RNS Number : 3899C
Mano River Resources Inc
29 August 2008
MANO RIVER RESOURCES INC
Fri Aug 29, 2008
Publication of Interim 2008 Accounts
The Board of Mano River Resources Inc. is pleased to release the Accounts of the Company for the financial quarter ended June 30th 2008,
together with the Management Discussion & Analysis.
On behalf of the Board of Mano River Resources Inc.
Luis da Silva
President and CEO
For further information on Mano River Resources and its exploration programme, you are invited to visit the Company's website at
www.manoriver.com or contact one of the following:
Mano River Resources Inc.
Luis da Silva
Tel : +44 (0)20 7299 4212
mano@manoriver.com
Bevan Metcalf
Tel : +44 (0)20 7299 4212
bevan.metcalf@manoriver.com
Panmure Gordon (UK) Limited
Edward Farmer
Tel : +44 (0)20 7459 3600
GMP Securities Europe LLP,
James Hannon
Tel : +44 (0)20 7647 2803
Pelham PR Ltd
Charles Vivian / James MacFarlane
Tel : +44 (0)20 7743 6670 / 6375
The TSX Venture Exchange has not reviewed and does not take responsibility for the adequacy or accuracy of this release
MANO RIVER RESOURCES INC.
Management's Discussion and Analysis
For the six months ended June 30, 2008
The following discussion is management's assessment and analysis of the results and financial condition of Mano River Resources Inc.
(the "Company" or "Mano") and should be read in conjunction with the accompanying unaudited consolidated financial statements for the six
months ended June 30, 2008 and related notes. Unless otherwise indicated all amounts are in US dollars. The date of this management's
discussion and analysis is August 29, 2008.
Additional information relating to the Company is available on SEDAR at www.sedar.com or on the Company's website at www.manoriver.com.
OVERVIEW PERFORMANCE
Description of Business
Mano River Resources Inc. is an exploration and development company engaged in the exploration and development of gold, diamond and iron ore
properties in Africa. The Company, through its subsidiaries, holds interests in mineral properties located in Liberia, Sierra Leone, Guinea
and the Democratic Republic of Congo (DRC), with the aim of developing them to a stage where they can be exploited economically or arranging
joint ventures whereby partner companies provide the funding and expertise for development and exploitation.
Forward-looking statements
Certain information included in this discussion may constitute forward-looking statements. Forward-looking statements are based on current
expectations and entail various risks and uncertainties. These risks and uncertainties could cause or contribute to actual results that are
materially different from those expressed or implied.
Trends
In the past few years commodity prices have increased significantly driven by burgeoning demand from Asia. However, this increased demand
may result in supply difficulties in the near future. Both the capital expenditures required to build and sustain new production and the
cash operating costs necessary to produce from new operations have risen substantially over the past two years. Increases in unit costs are
attributable mainly to higher prices for energy, labour, equipment, consumables and contractors. Obtaining skilled geologists and other
technicians is still difficult leading to higher operating costs especially for exploration companies. The current credit crunch has meant
fewer companies are listing and although there is limited funding in the market, companies with highly prospective projects can still
attract the investment community. The Company's majority owned subsidiary Stellar Diamonds Limited (Stellar) has had to postpone its AIM
listing due to market conditions. However, Mano was able to attract investment from its highly prospective iron ore project in Liberia, despite the market difficulties, which culminated in a private
placement in May 2008 raising gross proceeds of $4 million, with Severstal, a leading steel and natural resources company. The credit crunch
has also negatively impacted the market value of exploration companies on world markets including both the TSX Venture Exchange (TSXV) and
the London Stock Exchange's Alternative Investment Market (AIM).
Risks and Uncertainties
The Company is subject to a number of risk factors due to the fundamental nature of the exploration business in which it is engaged, the
countries in which it primarily operates and not least adverse movements in commodity prices. Mano seeks to counter such risks as far as
possible by selecting exploration areas on the basis of their recognised geological potential to host high grade gold, diamond and iron ore
deposits. The under-explored Archaean terrain on which the Company focuses in West Africa is also subject to a second significant risk,
namely, political. While the region has suffered serious civil unrest and armed conflict in the past (which is the basic reason why it
remained under-explored), conditions have improved markedly in recent years.
Industry
The Company is engaged in the exploration of mineral properties, an inherently risky business, and there is no assurance that an
economic mineral deposit will ever be discovered. Most exploration projects do not result in the discovery of commercially mineable ore
deposits. The focus of the Company is on areas in which the geological setting is well understood by management. The technological tools
employed by the Company are regularly updated to better focus our exploration efforts.
Reserve and resource estimates
The estimation of mineral resources and reserves is in part an interpretive process and the accuracy of any such estimates is a function
of the quality of available data, and of engineering and geological interpretation and judgement. No assurances can be given that the volume
and grade of reserves recovered, and rates of production achieved, will not be less than anticipated.
Gold and diamond prices
The price of gold is affected by numerous factors totally beyond the control of the Company, including central bank sales, producer
hedging activities, the exchange rate of the U.S. dollar relative to other major currencies, demand, political and economic conditions and
production levels. In addition, the price of gold has been volatile over short periods of time due to speculative activities. The prices of
diamonds, and other minerals that the Company may explore for, also have the same or similar price risk factors.
Cash flows and additional funding requirements
Mano currently has no revenues from operations. The Company has historically entered into joint venture agreements with partners to
share the risks and the associated cost of exploration. In addition the Company has raised finance through the sale of equity capital and
the placement of unsecured convertible debentures. Although Mano has been successful in the past in obtaining finance, there is no assurance
that it will be able to obtain adequate finance in the future or that such finance will be on terms advantageous to the Company. As noted
above the Company successfully raised $4 million gross through a private placement with Severstal in May 2008. This agreement provides for
total potential investment by Serverstal of $37.5 million into African Iron Ore Group Ltd, Mano's 80% owned subsidiary. This agreement
remains subject to a number of conditions before completion and there can be no assurance that such financing will be obtained. In addition
Stellar raised �4.7 million gross through a private placement during the period.
Exchange rate fluctuations
Fluctuations in currency exchange rates can significantly impact cash flows. The U.S. dollar exchange rate in particular has varied
substantially over time, although in the six months to June 30 the US dollar pound exchange rate has not varied significantly. While the
Company has historically raised a large proportion of its equity financing in UK pounds most of the Company's exploration costs, are
denominated in U.S. dollars. Fluctuations in exchange rates may give rise to foreign currency exposure, either favourable or unfavourable,
which may impact financial results. Mano does not engage in currency hedging to offset the risk of exchange rate fluctuation.
