REG - Strategic Minerals - Interim Results - Half Year to 30 June 2020
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.
15 September 2020
Strategic Minerals plc
("Strategic Minerals", "SML", the "Group" or the "Company")
Interim Results - Profitable Half Year to 30 June 2020
Strategic Minerals plc (AIM: SML; USOTC: SMCDY), a producing mineral company actively developing projects prospective for battery materials, is pleased to announce its unaudited interim results for the half year ended 30 June 2020 which reflect a profitable period for the Company.
Financial Highlights:
· Interim six-month pre-tax profit of US$261,000 (H1 2019: Loss of US$1,026,000) reflecting strong sales in the first half of the year at Cobre operations, reduced overheads and a reduction in impairment charges.
· After tax profit for the interim six months to 30 June 2020 of US$77,000 (H1 2019: Loss of US$1,182,000).
· Strong underlying sales growth saw Gross Profit increase 18% on the same period last year despite the cessation of sales to CV Investments LLC ("CV Investments") and Covid-19. Excluding CV Investments income and US$47,000 Covid-19 related assistance received from the US government, Gross Profit increased 68% on the same period last year.
· Overhead expenses reduced 25% across all aspects of the Company's corporate operations compared to the same period last year.
· US$97,000 of Share based payment expense for the interim six-month period reflects the final charge relating to options which expired on 30 June 2020.
· In March 2020, the Managing Director, John Peters, purchased 3,464,286 shares on market at an average of 0.5348 pence per share taking his beneficial holding in the Company to 57,000,000 new ordinary shares of 0.1 pence each ("Ordinary Shares").
· The Company undertook an equity fundraising in June 2020 and issued 266,666,667 new Ordinary Shares at 0.45 pence per share, raising US$1,485,000 after costs.
· Repayment of principal and interest on loan (US$1,632,000) used to finance the acquisition of balance of Cornwall Resources Limited shares, holder of the Redmoor Tin and Tungsten project.
· Unrestricted cash and cash equivalents at 30 June 2020 were US$533,000 (31 Dec 2019: US $519,000).
Corporate Highlights:
· Maintenance of uninterrupted operations at Cobre despite the impact of Covid-19.
· Access to the Cobre magnetite stockpile was rolled over for the 8th time.
· Naming of CV Investments as major client at Cobre.
· Completion of arbitration process confirming a US$21.9m claim against CV investments which has since had a receiver appointed by the US Securities Exchange Commission.
· Copper prices rebounding from a Covid-19 nadir of US$2-11 lb to close at US$2-74 lb at 30 June 2020. In early September 2020, copper prices have been trading at US$3-07 lb with upward pressure being forecasted.
Commenting, John Peters, Managing Director of Strategic Minerals, said:
"The first half of 2020 has been globally trying. However, through prudent management, the Company has been able to maintain and improve underlying operations and has raised funds, in a difficult environment, to complete payment for the acquisition of the balance of the Redmoor project.
"With the Program for Environment Protection and Rehabilitation ("PEPR") submitted for the Leigh Creek Copper Mine project and the Company's appointed advisor on the Redmoor project, NRG Capital, intending to complete an expressions of interest program in the December 2020 quarter, the Company considers the prospect for the market to, once again, value the Company's projects in line with the Board's view as highly likely.
"The second half of the year is expected to see continued demand at Cobre as well as expected reductions in both US legal costs (over $100,000 in the first half of 2020) and the charge for share based payments which were reflecting the options which expired at 30 June 2020 ($97,000 in the first half of 2020).
"The Board looks forward to both the results from the expressions of interest program at Redmoor and seeing the long sought after second income stream commence from the Leigh Creek Copper Mine in 2021."
For further information, please contact:
Strategic Minerals plc
+61 (0) 414 727 965
John Peters
Managing Director
Website:
Email:
Follow Strategic Minerals on:
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LinkedIn:
SP Angel Corporate Finance LLP
+44 (0) 20 3470 0470
Nominated Adviser and Broker
Ewan Leggat
Charlie Bouverat
Notes to Editors
Strategic Minerals plc is an AIM-quoted, operating minerals company actively developing projects prospective for battery materials. It has an operation in the United States of America and Australia along with development projects in the UK and Australia. The Company is focused on utilising its operating cash flows, along with capital raisings, to develop high quality projects aimed at supplying the metals and minerals being sought in the burgeoning electric vehicle/battery market.
In September 2011, Strategic Minerals acquired the distribution rights to the Cobre magnetite tailings dam project in New Mexico, USA, a cash-generating asset, which it brought into production in 2012 and which continues to provide a revenue stream for the Company. This operating revenue stream is utilised to cover company overheads and invest in development projects orientated to supplying the burgeoning electric vehicle/battery market.
In January 2016, the portfolio was expanded with the acquisition of shares in Central Australian Rare Earths Pty Ltd, which holds tenements in Western Australia prospective for cobalt, nickel sulphides and rare earth elements. The Company has since acquired all shares in Central Australian Rare Earths Pty Ltd ("CARE"). In September 2018, the Company entered contracts for the sale of certain CARE tenements identified as gold targets.
