
working capital and hedging facility for the Mowana Mine.
The Board has reviewed the detailed financial mine plan and consider that with
the additional financial resources secured and the nearness of anticipated
production, the Company has sufficient financial resources to commence
production at the Mowana Mine and adequate working capital for the foreseeable
future, being a period of not less than twelve months from the date of signing
these financial statements. In the event of operational cost overruns or delays,
they believe the Company has adequate flexibility to manage expenditures. The
Directors therefore consider it appropriate to prepare these financial
statements on a going concern basis.
As more fully explained in Management's Discussion and Analysis management
intend to complete development of the open pit mining operations with the
addition of a DMS plant to the processing plant, further evaluate developing the
underground portion of the mine at Mowana and continue with the Matsitama
exploration project. Further project finance may be required to complete these
and if the Company is unable to secure the further finance required, the Company
may not be able to fully develop these projects and their carrying values and
the investment of the parent company may become impaired.
The address of African Copper's registered office is 100 Pall Mall, St James's
London SW1Y 5HP. These consolidated financial statements have been approved for
issue by the Board of Directors on 30 March 2008.
Statutory Accounts
The financial information set out in this preliminary announcement does not
constitute statutory accounts within the meaning of Section 240 of the Companies
Act 1985 for the year ended 31 December 2007 or for the year ended 31 December
2006 but is derived from those accounts. The accounts for the year to 31
December 2006, which include an unqualified audit report, have been delivered to
the Registrar of Companies. The financial statements for 31 December 2007 will
be delivered to the Registrar of Companies following the Company's Annual
General Meeting. The auditors have reported on these accounts. Their report is
unqualified and does not contain statements under section 237 of the Companies
Act 1985 An emphasis of matter paragraph is included in their audit report
regarding the issue of the availability of project finance.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below.
a) Statement of Compliance
The consolidated financial statements of African Copper plc have been prepared
in accordance with IFRSs and their interpretations adopted by the International
Accounting Standards Board (IASB), as adopted by the European Union and with
IFRSs and their interpretations adopted by the International Accounting
Standards Board (IASB). They have also been prepared in accordance with those
parts of the Companies Act 1985 applicable to companies reporting under IFRSs.
The accounting policies set out below have been applied consistently to all
periods presented in these consolidated financial statements.
As permitted by section 230 of the Companies Act 1985, the income statement of
the Company has not been presented in these financial statements.
b) Basis of preparation
The consolidated financial statements of African Copper are presented in Pounds
Sterling and have been prepared on the historical cost basis or the fair value
basis for certain financial instruments.
c) Basis of consolidation
(i) Subsidiaries
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company (its subsidiaries) made up to
31 December each year. Control is recognized where the Company has the power to
govern the financial and operating policies of an investee entity so as to
obtain benefits from its activities.
(ii) Transactions eliminated on consolidation
Intra-group transactions, balances and unrealized gains on transactions between
group companies are eliminated. Unrealized losses are eliminated in the same way
as unrealized gains, but only to the extent that there is no evidence of
impairment.
(iii) Business combinations
On entering into a business combination, an acquirer is identified based on the
identity of the entity which gains control of the combining entities.
The assets, liabilities and contingent liabilities of the acquiree are measured
at their fair value at the date of acquisition. Any excess of the fair value of
the consideration paid over the fair value of the identifiable net assets
acquired is recognised as goodwill. If the fair value of the consideration is
less than the fair value of the identifiable net assets acquired, the difference
is recognised directly in the income statement.
d) Foreign currency translation
(i) Functional and presentation currency
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ('the functional currency'). The consolidated financial
statements are presented in Pounds Sterling, which is the Group's presentation
currency and the functional currency of the Company.
(ii) Group companies
The results and financial position of all the group entities (none of which has
the currency of a hyperinflationary economy) that have a functional currency
different from the presentation currency are translated into the presentation
currency as follows:
- assets and liabilities for each balance sheet presented are translated at the
closing rate at the date of that balance sheet;
- income and expenses for each income statement are translated at average
exchange rates (unless this average is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates, in which
case income and expenses are translated at the dates of the transactions); and
- all resulting exchange differences are recognized as a separate component of
equity.
On consolidation, exchange differences arising from the translation of the net
investment in foreign operations are taken to shareholders' equity. When a
foreign operation is sold, exchange differences that were recorded in equity are
recognized in the income statement as part of the gain or loss on sale.
e) Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated amortisation
and less any accumulated impairment losses. Pre-production expenditure relating
to testing and commissioning is capitalised to property, plant and equipment.
The recognition of costs in the carrying amount of an asset ceases when the item
is in the location and condition necessary to operate as intended by management.
Any net income earned while the item is not yet capable of operating as intended
reduces the capitalised amount. Interest on borrowings, specifically to finance
the establishment of mining assets, is capitalised during the construction
phase.
Subsequent costs are included in the asset's carrying amount only when it is
probable that future economic benefits associated with the item will flow to the
group and the cost of the item can be reliably measured. All other repairs and
maintenance are charged to the income statement during the financial period in
which they are incurred.
Amortization methods and amortization rates are applied consistently within each
asset class except where significant individual assets have been identified
which have different amortisation patterns. Residual values are reviewed at
least annually. Amortisation is not adjusted retrospectively for changes in the
residual amount. Gains and losses on disposals are determined by comparing
proceeds with carrying amount and are included in the income statement.
Other assets consist of vehicles, information technology equipment and furniture
and equipment.
Mining development and infrastructure
Individual mining assets and deferred stripping costs are amortised using the
units-of-production method based on the estimated economically recoverable metal
during the life of mine plan. Mining costs incurred on development activities
comprising the removal of waste rock to initially expose ore at the Mowana open
pit mine, commonly referred to as "deferred stripping costs," are capitalized.
Mining plant and equipment
Individual mining plant and equipment assets are depreciated using the straight
line method over the useful life of the asset once the assets are available for
use.
Other Assets
These assets are depreciated using the straight line method over the useful life
of the asset as follows:
- Vehicles 4 years
- Information technology 3 years
- Furniture & equipment 5 years
f) Deferred exploration and evaluation
All costs incurred prior to obtaining the legal right to undertake exploration
and evaluation activities on a project are written-off as incurred.
Exploration and evaluation costs arising following the acquisition of an
exploration licence are capitalized on project-by-project basis, pending
determination of the technical feasibility and commercial viability of the
project. Costs incurred include appropriate technical and administrative
overheads. Deferred exploration costs are carried at historical cost less any
impairment losses recognised.
Upon demonstration of the technical and commercial feasibility of a project, any
past deferred exploration and evaluation costs related to that project will be
reclassified as Mine Development and Infrastructure.
Capitalised deferred exploration expenditures are reviewed for impairment losses
(see accounting policy note below) at each balance sheet date. In the case of
undeveloped properties, there may be only inferred resources to form a basis for
the impairment review. The review is based on a status report regarding the
Group's intentions for development of the undeveloped property.
The recoverability of deferred exploration and evaluation costs is dependent
upon the discovery of economically recoverable ore reserves, the ability of the
Group to obtain the necessary financing to complete the development of the
reserves and future profitable production or proceeds from the disposal
thereof.
g) Other receivables and prepayments
Other receivables and prepayments are not interest bearing and are stated at
amortised cost.
h) Derivative financial instruments
Copper forward exchange contracts are entered into to hedge anticipated future
transactions. Derivative financial instruments are initially recognised in the
balance sheet at the fair value on the date of acquisition and subsequently
remeasured at fair value. The method of recognising the resulting gain or loss
is dependant on the nature of the item being hedged. On the date that the
derivative contract is entered into, the group designates derivatives as either
a hedge of the fair value of a recognised asset or liability (fair value hedge)
or a hedge of a forecasted transaction or a firm commitment (cash flow hedge).
Changes in the fair value of derivatives that are designated and qualify as cash
flow hedges and that are highly effective are recognised in equity. Changes in
the fair value of derivatives that are designated as fair value hedges are
recognised in the income statement. Certain derivative transactions, while
providing effective economic hedges under group's risk management policies, do
not qualify for hedge accounting. Changes in the fair value of any such
derivative instruments are recognised immediately in the income statement.
i) Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with
banks, other short-term highly liquid investments with original maturities of
three months or less.
j) Impairment
Whenever events or changes in circumstance indicate that the carrying amount of
an asset may not be recoverable an asset is reviewed for impairment. An asset's
carrying value is written down to its estimated recoverable amount (being the
higher of the fair value less costs to sell and value in use) if that is less
than the asset's carrying amount.
Impairment reviews for deferred exploration and evaluation costs are carried out
on a project by project basis, with each project representing a potential single
cash generating unit. An impairment review is undertaken when indicators of
impairment arise but typically when one of the following circumstances apply:
(i) unexpected geological occurrences that render the resource uneconomic;
(ii) title to the asset is compromised;
(iii) variations in metal prices that render the project uneconomic; and
(iv) variations in the currency of operation.
k) Share based payment
Certain Group employees and consultants are rewarded with share based
instruments. These are stated at fair value at the date of grant and either
expensed to the income statement or capitalized to deferred exploration costs,
based on the activity of the employee or consultant, over the vesting period of
the instrument.
Fair value is estimated using the Black-Scholes valuation model. The estimated
life of the instrument used in the model is adjusted for management's best
estimate of the effects of non-transferability, exercise restrictions and
behavioural considerations.
The proceeds received net of any directly attributable transaction costs are
credited to share capital (nominal value) and share premium when the options are
exercised.
l) Provisions
Provisions are recognized when, the Group has a legal or constructive obligation
as a result of past events, it is more likely than not that an outflow of the
resources will be required to settle the obligation and the amount can be
reliably estimated.
m) Trade and other payables
Trade and other payables are not interest bearing and are stated at amortized cost.
n) Income tax
The charge for taxation is based on the profit or loss for the year and takes
into account deferred tax. 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 or loss, and is accounted for using the
balance sheet method.
Deferred tax assets are only recognised to the extent that it is probable that
future taxable profit will be available in the foreseeable future against which
the temporary differences can be utilised.
o) Asset retirement obligations
Asset retirement obligations are future costs to retire an asset including
dismantling, remediation and ongoing treatment and monitoring of the site. The
asset retirement cost is capitalised as part of the asset's carrying value and
amortized over the asset's useful life. Subsequent to the initial recognition of
the asset retirement obligation and associated asset retirement cost and changes
resulting from a revision to either timing or the amount estimated, cash flows
are prospectively reflected in the year those estimates change. The liability is
accreted over time through period charges to the Consolidated Income Statement.
p) Investment in subsidiaries
Investments in subsidiaries are recognised at cost less any provision for
impairment.
q) Revenue
i) Interest income
Interest income is recognised as it accrues to the Company.
r) Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances. Many of the amounts included
in the financial statements involve the use of judgement and/or estimation.
These judgements and estimates are based on managements' 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.
