TIDMDME
Discovery Metals Limited
HALF YEAR FINANCIAL REPORT
Highlights
- The Company's half year financial results reflect the continuing development
and progress of the Boseto copper project in north-west Botswana, including:
- Raising the debt component of the project finance;
- Placing the hedging protection for project revenue;
- Continued Boseto zone exploration success at Mango, Zeta North-East,
Selene and Plutus underground targets;
- Commencement of open pit mining at Boseto in September 2011.
- The Company reports in US Dollars to better reflect the Company's
activities and cost and revenue exposure.
- The Company held US$98.9 million in cash at 31 December 2011.
- The Boseto copper project remains on track for production in the second
quarter of 2012.
Financial Results
The Discovery Metals consolidated group reported a loss of US$6.966 million for
the December 2011 half year, up from the US$4.908 million loss for the
corresponding period in 2010. This result is consistent with the ramp up in
activity, manning and costs by the Company as it moves through project
development at Boseto and prepares for copper-silver concentrate production in
the second quarter of 2012. These results exclude the US$51 million unrealised
mark-to-market gain (after tax) reported on the Boseto hedge book.
Discovery Metals' Managing Director, Brad Sampson, commented, "The half year
financial results of the Company reflect the continued progression of Discovery
Metals towards becoming an operating copper and silver producer in the second
quarter of 2012. We also continue to invest in the development of the Boseto
copper project and exploration to find our next project in Botswana."
Detailed Commentary on Financial Results
Items of note in the Half Year Financials and Directors Report are:
- Assets:
- The cash and cash equivalents balance at 31 December 2011 of US$98.9
million results from funds remaining from the 2010 equity raising and drawings
on the Boseto project finance syndicated debt;
- Trade and other receivables reflect the usual 3 month processing time for
VAT refunds in Botswana;
- The appearance of the derivative financial assets reflects the mark-to-
market positive valuation of the Boseto hedging protection placed in July 2011.
The current portion of US$13.2 million reflects the positive value of the
hedges to be closed out in the 2012 calendar year;
- Plant and equipment increased to US$220.5 million as a result of Boseto
construction activity;
- The appearance of Inventory of US$2.9 million reflects the purchase of
initial spares and supplies for the Boseto operations;
- The US$45.8 million exploration asset comprises continued investment in
the exploration and feasibility work at Boseto and other parts of the Kalahari
Copperbelt.
- Liabilities:
- The increase in trade and other payables to US$22.1 million is the
accrued construction charges for Sedgman and other contractors at Boseto for the
month of December 2011.
- Income:
- The non-cash gain of US$51.0 million in Other Comprehensive Income is the
result of the mark-to-market unrealised gain on the Boseto project hedging
protection placed in July 2011.
- Costs:
- Salaries increased to US$3.9 million with a ramp up in project,
exploration and corporate personnel to support the development and operation of
the Boseto copper project;
- A non-cash cost of US$0.7 million for unrealised foreign exchange loss on
funds held in other than US dollars to be applied largely to Australian
corporate costs in 2012 (the Australian Dollar devalued in relation to the US
Dollar in the last six months of 2011, but has since rebounded);
- A non-cash cost of US$1.4 million for employee benefits relates to the
expensing of share based payments.
The Interim Financial Statements have been reviewed by the Company's auditor,
Ernst and Young in Australia and Botswana.
Competent Persons Statement
The information in this report that relates to Exploration Results is based on
information compiled by Mr Wallace Mackay who is a Member of the Australian
Institute of Geoscientists (AIG). Mr Mackay is a full-time employees of
Discovery Metals Limited. Mr Mackay has sufficient experience which is relevant
to the style of mineralisation and type of deposit under consideration and to
the activity which they are undertaking to qualify as a Competent Person as
defined in the 2004 Edition of the "Australasian Code for Reporting of
Exploration Results, Mineral Resources and Ore Reserves" (JORC Code). Mr Mackay
consents to the inclusion in this report of the matters based on information
provided by him and in the form and context in which it appears.
Forward Looking Statements
This release includes certain statements that may be deemed "forward-looking
statements". All statements in this discussion, other than statements of
historical facts, that address future activities and events or developments that
Discovery Metals expects, are forward-looking statements. Although Discovery
Metals believes the expectations expressed in such forward-looking statements
are based on reasonable assumptions, such statements are not guarantees of
future performance and actual results or developments may differ materially from
those in the forward-looking statements. Factors that could cause actual
results to differ materially from those in forward-looking statements include
market prices, continued availability of capital and financing, and general
economic, market or business conditions. Investors are cautioned that any such
statements are not guarantees of future performance and that actual results or
developments may differ materially from those projected in forward-looking
statements.
Discovery Metals Background
Discovery Metals is an ASX/AIM/BSE listed copper exploration and development
company focused on the emerging Kalahari Copperbelt in north-west Botswana. The
Company is a near-term copper producer currently developing its 100% owned
Boseto Copper Project towards production in the first half of 2012. The Company
is in the process of de-listing from the AIM market.
The Kalahari Copperbelt sediment-hosted mineralisation of the Boseto Copper
Project is similar in style to the well-known and large deposits of the Central
African Copperbelt of Zambia and the Democratic Republic of the Congo.
Discovery Metals has prospecting licences covering 11,872 km2 along the Kalahari
Copperbelt.
