REG - Atalaya Mining PLC - Operational Review and Q3 Financials <Origin Href="QuoteRef">ATYM.L</Origin> - Part 2
24/11/2016 07:11
- Part 2: For the preceding part double click ID:nRSX9991Pa
Purchase of property, plant and equipment 6 (2,600) (27,022) (19,680) (62,842)
Purchase of intangible assets (114) - (114) -
Proceeds from disposal of property, plant and equipment 3 - 4 -
Increase in provisions - - (47) -
Payment for increase in investment in subsidiary - - - (7)
Interest received 52 - 70 1
Net cash used ininvesting activities (2,659) (27,022) (19,767) (62,848)
Cash flows from financing activities
Proceeds from issue of share capital - - 90,435
Listing and issue costs - (329) - (2,921)
Proceeds from bridge loan drawn down in the period - - 5,664
Net cash (used in)/from financing activities - (329) - 93,178
Net (decrease)/increase in cash and cash equivalents (6,129) (21,048) (14,301) 16,830
Cash and cash equivalents:
At beginning of the period 10,446 58,928 18,618 21,050
At end of the period 4,317 37,880 4,317 37,880
1. General information
Country of incorporation
Atalaya Mining Plc ("Atalaya Mining" and/or the "Company"), and its
subsidiaries ("Atalaya" and/or the "Group"), was incorporated in Cyprus on 17
September 2004 as a private company with limited liability under the Companies
Law, Cap. 113 and was converted to a public limited liability company on 26
January 2005. Its registered office is at 1 Lampousa Street, Nicosia, Cyprus.
The Group has offices in Minas de Riotinto in Spain and in Nicosia, Cyprus.
The Company was listed on AIM of the London Stock Exchange in May 2005 and on
the TSX on 20 December 2010.
Change of name and share consolidation
Following the Company's Extraordinary General Meeting ("EGM") on 13 October
2015, the change of name from EMED Mining Public Limited to Atalaya Mining Plc
became effective on 21 October 2015. On the same day, the consolidation of
ordinary shares came into effect, whereby all shareholders received one new
ordinary share of nominal value Stg £0.075 for every 30 existing ordinary
shares of nominal value Stg £0.0025.
Principal activities
The principal activity of the Company and its subsidiaries is to operate the
recently commissioned Rio Tinto Copper Project ("Proyecto Riotinto") and to
explore and develop metal production operations in Europe, with an initial
focus on copper. The strategy is to evaluate and prioritise metal production
opportunities in several jurisdictions throughout the well-known belts of base
and precious metals mineralisation in the European region.
2. Basis of preparation and accounting policies
Basis of preparation
The condensed interim consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS) including
International Accounting Standard 34 "Interim Financial Reporting" and IFRIC
interpretations as adopted by the European Union (EU), using the historical
cost convention.
These condensed interim consolidated financial statements are unaudited and
include the financial statements of the Company and its subsidiary
undertakings. They have been prepared using accounting bases and policies
consistent with those used in the preparation of the consolidated financial
statements of the Company and the Group for the year ended 31 December 2015.
These condensed interim consolidated financial statements do not include all
of the disclosures required for annual financial statements, and accordingly,
should be read in conjunction with the consolidated financial statements and
other information set out in the Company's 31 December 2015 Annual Report.
The accounting policies are unchanged from those disclosed in the annual
consolidated financial statements.
The Directors have formed a judgment at the time of approving the financial
statements that there is a reasonable expectation that the Company and the
Group have adequate available resources to continue in operational existence
for the foreseeable future.
The condensed interim consolidated financial statements have been prepared on
the basis of accounting principles applicable to a going concern which assumes
that the Company will realise its assets and discharge its liabilities in the
normal course of business. These condensed interim consolidated financial
statements do not give effect to any adjustment, which would be necessary
should the Company be unable to continue as a going concern and, therefore, be
required to realise its assets and discharge its liabilities in other than the
normal course of business and at amounts different than those reflected in the
consolidated financial statements.
Fair value estimation
The fair values of the Company's financial assets and liabilities approximate
their carrying amounts at the reporting date.
The fair value of financial instruments traded in active markets, such as
publicly traded trading and available-for-sale financial assets is based on
quoted market prices at the reporting date. The quoted market price used for
financial assets held by the Company is the current bid price. The appropriate
quoted market price for financial liabilities is the current ask price.