Information about such judgements and estimation is contained in the accounting
policies and/or the Notes to the financial statements, and the key areas are
summarised below. Areas of judgement that have the most significant effect on
the amounts recognized in the financial statements:
Capitalisation and impairment of exploration and evaluation costs - Note 2(j)
and Note 9
Estimation of share based compensation amounts - Note 2(k) and Note 18
Estimation of derivative financial assets - Note 2(h) and Note 11
s) Adoption of International Financial Reporting Standards
The financial statements are prepared in accordance with International Reporting
Standards and Interpretations in force at the reporting date. The Group has not
adopted any standards or interpretations in advance of the required
implementation dates. It is not expected that adoption of standards or
interpretations which have been issued by the International Accounting Standards
Board, but have not been adopted will have a material impact on the financial
statements.
During the year, the Group applied IFRS 7, "Financial instruments: disclosure"
and the capital management disclosures of IAS 1 (Revised) "Presentation of
financial statements" for the first time. The disclosures required by these
standards are set out in note 23. There was no other effect from the adoption of
these standards.
3. Basic and diluted earnings/(loss) per share
The calculation of basic gain per ordinary share on the net basis is based on
the profit on ordinary activities after taxation of Pounds Sterling 117,409
(2006: loss of Pounds Sterling 2,100,884) and on 135,371,319 (2006: 95,516,505)
ordinary shares being the weighted average number of ordinary shares in issue
and ranking for dividend during the year. During 2006 no diluted loss per share
was presented as the effect of the exercise of share options would be to
decrease the loss per share. During 2007 the calculation of diluted gain per
ordinary share on the net basis is based on the gain of ordinary activities
after taxation of Pounds Sterling 117,409 and on 135,640,296 ordinary shares
derived as follows:
Basic number of shares 135,371,319
Effect of dilutive share options 268,977
----------------------------------------------------------------------------
Diluted number of shares 135,640,296
----------------------------------------------------------------------------
----------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the Year Ended 31 December 2007
The following management discussion and analysis ("MD&A") of the operating
results and financial condition of African Copper Plc ("African Copper" or the
"Company") and its subsidiaries is for the year ended 31 December 2007 compared
with 31 December 2006. The MD&A should be read in conjunction with the 31
December 2007 audited consolidated financial statements of the Company (the
"Financial Statements") and the related notes thereto (the "Notes"). The
Financial Statements have been prepared under the historical cost convention and
in accordance with International Financial Reporting Standards ("IFRS") (see
Note 2: Principal Accounting Policies). All amounts herein are expressed in
British Pound Sterling unless otherwise indicated and the information is current
to 30 March 2008.
Additional information relating to the Company, including the Company's Annual
Information Form, is available at www.africancopper.com or under the Company's
profile on SEDAR at www.sedar.com.
The scientific and technical information in this MD&A has been prepared under
the supervision of Mr. Joseph Hamilton, P. Geo., the Company's Chief Executive
Officer and a "qualified person" as defined by Canadian National Instrument
43-101.
BUSINESS OVERVIEW AND STRATEGY
African Copper is an international exploration and development company. At its
Mowana Mine Property in Botswana, total open pit proven and probable reserves
have been estimated at 14.8 million tonnes grading 1.11% copper. Construction of
the project began in 2006 and significant progress was made in 2007. Production
is scheduled to commence in the second quarter of 2008, which will transition
African Copper from a junior exploration company to a copper producer. The
Company also has a 100% interest in the Matsitama exploration concession, which
has ten high priority drill-ready and 35 lower priority targets.
The Company is incorporated in England and Wales, and its ordinary shares are
tri-listed on the AIM market of the London Stock Exchange, the Toronto Stock
Exchange ("TSX") and the Botswana Stock Exchange ("BSX"). The ordinary shares
trade on AIM and the TSX under the symbol "ACU", and on the BSX under the symbol
"African Copper".
The Company's strategy is to grow as a base metal mining company and to provide
above average returns to shareholders. Production at Mowana is expected to grow
from an estimated 5,500 tonnes of copper in 2008 to an estimated 29,000 tonnes
in 2012. Mowana has an estimated seven-year mine life in the open pit and it
offers African Copper near-term production, with the potential for future
expansion. African Copper intends to exploit this reserve while continuing to
pursue exploration potential around and under the open pit, and in the Matsitama
Belt.
The Company has a large land position in a favourable geological setting, which
is relatively under explored at depth and laterally. There are three areas where
exploration is being focused:
1. Near the Mowana Mine - a recent drill programme established mineralization
south of the open pit.
2. Underground at Mowana - at this time over 70% of the known estimated Mineral
Resource base at Mowana lies outside of the open-pit boundary. This deeper
predominantly sulphide mineralization may potentially be used to supplement
open-pit feed but must be extracted by underground methods.
3. In the 3000 km2 Matsitama Belt, the Company has 10 drill-ready and highly
prospective targets. In 2007, the Company's announced mineral resource estimates
of the Thakadu prospect which included an estimated 4.7 million tonnes of
indicated resource grading 1.72% copper and 3.6 million tonnes of indicated
resource grading 16 grams per tonne silver. In addition to the Thakadu deposit,
the Company has also identified copper-gold, nickel-PGM, and zinc-lead-silver
prospects worthy of further advanced exploration follow up.
MOWANA PROJECT DEVELOPMENT
The 2007 year concentrated on the construction and optimisation of the Mowana
Mine Project. Management focused on the development and construction of the
process plant and mining infrastructure at Mowana in preparation for
commencement of plant commissioning. In addition, management focused on
establishing and expanding reserve and resource estimates, optimising pit
designs, improving metallurgical recoveries and investigating the implementation
of Dense Media Separation ("DMS") technology all for the purpose of maximizing
future commercial operations.
Over the last two months of the year heavy rains hit Botswana leading to
stoppages due both inclement weather and waterlogged pit conditions. Management
reacted well with proactive measures to maintain the project schedule. With the
onset of better weather the construction programme has intensified and continues
to progress within current plans. By the end of the year, over 700 employees and
subcontractors were working on process plant construction and mine development.
At the end of February 2008, over 1,000 people were on site involved in the
ongoing construction and mining at Mowana.
Capital Costs have been kept within the revised budgets presented in November
2007. The estimated 8% (ZAR 35 million) increase in capital over the ZAR 430
million 2006 budget estimate was composed of intentional design changes to the
crushing circuit (4.5%) and to cost escalation that is being experienced
throughout the industry. As of the end of February 2008, construction of surface
facilities was about 90% complete.
The Mowana Mine processing facility has been designed and built on a
well-understood and proven flotation process to produce saleable copper
concentrates from the treatment of approximately 1 million tonnes per year of
oxide, supergene and sulphide ore. The concentrator contains both oxide and
sulphide floatation circuits to treat the predominately mixed ore from the upper
parts of the Mowana open-pit. The concentrator could be expanded to treat 2
million tonnes per year of sulphide ore since the installed capacity of the
crushing circuit and floatation tanks are estimated to be sufficient to support
this throughput.
Excellent progress has been made in the preparation of the open-pit for
commercial mining activity. In early 2007, the Company signed a five-year mining
contract with Moolman Mining Botswana (Pty.) Ltd. Mining commenced in July 2007
with the removal of free-digging loose material from the open-pit area. By the
end of 2007, the full fleet of face-loading shovels had arrived on-site and
these were commissioned in January 2008. Currently 16 of the 26 100-tonne haul
trucks are on-site in addition to all ancillary graders, bulldozers, loaders and
blast hole drill rigs. Even with the heavy rains experienced in January 2008
pre-stripping was maintained close to schedule and blasting in the pit and
stockpiling of ore had commenced by the end of January 2008. At the end of March
2008, the stockpiles at Mowana consisted of about 200,000 tonnes of material at
0.9% copper, including about 33,000 tonnes grading 1.8% copper on the high grade
stockpile.
During the 2007 the Company continued to strengthen its management and operating
team. By the end of the year, the Company had filled all senior positions. The
technical and operational team in Botswana has grown from 22 as at the end of
2006 to over 50 at the end of 2007 and currently numbers 77. Recruitment of
junior level staff is on-going. The Company expects to have approximately 175
employees when the Mowana Mine goes into production, which is expected in the
second quarter of 2008.
In January 2008 the Company signed a concentrate sale and purchase agreement
(the "Off-take Agreement") with MRI Trading AG ("MRI") for 100% of all copper
products shipped from the Mowana Mine. The Off-take Agreement has a duration of
5 years and is renewable. In conjunction with the Off-take Agreement, MRI
subscribed for 7,284,000 ordinary shares of the Company at a subscription price
of 0.70 Sterling per ordinary share.
Commissioning of the mechanical portions of the plant commenced in late March
2008 and should culminate in the hot commissioning of the primary crusher in May
2008. First concentrate is expected as hot commissioning is completed, and the
Company expects to be shipping concentrate shortly thereafter. Completion of
construction activities on site is expected in July 2008 with a hand-over from
EPCM teams to operational teams. Commercial production is expected to be
declared in the third quarter of 2008.
Development and construction highlights for the year include:
Process Plant
- 10 km all-weather access road completed
- Water bore field drilled, tested and equipped. Collection system and
12-kilometre pipeline finished ahead of schedule.
- Ball mill on site and assembled on schedule
- Crushing circuits on-site
- All major concrete work complete
- Site electrical supply is connected to permanent grid power via a 19 kilometre
132 kV power line
Mining
- Pre-strip mining operations and drill-blast activities commenced with ore
exposed on a number of faces and ore stockpiled
-Waste mining schedule supports various bulk-fill activities for the
construction programme.
-2 scraper fleets were utilized during the year to remove free-dig material
within the open-pit at a reduced mining cost to conventional load & haul
applications
-Main mining fleet arrival began in November - currently 16 Komatsu 785 trucks
on site, 2 DM 30 blast hole rigs, 3 face loading shovels and ancillary
bulldozers, graders and fuel trucks
General Site
- Continued work on installation of electrical systems, conveyors and general
site infrastructure are well progressed and according to current schedule.
- Housing development activities progressed with main infrastructure (water,
power and sewerage) being finalized and commencement of construction of the
planned 50 houses.
-Key operational personnel moved on-site into temporary office accommodation to
optimise managerial presence and interface with EPCM during commissioning
EXPANDING MOWANA RESERVE AND RESOURCE ESTIMATES
The Company has a large land position in a favourable geological setting, which
is relatively under explored at depth and laterally. During 2007, management
continued to focus on the expansion of the estimated resource base at Mowana
with the goal of extending the mine life by sourcing more material within the
proximity of open-pit mining operations and through underground access.
Management also investigated the use of DMS technology which provides the
opportunity to access more copper units contained in waste from the supergene
and sulphide ores while also assisting in grade control and metallurgical
smoothing of concentrator feed.
In June 2007 the Company issued an updated mineral resource estimate (in
accordance with SAMREC, JORC and NI 43-101 Standards) for the Mowana Project
completed by independent consultants Caracle Creek International Consulting
("CCIC"). The CCIC estimate was based on a further 17,000 metres of drilling as
compared to the previous estimates released in 2006. The CCIC Technical Report
is dated June 2007 and entitled "Dukwe Copper Project 2007 Geological Modelling
and Resource Re-estimation" and available under the Company's profile on SEDAR
at www.sedar.com.