Environmental
Mano's exploration and development activities are subject to extensive laws and regulations governing environmental protection. The
Company is also subject to various reclamation-related requirements. The Company takes extremely seriously its commitment towards the local
communities and the environment in which it operates. The Company's policy is to exceed all applicable environmental regulations, wherever
possible. A failure to comply may result in enforcement actions causing operations to cease or be curtailed, and may include corrective
measures requiring significant capital expenditures.
Laws and regulations
Mano's exploration activities are subject to local laws and regulations governing prospecting, development, production, exports, taxes,
labour standards, occupational health and safety, mine safety and other matters. Such laws and regulations are subject to change and can
become more stringent, and compliance can therefore become more costly. The Company applies the expertise of its management, its advisors,
its employees and contractors to ensure compliance with current laws.
Title to mineral properties
While the Company has undertaken all the customary due diligence in the verification of title to its mineral properties, this should not
be construed as a guarantee of title. The properties may be subject to prior unregistered agreements or transfers and title may be affected
by undetected defects.
Competition
There is constant competition from other mineral exploration companies, with operations similar to those of the Company. Many of the
mining companies with which the Company competes have operations and financial resources substantially greater than those of Mano.
Dependence on management
Mano relies heavily on the business and technical expertise of its management team and there is little possibility that this dependence
will decrease in the near term. In 2007 changes were made to the management and the composition of the Board which have made the Company
stronger and better able to exploit the value of its exploration assets. In 2008 the financial management of the Company has been
strengthened with the appointment of a CFO for Mano and a Finance Director for Stellar. Further restructuring of the finance department will
continue in the second half of 2008 in order to strengthen further the financial controls within the Company. Mano has no key-man insurance.
OPERATIONS - Overview
Mano's fundamental strategy is to unlock the value of its exploration assets and increase shareholder value. The Company's exploration
assets are housed in three divisions: namely gold, diamonds and iron ore.
In 2007 all diamond assets were transferred into Stellar. The intention is to list Stellar on AIM but due to market conditions this has
been postponed until conditions improve. Mano currently owns 63.17% of Stellar. On the ground the key focus for the Diamond division is on
progressing the two near-term production projects at Kono in Sierra Leone and at Mandala in Guinea. The 49% owned Kono joint venture project
with Petra Diamonds has moved into underground trial mining with good grades achieved to date. Valuations on the stones from the first
commercial tender should be announced shortly. The 100% owned Mandala alluvial project has progressed and the DMS processing plant is
in-transit to Guinea.
The key asset in the Gold division is New Liberty Gold project (NLGM) in Liberia where we have been drilling in order to expand the 2007
NI 43-101 estimated gold resource of 1.4 million ounces (13.533 million tonnes of measured and indicated resources grading 3.18 g/t gold).
The drill programme was completed in Q2 and in all 4,485 metres of drilling was completed. The results received to date are highly
encouraging and confirm that gold mineralisation continues at depth. The Company has contracted the services of AMC Consultants (UK) Ltd to
review the possible mining methods of the deposit and to establish the most appropriate future drill programme.
The Company is targeting a resource of up to 900 million tonnes at its Putu Iron Ore Project in southeastern Liberia. With increasing
demand for iron ore, driven primarily by the Asian market, the impact on prices has been significant. In Q2 the Company signed certain
agreements on Putu Iron Ore with Severstal and applied to convert its exploration licence into an MDA (Mineral Development Agreement) and is
still waiting for the outcome of this application. A drilling programme commenced in Q2 in order to delineate the resource.
Exploration Projects - Current Developments
GOLD
2008 Drilling Programme
In Q1 2008, the Company commenced a mineral resource/reserve delineation drilling programme, focussing initially on the Larjor Zone, the
first results of which are now to hand. In all, 4,485m of drilling have been completed to date under this programme. Assay results from
holes drilled under the Kinjor and Marvoe zones, further to the east, are expected shortly. The programme comprises a series of close-spaced
drill holes at a depth of around 200m below surface, together with two holes drilled to about 500m below surface under Larjor to test for
very deep extensions to the mineralisation. Shear-controlled gold deposits of Archaean age, like New Liberty, are typically characterised by
a considerable third dimension at depth, now being investigated at New Liberty for the first time.
All eight holes under Larjor intersected the sheared ultramafic schists hosting the mineralisation at New Liberty, and all of them returned
indications of the presence of the gold zone. Two of the six �200m holes returned extremely good results, namely, intersections of 23m
grading 4.85g/t gold and 31m grading 3.59 g/t gold, respectively. The remaining four returned sub-economic but nevertheless highly anomalous
gold zones, the best of which was in K-121 with 27m grading 0.67 g/t gold.
The two deep holes under Larjor both intersected the ultramafic rock units at the anticipated depth i.e. some 450 to 480m vertically below
surface, and both were mineralised. K120 gave the better results with 19m at 1.2 g/t gold including a 3m section grading 6.2 g/t. This is
considered an extremely encouraging outcome for the potential to increase resources, given that of the 93 holes forming the basis for the
2007 Feasibility Study, none were drilled significantly deeper than 100m below surface.
IRON ORE
This quarter claimed a significant milestone for Mano's iron ore division. Not only did the drilling programme begin in earnest at the 80%
owned Putu project but the Company found in Severstal, the ideal partner with the technical know-how and expertise, as well as the financial
capability, to accelerate the development of this project. In advance of announcing the Severstal deal on the 23 May 2008, the Company
formally indicated in writing to the Ministry of Lands Mines & Energy (MLME) its intention to convert the current exploration agreement into
a 25 year Mineral Development Agreement (MDA) allowing for exploitation. The MDA was submitted to the MLME on May 14 2008. During the
quarter, in consultation with the MLME, the Company & its consultants worked towards a full submission document targeting potential mining
scenarios. The Company decided to change the name of the Liberian subsidiary holding the licence, from "Mano River Iron Ore Inc." to "Putu
Iron Ore Mining Inc.".
After a slow start, simply due to the logistics in-country, the drilling programme began to advance. The initial programme will see two
angled holes drilled starting at the south-west side of the Mt Jideh ridge; concentrating initially where a rehabilitated adit sits. In the
meantime, and after consultation with Severstal's geologists and our own consultants the drill programme pattern was re-visited and the new
programme will see an increase in the planned metres to be drilled from 4,000 metres to approximately 5,000 metres. The drilling is now
making excellent progress and is expected to be completed during Q4 2008. The objective of the drilling programme will be to prepare an
initial resource estimate in accordance with NI 43-101. In conjunction with the drilling programmes, bulk sampling and test work will be
undertaken in order to evaluate grades, recovery and ore characteristics.
The formal MDA application and submission was filed with the MLME. The MLME must complete their internal review before the application
can be recommended for approval to the Inter-Ministerial Mineral Technical Committee that oversees the ratification of such agreements.