The fair value of financial instruments that are not traded in an active
market is determined by using valuation techniques. The Company uses a variety
of methods, such as estimated discounted cash flows, and makes assumptions
that are based on market conditions existing at the reporting date.
Fair value measurements recognised in the consolidated statement of financial
position
The following table provides an analysis of financial instruments that are
measured subsequent to initial recognition at fair value, grouped into Levels
1 to 3 based on the degree to which the fair value is observable.
· Level 1 fair value measurements are those derived from quoted prices
(unadjusted) in active markets for identical assets or liabilities.
· Level 2 fair value measurements are those derived from inputs other
than quoted prices included within Level 1 that are observable for the asset
or liability, either directly (i.e. as prices) or indirectly (i.e. derived
from prices).
· Level 3 fair value measurements are those derived from valuation
techniques that include inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
Financial assets Level 1 Level 2 Level 3 Total
30 September 2016
Available for sale financial assets 387 - - 387
Total 387 - - 387
31 December 2015
Available for sale financial assets 302 - - 302
Total 302 - - 302
Use and revision of accounting estimates
The preparation of the condensed interim consolidated financial statements
requires the making of estimations and assumptions that affect the recognised
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. The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in the period
in which the estimate is revised if the revision affects only that period or
in the period of the revision and future periods if the revision affects both
current and future periods.
Adoption of new and revised International Financial Reporting Standards
(IFRSs)
The Group has adopted all the new and revised IFRSs and International
Accounting Standards (IASs) which are relevant to its operations and are
effective for accounting periods commencing on 1 January 2016. The adoption
of these Standards did not have a material effect on the condensed interim
consolidated financial statements.
Critical accounting estimates and judgements
The fair values of the Group's financial assets and liabilities approximate
their carrying amounts at the reporting date. Estimates and judgments are
continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be
reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting
accounting estimates will, by definition, seldom equal the related actual
results. The estimates and assumptions that have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year are unchanged from those disclosed
in the annual consolidated financial statements.
Provisions are recognised when the Group has a present legal or constructive
obligation as a result of past events, it is probable that an outflow of
resources will be required to settle the obligation, and a reliable estimate
of the amount can be made. If the effect of the time value of money is
material, provisions are discounted using a current pre-tax rate that
reflects, where appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to the passage of time
is recognised as a finance cost.
3. Business and geographical segments
Business segments
The Group has only one distinct business segment, being that of mining
operations, mineral exploration and development.
Geographical segments
The Group's mining and exploration activities are located in Spain and its
administration is based in Cyprus.
Three months ended 30 September 2016 Cyprus Spain Other Total
Sales 27,235 - - 27,235
Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) (718) 2,645 2 1,929
Depreciation/amortisation charge (4) (2,471) - (2,475)
Net finance cost (33) (19) - (52)
Impairment of land options not exercised - (900) - (900)
Foreign exchange gain / (loss) 103 (124) 2 (19)
(Loss)/profit for the period before taxation (652) (869) 4 (1,517)
Tax credit 4
Net loss for the period (1,513)
Nine months ended 30 September 2016 Cyprus Spain Other Total
Sales 49,854 - - 49,854
Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) (2,333) 762 (6) (1,577)
Depreciation/amortisation charge (12) (4,984) - (4,996)
Impairment of land options not exercised - (900) - (900)
Net finance cost (43) (164) - (207)