In November 2007 the Company issued a further technical report in order to
report the estimated copper mineral reserves and resources contained within the
engineered open-pit designs. Pit designs were completed based on the CCIC
resource estimate released in June 2007. Independent consultant, Read, Swatman &
Voigt (Pty) Ltd. ("RSV") reviewed the mineral resources at the Mowana Mine using
a 0.1% copper cut-off. The RSV Technical Report is dated 26 November 2007 and
entitled "National Instrument 43-101 Technical Report on the Mowana Mine
Botswana" and is available under the Company's profile on SEDAR at
www.sedar.com. The RSV Technical Report estimated the resource base, at a 0.1%
cut-off, to be 87.672 million tonnes of material grading 0.71% copper in the
Measured and Indicated categories with a further 46.275 million tonnes of
material grading 0.63% copper in the Inferred category, as set out below:
----------------------------------------------------------------------------
Mowana Mine Total Resource Estimate
Nov-07
Tonnage Copper Contained Metal
MT % tonnes Cu
----------------------------------------------------------------------------
Measured 42.45 0.65 275,900
Indicated 45.22 0.76 343,700
----------------------------------------------------------------------------
Total M&I 87.67 0.71 619,600
----------------------------------------------------------------------------
Inferred 46.27 0.63 291,500
----------------------------------------------------------------------------
Note: 0.1% copper cut-off, Measured, Indicated and Inferred resources
comply with the definitions of SAMREC, JORC and NI-43-101. For more
information see the technical report entitled "National Instrument 43-101
Technical Report on the Mowana Mine Botswana" and available on our website
at www.africancopper.com or under the Company's profile on SEDAR at
www.sedar.com.
The RSV Technical Report also reported, in accordance with SAMREC, JORC and NI
43-101 Standards, the following mineral reserve and resource estimates contained
within the engineered open-pit designs at the Mowana Mine property:
----------------------------------------------------------------------------
Mowana Mine Reserve and Resource Estimate
Nov-07
Tonnage Copper Contained Metal
MT % tonnes Cu
----------------------------------------------------------------------------
Proven 10.82 1.00 108,000
Probable 3.98 1.40 56,000
----------------------------------------------------------------------------
Total proven & probable 14.80 1.11 164,000
----------------------------------------------------------------------------
In-pit Inferred resource 4.33 0.80 35,000
----------------------------------------------------------------------------
Note: 0.1% copper cut-off, Measured, Proven and Probable reserves comply
with the definitions of SAMREC, JORC and NI-43-101. For more information
see the technical report entitled "National Instrument 43-101 Technical
Report on the Mowana Mine Botswana" and available on our website at
www.africancopper.com or under the Company's profile on SEDAR at
www.sedar.com.
During the fourth quarter of 2007, the Company completed a drill programme to
the south of the open pit that hosts copper mineralization at the Mowana
deposit. Sulphide mineralization at Mowana is known to continue to the north and
south of the deposit and at depth. The drill programme potentially extended
mineralization for up to 800 metres to the south of the pit. Drill assay
information is pending and it is expected that this will be used to model the
results and evaluate estimated mineral resource potential during the second
quarter of 2008. Assuming that the grades encountered in this area are economic,
management will integrate this newly-discovered material into the comprehensive
mine plan for Mowana.
GROWING PRODUCTION AT MOWANA
During 2007 management conducted a number of programmes to better define the
near surface open-pit mineralization and related higher grade trends, and
optimise pit designs and mine production schedules. Metallurgical studies were
also conducted to optimise process design and recoveries, and explore the
benefits of a DMS plant. At the conclusion of these studies, the Company
released its open-pit production profile in February 2008 (see press release 25
February 2008) for the first five years of mining at the Mowana mine. The
resultant production estimates show a five-fold increase in annual copper
production between 2008 and 2012:
----------------------------------------------------------------------------
2008 2009 2010 2011 2012
----------------------------------------------------------------------------
Estimated Cash US$/lb
Cost(i) $ 2.48 $ 1.90 $ 2.05 $ 1.78 $ 1.49
----------------------------------------------------------------------------
Estimated Tonnes
Production Cu 5,500 12,100 18,000 23,000 29,000
----------------------------------------------------------------------------
(i)The RSV Technical Report listed the operating cost assumptions for the
Mowana Mine which were used to develop the above estimates (see Section 18:
pages 127-133 of the RSV Technical Report).
Results from DMS plant studies and related metallurgical recovery testing
conducted in 2007 exhibited better recoveries and mass pulls of processing of
supergene and sulphide mineralization. This material is at depth beneath the
oxide copper. As such sufficient supergene and sulphide material will not be
accessed until 2010 so any DMS plant construction and associated capital
expenditures are not required until the end of 2009. The Mowana Mine production
plan contemplates processing the highest grade oxide ore directly through the
dual oxide-sulphide flotation concentrator in 2008 and 2009 while stockpiling
lower grade material for future processing through the DMS plant.
UNDERGROUND DEVELOPMENT
The Company's strategy is to commence mining at Mowana by extracting the
open-pit reserve to provide initial production and cash flow. Since the majority
of the Mowana resources are not contained within the open-pit limits, management
is actively investigating the integration of underground access to the remaining
estimated resources. In 2007 a pre-feasibility study was commissioned to
investigate the viability of an underground mine. DMS studies completed during
2007 showed that it would be possible to use bulk mining methods underground to
extract mineralization and that this material could be upgraded prior to the
introduction into the ball mill and flotation circuits. A complete mine layout
was developed in late 2007 which encompassed multi-level development over the
entire 2 kilometre strike extent of the known mineralization at Mowana to a
depth of 850 metres.
Further design work has been undertaken to establish mining schedules for the
trial mining phase. Ore access strategy and target locations for optimal early
exposure of supergene and sulphide mineralization are being reviewed by the
Company. The merit of the underground mine is that it would allow the Company to
access the large tonnage of resources that exist at Mowana, expand production
and maximize the capacity in the processing plant. In addition, lateral deep
multi-level horizontal development will facilitate optimal underground diamond
drill locations for further evaluation and extension of the sulphide mineral
resource estimate.
SHORTAGE OF POWER IN SOUTHERN AFRICA
Early in 2008, South Africa experienced a number of power shortages. To date
African Copper has not experienced any major impact due to these or any other
power shortages at the Mowana site.
The shortages of power currently being experienced in South Africa are not
expected to materially impact the Mowana operation directly. The Mowana Mine is
not yet drawing sufficient power on a consistent basis to impact any usage in
the country. The most significant use of power once production is established
will be in the crushing system, but this only needs to be operational for 8 to
10 hours per day. The Company is planning to run the crusher during off-peak
times and alleviate this risk. At the same time, it is studying the power
requirements with a view to sourcing additional backup standby generating
capacity.
Power outages in South Africa have impacted suppliers in that country and their
ability to provide components in a timely manner. Piping and electrical cable
deliveries have been challenging over the first part of 2008. First fills of
consumable supplies (reagents, grinding media, etc) continue to arrive and be
stored on-site. Nevertheless, the Mowana Mine project remains on-track to
establish production in Q2 of 2008.
Botswana intends to be self-sufficient in power by 2012 through expansions at
its Government owned coal mining and electrical generation facilities.
THAKADU RESOURCE ESTIMATE AND CONTINUED EXPLORATION
The Matsitama prospecting licences cover a very large area of 3,000 km2 highly
prospective mineral holdings. These licences are contiguous with the Mowana
deposit discussed above. Work during 2005 and 2006 concentrated on the
compilation and interpretation of a large geochemical, geophysical and drill
database that had been assembled over the previous 40 years of exploration on
the Belt.
In 2006, the Company established an exploration base camp and initiated a 10,000
metre delineation drill programme at the Thakadu deposits. The drilling was
confined to depths that could be accessed by open-pit methods although the
deposits are known to continue to depth. This drilling programme was completed
in 2006, and final assays were received in the first quarter of 2007. In July of
2007, the Company published a resource estimate for the Thakadu mineralization
completed by RSG Global Consulting. RSG's technical report is dated 24 July 2007
and entitled "Database Review, Geological Modelling and Grade Estimation of the
Thakadu Copper Project" and is available on the Company's website at
www.africancopper.com and under the Company's profile on SEDAR at www.sedar.com:
Thakadu Resource Estimates (July 2007)
----------------------------------------------------------------------------
Copper resources Silver Resources
Tonnage Copper Tonnage g/t Ag
MT % MT
----------------------------------------------------------------------------
Indicated resource 4.715 1.72 3.558 16
----------------------------------------------------------------------------
Inferred resource 0.961 1.29
----------------------------------------------------------------------------
Note: Indicated and Inferred resources comply with the definitions of
SAMREC, JORC and NI-43-101. For more information see the technical report
entitled "Database Review, Geological Modelling and Grade Estimation of
the Thakadu Copper Project" and available on our website at
www.africancopper.com or at www.sedar.com
The geological mapping of drill core from Thakadu has led to new geological
interpretations of the area. The Company completed extensive TITAN geophysical
surveys and geochemical surveys of the area in 2007. Several unexplored
geochemical anomalies have now become higher priority exploration targets.
Drilling is on-going over these targets.
The Thakadu deposits represent an advanced exploration project that may develop
into a mining project in its own right or, alternatively, as a complementary
project running either in parallel or in series with the Mowana Project. A
preliminary economic assessment of the capital costs required to bring the
Thakadu deposits to production indicate that another deposit of similar size and
grade is required in the immediate area in order to justify the construction of
a stand-alone plant. Exploration efforts will thus be focused on the unexplored
geophysical and geochemical anomalies within 5 kilometres of the Thakadu
deposits.
The Matsitama Project has a wealth of systematic multidisciplinary exploration
data that indicate substantial areas of highly prospective terrain especially
for sediment-hosted copper and zinc deposits. Recent compilation work undertaken
by the Company has brought several prospects outside of the Mowana and
Thakadu-Makala deposits into focus as locations deserving substantial additional
exploration effort. These areas include:
- The Gaokae nickel-PGM anomaly
- Nakalakwana Hill copper-gold targets
- Phute copper anomaly
- The 75-kilometre Lepashe Snake copper anomaly
Recent compilation work by African Copper in the Nakalakwana area has shown a
relationship between copper and gold in historic drilling work. A preliminary
1,700 metre drill programme was completed in 2007 to test geological
interpretations of the area. In addition, an extensive TITAN geophysical survey
was completed over the substantial potassium radiometric anomaly that occurs in
this area. Drill testing continued throughout 2007. Disappointingly, exploration
and drilling efforts were hampered in 2007 as a result of excessively long
turnaround times for sample analyses leading to delayed interpretation and
siting of ongoing drill targets. In many situations, the time from submittal
until receipt of assays was in excess of 12 weeks.
Additional information with respect to the Matsitama Project is contained in a
technical report dated 30 March 2006 and entitled "Technical Report on the Dukwe
Copper Project and Matsitama Prospecting Licences, Botswana Africa", which is
available under the Company's profile on SEDAR at www.sedar.com.
