Share Name Share Symbol Market Type Share ISIN Share Description
Kefi Minerals LSE:KEFI London Ordinary Share GB00BD8GP619 ORD 1.7P
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  +0.00p +0.00% 5.05p 4.90p 5.20p - - - 0 06:30:08
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Mining 0.0 -1.2 -0.0 - 16.80

KEFI Minerals plc Full Year Results 2016

06/06/2017 7:01am

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KEFI Minerals plc

06 June 2017

6 June 2017

KEFI Minerals plc

("KEFI" or the "Company")

FINAL RESULTS FOR THE YEARED 31 DECEMBER 2016

KEFI Minerals (AIM: KEFI), the gold exploration and development company with projects in the Kingdom of Saudi Arabia and the Federal Democratic Republic of Ethiopia, announces its final results for the year ended 31 December 2016.

2016 HIGHLIGHTS

The robust economics of KEFI's two development projects are demonstrated in the following table:

 
                                           Tulu Kapi   Jibal Qutman 
-------------------------  -------------  ----------  ------------- 
 Project Stage                              Funding        PEA 
-------------------------  -------------  ----------  ------------- 
 Gold Production            Ounces p.a.     115,000       30,000 
-------------------------  -------------  ----------  ------------- 
 All-in Sustaining 
  Costs ("AISC")               US$/oz         777          600 
-------------------------  -------------  ----------  ------------- 
 Operating Margin              US$/oz         473          650 
-------------------------  -------------  ----------  ------------- 
 Net Operating Cash         US$ million 
  Flow                          p.a.          55            19 
-------------------------  -------------  ----------  ------------- 
 Operating Margin                %            38%          52% 
-------------------------  -------------  ----------  ------------- 
 Initial Life-of-Mine 
  Production                   Ounces       980,000      139,000 
-------------------------  -------------  ----------  ------------- 
 Initial Capital Payback       Years           3            2 
-------------------------  -------------  ----------  ------------- 
 Initial Capital            US$ million       160           30 
-------------------------  -------------  ----------  ------------- 
 

Notes:

The above parameters are based on a gold price of US$1,250/oz.

AISC is per the World Gold Council Standard. The AISC includes each project's operating costs, Government royalties and sustaining capital but excludes financing costs and income taxes.

Tulu Kapi's gold production and net operating cash flow are for the first eight years of gold production.

Tulu Kapi's initial capital cost of US$160 million is based on the 2017 Definitive Feasibility Study Update ("2017 DFS Update"), reduced for contractually deferred payments and increased for non-Tulu Kapi costs during construction.

"PEA" means the Preliminary Economic Assessment completed by KEFI and announced on 8(th) March 2016.

The above metrics demonstrate:

   --   The AISC/oz place both projects in the bottom cost quartile of existing gold producers 
   --   Strong operating margins above AISC provide substantial annual cash flows 
   --   Both projects can comfortably debt-fund the majority of the development capital required 
   --   Both projects rapidly repay the development capital 

Tulu Kapi, Ethiopia

During 2016, KEFI concentrated on progressing the Tulu Kapi gold project ("Tulu Kapi"), Ethiopia's first modern mine, and on upgrading its gold and copper exploration portfolio in the highly prospective Arabian-Nubian Shield ("ANS"). KEFI is targeting to commence development of Tulu Kapi in 2017 and open-pit gold production in 2019.

-- Government of Ethiopia formally committed to invest US$20 million for equity in Tulu Kapi and, post-period, signed the Shareholder Agreement and other requisite documentation

-- Project team refined the development plan and detailed mine plan, resulting in more robust metrics by incorporating feedback made by contractors, financiers, and partners to the 2015 Definitive Feasibility Study ("2015 DFS"), and, post period, all refinements to the 2015 DFS were incorporated into the 2017 Definitive Feasibility Study Update ("2017 DFS Update") in preparation for financing

-- Assessing three financing proposals built around contractors experienced in African mining following tightening of mining debt-finance sector and concerns of financiers regarding Ethiopian State of Emergency

-- The projected open-pit cash flows indicate that the net cash build-up (after currently indicated financing costs) in the first three production years is US$65 million to US$265 million for the gold price range of US$1,100/oz to US$1,900/oz which prevailed during the past seven years. Significant value also expected from the contemplated underground mine beneath the Tulu Kapi open pit within extensions of the same ore body.

-- Completed Preliminary Economic Assessment ("PEA") confirming robust economics for the development of the underground mine - initial potential to increase production to >150,000 p.a. over four years whilst drilling to expand underground resources which are open in several directions.

-- Post period, community resettlement programme was triggered paving the way to project development

-- Post period, historical court claim pre-dating KEFI's ownership of Tulu Kapi was reduced from US$12 million to c. US$600,000 which KEFI has appealed to the Supreme Court to eliminate altogether.

Gold & Minerals Ltd Joint Venture ("G&M"), Saudi Arabia

-- Surface-sampling and geophysical studies identified large precious and base metals targets at Hawiah

   --   Strategic overhaul of licence applications undertaken by G&M across the whole of Saudi Arabia 

-- Post period, Mining Licence Application for proposed heap-leach gold mine at Jibal Qutman lodged with Saudi government for continuing discussion and review

-- KEFI expects the authorities in Saudi Arabia to deregulate the minerals exploration sector in 2017 from which the Company is well-positioned to benefit

Corporate

   --   Completed several equity placings, raising a total of GBP5.6 million (before expenses) 

-- In preparation for Tulu Kapi development, Mr John Leach Finance Director became a fulltime executive and Mr Mark Wellesley-Wood, an experienced African mining operator, joined the Board as a Non-Executive Director assuming the role of Deputy Chairman

   --   Post period, completed GBP5.62 million fundraising (before expenses) 

Harry Anagnostaras-Adams, Executive Chairman of KEFI Minerals, said:

"During 2016, we concentrated on progressing Tulu Kapi, Ethiopia's first modern mine, and on upgrading our exploration portfolio in the highly-prospective Arabian-Nubian Shield supported by our strong partners in Ethiopia and Saudi Arabia. With the Ethiopian State of Emergency, conventional finance proposals were stalled in 2016 so we successfully responded by focusing our efforts on alternative financiers familiar with Africa, especially Ethiopia, and particularly on proposals designed around African-experienced gold project contractors. As a result, we are now assessing three proposals. At the same time, operational activities continued uninterrupted and we now have a development-ready mine, once the funding package is finalised. We look forward to commencing development in 2017 and open-pit gold production in 2019.

"This year we also strengthened our pipeline of ANS growth projects to complement our Tulu Kapi open-pit gold mine, including the Tulu Kapi underground mine and satellite deposits; our oxide gold mine at Jibal Qutman in Saudi Arabia; a large VHMS base metal target at Hawiah in Saudi Arabia; and further exploration prospects in the Arabian-Nubian Shield. With the robust economics of our key development projects, including the ability to payback initial capital within three years - and strong pipeline, we have a well-positioned foundation, great growth prospects and are confident of delivering shareholder value."

Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

 
 ENQUIRIES 
 
  KEFI Minerals plc 
 Harry Anagnostaras-Adams (Executive 
  Chairman)                             +357 99457843 
 John Leach (Finance Director)          +357 99208130 
 SP Angel Corporate Finance 
  LLP (Nominated Adviser) 
 Ewan Leggat, Jeff Keating              +44 20 3470 0470 
 
 Brandon Hill Capital Ltd (Joint 
  Broker) 
 Oliver Stansfield, Alex Walker, 
  Jonathan Evans                        +44 20 7936 5200 
 
 RFC Ambrian Ltd (Joint Broker) 
  Jonathan Williams 
 
  Beaufort Securities Ltd (Joint 
  Broker)                               +44 20 3440 6817 
 Elliot Hance                           +44 20 7382 8300 
 
 Luther Pendragon Ltd (Financial 
  PR) 
 Harry Chathli, Claire Norbury, 
  Ana Ribeiro                           +44 20 7618 9100 
 

Further information can be viewed on KEFI's website at www.kefi-minerals.com

NOTES TO EDITOR

KEFI Minerals plc is the operator of two advanced gold development projects within the highly prospective Arabian-Nubian Shield, with attributable Mineral Resources (JORC 2012) of 1.93Moz gold (100% of Tulu Kapi's 1.72Moz gold in Ethiopia and 40% of Jibal Qutman's 0.73Moz gold in Saudi Arabia) plus significant resource growth potential. KEFI targets that production at these projects generates cash flows for further exploration and expansion as warranted, recoupment of development costs and, when appropriate, dividends to shareholders.

Operational Review

The Company's assets provide a healthy platform to deliver shareholder value by developing profitable mines in Ethiopia and Saudi Arabia.

KEFI Minerals made substantial progress during 2016 towards becoming a gold producer in one of the world's great under-developed minerals provinces - the Arabian-Nubian Shield.

The Company's Tulu Kapi Gold Project in Ethiopia remains the primary focus. KEFI has continued to work with the Government of Ethiopia, industry experts and project contractors over the past year in order to ensure that construction can commence as soon as funding is in place.

Initial open-pit gold production from Tulu Kapi is projected at 115,000 ounces per annum at a low All-in Sustaining Cost of less than US$800/oz. Tulu Kapi's Ore Reserves of 1.0 million ounces and Mineral Resources of 1.7 million ounces have significant upside potential.

At the Company's Jibal Qutman Gold Project in Saudi Arabia, the Mining Licence Application for the planned heap-leach operation has been lodged with the Saudi Government for continuing discussion and review.

Development-Ready Gold Mine - Tulu Kapi

This high-value, low-capex asset is now poised for development when the funding package is finalised. Whilst KEFI's finance team has been preparing the funding package, the project development team has continued to work with the Company's selected contractors in order to further optimise Tulu Kapi's detailed development and operating plans.

Feedback on the 2015 DFS from project contractors, financiers and partners was incorporated into an improved mine plan in early 2016. All refinements to the 2015 DFS were, in May 2017, incorporated into the 2017 DFS Update in preparation for financing. This reflects, among other things, the fixed price, lump-sum processing plant construction contract with Lycopodium and a warranted ore processing rate of 1.5-1.7 million tonnes per annum.

KEFI bases the finance structure on the numbers and schedules in the 2017 DFS Update, which includes only the planned open pit. However, the Company will target a quicker construction schedule and 10% higher annual throughput compared with the contractually warranted estimates used for debt-structuring. KEFI's financial targets for the open-pit project include:

   --     Gold production of 120,000 ounces per annum for eight of the initially planned ten years; 

-- At a flat average gold price of US$1,200-1400/oz for all ten years of gold production (2019-2028):

o All-in Sustaining Costs of less than US$800/oz (excluding financing charges);

o After-tax, unleveraged IRR of 25%-36%;

o After-tax, unleveraged NPV (8% discount rate) of US$98-184 million at start of construction;

o After-tax, unleveraged NPV (8% discount rate) of US$272-375 million at start of production in 2019;

o Annual net operating cash flows of US$56-78 million p.a. for the first eight years of production, and

o Payback of 3 years.

As a result of KEFI's overhaul of all aspects of the project due diligence and planning, the project has soundly-based, robust economics and significant growth potential beyond the existing open-pit Ore Reserve estimate of 15.4 million tonnes at 2.12g/t gold, containing 1.05 million ounces.

The projected open-pit cash flows indicate that the net cash build-up (after financing costs) in the first three production years is US$65 million to US$265 million for a gold price range of US$1,100/oz to US$1,900/oz. Significant value is also expected from the contemplated underground mine.

Strong Support from Ethiopian Government for Tulu Kapi Development

The Tulu Kapi Gold Project ranks high as a national priority within Ethiopia's Growth and Transformation Plan and KEFI is delighted to have the strong support of the community in addition to the support from the Government at all levels.

Responsible mine development is a high priority for KEFI and the Ethiopian Government. KEFI welcomes the Government's constructive attitude that encourages us to bring Tulu Kapi into production as rapidly as prudently possible whilst ensuring compliance with all relevant governance and quality standards.

The restrictions imposed by the State of Emergency declared by the Ethiopian Government in October 2016 have now mostly been lifted. KEFI's operational activities have continued as normal during this time and appropriate security precautions have been built into project planning.

After consultations with KEFI, the Government of Ethiopia has triggered the community resettlement programmes, which began with property surveys and host-land preparations and also incorporate livelihood restoration programmes.

Notably in May 2017, the Government of Ethiopia further demonstrated its strong support by executing the detailed formal documentation for its committed equity capital contribution of approximately US$20 million to Tulu Kapi's development. This investment will increase the Government's share of the project from a 5% free-carried interest to circa 25%, depending on the final financing structure.

Further Potential at Tulu Kapi

In parallel with working towards open-pit gold production, KEFI has already evaluated the potential for developing an underground mine beneath the Tulu Kapi open pit. A Preliminary Economic Assessment completed in early 2016 indicated robust economics for an underground mine. Based on 2014 Mineral Resources, the addition of an underground mine has the potential to increase total (open pit and underground) gold production to more than 150,000 ounces per annum over four years. The orebody remains open and further potential will be added.