In May 2016, the Company entered into an agreement with New Age Exploration Limited and, in February 2017, acquired 50% of the Redmoor Tin-Tungsten project in Cornwall, UK. The bulk of the funds from the Company's investment were utilised to complete a drilling programme that year. The drilling programme resulted in a significant upgrade of the resource. This was followed in 2018 with a 12-hole 2018 drilling programme which has now been completed and the resource update that resulted was announced in February 2019. In March 2019, the Company entered into arrangements to acquire the balance of the Redmoor Tin-Tungsten project in Cornwall. This was completed on 24 July 2019.
In March 2018, the Company completed the acquisition of the Leigh Creek Copper Mine situated in the copper rich belt of South Australia and brought the project into limited production in April 2019, with full production expected in 2021.
Chairman's Statement
I am pleased with the Company's achievements, in what has been a particularly challenging period for the Company and the world.
Financial results
The Company continued its underlying profitable performance in the first half of 2020, when many businesses were forced to shut down operations which is a credit to both our local management and the Management team as a whole. The combination of difficulties, associated with our dealings with CV Investments at Cobre and the general impact on development processes associated with the impact of the Convid-19 virus has slowed our progress on projects, as well as access to capital to undertake this forward movement. However, the Company forsees improved financial performance once full scale production commences at the Leigh Creek Copper Mine ("Leigh Creek") expected in 2021, subject to the Company receiving financing to restart operations at Leigh Creek.
Despite the high level of principal and interest repayments made on the Redmoor acquisition in the six months to 30 June 2020, unrestricted cash on hand at 30 June 2020 was US$533,000.
Corporate overheads of US$902,000 were down significantly on the same period last year (H1 2019: US$1,211,000) and the Board keeps a close watch on these expenditures.
Strategic Focus
The continued organic growth in sales at the Cobre operations provides comfort in relation to coverage of operating costs and allowed the Company to continue its strategic investment focus on investments in metals (such as Nickel, Copper and Tin/Tungsten) and advanced materials (such as Cobalt, Rare Earths, Lithium and Graphite) which it expects are likely to see significant price improvements over the next three to five years driven by battery/electronic vehicle demand.
On the back of this strategy, the Company continues to invest in development programmes, particularly those associated with the Leigh Creek Copper Mine (copper) and Redmoor (tin/tungsten/copper focused).
Cobre Operations
During 2020, the management at our Cobre operations adapted excellently to the challenges associated with the disruption to world markets arising from the Covid-19 virus. As an essential service, they were allowed to continue trading and arrangements were modified which ensured a contactless service protecting both our clients and our personnel.
The first half of the year also saw the Company's arbitration claim on CV Investments settled in its favour. However, whether the Company will receive any funds from this claim will be dependent on the outcome of the receivership of CV Investments.
Leigh Creek Copper Mine
The significant work conducted at Leigh Creek throughout 2019, which resulted in a draft PEPR being submitted and a feasibility study being completed, has moved the project along to the point where it currently awaits the final sign off of the formal PEPR and financing to commence operations. The strong performance of the copper price in recent times has improved the project's forecasted profitability and the Board feels confident that 2021 will see full scale production re-commence at Leigh Creek.
Redmoor Tin-Tungsten Project
2020 has seen the final payment for the acquisition of the balance of Redmoor. With the project fully in the Company's control and with the overhang associated with repayment removed, the Company has appointed an external consultant, NRG Capital, to assist in progressing the Redmoor project.
It is expected that an expressions of interest program to identify future joint venture partners for the project will be concluded by the end of the year and that the significant work undertaken to date in identifying the size and potential of the Redmoor resource will be recognised and rewarded.
CARE
As a result of the inability to locate an economically feasible deposit on existing tenements, the exploration assets were fully written off in the 2019 financial year and the Company has begun winding up the subsidiary.
Issue of Capital
During the half year, the Company issued a total of 266,666,667 new Ordinary Shares at 0.45 pence per share which raised US$1,485,000 after costs.
Safety
The Company continues to maintain a high level of safety performance with SML and its subsidiaries having no reportable environmental or personnel incidents recorded in the period.
The first half of the year has proven challenging and I would like to take this opportunity to thank my fellow Directors, our management and staff in New Mexico, South Australia and Cornwall, along with our advisers, for their support and hard work on our behalf during the period. Additionally, I would like to thank our clients, contractors, suppliers and partners for their continued backing. I look forward to further progressing our key strategic goals in 2020 and pushing onto a brighter 2021.