Foreign exchange (loss) / gain (240) (58) 2 (296)
Loss for the period before taxation (2,628) (5,344) (4) (7,976)
Tax charge (8)
Net loss for the period (7,984)
Total assets 6,021 234,116 6 240,143
Total liabilities (15,846) (55,639) (25) (71,510)
Depreciation of property, plant and equipment 12 4,410 4,422
Amortisation of intangible assets - 574 - 574
Total net additions of non-current assets 1 19,793 - 19,794
Three months ended 30 September 2015 Cyprus Spain Other Total
Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) (1,041) (4,439) (28) (5,508)
Depreciation/amortisation charge (5) (25) - (30)
Finance cost (4) (62) - (66)
Foreign exchange gain/(loss) 271 1 (3) 269
Loss for the period before taxation (779) (4,525) (31) (5,335)
Tax charge (5)
Net loss for the period (5,340)
Nine months ended 30 September 2015 Cyprus Spain Other Total
Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) (2,314) (9,608) (38) (11,960)
Depreciation/amortisation charge (137) (82) - (219)
Finance cost (4,107) (231) - (4,338)
Foreign exchange loss (4,595) (55) (3) (4,653)
Loss for the period before taxation (11,153) (9,976) (41) (21,170)
Tax charge (5)
Net loss for the period (21,175)
Total assets 16,142 181,293 11 197,446
Total liabilities (138) (26,896) (108) (27,142)
Depreciation of property, plant and equipment 14 82 - 96
Amortisation of intangible assets 123 - - 123
Total net additions of non-current assets 124 62,845 - 62,969
4. Net finance cost
Three months ended Three months ended 30 September 2015 Nine months ended Nine months ended 30 September 2015
30 September 2016 30 September 2016
Interest expense 132 60 184 195
Interest income (52) (1) (70) (1)
Rehabilitation cost (Note 13) - - 47 -
Foreign exchange hedging income (75) - (75) -
Bank charges 47 7 121 51
Accretion expense on convertible note - - - 31
Bridge loan interest expense - - - 1,232
Convertible note interest expense - - - 1,178
Bridge loan financing expenditure - - - 1,342
Loss on fair value on conversion of the convertible note - - - 310
52 66 207 4,338
5. Basic and fully diluted 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:
Three months ended Three months ended 30 September 2015 Nine months ended Nine months ended 30 September 2015
30 September 2016 30 September 2016
Parent (652) (779) (2,628) (11,153)
Subsidiaries (861) (4,561) (5,356) (10,022)
Loss attributable to the ordinary holders of the parent (1,513) (5,340) (7,984) (21,175)
Weighted number of ordinary shares for the purposes of basic loss per share (000's) 116,680 116,680* 116,680 72,490*
Basic loss per share:
Basic and fully diluted loss per share (cents) (1.3) (4.6) (6.8) (29.2)
* Adjusted for the 30:1 share consolidation which took place in October 2015
6. Property, plant and equipment
Cost Land and buildings Plant and machinery Mineral rights Assets under construction Deferred mining costs(2) Other assets(3) Total
At 1 January 2015 35,797 29,087 - - - 1,086 65,970
Additions 242(1) 54,808 - - - 142 55,192
At 30 September 2015 36,039 83,895 - - - 1,228 121,162
Additions 3,729(1) - - 34,077 10,334 - 48,140
Reclassifications (707) (60,691) 950 60,448 - - -
Disposals - (158) - - - (202) (360)
At 31 December 2015 39,061 23,046 950 94,525 10,334 1,026 168,942
Additions 46 19,630 - - - 4 19,680
Reclassifications - 99,460 - (94,256) (5,204) - -
Reclassifications -intangibles - 1,614 (50) - (247) 1,317
Disposals - - - - (16) (16)
Written off - (900) - - (3) (903)
At 30 September 2016 39,107 143,750 - 269 5,130 764 189,020
Depreciation
At 1 January 2015 - 158 - - - 498 656
Charge for the period - - - - - 96 96
At 30 September 2015 - 158 - - - 594 752
Charge for the period - - - - - 56 56
Disposals - (158) - - - (132) (290)
At 31 December 2015 - - - - - 518 518
Charge for the period 1,223 3,122 77 4,422
Reclassifications - 130 - - - (130) -
Reclassifications -intangibles - - - - - (92) (92)
Disposals - - - - - (16) (16)
Impairment - - 900 - - 3 903
Written off - - (900) - - (3) (903)
At 30 September 2016 1,223 3,252 - - - 357 4,832
Net book value
At 30 September 2016 37,884 140,498 - 269 5,130 407 184,188
At 31 December 2015 39,061 23,046 950 94,525 10,334 508 168,424
(1) Rehabilitation provision
(2) Stripping costs
(3) Includes motor vehicles, furniture, fixtures and office equipment which
are depreciated over 5-10 years.
The above property, plant and equipment is located in Cyprus and Spain.