Further information on the Company including Mineral Resources and Ore Reserves
is available on our website: www.discoverymetals.com
For further information on this release and Discovery Metals Limited, please
contact:
Brad Sampson - Managing Director Ph: +61 7 3218 0222 brad@discoverymetals.com
AIM Nominated Advisor - Fairfax I.S. PLC, Contact Ewan Leggat/Laura Littley Ph:
+44 20 7460 4389 or 7460 4387
UK PR - Tavistock PR, Contact Jos Simson/Emily Fenton Ph +44 207 920 3150 or
+44 778 855 4035
1
DISCOVERY METALS LIMITED
ABN 29 104 924 423
HALF YEAR
FINANCIAL REPORT
For the six months ended
31 December 2011
(Expressed in thousands, of United States dollars, except as otherwise stated)
C ON T E N T S
Page
Directors' Report
3
Review of Operations
5
Statement of Comprehensive Income
8
Statement of Financial Position
9
Statement of Changes in Equity
10
Statement of Cash Flows
11
Notes to the Interim Financial Statements
12
Directors' Declaration
17
Audit Independence Declaration
18
Independent Review Statement
19
2
D I R E C T O R S ' R E P O R T
Your directors present their report on Discovery Metals Limited and its
subsidiaries ("the Consolidated Group") for the half year ended 31 December
2011.
1. Board of Directors
The names of the directors of Discovery Metals Limited ("Discovery Metals" or
"Company") in office at any time during or since the end of the half year are:
Gordon Galt - Independent Non-Executive Chairman
Qualifications: B.Eng (Hons), B Comm, Grad Dip Applied Finance,
MAusIMM, MAICD
Experience and expertise:
Other current directorships:
Former directorships in last three years:
Gordon is a mining engineer with post-graduate qualifications in business and
finance. His career began in the coal industry where he specialised in
operations, project development then general management. He became Managing
Director of Cumnock Coal in 1996 before moving to the gold/base metals industry
as Managing Director of Newcrest Mining Ltd, where he oversaw the development of
Cadia Hill, Gosowong, Ridgeway and early work on the Telfer redevelopment.
Gordon spent a period as Managing Director responsible for global Mining/Metals
for ABN AMRO bank before entering the funds management industry, where he is
currently a Principal of Taurus Funds Management based in Sydney.
Non-Executive Director of Aquila Resources Ltd (since August 2007)
Non-Executive Chairman of Nucoal Resources Ltd (since February 2010) Non-
Executive Chairman of US Masters Holdings Ltd (since July 2010) Non-Executive
Chairman of Delta SB Ltd (since December 2010)
Non-Executive Director of Navigator Resources Ltd (from August 2008 to December
2010)
Stuart Bradley Sampson - Managing Director
Qualifications: B.Eng (Mining) (Hons) Qld, MBA Deakin, AMP Oxf,
MAusIMM, GAICD
Experience and expertise:
Brad has more than 25 years experience as a mining engineer. He has worked
extensively in both open cut and underground mine operations and developments in
Australia, Southern
Africa and the Pacific. He previously held an executive role at Thiess Ltd and
has been in general management roles with Gold Fields Limited at its St Ives
gold mine in Western Australia, at the Kloof operation in South Africa, and was
General Manager (Papua New Guinea) for Emperor Mines Limited. Brad is a director
of all Discovery Metals' subsidiaries.
Morrice Cordiner - Non-Executive Director
Qualifications: LLB, ASIA
Experience and expertise:
Other current directorships:
Former directorships in last three years:
Morrice is a corporate lawyer by training and has over 20 years experience in
the finance and resource industries. Morrice was a founding director of
Discovery Metals and was instrumental in identifying the original projects and
strategic alliance with Falconbridge Inc which brought in the original
exploration properties in 2003. Over the past decade, Morrice has been involved
in the successful development and financing of a number of listed resource
companies with projects in gold, nickel, copper and zinc. He has been actively
involved in
raising funds for these ventures on the Australian Securities Exchange, the
London AIM market and the Toronto Stock Exchange.
Non-Executive Director of Deseado Resources Limited (since 2011)
Non-Executive Director of Mining Investors Australia Pty Ltd (since 2000) Non-
Executive Director of Oresearch Limited (since 2011)
Executive Director of Andean Resources Limited (December 2003 to November 2009)
Non-Executive Director of Meridian Minerals Limited (July 2008 to November 2009)
Committees: Chairperson of the Audit and Financial Risk
Committee
Chairperson of the Remuneration and Nomination Committee
3
D I R E C T O R S ' R E P O R T
Ribson Gabonowe - Non-Executive Director
Qualifications: BSc (Mining Engineering), MSc (Mineral
Economics), MBA
Experience and expertise:
Other current directorships:
Former directorships in last three years:
Ribson is a Mining Engineer with over 30 years experience in the mining
industry. For twelve years to December 2006, Ribson was the Director of Mines
of Botswana, responsible for administering the legal and fiscal framework
governing mineral exploitation. In this role, Ribson was involved in
negotiations of mineral agreements for copper, nickel, diamonds, coal and soda
ash.
Ribson is a director of all Discovery Metals subsidiaries registered in
Botswana. Executive Director of Boteti Mining (Pty) Ltd (since December 2010)
Non-Executive Director of Gabor Consulting (Pty) Ltd (since August 2007)
Non-Executive Director of Atlas Minerals (Pty) Ltd (April 2009 to February 2011)
Non-Executive Director of Kukama Mining and Explorations (Pty) Ltd ( November
2007 to
February 2011)
Non-Executive Director of Coal Wealth Botswana Pty Ltd (November 2010 to April
2011)
Committees: Member of the Non-Financial Risk Management
Committee
Jeremy Read - Non-Executive Director
Qualifications: BSc (Hons), MAusIMM
Experience and expertise:
Other current directorships:
Former directorships in last three years:
Jeremy Read has 23 years domestic and international minerals exploration
experience and was previously the Manager of BHP's Australian Exploration Team.