THE OUTLOOK FOR COPPER
Commodities, including copper, have been rising due to continued increases in
both operating and capital costs, which are impacting long-term margins and the
incentive price required to deliver an acceptable return on new projects. In
recent years China and India have overwhelmingly dominated demand growth and the
importance of the United States has declined. Supply side shocks as opposed to
rapid increases in demand positively impacted prices in 2007. Restricted
supply-side response and low inventories have under-pinned copper prices as
strikes, weather, resource nationalism, changes in tax regimes and power
shortages have reduced units of copper to the market. Long-term prices are being
revised upwards and a number of market analysts are expecting that long-term
prices will remain above their long-term average for the next few years.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements requires the Company to select from
possible alternative accounting principles, and to make estimates and
assumptions that determine the reported amounts of assets and liabilities at the
balance sheet date, and reported costs and expenditures during the reporting
period. Significant estimates and assumptions include those related to the
recoverability of mineral properties, estimated useful lives of capital assets,
stock compensation and financial instruments valuation assumptions and
determination as to whether costs are expensed or deferred. While management
believes that these estimates and assumptions are reasonable, actual result
could vary significantly. A summary of the critical account estimates is listed
below.
Resource Properties, Deferred Exploration and Mine Development Costs:
Exploration and evaluation costs arising following the acquisition of an
exploration licence are capitalised on project-by-project basis, pending
determination of the technical feasibility and commercial viability of the
project. Upon demonstration of the technical and commercial feasibility of a
project, any past deferred exploration and evaluation costs related to that
project will be reclassified as mine development and infrastructure.
Capitalised deferred exploration expenditures are reviewed for impairment losses
at each balance sheet date. In the case of undeveloped properties, there may be
only inferred resources to form a basis for the impairment review. The review is
based on a status report regarding the Company's intentions for development of
the undeveloped property. The Company may periodically revise its valuation
based on additional exploration results and determine that the carrying value of
the property on the balance sheet is impaired. When such a change in estimate is
made, there may be a material effect on the balance sheet and income statement.
Based on the fact that the Board approved development of the Mowana Mine Project
in September 2006 the deferred exploration costs incurred to date on Mowana were
reclassified as mine development and infrastructure costs and future general and
administrative costs expensed. Mowana mine development and infrastructure costs
comprise the largest component of the Company's non-current assets and as such
the evaluation of impairment of these assets has a significant effect on the
Company's financial statements. The assessment of the carrying value involves
the study of geological and economic data (including resource estimates) and the
reliance on a number of assumptions. These estimates of resources may change
based on additional knowledge gained subsequent to the assessment. This may
include additional data available from the continued development activities of
the Mowana Mine Project, actual production data when available or the impact of
economic factors such as changes in the price of copper or the cost of
construction and development costs or the cost of components of production.
Asset Retirement Obligations:
Asset retirement obligations are future costs to retire an asset including
dismantling, remediation and ongoing treatment and monitoring of the site. The
liability is accreted over time through period charges to the Consolidated
Income Statement. In addition, the asset retirement cost is capitalised as part
of the asset's carrying value and amortized over the asset's useful life.
Subsequent to the initial recognition of the asset retirement obligation and
associated asset retirement cost, changes resulting from a revision to either
timing or amount of estimated cash flows are prospectively reflected in the year
those estimates change.
The Company estimates the total discounted amount of cash flows required to
settle its asset retirement obligations at 31 December 2007 is Pounds Sterling
464,078. Although the ultimate amount to be incurred is uncertain, the
independent Environmental Impact Statement, completed on the Mowana Mine by
Water Surveys Botswana (Pty) Limited in September 2006, using an assumption that
mining continues to 2023, estimated the undiscounted cost to rehabilitate the
Mowana Mine site of 24.3 million Pula (Pounds Sterling 2 million).
Under the terms of the Mining Licence, by the end of the first financial year in
which copper is produced and sold, the Company must establish a trust fund to
provide for rehabilitation of the Mowana Mine site once the mine closes. The
Company will annually make contributions to this fund over the life of the mine
so that these capital contributions together with the investment income earned
will cover the anticipated costs. At the end of each financial year, the Company
will reassess the estimated remaining life of mine as well as the cost to
rehabilitate the mine site and adjust its annual contributions accordingly.
Derivative Financial Instruments:
The Company uses derivative financial instruments, in particular copper put
contracts, to manage financial risks associated with their underlying business
activities and the financing of those activities. Derivative financial
instruments are measured at their fair value. Financial assets and liabilities
are recognised on the balance sheet when the Company has become party to the
contractual obligations of the instrument. Derivative financial instruments,
which are not effective hedges, are measured at fair value, with the movement in
fair value being recognized in the consolidated income statement for the period.
Movements in the fair value of derivative financial instruments which are
considered effective hedges are recognised directly in equity.
Share Based Payments:
The Company is required to charge the Consolidated Income Statement with the
fair value of the options issued. This calculated charge amount is not based on
historical cost, but is derived based on assumptions input into an option
pricing model. The model requires that management make several assumptions as to
future events, including: an estimate of the average future hold period of
issued stock options before exercise, expiry or cancellation; future volatility
of the Company's share price in the expected hold period (using historical
volatility as a reference); and the appropriate risk-free rate of interest. The
resulting value calculated is not necessarily the value of which the holder of
the option could receive in an arm's length transaction, given there is no
market for the options and they are not transferable. The value derived from the
option pricing model is highly subjective and dependent entirely upon the input
assumptions made. The fair value of the option is either expensed or capitalised
as a deferred exploration cost depending on the nature of the employee services
received.
OVERALL FINANCIAL PERFORMANCE FOR FISCAL 2007
The Company recorded a net gain for fiscal 2007 of Pounds Sterling 117,409
(0.09p), compared with a net loss of Pounds Sterling 2,100,884 (2.20p) in fiscal
2006. As evidenced in the following table, higher bank interest receivable and
foreign exchange gains more than offset higher corporate costs and Botswana
administration costs contributing to the net gain in fiscal 2007.
----------------------------------------------------------------------------
Year ended Year ended
31 December 31 December
2007 2006
Pounds Sterling Pounds Sterling
----------------------------------------------------------------------------
Bank interest receivable (2,986,190) (1,645,501)
Corporate general and administration 143,420 168,487
Corporate consultants, salaries
and benefits 672,155 295,306
Botswana general and administration 239,772 -
Botswana administrative salaries
and benefits 270,470 -
Insurance 106,141 55,719
Directors fees 67,800 55,975
Investor relations and public company
administration 192,981 97,892
Travel, accommodation 179,735 94,657
Professional fees 347,230 251,201
Share based compensation 518,657 562,199
----------------------------------------------------------------------------
2,738,359 1,581,436
Foreign exchange (gain)/loss (275,811) 2,103,070
Hedging loss 406,231 -
Tax - 61,880
----------------------------------------------------------------------------
Net loss/(gain) (117,409) 2,100,884
----------------------------------------------------------------------------
Bank interest receivable:
Bank interest receivable for fiscal 2007 increased to Pounds Sterling 2,986,190
from Pounds Sterling 1,645,501 in fiscal 2006. The higher bank interest
receivable related to higher average cash balances throughout the current year
compared to the previous year.
Corporate general and administration, consultants, salaries and benefits:
During fiscal 2007, the Company incurred a total of Pounds Sterling 143,420
(2006: Pounds Sterling 168,487) in corporate general and administrative
expenses. The decrease in corporate costs was in part due to savings realized by
rationalizing corporate office space. Corporate consultant and management
compensation costs increased to Pounds Sterling 672,155 during fiscal 2007 from
Pounds Sterling 295,306 in fiscal 2006. One of the reasons for the increase
related to a severance amount of Pounds Sterling 127,200 paid during the first
quarter of fiscal 2007 to D. Jones pursuant to a termination agreement between
the Company and D. Jones as part of the planned succession as D. Jones moved
from the CEO role to Deputy Chairman, making way for J. Hamilton to move from
the COO role to CEO. The remaining increase related to the hiring of a Vice
President of Investor Relations and the allocation of certain consulting fees
between capitalization to projects and expense depending on the nature of the
consultants' work.
Botswana general and administration, salaries and benefits:
As described under "Critical Accounting Estimates - Resource Properties,
Deferred Exploration and Development Costs" in this MD&A costs related to the
Mowana Mine Project are now being capitalized to mine development and
infrastructure with general and administration costs being expensed. During
fiscal 2007, Botswana general administration costs of Pounds Sterling 239,772
and administrative salaries and benefits of Pounds Sterling 270,470 were
expensed.
Insurance:
Insurance expense for 2007 increased to Pounds Sterling 106,141, compared to
Pounds Sterling 55,719 in 2006. The higher insurance cost during 2007 relates to
increases in Directors and Officers insurance costs, and a portion of the
insurance consulting and coverage costs incurred in connection with the
development and construction of the Mowana Mine.
Investor relations and public company administration:
Investor relations and public company administration costs increased to Pounds
Sterling 192,981 compared with Pounds Sterling 97,892 in 2006 as the Company
implemented a more comprehensive investor relations programme during 2007.
Increased costs related to the cost of attending and presenting at more events
and the redesign of the Company's website. During fiscal 2007, the Company also
incurred TSX listing fees of Pounds Sterling 10,800 in connection with ordinary
shares that were issued in June 2007 as part of the private placement with
Botswana institutional investors.
Travel and accommodation:
Travel, accommodation, analyst trip and conference costs increased to Pounds
Sterling 179,735 in fiscal 2007 compared to Pounds Sterling 94,657 in fiscal
2006. Travel and accommodation costs increased during 2007 reflecting increased
corporate and operational travel to and from Botswana. In addition, certain
corporate travel expenditures were re-classified during 2006 to share premium as
a cost of completing the June 2006 public offering.
Professional fees:
Professional fees increased from Pounds Sterling 251,201 in fiscal 2006 to
Pounds Sterling 347,230 in fiscal 2007 in part as a result of increased audit,
legal and other consulting fees. Fees were incurred on professional mandates for
banking facilities and related due diligence, corporate development activities
and executive search fees.
Share-based compensation:
Share based compensation expenses of Pounds Sterling 518,657 (2006:Pounds
Sterling 562,199) are non-cash expenses and reflect the derived value of stock
options vested during the year. An additional amount of Pounds Sterling 209,458
(2006: Pounds Sterling 429,443) was recorded as a non-cash expenditure to
deferred exploration costs as the grant of options was made to personnel whose
compensation is capitalized to the relevant deferred exploration property.
During fiscal 2007 0.2 million options were granted compared to 8.7 million in
fiscal 2006. The lower share based compensation expensed and capitalized in
fiscal 2007 reflects a lower number of stock options vested during fiscal 2007
compared to fiscal 2006. The fair value of stock options when granted is
amortized to the Income Statement over the period in which the options vest.