7. Intangible assets
Cost Permits of Rio Tinto Project Acquisition of mineral rights Licences, R&D and software Goodwill Total
At 1 January 2015 17,655 310 - 10,023 27,988
Additions 7,650 - - 123 7,773
Disposal/closure of subsidiaries (310) - (813) (1,123)
At 30 September 2015 25,305 - - 9,333 34,638
Reclassification (5,147) - - - (5,147)
At 31 December 2015 20,158 - - 9,333 29,491
Additions - - 114 - 114
Reclassifications - property, plant and equipment (1,614) - 297 - (1,317)
Other reclassifications (7) - 54 - 47
At 30 September 2016 18,537 - 465 9,333 28,335
Provision for impairment
On 1 January 2015 - 310 - 10,023 10,333
Provision for the period - - - 123 123
Disposal/closure of subsidiaries - (310) - (813) (1,123)
At 30 September 2015 - - - 9,333 9,333
Provision for the period - - - - -
At 31 December 2015 - - - 9,333 9,333
Provision for the period 555 - 19 - 574
Reclassifications - property, plant and equipment - - 92 - 92
At 30 September 2016 555 - 111 9,333 9,999
Net book value
At 30 September 2016 17,982 - 354 - 18,336
At 31 December 2015 20,158 - - - 20,158
The useful life of the intangible assets is estimated to be not less than
fourteen years from the start of production (the revised Reserves and
Resources statement which was announced in July 2016 has increased the life of
mine to 16 ½ years). The ultimate recoupment of balances carried forward in
relation to areas of interest or all such assets including intangibles is
dependent on successful development, and commercial exploitation, or
alternatively sale of the respective areas. The Group conducts impairment
testing on an annual basis unless indicators of impairment are present at the
reporting date. In considering the carrying value of the assets at Proyecto
Riotinto, including the intangible assets and any impairment thereof, the
Group assessed the carrying values having regard to (a) the current recovery
value (less costs to sell) and (b) the net present value of potential cash
flows from operations. In both cases, the estimated net realisable values
exceeded current carrying values and thus no impairment has been recognised.
Goodwill of E9,333,000 arose on the acquisition of the remaining 49% of the
issued share capital of Atalaya Riotinto Minera S.L.U. ("ARM") back in
September 2008. This amount was fully impaired on acquisition, in the absence
of the mining license back in 2008.
8. Inventories
30 Sept 2016 31 Dec 2015
Finished products 9,309 -
Materials and supplies 5,749 -
15,058 -
9. Trade and other receivables
30 Sept 2016 31 Dec 2015
Trade receivables 2,425 -
Receivables from related parties (Note 16.4) 1,219 6,541
Deposits and prepayments 1,536 1,114
VAT 12,596 7,970
Other receivables 71 1,007
17,847 16,632
The fair values of trade and other receivables approximate to their carrying
amounts as presented above.
10. Share capital and share premium
Shares000's Share CapitalStg£'000 Share premiumStg£'000 TotalStg£'000
Authorised
Ordinary shares of Stg £0.075 each* 200,000 15,000 - 15,000
Issued and fully paid 000's Euro 000's Euro 000's Euro 000's
Balance at 1 January 2016 and 30 September 2016 116,679 11,632 277,238 288,870
Authorised capital
2015
*Following the Company's EGM on 13 October 2015, the consolidation of ordinary
shares came into effect on 21 October 2015, whereby all shareholders received
one new ordinary share of nominal value Stg £0.075 for every 30 existing
ordinary shares of nominal value Stg £0.0025.
2016
The Company's authorised share capital is 200,000,000 ordinary shares of Stg
£0.075 each.
Issued capital
2016
No shares were issued in the period from 1 January 2016 to 30 September 2016.
Warrants
The Company has issued warrants to advisers to the Group. Warrants, noted
below, expire three or five years after the grant date and have exercise
prices ranging from Stg £1.425 to Stg £3.150.