On May 23 2008, the Company announced it had signed certain agreements with Severstal's indirect, wholly owned Dutch subsidiary, Lybica
Holding BV. Severstal is a leading Russian steel and natural resources company.
Terms of the agreement:
* Under a subscription agreement, an indirect, wholly owned subsidiary of Severstal will make an equity investment of approximately
$4 million (U.S.) in Mano (at 10 pence per share) on May 29, 2008, with an option to make an additional equity investment in Mano (at 14
pence share) in due course.
* Under a share purchase and subscription agreement (SPSA), an indirect, wholly owned subsidiary of Severstal will, subject to a
number of conditions pay $37.5 million for a 61.5 per cent stake in the Putu Range iron ore project held under African Iron Ore Group Ltd.
(AIOG), Mano's existing 80-per-cent-owned subsidiary. In addition, the indirect, wholly owned Severstal subsidiary has agreed to enter into
a facility agreement after completion of the acquistion under which it will provide AIOG with further financing of up to $15 million (U.S.).
The SPSA is conditional on customary conditions to completion, on the completion of satisfactory due diligence by Severstal Resurs (which
manages all Severstal's mining assets) and on Mano converting its exploration licence into a mineral development agreement.
Terms of the non-brokered private placement:
* An indirect, wholly owned subsidiary of Severstal has entered into a subscription agreement with Mano and subject to the
satisfaction or waiver of various standard conditions to completion, will make an initial investment into Mano on May 29, 2008, by
subscribing for 20 million common shares at 10 pence per share, raising approximately $4 million (U.S.) prior to expenses. This represents a
premium of 13.7 per cent on the current share price as at May 22, 2008. Following the private placement, Severstal will hold 6.29 per cent
of Mano's issued share capital.
* In addition, 20 million warrants will be granted to an indirectly, wholly owned subsidiary of Severstal at an exercise price of 14
pence, which shall be exercisable at any time over a period of 18 months from the completion of the private placement. Upon exercise of all
the warrants, Severstal's holding in Mano would increase to 11.84 per cent (assuming no further issuances of common shares prior to that
time) and provide the Company with a further $5.54 million (U.S.) in financing (at the exchange rate of $1.98 (U.S.) per pound sterling at
close of business on May 22, 2008).
* Severstal will also have the right to appoint a nominee to the board of directors of Mano for a period of three years from the
date of closing of the private placement, provided it maintains a shareholding of at least 5 per cent in Mano and thereafter provided it
maintains a shareholding of at least 10 per cent in Mano. Any nominee of Severstal shall be subject to approval by the TSX Venture Exchange.
Terms of the SPSA
The SPSA provides for the acquisition by an indirect, wholly owned subsidiary of Severstal of 25 per cent of the currently issued and
outstanding shares of AIOG for $12.5 million from Mano River Iron Ore Holdings Ltd., a wholly owned subsidiary of Mano, and a further 20 per
cent of the issued and outstanding shares of AIOG from the minority interest parties in AIOG, for $10.0 million. It also provides for the
subscription by the Severstal subsidiary for new ordinary shares in AIOG for a total price of $15 million. These acquisitions and the
subscription will give the indirectly, wholly owned Severstal subsidiary a 61.5 per cent interest in AIOG on completion of the SPSA.
Completion is conditional on, amongst other things, the approval of the TSX Venture Exchange, the completion of satisfactory due diligence
by Severstal and Mano converting its exploration licence into an MDA.
The SPSA also envisages the provision of a loan facility, by the indirectly, wholly owned Severstal subsidiary to AIOG, of up to $15
million to finance the Putu Range iron ore project through to bankable feasibility study. The parties have undertaken to negotiate in good
faith and use reasonable endeavours to enter into such facility agreement.
The Company's holding in AIOG will be 38.5 per cent on completion of these transactions. The parties have agreed to negotiate in good
faith and use reasonable endeavours to enter into a shareholders' agreement to govern the relationship between the parties on or prior to
completion.
The share purchase and subscription agreement between Mano and Severstal is dependent on a number of customary conditions, including
Mano's successful conversion of its exploration licence into a full 25-year mineral development agreement with the government of Liberia,
which is expected to take approximately four months from the date of the agreement being signed.
DIAMONDS
On June 19 2008, the Company reported that its 49/51 joint venture at Kono with partner Petra Diamonds had produced its first 1,000
carats of diamonds and made the following statement regarding the Kono Joint Venture:
"The exploration and trial mining operations at Kono project are progressing well and continue to deliver encouraging results. Two
shafts are being developed, Pol-K and Bardu, and processing of exploration and development material to date has yielded 12,132 diamonds
weighing a total of 1,049 carats.
"The first commercial tender of diamonds from the Kono project is planned for August in Johannesburg, through existing Petra marketing
channels. This is likely to comprise approximately 800 carats of diamonds from the Pol-K shaft and will give an indication of the likely
minimum value to be realised from this kimberlite shaft. A second, larger tender, comprising diamonds produced from the first Pol-K stope,
is being scheduled for October.
"As diamond production from the trial mining stopes increases over the coming months, revenues from diamond sales are expected to
generate regular cash flow to offset development expenditure."
Construction of the 100 ton per hour processing plant for the Mandala alluvial project was completed in Cape Town, South Africa, and the
plant is beinge shipped to Guinea in Q3 2008.
At the Tongo project in Sierra Leone, a number of potentially high grade kimberlite dykes have been discovered and a 300-ton bulk sample
is in the process of being collected. The objective of this bulk sampling is to determine with more confidence the grade and diamond value
of these kimberlites.
In the DRC the first phase exploration over the 1,308km2 Remec Joint Venture area yielded encouraging results. A follow up programme
will be conducted in Q3 2008 in order to isolate the likely source of kimberlites for the abundant indicator minerals recovered.
Updated Competent Persons Reports have been received for all diamond properties and are available on the Company's website and
www.sedar.com.
CORPORATE
On May 29 2008, the Company announced that it has successfully completed a non-brokered private placement of a total of 20,000,000 new
common shares at a price of 10p per share and 20,000,000 warrants at a price of 14p per share with Severstal, which was previously announced
on 23 May 2008, raising gross proceeds of �2m. Admission of the Placing Shares to trading on AIM will become effective today, 30 May 2008.
On June 11 2008, the Company confirmed that all the resolutions put to shareholders at the Company's Annual General Meeting were duly
passed.
On June 19 2008, the Company reported that its majority owned subsidiary Stellar Diamonds Ltd would seek to raise up to �2 million in a
private placement in Q3 2008.
SELECTED FINANCIAL INFORMATION
The following selected annual financial information is derived from the audited consolidated financial statements for the three most
recently completed financial years and is prepared in accordance with Canadian generally accepted accounting principles ("GAAP").