The Government has encouraged KEFI to plan an ambitious exploration programme in the district around Tulu Kapi and elsewhere in Ethiopia. Targets have been identified for both satellite gold deposits and stand-alone development projects. Tulu Kapi is intended to become a central ore processing centre for additional deposits to be developed in the district.

Oxide Gold Project - Jibal Qutman

In Saudi Arabia, the first priority for the Company's G&M Joint Venture is to develop an open-pit, heap-leach ("HL") gold operation, using a staged development approach predicated on a low-capex start-up to be expanded in modular stages as additional mineralisation is delineated. The potential cash flow from HL oxide gold production is an opportunity to fund:

-- construction of a carbon-in-leach ("CIL") plant to process the deeper sulphide ore profitably; and

   --     exploration in Saudi Arabia to create a strong Saudi mining company for the long term. 

Following on-site meetings with regulators in March 2017, the Mining Licence Application for the Jibal Qutman HL gold development was lodged with the Saudi Government for continuing discussion and review.

At Hawiah, G&M has identified a huge target for precious and base metals based on the surface-sampling of a six-kilometre long gossan (oxidised mineralisation exposed on the surface) and the results of the geophysical surveys of the ground beneath the gossan.

KEFI's Saudi venture is a strategic long-term priority and the Company is confident of having established an early-entrant position in what will emerge as a world-class minerals province. During the past year, G&M overhauled its portfolio of licence applications by discarding some and adding others. The next key step is for G&M to review the new Saudi mining industry regulations and policies that are expected to be published soon. KEFI will then proceed with Jibal Qutman soon after the planned Tulu Kapi development and also expand exploration activities as results warrant.

Financing Review

Equity Funding

KEFI has, to date, financed its activities through periodic capital raisings and contributions by partners.

The Company completed several equity placings during 2016, raising a total of GBP5.6 million (before expenses).

In March 2017, shareholders approved a GBP5.62 million fundraising comprised of:

o GBP0.60 million placing of equity by Brandon Hill Capital;

o GBP0.40 million subscription by certain of the Directors, employees and Lycopodium; and

o GBP4.62 million subscription by Lanstead Capital.

Following the completion of the March 2017 fundraising and associated consolidation of the Company's capital on a 17-for-1 basis, KEFI had a total of 332.7 million Ordinary Shares on issue.

A key aspect of the March 2017 fundraising is that GBP3.93 million of the GBP4.62 million subscription by Lanstead is subject to a Sharing Agreement that allows KEFI to benefit financially from positive share price performance, whilst limiting the financial downside risk from a negative share price performance.

The number of Ordinary Shares issued to Lanstead under the Sharing Agreement is fixed at 82.4 million Ordinary Shares. However, the amount from Lanstead due to KEFI under the Sharing Agreement is adjustable upwards or downwards at each of the 18 monthly settlements that commenced in May 2017. The Lanstead Sharing Agreement underpins the Company's expenditure for 2017 and is focused on an increasing share price being beneficial to both Lanstead and KEFI shareholders.

Partnering the Government in Ethiopia and ARTAR in Saudi Arabia

In May 2017, KEFI Minerals (Ethiopia) Limited ("KME") and the Federal Democratic Republic of Ethiopia signed the Shareholders' Agreement and other foundation documentation for the incorporation, ownership and operation of Tulu Kapi Gold Mines Share Company Limited ("TKM"), which will result in TKM owning 100% of Tulu Kapi. The exploration projects outside the Tulu Kapi Mining Lease area are not part of TKM and remain 100% owned by KEFI.

In the Kingdom of Saudi Arabia KEFI conducts all its activities through Gold and Minerals Co. Limited, its joint venture company with Abdul Rahman Saad Al Rashid and Sons Limited ("ARTAR"). KEFI is operator with a 40% interest and ARTAR has 60%. KEFI is fortunate to have such a strong Saudi group as a partner and G&M has assembled a large and prospective portfolio of exploration licences and applications. Having made a discovery at Jibal Qutman, the joint venture looks forward to development and expansion in the minerals sector, which the Saudi Government has made a national strategic priority.

Tulu Kapi Development Funding

The Tulu Kapi funding process is ongoing with several potential financiers who are comfortable investing in Ethiopia.

The foundations of risk management for funding Tulu Kapi include that all short-term (up to five years) debt servicing commitments are met even if the price of gold drops to and stays at c. US$900/oz whilst longer-term (5-10 years) commitments are acceptable as long as they are covered by a flat price of c. US$1,000/oz. It is notable that the lowest gold price in the past seven years is c. US$1,100/oz and the highest c. US$1,900/oz.

Since acquiring the project, KEFI has continually refined and reduced project capital requirements and rendered more reliable production plans. Before adding financing charges and costs of other KEFI activities, the current estimate of total KEFI group requirement for Tulu Kapi development capital is c. US$160 million, which has been approximately halved from the previous owner's estimate.

KEFI's progress on project financing was delayed during 2016 as a result of the tightening of the mining debt-finance sector generally and the declaration of the Ethiopian State of Emergency, which had the effect of depressing the interest of financiers unfamiliar with Ethiopia. The Company responded by elevating its focus onto alternative financiers familiar with Africa and especially Ethiopia and, in particular, to design financing proposals with African-experienced gold project contractors. KEFI now has three financing proposals built around alternative project contracting syndicates, and has prioritised the funding structure designed around the preferred contractors selected in 2016 - Ausdrill for mining and Lycopodium for processing.

As a result of recent progress, along with potential financiers, the Government and contractors, KEFI has intensified preparations for development to commence this year. The syndication brings with it the complexities of multiple jurisdictions and "paving the way" in Ethiopia for which this is the first internationally-financed major mining project finance transaction. Nevertheless, all syndicate members are working to the common objective of starting production in 2019.

Outlook

KEFI's initiatives on both sides of the Red Sea reflect the Company's conviction that the ANS has world-class prospectivity overseen by governments that have made the mining sector a strategic priority. KEFI is very fortunate to have a +1,000 km(2) portfolio of exploration properties at various stages within the highly prospective ANS - and this portfolio will grow.

The Company has established a solid platform with world-class partners in each jurisdiction and has, with industry-leading contractors, developed a counter-cyclical opportunity to establish successful mining operations in the region. KEFI's approach has been to place its development strategy into the hands of a team of seasoned operators with a proven record of start-up successes in Africa. This team has transformed Tulu Kapi from an uneconomic project into one that is now being evaluated by financiers as a robust, fully-permitted project with significant upside potential for shareholders.

The Board is confident of the Company's strategy and asset base. KEFI has the appropriate mix of industry-experienced technical and financial expertise to prudently progress its projects into profitable gold mines. In addition, the Company has an organisational development plan that will see requisite human resources added with recruitment as progress warrants. The Company now has two cornerstone shareholders in Odey Asset Management and Lanstead Capital that support rapid growth companies. Project contractors Ausdrill and Lycopodium are also shareholders as is the Board of Directors.

KEFI Minerals is positioned to become the operator of two gold development projects in the highly-prospective ANS. The Company has achieved this progress with a small team around whom the full operating team will be built in conjunction with the project contractors, both of whom have over 20 years of mine building experience in Africa. The Company is well supported by a number of high calibre, quality specialist advisers also selected for their pre-eminence in start-ups of this nature.

As a result, the calm and improving situation in Ethiopia, combined with the range of financing scenarios being considered by the Company, make the Board confident that the Tulu Kapi Gold Project can proceed to development in 2017.

Consolidated statement of comprehensive income

Year ended 31 December

(All amounts in GBP thousands unless otherwise stated)

 
 
                                          Notes        Year        Year 
                                                      Ended       Ended 
                                                   31.12.16    31.12.15 
                                                    GBP'000     GBP'000 
 
 Revenue                                                  -           - 
 Exploration costs                                    (125)         (4) 
                                                 ==========  ========== 
 Gross loss                                           (125)         (4) 
 Administrative expenses                            (2,190)     (1,720) 
 Vat refund                                           2,512           - 
 Share-based payments                       17        (445)       (378) 
 Share of loss from jointly controlled 
  entity                                    19        (726)       (735) 
                                                 ==========  ========== 
 Operating loss                             6         (974)     (2,837) 
 Foreign exchange loss                                (123)        (50) 
 Finance costs                              8         (136)       (319) 
                                                 ==========  ========== 
 Loss before tax                                    (1,233)     (3,206) 
 Tax                                        9             -           - 
                                                 ==========  ========== 
 Loss for the year                                  (1,233)     (3,206) 
                                                 ==========  ========== 
 
 Other comprehensive income: 
 Exchange differences on translating 
  foreign operations                                    200          56 
                                                 ==========  ========== 
 
   Total comprehensive loss for 
   the year                                         (1,033)     (3,150) 
 
 
 Basic and fully diluted loss 
  per share (pence)                         10      (0.037)      (0.20) 
 

The accompanying notes are an integral part of these consolidated financial statements.

Statements of financial position

31 December

(All amounts in GBP thousands unless otherwise stated)

 
                                     The        The        The        The 
                                   Group    Company      Group    Company 
                        Notes       2016       2016       2015       2015 
                               ---------  ---------  ---------  --------- 
 ASSETS 
 Non--current 
  assets 
 Property, plant 
  and equipment          11           61          6         81          3 
 Intangible 
  assets                 12       13,992      3,939     11,845      1,078 
 Fixed asset 
  investments           13.1           -      4,598          -      4,598 
 Investments 
  in jointly 
  controlled 
  entities              13.2           -        181          -        181 
                               ---------  ---------  ---------  --------- 
                                  14,053      8,724     11,926      5,860 
                               ---------  ---------  ---------  --------- 
 Current assets 
 Available for 
  sale financial 
  assets                 14           95          -         92          8 
 Trade and other 
  receivables            15        3,056      8,069        358      7,710 
 Cash and cash 
  equivalents            16          410        400        562        393 
                               ---------  ---------  ---------  --------- 
                                   3,561      8,469      1,012      8,111 
                               ---------  ---------  ---------  --------- 
 Total assets                     17,614     17,193     12,938     13,971 
                               =========  =========  =========  ========= 
 
   EQUITY AND 
   LIABILITIES 
 Equity attributable 
  to owners of 
  the Company 
 Share capital           17        3,883      3,883      2,623      2,623 
 Deferred Shares         17       12,436     12,436     12,436     12,436 
 Share premium           17       16,279     16,279     12,347     12,347 
 Share options 
  reserve                17        1,474      1,474      1,212      1,212 
 Foreign exchange 
  reserve                            170          -       (30)          - 
 Accumulated 
  losses                        (18,695)   (18,496)   (17,645)   (15,623) 
                               ---------  ---------  ---------  --------- 
 Total equity                     15,547     15,576     10,943     12,995 
 Current liabilities 
 Trade and other 
  payables               20        2,067      1,617      1,995        976 
                               ---------  ---------  ---------  --------- 
                                   2,067      1,617      1,995        976 
                               ---------  ---------  ---------  --------- 
 Total liabilities                 2,067      1,617      1,995        976 
                               ---------  ---------  ---------  --------- 
 Total equity 
  and liabilities                 17,614     17,193     12,938     13,971 
                               =========  =========  =========  ========= 
 

The accompanying notes are an integral part of these consolidated financial statements.

The Company has taken advantage of the exemption conferred by section 408 of Companies Act 2006 from presenting its own statement of comprehensive income. Loss after taxation amounting to GBP3.1 million (2015: GBP2.5 million) has been included in the financial statements of the parent company.

On the 5 June 2017, the Board of Directors of KEFI Minerals PLC authorised these financial statements for issue.