Foreign exchange:
During fiscal 2007, the Company recorded a foreign exchange gain of Pounds
Sterling 0.3 million compared to a loss of approximately Pounds Sterling 2.1
million in fiscal 2006. The Company has foreign currency exposure with respect
to items denominated in foreign currencies. The Company holds and transacts
business in multiple currencies, the most significant of which are British
Pounds Sterling ("Sterling"), Botswana Pula ("Pula"), South African Rand
("Rand"), Canadian Dollar and US Dollar. As a result, the Company has exposure
with respect to items denominated in foreign currencies.
The Pula is considered the functional currency for the Company's Botswana
subsidiaries. Accordingly, assets and liabilities of the Botswana subsidiaries
are translated into Sterling using the exchange rates in effect at the balance
sheet dates. Translation gains and losses are included in a separate component
of shareholders' equity. During 2007 the foreign exchange translation gain
recognized in shareholders' equity was Pounds Sterling 0.8 million compared to
the translation loss of Pounds Sterling 1.67 million in 2006.
The Company's net monetary asset and liability positions held outside of
Botswana are translated into Sterling at each balance sheet date. Fluctuations
in the value of Sterling relative to these other currencies impacted the
Company's reported foreign exchange gain in fiscal 2007. This fiscal 2007 gain
related primarily to the foreign currency translation gains on currency holdings
of Canadian dollars and Rand.
Hedging loss:
In May 2007 the Company purchased copper put options giving the Company the
right, but not the obligation, to sell up to 5,850 tonnes of copper at a strike
price of US$3.00/lb divided evenly over the period April 2008 to December 2008.
The Company realized a hedging loss of $406,231 during fiscal 2007 on put
contracts that were settled prior to the anticipated start of commercial
production as these contracts ceased to be classified as effective hedges.
Accordingly, the non-cash losses on the April, May and June 2008 put contracts
were expensed in the Consolidated Profit and Loss Statement since commercial
production is planned to commence in July 2008. As described under "Critical
Accounting Estimates - Derivative Financial Instruments" in this MD&A mark to
market movements in the fair value of the put contracts which are considered
effective hedges are recognised directly in equity.
OVERALL FINANCIAL PERFORMANCE FOR THE THREE MONTHS ENDED 31 DECEMBER 2007
For the quarter ended 31 December 2007, the Company recorded a net loss of
Pounds Sterling 146,811 (2006: net loss Pounds Sterling 1,521,716), or 0.11p per
share (2006: 1.17p per share). Foreign exchange gains and lower costs related to
share-based compensation all contributed to the lower loss recorded in the
fourth quarter of 2007.
----------------------------------------------------------------------------
Three months Three months
ended ended
31 December 31 December
2007 2006
Pounds Sterling Pounds Sterling
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Bank interest receivable (701,279) (653,176)
Corporate G&A, consultants, salaries and
benefits 205,135 55,081
Botswana G&A, salaries and benefits 203,891 -
Insurance 9,899 13,049
Directors fees 16,950 11,650
Investor relations and public company
administration 31,875 4,157
Travel, accommodation 66,476 4,849
Professional fees 160,152 112,636
Share based compensation 54,140 105,396
Depreciation (53,484) -
----------------------------------------------------------------------------
695,034 306,818
Foreign exchange (gain)/loss (253,175) 1,806,194
Hedging loss 406,231 -
Tax - 61,880
----------------------------------------------------------------------------
Net loss/(gain) 146,811 1,521,716
----------------------------------------------------------------------------
Bank interest receivable:
Bank interest receivable for the fourth quarter of fiscal 2007 increased to
Pounds Sterling 701,279 (2006: Pounds Sterling 653,176). Even though average
cash balances were lower in the fourth quarter of fiscal 2007 compared to the
same period in fiscal 2006, interest rates were higher generating more bank
interest receivable than during the same period in fiscal 2006.
Corporate general and administration, consultants, salaries and benefits:
During the fourth quarter of 2007, the Company incurred a total of Pounds
Sterling 205,135 (2006: Pounds Sterling 55,081) in corporate general and
administrative expenses. Corporate consultant and management compensation costs
increased to Pounds Sterling 165,390 during the fourth quarter of 2007 from
Pounds Sterling 77,831 in the same period in fiscal 2006. One of the primary
reasons for the increase related to an increased allocation in fiscal 2006
certain consulting fees to capitalization of projects rather than expense
depending on the nature of the consultant's work. In addition, corporate general
and administration was reduced in the fourth quarter of fiscal 2006 as a result
of a UK Value Added Tax refund received upon the Company being registered.
Botswana general and administration, salaries and benefits:
As described under "Critical Accounting Estimates - Resource Properties,
Deferred Exploration and Development Costs" in this MD&A costs related to the
Mowana Mine Project are now being capitalized to mine development and
infrastructure with general and administration costs being expensed. During the
fourth quarter 2007, Botswana general administration costs of Pounds Sterling
119,133 and administrative salaries and benefits of Pounds Sterling 84,758 were
expensed.
Investor relations and public company administration:
Shareholder communication and public company administration costs increased to
Pounds Sterling 31,875 (2006: Pounds Sterling 4,157) Travel for investor
relations personnel and fees paid to a third party consulting firm to assist
with retail marketing were the primary reasons for the increase in the further
quarter of fiscal 2007 along with timing of certain year-end public company
administration and press release costs.
Travel and accommodation:
Travel, accommodation, analyst trip and conference costs increased to Pounds
Sterling 66,476 in fourth quarter of 2007 compared to Pounds Sterling 4,849 in
the same period in fiscal 2006. Corporate activity increased during the fourth
quarter of fiscal 2007 with more travel to Botswana for corporate development
purposes and a director's meeting. In addition, the increase was due to hosting
an analyst trip and attending and presenting at a retail investment in the
United States. Travel and accommodation costs were lower during the same period
in 2006 due to an increased allocation in fiscal 2006 certain travel fees to
capitalization of projects rather than expense depending on the nature of the
travel cost.
Professional fees:
Professional fees increased from Pounds Sterling 112,636 in fourth quarter of
fiscal 2006 to Pounds Sterling 160,152 in fourth quarter of fiscal 2007 in part
as a result of increased audit and legal fees.
Foreign exchange:
During fourth quarter of 2007, the Company recorded a foreign exchange gain of
Pounds Sterling 0.25 million compared to a loss of approximately Pounds Sterling
1.8 million in fourth quarter of 2006. Fluctuations in the value of Sterling
relative to the Rand was the primary contributor to the Company's reported
foreign exchange gain in the fourth quarter of fiscal 2007. This gain related
primarily to the foreign currency translation gains on currency holdings of
Canadian dollars and Rand. The foreign exchange loss recognized in the fourth
quarter of fiscal 2006 related primarily to the foreign currency translation
losses on currency holdings of Canadian dollars and Rand.
Hedging loss:
The Company realized a hedging loss of $406,231 during the further quarter of
fiscal 2007 on put contracts settled prior to the anticipated start of
commercial production as these contracts ceased to be classified as effective
hedges. Accordingly, the losses on the April, May and June 2008 put contracts
were expensed in the Consolidated Profit and Loss Statement. As described under
"Critical Accounting Estimates - Derivative Financial Instruments" in this MD&A
mark to market movements in the fair value of the put contracts which are
considered effective hedges are recognised directly in equity.
Capital Expenditures
The most significant ongoing investing activities during fiscal 2007 were
expenditures for the development, pre-strip mining and construction of the
Mowana Mine. In addition, capital was also spent for exploration programmes at
the Matsitama Project and in areas surrounding the Mowana Mine.
Mowana Mine - mining development and infrastructure and mine plant and equipment
Construction and pre-strip mining activities at the Mowana Mine accelerated with
expenditures totalling Pounds Sterling 13.9 million during the three months
ended 31 December 2007 and Pounds Sterling 34.3 million during the year ended 31
December 2007 as follows:
----------------------------------------------------------------------------
For the Three months For the Year
ended ended
31 December 2007 31 December 2007
Pounds Sterling '000 Pounds Sterling '000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Balance at beginning of period: 34,384 13,963
General yard and site work 1,793 8,848
Process plant 3,459 8,399
Owners cost (180) 568
Geology 395 923
Mining 6,470 12,867
Ancillary facilities 497 562
Share-based expenses (24) 209
Fixed assets 1,320 1,740
Depreciation (62) (136)
Asset retirement obligation 9 464
Foreign exchange 187 (159)
----------------------------------------------------------------------------
Ending balance 48,248 48,248
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Mowana Mine - deferred exploration expenditures
The Company spent Pounds Sterling 51,361(2006: Pounds Sterling 27,639) during
the three months ended 31 December 2007 and Pounds Sterling 385,661 (2006:
Pounds Sterling 27,639) during the year ended 31 December 2007 on exploration
activities in the area surrounding the Mowana Mine in the Mowana prospecting
licence area. Work during the quarter included diamond drilling at the prospect
to the south (within the structure hosting mineralization), further compilation
and interpretation of geophysical surveys, geochemical orientation surveys and
surface prospecting in the vicinity of geochemical anomalies.
----------------------------------------------------------------------------
For the Three months For the Year
ended ended
31 December 2007 31 December 2007
Pounds Sterling '000 Pounds Sterling '000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Opening balance 362 28
Geological and geophysical 3 61
Drilling and Assay 9 169
Resource Estimate (28) -
Administration 37 66
Salaries 31 90
Foreign exchange (1) (1)
----------------------------------------------------------------------------
Ending balance 413 413
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Matsitama Exploration Project - deferred exploration expenditures
The Company spent Pounds Sterling 561,854 (2006: Pounds Sterling 582,523) during
the three months ended 31 December 2007 and Pounds Sterling 1,929,312 (2006:
Pounds Sterling 1,699,787) during the year ended 31 December 2007 on exploration
activities in the Matsitama prospecting licence area as follows:
----------------------------------------------------------------------------
For the Three months For the Year
ended ended
31 December 2007 31 December 2007
Pounds Sterling '000 Pounds Sterling '000
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Beginning Balance 3,347 1,980
Drilling 167 724
Assay 45 90
Geological 73 175
Geophysical 15 287
Site management and logging 8 44
Depreciation capitalized 4 16
Administration 164 571
Share-based expenses (33) -
Foreign exchange 119 22
----------------------------------------------------------------------------
Ending balance 3,909 3,909
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Summary of Annual Results
The Company was incorporated on 11 February 2004. The Company's reporting
currency is Sterling. The Company's subsidiary measurement currencies include:
Mortbury (Sterling), Messina Copper (Botswana) (Proprietary) Limited (Pula) and
Matsitama Minerals (Proprietary) Limited (Pula). The following table sets out
selected annual information on the Company, which data has been prepared in
accordance with applicable IFRS:
----------------------------------------------------------------------------
Year ended Year ended Year ended
31 December 2007 31 December 2006 31 December 2005
(audited) (audited) (audited)
(Pounds Sterling) (Pounds Sterling) (Pounds Sterling)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest Income (2,986,190) (1,645,501) (529,623)
Operating expenses 2,868,781 3,684,505 1,124,887
(Profit)/Loss
before tax (117,409) 2,039,004 595,264
(Profit)/Loss
after tax (117,409) 2,100,884 612,206
Basic
(Earnings)/Loss per
ordinary share (0.09)p 2.20p 1.19p
Diluted
(Earnings)/Loss
per ordinary share (0.09)p 2.20p 1.19p
Total assets 82,908,632 69,872,753 18,181,762
Total liabilities (6,942,607) (1,905,251) (1,912,530)
----------------------------------------------------------------------------
Shareholders' equity 75,966,025 67,967,502 16,269,232
----------------------------------------------------------------------------
The higher loss in fiscal 2006 compared to fiscal 2005 relates primarily to
higher foreign exchange losses and share based compensation charges. These
increased charges were partially offset by increased interest income earned in
fiscal 2006 as a result of higher average cash balances. Please see "Overall
Financial Performance" in this MD&A for a detailed description of the fiscal
2007 gain compared to the fiscal 2006 loss.