Years ended:
US Dollars December 31 January 31 January 31
2007 2007 2006
Interest income 148,041 53,181 117,927
Dilution gain 6,207,642 - -
Net income/(loss) 4,017,642 (959,609) (1,348,265)
Basic and diluted income/(loss) per 0.014 (0.004) (0.006)
share
Stock option compensation expense 190,003 513,361 397,829
Working capital *2,868,877 428,368 3,015,165
Total assets 45,501,911 28,866,715 22,287,420
Total exploration expenditures* 6,526,656 8,443,801 4,291,377
* After deducting negative goodwill
SUMMARY OF SELECTED QUARTERLY INFORMATION
The following is the selected financial information of the Company for the last eight quarters: (unaudited)
US Dollars June 30 March 31 December 31 October 31
2008 2008 2007 2007
Interest income 32,676 18,225 79,784 55,272
Dilution gain 442,840 1,387,780 6,207,005 -
Net income/(loss) (996,109) (745,653) 5,257,878 (466,135)
Basic and diluted (0.003) (0.002) 0.018 (0.002)
income/(loss) per share
Total assets 51,393,067 48,617,142 45,501,911 46,105,356
US Dollars July 31 April 30 January 31 October 31
2007 2007 2007 2006
Interest income 5,213 7,772 14,496 13,322
Dilution gain - - - -
Net loss (496,668) (277,433) (139,287) (486,319)
Basic and diluted loss per (0.002) (0.001) (0.001) (0.002)
share
Total assets 46,672,577 29,813,909 28,866,715 27,404,088
RESULTS OF OPERATIONS
During the six months ended June 30, 2008, the Company realised a net loss of $1,741,762, or $0.006 cents loss per share as compared to a
loss of $774,101 or $0.003 loss per share in the six months ended July 31, 2007. Expenses for the period at $4,537,767 are up significantly
over the corresponding period last year (2007: $787,086). This increase has arisen for a number of reasons:
1. Interest on the convertible debenture of $196,522 and depreciation of $155,452, did not feature in expenses for the same period last
year.
2. Stock based compensation of $1,314,755 (2007:$170,656) relates to stock options granted in January 2008, which in fact relate to 2007,but
were not granted last year due to an extended close period.
3. Directors fees ($212,473) and Management fees ($384,909) are higher than last year reflecting the additional cost of the independent
Stellar Board and the recruitment of key management personnel in Q4, 2007 and Q1, 2008.
4. Professional fees of $1,537,684 (2007:$422,354) included expenses related to the proposed listing of Stellar on London's AIM market such
as legal, and audit and accounting services, fees to implement a new accounting and reporting system and consultancy fees.
5. Administrative and office expenses at $609,179 (2007:$4879) includes the cost of the London office not in the figures last year,
additional staff costs, travel ($152,486), public relations ($73,262) and salaries and wages ($120,534).
The expenses for the period were partly off-set by:
1. A "dilution gain" amounting to $1,830,620 arising from the issue of shares by Stellar Diamonds Ltd to private investors at a price
higher than the initial price at which the Company transferred the diamond properties to Stellar in 2007.
2. The non-controlling interest of $605,444 represents the minority's share of Stellar's loss for the period.
3. Interest income of $50,901 for the period is $37,916 greater than last year ($12,985).
4. An unrealised gain on the convertible debenture has been recognised in the period of $309,040.
BALANCE SHEET, LIQUIDITY AND CAPITAL RESERVES
The Company had working capital at June 30 2008, of $1,514,226 compared with $2,868,877 at 31 December 2007. The reduction in working
capital of $1,354,651 is due to lower cash and cash equivalents together with higher commitments to related parties and joint venture
partners.
Property, plant and equipment increased by $1,669,376 over the year end figure due primarily spent on the mine plant for Mandala Guinea.
Deferred exploration expenditure at $35,016,127 is $5.1 million above the December 31, level. Main areas of exploration spend including:
$1.2 million on the Kono/Petra diamond joint venture in Sierra Leonne; $1 million spent at the Putu iron ore project in Liberia; and $1.7
million in Liberia on the New Liberty Gold Mine and Kpo/MCA diamond projects; $0.2 million was spent on early stage exploration at our
diamond licences in the REMEC area of the DRC; $0.2 million was spent in Sierra Leone at the Tongo project where bulk sampling is scheduled
to start in the near future.
Share capital increased by $3.9 million following the successful private placement with Severstal in May 2008.
Cash outflow from operating activities during the six months ended June 30, 2008 is $2,224,310 (2007: ($750,806) after adjusting for the
non-cash activities. Cash outflow on investing activities amounted to $6,826,345 and included $5,144,577 spent on exploration projects and
$1,824,828 on the purchase of capital assets for the mine plant at Mandala. The comparative figure spent on investing activities during the
six month period to July 31 2007, was $2,975,699.
Cash in-flow from financing activities for the period is $8,195,491 compared to $13,856,211 for the six months ended July 31 2007. Besides
the $3.9 million raised by the Severstal private placement, $4.7 million was raised through a private placement of Stellar Diamonds shares.
Cash and cash equivalents at June 30, 2008 is $3.2 million down from $11.3 million in July 2007.
OTHER INFORMATION
Outstanding share data
The Company is authorised to issue an unlimited number of common shares without par value. As at August 30, 2008 there were 317,810,818
common shares outstanding.
Outstanding share options at June 30, 2008 are outlined below. This includes 9,045,000 share options granted during the period.
Number ofCommon Shares Exercise pricePer share(Cdn$) Expiry date
905,000 0.100 August 14, 2008
2,720,000 0.240 March 23, 2009
2,620,000 0.215 July 25, 2010
2,980,000 0.230 July 31, 2011
600,000 0.230 March 16, 2012
300,000 0.230 May 31, 2012
9,045,000 0.200 Jan 23, 2013
18,945,000
As at June 30, 2008, 20,000,000 warrants were outstanding at an exercise price of 14p with an expiry date of November 29, 2009. These
warrants were granted to Severstal as part of the private placement completed on May 29, 2008.
Off balance sheet arrangements
The Company does not have any off-balance sheet arrangements and does not contemplate having them in the foreseeable future.
Related party transactions
During the six months ended June 30, 2008 the Company incurred billings of $875,881 (July 30, 2007 - $188,948) from related parties for
management fees, directors fees and professional services. All transactions with related parties have occurred in the normal course of
operations. As at June 30, 2008 the amount due to related parties totaled $569,202. These balances have no fixed terms of repayment and have
arisen from the accrued provision of services referred to above and reimbursable expenses.
Disclosure controls and procedures
Management is responsible for establishing and maintaining a system of controls and procedures over the public disclosure of financial
and non-financial information regarding the Company. Management is also responsible for the design and maintenance of effective internal
control over financial reporting to provide reasonable assurance regarding the integrity and reliability of the Company's financial
information and the preparation of its financial statements in accordance with the Canadian generally accepted accounting principles.