Harry Anagnostaras-Adams

Executive Director-Chairman

Company Number: 05976748

Consolidated statement of changes in equity

Year ended 31 December 2016

(All amounts in GBP thousands unless otherwise stated)

 
                          Attributable to the owners of the Company 
                                                                                              ======== 
                            Share   Deferred      Share      Share     Foreign   Accumulated     Total 
                          capital     shares    premium    options    exchange        losses 
                                                           reserve     reserve 
 
 
 At 1 January 
  2015                     12,352          -      8,433        848        (86)      (14,389)     7,158 
 Loss for the 
  year                          -          -          -          -           -       (3,206)   (3,206) 
 Other comprehensive 
 income                         -          -          -          -          56             -        56 
                        ---------  ---------  ---------  ---------  ----------  ------------  -------- 
 Total Comprehensive 
 Income                         -          -          -          -          56       (3,206)   (3,150) 
 Recognition 
  of share based 
  payments                      -          -          -        378           -             -       378 
 Cancellation 
  of options                    -          -          -       (14)           -            14         - 
 Issue of share 
  capital                   2,707          -      4,293          -           -             -     7,000 
 Restructuring 
  of share capital       (12,436)     12,436          -          -           -             -         - 
 Share issue 
  costs                         -          -      (379)          -           -          (64)     (443) 
                        ---------  ---------  ---------  ---------  ----------  ------------  -------- 
 At 31 December 
  2015                      2,623     12,436     12,347      1,212        (30)      (17,645)    10,943 
 
 Loss for the 
  year                          -          -          -          -           -       (1,233)   (1,233) 
 Other comprehensive 
 income                         -          -          -          -         200             -       200 
                        ---------  ---------  ---------  ---------  ----------  ------------  -------- 
 Total Comprehensive 
 Income                         -          -          -          -         200       (1,233)   (1,033) 
 Recognition 
  of share based 
  payments                      -          -          -        445           -             -       445 
 Cancellation 
  of options                    -          -          -      (183)           -           183         - 
 Issue of share 
  capital                   1,260          -      4,296          -           -             -     5,556 
 Share issue 
  costs                         -          -      (364)          -           -             -     (364) 
                        ---------  ---------  ---------  ---------  ----------  ------------  -------- 
 At 31 December 
  2016                      3,883     12,436     16,279      1,474         170      (18,695)    15,547 
                        =========  =========  =========  =========  ==========  ============  ======== 
 
 

The following describes the nature and purpose of each reserve within owner's equity:

   Reserve                                                 Description and purpose 

Share capital amount subscribed for ordinary share capital at nominal value

Deferred shares on 16 June 2015, under the restructuring of share capital, ordinary shares of 1p each in the capital of the Company were sub-divided into one new ordinary share of 0.1p and one deferred share of 0.9p

Share premium amount subscribed for share capital in excess of nominal value, net of issue costs

Share options reserve reserve for share options granted but not exercised or lapsed

Foreign exchange reserve cumulative foreign exchange net gains and losses recognized on consolidation

Accumulated losses cumulative net gains and losses recognized in the statement of comprehensive income, excluding foreign exchange gains within other comprehensive income

Non-controlling interest (NCI) the portion of equity ownership in a subsidiary not attributable to the parent company

The accompanying notes are an integral part of these consolidated financial statements.

Company statement of changes in equity

Year ended 31 December 2016

(All amounts in GBP thousands unless otherwise stated)

 
                                                             Share 
                         Share     Deferred       Share    options     Accumulated 
                       capital       shares     premium    reserve          losses     Total 
                     ---------  -----------  ----------  ---------  --------------  -------- 
 
 At 1 January 
  2015                  12,352            -       8,433        848        (13,117)     8,516 
 Comprehensive 
  loss for the 
  year                       -            -           -          -         (2,456)   (2,456) 
 Recognition 
  of share based 
  payments                   -            -           -        378               -       378 
 Cancellation 
  of options                 -            -           -       (14)              14         - 
 Restructuring 
  of share capital    (12,436)       12,436           -          -               -         - 
 Issue of share 
  capital                2,707            -       4,293          -               -     7,000 
 Share issue 
  costs                      -            -       (379)          -            (64)     (443) 
 At 31 December 
  2015                   2,623       12,436      12,347      1,212        (15,623)    12,995 
 Comprehensive 
  loss for the 
  year                       -            -           -          -         (3,056)   (3,056) 
 Recognition 
  of share based 
  payments                   -            -           -        445               -       445 
 Cancellation 
  of options                 -            -           -      (183)             183         - 
 Issue of share 
  capital                1,260            -       4,296          -               -     5,556 
 Share issue 
  costs                      -            -       (364)          -               -     (364) 
                     ---------  -----------  ----------  ---------  --------------  -------- 
 At 31 December 
  2016                   3,883       12,436      16,279      1,474        (18,496)    15,576 
                     =========  ===========  ==========  =========  ==============  ======== 
 

The following describes the nature and purpose of each reserve within owner's equity:

   Reserve                                 Description and purpose 

Share capital amount subscribed for ordinary share capital at nominal value

Deferred shares on 16 June 2015, under the restructuring of share capital, ordinary shares of 1p each in the capital of the Company were sub-divided into one new ordinary share of 0.1p and one deferred share of 0.9p

Share premium amount subscribed for share capital in excess of nominal value, net of issue costs

   Share options reserve            reserve for share options granted but not exercised or lapsed 

Accumulated losses cumulative net gains and losses recognized in the statement of comprehensive income

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated statement of cash flows

Year ended 31 December 2016

(All amounts in GBP thousands unless otherwise stated)

 
                                              Notes       Year      Year Ended 
                                                         Ended        31.12.15 
                                                      31.12.16         GBP'000 
                                                       GBP'000 
 CASH FLOWS FROM OPERATING ACTIVITIES 
 Loss before tax                                       (1,233)      (3,206) 
 Adjustments for: 
 Depreciation of property, plant 
  and equipment                                 11          55           90 
 Share based payments                           18         281          215 
 Impairment of intangible asset                 12         266            - 
 Issue of warrants                              17         164          163 
 Share of loss from jointly controlled 
  entity                                        19         726          735 
 Exchange difference                                        44           37 
                                                     =========   ========== 
                                                           303      (1,966) 
 Changes in working capital: 
 Trade and other receivables                           (2,701)           29 
 Trade and other payables                                   51      (1,111) 
                                                     =========   ========== 
 Net cash used in operating activities                 (2,347)      (3,048) 
                                                     =========   ========== 
 
 CASH FLOWS FROM INVESTING ACTIVITIES 
 Deferred exploration costs                            (1,189)        (967) 
 Project evaluation costs                              (1,224)      (1,739) 
 Acquisition of property plant and 
  equipment                                               (35)         (11) 
Advances to jointly controlled entity                    (566)        (790) 
Proceeds from disposal of available 
 for sale asset                                             16            - 
                                                     =========   ========== 
  Net cash used in investing activities                (2,998)      (3,507) 
                                                     =========   ========== 
 
 CASH FLOWS FROM FINANCING ACTIVITIES 
 Proceeds from issue of share capital           17       5,556        6,923 
 Issue costs                                    17       (364)        (443) 
                                                     =========   ========== 
 Net cash from financing activities                      5,192        6,480 
                                                     =========   ========== 
 
 Net decrease in cash and cash equivalents               (153)         (75) 
 
 Effect of cash held in foreign 
  currencies                                                 1          (3) 
 
 Cash and cash equivalents: 
 At beginning of the year                       16         562          640 
                                                     =========   ========== 
 At end of the year                             16         410          562 
                                                     =========   ========== 
 
 

The accompanying notes are an integral part of these consolidated financial statements.

Company statement of cash flows

Year ended 31 December 2016

(All amounts in GBP thousands unless otherwise stated)

 
                                        Notes    Year       Year 
                                                 Ended      Ended 
                                               31.12.16   31.12.15 
                                                GBP'000    GBP'000 
CASH FLOWS FROM OPERATING ACTIVITIES 
Loss before tax                                  (3,056)   (2,456) 
Adjustments for: 
Share based payments                     18         281        215 
Issue of warrants                        17         164        163 
Impairment of loan to subsidiary                     64         28 
Impairment of amount receivable 
 from jointly controlled entity                     494        720 
Exchange difference                                   1         74 
                                               ========   ======== 
                                                (2,052)    (1,256) 
Changes in working capital: 
Trade and other receivables                          37         45 
Trade and other payables                            641         20 
                                               ========   ======== 
Net cash used in operating activities           (1,374)    (1,191) 
                                               ========   ======== 
 
CASH FLOW FROM INVESTING ACTIVITIES 
Acquisition of property plant and 
 equipment                                          (3)        (1) 
Project evaluation costs                        (2,861)      (587) 
Advances to jointly controlled 
 entity                                           (566)      (790) 
Proceeds from disposal of available 
 for sale asset                                      16          - 
Loan to subsidiary                                (397)    (4,125) 
                                               ========   ======== 
Net cash used in investing activities           (3,811)    (5,503) 
                                               ========   ======== 
 
CASH FLOWS FROM FINANCING ACTIVITIES 
Proceeds from issue of share capital     17       5,556      6,923 
Issue costs                              17       (364)      (443) 
                                               ========   ======== 
Net cash from financing activities                5,192      6,480 
                                               ========   ======== 
 
Net increase/(decrease) in cash 
 and cash equivalents                                 7      (214) 
 
Cash and cash equivalents: 
At beginning of the year                 16         393        607 
                                               ========   ======== 
At end of the year                       16         400        393 
                                               ========   ======== 
 

The accompanying notes are an integral part of these consolidated financial statements.

Notes to the consolidated financial statements

Year ended 31 December 2016

(All amounts in GBP thousands unless otherwise stated)

1. Incorporation and principal activities

Country of incorporation

KEFI Minerals PLC (the "Company") was incorporated in United Kingdom as a public limited company on 24 October 2006. Its registered office is at 27/28, Eastcastle Street, London W1W 8DH.

The Company has taken advantage of the exemption in section 408 of the Companies Act 2006 not to present its individual statement of comprehensive income and related notes that form a part of these financial statements.

Principal activities

The principal activities of the Group for the year were:

-- To explore for mineral deposits of precious and base metals and other minerals that appear capable of commercial exploitation, including topographical, geological, geochemical and geophysical studies and exploratory drilling.

-- To evaluate mineral deposits determining the technical feasibility and commercial viability of development, including the determination of the volume and grade of the deposit, examination of extraction methods, infrastructure requirements and market and finance studies.

   --      To develop mineral deposits and market the metals produced. 

2. Accounting policies

The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied throughout both periods presented in these financial statements unless otherwise stated.

Basis of preparation and consolidation

The Company and the consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. They comprise the accounts of KEFI Minerals PLC and all its subsidiaries made up to 31 December 2016. The Company and the consolidated financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial instruments.

Going concern

The Directors have formed a judgment at the time of approving the financial statements that there is a reasonable expectation that the Company and Group will be able to secure adequate resources to continue in operational existence for the foreseeable future.

The financial information has been prepared on the going concern basis, the validity of which depends principally on securing funding to develop the Tulu Kapi mine project as an economically viable mineral deposit, and the availability of subsequent funding to extract the resource, or alternatively the availability of funding to extend the Company's and Group's exploration activities.

These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Company and Group's ability to continue as a going concern. The financial statements do not include the adjustments that would result if the Company and Group were unable to continue as a going concern.

Functional and presentational currency

Items included in the Group's financial statements are measured using the currency of the primary economic environment in which the entity operates ("the functional currency") which for the Company is British Pounds (GBP). The financial statements are presented in British Pounds (GBP).

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

2. Accounting policies (continued)

Foreign currency translation

   (1)   Foreign currency translation 

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transactions. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in profit or loss in the statement of comprehensive income.

   (2)   Foreign operations 

On consolidation, the assets and liabilities of the consolidated entity's foreign operations are translated at exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly in which case they are recorded at the actual rate. Exchange differences arising, if any, are recognized in the foreign currency translation reserve and as a component of other comprehensive income, and recognized in profit or loss on disposal of the foreign operation.

Revenue recognition

The Group had no sales or revenue during the year ended 31 December 2016 (2015: GBPNil).

Property plant and equipment

Property plant and equipment are stated at their cost of acquisition at the date of acquisition, being the fair value of the consideration provided plus incidental costs directly attributable to the acquisition less depreciation.

Depreciation is calculated using the straight-line method to write off the cost of each asset to their residual values over their estimated useful life. The annual depreciation rates used are as follows:

 
Furniture, fixtures and 
 office equipment         25% 
Motor vehicles            25% 
 Plant and equipment       25% 
 

Acquisitions and goodwill

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Any costs directly attributable to the business combination are written off to the statement of comprehensive income. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognized at their fair values at the acquisition date. Where the Group acquires a subsidiary for less than the fair value of its assets and liabilities, this results in negative goodwill which is recognized in profit and loss.

Purchased goodwill is capitalized and classified as an asset on the statement of financial position. Goodwill arising on acquisition is recognized as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognized.

Goodwill is reviewed for impairment on an annual basis. When the directors consider the initial value of the acquisition to be negligible, the goodwill is written off to the statement of comprehensive income immediately. Trading results of acquired subsidiary undertakings are included from the date of acquisition.

Goodwill is deemed to be impaired when the present value of the future cash flows expected to be derived is lower than the carrying value. Any impairment is charged to the statement of comprehensive income immediately.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

2. Accounting policies (continued)

Interest in jointly controlled entities

Joint venture arrangements that involve the establishment of a separate entity in which each venturer has joint control are referred to as jointly controlled entities. The results and assets and liabilities of jointly controlled entities are included in these financial statements for the period using the equity method of accounting.

Finance costs

Interest expense and other borrowing costs are charged to the statement of comprehensive income as incurred.

Tax

The tax payable is based on taxable profit for the period. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. Tax is payable in the relevant jurisdiction at the rates described in note 9.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognized for all taxable differences and deferred tax assets are recognized to the extent that taxable profits will be available against which deductible temporary differences can be utilized. The amount of deferred tax is based on the expected manner of realisation or settlement of the carrying amounts of assets and liabilities, using tax rates that have been enacted or substantively enacted at the reporting date.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off deferred tax assets against deferred tax liabilities and when the deferred taxes relate to the same fiscal authority.