Alan Broome AM
Non-Executive Chairman
14 September 2020
STRATEGIC MINERALS PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD ENDED 30 JUNE 2020
6 months to
6 months to
Year to
30 June
30 June
31 December
2020
2019
2019
(Unaudited)
(Unaudited)
(Audited)
$'000
$'000
$'000
Continuing operations
Revenue
1,645
1,020
2,488
Other revenue
47
375
900
Cost of sales
(314)
(229)
(511)
_________
_________
_________
Gross profit
1,378
1,166
2,877
Overhead expenses
(902)
(1,211)
(2,266)
Depreciation
(6)
(19)
(17)
Share based payment
(149)
(163)
(275)
Profit on financial assets held at fair value through profit or loss
-
1
13
Impairment charge
(17)
(760)
(1,122)
Foreign exchange gain/(loss)
(43)
(2)
35
_________
_________
_________
Profit/ (loss) from operations
261
(988)
(755)
Finance expense
-
-
(52)
Share of net losses of associates and joint ventures
-
(38)
(38)
_________
_________
_________
Profit/ (loss) before taxation
261
(1,026)
(845)
Income tax (expense)/credit
(184)
(156)
(385)
_________
_________
_________
Profit/ (loss for the period)
77
(1,182)
(1,230)
_________
_________
_________
Profit/ (loss) for the period attributable to:
Owners of the parent
77
(1,182)
(1,230)
_________
_________
_________
Other comprehensive income
Exchange gains/(losses) arising on translation
of foreign operations
(359)
(62)
227
_________
_________
_________
Total comprehensive (loss)/ Income
(282)
(1,244)
(1,003)
_________
_________
_________
Total comprehensive (loss)/income attributable to:
Owners of the parent
(282)
(1,244)
(1,003)
_________
_________
_________
Profit/ (loss) per share attributable to the ordinary equity holders of the parent:
$
$
$
Continuing activities - Basic
0.000052
(0.000850)
(0.000858)
-- Diluted
0.000049
(0.000850)
(0.000858)
STRATEGIC MINERALS PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2020
30 June
30 June
31 December
2020
2019
2019
(Unaudited)
(Unaudited)
(Audited)
$'000
$'000
$'000
Assets
Non-current assets
Intangible Asset
549
562
560
Deferred Exploration and evaluation costs
4,390
342
4,567
Other Receivables
137
140
140
Property, plant and equipment
6,877
7,026
6,898
Investments in joint ventures- equity accounted
-
2,264
-
_________
_________
_________
11,953
10,334
12,165
_________
_________
_________
Current assets
Inventories
6
7
3
Financial Assets held at fair value through profit and loss
-
21
-
Trade and other receivables
477
1,302
948
Cash and cash equivalents
533
319
519
Prepayments
16
119
132
_________
_________
_________
1,032
1,768
1,602
_________
_________
_________
Total Assets
12,985
12,102
13,767
_________
_________
_________
Equity and liabilities
Share capital
2,551
2,202
2,203
Share premium reserve
48,552
48,454
47,415
Share options reserve
692
431
543
Merger reserve
21,300
20,240
21,300
Foreign exchange reserve
(1,026)
(956)
(667)
Other reserves
(23,023)
(23,023)
(23,023)
Accumulated loss
(37,723)
(37,752)
(37,800)
_________
_________
_________
Total Equity
11,323
9,596
9,971
_________
_________
_________
Liabilities
Non-Current Liabilities
Provision for Mining Royalties
424
435
433
Environmental Liability
387
361
395
_________
_________
_________
811
796
828
Current liabilities
Income Tax Payable
492
156
406
Trade and other payables
359
1,029
451
Loans and other borrowings
-
-
2,111
Deferred revenue
-
525
-
_________
_________
_________
851
1,710
2,968
_________
_________
_________
Total Liabilities
1,662
2,506
3,796
_________
_________
_________
Total Equity and Liabilities
12,985
12,102
13,767
_________
_________
_________
STRATEGIC MINERALS PLC
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE PERIOD ENDED 30 JUNE 2020
6 months to
6 months to
Year to
30 June
30 June
31 December
2020
2019
2019
(Unaudited)
(Unaudited)
(Audited)
$'000
$'000
$'000
Cash flows from operating activities
Profit/ (loss) after tax
77
(1,182)
(1,230)
Adjustments for:
Depreciation of property, plant and equipment
6
19
17
Loss on financial assets held at fair value through profit and loss
-
(1)
(13)
Impairment of deferred exploration and expenditure
17
760
1,122
Share of net loss / (profit) losses from associates
-
38
38
Finance expense
-
-
52
(Increase) / decrease in inventory
(3)
(3)
1
(Increase) / decrease in trade and other receivables
(256)
(50)
(119)
(Increase) / decrease in prepayments
18
(87)
(33)
Increase / (decrease) in trade and other payables
(92)
251
438
Increase /(decrease) in deferred revenue
-
(375)
(900)
(Decrease)/ Increase in income tax payable
184
156
339
Share based payment expense
149
163
275
_________
_________
_________
Net cash flows from operating activities
100
(311)
(13)
_________
_________
_________
Investing activities
Increase in PPE Development Asset
(96)
(1,212)
(2,293)
Sale of tenements
80
-
-
Receipt of research and development incentive
595
-
515
Increase in deferred exploration and evaluation
(96)
(91)
(316)
Acquisition of PPE
-
(57)
(265)
Acquisition of exploration and evaluation intangible asset
-
-
(205)
Investment in joint arrangements
-
(40)
(33)
Sale of financial assets held at fair value through profit or loss
-
-
33
_________
_________
_________
Net cash used in investing activities
483
(1,400)
(2,564)
_________
_________
_________
Financing activities
Net proceeds from issue of equity share capital
1,485
91
1,059
Proceeds from borrowings
68
-
400
Finance expenses paid
(96)
-
-
Repayment of borrowings
(2,026)
-
(206)
_________
_________
_________
Net cash from financing activities
(569)
91
1,253
_________
_________
_________
Net increase / (decrease) in cash and cash equivalents
14
(1,620)
(1,324)
Cash and cash equivalents at beginning of period
519
1,840
1,840
Release of restricted cash
-
100
-
Exchange gains / (losses) on cash and cash equivalents
-
(1)
3
_________
_________
_________
Cash and cash equivalents at end of period