He has extensive exploration experience for nickel and copper sulphides and
played a critical role in the discovery of Kabanga North Nickel Deposit in
Tanzania.
Jeremy was the founding managing director of Discovery Metals from its
incorporation in May
2003, until his appointment as a non-executive director on 1 February 2008. Mr
Read secured
the Boseto Copper Project for the Company and was responsible for all Discovery
Metals' fund raising activities and for listing Discovery Metals on the
Australian Securities Exchange, Botswana Stock Exchange and the Alternative
Investment Market in London. He is also the founding managing director of
Meridian Minerals Limited.
Managing Director of Avalon Minerals Limited (since February 2012) Non-Executive
Director of Harmattan Gold Limited
Managing Director of Meridian Minerals Limited (September 2008 to December 2011)
Committees: Chairperson of the Non-Financial Risk Management
Committee
Member of the Remuneration and Nomination Committee
John Shaw - Non-Executive Director
Qualifications: BSc (Geological Engineering), FAusIMM, MCIM,
FAICD, SME
Experience and expertise:
Other current directorships:
Former directorships in last three years:
John has over 40 years experience in exploration, development and operations of
open cut and underground mines in Asia, Australia, Africa and Canada. John
previously was Vice President of the Australian Operations of Placer Dome Asia
Pacific Limited and managing director of Kidston Gold Mines.
Non-Executive Director of IAMGOLD Corporation (since March 2006) Non-Executive
Director of Quadra Australia Pty Ltd (since May 2006)
Non-Executive Director of Indochine Mining Limited (since December 2011)
Chairperson and Non-Executive Director of Albidon Limited (February 2008 to
April 2009)
Committees: Member of the Audit and Financial Risk Committee
Member of the Non-Financial Risk Management Committee
4
D I R E C T O R S ' R E P O R T
Gregory Seeto - Company Secretary (Appointed on 1 September 2011)
Qualifications: LLB (Hons), BJ, GradDipLP, GradDipACG, ACIS
Experience and expertise:
Greg is a corporate lawyer with post-graduate qualifications in governance. Greg
is an associate member of Chartered Secretaries Australia and is a legal
practitioner of the Supreme Court of Queensland and the High Court of Australia.
Greg has experience as a senior lawyer at a top-tier law firm and as a listings
adviser at the Australian Securities Exchange.
Roslynn Shand - Company Secretary (Ceased 31 August 2011)
2. Principal Activity
The principal activity of the Company during the half year was the continued
development of its Boseto Copper Project in Botswana. The Company retains 100%
ownership of the Boseto Copper Project and the project remains on track for
commissioning in the first half of 2012. The Company continued its mineral
exploration in the vicinity of the Boseto Copper Project and at other
exploration zones on the Kalahari Copperbelt.
No significant change in the nature of the consolidated entity's principal
activity occurred during the half year.
3. Dividends Paid or Recommended
The directors do not recommend the payment of a dividend for this financial
year. No dividend has been declared or paid by Discovery Metals since the end
of the previous financial year.
4. Operating Results
The result of the Consolidated Group for the half year amounted to a loss of
US$6.966 million. (2010: loss US$4.908 million).
5. Number of Employees
There are 299 full-time employees employed by the Consolidated Group in
Australia and Botswana. (2010: 49)
6. After Balance Date Events
No other matters or circumstances have arisen since the end of the half year
which significantly affected or may significantly affect the operations of the
consolidated entity, the results of those operations or the state of affairs of
the consolidated entity in future financial years other than those noted in Note
7 in the Notes to the Interim Financial Statements.
7. Future Developments
Other than as referred to in this report, further information as to likely
developments in the operations of the Consolidated Group and the expected
results of future operations would, in the opinion of the directors, be
speculative.
8. Financial Position
The net asset position of the Consolidated Group at 31 December 2011 was
US$253.122 million. (30 June 2011: US$204,362 million).
9. Review of Operations
(a) Exploration
In preparation for the completion of the Zeta underground Definitive Feasibility
Study, an upgraded Mineral
Resource was published.
The Company's seven original prospecting licences in the Ghanzi district of
Botswana, were renewed for a further two years. The Consolidated Group holds a
significant area of prospecting licences in the Kalahari Copperbelt (currently
8,877 square kilometres).
5
D I R E C T O R S ' R E P O R T
The newly discovered Mango Prospect was explored and drilled and confirmed
mineralisation along at least
20 kilometres of the strike horizon of 36 kilometres.
Assay results from diamond drill holes at the Plutus Deposit confirmed high
grade coppersilver mineralisation at depths of approximately 200 metres below
surface. Potential for underground mining was identified along a 1,400 metre
strike length from the three kilometre zone drill tested.
Higher grade coppersilver mineralisation confirmed at the Zeta North East
Prospect, seven kilometres northeast of the Zeta deposit. Mineralised strike
length of three kilometres remains open at depth.
A new Inferred Mineral Resource was announced in early January for the Selene
resource.
(b) Boseto Project Construction
Boseto construction continues on schedule for commissioning and commencement of
copper-silver concentrate production in the June half of 2012.
Construction of the process plant is nearing completion and the majority of
mining mobile equipment was delivered to site to allow mining to commence in
September 2011.
(c) Dikoloti Nickel Project (Discovery Metals 40% and diluting)
Following successful application for a 2 year prospecting licence renewal of a
reduced area, the Dikoloti Nickel Project now comprises three prospecting
licences covering an area of 273 square kilometres surrounding the nickel
operations of BCL Limited in the Selebi-Phikwe region of north-east Botswana.