Investments

Investments in subsidiary companies are stated at cost less provision for impairment in value, which is recognized as an expense in the period in which the impairment is identified, in the Company accounts. These investments are consolidated in the Group accounts.

Exploration costs

The Group has adopted the provisions of IFRS 6 "Exploration for and Evaluation of Mineral Resources".

Exploration, evaluation and development expenditure, including acquisition costs of licences, in respect of each identifiable area of interest is expensed to the statement of comprehensive income as incurred, until the point at which development of a mineral deposit is considered economically viable.

Once the Board decides on the development of a project, development expenditure will be capitalized as incurred and amortized over the estimated useful life of the area according to the rate of depletion of the economically recoverable reserves or over the estimated useful life of the mine, if shorter.

The directors consider that the stage of development of its Licence areas in Saudi Arabia has not yet met its criteria for capitalization. Capitalized development costs for the Group's project in Ethiopia have been recognized on acquisition, and will continue to be capitalised since this date, in accordance with IFRS 6.

A regular review will be undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Accumulated capitalized costs in relation to an abandoned area of interest will be written off in full against profit in the year in which the decision to abandon the area is made. Capitalized development expenditure will be amortized from the date at which production commences on a unit of production basis over the lifetime of the ore reserves for the area to which the costs relate.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

Share--based compensation benefits

IFRS 2 "Share--based Payment" requires the recognition of equity--settled share--based payments at fair value at the date of grant and the recognition of liabilities for cash--settled share--based payments at the current fair value at each statement of financial position date. The total amount expensed is recognized over the vesting period, which is the period over which performance conditions are to be satisfied.

The fair value is measured using the Black Scholes pricing model. The inputs used in the model are based on management's best estimate, including consideration of the effects of non-transferability, exercise restrictions and behavioural considerations.

Financial instruments

Financial assets at amortized cost

Loans and receivables are recognized when the Group becomes party to the contractual provisions of the financial instrument. Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as 'loans and receivables'. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Financial assets at fair value through profit or loss

Subsequent to initial recognition, when a financial asset is designated as such on initial recognition, it is classified as held at fair value through profit or loss. Assets other than held for trading are designated at fair value through profit and loss when the Group manages the holdings and makes purchase and sale decisions based on fair value assessments and documented risk management and investment strategies. Attributable transaction costs and changes in fair value are recognized in profit or loss.

Financial liabilities - equity

Financial liabilities are recognized when the Group becomes party to the loan. Financial liabilities represent trade payables and are initially measured at fair value and subsequently at amortized cost.

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognized at the proceeds received, net of direct issue costs. The Group derecognizes financial liabilities when, and only when, the Group's obligations are discharged, cancelled or they expire.

3. Financial risk management

Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise cash at bank and in hand with an original maturity date of less than three months.

Financial risk factors

The Group is exposed to market risk (interest rate risk and currency risk), liquidity risk and capital risk management arising from the financial instruments it holds. The risk management policies employed by the Group to manage these risks are discussed below:

Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group does not consider this risk to be significant.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

3. Financial risk management (continued)

Market risk - Interest rate risk

Interest rate risk is the risk that the value of financial instruments will fluctuate due to changes in market interest rates. The Group's operating cash flows are substantially independent of changes in market interest rates as the Group has no significant interest-bearing assets. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. The Group's management monitors the interest rate fluctuations on a continuous basis and acts accordingly.

At the reporting date the interest rate profile of interest-bearing financial instruments was:

 
                            2016  2015 
                            ====  ==== 
Variable rate instruments 
Financial assets             410   562 
 

Sensitivity analysis

An increase of 100 basis points in interest rates at 31 December 2016 would have increased equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. Given current interest rate levels, a decrease of 25 basis points has been considered, with the impact on profit and equity shown below.

 
                                Equity     Profit   Equity     Profit 
                                          or Loss             or Loss 
                                  2016       2016     2015       2015 
                               -------  ---------  -------  --------- 
 Variable rate instruments 
 Financial assets - increase 
  of 100 basis points                4          4        6          6 
 Financial assets - decrease 
  of 25 basis points               (1)        (1)      (1)        (1) 
                               =======  =========  =======  ========= 
 

Currency risk

Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises when future commercial transactions and recognized assets and liabilities are denominated in a currency that is not the functional currency of the entity.

The Group is exposed to foreign exchange risk arising from various currency exposures primarily with respect to the Euro, Turkish Lira, US Dollar, Ethiopia ETB and Saudi Arabian Riyal. Since 1986 the Saudi Arabian Riyal is pegged to the US Dollar, it is fixed at USD/SAR 3.75. The Group's management monitors the exchange rate fluctuations on a continuous basis and acts accordingly.

The carrying amounts of the Group's foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows: The Saudi Arabian Riyal exposure is included in the USD amounts.

 
                     Liabilities   Assets   Liabilities   Assets 
                            2016     2016          2015     2015 
                     -----------  -------  ------------  ------- 
 
 Australian Dollar           215        -            24        - 
 Euro                        205        2           276        2 
 Turkish Lira                  1       40             1       40 
 US Dollar                 1,025      318           663      266 
 Ethiopia ETB                187    2,943           779      354 
                     ===========  =======  ============  ======= 
 

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

3. Financial risk management (continued)

Sensitivity analysis

A 10% strengthening of the British Pound against the following currencies at 31 December 2016 would have increased/(decreased) equity and profit or loss by the amounts shown in the table below. This analysis assumes that all other variables, in particular interest rates, remain constant. For a 10% weakening of the British Pound against the relevant currency, there would be an equal and opposite impact on the loss and equity.

 
                Equity     Profit   Equity     Profit 
                          or Loss             or Loss 
                  2016       2016     2015       2015 
                ------  ---------  -------  --------- 
 
 AUD Dollar         22         22        3          3 
 Euro               20         20       27         27 
 Turkish Lira      (4)        (4)      (4)        (4) 
 US Dollar          58         58       40         40 
 Ethiopia ETB    (276)      (276)       42         42 
                ======  =========  =======  ========= 
 
 

Liquidity risk

Liquidity risk is the risk that arises when the maturity of assets and liabilities does not match. An unmatched position potentially enhances profitability, but can also increase the risk of losses. The Group has procedures with the object of minimising such losses such as maintaining sufficient cash and other highly liquid current assets and by having available an adequate amount of committed credit facilities.

The Group's contractual cash flows for its financial liabilities are all due within 3 months or less. In January 2014 agreement was made with the Ethiopian tax authorities to pay the reverse VAT over a period of three years (principal and interest). The VAT amount was settled during 2016 and has given rise to a VAT refund.

Capital risk management

The Group manages its capital to ensure that it will be able to continue as a going concern while maximizing the return to shareholders through the optimization of the debt and equity balance. This is done through the close monitoring of cash flows.

The capital structure of the Group consists of cash and cash equivalents of GBP410,000 (2015: GBP562,000) and equity attributable to equity of the parent, comprising issued capital and deferred shares of GBP16,319,000 (2015: GBP15,059,000), other reserves of GBP17,923,000, (2015: GBP13,529,000) and accumulated losses of GBP18,695,000 (2015: GBP17,645,000). The Group does not use derivative financial instruments and has no long-term debt facilities.

Fair value estimation

The fair values of the Group's financial assets and liabilities approximate their carrying amounts at the reporting date.

 
                                     Carrying          Fair Values 
                                      Amounts 
                                    2016    2015           2016    2015 
                                  ------  ------  -------------  ------ 
 Financial assets 
 Cash and cash equivalents 
  (Note 16)                          410     562            410     562 
 Available for sale financial 
 assets (Note 14)                     95      92             95      92 
 Trade and other receivables 
  (Note 15)                        3,056     358          3,056     358 
                                  ======  ======  =============  ====== 
 
 Financial liabilities 
 Trade payables (Note 20)          2,067   1,995          2,066   1,995 
                                  ======  ======  =============  ====== 
 
 
 

Available for sale financial assets are classified as Level 1 within the fair value hierarchy, except for Ethiopian Government bonds, which are classified as Level 2. Level 1 items are derived from quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 items are derived from inputs other than quoted prices included within Level 1 that are observable for the assets either directly or indirectly.

Other financial assets and liabilities are short term and their carrying value is considered to approximate to their fair value.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

4. Use and revision of accounting estimates and judgements

The preparation of the financial report requires the making of estimations and assumptions that affect the recognized amounts of assets, liabilities, revenues and expenses and the disclosure of contingent liabilities. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Significant judgements include:

Going concern

The going concern presumption depends principally on securing funding to develop the Tulu Kapi mine project as an economically viable mineral deposit, and the availability of subsequent funding to extract the resource, or alternatively the availability of funding to extend the Company's and Group's exploration activities.

Significant estimates include:

Fair value of acquisitions

The 'acquisition method', which generally requires assets acquired and liabilities assumed to be measured at their fair values at the acquisition date. Fair value estimates are required. In calculating the fair value estimates of net identifiable net assets on acquisition significant judgements and estimates are required.

Share based payments

In calculating the fair value at the grant date, the Black Scholes model requires us to estimate the inputs to this model, in particular in respect of volatility. This assessment is based on historical share price movements assuming these will continue into the future.

Impairment review of asset carrying values

Events or changes in circumstances can give rise to significant impairment charges or reversals of impairment in a particular year. Where the recoverable amounts of Group cash generating units are assessed by analyses of discounted cash flows, the resulting valuations are particularly sensitive to changes in estimates of long term commodity prices, exchange rates, operating costs, the grouping of assets within cash-generating units and discount rates.

Capitalisation of exploration and evaluation costs

Under the Group's accounting policy, exploration and evaluation expenditure is not capitalised until the point is reached at which there is a high degree of confidence in the project's viability and it is considered probable that future economic benefits will flow to the Group. Subsequent recovery of the resulting carrying value depends on successful development or sale of the undeveloped project. If a project does not prove viable, all irrecoverable costs associated with the project net of any related impairment provisions are written off.

Contingent liabilities

A contingent liability arises where a past event has taken place for which the outcome will be confirmed only by the occurrence or non-occurrence of one or more uncertain events outside of the control of the Group, or a present obligation exists but is not recognised because it is not probable that an outflow of resources will be required to settle the obligation. A provision is made when a loss to the Group is likely to crystallise. The assessment of the existence of a contingency and its likely outcome, particularly if it is considered that a provision might be necessary, involves significant judgment taking all relevant factors into account.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

5. Operating segments

The Group has only one distinct operating segment, being that of mineral exploration. The Group's exploration activities are located in the Kingdom of Saudi Arabia (through the jointly controlled entity), Ethiopia and its administration and management is based in Cyprus.

 
                             Cyprus   Turkey   Bulgaria   Ethiopia   Consolidated 
 
 2016 
 Operating (loss)/profit    (2,467)     (34)        (3)      (255)        (2,759) 
 Material non-recurring 
  item                        (482)        -          -      2,994          2,512 
 Foreign exchange 
  profit/(loss)               (193)       70          -          -          (123) 
 Interest                     (136)        -          -          -          (136) 
                           ========  =======  =========  =========  ============= 
                            (3,278)       36        (3)      2,739          (506) 
                           ========  =======  =========  ========= 
 Share of loss 
  from jointly 
  controlled 
  entity                                                                    (726) 
                                                                    ============= 
 Loss before 
  tax                                                                     (1,232) 
 Tax                                                                            - 
                                                                    ============= 
 Loss for the 
  year                                                                    (1,232) 
                                                                    ============= 
 Total assets                 4,520       42          4     13,049         17,615 
 Total liabilities            1,617        2          4        443          2,066 
 
   Depreciation 
   of property, 
   plant and equipment            1        -          -         54             55 
 Impairment 
  of intangible 
  assets                          -        -          -        266            266 
                           ========  =======  =========  =========  ============= 
 
                             Cyprus   Turkey   Bulgaria   Ethiopia   Consolidated 
 2015 
                           ========  =======  =========  =========  ============= 
 Operating loss             (1,552)     (33)          8      (525)        (2,102) 
 Foreign exchange 
  profit/(loss)                  13     (26)          -       (37)           (50) 
 Interest                     (179)        -          -      (140)          (319) 
                           --------  -------  ---------  ---------  ============= 
                            (1,718)     (59)          8      (702)        (2,471) 
                           --------  -------  ---------  --------- 
 Share of loss 
  from jointly 
  controlled 
  entity                                                                    (735) 
                                                                    ------------- 
 Loss before 
  tax                                                                     (3,206) 
 Tax                                                                            - 
                                                                    ------------- 
 Loss for the 
  year                                                                    (3,206) 
                                                                    ============= 
 Total assets                 1,695       42          4     11,197         12,938 
 Total liabilities              976        2          4      1,013          1,995 
 Depreciation 
  of property, 
  plant and equipment       -         -        -                90             90 
                           ========  =======  =========  =========  ============= 
 
 

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

6. Expenses by nature

 
                                           Year Ended       Year 
                                             31.12.16      Ended 
                                              GBP'000   31.12.15 
                                                         GBP'000 
 
 Exploration costs                                125          4 
 Depreciation of property, plant and 
  equipment (Note 11)                              55         90 
 Material non-recurring item- vat refund      (2,512)          - 
  (Note 15 and Note 20) 
 Impaired intangible assets (Note 12)             266          - 
 Warrants issue costs (Note 17)                   164        163 
 Share based benefits to employees 
  (Note 17)                                        77         69 
 Share of losses from jointly controlled 
  entity (Note 5 and Note 19)                     726        735 
 Directors' fees and other benefits 
  (Note 21.1)                                     716        718 
 Consultants' costs                               439        246 
 Auditors' remuneration - audit current 
  year                                             62         51 
 Auditors' remuneration - associated                7          - 
  firm 
 Other expenses                                   849        761 
                                           ==========  ========= 
 Operating loss                                   974      2,837 
                                           ==========  ========= 
 

The Group's stages of operations in Saudi Arabia as at the year-end and as at the date of approval of these financial statements have not yet met the criteria for capitalization of exploration costs. The Company only capitalises direct development costs for the Tulu Kapi gold project in Ethiopia.

