REG - EMED Mining Public - Half Yearly Report <Origin Href="QuoteRef">EMED.L</Origin> - Part 2
10/09/2015 07:00
- Part 2: For the preceding part double click ID:nRSJ6051Ya
Interest
was capitalised every three months and rolled up, payable either on the
Maturity Date or the earlier conversion or redemption of the Notes.
Within the period of 10 business days prior to the Maturity Date, the Note
holders could have elected to convert all outstanding principal and accrued
interest of their Notes into ordinary shares of 0.25 pence each in the Company
("Ordinary Shares"). Note holders could also have elected to convert their
Notes following EMED seeking to redeem the Notes or a potential business sale
or change of control of EMED. In addition, the Notes would have automatically
converted into new Ordinary Shares at the time the Company (or any of its
subsidiaries) made its first drawdown (the "Drawdown Date") from a facility
made available by senior financial institutions for the restart of operations
at the Company's Proyecto Riotinto in Andalucía, Spain. Where the Notes
automatically converted on funds being made available under a senior secured
debt facility, the conversion price of the Notes was the lower of 9 pence per
share and the VWAP of an EMED share on AIM for the 20 immediately preceding
trading days immediately preceding the Drawdown Date. In all other cases, the
Notes would have converted at 9 pence per share.
EMED may have elected to redeem for cash the principal and accrued interest of
the Notes at any time between 12 July 2014 (first anniversary of the date of
issue) and the first to occur of the Drawdown Date or Maturity Date upon
giving the holders of the Notes not less than 15 business days' notice. A
Note holder could have chosen to convert their Notes into Ordinary Shares
rather than have them redeemed but if they did so it would have been at a
price of 9 pence per share and was not conditional on the Drawdown Date
occurring. The Notes benefited from security interests granted by EMED Mining
over the share capital of EMED Holdings (UK) Limited and EMED Marketing
Limited as well as certain intra-group debts owing to EMED Mining. In
addition, EMED Mining and certain of its subsidiaries had undertaken not to
further encumber their assets or share capital, save in certain circumstances,
including in connection with the proposed senior debt facility required in
order to restart operations at Proyecto Riotinto.
The Notes were subject to certain standard events of default following which
Note holders could have elected to immediately redeem their Notes and accrued
interest. Assuming that the Notes converted in full at a conversion price of
9 pence per share (including the conversion of 21 months' accrued interest)
the Note Holders would have received 125,494,668 shares. The Company paid
intermediary fees of £192,000 on the issuance of these Notes.
The Notes were considered hybrid financial instruments comprising a Note
liability and a conversion feature for Ordinary Shares ("the Conversion
Feature"). As the conversion price (9 pence) was denominated in a currency
other than the Company's functional currency, the Conversion Feature was
considered to be a derivative financial instrument and was measured at fair
value through profit or loss.
On 25 June 2015, in connection with the Subscription, Placing and Open Offer
to raise £64.9m announced on 28 May 2015, the liability to pay the outstanding
principal of the Notes together with accrued interest up to and including 15
May 2015 was satisfied by the issue of 241,668,731 shares for the conversion
of the Notes at 4.75 pence per share.
12. Bridge loan facility
30 June 2015 31 Dec 2014
Current
Bridge loan - 19,764
Bridge Loan - Financing costs - (1,217)
Total - 18,547
On 24 December 2014, the Company agreed an unsecured bridging finance facility
for up to US$30 million (the "Loan") with Trafigura, Orion and Hong Kong
Xiangguang, an affiliate of XGC) (Trafigura, Orion and Hong Kong Xiangguang
being the "Lenders"). The initial instalment of the Loan of US$24 million was
drawn down on 30 December 2014, with the remaining $6m drawn down in early
April 2015. The Loan was repayable on the earliest of three months following
the receipt of the initial Loan funds, a change of control of the Company or
the Company raising debt or equity funding in an amount equal to or greater
than the amounts outstanding under the loan agreement.
The Company would pay interest on the outstanding amount of the Loan at a rate
of 10% per annum and there were no penalties for early repayment of the Loan,
but in the event of a payment default the interest rate would have risen to
12% per annum. Each Lender was paid an arrangement fee of 2.5% of the amount
of the Loan advanced by that Lender and the Company reimbursed the due
diligence and associated costs of the Lenders in connection with the Loan and
other historic costs up to an aggregate amount of US$1.5 million, of which
US$1 million was paid out of the proceeds of the Loan and the balance of US$
0.5 million was added to the Loan and repaid at the time the Loan was repaid.