The Company manages the Joint Exploration Agreement with The Japan Oil, Gas and
Metals National Corporation (JOGMEC) and JOGMEC have earned a right to a 60%
interest in the project. JOGMEC will also provide funding for the future two
year exploration programme and therefore Discovery Metals' share of the project
is expected to continue to dilute as it continues to focus on the development
and potential expansion of the Boseto Copper Project.
(d) Financial
The Boseto debt syndicate project finance documents were executed with the first
draw down of project debt in July 2011. The Company completed expenditure of
the US$80 million equity portion of the Boseto project financing in June 2011.
The remaining project costs are being debt financed. The Project budget is
US$175 million for the Boseto processing plant and other infrastructure and
US$75 million for the Boseto mine mobile fleet with Caterpillar being the
largest supplier.
In addition to debt funding of US$180 million, the banking syndicate provides a
US$25 million overrun and working capital facility plus hedging lines for both
copper and silver production.
At the end of December 2011, Discovery Metals held US$98.9 million in cash and
had drawn down Boseto project debt of US$150 million.
(e) Boseto Hedging
In July 2011, Discovery Metals entered into a commodity price protection
strategy by hedging approximately 40% of forecast copper and 65% of forecast
silver production (for the scheduled period of the loan repayment through to
March 2015). The hedge contracts provide downside price protection for a
portion of the Boseto production. Approximately 60% of the copper production
will be sold at spot market prices. The total hedged quantities are 40,000
tonnes of copper and 1,850,000 ounces of silver.
The average future strike prices attained for these hedge contracts are US$4.01
per pound (/lb) for copper and US$36.07 per ounce (/oz) for silver. These
compare very favourably to the Bankable Feasibility Study (BFS) prices of
US$3.00/lb for copper and US$17/oz for silver. The hedge book value was US$65
million in excess of commodity market prices at 31 December 2011.
On a monthly basis from 1 July 2012, the Company will cash settle or receive
payment from the hedging banks based on the difference between the average
monthly London Metal Exchange (LME) copper price and the contracted hedge
prices.
6
D I R E C T O R S ' R E P O R T
10. State of Affairs
The Company's future financial results are dependent on the successful
commissioning of the Boseto project in the first half of 2012. At the date of
this report the project is expected to be delivered into production and within
the capital budget in the current half year. Further information is provided at
Note 2 to the Financial Statements.
11. Further Information
Further details are reported in the latest Quarterly Activity Report released to
the ASX, BSE and AIM exchanges and available on the Company's website.
www.discoverymetals.com
12. Proceedings on behalf of the Company
No person has applied for leave of Court to bring proceedings on behalf of the
Company or intervene in any proceedings to which the Company is a party for the
purpose of taking responsibility on behalf of the Company for all or any part of
those proceedings.
The Company was not a party to any such proceedings during the half year.
13. Non-audit Services
The Board of Directors, in accordance with advice from the Audit and Financial
Risk Committee, is satisfied that the provision of non-audit services during the
year is compatible with the general standard of independence for auditors
imposed by the Corporations Act 2001. The directors are satisfied that the
services disclosed below did not compromise the external auditor's independence
for the following reasons:
- all non-audit services are reviewed and approved by the audit committee
prior to commencement to ensure they do not adversely affect the integrity and
objectivity of the auditor; and
- the nature of the services provided do not compromise the general
principles relating to auditor independence in accordance with APES 110: Code of
Ethics for Professional Accountants set by the Accounting Professional and
Ethical Standards Board.
There were payments totalling US$95 thousand for non-audit services paid to the
external auditors during the half year ended 31 December 2011.
14. Auditor's Independence Declaration
The lead auditor's independence declaration for the half year ended 31 December
2011 has been received and can be found on page 18 of this combined report.
Signed in accordance with a resolution of the Board of Directors.
Brad Sampson
Gordon Galt
Managing Director
Chairman
Brisbane, dated this 22nd day of February, 2012
S T A T E M EN T O F C O M P R E H E N S I V E I N C O M E
F o r t h e H a l f Y e a r E nd e d 3 1 D e c e m b e r 20 11
31 Dec 2011 31 Dec 2010
US$'000 US$'000
Revenues 309 1,422
Compliance expenses (446) (168)
Depreciation and amortisation (186) (96)
Legal support (413) (254)
Rent (124) (106)
Salaries and consultants (3,296) (1,399)
Travel expenses (540) (384)
Employee benefits expense (1,434) (2,894)
Foreign exchange loss (703) (759)
Other expenses (1,178) (420)
----------------------------
Loss before income tax expense (8,011) (5,058)
Income tax benefit 1,045 150
----------------------------
Loss after income tax expense (6,966) (4,908)
Other Comprehensive Income
Fair value of cash flow hedges (net of tax) 51,013 -
Exchange translation difference - 11,864
----------------------------
Total Comprehensive (Loss) / income for the period 44,047 6,956
--------------
Basic loss per share (cents per share) (1.59) (1.51)
Diluted loss per share (cents per share) (1.59) (1.51)
The accompanying notes form part of these financial statements.