Fiscal 2005 was the first year of normal operations for the Company due to the
fact that prior to completing its initial public offering in November 2004 the
Company had limited financial resources to pursue its business plan.
Summary of Quarterly Results
The following table sets out selected financial data on the Company for the most
recently completed eight quarters, which data has been prepared in accordance
with applicable IFRS:
----------------------------------------------------------------------------
Q4 Q3 Q2 Q1
31 Dec. 30 Sept. 30 June 31 March
2007 2007 2007 2007
(Pounds (Pounds (Pounds (Pounds
Sterling) Sterling) Sterling) Sterling)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest revenues (701,279) (795,500) (785,736) (703,675)
Net loss /(gain)after tax 146,811 (393,693) (49,761) 179,234
Basic loss/(earnings) per
ordinary share 0.11p (0.28)p (0.04)p 0.14p
Diluted loss /(earnings) per
ordinary share 0.11p (0.26)p (0.04)p 0.14p
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Q4 Q3 Q2 Q1
31 Dec. 30 Sept. 30 June 31 March
2006 2006 2006 2006
(Pounds (Pounds (Pounds (Pounds
Sterling) Sterling) Sterling) Sterling)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Interest revenues (653,176) (660,398) (239,461) (92,466)
Net loss /(gain)after tax 1,521,716 679,851 (254,523) 153,840
Basic loss/(earnings) per
ordinary share 1.17p 0.53p (0.36p) 0.30p
Diluted loss /(earnings) per
ordinary share 1.17p 0.53p (0.36p) 0.30p
----------------------------------------------------------------------------
Please review the discussion under the heading "Overall Financial Performance"
in this MD&A for an explanation of the financial results and exchange
gains/losses and related period-to-period changes for the three and twelve-month
periods ended 31 December 2007.
Fluctuations in the Company's expenditures reflect increases in administrative
costs and professional fees associated with seasonal corporate filing and
regulatory activities. Specifically, the increased costs related to the
preparation of year-end audit files and annual meeting materials, as well as the
impact of year-end audit adjustments to financial statements.
Liquidity and Capital Resources
At 31 December 2007, the Company's main sources of liquidity until the Mowana
Mine reaches commercial production and produces positive cash flow were its cash
and cash equivalents of Pounds Sterling 22.4 million (31 December 2006 - Pounds
Sterling 53.3), debt and project finance alternatives, equity markets and the
possible exercise of share options.
On 28 March 2008, Messina Copper (Botswana) (Pty) Ltd ("Messina"), African
Copper's 100% owned subsidiary, received binding subscription agreements as part
of a Pula 200 million Botswana Note Programme for Pula 150.0 million (Pounds
Sterling 11.4 million) notes from local Botswana institutions (the "Botswana
Bond"). The Botswana Bond is denominated in Pula and is an unsecured fixed rate
note that bears interest at 14.0% per annum and has a bullet maturity in 7
years. The Company has also raised approximately Pounds Sterling 5.0 million in
additional equity in 2008. In addition, to provide the Company with additional
operational flexibility management is in advanced discussions with several
financial institutions regarding the establishment of a revolving working
capital and hedging facility for the Mowana Mine.
The Company has sufficient financial resources to commence production at the
Mowana Mine and adequate working capital for the foreseeable future, being a
period of not less than twelve months from 30 March 2008. In the event of
operational cost overruns or delays, management believes the Company has
adequate flexibility to manage expenditures.
Management intends to complete development of the open pit mining operations
with the addition of a DMS plant to the processing plant (planned operational in
2010), further evaluate developing the underground portion of the mine at Mowana
and continue with the Matsitama exploration project. With existing working
capital, which includes the proceeds from the Botswana Bond, and the
contemplated revolving working capital and hedging facility, the Company does
not anticipate that further equity financings will be required and anticipates
that any future capital commitments for the underground project at the Mowana
Mine will be met from seeking project finance. Should project finance not be
available to fund the underground project the Company would, however, consider
raising capital in the equity markets based on current market conditions at the
time, and, in any event, the Mowana open-pit mining operations can be operated
without the underground project being pursued. The copper price on world markets
is the single most important variable affecting the liquidity, cash flow and
profitability of the Mowana Mine once it reaches commercial production.
The majority of the Company's current contractual obligations relate to
commitments in respect of development expenditures for the completion of
construction at the Mowana Mine and possible termination payments to the mining
contractor at the Mowana Mine should the Company terminate the mining contract
early. As described above, Messina was required to secure the Bank Guarantee in
support of certain payment obligations in the mining contract. (See Note 10 -
Other Non-Current Assets).
At 31 December 2007, commitments under such agreements total
Pounds Sterling 18.9 million:
----------------------------------------------------------------------------
Total 2008 2009 2010
Pounds Pounds Pounds Pounds
Contractual Obligations Sterling Sterling Sterling Sterling
'000 '000 '000 '000
----------------------------------------------------------------------------
Goods, services and long
lead equipment(a) 14,614 14,614 - -
Mining contract(b) 3,356 3,356 -
Matsitama exploration
licences(c) 777 775 1 1
Lease agreements(d) 136 121 15
----------------------------------------------------------------------------
18,883 18,866 16 1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(a) The Company and its subsidiaries have a number of agreements with
arms-length third parties who provide a wide range of goods and services and
long-lead time equipment. The primary commitments relate to the engineering,
procurement, construction and management contract ("EPCM") for the construction
of the flotation concentrator and related housing and mine facilities at the
Mowana Mine.
(b) In the event of the optional termination of the Moolman Mining Botswana
(Pty) Ltd. mining contract by the Company, a maximum early termination payment
of approximately Pounds Sterling 2.6 million, which payment may be reduced,
depending upon the number of months notice given, to Pounds Sterling nil upon 6
months notice, together with demobilization charges would be payable.
(c) Under the terms of the Company's prospecting licences Matsitama is obliged
to incur certain minimum expenditures.
(d) The Company has entered into agreements for lease premises for various
periods until 30 August 2009.
During 2007, a total of Pounds Sterling 163,961 was generated from the exercise
of 350,000 share options to purchase ordinary shares at C$0.25 each and 350,000
share options at 35p each. These share options were originally granted under the
stock option plan of Mortbury Limited.
On 26 June 2007, a total of 8,367,772 ordinary shares were issued at a price of
11 Pula (approximately Sterling 0.89) per ordinary share, raising total proceeds
of 87,443,217 Pula (approximately Sterling 7.0 million) net of expenses.
In conjunction with the off-take agreement signed with MRI on 25 January 2008,
MRI subscribed for 7,284,000 ordinary shares at a subscription price of Pounds
Sterling 0.70 per ordinary share. The private placement closed on 8 February
2008.
At 31 March 2008, outstanding share options and underwriter's options
represented a total of 11,215,000 ordinary shares issuable for maximum aggregate
proceeds of Pounds Sterling 8,646,550 if and when exercised.
Proposed Transactions
There are no proposed assets or business acquisitions or dispositions before the
Board for consideration.
Off-Balance Sheet Arrangements
The Company has not entered into any off-balance sheet transactions.
Transactions with Related Parties
The Company was charged Pounds Sterling 10,758 (2006 - Pounds Sterling 17,625)
and Pounds Sterling 22,508 (2006 - Pounds Sterling 76,856) for the three and
twelve months ended 31 December 2007 by the Dragon Group, a group controlled by
A. J. Williams, a director of the Company, for the provision of fully-serviced
office accommodation in the UK and reimbursed expenses. Accounts payable at 31
December 2007 were Pounds Sterling 8,627 (2006 - Pounds Sterling 35,731).
The Company was charged Pounds Sterling 20,252 (2006 - Pounds Sterling 23,548)
and Pounds Sterling 79,064 (2006 - Pounds Sterling 81,718) for the three and
twelve months ended 31 December 2007 by the Summit Resource Management Limited,
a company controlled by D. Jones, a director and the Deputy Chairman of the
Company, for the provision of fully-serviced office accommodation in Canada and
reimbursed expenses. Accounts payable at 31 December 2007 were Pounds Sterling
5,288 (2006 - Pounds Sterling 196). The services are provided under a one year
contract that expires on 1 September 2008.
The Company entered into an agreement with Pickax International Corp. ("Pickax")
and Joseph Hamilton on 1 July 2006 pursuant to which Pickax agreed to cause
Joseph Hamilton to provide services to the Company, in the capacity of Chief
Operating Officer. The agreement replaced an existing executive services
agreement on materially the same terms and conditions and was subsequently
amended to reflect Mr. Hamilton's appointment as Chief Executive Officer of the
Company. During the term of the agreement, Pickax will be paid Pounds Sterling
164,800 per year. The Company was charged Pounds Sterling 41,200 (2006: Pounds
Sterling 41,200) during the three months ended 31 December 2007 and Pounds
Sterling 164,800 (2006: Pounds Sterling 82,400) during the year ended 31
December 2007 by Pickax. Pickax is a corporation controlled by Joseph Hamilton,
the Chief Executive Officer and a director of the Company.
The Company was charged an aggregate Pounds Sterling 100,646 (2006 - Pounds
Sterling 34,607) for the twelve months ended 31 December 2007 by Aegis
Instruments, Micromine (Botswana) Pty and MGE Consulting, each owned by S. Bate,
a director of a subsidiary of the Company, in respect of the provision of
geophysical and geological consulting and administration services. Accounts
payable at 31 December 2007 were Pounds Sterling 27,482 (2006 - Pounds Sterling
3,215).
These related party transactions were in the normal course of operations and
were measured at the exchange amounts.
RISKS
The exploration for and exploitation of natural resources are speculative
activities that involve a high degree of risk. The following risk factors should
be considered in assessing the Company's activities. Should any one or more of
these risks occur, it could have a material adverse effect on the business,
prospects, assets, financial position or operating results of the Company. The
risks noted below do not necessarily comprise all those faced by the Company.
Additional risks not currently known to the Company or that the Company
currently deems would not likely influence an investor's decision to purchase
securities of the Company may also impact the Company's business, prospects,
assets, financial position or operating results.
The Company currently depends significantly on a single project, the Mowana Mine
The Company's activities are focused primarily on the Mowana Mine. Any adverse
changes or developments affecting this project would have a material and adverse
effect on the Company's business, financial condition, results of operations and
prospects.