Any additional costs of the Lenders were not reimbursed at that time and were
deferred until such time as further finance was raised in excess of amounts
outstanding under the loan agreement or, if earlier, 15 April 2015. The
arrangement fees and costs deducted amounted to USD 1.5 million (EUR 1.2
million). Trafigura was also granted the right to appoint an observer to
attend meetings of the Board of Directors of EMED for such time as Trafigura
holds not less than 15% of the issued share capital of the Company. This was
in addition to the existing rights of Orion and XGC who each had the right to
appoint a Director to the Board.
On 27 March 2015, the Company agreed with the Lenders to extend the Maturity
Date of the Loan by three months to 30 June 2015. In consideration for
extending the term of the Loan, should a meeting of shareholders not be called
by 30 April 2015 in order to approve a long term funding package, the Company
had agreed to pay an extension fee of 0.5% on all outstanding amounts
(including accrued interest and costs) owed to the Lenders pursuant to the
Loan and the Convertible Notes. Additionally, a further fee equal to 1% would
have been payable should a meeting of shareholders not be called by 31 May
2015. All other repayment terms of the Loan remained unchanged.
On 25 June 2015, in connection with the Subscription, Placing and Open Offer
to raise £64.9m announced on 28 May 2015, the liability to pay the outstanding
principal of the Loan together with accrued interest up to and including 15
May 2015 was satisfied by the issue of 452,648,133 shares for the conversion
of the Notes at 4.75 pence per share.
13. Acquisition of subsidiaries
There were no acquisitions in the six months ended 30 June 2015.
14. Related party transactions
The following transactions were carried out with related parties:
14.1 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 June 2015 Threemonths ended30 June 2014 Sixmonths ended30 June 2015 Sixmonths ended30 June 2014
Directors' fees 170 232 258 315
Share option-based benefits to directors 14 45 28 63
Bonus shares issued to Director, in escrow 25 - 50 -
Key management personnel fees 157 125 315 292
Share option-based and other benefits to key management personnel 20 (53) 26 139
386 349 677 809
14.2 Share-based benefits
The directors and key management personnel have not been granted options
during the six month period.
14.3 Transactions with shareholders
30 June 2015 31 Dec 2014
XGC - Convertible note interest 864 960
XGC - Convertible note extension fee 57 -
XGC - Bridge loan 1,888 6,588
XGC - Bridge loan financing fee - 439
XGC - Bridge loan interest 411 -
XGC - Bridge loan extension fee 38 -
Orion - Convertible note interest 314 349
Orion - Convertible note extension fee 21 -
Orion - Bridge loan 1,888 6,588
Orion - Bridge loan financing fee - 339
Orion - Fees for raising capital 576 -
Orion - Bridge loan interest 411 -
Orion - Bridge loan extension fee 38 -
Trafigura - Bridge loan 1,888 6,588
Trafigura - Bridge loan financing fee - 439
Trafigura - Fees for raising capital 441 -
Trafigura - Bridge loan interest 411 -
Trafigura - Bridge loan extension fee 38 -
14.4 Period-end balances with shareholders
30 June 2015 31 Dec 2014
XGC - Convertible note debt component - 10,232
XGC - Convertible note derivative component - 95
XGC - Bridge loan - 6,588
Orion - Convertible note debt component - 3,720
Orion - Convertible note derivative component - 35
Orion - Bridge loan - 6,588
Trafigura - Bridge loan - 6,588
- 33,846
15. Contingent liabilities
Deferred consideration
In September 2008, the Group moved to 100% ownership of EMED Tartessus (and
thus full ownership of Proyecto Riotinto) by acquiring the remaining 49% of
the issued capital of EMED Tartessus. 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 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") and to the
arrangements that were entered into in connection with the Convertible Loan
Facility (now repaid). 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 MRI Resources AG
over the issued capital of EMED Tartessus and the Company has provided a
parent company guarantee. As at the date of this report, the mining Permit
Approval has been satisfied. However, the Group has not entered into
arrangements in connection with a Senior Debt Facility.