533
319
519
_________
_________
_________
STRATEGIC MINERALS PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE PERIOD ENDED 30 JUNE 2020
Share
capital
Share
premium
reserve
Merger
reserve
Share
options reserve
Initial Restructure
reserve
Foreign
exchange
reserve
Retained earnings
Total
Equity
$'000
$'000
$'000
$'000
$'000
$'000
$'000
$'000
________
________
________
________
________
________
________
________
Balance at
1 January 2019 - audited
2,095
46,213
21,232
330
(23,023)
(894)
(36,632)
9,321
________
________
________
________
________
________
________
________
Gain/(Loss) for the period
-
-
-
-
-
-
(1,230)
(1,230)
Foreign exchange translation
-
-
-
-
-
227
-
227
________
________
________
________
________
________
________
________
Total comprehensive income for the year
-
-
-
-
-
227
(1,230)
(1,003)
Shares issued in the year
108
1,273
68
-
-
-
-
1,449
Expenses of share issue
(71)
-
-
-
-
-
(71)
Transfer
-
-
-
(62)
-
-
62
-
Share based payments
-
-
-
275
-
-
-
275
________
________
________
________
________
________
________
________
Balance at
31 December 2019- audited
2,203
47,415
21,300
543
(23,023)
(667)
(37,800)
9,971
________
________
________
________
________
________
________
________
Profit for the period
-
-
-
-
-
-
77
77
Foreign exchange translation
-
-
-
-
-
(359)
-
(359)
________
________
________
________
________
________
________
________
Total comprehensive income for the half year
-
-
-
-
-
(359)
77
(282)
Shares issued in the year
348
1,217
-
-
-
-
-
1,565
Expenses of share issue
-
(80)
-
-
-
-
-
(80)
Share based payments
-
-
-
149
-
-
-
149
________
________
________
________
________
________
________
________
Balance at
30 June 2020 - Unaudited
2,551
48,552
21,300
692
(23,023)
(1,026)
(37,723)
11,323
________
________
________
________
________
________
________
________
All comprehensive income is attributable to the owners of the parent.
The accompanying accounting policies and notes form an integral part of these financial statements
STRATEGIC MINERALS PLC
NOTES FORMING PART OF THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE PERIOD ENDED 30 JUNE 2020
1. General information
Strategic Minerals Plc ("the Company") is a public company incorporated in England and Wales. The consolidated interim financial statements of the Company for the six months ended 30 June 2020 comprise the Company and its subsidiaries (together referred to as the "Group").
2. Accounting policies
Basis of preparation
These consolidated financial statements have been prepared using policies based on International Financial Reporting Standards (IFRS and IFRIC interpretations) issued by the International Accounting Standards Board ("IASB") as adopted for use in the EU. IAS 34 is not required to be adopted by the Company and has not been applied in the preparation of this interim information. The consolidated financial statements do not include all disclosures that would otherwise be required in a complete set of financial statements and should be read in conjunction with the 2019 Annual Report. The financial information for the half years ended 30 June 2020 and 30 June 2019 does not constitute statutory accounts within the meaning of Section 434(3) of the Companies Act 2006 and is unaudited.
The annual financial statements of Strategic Minerals Plc are prepared in accordance with IFRSs as adopted by the European Union. The comparative financial information for the year ended 31 December 2019 included within this report does not constitute the full statutory accounts for that period. The statutory Annual Report and Financial Statements for 2019 have been filed with the Registrar of Companies. The Independent Auditors' Report on that Annual Report and Financial Statement for 2019 was unqualified, and included an emphasis on matter paragraph regarding the Group's ability to continue as a going concern and did not contain a statement under 498(2) or 498(3) of the Companies Act 2006.
Going concern basis
These financial statements have been prepared on the assumption that the Group is a going concern.
When assessing the foreseeable future, the Directors have looked at the Group's working capital requirements for the period to September 2021 being the period for which projections have been prepared and the minimum period the Directors are required to consider.
The Directors have reviewed the Group's current cash resources, funding requirements and ongoing trading of the operations. The Company forecasts that it has sufficient funds until September 2021 however the Group is reliant on cash being generated from the Cobre asset in line with forecast which includes the assumption that access to the Cobre asset will be rolled over in March 2021 as it has since entering into the underlying offtake agreement. Should Cobre not meet cash expectations the Directors would need to raise further funds.
In addition, there is a risk that, due to the impact of Covid-19 on global markets, a greater degree of uncertainty currently exists in relation to cashflows from Cobre being generated in line with forecast and the ability to raise additional funds if these are required. These conditions indicate a material uncertainty which may cast significant doubt as to the Group's ability to continue as a going concern and therefore it may be unable to realise its assets and discharge its liabilities in the normal course of business.
The financial statements do not include the adjustments that would result if the Group and Company was unable to continue as a going concern.
The same accounting policies, presentation and methods of computation are followed in these condensed consolidated financial statements as were applied in the Group's latest annual audited financial statements except for policies stated below.