 
7. Staff costs                                 Year        Year 
                                              Ended       Ended 
                                           31.12.16    31.12.15 
                                            GBP'000     GBP'000 
 
 Salaries                                       550         474 
 Accumulated Leave Provision                     49           - 
 Termination Package                            126           - 
 Social insurance costs and other funds          32          39 
                                          =========  ========== 
                                                757         513 
                                          =========  ========== 
 
 Average number of employees                     45          46 
                                          =========  ========== 
 

Excludes Directors' remuneration and fees which are disclosed in note 21.1. These staff costs are capitalised in development exploration costs.

 
 8. Finance costs                               2016      2015 
                                          ----------  -------- 
 
 Interest paid to Ethiopian Revenue 
  and Customs Authority ("ERCA") - Note 
  20                                               -       140 
 Other finance costs                             136       179 
                                          ----------  -------- 
                                                 136       319 
                                          ==========  ======== 
 
 
  9. Tax                                        2016      2015 
                                          ----------  -------- 
 
 Loss before tax                             (1,233)   (3,206) 
                                          ----------  -------- 
 
 Tax calculated at the applicable tax 
  rates                                        (382)     (515) 
 Tax effect of non-deductible expenses           248       308 
 Tax effect of tax losses                        341       280 
 Tax effect of items not subject to 
  tax                                          (207)      (92) 
 Tax effect of capital allowances                  -        19 
 Tax effect of other timing differences            -         - 
 Charge for the year                               -         - 
                                          ==========  ======== 
 

The Company is resident in Cyprus for tax purposes. A deferred tax asset of GBP1,242,770 (2015: GBP1,336,989) has not been accounted for due to the uncertainty over future recoverability.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

9. Tax (continued)

Cyprus

The corporation tax rate is 12.5%. Under certain conditions interest income may be subject to defence contribution at the rate of 15%. In such cases this interest will be exempt from corporation tax. In certain cases, dividends received from abroad may be subject to defence contribution at the rate of 20% for the tax year 2013 and 17% for 2014 and thereafter. Due to tax losses sustained in the year, no tax liability arises on the Company. Under current legislation, tax losses may be carried forward and be set off against taxable income of the five succeeding years. As at 31 December 2016, the balance of tax losses which is available for offset against future taxable profits amounts to GBP 9,942,163 (2015: GBP 7,795,644).

Bulgaria

Mediterranean Minerals (Bulgaria) EOOD, the 100% subsidiary of the Company, is resident in Bulgaria for tax purposes. The corporation tax rate is 10%. Due to tax losses sustained in the period, no tax liability arises on the Mediterranean Minerals (Bulgaria) EOOD. Under current legislation, tax losses may be carried forward and be set off against taxable income of the following five years. As at 31 December 2016, the balance of tax losses which is available for offset against future taxable profits amounts to GBP25,476 (2015: GBP34,035). The reduction in tax losses from the prior year is due to losses passing the five year threshold for their utilization.

Turkey

Do u Akdeniz Mineralleri Sanayi ve Ticaret Limited irket (Do u Akdeniz Mineralleri), the 100% subsidiary of Mediterranean Minerals (Bulgaria) EOOD, and ultimately 100% subsidiary of the Company, is resident in Turkey for tax purposes. The corporation tax rate is 20%. Under local tax legislation, exploration costs are can only be set off against income from mining operations. Tax losses may be carried forward and be set off against taxable income of the five succeeding years. As at 31 December 2016, the balance of exploration costs that is available for offset against future income from mining operations amount to GBP 811,471 (2015: GBP948,764).

Ethiopia

KEFI Minerals Ethiopia Limited is subject to other direct and indirect taxes in Ethiopia through its foreign operations. The mining industry in Ethiopia is relatively undeveloped. As a result, tax regulations relating to mining enterprises are evolving. There are transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made.

During 2013, the House of People's Representatives passed an amendment to the Mining Income Tax Proclamation, reducing income tax from 35% to 25% and had received an initial draft of proposed amendments to the Mining Proclamation, which includes a reduction in royalty on gold production from 8% to 7%.

10. Loss per share

The calculation of the basic and fully diluted loss per share attributable to the ordinary equity holders of the parent is based on the following data:

 
                                                      Year        Year 
                                                     Ended       Ended 
                                                  31.12.16    31.12.15 
                                                   GBP'000     GBP'000 
 
 Net loss attributable to equity shareholders      (1,233)     (3,206) 
 Average number of ordinary shares 
  for the purposes of basic loss per 
  share (000's)                                  3,313,626   1,577,708 
                                                ==========  ========== 
 
 Loss per share: 
 Basic and fully diluted loss per share 
  (pence)                                          (0.037)     (0.203) 
                                                ==========  ========== 
 

The effect of share options and warrants on losses per share is anti-dilutive.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

11. Property, plant and equipment

 
                                 Motor        Plant   Furniture,   Total 
                              Vehicles          and     fixtures 
                                          equipment          and 
                                                          office 
                                                       equipment 
 The Group 
 Cost 
 At 1 January 2015                  60          198           61     319 
 Additions                           -            7            4      11 
 Disposals                        (17)         (70)          (6)    (93) 
                            ==========  ===========  ===========  ====== 
 At 31 December 2015                43          135           59     237 
 Additions                          32            -            3      35 
 At 31 December 2016                75          135           62     272 
                            ==========  ===========  ===========  ====== 
 
 Accumulated Depreciation 
 At 1 January 2015                  39           73           47     159 
 Charge for the year                 5           67           18      90 
 Disposals                        (17)         (70)          (6)    (93) 
                            ----------  -----------  -----------  ------ 
 At 31 December 2015                27           70           59     156 
 Charge for the year                 6           46            3      55 
                            ----------  -----------  -----------  ------ 
 At 31 December 2016                33          116           62     211 
                            ==========  ===========  ===========  ====== 
 
 Net Book Value at 
  31 December 2016                  42           19            -      61 
                            ==========  ===========  ===========  ====== 
 Net Book Value at 
  31 December 2015                  16           65            -      81 
                            ==========  ===========  ===========  ====== 
 

The above property, plant and equipment is located in Turkey and Ethiopia.

The Company has no significant property, plant and equipment.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

12. Intangible assets

 
 
                          Project       Deferred 
                       evaluation    exploration 
                            costs          costs                          Total 
  The Group 
  Cost 
  At 1 January 2015           976          8,163                                   9,139 
  Additions                 1,739            967                                   2,706 
                     ------------  -------------  -------------------------------------- 
  At 31 December 
   2015                     2,715          9,130                                  11,845 
  Additions                 1,224          1,189                                   2,413 
                     ------------  -------------  -------------------------------------- 
  At 31 December 
   2016                     3,939         10,319                                  14,258 
                     ============  =============  ====================================== 
 
  Accumulated 
  Amortization 
  and 
  Impairment 
  At 1 January                  -              -                                       - 
  2015 
  Charge for                    -              -                                       - 
  the year 
  At 31                         -              -                                       - 
  December 2015 
                     ------------  -------------  -------------------------------------- 
  Impairment Charge 
   for 
   the year                     -            266                                     266 
                     ------------  -------------  -------------------------------------- 
  At 31 December 
   2016                         -            266                                     266 
                     ============  =============  ====================================== 
 
  Net Book Value at 
   31 
   December 2016            3,939         10,053                                  13,992 
                     ============  =============  ====================================== 
  Net Book Value at 
   31 
   December 2015            2,715          9,130                                  11,845 
                     ============  =============  ====================================== 
 
 
 
 
                                      Project 
                                   evaluation 
                                        costs                            Total 
 The Company 
  Cost 
  At 1 January 2015                       976                              976 
  Additions                               587                              587 
  Transfer from subsidiary              (485)                            (485) 
                                 ------------   ------------------------------ 
  At 31 December 2015                   1,078                            1,078 
  Additions                             1,225                            1,225 
  Transfer to subsidiary                1,636                            1,636 
                                 ------------   ------------------------------ 
  At 31 December 2016                   3,939                            3,939 
                                 ============   ============================== 
 
  Accumulated Amortization 
   and Impairment 
  At 1 January 2015                         -                                - 
  Charge for the year                       -                                - 
                                 ------------   ------------------------------ 
  At 31 December 2015                       -                                - 
  Charge for the year                       -                                - 
                                 ------------   ------------------------------ 
  At 31 December 2016                       -                                - 
                                 ============   ============================== 
 
  Net Book Value at 31 
   December 2016                        3,939                            3,939 
                                 ============   ============================== 
  Net Book Value at 31 
   December 2015                        1,078                            1,078 
                                 ============   ============================== 
 
 

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

12. Intangible assets

Deferred exploration costs are associated with the Tulu Kapi mine in Ethiopia. The group recognized deferred exploration costs with a fair value of US$ 6,900,000 on acquisition of the project in December 2013. Further costs incurred by the Group since the acquisition have been capitalized.

Once the Board decides on the development of a project, development expenditure will be capitalized as incurred and amortised over the estimated useful life of the area according to the rate of depletion of the economically recoverable reserves or over the estimated useful life of the mine, if shorter.

As at 31 December 2016 management performed an impairment review for deferred exploration costs, which relate to the Tulu Kapi licence area, at 31 December 2016.The Net Present Value of the Tulu Kapi asset exceeded the net book value significantly.

The impairment review compared the recoverable amount of assets to the carrying value. The recoverable amount of an asset is assessed by reference to the higher of value in use ("VIU"), being the net present value ("NPV") of future cash flows expected to be generated by the assets, and fair value less costs to dispose ("FVLCD"). The FVLCD is based on an estimate of the amount that the Company may obtain in a sale transaction on an arm's length basis.

Project evaluation costs relating to work performed in assessing the economic feasibility and the independent technical review of the Tulu Kapi project have been capitalised by the Company. In August 2015, the Company published the Tulu Kapi Definitive Feasibility Study ("DFS") evaluating a conventional open-pit mining operation and carbon-in leach ("CIL") processing plant.

Feedback on the 2015 Definitive Feasibility Study ("2015 DFS") from project contractors, financiers and partners was incorporated into an improved plan in early 2016. All refinements to the 2015 DFS were, in May 2017, incorporated into the 2017 DFS Update in preparation for financing. This reflects, among other things, the fixed price, lump-sum processing plant construction contract with Lycopodium and a warranted ore processing rate of 1.5-1.7 million tonnes per annum.

The Tulu Kapi Mining Agreement between the Ethiopian Government and the Company was formalised in April 2015. The terms include a 20-year Mining License, full permits for the development and operation of the Tulu Kapi gold project and a 5% Government free-carried interest. The Company is working towards funding the development of the Tulu Kapi project.

The schedule remains on track for project finance syndicate documentation and inter-creditor arrangements to be assembled and approved by syndicate and National Bank of Ethiopia for full drawdown by late- 2017. The Government of Ethiopia confirmed its intention to invest equity capital of US$20 million.