The Company's legal advisors are of the opinion that, 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. As the Group has not secured senior debt, the
Directors have decided to derecognise the amount included in Q2 and Q3 2014
unaudited interim financial statements and revert to previous disclosure of
this arrangement with Astor, as a contingent liability as was done in last
year's financial statements. This matter will be kept under review as
financing options for the restart of operations at Proyecto Riotinto are
developed by the Company.
Judicial and administrative cases
On 23 September 2010, EMED Tartessus ("EMEDT") 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 unauthorized 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 EMEDT 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. The defence arguments successfully used in a later case which has
been dismissed on 11 February 2015 will be used in the Administrative 2010 and
the management is positive that they will be accepted.
On January 2, 2013 EMEDT, Rumbo and Zeitung were notified of a Resolution of
Fine and Damages (in a total amount of E1,867,958.39). In February 2013 EMEDT
appealed this Resolution and the Court has agreed that the Fine and Damages
amount be secured by a mortgage over certain properties owned by EMED 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 EMEDT once the Administrative File 2010 reaches its final conclusion
after all appeals are exhausted in approximately 3-5 years.
On 28 January 2014, EMEDT was notified that the Huelva Territorial Delegation
of the Ministry of Environment (which has absorbed the former AWA) had
initiated another disciplinary proceeding for unauthorized discharge (the
"Administrative File 2013") of administrative nature following allegations by
the administration of alleged unauthorized 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 to E601,012. On 11 February 2015, the Huelva
Territorial Delegation of the Ministry of Environment dismissed the case.
This outcome is especially relevant as it can now be used as a precedent for
defence of any other proceedings of a similar nature.
On 19 February 2015, EMEDT 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 to E601,012. On 10 March 2015 the Company
submitted the relevant defence arguments.
In the Company´s view, it is unlikely that any fine or sanction will be
imposed against EMEDT once the Administrative files reach their final
conclusion and taking into account the already accepted allegations and
mentioned arguments of defence.
Rehabilitation obligation
The Group anticipates that a rehabilitation liability will be recognised upon
commencement of operations at Proyecto Riotinto, the amount of which is not
determinable at this time as it is subject to further discussion with the
relevant authorities.
16. Commitments
Spain
There are no minimum exploration requirements at Proyecto Riotinto. However,
the Group is obliged to pay municipal land taxes which currently are
approximately E110,000 per year in Spain and the Group is required to maintain
the Rio Tinto site in compliance with all applicable regulatory requirements.
As part of the consideration for the purchase of land from Rumbo, EMED
Tartessus has agreed to pay a royalty to Rumbo subject to commencement of
production of $250,000 in each quarter where the average price of LME copper
or the average copper sale price achieved by the Group is at least $2.60/lb.
No royalty is payable in respect of any quarter where the average copper price
for that quarter is below this amount and in certain circumstances any
quarterly royalty payment can be deferred until the following quarter. The
royalty obligation terminates 10 years after commencement of production.
Commencement of production is defined as being the first to occur of
processing of ore at a rate of nine million tonnes per annum for a continuous
period of six months or the date that is 18 months after the first product
sales from Proyecto Riotinto. Additionally, if after seven years from the
date of the land purchase, the Group has not obtained all necessary licenses
to open and operate Proyecto Riotinto, the land will be sold back to Rumbo for
E1. Should the Group sell the land prior to this date to a third party, Rumbo
shall be paid E5.5 million and the above mentioned royalty novated to the
third party.
EMED Tartessus has entered into a 50/50 joint venture with Rumbo to evaluate
and exploit the potential of the class B resources in the tailings dam and
waste areas at Proyecto Riotinto. Under the joint venture agreement, EMED
Tartessus will be the operator of the joint venture, will reimburse Rumbo for
the costs associated with the application for classification of the Class B
resources and will fund the initial expenditure of a feasibility study up to a
maximum of E2 million. Costs are then borne by the joint venture partners in
accordance with their respective ownership interests. Half of the costs paid
by EMED Tartessus in connection with the feasibility study can be deducted
from any royalty which may fall due to be paid.
At Proyecto Riotinto, the Group has four year options with each of Zeitung and
Inland for the purchase of certain land plots adjacent to the mine at a
purchase price of E4.202 million (expiry date 31 July 2016) and E4.648
million (expiry date 2 August 2016) respectively. The Zeitung option requires
an annual option payment from the Group of E119,500 and the Inland option
requires an annual payment of E130,500 which is deductible from the purchase
price. In each case, half of the purchase price can be made by the issue of
shares in EMED Mining based on a weighted average market price at the time of
the purchase.