Joint arrangements
Under IFRS 11 Joint Arrangements, investments in joint arrangements are classified as either joint operations or joint ventures. The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement. Strategic Minerals Limited as at 30 June 2019 had one joint venture being Cornwall Resources Ltd (CRL) after which the Company purchased the remaining 50% interest it did not own in CRL. Upon obtaining 100% ownership of CRL the entity was consolidated.
Joint Ventures
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have the rights to the net assets of the joint arrangement. Interests in joint ventures are accounted for using the equity method, after initially being recognised at cost in the consolidated statement of financial position.
Business Combinations
Business Combinations occur where an acquirer obtains control over one or more businesses. A business combination is accounted for by applying the acquisition method unless it is a combination involving entities or businesses under common control. The business combination will be accounted for from the date that control is obtained, whereby the fair value of identifiable assets acquired and liabilities (including contingent liabilities assumed) is recognised.
All transaction costs incurred in relation to business combinations, other than those associated with the issue of a financial instrument are recognised as expenses in profit and loss when incurred
The acquisition of a business may result in the recognition of goodwill or gain from a bargain purchase.
New, revised or amending accounting standards and interpretations
IASB has issued a number of IFRS and IFRIC amendments or interpretations since the last annual report was published. The following amendments are effective for the period beginning 1 January 2020:
- IAS 1 Presentation of Financial Statements.
- IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (Amendment - Definition of Material).
- IFRS 3 Business Combinations (Amendment - Definition of Business).
- Revised Conceptual Framework for Financial Reporting.
The adoption of these amendments does not have an impact on the Group's financial statements.
3. Critical accounting estimates and judgements
The Group makes certain estimates and assumptions regarding the future. Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions. 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 discussed below.
Judgements
(a) Joint arrangement and joint operation
The Company as at 30 June 2019 held a 50% interest in Cornwall Resources Limited ("CRL") which owns the Redmoor Tin-Tungsten project in the United Kingdom with the other shareholder being New Age Exploration Limited ("NAE"). Under the shareholders agreement with NAE, CRL is operated as a 50:50 joint venture with each party being entitled to appoint one Director. Based on this, the Group considers that they have joint control over the arrangement. Under IFRS 11, this joint arrangement is classified as a joint venture and has been included in the consolidated financial statements using the equity method. In July 2019, the Company purchased the remaining 50% interest in CRL at which point the entity was consolidated.
(b) Contingent consideration as part of Asset acquisition
Judgement was required in determining the accounting for the contingent consideration payable as part of the CRL acquisition. The group has an obligation to pay AUD $1m on net smelter sales arising from CRL production reaching AUD $50m and a further AUD $1m on net smelter sales arising from CRL production reaching AUD $100m.
Whilst a possible obligation exists in relation to the consideration payable, given the early stage of the project it was concluded that at reporting date it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation. Therefore, in accordance with IAS 37, this obligation is considered to be a contingent liability.
(c) Contingent liabilities as part of Business Combination
Under the terms of the various agreements in relation to the LCCM, the Company would have the following contingent liabilities:
- 1% royalty on copper sales payable over the life of the project; and
- AUD $100,000 following 3,000 tonnes of copper sales from the project.
In accordance with IFRS3 the Group has recognised for the estimated fair value of the mining royalty in these financial statements.
Estimates and assumptions
(a) Carrying value of intangible assets
In assessing the continuing carrying value of the exploration and evaluation costs carried the Company has made an estimation of the value of the underlying tenements and exploration licenses held.
(b) Share based payments, warrants and options
The fair value of share-based payments recognised in the statement of comprehensive income is measured by use of the Black Scholes model after taking into account market based vesting conditions and conditions attached to the vesting and exercise of the equity instruments. The expected life used in the model is adjusted based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The share price volatility percentage factor used in the calculation is based on management's best estimate of future share price behaviour based on past experience.
(c) Carrying value of amounts owed by subsidiary undertakings
IFRS9 requires the parent company to make assumptions when implementing the forward- looking expected credit loss model. This model is required to be used to assess the intercompany loan receivables from its subsidiaries for impairment. Arriving at an expected credit loss allowance involved considering different scenarios for the recovery of the intercompany loan receivables, the possible credit losses that could arise and probabilities for these scenarios.
The following were considered; the exploration project risk, the future sales potential of product, value of potential reserves and the resulting expected economic outcomes of the project.
(d) Carrying Value of Development Assets - LCCM
Management assessed the carrying value of Development assets for indicators of impairment based on the requirements of IAS36 which are inherently judgemental.
The following are the key assumptions used in this assessment of Carrying value.
i) Mineable reserves over life of project
ii) Forecasted Copper pricing
iii) Capital and operating cost assumptions to deliver the mining schedule
iv) Foreign exchange rates
v) Discount rate
vi) Estimated project commencement date.
4.
Segment information
The Group has five main segments during the period:
· Southern Minerals Group LLC (SMG) - This segment is involved in the sale of magnetite to both the US domestic market and historically transported magnetite to port for onward export sale.
· Head Office - This segment incurs all the administrative costs of central operations and finances the Group's operations. A management fee is charged for completing this service and other certain services and expenses.