8
S T A T E M EN T O F F I N A N C I A L P O S I T I ON
F o r t h e H a l f Y e a r E nd e d 3 1 D e c e m b e r 20 11
ASSETS
CURRENT ASSETS
31 Dec 2011
US$'000
30 June 2011
US$'000
Cash & cash equivalents
98,898
88,807
Trade & other receivables
7,141
3,876
Derivative financial assets
13,214
- Inventory
2,886
- Prepaid expenses and deposits
771
1,981
TOTAL CURRENT ASSETS
122,910 94,664
NON-CURRENT ASSETS
Property, plant and equipment
220,523 94,591
Exploration, evaluation and development expenditure
45,804 37,771
Intangible assets
1,087
568
Derivative financial assets
52,186
- TOTAL NON-CURRENT ASSETS
319,600 132,930
TOTAL ASSETS
442,510
227,594
CURRENT LIABILITIES
Trade & other payables
22,148
19,425
Current portion of finance leases
69
73
Current portion of Boseto project finance
17,136 -
Provisions
466
427
TOTAL CURRENT LIABILITIES
39,819 19,925
NON-CURRENT LIABILITIES
Non-current portion of Finance lease
109 159
Non-current portion of Boseto project finance
132,864 -
Deferred tax liability
13,679
336
Provisions
2,917
2,812
TOTAL NON-CURRENT LIABILITIES
149,569 3,307
TOTAL LIABILITIES
189,388
23,232
NET ASSETS
253,122
204,362
EQUITY
Issued capital
215,382
213,017
Reserves
75,844
22,483
Accumulated losses
(38,104)
(31,138) TOTAL EQUITY
253,122
204,362
The accompanying notes form part of these financial statements.
9
S T A T E M EN T O F C H A N G E S I N E Q U I T Y
F o r t h e H a l f Y e a r E nd e d 3 1 D e c e m b e r 20 11
Issued Accumulated Shares & Hedging Foreign Total
Share (Losses) Option Reserve Currency
Capital Reserve Translation
Reserve
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
2010
Balance at 1 July 75,480 (16,592) 3,138 - 1,116 63,142
2010
Currency - - - - 8,354 8,354
translation
differences
(Loss) for the - (4,908) - - - (4,908)
half year
Shares issued 142,181 - - - - 142,181
during the half
year
Transaction costs (4,714) - - - - (4,714)
for shares issued
Cost of share - - 3,012 - - 3,012
based payments
--------------------------------------------------------------
Balance as at 31 212,947 (21,500) 6,150 - 9,470 207,067
December 2010
--------------------------------------------------------------
2011
Balance at 1 July 213,017 (31,138) 9,293 - 13,190 204,362
2011
Currency - - - - - -
translation
differences
(Loss) for the - (6,966) - - - (6,966)
half year
Shares issued 2,365 - - - - 2,365
during the half
year
Fair value of cash - - - 51,013 - 51,013
flow hedges (net
of tax)
Cost of share - - 2,348 - - 2,348
based payments
--------------------------------------------------------------
Balance as at 31 215,382 (38,104) 11,641 51,013 13,190 253,122
December 2011
--------------------------------------------------------------
The accompanying notes form part of these financial statements.
10
S T A T E M EN T O F C A S H F L O W S
F o r t h e H a l f Y e a r E nd e d 3 1 D e c e m b e r 20 11
CASH FLOWS FROM OPERATING ACTIVITIES
31 Dec 2011
US$'000
31 Dec 2010
US$'000
Payments to suppliers and employees
(4,436) (1,737)
Interest received
309
1,421
Refunds received
-
-
Net cash used in operating activities
(4,127)
(316)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for exploration
(7,854)
(7,405) Purchase of plant and equipment and spares
(127,331) (13,629)
Purchase of intangibles
(519)
(25) Proceeds from joint venture partner
-
1,025
Net cash used in investing activities
(135,704) (20,034)
CASH FLOWS FROM FINANCING ACTIVITIES
Drawdown of Boseto project finance
150,000
- Proceeds from issue of shares
2,365
142,181
Share issue costs
-
(4,714)
Net cash provided by financing activities
152,365 137,468
Net increase in cash & cash equivalents held
12,534 117,118
Cash & cash equivalents at the beginning of the period
88,807 33,534
Effect of exchange rates
(2,443)
11,074
Cash & cash equivalents at the end of the period
98,898 161,726
The accompanying notes form part of these financial statements.
11
NO T E S T O T H E I N T E R I M F I N AN C I A L S T A T E M EN T S
F o r t h e H a l f Y e a r E nd e d 3 1 D e c e m b e r 20 11
NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
The half year consolidated financial statements are a general purpose financial
report prepared in accordance with the requirements of the Corporations Act
2001 and Australian Accounting Standards including AASB 134: Interim Financial
Reporting. Compliance with Australian Accounting Standards ensures that the
financial statements and notes also comply with International Financial
Reporting Standards.
It is recommended that this financial report be read in conjunction with the
annual financial report for the year ended 30 June 2011 and any public
announcements made by the Company and its controlled entities during the half
year in accordance with continuous disclosure requirements arising under the
Corporations Act 2001 and ASX listing rules.
Reporting Basis and Conventions
These financial statements have been prepared on an historical cost basis.
(a) Principles of Consolidation
The consolidated financial statements incorporate the assets, liabilities and
results of all entities in which the Company holds a controlling interest.
Control is established by the Company's ability to determine strategic,
operating, investing and financing policies without the co-operation of others.
The effects of all transactions between entities in the Consolidated Group are
eliminated in full. Where control of an entity is obtained during a financial
year, its results are included in the consolidated statements of income from the
date on which control commences. Where control of an entity ceases during a
financial year its results are included for that part of the year during which
control exists. The Consolidated Group's interests in joint venture entities
are brought to account using the equity method of accounting in the consolidated
financial statements.
(b) Functional and presentation currency
The functional currency of each of the Consolidated Group's entities is measured
using the currency of the primary economic environment in which that entity
operates. The consolidated financial statements are presented in United States
Dollars. Following a review, the Comapny decided that the functional currency of
the Consolidated Group and its subsidiaries be changed to US dollars, effective
1st July 2011. This change means that the financial information in the
Company's quarterly ASX reports, as well as its half-year and full-year accounts
is presented in US dollars. Dividends will be declared in US dollars, but
shareholders will continue to receive dividends in Australian dollars unless
they elect otherwise. Given that the majority of Consolidated Group's revenue,
its debt are denominated in US dollars, this change will provide shareholders
with a more accurate reflection of the Company's underlying performance. The
group effected this change at 1 July 2011 by translating local currency balances
to USD balances in the financial information management system. Effective 1 July
2011, the USD functional currency has been applied prospectively to all
transactions.