KEFI Minerals Ethiopia also has no other mining exploration licences in Ethiopia. All development costs relating to Yubdo and Billa Guilisso exploration licenses capitalised in previous years was impaired in the current year.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

13. Investments

13.1 Fixed asset investments

 
 The Company      Year Ended        Year 
                    31.12.16       Ended 
                     GBP'000    31.12.15 
                                 GBP'000 
 Cost 
 At 1 January          4,598       4,598 
 Acquisitions              -           - 
                  ==========  ========== 
 At 31 December        4,598       4,598 
                  ==========  ========== 
 
 
                                    Date of                          Effective 
                               acquisition/       Country of        proportion 
    Subsidiary companies      incorporation    incorporation                of 
                                                                   shares held 
---------------------------  --------------  ---------------  ---------------- 
 
 Mediterranean Minerals          08/11/2006         Bulgaria       100%-Direct 
  (Bulgaria) EOOD 
 Do u Akdeniz Mineralleri        08/11/2006           Turkey     100%-Indirect 
  Sanayi ve Ticaret Limited 
  irket 
 KEFI Minerals Ethiopia          30/12/2013   United Kingdom       100%-Direct 
  Limited 
 KEFI Minerals Marketing         30/12/2014           Cyprus       100%-Direct 
  and Sales Cyprus Limited 
 
 
 
    Subsidiary companies      The following companies have 
                              the address of: 
===========================  ================================== 
 
 Mediterranean Minerals       10 Tsar Osvoboditel Blvd., 
  (Bulgaria) EOOD              3rd floor, Sredets Region, 
                               1000 Sofia, the Republic 
                               of Bulgaria. 
 Do u Akdeniz Mineralleri     Zeytinalani Mah. 4183 SK. 
  Sanayi ve Ticaret Limited   Kapı No:6 Daire:2 UrlaA 
  irket                       Izmir 
 KEFI Minerals Ethiopia       27/28 Eastcastle Street, 
  Limited                      London, United Kingdom w1w 
                               8DH 
 KEFI Minerals Marketing      23 Esekia Papaioannou Floor 
  and Sales Cyprus Limited     2, Flat 21 1075, Nicosia 
                               Cyprus 
 

On 8 November 2006, the company entered into an agreement to acquire from Atalaya Mining PLC (previously EMED) the whole of the issued share capital of Mediterranean Minerals (Bulgaria) EOOD, a company incorporated in Bulgaria, in consideration for the issue of 29,999,998 ordinary shares in the Company.

Mediterranean Minerals (Bulgaria) EOOD owns 100% of the share capital of Do u Akdeniz Mineralleri ("Dogu"), a private limited liability company incorporated in Turkey, engaging in activities for exploration and developing of natural resources.

The Company owns 100% of Kefi Minerals Ethiopia, which operates the Tulu Kapi project in Ethiopia. The Government of Ethiopia is entitled to a 5% free-carried interest in the Tulu Kapi Gold Project. This entitlement is enshrined in the Ethiopian Mining Law and the Ethiopian Mining Agreement between the Ethiopian Government and KEFI Minerals Ethiopia. The implementation of this entitlement is intended to issue 5% of the shareholding of KEFI Minerals Ethiopia at the time of the final completion of the full project finance of the Tulu Kapi Gold Project. Once all the relevant documents are executed the intended arrangement would add 5% to the shareholding paid by the Ethiopian Government.

The company owns 100% of KEFI Minerals Marketing and Sales Cyprus, a company incorporated in Cyprus. The company was dormant for the year end 31 December 2016 and 2015. KEFI Minerals Marketing and Sales Cyprus had no assets or liabilities at the date of acquisition. No additional disclosure is considered necessary, as the entity is not significant to the financial statements. KEFI Minerals Marketing and Sales Cyprus will provide sales and marketing services for the Group once production commences. It is planned that this company will act as agent and off-taker for the onward sale of gold and other products in international markets.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

13.2 Investment in jointly controlled entity

 
                                 Year        Year 
                                Ended       Ended 
                             31.12.16    31.12.15 
                              GBP'000     GBP'000 
                            =========  ========== 
 
 The Company 
 At 1 January/31 December         181         181 
                            =========  ========== 
 
 
                      Date of acquisition/            Country    Effective 
                             incorporation   of incorporation   proportion 
  Jointly controlled                                             of shares 
        entity                                                        held 
--------------------  --------------------  -----------------  ----------- 
 
 Gold and Minerals              04/08/2010       Saudi Arabia   40%-Direct 
  Co. Limited (G&M) 
 
 

The company owns 40% of G&M more information in note 19.2.

14. Available for sale financial assets

 
                                                Year        Year 
                                               Ended       Ended 
                                            31.12.16    31.12.15 
                                             GBP'000     GBP'000 
                                          ----------  ---------- 
 The Group 
 At 1 January                                     92          86 
 Change in value of available-for-sale 
  financial assets                                 3           6 
                                          ----------  ---------- 
  On 31 December                                  95            92 
                                          ==========  ============ 
 
 
 
                                                Year        Year 
                                               Ended       Ended 
                                            31.12.16    31.12.15 
                                             GBP'000     GBP'000 
                                          ----------  ---------- 
 The Company 
 At 1 January                                      8           8 
 Disposal of Investment                         (16)           - 
 Profit on Sale                                    8           - 
 Change in value of available-for-sale             -           - 
  financial assets 
                                          ----------  ---------- 
  At 31 December                                   -             8 
                                          ==========  ============ 
 
 

The Company successfully divested four Licences in Turkey in July 2011 to AIM listed Ariana Resources (AIM:AAU) for a nominal cash payment of 10,000 Turkish Lira, 910,747 new ordinary shares in Ariana and a Net Smelter Royalty ("NSR") of 2%. The NSR is payable by Ariana's wholly owned Turkish subsidiary Galata Madencilik San. ve Tic. Ltd. ("Galata") to KEFI Mineral's Turkish Subsidiary, Dogu, on commercial production of any mineral from the licences. No value has been attributed in these financial statements for the NSRs, due to uncertainty regarding when income from the NSRs will commence.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

15. Trade and other receivables

 
                                              Year        Year 
                                             Ended       Ended 
                                          31.12.16    31.12.15 
                                           GBP'000     GBP'000 
                                        ----------  ---------- 
 The Group 
 Other receivables                              38          45 
 Placing funds                                 198         207 
 Amount receivable from Saudi Arabia 
  Jointly controlled entity (Note 
  21.3)                                          6           6 
 VAT Refund                                  2,809          95 
  Deposits and prepayments                       5             5 
                                        ----------  ------------ 
                                             3,056           358 
                                        ==========  ============ 
 
 

The Company fully discharged the inherited VAT liability during August 2016 and is entitled to a GBP2.7 million (Birr 73,5000,000) VAT refund. The directors are of the opinion that the results of recent discussion with the VAT office that the reverse VAT refund is been processed by the relevant VAT branch office for settlement. Post Balance sheet during April 2017, the company received c.GBP1 million of the GBP2.7 million VAT refund. The Company has come to an agreement with Ethiopian Revenues and Customs Authority to receive the remainder of the funds by mid-2017.

 
                                              Year       Year 
                                             Ended      Ended 
                                          31.12.16   31.12.15 
                                           GBP'000    GBP'000 
                                        ----------  --------- 
 The Company 
 Deposits                                        8          3 
 Placing Funds                                 198        207 
 KEFI Minerals Marketing and Sales 
  Cyprus Limited (Note 21.3)                     3          3 
 Advance to KEFI Minerals Ethiopia 
  Limited (Note 21.3)                        7,815      7,417 
 Amount receivable from Saudi Arabia 
 Jointly controlled entity (Note 
 21.3)                                          45         80 
                                        ----------  --------- 
                                             8,069        7,710 
                                        ==========  =========== 
 
 

Amounts owed by group companies total GBP7,818,000 (2015: GBP7,420,000). Balances of GBP1,256,000 have been fully provided for all projects except for Ethiopia due to the uncertainty over the timing of future recoverability. The advance issued to KEFI Minerals Ethiopia Limited are unsecured interest free and repayable on demand. At the reporting date, no receivables were past their due date.

 
16. Cash and cash equivalents 
                                Year Ended  Year Ended 
                                  31.12.16    31.12.15 
                                   GBP'000     GBP'000 
                                ----------  ---------- 
The Group 
Cash at bank and in hand               410         562 
                                ==========  ========== 
 
The Company 
Cash at bank and in hand               400         393 
                                ==========  ========== 
 
 

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

 
 17. Share             Number of   Share Capital    Deferred   Share premium 
 capital             shares '000                      Shares                     Total 
                  --------------   -------------   ---------  --------------  -------- 
 
  Issued and 
  fully paid 
  At 1 January 
   2015                1,235,337          12,352           -           8,433    20,785 
  Issued 20 
   March 2015 at 
   1p                     80,000             800           -               -       800 
  Issued 16 May 
   2015 at 1p             66,611             667           -               -       667 
  Sub-division 
   of shares 16 
   June 2015 
   0.1p                        -        (12,436)      12,436               -         - 
  Issued 16 June 
   2015 at 0.8p          362,500             363           -           2,538     2,901 
  Issued 11 
   December 2015 
   at 0.3p               877,191             877           -           1,755     2,632 
  Share issue 
   costs                       -               -           -           (379)     (379) 
                                                   --------- 
  At 31 December 
   2015                2,621.639           2,623      12,436          12.347    27,406 
 Issued 22 March 
  2016 at 0.35p          499,360    499                    -    1,248               1,747 
 Issued 29 July 
  2016 at 0.5p           761,922    761                    -    3,048               3,809 
  Share issue 
   costs                       -               -           -           (364)     (364) 
  At 31 December 
   2016                3,882,921           3,883      12,436          16,279    32,598 
                  ==============   =============   =========  ==============   ======= 
 
 

Share issue costs of GBPNil (2015: GBP64,000) relating to the 146,610,600 shares issued at par value during 2015 have been charged to equity. The remainder of share issue costs are charged against share premium arising on issue.

Authorized capital

That the articles of association of the Company were amended in 2010 and the liability of the members of the Company is limited.

Issued capital

2015

On 20 March 2015, 80,000,000 shares of 1p were issued at a price of 1p per share.

On 16 May 2015, 66,610,600 shares of 1p were issued at a price of 1p per share.

On 16 June 2015, 362,500,000 shares of 0.1p were issued at a price of 0.8p per share. On issue of the shares, an amount of GBP2,537,500 was credited to the Company's share premium reserve.

On 11 December 2015, 877,191,422 shares of 0.1p were issued at a price of 0.3 p per share. On issue of the shares, an amount of GBP1,754,500 was credited to the Company's share premium reserve.

2016

On 22 March 2016, 499,359,791 shares of 0.1p were issued at a price of 0.35p per share. On issue of the shares, an amount of GBP1,248,299 was credited to the Company's share premium reserve.

On 29 July 2016, 761,921,739 shares of 0.1p were issued at a price of 0.5p per share. On issue of the shares, an amount of GBP3,047,687 was credited to the Company's share premium reserve.

Restructuring of share capital into deferred shares

On 16 June 2015 the Company's issued ordinary shares of 1p each in the capital of the Company were sub-divided into one new ordinary share of 0.1p and one deferred share of 0.9p. The deferred shares have no value or voting rights. After the share capital reorganization there were the same number of New Ordinary Shares in issue as there are existing Ordinary Shares. The New Ordinary Shares have the same rights as those currently accruing to the existing Ordinary Shares in issue under the Company's articles of association, including those relating to voting and entitlement to dividends.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

17. Share capital (continued)

Warrants

2015

On 18 March 2015, the Company issued 4,000,000 warrants to subscribe for new ordinary shares of 1p each at 1p per share.

On 11 May 2015, the Company issued 1,680,530 warrants to subscribe for new ordinary shares of 1p each at 1p per share.

On 15 June 2015, the Company issued 14,500,000 warrants to subscribe for new ordinary shares of 0.1p each at 0.8p per share.

On 11 December 2015, the Company issued 43,859,571 warrants to subscribe for new ordinary shares of 0.1p each at 0.3p per share.

2016

On 22 March 2016, the Company issued 24,967,989 warrants to subscribe for new ordinary shares of 0.1p each at 0.35p per share.

On 29 June 2016, the Company issued 38,096,087 warrants to subscribe for new ordinary shares of 0.1p each at 0.5p per share.

During the period 1 January 2016 to 31 December 2016, 22,780,000 warrants were cancelled or expired.

Details of warrants outstanding as at 31 December 2016:

 
                               Exercise      Expected 
  Grant date     Expiry date      price    Life Years    000's 
------------  --------------  ---------  ------------  ------- 
   20-Feb-12       19-Feb-17      3.00p       5 years    2,917 
   04-Jul-13       03-Jul-18      2.10p       5 years    1,310 
   16-Oct-13       15-Oct-18      2.25p       5 years    1,111 
   02-Dec-14       01-Dec-17      1.00p       3 years    4,000 
   16-Dec-14       15-Dec-17      1.00p       3 years    5,500 
   18-Mar-15       17-Mar-18      1.00p       3 years    4,000 
   11-May-15       10-May-18      1.00p       3 years    1,680 
   15-Jun-15       14-Jun-18      0.80p       3 years   14,500 
   11-Dec-15       10-Dec-18      0.30p       3 years   43,860 
   22-Mar-16       21-Mar-19      0.35p       3 years   24,968 
   29-Jul-16       28-Jul-19      0.50p       3 years   38,096 
                                              141,942 
                                         ============ 
 
 

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

17. Share capital (continued)

Warrants (continued)

The Company has issued warrants to advisers to the Group. All warrants, as noted above expire between two to five years after grant date and are exercisable at the exercise price.