Details of share warrants outstanding as at 30 September 2016:
Number of warrants
Outstanding warrants at 1 January and 30 September 2016 473,061
11. Other reserves
Share option Bonus share Available-for-sale investment Total
At 1 January 2015 5,973 44 (202) 5,815
Change in value of available-for-sale investment - - (514) (514)
Bonus shares issued in escrow - 75 - 75
Warrant issue costs 122 - - 122
Recognition of share based payments 114 - - 114
At 30 September 2015 6,209 119 (716) 5,612
Bonus shares issued in escrow - 26 - 26
Change in value of available-for-sale investment - - (168) (168)
Recognition of share based payments 38 - - 38
At 31 December 2015 6,247 145 (884) 5,508
Change in value of available-for-sale investments - - 85 85
Bonus shares issued in escrow - 63 - 63
Recognition of share based payments 103 - - 103
At 30 September 2016 6,350 208 (799) 5,759
Share options
No share options were issued in the period from 1 January 2016 to 30 September
2016. Details of share options outstanding as at 30 September 2016:
Number of share options 000's
Outstanding options at 1 January 2016 931,654
- cancelled/expired during the reporting period (132,663)
Outstanding options at 30 September 2016 798,991
12. Trade and other payables
Non-current trade and other payables 30 Sept 2016 31 Dec 2015
Copper concentrate prepayment 5,3765 -
Social Security* - 1,741
Land options 125 155
5,501 1,896
Current trade and other payables
Trade payables 47,569 37,106
Deferred income 3,181 -
Copper concentrate prepayment 7,197 -
Social Security* 2,602 2,867
Land options and mortgage 767 789
Accruals 659 1,124
Tax liability 12 24
Other 4 1
61,991 41,911
The fair values of trade and other payables due within one year approximate to
their carrying amounts as presented above.
* On 25 May 2010 ARM recognised a debt with the Social Security's General
Treasury in Spain amounting to E16.9 million that was incurred by a previous
owner in order to stop the execution process by Public Auction of the land
over which Social Security had a lien. E14.3 million has been repaid to date.
Originally payable over 5 years, the repayment schedule was subsequently
extended until June 2017.
13. Provisions
Rehabilitation costs
1 January 2015 -
Additions 3,971
At 31 December 2015 3,971
Charge to profit and loss as finance cost (Note 4) 47
At 30 September 2016 4,018
30 Sept 2016 31 Dec 2015
Non-current 4,018 3,971
Current - -
Total 4,018 3.971
Rehabilitation provision represents the accrued cost required to provide
adequate restoration and rehabilitation upon the completion of production
activities. These amounts will be settled when rehabilitation is undertaken,
generally over the project's life.
14. Derivative instruments
14.1. Foreign exchange contract
As at 30 September 2016, Atalaya had certain short term foreign exchange
contracts. The contracts were in an unrealised gain position which was
recorded as a finance income in the income statements (30 September 2016 -
E0.5 million), the corresponding receivable amount recorded in other
receivables. The relevant information of the contracts is as follows:
Foreign exchange contracts - Euro/USD
Period Contract type Amount in USD Contract rate Strike
June 2016 - March 2017 FX Forward - Put 5,000,000 1.0955 n/a
FX Forward - Call 10,000,000 1.0955 1.0450
The counter parties of the foreign exchange agreements are third parties.
14.2. Commodity contract
In August 2016, Atalaya signed the following short term commodity contract
with a third party:
Copper
Period Commodity Contract type FMT(Fine metric tons) Strike priceUS$/FMT
August 2016 Copper Forward 2,113 4,960
The agreements were closed at the maturity date with a gain of E0.4 million,
which has been recorded as revenue during the quarter.
As at 30 September 2016, the Company had no open positions.
15. Acquisition and disposal of subsidiaries
There were no acquisitions in the nine months ended 30 September 2016.
16. Related party transactions
The following transactions were carried out with related parties:
16.1 Compensation of key management personnel
The total remuneration and fees of Directors (including Executive Directors)
and other key management personnel was as follows:
Threemonths ended30 September 2016 Threemonths ended30 September 2015 Ninemonths ended30 September 2016 Ninemonths ended30 September 2015
Directors' remuneration and fees 167 133 517 391
Share option-based benefits to directors 14 14 42 42
Bonus shares issued to director, in escrow - 25 63 75
Key management personnel remuneration 131 137 321 452
Termination fees of key management personnel - 259 - 259
Share option-based and other benefits to key management personnel 9 5 25 31
321 573 968 1,250
16.2 Share-based benefits
The directors and key management personnel have not been granted options
during the three and nine month period.