Management maintains appropriate information systems, procedures and controls to ensure integrity of the financial statements and maintains
appropriate information systems, procedures and controls to ensure that information used internally and disclosed externally is complete and
reliable.
Management of the Company, including our Chief Executive Officer and Chief Financial Officer, do not expect that our disclosure controls
and internal control procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system
must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and
instances of fraud, if any, within Mano River have been detected.
However, given the nature of the business and geographical displacement, the management is committed to continuously mitigate any risks
and systematically improve operating controls where and when possible in the cost effective manner.
As at June 30, 2008 management recognised the limitation of segregation of duties due to the size of the organisation. The management is
mitigating such risks by introducing compensatory controls to detect and remediate control deficiencies.
OUTLOOK
The proposed listing of Stellar at the end of Q2 2008 was postponed due to the continuing downturn in the financial markets. The Company
is targeting Q4 2008 for an AIM listing subject to favourable market conditions. Stellar is currently considering an interim private
placement, the results of which will be announced shortly. By Q4 Stellar expects to have realised its first operating revenues, a
significant milestone for the Company.
In the gold division, the Company is reviewing its approach to NLGM following the recent drill programme. When confirmed, the objectives
will be to upgrade the current 1.4M oz resource to Measured category and define a new substantial resource in the Indicated category.
Following this, a new feasibility study will be prepared with the objective of taking NLGM to a production decision. The Board now has the
skills to take projects like NLGM into production with a Chairman that has proven experience in successfully bringing developments to
fruition and a mining engineer as CEO.
On the Putu iron ore project the Company applied for a 25 year MDA in May, 2008. This process is on-going but in the mean time the
current drilling programme is continuing.
The Board is considering all options for taking the Company forward including Corporate transactions. The recently announced deal with
Severstal a leading Russian steel and natural resources company gives Mano an excellent partner to take the Putu project forward to
feasibility and ultimately production. The additional funds that will become available once the conditions of the deal are met will give the
Company sufficient cash resources to implement its operational objectives at New Liberty.
On Behalf of the Board,
MANO RIVER RESOURCES INC.
(Signed)LUIS G. CABRITA da SILVA
LUIS G. CABRITA da SILVA President and CEO
Interim Consolidated Financial Statements
Mano River Resources Inc.
For The Six Months Ended June 30, 2008
and Six Months ended July 31, 2007
(Stated in U.S. Dollars)
(Unaudited)
MANO RIVER RESOURCES INC.
6th Floor, 890 West Pender Street, Vancouver, B.C. V6C 1J9
Telephone: (604) 689-1700 Fax: (604) 687-1327
________________________________________
NOTICE TO READER
In accordance with National Instrument 51-102 released by the Canadian Securities Administrators, the Company discloses that its
auditors have not reviewed the unaudited interim consolidated financial statements for the six months ended June 30, 2008.
The accompanying unaudited interim financial statements of the Company have been prepared by and are the responsibility of the Company's
management.
Mano River Resources Inc.
Consolidated Balance Sheet
As at June 30, 2008
(Stated in U.S. dollars)
Six months Year
ended ended
June 30, December 31,
2008 2007
$ $
(unaudited) (audited)
Assets
Current assets
Cash and cash equivalents 3,248,663 4,100,187
Amounts receivable 225,318 296,591
Due from joint venture partners 112,281 112,281
(Note 3)
3,586,262 4,509, 059
Investments (Note 4) 230,590 184,090
Property, plant and equipment 3,671,496 2,002,120
Resource properties (Note 5) 8,888,592 8,888,592
Deferred exploration costs (Note 5) 35,016,127 29,918,050
Total Assets 51,393,067 45,501,911
Liabilities
Current liabilities
Accounts payable and accrued 1,085,424 1,010,169
liabilities
Interest payable on convertible - 181,296
debenture (Note 8)
Due to related parties (Note 7) 569,202 174,367
Due to joint venture partners (Note 417,410 274,350
3)
2,072,036 1,640,182
Convertible debenture (Note 8) 1,841,320 2,260,738
Total Liabilities 3,913,356 3,900,920
Non-controlling interest (Note 9) 9,424,017 7,147,317
Shareholders' equity
Share capital (Note 6) 38,511,124 34,596,114
Equity component of convertible 2,748,180 2,637,802
debenture (Note 8)
Contributed surplus 3,219,220 1,904,465
Accumulated other comprehensive (21,755) (21,755)
loss
Translation reserve 3,639 -
Deficit (6,404,714) (4,662,952)
Total shareholders' equity 38,055,694 34,453,674
Total Liabilities, non-controlling 51,393,067 45,501,911
interest and shareholders' equity
Nature of operations and continuation of business (Note 1)
Approved by the Board
(Signed) LUIS G. CABRITA da
SILVA,DIRECTOR
Luis G. Cabrita da Silva
(Signed)DAVID B. EVANS, DIRECTOR
David B. Evans
Mano River Resources Inc.
Consolidated Statement of Cash Flow
For the six months ended June 30, 2008
(Stated in U.S. dollars)
Three months Three months Six months Six months
ended ended ended ended
June 30, July 31, June 30, July 31,
2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (unaudited) (unaudited)
Expenses
Administrative and office 420,136 3,025 609,179 4,879
expenses
Directors fees 59,446 25,899 212,473 34,399
Foreign exchange loss/(gain) 84,294 (17,386) 89,265 (35,196)
Management fees 226,580 56,934 384,909 128,979
Interest on convertible 102,303 - 196,522 -
debenture
Professional fees 977,757 323,485 1,537,684 422,354
Stock-based compensation - 66,102 1,314,755 170,656
Transfer agent and filing fees 13,912 43,822 37,528 61,015
Depreciation 3,706 - 155,452 -
1,888,134 501,881 4,537,767 787,086
Dilution gain on shares issued (442,840) (1,830,620)
by controlled company - -
Unrealised gain on convertible 770 - (309,040) -
debenture
Interest Income (32,676) (5,213) (50,901) (12,985)
Loss before non-controlling (1,413,388) (496,668) (2,347,206) (774,101)
interest
Non-controlling interest 417,279 - 605,444 -
Loss and comprehensive loss (996,109) (496,668) (1,741,762) (774,101)
Basic and diluted loss per (0.003) (0.002) (0.006) (0.003)
share
Basic and diluted weighted 305,063,565 297,810,818 303,102,590 297,137,116
average number of shares
outstanding
Mano River Resources Inc.