· Australia - This segment holds the Central Australian Rare Earths Pty Ltd tenements in Australia and incurs all related operating costs.
· Development Asset - This segment holds the Leigh Creek Copper Mine Development Asset in Australia and incurs all related operating costs.
· United Kingdom - The investment in the Redmoor project in Cornwall, United Kingdom is held by this segment.
Factors that management used to identify the Group's reportable segments
The Group's reportable segments are strategic business units that carry out different functions and operations and operate in different jurisdictions.
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision maker has been identified as the board and management team which includes the Board and the Chief Financial Officer.
Measurement of operating segment profit or loss, assets and liabilities
The Group evaluates segmental performance on the basis of profit or loss from operations calculated in accordance with EU Adopted IFRS but excluding non-cash losses, such as the effects of share-based payments.
Segment assets exclude tax assets and assets used primarily for corporate purposes. Segment liabilities exclude tax liabilities. Loans and borrowings are allocated to the segments in which the borrowings are held. Details are provided in the reconciliation from segment assets and liabilities to the Group's statement of financial position.
6 Months to 30 June 2020 (Unaudited)
SMG
Head
Office
Australia
United Kingdom
Development Asset
Intra
Segment
Elimination
Total
$'000
$'000
$'000
$'000
$'000
$'000
$'000
Revenues
1,645
-
-
-
-
-
1,645
Other Revenue
47
-
-
-
-
-
47
Cost of sales
(314)
-
-
-
-
-
(314)
_______
_______
_______
_______
_______
_______
_______
Gross profit
1,378
-
-
-
-
1,378
Overhead expenses
(516)
(237)
(135)
(14)
-
-
(902)
Management fee income/(expense)
(450)
441
-
-
9
-
Share based payments
-
(149)
-
-
-
-
(149)
Depreciation
(6)
-
-
-
-
-
(6)
(Loss)/ gain on intercompany loans
-
-
-
-
-
Impairment of DEE
-
-
(17)
-
-
-
(17)
Foreign exchange gain/(loss)
-
145
(23)
-
-
(165)
(43)
_______
_______
_______
_______
_______
_______
_______
Segment profit /(loss) from operations
406
200
(175)
(14)
-
(156)
261
_______
_______
_______
_______
_______
_______
_______
Segment profit /(loss) before taxation
406
200
(175)
(14)
-
(156)
261
_______
_______
_______
_______
_______
_______
_______
6 Months to 30 June 2019 (Unaudited)
SMG
Head Office
Australia
Development Asset
Inter
Segment Elimination
Total
$'000
$'000
$'000
$'000
$'000
$'000
Revenue
1,395
-
-
-
-
1,395
Cost of sales
(229)
-
-
-
-
(229)
______
_______
_______
_______
_______
_______
Gross Profit
1,166
-
-
-
-
1,166
Depreciation
(16)
-
(3)
-
-
(19)
Overhead expenses
(475)
(552)
(184)
-
-
(1,211)
Management fee
(100)
100
-
-
-
-
Impairment Charge
-
-
(760)
-
-
(760)
Share based expense
-
(163)
-
-
-
(163)
Write back of provisions
1,744
-
-
(1,744)
-
Equity accounting profit(loss)
-
(38)
-
-
-
(38)
Foreign Exchange
-
-
(2)
-
-
(2)
Gain on Shares available for resale
-
-
1
-
-
1
________
________
________
________
________
________
Segment profit/(loss) from operations
575
1,091
(948)
-
(1,744)
(1,026)
________
________
________
________
________
________
Segment profit/(loss) before taxation
575
1,091
(948)
-
(1,744)
(1,026)
________
________
________
________
________
________
Year to 31 December 2019 (Audited)
SMG
Head
Office
Australia
United Kingdom
Development Asset
Intra
Segment
Elimination
Total
2019
2019
2019
2019
2019
2019
2019
$'000
$'000
$'000
$'000
$'000
$'000
$'000
Revenues
2,488
-
-
-
-
-
2,488
Other Revenue
900
-
-
-
-
-
900
Cost of sales
(511)
-
-
-
-
-
(511)
Gross profit
2,877
-
-
-
-
2,877
Overhead expenses
(1,026)
(923)
(295)
(22)
-
-
(2,266)
Management fee income/(expense)
(393)
362
35
-
(4)
-
Share based payments
-
(275)
-
-
-
-
(275)
Depreciation
(16)
-
-
(1)
-
-
(17)
Gain on available
for sale assets
-
-
13
-
-
13
Share of net loss
from joint venture
-
(38)
-
-
-
-
(38)
(Loss)/ gain on
intercompany loans
-
(1,014)
-
-
-
1,014
-
Impairment of DEE
-
-
(1,122)
-
-
-
(1,122)
Foreign exchange gain/(loss)
-
(141)
(27)
-
-
203
35
_______
_______
_______
_______
_______
_______
_______
Segment profit /(loss) from operations
1,442
(2,029)
(1,396)
(23)