(c) Exploration and evaluation Expenditure
Exploration and evaluation expenditure related to areas of interest is
capitalised and carried forward to the extent that:
(i) Rights to tenure of the area of interest are current; and
(ii) (a) Costs are expected to be recouped through successful development and
exploitation of the area of interest or alternatively by sale; or
(b) Where activities in the area of interest have not yet reached a stage
which permits a reasonable assessment of the existence or otherwise of
economically recoverable reserves, active and significant operations
in, or in relation to, the areas are continuing.
Such expenditure consists of an accumulation of acquisition costs and
direct net exploration and evaluation costs incurred by or on behalf of the
Consolidated Group, together with an appropriate portion of directly related
overhead expenditure, but does not include general overheads or administrative
expenditure not having a specific connection with a particular area of interest,
which is expensed in the year it is incurred.
12
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Property acquisition costs relating to exploration properties and expenditures
incurred on properties identified as having development potential are deferred
as mine development costs on a project basis until the viability of the project
is determined.
If, after management review, it is determined that the carrying amount of an
exploration property is impaired, that property is written down to its estimated
fair value. An exploration property is reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be
recoverable.
When an area of interest is abandoned, any expenditure carried forward in
respect of that area is written off in the year in which the decision to abandon
the area is made.
(d) Hedge Accounting
The Group uses derivative financial instruments, such as forward commodity
contracts, to hedge its commodity price risks, respectively. Such derivative
financial instruments are initially recognised at fair value on the date on
which a derivative contract is entered into and are subsequently remeasured at
fair value. Derivatives are carried as financial assets when the fair value is
positive and as financial liabilities when the fair value is negative.
The fair value of commodity purchase contracts that meet the definition of a
derivative under AASB 139 are recognised in the income statement in cost of
sales. Commodity contracts that are entered into and continue to be held for
the purpose of the receipt or delivery of a non-financial item in accordance
with the group's expected purchase, sale or usage requirements are held at cost.
Any gains or losses arising from changes in the fair value of derivatives are
taken directly to the income statement, except for the effective portion of cash
flow hedges, which is recognised in other comprehensive income.
The effective portion of the gain or loss on the hedging instrument is
recognised directly in other comprehensive income in the cash flow hedge
reserve, while any ineffective portion is recognised immediately in the income
statement in other operating expenses.
Amounts recognised as other comprehensive income are transferred to the income
statement when the hedged transaction affects profit or loss, such as when the
hedged financial income or financial expense is recognised or when a forecast
sale occurs. When the hedged item is the cost of a non-financial asset or non-
financial liability, the amounts recognised as other comprehensive income are
transferred to the initial carrying amount of the non- financial asset or
liability.
If the forecast transaction or firm commitment is no longer expected to occur,
the cumulative gain or loss previously recognised in equity is transferred to
the income statement. If the hedging instrument expires or is sold, terminated
or exercised without replacement or rollover, or if its designation as a hedge
is revoked, any cumulative gain or loss previously recognised in other
comprehensive income remains in other comprehensive income until the forecast
transaction or firm commitment affects profit or loss.
e) Changes in Accounting Policy
From 1 July 2011 the Consolidated Group adopted the following Standards and
Interpretations. Adoption of these Standards and Interpretations did not have
any significant effect on the financial position or performance of the Group for
the half year ended 31 December 2011.
Reference
Title
AASB 2009-10 Amendments to Australian Accounting Standards -
Classification of Rights Issues [AASB
132]
AASB 2010-3 Amendments to Australian Accounting Standards arising
from the Annual Improvements
Project [AASB 3, AASB 7, AASB 121, AASB 128, ASB 131, AASB 132 & AASB 139]
Interpretation 19 Interpretation 19 Extinguishing Financial Liabilities
with Equity Instruments
AASB 124 (Revised)
The revised ASCB 124 Related Party Disclosures (December 2009) simplifies the
definition of a related party, clarifying its intended meaning and eliminating
inconsistencies from the definition.
AASB 2009-12 Amendments to Australian Accounting Standards [AASBs
5, 8, 108, 110, 112, 119, 133,
137, 139, 1023 & 1031 and Interpretations 2, 4, 16, 1039 & 1052]
AASB 2009-14 Amendments to Australian Interpretation - Prepayments of
a Minimum Funding
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F o r t h e H a l f Y e a r E nd e d 3 1 D e c e m b e r 20 11
Requirement
AASB 2010-4 Amendments to Australian Accounting Standards arising
from the Annual Improvements
Project [AASB 1, AASB 7, AASB 101, AASB 134 and Interpretation 13]
AASB 2010-5 Amendments to Australian Accounting Standards [AASB
1, 3, 4, 5, 101, 107, 112, 118,
119, 121, 132, 133, 134, 137, 139, 140, 1023 & 1038 and Interpretations
112, 115, 127,
132 & 1042]
NOTE 2: PROFIT/ (LOSS) FOR THE PERIOD
Profit/(loss) from ordinary activities before income tax has been determined
after:
2011
US$'000
2010
US$'000
Interest received
309
1,421
Employee benefits expense(1)
1,434 2,894
Depreciation of fixed assets & intangibles
186
96
Interest expense(2)
-
-
(1) Employee benefits expense includes the cost of the Director and
Employee Share plan approved by shareholders in February 2010, along with the
former option plan. During the six months ended 31 December 2010, Tranche 2 of
the share rights became fully vested, which resulted in acceleration of the
expense relating to the same. Share based compensation expense capitalised
during six months ended 31 December 2011 is USD 0.9 million.