Copper price volatility may affect the production, profitability, cash flow and
financial position of the Company.
The Company's revenues, if any, are expected to be derived from the extraction
and sale of copper concentrate. The price of copper has fluctuated widely,
particularly in recent years, and is affected by numerous factors beyond the
Company's control, including international, economic and political trends,
expectations of inflation, currency exchange fluctuations, interest rates,
global or regional consumption patterns, speculative activities and increased
production due to new extraction developments and improved extraction and
production methods. In recent years, the price of copper has been affected by
changes in the worldwide balance of copper supply and demand, largely resulting
from economic growth and political conditions in China and other major
developing economies. While this demand has resulted in higher prices for copper
in recent years, if Chinese economic growth slows, it could result in lower
prices for copper. The effect of these factors on the price of copper, and
therefore the current or future economic viability of any of the Mowana Mine and
any other of the Company's projects, cannot accurately be predicted. Any
material decrease in the prevailing price of copper for any significant period
of time would have an adverse and material impact on the economic evaluations
contained in this MD&A and on the Company's results of operations and financial
conditions, as well as the economic viability of the Projects.
The development of the Mowana Mine into commercial operation on time and budget
and its economic viability cannot be guaranteed
In general, development projects have no operating history upon which to base
estimates of future cash operating costs. For development projects such as the
Mowana Mine, estimates of mineral resources and mineral reserves are, to a large
extent, based upon the interpretation of geological data obtained from drill
holes and other sampling techniques and feasibility studies. This information is
used to calculate estimates of the capital costs and cash operating costs based
upon anticipated tonnage and grades of ore to be mined and processed, the
configuration of the ore body, expected recovery rates, comparable facility and
equipment operating costs, anticipated climatic conditions and other factors.
At 30 March 2008 the capital costs to achieve production from the Mowana Mine
are about 80% complete and can still be affected by cost escalation and currency
fluctuations. The Company has attempted to place firm orders for much of the
equipment necessary to achieve production and thereby confirm prices and control
cost escalations. Operating costs are dependent on the costs of various
reagents, supplies, spares and labour. While open pit mining costs can sometimes
be better estimated than underground mining costs, they are also very dependent
on fuel, tyre and maintenance costs, foreign currency exchange rates and
availability of skilled labour.
There can be no assurance that the Company will be able to complete the
development of the Mowana Mine on time or on budget due to, among other things,
changes in the economics, the scope of the pre-stripping and the size of the
open pit, delays in the delivery and installation of plant and cost overruns.
There can be no assurance that the current personnel, systems, procedures and
controls will be adequate to support the Company's operations. Should any of
these events occur, it would have a material adverse effect on the Company's
business, financial condition, results of operations and prospects.
The capital and operating cost estimates for the Mowana Mine are estimates only
and may not reflect the actual capital and operating costs incurred by the
Company.
There can be no assurance that final capital cost for the construction of the
flotation concentrator and related facilities at the Mowana Mine will not be
greater than estimated. In addition, there can be no assurance that the actual
mining costs incurred by the Company will not be greater than estimated.
Previous capital and operating cost estimates include supplies and inputs, the
cost of which the Company has little control over. These include, but are not
limited to, transportation and handling charges, the cost of fuel, the cost of
electricity, labour costs, reagent costs, smelter charges, the price of
construction materials including steel, and the cost of mining equipment and
spares. A material increase in one or more of these supplies and inputs may
materially increase the actual capital and/or operating costs incurred by the
Company. Any material increase may cause the Mowana Mine to become economically
unviable or delay the development of the project, either of which would have a
material adverse effect on the Company's business, financial condition, results
of operations and prospects.
No assurance can be given that additional capital, if required, will be
available at all or available on terms acceptable to the Company.
The Company may require additional financing (including a working capital
facility) for the addition of a DMS plant to the processing plant and to
continue with the Matsitama exploration project. In addition, the Company will
require additional financing for the development of the underground portion of
the mine at Mowana. Failure to obtain such financing, and/or sufficient
financing for continuing open pit operations, the exploration and development of
the Matsitama Exploration Project, or the underground project or any future
projects, may result in a suspension of operations or delay or indefinite
postponement of exploration, development or production on such properties or
even a loss of a property interest. The Company's only sources of additional
funds currently available until the Mowana Mine reaches commercial production
are its current cash balances, possible exercise of share options, project
finance alternatives including the Botswana Note and the equity markets.
Additional financing may not be available when needed or if available, the terms
of such financing might not be favourable to the Company and might involve
substantial dilution to existing shareholders.
The Company may not obtain a working capital and hedging facility
There is no assurance that the Company will obtain the working capital and
hedging facility as referred to in the "Liquidity and Capital Resources" section
of this MD&A. In addition, if a working capital facility is established by the
Company, or any similar debt or project financing is entered into by the
Company, the Company expects that lenders will require that the Company commit
to: restrictive covenants regarding its business and financial operations; hedge
some or all of the production from the Mowana Mine; meet certain financial tests
during the term of the working capital facility; provide security over all or
substantially all of the assets of the Company, including its rights to the
Mowana Mine and the proceeds of sales of copper and/or copper concentrate mined
from the Mowana Mine deposit; and restrict cash distributions by the Company
until such time as the principal amount of the working capital facility and
related facilities, if any, is repaid in full; each of which will have a
restrictive impact on the ability of the Company to manage its business,
operations and cash flows, and will materially limit the Company's ability to
pay dividends to holders of ordinary shares. The failure of the Company to
comply with any such restrictions may result in a lender enforcing its security
over the assets of the Company, which would have a material adverse impact on
the Company. Such restrictions, including any hedging programme, may also limit
the Company's ability to benefit from increases in the price of copper, which
would have a material impact on the Company's cash flows and results of
operations.
Future production will be subject to the normal risks of mining operations
The Company's future mining operations are subject to all of the hazards and
risks normally incidental to exploration, development and the production of
copper.
The Company's future mining activities may be subject to prolonged disruptions
due to weather conditions, hazards such as unusual or unexpected geologic
formations, flooding or other conditions that may be encountered in the drilling
and removal of material. There may be a higher than normal risk of sourcing and
hiring suitably trained plant management, operating and maintenance staff and
these people may not be readily available in Botswana or not otherwise easily
employed from within the Southern Africa region. This situation could also be
impacted by delays in obtaining necessary work and other labour permits to allow
expatriate expertise to be utilized to the extent necessary.
The Company's copper concentrate will require smelting, and such smelting
capacity may not be available or may adversely affect project economics
A portion of any production from the Mowana Mine is expected to be in the form
of copper concentrate which would be treated at third-party smelters. The
availability of smelter capacity is not guaranteed and costs of such treatment
may adversely affect the economic viability of such production.
The Company relies on key personnel and its management team and outside
contractors (including those in Botswana), and the loss of one or more of these
persons may adversely affect the Company
The Company's business is dependent on retaining the services of a small number
of key personnel of the appropriate calibre as the business develops. The
Company has entered into employment agreements with certain of its key
executives. The success of the Company is, and will continue to be, to a
significant extent, dependent on the expertise and experience of the directors
and senior management and the loss of one or more could have a materially
adverse effect on the Company.
The Company will rely heavily on sub-contractors to build, run and maintain the
Mowana Mine. The failure of a sub-contractor to perform properly its services to
the Company could delay or frustrate mining operations, and have a materially
adverse effect on the Company.
Foreign investments and operations are subject to numerous risks associated with
operating in foreign jurisdictions
The Company conducts its operations through foreign subsidiaries, and
substantially all of its assets are held in such entities. Accordingly any
limitation on the transfer of cash or other assets between the parent
corporation and such entities, or among such entities, could restrict the
Company's ability to fund its operations efficiently. Any such limitations, or
the perception that such limitations may exist in the future, could have a
material and adverse impact on the Company's business, financial condition, and
operations.
In addition, operating in foreign jurisdictions exposes the Company to the
effects of political, economic or other risks, including changes in foreign laws
(whether arbitrary or not), expropriation or nationalization of property, risks
of loss due to civil strife, acts of war, insurrection or terrorism (including
the effects of such acts which occur in neighbouring states), cancellation or
renegotiation of contracts or the inability to enforce legal rights in the
foreign jurisdiction.
Government regulations may have an adverse effect on the Company
The Company, its subsidiaries, its business and its operations are subject to
various laws and regulations. The costs associated with compliance with such
laws and regulations may cause substantial delays and require significant cash
and financial expenditure, which may have a material adverse effect on the
Company's business, financial condition, results of operations, and prospects
and, in particular, the development of the Mowana Mine.
The Company's operations and its ability to hold various mineral rights require
licences, permits and authorizations and, in some cases, renewals of existing
licences, permits and authorisations from various governmental and
quasi-governmental authorities. The Company believes that it currently holds or
has applied for all necessary licences, permits and authorisations to carry on
the activities that it is currently conducting and to hold the mineral rights it
currently holds under applicable laws and regulations in effect at the present
time, and also believes that it is complying in all material respects with the
terms of such licences, permits and authorisations. However, the Company's
ability to obtain, sustain or renew such licences, permits and authorisations on
acceptable terms is subject to changes in regulations and policies and to the
discretion of the applicable governmental and quasigovernmental bodies and there
can be no assurance that the Company will be able to obtain, sustain or renew
any such licences, permits or authorisations on acceptable terms or at all.
Currency fluctuations may adversely affect the costs that the Company incurs in
its operations
Copper is sold throughout the world, principally in US Dollars. The Company's
costs are incurred primarily in Botswana Pula, and to a lesser extent in British
Pounds Sterling, South African Rand and Canadian Dollars. Changes in the
currency exchange rates of the US Dollar against the any of these currencies may
affect the actual capital and operating costs of the Projects and will affect
the results presented in the Company's financial statements and cause its
financial position to fluctuate. As well, such fluctuations may affect the cash
flow that the Company hopes to realise from its operations. Accordingly, the
Company will be exposed to exchange rate fluctuations which could have a
material adverse effect on the Company's business, financial condition, results
of operations and prospects.
Further, there is no guarantee that the Government of Botswana will not impose
restrictions on the convertibility of and obligations to remit and convert to
local currency in future. Such fluctuations in foreign currency or restrictions
on the convertibility of and obligations to remit and convert to the currency of
Botswana could have a material adverse effect on the Company's business,
financial condition, results of operations and prospects.
The prevalence of HIV/AIDS in Botswana may adversely impact the Company's
proposed mining operations
The per capita incidence of the HIV/AIDS virus in Botswana has been estimated as
being one of the highest in the world, according to public sources. As such,
HIV/AIDS remains the major healthcare challenge faced by Botswana and the
Company's operations in the country. If the number of new HIV/AIDS infections in
Botswana continues to increase and if the Government of Botswana imposes more
stringent obligations on employers related to HIV/AIDS prevention and treatment,
the Company's operations in Botswana and its profitability and financial
condition could be adversely affected.