Slovakia
Annual tenement rental fees are E20,000. EMED has met all of its obligations
to date. All annual technical and financial reports have been submitted on
time. Exploration commitments are in the order of E65,000. In December 2014,
EMED entered into a conditional Earn-in Agreement with Prospech Ltd
("Prospech"), a private Australian exploration company, in relation to 2
exploration licences held by EMED's 100% owned Slovakian subsidiary, Slovenske
Kovy s.r.o. Prospech will invest up to a E1 million over a three-year period
in return for an 81% interest in Slovenske Kovy.
In July 2015 EMED entered into a Sale and Purchase Agreement with FDP Real
Estate & Investments a. s., a private Slovak company, in relation to its 100%
owned subsidiary EMED Slovakia s.r.o. The Buyer has undertaken all of the
running costs of EMED Slovakia, whilst the Seller will retain a 30%
free-carried equity in EMED Slovakia, which has been now renamed to Mining
Group Slovakia s.r.o.
Other
In Cyprus, there are no exploration commitments required and tenement rentals
are approximately E19,000 per annum.
17. Events after the reporting period
In July and August 2015, the Company reached agreements with interested
parties to dispose of its exploration assets in Slovakia and Cyprus
respectively. None of these assets are considered material to the Company.
The main goal of the disposal of these assets is to streamline available
working capital and focus management time on Proyecto Riotinto.
On 16 July 2015, EMED announced that its wholly-owned operating subsidiary
EMEDT, the owner of Proyecto Riotinto was awarded the Activity Licence from
the Minas de Riotinto Municipality. This licence represents the final
permitting component required to initiate mining activities at Proyecto
Riotinto.
On 29 July 2015, the Annual General Meeting was held at Rio Tinto, in Spain,
with all resolutions being passed by shareholders.
On 31 July 2015, Mr. John Leach, the Company's Chief Financial Officer left
the Company, one month before the end of his agreed contract term. EMED's
finance function is overseen by David Carrasco, CFO of EMED Tartessus, and
George Hadjineophytou, Group Financial Controller on an interim basis while
the Board considers all replacement options.
On 7 September 2015, the Company announced the appointment of four
Non-Executive Directors (NEDs) to the existing Board of Directors. Dr Hussein
Barma and Mr Stephen Scott are Independent NEDs, with Mr Damon Barber and Mr
Jonathan Lamb representing Liberty Metals & Mining Holdings LLC and Orion Mine
Finance (Master) Fund I LP respectively, two of the four cornerstone investors
of EMED. The other two cornerstone investors, Hong Kong Xiangguang
International Holdings Limited, (a subsidiary of Yanggu Xiangguang Copper Co.
Ltd) and Trafigura Beheer B.V already have board representation.
There were no other events after the reporting period, which would have a
material effect on the consolidated financial statements.
Management's Responsibility for Financial Reporting
The accompanying condensed interim unaudited consolidated financial statements
of EMED Mining Public Limited were prepared by management in accordance with
International Financial Reporting Standards ("IFRS"). Management acknowledges
responsibility for the preparation and presentation of the condensed interim
unaudited consolidated financial statements, including responsibility for
significant accounting judgments and estimates and the choice of accounting
principles and methods that are appropriate to the Company's circumstances.
The significant accounting policies of the Company are summarised in Note 2 to
the condensed interim unaudited consolidated financial statements.
The Board of Directors is responsible for reviewing and approving the
condensed interim unaudited consolidated financial statements and for ensuring
that management fulfils its financial reporting responsibilities. An Audit and
Financial Risk Management Committee assists the Board of Directors in
fulfilling this responsibility. The members of the Audit and Financial Risk
Management Committee are not officers of the Company. The Audit and Financial
Risk Management Committee meets with management to review the internal
controls over the financial reporting process, the consolidated financial
statements and the auditors' year-end report. The Audit and Financial Risk
Management Committee also reviews the Annual Report to ensure that the
financial information reported therein is consistent with the information
presented in the consolidated financial statements. The Audit and Financial
Risk Management Committee reports its findings to the Board of Directors for
its consideration in approving the condensed interim unaudited consolidated
financial statements for issuance to the shareholders.
This information is provided by RNS
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