16.3 Transactions with related parties/shareholders
i) Sales
Threemonths ended30 September 2016 Threemonths ended30 September 2015 Ninemonths ended30 September 2016 Ninemonths ended30 September 2015
Trafigura PTE LTD ("Trafigura") - Sales of goods (pre commissioning sales offset against the cost of constructing assets) - - 2,452 -
Trafigura- Sales of goods 4,495 - 15,888 -
Orion Mine Finance (Master) Fund I LP ("Orion") - Sales of goods 3,753 - 3,753 -
8,248 - 22,093 -
ii) Financing
Threemonths ended30 September 2016 Threemonths ended30 September 2015 Ninemonths ended30 September 2016 Ninemonths ended30 September 2015
Cuenca Fudacion EMED Tartessus 9 - 9 -
Yanggu Xiangguang Copper Co. Ltd ("XGC") - Convertible note interest - - - 864
XGC - Convertible note extension fee - - - 57
XGC - Bridge loan - - - 1,888
XGC - Bridge loan financing fee - - - -
XGC - Bridge loan interest - - - 411
XGC - Bridge loan extension fee - - - 38
Orion - Convertible note interest - - - 314
Orion - Convertible note extension fee - - - 21
Orion - Bridge loan - - - 1,888
Orion - Bridge loan financing fee - - - -
Orion - Fees for raising capital - - - 576
Orion - Bridge loan interest - - - 411
Orion - Bridge loan extension fee - - - 38
Trafigura - Bridge loan - - - 1,888
Trafigura - Bridge loan financing fee - - - -
Trafigura - Fees for raising capital - - - 441
Trafigura - Bridge loan interest - - - 411
Trafigura - Bridge loan extension fee - - - 38
16.4 Period-end balances with related parties/shareholders
30 Sept 2016 31 Dec 2015
Receivables from related parties (Note 9):
Trafigura 996 6,541
Orion 214 -
Cuenca Fudacion EMED Tartessus 9 -
1,219 6,541
The above debtor balance arising from sales of goods bears no interest and is
repayable on demand
17. Contingent liabilities
Deferred consideration
In September 2008, the Group moved to 100% ownership of ARM (and thus full
ownership of Proyecto Riotinto) by acquiring the remaining 49% of the issued
capital of ARM. The cost of the acquisition was satisfied by issuing
39,140,000 Ordinary Shares to MRI Trading AG ("MRI") at an issue price of 21p
per Ordinary Share and a deferred cash settlement of up to E53 million
("Deferred Consideration"), (including loans of E9,116,617.30 owed to
companies related to MRI incurred in relation to the operation of Proyecto
Riotinto). The obligation to pay the Deferred Consideration is subject to the
satisfaction of the following conditions (the "Conditions"): (a) all
authorisations to restart mining activities in Proyecto Riotinto having been
granted by the Junta de Andalucía ("Permit Approval"); and (b) the Group
securing a senior debt finance facility for a sum sufficient to restart mining
operations at Proyecto Riotinto ("Senior Debt Facility") and being able to
draw down funds under the Senior Debt Facility.
Originally the Group was obliged to pay the Deferred Consideration in
instalments commencing on the date of drawdown under the Senior Debt Facility
until the second anniversary of commercial production at Proyecto Riotinto.
On 31 March 2009, pursuant to a deed of amendment, MRI consented to the Group
paying the Deferred Consideration over a period of six or seven years
following satisfaction of the Conditions (the "Payment Period"). In return,
the Company agreed to potentially pay further Deferred Consideration of up to
E15,900,000 in regular instalments over the Payment Period depending upon the
price of copper. Any such additional Deferred Consideration would only be
payable if, during the relevant period, the average price of copper per tonne
is US$6,614 or more (US$3.00/lb). On 11 November 2011 MRI novated its right
to be paid the Deferred Consideration to Astor Management AG ("Astor").
As security, inter alia, for the obligation to pay the Deferred Consideration
to Astor, EMED Holdings (UK) Limited has granted a pledge to Astor Resources
AG over the issued capital of ARM and the Company has provided a parent
company guarantee.