(2) Borrowing costs capitalised during the six months ended 31 December
2011 is USD 10.5 million.
At 31 December 2011 the Consolidated Group reported a loss after tax of $6.966
million and a surplus of current assets to current liabilities of $83.091
million. The Company is currently progressing construction and
development of its Boseto Copper Project. First copper production is expected to
be produced from the operation in the first half of 2012. During this
construction and development phase the group project entity (100% subsidiary)
holding the project assets has drawn against the project financing facilities
and entered into a number of significant forward hedging contracts. The
settlement of these obligations will be dependent on the successful operation of
the Boseto Copper Project. At 31 December 2011 and at the date of this report,
the Directors have assessed the ability of the Consolidated Group to complete
the project and commence operations and are satisfied that cash flows from the
project in future periods are projected to be sufficient to allow the Group to
meet its
debts as and when they fall due, and realise its assets and settle liabilities
in the normal course of business. The directors are further satisfied that,
based on latest available management forecasts, the project entity is projected
to remain in compliance with the covenants that form part of the Boseto
financing facility.
Derivative financial instruments and hedge accounting
In July 2011, Discovery Metals entered into a commodity price protection
strategy by hedging approximately 40% of forecast copper and 65% of forecast
silver production (for the scheduled period of the loan repayment through to
March 2015). The hedge contracts provide downside price protection for a
portion of the Boseto production. Approximately 60% of the copper production
will be sold at spot market prices. The total hedged quantities are
40,000 tonnes of copper and 1,850,000 ounces of silver. This is explained in
more detail in the Directors Report
and in public announcements made by the Company. At 31 December 2011, the fair
value of these hedges totalled US$65.4 million and rescognised as assets by the
Group with the net of 22% tax gain during the period of US$51 million recognised
as other comprehensive income.
14
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F o r t h e H a l f Y e a r E nd e d 3 1 D e c e m b e r 20 11
NOTE 3: SEGMENT REPORTING
The consolidated entity operates in one business segment being the mining
industry, in two geographical locations, being Australia and Botswana.
For the half year ended
31 December 2011
Boseto Copper
Project
Dikoloti Nickel
Project
Corporate Consolidated
Group
US$'000 US$'000 US$'000 US$'000
Revenue from external customers -
- -
-
Inter-segment revenue -
- 4,027
4,027
Interest & Refunds
30 5 274
309
Expenses
(793) (1) (7,526)
(8,320) (Loss) / income before elimination (763)
4 (3,225)
(3,984) Less: Elimination - property, plant &
equipment
- - (3,759)
(3,759)
Less: Elimination - Exploration asset -
- (268)
(268) Add: income tax benefit
- - 1,045
1,045 (Loss)/ income after income tax
(763) 4 (6,207)
(6,966) Reportable segment assets 381,042
609 61,026 442,677
For the half year ended
31 December 2010
Boseto Copper
Project
Dikoloti Nickel
Project
Corporate Consolidated
Group
Revenue from external customers
US$'000 US$'000 US$'000 US$'000
Inter-segment revenue -
- 566
566
Interest & Refunds
101 10 1,311
1,422
Expenses
(845) (2) (6,199)
(7,046) (Loss) / income before elimination (744)
8 (4,322)
(5,058) Less: Elimination
566 - (566)
- Less: Elimination - Exploration asset
- -
- - Add: income tax benefit
150 -
- 150 (Loss)/ income after income tax
(27) 8
(4,888) (4,908) Reportable segment assets
53,454 2,331
162,387 218,172
There are no customers for the period under review since the Company is still in
development stage.
NOTE 4: CONTINGENT LIABILITIES
There are no known contingent liabilities. There has been no change in
contingent liabilities and assets since the last annual reporting date.
NOTE 5: CAPITAL COMMITMENTS
Capital expenditure commitments As at 31 December 2011 As at 30 June 2011
US$'000 US$'000
Payable - not later than one year 53,427 125,211
The major items of
capital commitment as at 31 December 2011 are: Process plant ($12.0 million),
Diesel Power Station ($3 million), Blast Hole Drills ($3 million), mine
infrastructure ($11.4 million), housing ($12 million), excavators ($10 million)
and truck and support fleet contracts ($2 million).