Consolidated Statement of Cash Flow
For the six months ended June 30, 2008
(Stated in U.S. dollars)
Three Three months Six Six
months ended months months
ended ended ended
June 30, July 31, June 30, July 31,
2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (unaudited) (unaudited)
Operating Activities
Loss and comprehensive loss (996,109) (496,668) (1,741,762) (774,101)
Items not involving cash:
Dilution gain on shares issued
by controlled company (442,840) - (1,830,620) -
Non-controlling interest (417,279) - (605,444) -
Stock-based compensation - 66,102 1,314,755 170,656
Interest on convertible 102,303 - 196,522 -
debentures
Unrealised loss on convertible 770 - (309,040) -
debt
Depreciation of fixed assets 3,705 - 155,451 -
Changes in Non-Cash Working
Capital:
Amounts receivable and prepaid 128,990 (98,942) 105,492 (183,093)
expenses
Due to related parties 313,835 (99,743) 394,835 (35,333)
Accounts payable and accrued (23,828) 179,366 95,501 71,065
liabilities
(1,330,453) (449,885) (2,224,310) (750,806)
Investing Activities
Deferred exploration (3,112,486) (1,953,789) (5,144,577) (2,621,318)
expenditures
Due from/(to) joint venture (495,590) (458,631) 143,060 (354,381)
partners
Purchase of capital assets (1,737,628) - (1,824,828) -
(5,345,704) (2,412,420) (6,826,345) (2,975,699)
Financing Activities
Issuance of share capital (net 3,915,010 - 3,915,010 437,836
of costs)
Convertible debenture - 4,641,860 - 4,641,860
Interest paid on convertible (205,316) - (412,037) -
debenture
Proceeds from issue of shares 1,026,520 8,092,790 4,692,518 8,776,515
in subsidiary
4,736,214 12,734,650 8,195,491 13,856,211
Foreign exchange differences (334) - 3,640 -
on translation of overseas
operations
Net cash inflow (1,940,277) 9,872,345 (851,524) 10,129,706
Cash, Beginning of Period 5,188,940 1,442,881 4,100,187 1,185,520
Cash, End of Period 3,248,663 11,315,226 3,248,663 11,315,226
Mano River Resources Inc.
Notes to consolidated financial statements
For the six months ended June 30, 2008
1. Nature of operations
Mano River Resources Inc. ("Mano River" or "the Company") commenced operations on July 10, 1996 and is engaged in the acquisition,
exploration and development of gold, iron and diamond properties. The Company is in the development stage and has no source of cash flows
other than loans from related parties or equity offerings.
These consolidated financial statements are prepared on a going concern basis which assumes that the Company will be able to realise
assets and discharge liabilities in the normal course of business. The Company's ability to continue on a going concern basis depends on its
ability to successfully raise additional financing. If the Company cannot obtain additional financing it may be forced to realise its assets
at amounts significantly lower than the current carrying value.
Uncertainty also exists with respect to the recoverability of the carrying value of certain resource properties. The ability of the
Company to realise its investment in resource properties is contingent upon resolution of the uncertainties and continuing confirmation of
the Company's title to the resource properties.
In August 2007, the Company changed its fiscal year end from January 31, to December 31, effective as of December 31, 2007.
2. Significant accounting policies
These financial statements have been prepared in accordance with generally accepted accounting principles in Canada and reflect the
following significant accounting policies. The United States dollar has been identified as the Company's currency of measurement and is used
for external reporting purposes.
(a) Principles of consolidation
These financial statements include the accounts of Mano River Resources Inc. and its principal subsidiaries, Mano Gold Investments Ltd.
(formerly Mano River Resources Ltd.) including sub-group Mano River Iron Ore Holdings Ltd. ("MARIOH"), and Mano Diamonds Ltd.
African Iron Ore Ltd. is 80% owned by MARIOH. One-half of the remaining 20% is held by Eastbound Resources Ltd., a company controlled by
a director of the Company.
The financial statements of entities which are controlled by the Company through voting equity interests, referred to as subsidiaries,
are consolidated. Variable interest entities ("VIEs"), which include, but are not limited to, special purpose entities, trusts,
partnerships, and other legal structures, as defined by the Accounting Standards Board in Accounting Guideline ("AcG") 15, Consolidation of
Variable Interest Entities ("AcG 15"), are entities in which equity investors do not have the characteristics of a "controlling financial
interest" or there is not sufficient equity at risk for the entity to finance its activities without additional subordinated financial
support. VIEs are subject to consolidation by the primary beneficiary who will absorb the majority of the entities' expected losses and/or
expected residual returns. As of June 30, 2008, the Company does not hold an interest in any VIEs.
All intercompany balances and transactions have been eliminated upon consolidation.
The shares not legally owned by the Company in the listed subsidiaries, other than African Iron Ore (Liberia) Ltd.(where the Company
holds an 80% interest), and Stellar Diamonds Ltd.(Stellar), (where the Company holds 63.17%) are held by a third party company. This third
party has no beneficial interest in the shares and is holding the shares for the Company's benefit until the Company and the third party
agree on their ultimate distribution. As the Company retains the beneficial interest in these shares no non-controlling interest exists at
June 30, 2008.
(b) Non-controlling interests
Non-controlling interests exist in less than wholly-owned subsidiaries of the Company and represent the outside interest's share of the
carrying values of the subsidiaries. When the subsidiary company issues its own shares to outside interests, a dilution gain or loss arises
as a result of the difference between the Company's share of the proceeds and the carrying value of the underlying equity.
(c) Cash
Cash and cash equivalents include cash, and those short-term money market instruments that are readily convertible to cash with an
original term of less than 90 days.
(d) Property, plant and equipment
Property, plant and equipment is comprised of office furniture, automobiles and various equipment used in the field, that are stated at
cost and depreciated at 30% per annum on a declining balance basis.
(e) Long-term investments
Investments are recorded at cost, subject to a provision for any impairment that is determined to be other than temporary.
(f) Resource properties and deferred exploration costs
The Company follows the method of accounting for its mineral properties whereby all costs related to acquisition, exploration and
development are capitalised by property. The carrying value of pre-production and exploration properties is reviewed periodically and either
written off when it is determined that the expenditures will not result in the discovery of economically recoverable mineral reserves or
transferred to producing mining property, plant and equipment when commercial development commences.
The recoverability of amounts shown for pre-production and exploration properties is dependent upon the discovery of economically
recoverable mineral reserves, confirmation of the Company's interest in the underlying mineral claims, the ability of the Company to finance
the development of the properties and on the future profitable production or proceeds from the disposition thereof.
The success and ultimate recovery of the Company's exploration costs of its mineral exploration properties is influenced by significant
financial risks, legal and political risks, commodity prices, and the ability of the Company to discover economically recoverable mineral
reserves and to bring such reserves into future profitable production.
(g) Measurement uncertainty
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant balances
and transactions affected by management estimates include the valuation of investments, resource properties, deferred exploration costs,
future income tax and stock-based compensation. Actual results could differ from those estimates.