As at the date of this report, the Permit Approval condition has been
satisfied. However, the Group has not entered into arrangements in connection
with a Senior Debt Facility and, in the absence of drawdown of funds by the
Group pursuant to a Senior Debt Facility, there is significant doubt
concerning the legal obligation on the Company to pay any of the Deferred
Consideration.
On 2 November 2015, the Company announced that it was in receipt of a formal
claim from Astor (the "Claim"). The Claim was made in the High Court of
Justice in London against the Company and certain other members of the Group.
In its Claim, Astor is claiming, inter alia, that the Conditions have been
satisfied and the first instalment of the Deferred Consideration is due
(together with damages). The Company is disputing this and it is defending
the proceedings vigorously. The Company continues to work closely with its
legal advisors in preparing for trial at the High Court of Justice in London.
The date for the trial has been set for 30 January 2017.
Judicial and administrative cases
On 23 September 2010, ARM was notified that the Andalucían Water Authority
("AWA") had initiated a Statement of Objections and Opening of File (the
"Administrative File 2010") following allegations by third parties of
unauthorised industrial discharges from the Tailings Management Facility
("TMF") at the Rio Tinto Copper Mine in the winter months of late 2010 and
early 2011. These assertions are judicial (alleging negligence) and
administrative (alleging damage to the environment) in nature. At that time,
the Company owned 33% of the TMF and the owners of the remaining 67% are
co-defendants (Rumbo and Zeitung).
In December 2011, the judicial claims were dismissed in the initial discovery
phase by the appeals Court (upholding a lower court decision) finding that the
controlled discharges of excess rainwater were force majeure events carried
out to protect the stability of the TMF, thereby ensuring public safety and
protection of the environment (the "Court Decisions").
Given that all judicial claims were dismissed in the very early stages of the
court´s investigation, no formal charges were ever made against ARM or against
any of its Directors or Officers.
Now that the Court Decisions are final, the Administrative File 2010, which
can only result in a monetary sanction against the co-defendants, was
re-opened in 2012. The defence arguments successfully used in a later case
which has been dismissed on 11 February 2015 (see below) will be used in the
defence of Administrative File 2010 and the management is positive that they
will be accepted.
On January 2, 2013 ARM, Rumbo and Zeitung were notified of a Resolution of
Fine and Damages (in a total amount of E1,867,958.39). In February 2013 ARM
appealed this Resolution and the Court has agreed that the Fine and Damages
amount be secured by a mortgage over certain properties owned by ARM until the
final decision on the alleged discharges is known.
In the Company's view, no "industrial discharge" took place, but rather a
force majeure controlled discharge of excess rainwater accumulated in the TMF
since industrial operations ceased in the early 2000´s with no actual damage
to the environment having taken place.
In the Company's view it is unlikely that any fine or sanction will be imposed
against ARM once the Administrative File 2010 reaches its final conclusion
after all appeals are exhausted in approximately 3-5 years.
On 28 January 2016, the Court ruled in favour of ARM, Rumbo and Zeitung. On
26 April 2016 the Court issued a final decree by which the 28 January 2016
ruling was declared final.
On 20 January 2014, ARM was notified that the Huelva Territorial Delegation of
the Ministry of Environment (which has absorbed the former AWA) had initiated
another disciplinary proceeding for unauthorised discharge (the
"Administrative File 2013") of administrative nature following allegations by
the administration of alleged unauthorised industrial discharges from the TMF
at the Rio Tinto Copper Mine during the heavy rains occurred from 7 March to
25 April 2013. The Administration has proposed the amount of E726,933.30 as
compensation for alleged damages to the environment ("Public Water Domain")
and a fine of between E300,507 and E601,012. On 11 February 2015, the Huelva
Territorial Delegation of the Ministry of Environment dismissed the case. On
13 May 2015, the Huelva Territorial Delegation of the Ministry of Environment
re-opened the Administrative File 2013. Written allegations were submitted on
30 May 2015. On 29 March 2016 the Huelva Territorial Delegation of the
Ministry of Environment dismissed finally and without further recourse the
Administrative File 2013.
On 19 February 2015, ARM was notified that the Huelva Territorial Delegation
of the Ministry of Environment had initiated another disciplinary proceeding
for unauthorised discharge (the "Administrative File 2014") which has proposed
a fine of between E300,507 and E601,012. On 10 March 2015 the Company
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