15
NO T E S T O T H E I N T E R I M F I N AN C I A L S T A T E M EN T S
F o r t h e H a l f Y e a r E nd e d 3 1 D e c e m b e r 20 11
NOTE 6: ISSUED CAPITAL
Fully paid ordinary shares at reporting
31 Dec 2011
US$'000
30 Jun 2011
US$'000
31 Dec 2011
Shares
30 Jun 2011
Shares
date
215,382 213,017 442,128,231 437,114,481
(a) Ordinary Shares
At beginning of reporting period 213,017
75,480 437,114,481 300,987,060
Shares issued during the period:
Issued at A$0.26 each
222
968,188
Issued at A$0.32 each
80
250,000
Issued at A$0.35 each
346 - 1,000,000
-
Issued at A$0.36 each
239
747,337
Issued at A$0.37 each
185
500,000
Issued at A$0.375 each
199 - 500,000
- Issued at A$0.43 each
228 - 500,000
- Issued at A$0.44 each
436
1,000,000
Issued at A$0.50 each
766 247 1,513,750
486,250
Issued at A$0.54 each
286 - 500,000
- Issued at A$0.55 each
540 - 1,000,000
- Issued at A$1.05 each
90,091
86,875,646
Issued at A$1.12 each
50,929
45,300,000
Transaction costs relating to share issues
(4,892)
At reporting date
215,382 213,017 442,128,231 437,114,481
* Shares on issue to parties external to Consolidated Group
427,196,880 427,424,310
NOTE 7: EVENTS SUBSEQUENT TO REPORTING DATE
No other matters or circumstances have arisen since the end of the financial
half year which significantly affected or may significantly affect the
operations of the consolidated entity, the results of those operations or the
state of affairs of the consolidated entity in future financial years other than
the following:
- On 12 January 2012, the Company announced the initial Selene copper mineral
resource;
- On 18 January 2012, the Company announced the Higher Grade Copper Zone at
Zeta NE confirmed by drilling;
- On 27 January 2012, the Company released its quarterly activities report
containing updates to both the Boseto
Copper Project and its drilling and exploration activities;
- On 30 January 2012, the Company announced the proposed cancellation of
admission to trading on AIM;
- On 20 February 2012, the Company announced that it had been granted 4 new
areas in the Kalahari Copperbelt referred to by the Company as the D'Kar
prospecting licenses.
16
D I R E C T O R S ' D E C L A R A T I ON
The directors of Discovery Metals Limited declare that:
1. The financial statements and notes, as set out on pages 8 to 17
hereof:
(a) comply with Accounting Standards AASB 134 Interim Financial Reporting
and the Corporations
Regulations; and
(b) give a true and fair view of the economic entity's financial position
as at 31 December 2011 and of the performance for the half year ended on that
date.
2. In the directors' opinion there are reasonable grounds to believe
that the Company will be able to pay its debts as and when they become due and
payable.
This declaration is made in accordance with a resolution of the Board of
Directors.
Brad Sampson
Gordon Galt
Managing Director
Chairman
Brisbane, dated this 22nd day of February, 2012
17
Auditor's Independence Declaration to the Directors of Discovery Metals Limited
In relation to our review of the financial report of Discovery Metals Limited
for the half-year ended 31
December 2011, to the best of my knowledge and belief, there have been no
contraventions of the auditor independence requirements of the Corporations Act
2001 or any applicable code of professional conduct.
Ernst & Young
Brad Tozer
Partner
22 February 2012
Liability limited by a scheme approved under Professional Standards Legislation
Independent review report to members of Discovery Metals Limited
Report on the Half-Year Financial Report
We have reviewed the accompanying half-year financial report of Discovery Metals
Limited, which comprises the statement of financial position as at 31 December
2011, and the statement of comprehensive income, statement of changes in
equity and statement of cash flows for the half-year ended on that date, other
selected explanatory notes and the directors' declaration of the consolidated
entity comprising the company and the entities it controlled at the half-year
end or from time to time during the half-year.
Directors' Responsibility for the Half-Year Financial Report
The directors of the company are responsible for the preparation and fair
presentation of the half-year financial report in accordance with Australian
Accounting Standards (including the Australian Accounting Interpretations) and
the Corporations Act 2001. This responsibility includes establishing and
maintaining internal controls relevant to the preparation and fair presentation
of the half-year financial report that is free from material misstatement,
whether due to fraud or error; selecting and applying appropriate accounting
policies; and making accounting estimates that are reasonable in the
circumstances.
Auditor's Responsibility
Our responsibility is to express a conclusion on the half-year financial report
based on our review. We conducted our review in accordance with Auditing
Standard on Review Engagements ASRE 2410 Review of Interim and Other Financial
Reports Performed by the Independent Auditor of the Entity, in order to state
whether, on the basis of the procedures described, we have become aware of any
matter that makes us believe that the financial report is not in accordance with
the Corporations Act 2001 including: giving a true and fair view of the
consolidated entity's financial position as at 31 December 2011 and its
performance for the half-year ended on that date; and complying with Accounting
Standard AASB 134 Interim Financial Reporting and the Corporations Regulations
2001 . As the auditor of Discovery Metals Limited and the entities it controlled
during the half-year, ASRE 2410 requires that we comply with the ethical
requirements relevant to the audit of the annual financial report.
A review of a half-year financial report consists of making enquiries, primarily
of persons responsible for financial and accounting matters, and applying
analytical and other review procedures. A review is substantially less in scope
than an audit conducted in accordance with Australian Auditing Standards and
consequently does not enable us to obtain assurance that we would become aware
of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Independence
In conducting our review, we have complied with the independence requirements of
the Corporations Act 2001. We have given to the directors of the company a
written Auditor's Independence Declaration, a copy of which is included in the
Directors' Report.
Liability limited by a scheme approved under Professional Standards Legislation
Conclusion
Based on our review, which is not an audit, we have not become aware of any
matter that makes us believe that the half-year financial report of Discovery
Metals Limited is not in accordance with the Corporations Act 2001, including:
i) giving a true and fair view of the consolidated entity's financial
position as at 31 December 2011 and of its performance for the half-year ended
on that date; and
ii) complying with Accounting Standard AASB 134 Interim Financial Reporting
and the Corporations
Regulations 2001.
Ernst & Young
Brad Tozer Partner Brisbane
22 February 2012
Attachment: Half Year Financial Report:
http://hugin.info/137928/R/1588735/498673.pdf
This announcement is distributed by Thomson Reuters on behalf of
Thomson Reuters clients. The owner of this announcement warrants that:
(i) the releases contained herein are protected by copyright and
other applicable laws; and
(ii) they are solely responsible for the content, accuracy and
originality of the information contained therein.
Source: Discovery Metals Limited via Thomson Reuters ONE
[HUG#1588735]
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