-
1,213
(793)
_______
_______
_______
_______
_______
_______
_______
Finance Expense
-
-
(52)
-
-
-
(52)
_______
_______
_______
_______
_______
_______
_______
Segment profit /(loss) before taxation
1,442
(2,029)
(1,448)
(23)
-
1,213
(845)
_______
_______
_______
_______
_______
_______
_______
As at 30 June 2020 (Unaudited)
Head
United
Development
SMG
Office
Australia
Kingdom
Asset
Total
$'000
$'000
$'000
$'000
$'000
$'000
Additions to non-current assets
-
-
16
80
96
192
_______
_______
_______
_______
______
_______
Reportable segment assets
1,066
95
15
4,414
7,395
12,985
_______
_______
_______
_______
______
_______
Reportable segment liabilities
591
121
93
14
843
1662
_______
_______
_______
_______
_______
_______
_______
Total Group Liabilities
1,662
_______
As at 30 June 2019 (Unaudited)
SMG
Head Office
Australia
United Kingdom
Development Asset
Total
$'000
$'000
$'000
$'000
$'000
$'000
Additions to non-current assets
-
37
91
-
1,272
1,400
_______
_______
_______
_______
______
_______
Reportable segment assets
579
3,324
2,350
-
5,849
12,102
_______
_______
_______
_______
______
_______
Reportable segment liabilities
762
108
108
-
1,528
2,506
_______
_______
_______
_______
_______
_______
_______
Total Group Liabilities
2,506
_______
As at 31 December 2019 (Audited)
SMG
Head Office
Australia
United Kingdom
Development Asset
Total
$'000
$'000
$'000
$'000
$'000
$'000
Additions to non-current assets
-
-
94
460
2,558
3,112
_______
_______
_______
_______
______
_______
Reportable segment assets
1,023
43
601
4,672
7,428
13,767
_______
_______
_______
_______
______
_______
Reportable segment liabilities
529
1,802
484
8
973
3,796
_______
_______
_______
_______
_______
_______
_______
Total Group Liabilities
3,796
_______
External revenue by
location of customersNon-current assets
by location of assets
30 June 2020
30 June 2019
30 June 2020
30 June 2019
$'000
$'000
$'000
$'000
United States
1,645
1,020
171
177
United Kingdom
-
-
4,391
2,264
Australia
-
-
7,391
7,893
_______
_______
_______
_______
1,645
1,020
11,953
10,334
_______
_______
_______
_______
Revenues from Customer A totalled $281,805 (2019: $351,140), which represented 17% (2019: 34%) of total domestic sales in the United States, Customer B totalled $795,125 (2019: $$563,945) which represented 48% (2019: 55%). There were no export sales in the year (2019: Nil).
5.
Operating loss
Administration costs by nature
6 months to
6 months to
Year to
30 June
30 June
31 December
2020
2019
2019
(Unaudited)
(Unaudited)
(Audited)
$'000
$'000
$'000
Operating gain/loss is stated after charging/(crediting):
Directors' fees and emoluments
146
401
573
Depreciation
6
19
17
Equipment rental
131
145
276
Equipment maintenance
21
26
46
Share of net loss (profit) from joint operations
-
38
38
Auditors' remuneration
-
13
96
Salaries, wages and other staff related costs
260
274
559
Insurance
28
15
Legal, professional and consultancy fees
273
178
420
Loss on sale of tenements
-
-
-
Impairment charge
17
760
1,122
Loss (gain)on financial assets held at fair value through profit and loss
-
(1)
(13)
Travelling and related costs
-
51
5
Foreign exchange
43
2
(35)
Share based payments
149
163
275
Other expenses
43
108
291
6.
Intangible assets - exploration and evaluation costs
6 months to
6 months to
6 months to
30 June
31 December
30 June
2020
2019
2019
Cost
$'000
Opening balance for the period
4,567
342
1,037
Additions for the period
96
163
91
Acquired through assets acquisition of CRL (ii)
-
4,392
-
Interest and borrowings costs - CRL
33
62
-
Research and development incentive
-
(317)
-
Sale of mineral rights
(80)
-
Foreign exchange difference
(209)
287
(26)
Impairment Charge - CARE (i)
(17)
(362)
(760)
_______
_______
_______
Closing balance for period
4,390
4,567
342
_______
_______
_______
(i) The Company has recognised an impairment charge in relation to the CARE assets due to their lower strategic value and that there is no intention, in the short term, to spend additional funds on these assets.
(ii) In July 2019 the Company purchased the remaining 50% interest of CRL it did not own and recorded the transaction as an asset acquisition. Hence, the additions represent the carrying value of the exploration and evaluation assets at cost.