 
                                             Number of 
                                              warrants 
                                                 000's 
 Outstanding warrants at 1 January 2016        101,658 
      - granted                                 63,064 
       - cancelled/forfeited/expired          (22,780) 
 Outstanding warrants at 31 December 2016      141,942 
                                            ========== 
 

The estimated fair values of the warrants were calculated using the Black Scholes option pricing model.

The inputs into the model and the results for warrants granted during the year are as follows:

 
                        29 July   22 March       11   15 June   11 May      18 
                           2016       2016      Dec      2015     2015     Mar 
                                               2015                       2015 
 
 Closing 
 share price 
 at issue 
 date                     0.56p      0.36p    0.32p     0.90p    0.88p   1.33p 
 Exercise 
  price                   0.50p      0.35p     0.3p      0.8p    1.00p   1.00p 
 Expected 
  volatility              87.3%      80.3%   79.10%    61.10%   60.90%     59% 
 Expected                  3yrs       3yrs 
  life                                         3yrs      3yrs     3yrs    3yrs 
 Risk free 
  rate                    0.31%      0.31%    0.39%     0.98%    0.98%   0.98% 
 Expected 
  dividend                  Nil        Nil 
  yield                                         Nil       Nil      Nil     Nil 
 Estimated 
  fair value              0.32p      0.17p    0.17p     0.40p    0.33p   0.64p 
 
 

Expected volatility was estimated based on the historical underlying volatility in the price of the Company's shares.

For 2016, the impact of issuing warrants is a net charge to income of GBP164,000 (2015: GBP163,000). At 31 December 2016, the equity reserve recognized for share based payments, including warrants, amounted to GBP1,474,000 (2015: GBP1,212,000).

 
                                           Year          Year 
                                          Ended         Ended 
                                       31.12.16      31.12.15 
                                        GBP'000       GBP'000 
                                     ----------  ------------ 
 
 Opening amount                           1,212           848 
 Warrants issued costs (Note 6)             164           163 
 Share options issued to employees 
  (Note 6)                                   77            69 
 Share options issued to directors 
  and key management (Note 6)               204           146 
 Cancelled options                        (183)          (14) 
                                     ----------  ------------ 
 Closing amount                           1,474       1,212 
                                     ==========  ========== 
 

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

18. Share options reserve

Details of share options outstanding as at 31 December 2016:

 
   Grant      Expiry date    Exercise price       Number 
    date                                       of shares 
                                                   000's 
-----------  -------------  ---------------  ----------- 
 13-Sep-12     12-Sep-18         4.00p            14,150 
 24-May-13     23-May-19         2.915p            1,000 
 03-Sep-13     02-Sep-18         2.94p             1,000 
 08-Oct-13     07-Oct-18         2.27p               350 
 08-Jan-14     07-Jan-20         1.88p               400 
 16-Jan-14     15-Jan-20         1.99p               100 
 01-Feb-14     31-Jan-20         1.89p               100 
 27-Mar-14     26-Mar-20         2.30p            27,125 
 04-Apr-14     03-Apr-20         1.83p               100 
 12-Sep-14     11-Sep-20         1.76p             2,250 
 20-Mar-15     19-Mar-21         1.32p            27,000 
 16-Jun-15     15-Jun-21         1.32p             6,500 
 19-Jan-16     18-Jan-22         0.42p            80,190 
 23-Feb-16     22-Feb-22         0.74p             3,000 
 05-Aug-16     05-Aug-22         0.60p            35,000 
                                             ----------- 
                                                 198,265 
                                             =========== 
 
 
 
                                    Weighted 
                                   average ex.      Number of 
                                      Price      shares 000's 
                                 -------------  ------------- 
 Outstanding options at 1 
  January 2016                                         81,275 
 - granted                           0.48p            118,190 
 - cancelled/forfeited/expired       3.94p            (1,200) 
                                                ------------- 
 Outstanding options at 31 
  December 2016                                       198,265 
                                                ============= 
 

The Company has issued share options to directors, employees and advisers to the Group.

On 13 September 2012, 15,500,000 options were issued which expire six years after the grant date, and are exercisable at the exercise price in whole or in part no more than one half after one year from the grant date and one half two years from the grant date.

On 24 May 2013 1,000,000 options were issued which expire six years after the grant date and are exercisable in part no more than one half after one year from the grant date and one half two years from the grant date. On 3 September 2013 1,000,000 options were issued and on 8 October 2013, 350,000 options were issued both which expire five after the grant date and are exercisable in part no more than one half after one year from the grant date and one half two years from the grant date

During January 2014 and February 2014 600,000 options were issued which expire six years after the grant date and are exercisable in part no more than one half after one year from the grant date and one half two years from the grant date.

On 27 March 2014, 22,000,000 options were issued to the Directors and a further 5,400,000 options have been granted to other non-board members of the senior management team. Of the options issued, previously granted options over 22,100,000 Ordinary shares which were due to expire during 2014 have all been cancelled and the new grants of options have been made, in accordance with the terms of the Scheme the options vest in equal annual instalments over a period of 2 years and expire after 6 years.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

18. Share options reserve (continued)

On 4 April 2014, 100,000 options were issued which expire six years after the grant date and are exercisable in part no more than one half after one year from the grant date and one half two years from the grant date.

On 12 September 2014, 2,250,000 options were issued which expire six years after grant date and vest in equal annual instalments over a period of two years.

On 20 March 2015, 27,000,000 options were issued which expire six years after grant date and vest in equal annual instalments over a period of two years.

On 16 June 2015, 6,500,000 options were issued which expire six years after grant date and vest in equal annual instalments over a period of two years.

On 19 January 2016, 80,190,000 options were issued which expire six years after grant date and vest in normal circumstances, vest in two equal annual instalments, the first upon the achievement of practical completion of the planned processing plant at the Tulu Kapi Gold Project and the second upon the achievement of nameplate capacity for a twelve-month period.

On 23 February 2016, 3,000,000 options were issued which expire six years after grant date and vest immediately.

On 5 August 2016, 35,000,000 options were issued which expire six years after grant date and vest in normal circumstances, vest in two equal annual instalments, the first upon the achievement of practical completion of the planned processing plant at the Tulu Kapi Gold Project and the second upon the achievement of nameplate capacity for a twelve-month period.

The option agreements contain provisions adjusting the exercise price in certain circumstances including the allotment of fully paid Ordinary shares by way of a capitalisation of the Company's reserves, a sub division or consolidation of the Ordinary shares, a reduction of share capital and offers or invitations (whether by way of rights issue or otherwise) to the holders of Ordinary shares. The estimated fair values of the options were calculated using the Black Scholes option pricing model. The inputs into the model and the results are as follows:

 
 
 Date           Closing   Exercise      Expected   Expected    Risk    Expected   Discount   Estimated 
                  share      price    volatility       life    free    dividend     factor        fair 
                  price                                        rate       yield                  value 
               at issue 
                   date 
 05-Aug-16        0.56p      0.60p        87.20%       6yrs   0.75%         Nil         0%       0.40p 
 23-Feb-16        0.33p      0.74p        82.65%       6yrs   0.90%         Nil         0%       0.11p 
 19-Jan-16        0.34p      0.42p        83.18%       6yrs   0.90%         Nil         0%       0.22p 
 16-Jun-15        0.83p      1.32p        61.11%       6yrs   1.53%         Nil         0%       0.38p 
 20-Mar-15        1.20p      1.32p        59.04%       6yrs   1.53%         Nil         0%       0.64p 
 12-Sep-14        1.43p      1.76p        43.40%       6yrs   1.09%         Nil         0%       0.52p 
 04-Apr-14        1.83p      1.83p        59.60%       6yrs   2.17%         Nil         0%       0.94p 
 27-Mar-14        1.85p      2.30p        59.60%       6yrs   2.17%         Nil         0%       0.94p 
 01-Feb-14        1.90p      1.89p        59.60%       6yrs   2.17%         Nil         0%       0.94p 
 16-Jan-14        1.83p      1.99p        59.60%       6yrs   2.17%         Nil         0%       0.94p 
 08-Jan-14        1.85p      1.88p        59.60%       6yrs   2.17%         Nil         0%       0.94p 
 08-Oct-13        2.69p      2.27p        63.83%       5yrs   1.70%         Nil        50%       0.80p 
 03-Sep-13        2.76p      2.94p        63.63%       5yrs   1.70%         Nil        50%       0.75p 
 24-May-13        2.19p      2.92p        59.80%       6yrs   5.00%         Nil         0%       1.18p 
 13-Sep-12        3.63p      4.00p        56.90%       6yrs   5.00%         Nil         0%       2.05p 
 

Expected volatility was estimated based on the historical underlying volatility in the price of the Company's shares.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

18. Share options reserve (continued)

For 2016, the impact of share option-based payments is a net charge to income of GBP281,000 (2015: GBP215,000). At 31 December 2016, the equity reserve recognized for share option-based payments, including warrants, amounted to GBP1,474,000 (2015: GBP1,212,000).

19. Jointly controlled entities

19.1 Jointly controlled entity with Centerra Gold (KB) Inc.

On 22 October 2008, the Company entered into a Joint Venture Agreement in respect of its 100%-owned Artvin Project with Centerra Gold (KB) Inc ("Centerra KB"), a wholly-owned subsidiary of Centerra Gold Inc. In August 2011, KEFI Mineral's subsidiary holding these licences, was sold in return for a cash payment of US$100,000 and a 1% Net Smelter Royalty on all future mineral production from the Artvin licences.

19.2 Joint controlled entity with Gold and Minerals

 
                                                    Country        Effective proportion 
  Company name        Date of incorporation     of incorporation      of shares held 
                                                                      at 31 December 
-----------------  -------------------------  -------------------  -------------------- 
 Gold & Minerals 
  Co. Limited            3 August 2010            Saudi Arabia              40% 
 

Gold & Minerals Co. Limited has the following registered address: Olaya District. 659, King Fahad Road, Riyadh, Kingdom of Saudi Arabia.

 
                                  SAR'000                  GBP'000 
 Amounts relating to            Year        Year         Year          Year 
  the Jointly Controlled       Ended       Ended        Ended         Ended 
  Entity                    31.12.16    31.12.15     31.12.16      31.12.15 
                           =========  ==========  ===========  ============ 
 
 Non-current assets              223         493           19            36 
 Current assets                  685       1,473           59           106 
                           =========  ==========  ===========  ============ 
                                 908       1,966           78           142 
                           =========  ==========  ===========  ============ 
 
 Non-current liabilities      60,594      54,974        5,246         3,971 
 Current liabilities             667       1,048           58            76 
                           =========  ==========  ===========  ============ 
                              61,261      56,022        5,304         4,047 
                           =========  ==========  ===========  ============ 
 Net liabilities            (60,353)    (54,056)      (5,226)       (3,905) 
                           =========  ==========  ===========  ============ 
 
 Share capital                 2,500       2,500          217           181 
 Accumulated losses         (62,853)    (56,556)      (5,443)       (4,086) 
                           =========  ==========  ===========  ============ 
                            (60,353)    (54,056)      (5,226)       (3,905) 
                           =========  ==========  ===========  ============ 
 Exchange rates SAR to 
  GBP 
 Closing rate                                          0.2165      0.1806 
 
 

In May 2009, KEFI announced the formation of a new minerals exploration jointly controlled entity, Gold & Minerals Co. Limited ("G&M"), a limited liability company in Saudi Arabia, with leading Saudi construction and investment group Abdul Rahman Saad Al-Rashid & Sons Company Limited ("ARTAR"). KEFI is the operating partner with a 40% shareholding in G&M with ARTAR holding the other 60%. KEFI provides G&M with technical advice and assistance, including personnel to manage and supervise all exploration and technical studies. ARTAR provides administrative advice and assistance to ensure that G&M remains in compliance with all governmental and other procedures. G&M is treated as a jointly controlled entity and has been equity accounted and has reconciled its share in G&M's losses.

The above figures reported represent cumulative exploration activity incurred by G&M since its incorporation in 2009. The accounting policy for exploration costs recorded in the G&M audited financial statements is to capitalise qualifying expenditure and review for impairment, if applicable. This is in contrast to the Group's accounting policy relating to exploration costs which is to expense costs through profit and loss until the Board decides on the development of a project (Note 2). Consequently, exploration costs of G&M at 31 December 2016 amounting to SAR62.6 million (2015: SAR56.6 million) have been adjusted to bring the figures in line with the Group's accounting policies.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

19. Jointly controlled entities (continued)

19.2 Jointly controlled entity with Gold and Minerals (continued)

A loss of GBP726,000 was recognized by the Group for the year ended 31 December 2016 (2015: GBP 735,000) representing the Group's share of losses in the year.

As at 31 December 2016 KEFI owed ARTAR an amount of GBP170,000 (2015: receivable GBP90,000) - Note 21.5.