Insurance and uninsured risks
Although the Company maintains liability insurance against certain risks in an
amount that it considers consistent with industry practice for a corporation in
the development stage, the nature of these risks is such that liabilities could
exceed policy limits or could be excluded from coverage, in which event the
Company could incur significant costs that could have a material adverse effect
upon the Company's business, financial condition and/or results of operation. As
well, there are risks against which the Company cannot insure or against which
it may elect not to insure. The potential costs that could be associated with
any liabilities not covered by insurance which may be taken out or in excess of
insurance coverage may cause substantial delays and require significant capital
outlays, adversely affecting the Company's financial condition and/or results of
operation.
The Company will require significant additional insurance to cover operating
risks, as applicable. There can be no assurance that such insurance will be
available or that the terms and costs of such insurance will not adversely
affect the anticipated profitability of the Mowana Mine and, therefore, the
Company's business, financial condition and/or results of operation.
The Company has no operating history and a history of losses and there can be no
assurance that the Company will ever be profitable
The Company has no mineral properties from which any ore has ever been extracted
and sold and its ultimate success will depend on its ability to generate cash
flow from producing properties in the future. The Company has not earned profits
to date and there is no assurance that it will do so in the future.
The success of current and future exploration activities cannot be assured
The exploration and development of mineral deposits involves significant
financial risks over a prolonged period of time, which even a combination of
careful evaluation, experience and knowledge cannot eliminate. While discovery
of a mineral structure may result in substantial rewards, few properties which
are explored are ultimately developed into producing mines. Major expenditure
may be required to establish mineral reserves by drilling and to construct
mining and processing facilities at a site. It is impossible to ensure that
pre-feasibility studies or full feasibility studies on the projects or the
current or proposed exploration programmes for the Projects will ever result in
the discovery of an economically viable mineral deposit or in a profitable
commercial mining operation.
Whether a copper deposit will be commercially viable depends on a number of
factors, some of which are the particular attributes of the deposit, such as its
size and grade, proximity to infrastructure, financing costs and governmental
regulations, including regulations relating to prices, taxes, royalties,
infrastructure, land use, importing and exporting of copper and environmental
protection. The effect of these factors cannot be accurately predicted, but the
combination of these factors may result in the Projects not being, or ceasing to
be, viable, which would have a material adverse effect on the Company's
business, financial condition, results of operations and prospects.
The Company may not be able to effectively manage its growth
The Company's ability to support the anticipated growth of its business will be
substantially dependent upon, among other things, it successfully increasing and
applying additional resources to support its activities. There is no assurance
that the Company will be able to manage any future expansion successfully, and
any inability to do so would have a material adverse effect on the Company.
FINANCIAL INSTRUMENTS
The Company uses copper put contracts to manage financial risks associated with
its underlying business activities. On 18 May 2007, the Company bought copper
put contracts for a total of 5,850 tonnes of copper at a strike price of
US$3.00/lb divided evenly over the period April 2008 to December 2008. These
contracts are intended to provide the Company with protection against the
possibility of declining copper prices over the critical planned start-up period
of the Mowana Mine during 2008. These contracts do not cap the price at which
the Company can sell its copper production and there are no margin calls
associated with this position. The Company realized a non-cash hedging loss of
Pounds Sterling 406,231 during fiscal 2007 on put contracts settled prior to the
anticipated start of commercial production as these contracts ceased to be
classified as effective hedges. Accordingly, the non-cash losses on the April,
May and June 2008 put contracts were expensed in the Consolidated Profit and
Loss Statement.
The Company's financial instruments consist of cash and cash equivalents,
receivables, payables and accrued liabilities, some of which are denominated in
Sterling, Pula, and Rand, United States dollars and Canadian dollars. These
accounts are recorded at cost which approximates their fair value at each
reporting period end value in Sterling. The Company experiences financial gains
or losses on these accounts as a result of foreign exchange movements against
Sterling. The Company is exposed to currency risk related to the exploration and
development expenditures on its Mowana and Matsitama projects since it settles
the majority of these expenditures either in local currency Pula or Rand. These
expenditures are negatively impacted by increases in value of either Pula or
Rand versus Sterling. As mine development costs are incurred and purchase
commitments made for the development of the Mowana Mine in 2008, the Company may
acquire Pula and Rand or use derivative positions to lock in these costs in
Sterling, if it believes it prudent to do so.
The Company has placed its cash and cash equivalents in short-term liquid
deposits or investments which provide a revised rate of interest upon maturity.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed to provide reasonable assurance
that all material information relating to the Company, including its
consolidated subsidiaries, is gathered and reported to senior management,
including the Company's Chief Executive Officer and Chief Financial Officer, on
a timely basis so that appropriate decisions can be made regarding public
disclosure. As at the end of the period covered by this MD&A, management of the
Company, with the participation of the Chief Executive Officer and the Chief
Financial Officer, evaluated the effectiveness of the Company's disclosure
controls and procedures as required by Canadian securities laws. Based on that
evaluation, the Chief Executive Officer and the Chief Financial Officer have
concluded that, as of the end of the period covered by this MD&A, the disclosure
controls and procedures were effective to provide reasonable assurance that
information required to be disclosed in the Company's annual filings and interim
filings (as such terms are defined under Multilateral Instrument 52-109-
Certification of Disclosure in Issuers' Annual and Interim Filings of the
Canadian Securities Administrators) and other reports filed or submitted under
Canadian securities laws is recorded, processed, summarized and reported within
the time periods specified by those laws and that material information is
accumulated and communicated to management of the Company, including the Chief
Executive Officer and the Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure .
DISCLOSURE OF OUTSTANDING SHARE DATA
The following details the share capital structure as of the date of this MD&A.
Expiry date Exercise price Number Number
Common shares
Share purchase options 23 Sept- Pounds 146,858,957
ember 2014 Sterling 0.35 500,000
12 Nov- Pounds
ember 2014 Sterling 0.76 675,000
5 Jan- Pounds
uary 2015 Sterling 0.76 1,500,000
14 March Pounds
2015 Sterling 0.76 90,000
12 Nov- Pounds
ember 2015 Sterling 0.76 240,000
1 Aug- Pounds
ust 2016 Sterling 0.775 6,860,000
11 Sept- Pounds
ember 2016 Sterling 0.775 400,000
30 Nov- Pounds
ember 2016 Sterling 0.775 200,000
29 Dec- Pounds
ember 2016 Sterling 0.775 750,000 11,215,000
FORWARD-LOOKING STATEMENTS
This MD&A contains "forward-looking information". Forward-looking information
includes, but is not limited to, statements concerning mineral resource
estimates, information with respect to the future price of copper, bank interest
receivables, the exploration budget for Matsitama, results of mining operations,
mining extraction and recovery rates at the Mowana Mine Project, estimates of
production of copper at the Mowana Mine Project, including the anticipated
production profile for the first five years of mining, the potential for future
expansion of the Mowana Mine Project, estimations of the life of the Mowana Mine
Project, the expected levels of ore on the stockpiles at the Mowana Mine
Project, expected timing of the commissioning of the process plant, the expected
success of exploration activities under the open pit at the Mowana Mine Project
and in the Matsitama Belt, use of Mineral Resources underground at the Mowana
Mine Project to supplement open-pit feed, the merit of an underground mine at
the Mowana Mine Project, Botswana's energy self-sufficiency, the potential of
the Thakadu deposits, government regulation of mining operations and
exploration, availability of working capital facility and project finance for
the underground project at the Mowana Mine Project, expected number of employees
and staff at the time of commercial production, expectations concerning the
timing of concentrate, the timing of the completion of construction at the
Mowana Mine project and hand-over from EPCM teams to operational teams, plans
concerning the evaluation of mineral resource potential to the south of the open
pit at the Mowana Mine Project, the use of derivative positions and the impact
of exchange rates and other statements which are not historical facts.
In certain cases, forward-looking information 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 state
that certain actions, events or results "may", "could", "would", "should",
"might" or "will be taken", "occur" or "be achieved" and include the negative
variation of such phrases.
With respect to forward-looking information contained in this MD&A, the Company
has made assumptions regarding, among other things, the Company's ability to
generate sufficient cash flow from operations and access existing credit
facilities and capital markets to meet its future obligations, the regulatory
framework in Botswana with respect to, among other things, permits, licenses,
authorizations, royalties, taxes and environmental matters, and the Company's
ability to obtain qualified staff and equipment in a timely and cost-efficient
manner to meet the Company's demand.
Although the Company believes that its expectations reflected in forward-looking
information are reasonable, such forward-looking information involves known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company or the Company's projects in
Botswana, or any of them, to be materially different from any future results,
performance or achievements expressed or implied by the forward-looking
information. Such factors include, risks related to failure to convert estimated
mineral resources to reserves, conclusions of economic evaluations, changes in
project parameters as plans continue to be refined, future prices of copper,
unexpected increases in capital or operating costs, possible variations in
mineral resources, grade or recovery rates, failure of equipment or processes to
operate as anticipated, accidents, labour disputes and other risks of the mining
industry, delays in obtaining governmental consents, permits, licences and
registrations or financing or in the completion of development or construction
activities, political risks arising from operating in Africa, uncertainties
relating to the availability and costs and availability of financing needed in
the future, changes in equity markets, inflation, changes in exchange rates,
fluctuations in commodity prices and uninsured risks, as well as those factors
discussed under "Risks" in this MD&A.
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 information, 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 information will prove to be
accurate, as actual results and future events could differ materially from those
anticipated in such information. Accordingly, readers should not place undue
reliance on forward-looking information. The forward-looking information
contained herein, unless stated otherwise, is made as of the date of this MD&A
and the Company makes no responsibility to update them or to revise them to
reflect new events or circumstances, except as required by law.
The mineral resource and mineral reserve figures referred to in this MD&A are
estimates and no assurances can be given that the indicated levels of minerals
will be produced. Such estimates are expressions of judgment based on knowledge,
mining experience, analysis of drilling results and industry practices. Valid
estimates made at a given time may significantly change when new information
becomes available. While the Company believes that the resource and reserve
estimates referred to in this MD&A are well established, by their nature
resource and reserve estimates are imprecise and depend, to a certain extent,
upon statistical inferences which may ultimately prove unreliable. If such
estimates are inaccurate or are reduced in the future, this could have a
material adverse impact on the Company. Due to the uncertainty that may be
attached to inferred mineral resources, it cannot be assumed that all or any
part of an inferred mineral resource will be upgraded to an indicated or
measured mineral resource as a result of continued exploration.
Additional information about the risks and uncertainties of the Company's
business is provided in its disclosure materials, including its Annual
Information Form, available under the Company's profile on SEDAR at
www.sedar.com.
A conference call will be held on April 1, 2008 at 8 a.m. EST or 1 pm London
time. To join us by telephone, please dial 416-695-9753 five minutes prior to
the start time. Toll free numbers are available for North American callers at
1-888-789-0150 and UK callers at (00)-800-4222-8835. In addition, it is possible
to listen to the teleconference and view the slide presentation from our website
http://www.africancopper.com in the Investors/Conference Calls.
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