8. Property, plant and equipment
Development
Plant and
Asset
Machinery
Total
Group
$'000
$'000
$'000
Cost
At 1 January 2019 (audited)
4,907
461
5,368
Additions for period
1,834
57
1,891
Foreign exchange difference
(16)
-
(16)
________
________
________
At 30 June 2019 (unaudited)
6,725
518
7,243
Acquired on acquisition of CRL
-
7
7
Additions for period
459
208
667
Research and development incentive
(796)
-
(796)
Foreign exchange difference
3
2
5
________
________
________
At 31 December 2019 (audited)
6,391
735
7,126
________
________
________
Additions
96
-
96
Interest and borrowings costs
27
-
27
Foreign exchange difference
(132)
(6)
(138)
_______
________
_______-
At 30 June 2020 (Unaudited)
6,382
729
7,111
________
________
________
Depreciation
At 1 January 2019 (audited)
-
(198)
(198)
Charge for the period
-
(16)
(16)
Foreign exchange difference
(3)
(3)
________
________
________
At 30 June 2019 (unaudited)
-
(217)
(217)
Charge for the period
-
(1)
(1)
Acquired on acquisition of CRL
-
(4)
(4)
Foreign exchange difference
-
(6)
(6)
________
________
________
At 31 December 2019 (audited)
-
(228)
(228)
________
________
________
Charge for the period
-
(6)
(6)
________
________
________
As at 30 June 2020 (unaudited)
-
(234)
(234
________
________
________
Carrying Value
As at 30 June 2019 (unaudited)
6,725
301
7,026
________
________
________
As at 31 December 2019 (audited)
6,391
507
6,898
________
________
________
As at 30 June 2020 (unaudited)
6,382
495
6,877
________
________
________
9.
Loans and borrowings
Loan R&D Tax Incentive
Loan CRL Acquisition
Total
Cost
$'000
$'000
$'000
At 30 June 2019 (unaudited)
-
-
-
Loan Advance
403
1,858
2,261
Loan repayments
-
(206)
(206)
Interest
16
21
37
Foreign exchange difference
-
19
19
________
________
________
As at 31 December 2019 (audited)
419
1,692
2,111
Loan Advance
68
-
68
Loan repayments
(447)
(1579)
(2,026)
Interest accrued
27
33
60
Interest paid
(43)
(53)
(96)
Foreign exchange difference
(24)
(93)
(117)
________
________
________
As at 30 June 2020 (unaudited)
-
-
-
________
________
________
Loan CRL Acquisition
In July 2019 SML entered into a Convertible Note with NAE to finalise the purchase of CRL.
SML made an initial payment totalling AUD $300,000 and entered into an 11 month payment schedule for the balance of AUD $2,700,000 (US$1,858,000). A payment of AUD $300,000 (US$206,000) was paid on or around 31 October 2019. During the six months to 30 June 2020 the remaining principal of AUD $2,400,000 (US$1,579,000) was repaid along with interest of AUD $80,000 (US$53,000).
Loan R&D tax incentive
In September 2019 SML entered into a loan agreement against the anticipated receipt of a Research and Development Tax Incentive (RDTI) from the Australian Tax Office. A drawdown on the loan of $68,000 occurred in February 2020 while the principal of $447,000 and interest of $43,000 was paid in May 2020 which fully extinguished the debt.
10.
Dividends
No dividend is proposed for the period.
11.
Earnings per share
Earnings per ordinary share have been calculated using the weighted average number of shares in issue during the relevant financial year as provided below.
6 months to
6 months to
Year to
30 June
30 June
31 December
2020
2019
2019
(Unaudited)
(Unaudited)
(Audited)
Weighted average number of shares - Basic
1,485,627,639
1,391,249,064
1,434,077,744
Weighted average number of shares - Diluted
1,557,127,639
1,391,249,064
1,434,077,744
(Loss)/earnings for the period
$77,000
($1,182,000)
($1,230,000)
(Loss)/earnings per share in the period - Basic
$0.000052
($0.000850)
($0.000858)
(Loss)/earnings per share in the period - Diluted
$0.000049
($0.000850)
($0.000858)
12.
Share capital and premium
30 June
2020
30 June
2020
30 June
2019
30 June
2019
No
$'000
No
$'000
Allotted, called up and fully paid
Ordinary shares
1,734,297,948
51,103
1,467,631,282
50,656
__________
__________
__________
__________
As a result of a placement in June 2020 the Company issued 266,666,666 ordinary shares at a price of GBP 0.045. The total proceeds of the placement after fees was GBP 1,139,100 ($1,485,000).
Share options and warrants
The number of options and warrants as at 30 June 2020 and a reconciliation of the movements during the half year are as follows:
Date of Grant
Granted as at 31 December 2019
Expired/
Exercised
Granted as at 30 June 2020
Exercise price
Date of vesting
Date of expiry
10.04.15
-
-
1.00p
19.05.17
30.06.19
06.01.17
-
-
1.00p
19.05.17
30.06.19
15.02.18
72,000,000
(72,000,000)
-
2.75p
01.04.20
30.06.20
15.02.18
38,500,000
-
38,500,000
3.75p
01.01.21
30.06.21
15.02.18
17,500,000
-
17,500,000
5.00p
01.01.22
30.06.22
09.08.18
35,250,000
(35,250,000)
-
2.75p
01.04.20
30.06.20
09.08.18
10,750,000
-
10,750,000
3.75p
01.01.21
30.06.21
3030
09.08.18
4,750,000
-
4,750,000
5.00p
01.01.22
30.06.22
178,750,000
(107,250,000)
71,500,000
13.
Post balance date events
The Company has appointed NRG Capital to assist in progressing the Redmoor Tin and Tungsten project and it has begun a process to identify interest in the project which is expected to complete by the end of the year.
In September 2020, the Company lodged a full PEPR in relation to the Leigh Creek Copper Mine and anticipates this being approved prior to year end.
Copies of this interim report will be made available on the Company's website, www.strategicminerals.net.
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