As at 31 December 2016, G&M owed KEFI an amount of GBP6,000 (2015: GBP6,000) - Note 21.4.

20. Trade and other payables

 
The Group                                   Year       Year 
                                           Ended      Ended 
                                        31.12.16   31.12.15 
                                         GBP'000    GBP'000 
                                       ---------  --------- 
 
Accruals and other payables                1,640      1,011 
Other loans                                  257        236 
Payable to shareholders (Note 21.2)            -          8 
Payable to jointly controlled entity 
 (Note 21.4)                                 170         90 
VAT Liability                                  -        650 
 
                                           2,067      1,995 
                                       =========  ========= 
 

In January 2014 an agreement was made with Ethiopian Revenue and Customs Authority ("ERCA") to repay the balance of the VAT liability plus interest accruing on the unpaid principal amount over a three-year payment plan in accordance with the relevant tax proclamation, 25% of the assessed outstanding amount is payable immediately and the balance under an agreed payment schedule. . The balance of the liability plus interest accruing on the unpaid principal amount was paid within the three year payment period.

Other loans are unsecured, interest free and repayable on demand.

 
The Company 
 
                                             Year       Year 
                                            Ended      Ended 
                                         31.12.16   31.12.15 
                                          GBP'000    GBP'000 
                                       ----------  --------- 
 
Accruals and other payables                 1,447        886 
Payable to jointly controlled entity 
 (Note 21.4)                                  170         90 
                                       ----------  --------- 
                                            1,617        976 
                                       ==========  ========= 
 

The fair values of trade and other payables due within one year approximate to their carrying amounts as presented above.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

21. Related party transactions

The following transactions were carried out with related parties:

21.1 Compensation of key management personnel

The total remuneration of key management personnel was as follows:

 
                                                 Year        Year 
                                                Ended       Ended 
                                             31.12.16    31.12.15 
                                              GBP'000     GBP'000 
                                           ----------  ---------- 
 
Directors' consultancy fees *                     500         471 
Directors' other consultancy benefits              49          51 
Directors' bonus                                    -          50 
Share option-based benefits to directors 
 (Note 17)                                        167         146 
Other key management personnel fees 
 and other benefits                               323         204 
Other key management personnel bonus                -          37 
Share option-based benefits other key 
 management personnel (Note 17)                    37          11 
                                                1,076         970 
                                           ==========  ========== 
 

* Part of the salary of the Exploration Director was paid directly by the jointly-controlled entity G&M.

* Directors' fees paid to the Executive Director Chairman and Finance Director are paid to consultancy companies of which they are beneficiaries.

Share-based benefits

The Company has issued share options to directors and key management. All options, except those noted in Note 18, expire six years after grant date and vest in normal circumstances, vest in two equal annual instalments, the first upon the achievement of practical completion of the planned processing plant at the Tulu Kapi Gold Project and the second upon the achievement of nameplate capacity for a twelve month period.

 
21.2 Payable to 
 shareholders                                                         2016                2015 
                                                               -----------  ------------------ 
Name               Nature of transactions     Relationship 
Atalaya Mining 
 PLC (previously 
 EMED)             Finance                    Shareholder                -             8 
                                                               ===========  ================== 
 
  Name               Nature of transactions     Relationship 
 
                   Provision of 
Atalaya Mining      management and 
 PLC (previously    other professional 
 EMED)              services                  Shareholder               18                   8 
                                                               ===========  ================== 
 
 
 
 
21.3 Receivable 
 from related parties 
The Group                                                             2016           2015 
                                                                      ----  ------------- 
Name                    Nature of transactions   Relationship 
Gold & Minerals                                  Jointly controlled 
 Co. Limited            Finance                   entity                 6              6 
                                                                         6              6 
                                                                      ====  ============= 
 
 
 
The Company                                                              2016          2015 
                                                                        -----  ------------ 
Name                      Nature of transactions   Relationship 
Gold & Minerals                                    Jointly controlled 
 Co. Limited              Finance                   entity                 45            80 
KEFI Minerals Marketing 
 and Sales Cyprus 
 Limited                  Finance                  Subsidiary               3             3 
Kefi Minerals Ethiopia 
 Limited                  Advance                  Subsidiary           7,815         7,417 
                                                                        -----  ------------ 
                                                                        7,863         7,500 
                                                                        =====  ============ 
 
 
 
 
  Notes to the consolidated financial 
  statements (continued) 
  Year ended 31 December 2016 
 
  21. Related party transactions (continued) 
 
 
21.4 Payable to 
 related parties 
The Group                                                         2016   2015 
                                                                  ----  ----- 
Name                Nature of transactions   Relationship 
Abdul Rahman Saad 
 Al-Rashid & Sons 
 Company Limited                             Jointly controlled 
 ("ARTAR")          Finance                   entity               170     90 
                                                                   170     90 
                                                                  ====  ===== 
 
 
 
The Company                                                       2016   2015 
                                                                  ----  ----- 
Name                Nature of transactions   Relationship 
Abdul Rahman Saad 
 Al-Rashid & Sons 
 Company Limited                             Jointly controlled 
 ("ARTAR")          Finance                   entity               170     90 
                                                                  ----  ----- 
                                                                   170     90 
                                                                  ====  ===== 
 
 
 
 

22. Contingent liabilities

22.1 Geological database

In 2006, Atalaya Mining PLC (previously EMED) acquired a proprietary geological database that covers extensive parts of Turkey and Greece and transferred to the Company that part of the geological database that relates to areas in Turkey.

Under the agreement, the Company has undertaken to make a payment of approximately GBP61,400 (AUD 105,000) for each tenement it is subsequently awarded in Turkey and which was identified from the database. The maximum number of such payments required under the agreement is four, resulting in a contingent liability of up to GBP246,000. These payments are to be settled by issuing shares in the Company. To date, only one tranche of shares have been issued under this agreement in June 2007 for GBP43,750 (AUD 105,000).

22.2 Charge issued

On 13 August 2015, the Company created a fixed charge in favour of AIB Group (UK) Plc over amounts held in the Company's deposit accounts with the bank. The charge is in regard to time credit banking facilities provided by AIB Group (UK) Plc. At 31 December 2016, the balance in the deposit accounts was GBP20,000.

22.3 Legal Allegations

A claim for damages of GBP9,000,000 (approximately ETB249 million) had been lodged against the Company in 2014. The claim was based on the impact of exploration field activities conducted between 1998 and 2006, a period which pre-dated the Company's involvement in the Tulu Kapi project. These exploration activities comprised the construction of drill pads and access tracks. No objections had been made until 2014 when certain parties from outside the Tulu Kapi district raised this matter and initiated court action. Those parties have since been removed by the Court rulings from the list of plaintiffs. The Oromia Regional Supreme Court in April 2017 rejected 95% of these claims as having no basis in fact or law and reduced KEFI's potential liability to c.GBP435,000 (ETB12,762,721). Moreover, the Company has appealed to the Federal Supreme Court with regards to the remaining ETB12,762,721 on the basis that it remains firmly of the belief, on legal advice and as previously reported, that it has no contingent or actual liability, having already settled any obligations when the matter was originally closed by both the regulators and the land occupiers. The Federal Supreme Court last week officially admitted the Company's appeal after due review, and the case is expected to be heard within the next two years.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

23. Capital commitments

The Group has the following capital or other commitments as at 31 December 2016 Nil (2015 0.03 Million),

 
                                                Year         Year 
                                               Ended        Ended 
                                            31.12.16     31.12.15 
                                             GBP'000      GBP'000 
                                        ============   ========== 
 
    Exploration programme commitments              -            - 
 
         Property, plant and equipment              -           27 
                                         ============   ========== 
             -                                                 27 
  ============                                         ========== 
 
 
 
 

24. Events after the reporting date

Consolidation of Ordinary Shares

At the close of business, 1 March 2017, shareholders received one New Ordinary Share of nominal value 1.7 pence each for every 17 Existing Ordinary Shares of nominal value 0.1 pence each. Immediately following the Consolidation (and prior to the issue of the Fundraising Shares) the number of New Ordinary Shares in issue and admitted to trading on AIM was 228,407,085.

Placing and the Lanstead Subscription

The Company conditionally raised GBP5,620,000 million before expenses on 1 March 2017 through a placing of 104,295,888 ordinary shares of 1.7p each at a price of 5.61p per share. After the placing and the 17:1 consolidation approved on 1 March 2017 there are 332,702,973 shares on issue.

The Lanstead Subscription involves the issuance of 82,352,941 shares and is governed according to a 'sharing agreement' and structured relative to a benchmark price, which has been set at 7.48p/share (0.44p/share pre-consolidation), such that KEFI may receive more than GBP4,620,000 if the share price exceeds this level and vice versa if it does not. To this end, GBP693,000 was contributed in March 2017 by Lanstead, with the balance being paid in equal instalments of GBP218,000 per month (subject to adjustment upwards or downwards) for 18 months commencing in April 2017.

Other

On 22 March 2017, 6,829,613 options were issued to persons who discharge director and managerial responsibilities ("PDMRs") and a further 2,705,509 options have been granted to other non-board members of the senior management team. The options have an exercise price of 7.5p, expire after 6 years, and vest in two equal annual instalments, the first upon the achievement of practical completion of the planned processing plant at the Tulu Kapi Gold Project and the second upon the achievement of nameplate capacity for a twelve-month period.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

25. Adoption of new and revised International Financial Reporting Standards (IFRSs)

During the current year the Group adopted all the new and revised International Financial Reporting Standards (IFRS) that are relevant to its operations and are effective for accounting periods beginning on 1 January 2016. This adoption did not have a material effect on the accounting policies of the Group.

Up to the date of approval of the consolidated financial statements, certain new standards, interpretations and amendments to existing standards have been published that are not yet effective for the current reporting period and which the Group has not early adopted, as follows:

Issued by the IASB and adopted by the European Union New standards

-- IFRS 9 "Financial Instruments" (effective for annual periods beginning on or after 1 January 2018).

-- IFRS 15 "Revenue from Contracts with Customers" (effective for annual periods beginning on or after 1 January 2018).

IFRS 9 "Financial Instruments"

IFRS 9 makes substantial changes to the measurement of financial assets and financial liabilities. There will only be three categories of financial assets at either fair value through profit and loss, fair value through comprehensive income or measured at amortized cost. On adoption of the standard the Group will have to re-determine the classification of its financial assets based on the business model for each financial asset. This is not considered likely to give rise to any significant adjustments, other than the re-classification.

The principal change to the measurement of financial assets measured at amortized cost or fair value through other comprehensive income is that impairments will be recognized on an expected loss basis, compared with the current incurred loss approach. As such, where there are expected to be credit losses, these are recognized in profit or loss. For financial assets measured at amortized cost, the carrying amount is reduced for the loss allowance. For financial assets measured at fair value through other comprehensive income, the loss allowance is recognized in other comprehensive income and does not reduce the carrying amount of the financial assets.

Financial liabilities of the Group are expected to continue to be recognized at amortized cost.

IFRS 15 "Revenue from Contracts with Customers"

The standard has been developed to provide a comprehensive set of principles in presenting the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer. The standard is based around five steps in recognizing revenue:

   1.     Identify the contract with the customer; 
   2.     Identify the performance obligations in the contract; 
   3.     Determine the transaction price; 
   4.     Allocate the transaction price; and 
   5.     Recognize revenue when a performance obligation is satisfied. 

The Group is not currently generating income from gold sales revenue, hence there is not considered to be any significant impact at the Group's current stage of development. Management are currently evaluating the impact of the standard on the financial statements.

Notes to the consolidated financial statements (continued)

Year ended 31 December 2016

25. Adoption of new and revised International Financial Reporting Standards (IFRSs) (continued)

Amendments

-- Amendments to IFRS2: Classification and Measurement of Share-based Payment Transactions (effective for annual periods beginning on or after 1 January 2018).

-- Clarifications to IFRS 15 "Revenue from Contracts with Customers" (effective for annual periods beginning on or after 1 January 2018).

-- IAS 7 (Amendments) "Disclosure Initiative" (effective for annual periods beginning on or after 1 January 2017)

-- IAS 12 (Amendments) "Recognition of Deferred Tax Assets for Unrealised Losses" (effective for annual periods beginning on or after 1 January 2017).

-- Annual Improvements to IFRSs 2014-2016 Cycle (issued on 8 December 2016) (effective for annual periods beginning on or after 1 January 2017).

-- Annual Improvements to IFRSs 2014-2016 Cycle (issued on 8 December 2016) (effective for annual periods beginning on or after 1 January 2018).

New IFRICs

-- IFRIC Interpretation 22 "Foreign Currency Transactions and Advance Consideration" (effective for annual periods beginning on or after 1 January 2018).

The Group is currently evaluating the effect of these standards or interpretations on its consolidated financial statements

This information is provided by RNS

The company news service from the London Stock Exchange

END

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(END) Dow Jones Newswires

June 06, 2017 02:01 ET (06:01 GMT)

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