The amounts used to estimate fair values of stock options issued are based on estimates of future volatility of the Company's share
price, expected lives of the options, expected dividends to be paid by the Company and other relevant assumptions.
By their nature, these estimates are subject to measurement uncertainty and the effect of changes in such estimates on the consolidated
financial statements of future periods could be significant.
(h) Loss per share
The basic loss per share is computed by dividing the loss and comprehensive loss by the weighted average number of common shares
outstanding during the year. The diluted loss per share reflects the potential dilution by including other common share equivalents, such as
outstanding stock options and share purchase warrants, in the weighted average number of common shares outstanding during the year. Options
and warrants as disclosed in Note 6 are anti-dilutive and therefore have not been taken into account in the per share calculations.
(i) Foreign currency translation
The Company's foreign currency transactions and the financial position and results of operations of the Company's integrated
subsidiaries are translated into U.S. dollars using the temporal method. Under this method, monetary assets and liabilities are translated
at the rate in effect at the balance sheet date. Other balance sheet items, revenues and expenses are translated at the rates prevailing on
the respective transaction dates.
(j) Stock-based compensation
The Company follows Canadian Institute of Chartered Accountants Handbook Section 3870, Stock-Based Compensation, which requires that all
stock-based awards made to non-employees and employees be measured and recognised using a fair value based method. Accordingly, the fair
value of options at the date of grant is accrued and charged to operations, with an offsetting credit to contributed surplus, on a
straight-line basis over the vesting period. If the stock options are ultimately exercised, the applicable amounts of contributed surplus is
transferred to share capital.
(k) Joint ventures
The Company has entered into certain joint venture agreements whereby the Company earns or allows a third party to earn an interest in
certain mineral properties. These joint venture agreements generally provide for the acquiring party to incur exploration costs to earn an
interest. Currently certain joint ventures in which the Company has an interest are used to hold the property interest solely; while certain
others have operations or exploration programs conducted by the joint venture.
(l) Income taxes
The Company accounts for income taxes whereby future income tax assets and liabilities are computed based on differences between the
carrying amount of assets and liabilities on the balance sheet and their corresponding tax values using the enacted income tax rates at each
balance sheet date. Future income tax assets also result from unused loss carryforwards and other deductions. The valuation of future income
tax assets is reviewed annually and adjusted, if necessary, by use of a valuation allowance to reflect the estimated realisable amount.
3. Due to/from joint venture partners
During the six month period ended June 30, 2008, certain exploration and development expenditures were carried out by joint venture
partners.
The amount owing to Petra Diamonds as at June 30, 2008, who is the operator of the Kono joint venture diamond project in Sierra Leone, is
$417,410.
As at June 30, 2008 the amount due from joint venture partners amounted to $112,281.
4. Investments
June 30, July 31,
2008 2007
$ $
Mifergui-Nimba 230,590 184,090
The Mifergui-Nimba investment consists of 8,654 shares representing a 3.7% interest in a Guinean company that holds an interest in a
mining license over a Guinean iron ore property. The company is a private company with no available market value. Management has reviewed
the carrying value at June 30, 2008 and do not consider that there has been any indication of impairment.
5. Resource properties and deferred exploration costs
June 30,2008$(unaudited) July 31,2007$(unaudited)
Acquisition costs:
Liberia, West Africa:
Bea 210,000 210,000
Kpo 110,000 110,000
Sierra Leone, West Africa:
Pampana, Sonfon and Nimini 1,695,000 1,695,000
South
Guinea, West Africa
Missamana/Gueliban 1,940,000 1,940,000
Bouro/ Mandala 4,933,592 4,933,592
Closing balances 8,888,592 8,888,592
Three months Three months Six months ended Six months
ended ended ended
June 30, July 31, June 30, July 31,
2008 2007 2008 2007
$ $ $ $
(unaudited) (unaudited) (unaudited) (unaudited)
Deferred exploration
expenditures
Feasibility - - - 4,992
Assays incl. shipment 5,530 23,402 37,822 43,267
Communications incl. equipment 42,356 38,912 74,899 58,520
Community relations 53,471 24,665 99,860 73,429
Consultants 345,339 79,455 449,408 111,407
Data, images, reports and maps 279 926 5,398 5,626
Drilling 857,470 - 1,210,967 -
Geologists' support 2,588 47,653 11,045 66,558
Infrastructure incl. roads and 24,120 60,048 68,197 74,183
bridges
Licenses and permit fees 40,543 138,309 42,375 158,851
Metallurgy - 14,887 - 14,887
Project/field office costs, 65,523 377,885 142,397
incl. field equip. 214,523
Reconnaissance and geochemical - 20,677 - 33,794
Salaries and wages 801,477 320,626 1,284,815 614,249
Subsistence 62,682 36,688 116,084 73,805
Transportation incl. vehicles 113,855 91,607 178,919 154,945
Net Trans-Hex JV expenditure (281,204) - - -
Kono (Petra) joint venture 829,457 990,408 1,186,903 990,408
Transfer to Mifergui-Nimba
investment - - (46,500) -
Net expenditure during the 3,112,486 1,953,786 5,098,077 2,621,318
period
29,918,050
Balance, Beginning of period 31,903,641 24,058,926 23,391,394
26,012,712 35,016,127 26,012,712
Balance, End of period 35,016,127
6. Share capital
(a) Authorised
Unlimited number of common shares without par value.
(b) Issued
Shares Amount
$
Balance at January 31, 2005 213,405,818 21,461,793
Shares issued on private placement (net of
costs) 40,000,000 7,180,800
Shares issued on exercise of warrants 12,500 894
Balance at January 31, 2006 253,418,318 28,643,487
Shares issued on private placement (net of
share issue costs) 39,562,500 5,502,741
Shares issued on exercise of stock options 140,000 12,050
Balance at January 31, 2007 293,120,818 34,158,278
Shares issued on exercise of stock options 4,690,000 437,836
Balance at December 31, 2007 297,810,818 34,596,114
Shares issued on private placement (net of share issue costs) 20,000,000 3,915,010
Balance at June 30, 2008 317,810,818 38,511,124
During the six months period ended June 30, 2008:
(a) On May 29, 2008 the Company completed a private placement of 20,000,000 common shares
with a wholly owned subsidiary of Severstal, a leading Russian steel and natural resources company, at �0.10p ($0.20 USD) each for the gross
proceeds of �2,000,000 ($4,000,000). Associated costs charged to shareholders equity amounted to $84,990. In addition, 20 million warrants
will be granted at an exercise price of 14 pence, which shall be exercisable at any time over a period of 18 months from the completion of
the private placement. Upon exercise of all the warrants, Severstal's holding in Mano will increase to 11.84 per cent (assuming no further
issuances of common shares prior to that time) and provide the Company with a further �2,800,000 in financing (equivalent to $5.6 million).
Application has been made for the new common shares issued to be admitted to the London Alternative Investment Market (AIM) and dealings in
the new common shares is expected to commence on Sept. 30, 2008, as the new common shares are subject to a four-month hold period under
Canadian securities laws and the policies of the TSX Venture Exchange.
(b) During the six months ended June 30, 2008, 2,375,000 common shares of Stellar Diamonds Ltd. Mano's majority owned subsidiary, were
issued at �1 each for gross proceeds of �2,375,000 ($4,724,571). Associated costs charged to shareholders equity amounted to $32,053. All
other professional fees incurred on the postponed AIM listing of Stellar Diamonds Ltd. during the period, have been charged to the
consolidated statement of income/(loss).
During the six months period ended July 31, 2007:
(a) The Company issued 2,100,000 common shares on exercise of stock options at a price of Cdn$0.11 per share and 100,000 common
shares at a price of Cdn$0.10 per share. Cash proceeds of $198,276 for exercise of these stock options were received by the Company on
January 31, 2007 and recorded as subscriptions under shareholders' equity.
(b) 590,000 stock options were exercised at a price of CDN$0.10 per share and 15,000 options expired unexercised; and 2,000,000 stock
options were exercised at a price of CDN$0.11 per share and 1,000,000 options expired unexercised. Total option exercise proceeds were
$239,560.
(c) Stock options
As at June 30, 2008 the following stock options were outstanding:
Number of
stock options Exercise price
Outstanding per share Expiry date
Cdn$
905,000 0.100 August 14, 2008
2,720,000 0.240 March 23, 2009
2,620,000 0.215 July 25, 2010
2,755,000 0.230 July 31, 2011
600,000 0.230 March 16,2012
300,000 0.230 May 20, 2012
9,045,000 0.230 January 17, 2013
18,945,000
(d) Stock warrants
As at June 30, 2008, 20,000,000 warrants were outstanding at an exercise price of 14p with an expiry date of November 29, 2009. These
warrants were granted to Severstal as part of the private placement completed on May 29, 2008.
7. Related party transactions
During the six month period ended June 30, 2008, the Company incurred billings of $875,881 (2007: $188,948) from related parties for
management fees and professional services. The increase over 2007 is mainly due to the formation of the Stellar Board which has been treated
as a related party for the purposes of the consolidation. All transactions with related parties have occurred in the normal course of
operations. As at June 30, 2008, the amount due to related parties totalled $569,202 (2007:$98,374). These balances have no fixed terms of
repayment and have arisen from the accrued provision of services and reimbursable expenses.
8. Convertible debenture
On September 27, 2007 the Company entered into convertible subscription agreements to raise �2.3 million with certain lenders. The
convertible debentures are repayable on August 1, 2010 and bear interest at 9% per annum. The principal amount is convertible by the holders
into common shares of the Company at a conversion price of �0.14 per share at any time prior to maturity. Alternatively, the Company has the
option to demand the conversion after a period of three years, if the common shares of the Company have traded at an average 30% premium to
the conversion price for a minimum period of 21 trading days previous to the conversion date.
The convertible debentures have been segregated into debt and equity components. The financial liability component, representing the
value allocated to the liability at inception, is recorded as a long-term liability. The remaining component, representing the value
ascribed to the holders' option to convert the principal balance into common shares, is classified in shareholders' equity as "Equity
component of convertible debenture". These components have been measured at their respective fair values on the date the convertible
debenture was originally issued.
As the debentures are convertible into common shares at the option of the holder, they have been accounted for in their component parts.
At June 30, 2008 the Company has determined the fair value of the liability to make future payments of principal and interest to be
$1,841,320 and the fair value of the holders' conversion option to be $2,748,180. The fair value of the conversion option was based on using
the Black-Scholes option pricing model with the following assumptions: no dividends were paid, a weighted average volatility of the
Company's share price of 172%, a weighted average annual risk free rate of 4.64% and an expected life of three years. The residual was
allocated to the debt.
During the six months ended June 30, 2008, the Company incurred interest expense relating to the convertible debenture of $196,522.
Interest has been paid up to August 1, 2008 therefore a prepayment of $34,219 is included in amounts receivable.
9. Non-controlling interest
Mano Ownership % Carrying value of net equity June 30,
2008
$
Stellar Diamonds Ltd. African 63.17 24,739,952 9,078,
Iron Ore Ltd. 80.00 2,472,918 012
346,005
9,424,
017
* The Company transferred its diamonds properties which had a book value of $8,276,081 to Stellar in exchange for 19,239,541 shares
of Stellar. The exchange was recorded at book value as it was a transaction between companies under common control. In 2007, Stellar
completed two private placements in order to raise funds to finance the development of its diamond interests. In the first placement
1,211,890 shares were issued at an effective price of �0.87 per share. 918,484 of those shares were issued for cash consideration, raising
proceeds of �800,000 (US$1,571,438), while the remaining 293,406 shares were issued to the subscribers in consideration for forfeiture of
certain benefits as a result of the diamond reorganisation. In the second placement 4,822,044 shares were issued at a price of �0.871 per
share for proceeds of �4,200,000 (US$8,611,361). In addition, Stellar issued 2,411,022 warrants with a two year term and an exercise price
of �1.20 pence per share as well as 260,390 adviser's options with a two year term and an exercise price of �0.871 per share. As a result of these shares issuances by Stellar, the Company recorded a
dilution gain of $6,207,005 in the year ended December 31, 2007.
In the six months to June 30, 2008 Stellar issued a further 2,375,000 common shares at a price of �1 per share for gross proceeds of
�2,375,000 ($4,724,571). As a result of this issuance, Stellar recorded a dilution gain of $1,830,620.
Gains on shares issued by affiliated companies arise when the ownership interest of the Company in a controlled entity is diluted as a
result of shares issuances of the investee company. The Company does not receive any cash proceeds (nor is required to make any payments)
from these transactions
b. African Iron Ore Ltd., the holding company for the Company's iron ore interests, is 80% owned by Mano. One-half of the remaining 20%
is held by Eastbound Resources Ltd., a company controlled by a director of the Company.
10 Fair value of financial instruments
The Company's financial assets and liabilities are cash, amounts receivable, investments, accounts payable and due to related parties.
The fair values of these financial instruments are estimated to approximate their carrying values due to their immediate or short-term
nature except for investments whose fair value is not readily determinable. Due to the nature of the Company's operations, there is no
significant credit or interest rate risk. As at June 30, 2008, the Company held approximately $3,033,531 cash in bank accounts denominated
in U.K. pounds. The Company has taken no action to reduce its exposure to foreign currency risk.
11 Subsequent Events
There were no subsequent events to report.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR DKLFLVVBLBBE
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